War in Ukraine | Beyond grants, loans

Since the start of the Russian invasion, Ukraine has received a lot of international aid in the form of donations. But it is also granted loans, as Canada has done, under certain conditions. Overview.

Andre Duchesne
The Press

500 million

Canada provided $145 million in humanitarian assistance (donations) to Ukraine. But he also granted a loan of a maximum of 500 million under the Bretton Woods Accords Act, named after the 1944 conference in New Hampshire where the International Monetary Fund (IMF) and the World Bank were founded. This sum aims to “support the economic resilience of the country in the face of Russian military aggression,” says Global Affairs Canada. It constitutes general budget support. When the budget was tabled, Ottawa also promised another $1 billion loan to Ukraine.

5.6 billion

On March 10, the IMF announced emergency aid of 1.4 billion to Ukraine. It followed in the footsteps of the World Bank, which, three days earlier, announced emergency funding of 723 million in the form of loans, guarantees and grants. Including the European Bank, Ukraine has been promised $5.6 billion in aid by these international financial institutions, in which Canada also participates. “Donations are made by countries or the World Bank, whereas the IMF almost exclusively makes loans,” says Pascal Bédard, lecturer in the applied economics department of HEC Montréal.

Supporting a collapsing economy

In Ukraine, the urgency to make these loans echoes an economy that is rapidly collapsing with the destruction of factories, the loss of crops (vital in this country), the exodus of the population and part of the human capital migrating towards the army. According to an article published in The gallery, French newspaper, the war will cost Ukraine at least 10% of its GDP, and it could reach 35%. This represents colossal sums.

With interest…

Do these loans from Canada, the IMF and others have interest, regular payments and maturities? Absolutely ! They are traded individually. Thus, in 2014 and 2015, Canada granted a loan of 400 million to Ukraine to support its economic recovery and development in the wake of the election of the government of Petro Poroshenko and tensions with Russia. “This loan has been fully repaid with interest, according to schedule, in 2020,” reads the Global Affairs Canada website.

… and some commitments

The beneficiary country must also meet commitments aimed at strengthening its democratic foundations. Thus, when the IMF granted a loan of 5.5 billion to Ukraine in 2019, it came with “prior actions”, including strengthening the independence of the judiciary and the fight against corruption, Kristalina said then. Georgieva, Managing Director of the IMF. “The philosophy behind this is to strengthen the rule of law, democracy, says Pascal Bédard. Before the arrival of President Zelensky, the rule of law was not strong in Ukraine. The Western bloc is trying to push its values ​​and make them conditional on the granting of loans. »

120 million

Regarding these prior actions, Canada also granted, in January 2022, a “concessional sovereign loan” of 120 million to Ukraine in addition to that of 500 million. This other loan must be specifically used for “the country’s economic resilience and governance reforms”, specifies Global Affairs Canada.

The example of Greece

In general, believes Pascal Bédard, countries receiving loans repay them. “It doesn’t make headlines, but it’s the norm more than the exception,” he says. An example is Greece, which very recently repaid two years in advance the last installment (1.85 billion euros) of the titanic loan of 260 billion euros made with the European Union European Union and the IMF to avoid bankruptcy resulting from the 2008 financial crisis. But Greece still has the highest public debt in the euro zone and must regain a better rating on the public markets. This rating is currently BB according to the Trading Economics site.

Debts erased

On the other hand, some countries can’t stop looking for air, and in such cases, they can see their debt wiped out altogether. Thus, in 1987, at the Francophonie Summit in Quebec, Canada erased the debt of 325 million from seven African countries. Since 2000, Canada has also provided $1 billion in bilateral debt relief to 16 countries. The lending countries that wipe the slate clean, however, expect a return of favor, believes Mr. Bédard. “For example, we want this country to be friendly or not to put too many spokes in the wheels of a mining company wishing to go there to extract,” for example.