Thank you, and I thank the members of the Standing Committee on National Defence for inviting me to participate.
My comments stem from work recently completed with colleagues at the RAND Corporation. When we started this work on Ukrainian reconstruction, my senior colleague, Ambassador James Dobbins, who had worked in a variety of crisis situations, noticed that two elements were missing from other analysis.
One of those was that the relevant comparison cases for Ukraine reconstruction are those of European reconstruction throughout the 20th century and 21st centuries. There was too much discussion of Iraq and Afghanistan. The second issue was that discussion of security was missing, and without security, reconstruction will not succeed. They go hand in hand.
I'll focus my five minutes on reconstruction. I welcome discussion of security co-operation and security issues in the Q and A.
We looked at a variety of reconstruction events, including natural disasters and Japan after World War II, but we focused on western Europe after World War II, eastern and central Europe after the Cold War, and the western Balkan six after the violent breakup of Yugoslavia. There were a number of useful lessons from the cases for Ukraine.
We found that in all cases, successful reconstruction efforts have involved strong linkages for international trade and international investment, so links to the international economy. They also involved reforms to the domestic business environment to attract investment.
This issue relates to financing. Aid is going to be important. Aid encourages other sources of finance, and it often can cover the highest-risk aspects of reconstruction. Grants or equity injections are far preferred to loans. Historically, aid has provided only a small portion of total funding. Private investment that Ukraine mobilizes from new and existing foreign investors, residents and even—or especially—the Ukrainian diaspora will be essential to successful reconstruction.
Russian assets, both international reserves and private assets frozen in the west, could be an important source of funding. There is a robust debate about that in numerous jurisdictions. However, legal authorities for using them are not on firm ground so far, and there could be consequences for the international financial system. This doesn't mean that they shouldn't be used, but care needs to be taken in how they are used and how they are seized.
The amount of aid provided is only one issue. Donor coordination will be a challenge. It could burden Ukraine and slow reconstruction. Donors should adopt a structure, building off the multi-donor coordination platform that controls donor freelancing. Given the enormity of the task, each major donor should have a full-time, empowered senior coordinator, as well as a senior representative on the ground in daily contact with the Ukrainian government. Periodic donor conferences will not be sufficient.
Finally, in the area of reconstruction, Ukraine's task is as much about reform as it is reconstruction. This is Ukraine's opportunity to reverse 30 years of unsatisfactory economic and political development.
In other cases, reforms were in part driven by donor conditionalities. This will be true here. Conditionalities may include punishments and rewards. The attraction of EU membership should be the prime driver, but not the only driver, of these essential conditionalities.
This effort will take years, if not decades. Waste, fraud, abuse and corruption could erode western support. Ukraine should have, and donors should insist on, a strong inspector general and effective monitoring and evaluation, with data sharing with donors.
Ukraine also is very technologically advanced. Ukraine has the capability, and Canada, the U.S. and other donors should encourage the adoption of end-to-end, real-time monitoring of flows of assistance to the extent possible. An inspector general provides after-the-fact analysis. Real-time monitoring is possible and better ensures that the money is used properly.
The only thing I'll say about security now is that durable security arrangements, supported by the west, will help Ukraine deter and defend against future Russian attacks. However, they'll do more than that. Historically, we have seen that such arrangements give investors the confidence to take risks and make long-term commitments.
Let me move to policy recommendations.
First, Ukraine's supporters, in this case led by the United States, will need to define arrangements for Ukrainian security and credible deterrence. Allies of the United States and Canada can and should play a role in this.
Specific reconstruction needs have yet to be determined, but countries can organize for reconstruction, such as by passing enabling legislation or appointing a senior coordinator. The effort to explain and build support for longer-term policy needs to be carried out jointly across the political spectrum. We often focus on the Marshall plan when looking at previous reconstruction cases. The Marshall plan was not guaranteed to pass Congress. It passed because of a very aggressive bilateral effort in the United States. Such an effort will be needed now.
Steps are needed to maintain the Ukrainian economy to set the stage for a longer-term recovery. Prime among these steps is keeping export pathways open. Partnerships with Ukraine's defence industries may be valuable for NATO and for the Ukrainian economy. There are still significant corporate governance issues to be settled.
