The Journal. - Ukraine's $30 Billion Problem

Episode Date: January 31, 2024

The U.S. and the European Union have promised Ukraine billions of dollars in new financial aid to keep the country running as the war with Russia drags on. But both pledges have been delayed by political infighting in Washington and Brussels. WSJ’s Chelsey Dulaney reports that without this foreign money, the Ukrainian government could be forced to take painful economic measures to stay afloat.  Further Reading: - Ukraine’s $30 Billion Problem: How to Keep Fighting Without Foreign Aid  Further Listening: - Ukraine Makes a Deal With Wall Street  - Three Ukrainians on Enduring a Year of War  Learn more about your ad choices. Visit megaphone.fm/adchoices

For the last two years, Ukraine has been fighting off a Russian invasion. And this effort is exhausting and costly. To keep the country running, Ukraine has been relying on tens of billions of dollars from the U.S. and the E.U. But now, that money isn't flowing. What's at stake if Ukraine doesn't get this money? For Ukraine, the money that it's waiting on from the U.S. and the EU determines its ability to fight the war. I think there's no way around that.

Everybody agrees that it's extremely critical. That's our colleague Chelsea Delaney. And we're talking both about military aid, so ammunition, drones, all of those things, and as well the money that the government needs to keep meeting its obligations to the people in Ukraine. So all of that is hung up right now. And without either the U.S. or the EU, Ukraine's ability to fight Russia is going to be severely constrained.

And ultimately, most people don't think they can fight this war without either of those partners. people don't think they can fight this war without either of those partners. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Wednesday, January 31st. Coming up on the show, can Ukraine keep fighting without foreign aid? Come on over. Let us give you the tour. Grab a paddle and explore. Hit the trails and go. When you're ready, kick back and call it a night.

New Brunswick. Always inviting. Visit tourismnewbrunswick.ca. To keep its government running, Ukraine needs about $30 billion this year from the U.S. and the EU. Money the country uses for all kinds of things. The financial aid that Ukraine gets is used for basically like anything a government would do. So that means paying pensions. That means keeping hospitals

running, keeping schools running. That means paying civil servants. And so that's what Ukraine is using that money for. It's also been using some of this aid to give subsidies to people who have been impacted by the war. So there's been obviously a huge relocation of people away from the front lines. And it's been using some of this aid to help those people relocate as well. So for people in Ukraine, this money makes a very big difference in their lives. And before the war, was Ukraine able to support its economy on its own? Even before the invasion,

Ukraine was one of the poorest countries in Europe. So its finances were kind of perpetually in a state of crises. And Ukraine has had a lot of issues over the past with corruption. And the economy was already on pretty weak footing. And Ukraine was not a country that had a large domestic military manufacturing sector, so it was pretty unprepared for what came. After the Russian invasion, Ukraine dug in and fought back hard. But to continue that effort, the country needed money.

So Ukraine turned to its biggest and richest allies. And those allies came through. What's at stake here are the principles that the United States and the United Nations and across the world stand for. It's about freedom. It's about the right of people to determine their own future. That's President Biden just a few weeks after the Russian invasion. He pledged $800 million to help Ukraine. For Ukraine, I think it was clear from the start

that the EU and the U.S. were going to be its biggest backers in this war. So at the beginning, the U.S. was very much at the forefront of giving aid to Ukraine. As the fighting continued and the months dragged on, Ukraine kept asking its allies for more money. Then as it became clear that this could be a longer war. Zelensky and his finance minister did have to go around and do this kind of tour and say, we need money, we need money for a longer period of time. In December of 2022, Zelensky traveled to Washington to deliver a speech before Congress. As he walked to the podium, there were cheers and thunderous applause.

It was his first trip out of Ukraine since the war began. And he came to make his case that America should continue its financial support. Your money is not charity. should continue its financial support. Your money is not charity. It's an investment in the global security and democracy that we handle in the most responsible way. He ended the speech by thanking America for the money it had provided his country. May God forever bless the United States of America.

Merry Christmas and happy victorious new year. Slava Ukraine. You received a standing ovation in Congress. And it seemed like Ukraine's allies were coalescing around support for Ukraine. Ukraine's allies were coalescing around support for Ukraine. After the speech, the U.S. pledged to give another $47 billion in aid, bringing the total in 2022 to $113 billion. But in 2023, things started to change.

The war was dragging on, and support among Ukraine's allies started waning. In the U.S., Republican lawmakers vocalized more and more hesitancy about sending so much money to Ukraine. And another war between Israel and Hamas was demanding attention. We've just seen over the past several months, sort of starting in the fall, a lot of that optimism start to fall apart and just really run up against the wall against internal U.S. politics and internal EU politics. So last year, Zelensky returned to Washington, first in September and then in December. But the mood had changed.

Instead of giving a speech on the floor of Congress, he held closed-door meetings with lawmakers. And his public address, pleading for support, was at a university. Ukrainians haven't given up and won't give up. We know what to do, And you can count on Ukraine, and we hope just as much to be able to count on you. At the end, there was clapping. Thank you very much.

