Ukraine, economy: Lugano reconstruction conference: July 2022

“Lugano declaration” sets out ambitious reconstruction plans, but lacks focus

A high-profile “Ukraine Recovery Conference” was held over two days in early July, hosted by the Swiss authorities in the city of Lugano.

Bringing together representatives from some of the big industrial economies, such as the US, the UK, France and Japan, with ministers and civil society leaders from Ukraine, the purpose was to set out and discuss detailed plans for Ukraine’s economic recovery, in alignment with its EU integration goals, which received a boost at the end of June with the award of EU candidate status.

The reconstruction plan itself was put together by Ukraine’s National Recovery Council, a new body established by Volodymyr Zelenskyi, the Ukrainian president. It envisages a three-stage process, of immediate economic repair, short-term post-war reconstruction and long-term modernisation, focusing on five key areas of infrastructure, the economy, digitalisation, the environment and society. Among the guiding “Lugano principles” for the operation of the recovery plan are listed:

• the alignment of reforms with the goals of EU integration and economic sustainability;

• the pursuit of a variety of social and economic rights, alongside a reduction of economic inequality;

• partnership and involvement of interested parties from outside and inside Ukraine (including the private sector, civil society and academia); and

• popular accountability and participation.

Initial estimates of the cost of the recovery plan range from US$750bn to more than US$1trn, with an underlying aim of replacing and augmenting the country’s physical capital, badly damaged in the war with Russia, in order to achieve average annual real GDP growth of 7% over an extended period. This is probably at the top end of what is possible, and was only achieved by Ukraine once before in the post-communist era, in 2000-07, mainly owing to favourable developments on world markets.

The recovery plan, then, serves then as a demonstration of the Ukrainian administration’s broad intent, and perhaps also of its competence and composure to be able to think ahead, even amid the pressing demands of an ongoing devastating war.

At the same time, while echoing many of the buzzwords favoured by the leading international agencies, the reform plan is painted in fairly large brush strokes, while lacking an overarching focus. Moreover, it retains ideas—such as on deregulation and flexible labour markets—from an earlier development agenda that have since been superseded or rethought.

In particular, reform of political and corporate governance institutions could act as just such an overarching reform objective, because the success of reforms in many other areas will depend on it (for example, attracting investment in sufficient quantities will require the reasonably even-handed enforcement of property rights by a reasonably independent legal and judicial apparatus). Moreover, successful adaptation of the plan will need to incorporate a broader understanding of the factors that create the conditions for prosperity, as involving not just economic and legal change, but also interlinked processes of political, social and cultural change too.

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