Ukraine's $30 Billion Problem

00:05
Speaker 1
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 US and the EU. But now that money me isn't flowing, what's at stake if Ukraine doesn't get.

00:31
Speaker 2
This money for Ukraine, the money that it's waiting on from the US 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.

00:47
Speaker 1
That's our colleague Chelsea Delaney, and we're.

00:51
Speaker 2
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 US 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.

01:27
Speaker 1
Welcome to the Journal, our show about money, business, and power. I'm Kate Limbaugh. It's Wednesday, January 31. Coming up on the show, can Ukraine keep fighting without foreign aid?

01:55
Speaker 3
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02:30
Speaker 1
To keep its government running, Ukraine needs about $30 billion this year from the US and the EU, money the country uses for all kinds of things.

02:41
Speaker 2
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.

03:21
Speaker 1
And before the war, was Ukraine able to support its economy on its own?

03:28
Speaker 2
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.

03:55
Speaker 1
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.

04:08
Speaker 3
Richest allies.

04:11
Speaker 1
And those allies came through.

04:14
Speaker 4
What's at stake here are the principles that the United States and the United nations across the world stand for. It's about freedom. It's about the right of people to determine their own future.

04:26
Speaker 1
That's President Biden. Just a few weeks after the russian invasion, he pledged $800 million to help Ukraine.

04:35
Speaker 2
For Ukraine. I think it was clear from the start that the EU and the US were going to be its biggest backers in this war. So at the beginning, the US was very much at the forefront of giving aid to Ukraine.

04:51
Speaker 1
As the fighting continued and the months dragged on, Ukraine kept asking its allies for more money.

04:58
Speaker 2
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.

05:16
Speaker 1
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.

05:41
Speaker 5
Your money is not charity. It's an investment in the global security and democracy that we handle in the most responsible way.

05:55
Speaker 1
He ended the speech by thanking America for the money it had provided his country.

06:01
Speaker 5
May God forever bless the United States of America. Merry Christmas and happy victorious new year. Slavaltre.

06:12
Speaker 2
You received a standing ovation in Congress, and it seemed like Ukraine's allies were coalescing around support for Ukraine.

06:23
Speaker 1
After the speech, the US pledged to give another $47 billion in aid, bringing the total in $2022 to $113,000,000,000. But in 2023, things started to change. The war was dragging on and support among Ukraine's allies started waning. In the US, republican lawmakers vocalized more and more hesitancy about sending so much money to Ukraine. And another war between Israel and Hamas was demanding attention.

07:01
Speaker 2
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 us politics and internal EU politics.

07:15
Speaker 1
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, held closed door meetings with lawmakers. And his public address, pleading for support, was at a university.

07:36
Speaker 5
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.

07:51
Speaker 1
At the end, there was clapping.

07:53
Speaker 5
Thank you very much. Thank you very much. Slavokrain.

07:58
Speaker 1
But there was no standing ovation and there was no multibillion dollar check. What changed?

08:08
Speaker 2
Yeah. In the fall of 2023, it started to become apparent that support for Ukraine was starting to splinter in the US. 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 US.

08:53
Speaker 1
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.

09:17
Speaker 2
In late 2023, the EU was trying to get a four year package passed, €50 billion, 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 Victor Orban in Hungary.

09:39
Speaker 1
Victor Orban is the prime minister of Hungary and the EU leader most closely aligned to Russia.

09:47
Speaker 2
He has been against Ukraine aid for quite a while. And when the EU tried to pass this big 50 billion euro package, Victor Orban vetoed it. And he is using some of the same arguments that we've seen Republicans in the US make. I don't want to spend my taxpayers money funding this war.

10:10
Speaker 1
So the EU money is also stalled?

10:13
Speaker 2
Yes, the EU money is also stalled.

10:19
Speaker 1
With the funding tap running dry, Ukraine is facing some hard choices. That's next.

10:36
Speaker 3
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11:05
Speaker 6
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11:42
Speaker 1
This year, Ukraine is facing a budget shortfall of more than $40 billion, and aid from the US 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.

12:06
Speaker 2
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.

12:32
Speaker 1
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.

12:43
Speaker 2
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.

13:03
Speaker 1
Like what kind of measures might they have to take?

13:06
Speaker 2
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 US, our biggest military supporter, is waiting. 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.

13:45
Speaker 1
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?

13:57
Speaker 2
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 difficult for the people who are already living in a war zone. These people have already dealt with a huge increase inflation, big contraction in the economy.

14:37
Speaker 1
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.

14:53
Speaker 2
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 many years. I think if Ukraine does lose the support of the US or the EU and its foreign allies more generally, nobody thinks that they can continue to fight this war over the long term.

15:36
Speaker 1
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 US, 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.

16:01
Speaker 2
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.

16:42
Speaker 1
That's all for today. Wednesday, January 31. The Journal is a coproduction 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.