Thank you very much. Slava Ukraine. But there was no standing ovation, and there was no multi-billion dollar check. What changed? Yeah, in the fall of 2023, it started to become apparent that support for Ukraine was starting to splinter in the U.S. And there are a lot of different reasons why that may be. I think one of those

arguments is that this is an unwinnable war and should we continue putting money into it? One of the arguments is like Ukraine is a country with a long history of corruption and is this money being tracked? Is it going where it says it's going? And then the other issue is that funding for Ukraine turned into a political bargaining chip for border control issues in the U.S. Republicans have been pushing for tighter policies on the border, and they've been holding back their support for the newest Ukraine aid package over those demands. With Ukraine's other big ally, the EU, financial aid has been just as stuck. Despite support from Germany and France, the EU hasn't been able to pass a new aid package. In late 2023, the EU was trying to get a

four-year package passed, 50 billion euros, about $55 billion. And the EU had found a lot of momentum for funding Ukraine. But then the EU package ran into the problem of Viktor Orban in Hungary. Viktor Orban is the prime minister of Hungary and the EU leader most closely aligned to Russia. He has been against Ukraine aid for quite a while. And when the EU tried to pass this big 50 billion euro package, Viktor Orban vetoed it. And he is using some of the same arguments that we've seen Republicans in the U.S. make.

I don't want to spend my taxpayers' money funding this war. So the EU money is also stalled? Yes. The EU money is also stalled. With the funding tap running dry, Ukraine is facing some hard choices. That's next. Looking for a change of scenery? Come on over. Let us give you the tour. Grab a paddle and explore.

Hit the trails and go. When you're ready, kick back and call it a night. New Brunswick. Always inviting. Visit tourismnewbrunswick.ca. This year, Ukraine is facing a budget shortfall of more than $40 billion. And aid from the U.S. and the EU was supposed to cover some $30 billion of that.

Without the aid, Ukraine is in a tough spot. So Chelsea got in touch with Ukraine's deputy finance minister to learn how the country is making things work. They've tried to drum up cash by doing things like increasing taxes on the banks. And essentially, that's just an extra tax on profits that the government can introduce. They've also been able to move some money around. One thing they've done is take some tax revenues that were supposed to go to local government budgets. They moved it up to the federal budget so they can use that money to keep things running.

The government has also been raising money on its own from local investors through bond sales. Last year, it borrowed about $15 billion through these bonds. But as the deputy finance minister told me, these are really short-term solutions. They won't last very long. And what the finance ministry told me is that they think that these measures will get them through February, and then they're going to have to start taking measures that are a lot more economically damaging. Like what kind of measures might they have to take? Like, what kind of measures might they have to take?

So that could be delaying pension payments or salaries for thousands of people in the country. They could try and raise taxes even more. They could try and stop importing as much. I think the Ukrainian government has said their approach is that we cannot cut defense spending, especially if our support from the U.S., our biggest military supporter, is waning, and they're very much committed to continuing defense spending. But that does leave social spending as sort of the unfortunate first place to cut. sort of the unfortunate first place to cut. And if they had to implement those kinds of methods of delaying pensions or salaries, what would that mean for the economy

and for people in Ukraine? Ukraine already has been sort of in survival mode for almost two years now. They've pretty much cut everything to the bone. Any excess spending, they've already cut that down as much as they can. If they do have to delay salaries for public servants for a couple of months, or if they have to delay pensions, that's going to be very, very difficult for the people who are already living in a war zone. These people have already dealt with a huge increase in inflation, a big contraction in the economy.

Chelsea says that all these methods, the cost-cutting, the new taxes, even potentially delaying pension payments, might only buy Ukraine a couple months. But there is one more thing it could do. The only other option they have is printing money. And printing money has been in the past a recipe for disaster for many economies. There's no equation that tells you how long you can print money for. You just print money until your economy implodes. But from the economists I spoke to, they think, okay, maybe they could print money for a year before things get really bad. Who knows? But we're not talking about like many, many years. I think if Ukraine does lose the support of the U.S. or the EU and its foreign allies more generally, nobody thinks that they can continue to fight this war

over the long term. There is still a chance that the aid could come through. Tomorrow in Brussels, the EU will try again to pass its 50 billion euro package. And in the U.S., lawmakers are negotiating a way to release their aid. the EU will try again to pass its 50 billion euro package. And in the U.S., lawmakers are negotiating a way to release their aid. And what happens if this money doesn't come through?

Like, could that turn the tide in the war? Yeah, I think that's, I mean, it feels so obvious to say, but yeah, I think if Ukraine doesn't continue to receive Western support, either in the form of money to plug its budget deficit or in the form of weapons and ammunition, it will really struggle to continue fighting Russia. And eventually that could completely undercut its ability to continue waging this war. That's all for today, Wednesday, January 31st. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts.

We're out every weekday afternoon. Thanks for listening. See you tomorrow.