The challenge of economic reconstruction of Ukraine and Russia

The Ukraine Russia war, like any other war, is terrible. The worse, however, will come after the war. Either Ukraine or Russia will have to be reconstructed post the war as viable economic entities. At this stage, I am not even venturing into the task of rehabilitating refugees from Ukraine. Their numbers could double if Russia mentions any of its neighbours, even if sotto voce.

Post the Second World War, the reconstruction of Europe was led by a clutch of international organisations, the UN family, besides the International Monetary Fund (IMF) and the World Bank. This time these organisations are as fractured and politicised as the combatant states. If you think that is a stretch, try figuring out if Russia will trust the IMF or Ukraine, the Asian Infrastructure Investment Bank (AIIB).

The successful conclusion of the earlier rebuilding led the world to a gradual embrace of globalisation by 1991. The third decade of this century is a testament to the collapse of globalisation. Covid-19 had begun the process, and this war is, sort of, its denouement. So to even begin the task this time, a mutually suspicious USA, China or even Israel (it has 20 per cent of the global emigre Russian population) shall have to drop their mutual animosities.

Read more: Russia warns the West: Our sanctions will hurt you

It does not bear comparison that Afghanistan was left to its own devices just a year ago, as was Iraq. Ukraine sits too much inside Europe for the world powers to let it lie fallow. It is not about the moral righteousness of whether Ukraine deserves a better deal than Afghanistan or Iraq. It is about the way the power rivalry plays out globally.

To take the alternatives in sequence, if Russia has to abandon Ukraine, then some group of nations will have to step in to rebuild Kyiv, as they must, after the colossal destruction underway there.

If Russia wins the war against Ukraine, which seems the most probable outcome, the same questions shall arise again. Except that a war-ravaged Moscow will have very little administrative, economic or political muscle to rebuild Ukraine. One should also remember that the former USSR or present-day Russia have no successful track record of having done any reconstruction for any economy outside its borders. It means the task of rebuilding Ukraine will simply get stretched out longer into the future.

Beyond Ukraine, the more considerable challenge will be the task of rebuilding Russia itself. This is the task that can change the political contours of the world. Whether as the winner of the war against Ukraine or leaving it halfway, Russia will not be able to return to business as usual. Europe is coming close to turning off gas supplies from Russia, and post-war, without any international understatement, shall find it impossible to restart those. The global banking and insurance plumbing, which has shut off already, will find a minefield of problems to sort before those can be revived. The global financial architecture knows how to assimilate new entities; it does not know how to reopen a tap that was shut off. There is no template with any multilateral organisation to bring back Russia into the fold.

Plenty of clearances shall be needed before even a single fresh transaction is consequently fired across these channels. The simplest one is even to decide the Ruble's value as a currency, and there are far bigger ones lurking behind. For instance, if a Russian entity could not clear its interest dues due to the sanctions, do the foreign lenders take it up as a case for bankruptcy?

Post World War II, despite the US and UK being on the same side, the dollar and the sterling were not matched well until the 1950s. Add to this the mutual suspicion among the allies about their bilateral interests. Italy will be so keen to revive its trade ties with Russia; the UK shall be the most intransigent, and so on.

Russia has never been vivisected geographically. Could it face it this time as it is too big to be run as a single entity? That is, however, not the biggest of the challenges.

The supreme challenge at this stage is who among the contenders shall turn to help the prostrate combatants, China or Western Europe. Neither has the appetite as of now. China is loath to divide its attention to its North. Europe has no natural leaders to take on the mantle. Any which way the reconstruction is done, Russia's natural resources allied with an efficient government shall create a much larger rival for the US economy. It shall be in the interest of every US president to ensure that Russia does not revive.

Yet both Russia and Ukraine have to be rebuilt.

(Subhomoy Bhattacharjee writes on business and economy)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.