Billion-dollar bargainings: US conditions for lending to Ukraine

Сontents

• When $7.8 billion loan is expected
• What reforms needed to get money
• Loan terms are standard practice

The US law on financing Ukraine for almost $61 billion, passed in April, has already started working. The money for military needs, which makes up the bulk of the financial assistance, has already been used to supply weapons. At the end of April, Ukraine received RIM-7 and AIM-9M missiles, Stinger for man-portable air defense systems and Avanger, additional ammunition for HIMARS, and artillery ammunition.

Deliveries will continue in the coming months. As a result, according to analysts in the US government, Ukraine will be able to stabilize the situation at the front with the help of new weapons at best in the summer, and at worst by the end of the year.

The support of the state budget, for which the aid package provides $7.8 billion, will not be allocated in the near future. In fact, these funds are planned to be provided in the form of a loan. However, this loan may later become a grant - the adopted law allows half of the amount to be written off after November 15, 2024, and the entire amount from January 1, 2026. But until then, financing will be provided on credit terms that have not yet been agreed upon.

When $7.8 billion loan is expected

The Ukraine Funding Act was signed by US President Joe Biden on April 24. According to the document, the Secretary of State and the leadership of the US Department of Defense will submit a Strategy for Supporting Ukraine to Congress within 45 days. Within 60 days, the Ukrainian government and the US president need to conclude an agreement on Kyiv's repayment of the loan.

By the end of June, all procedures for starting the loan financing need to be completed. By this time, the terms of the loan need to be agreed upon. However, it is not yet clear in which document they will be set out. "It is not yet clear how this will be implemented," one of the sources familiar with the process of negotiations with the United States told RBC-Ukraine.

What reforms needed to get money

The United States has already submitted reform proposals that need to be included in the loan conditions to the Ukrainian side. The details are not disclosed, but, according to the interlocutors, the list of reforms is similar to the list handed over to Ukraine back in September last year.

At that time, the US stressed that such reforms were needed for continuing financial assistance. Some of them have already been implemented in cooperation with the IMF, the EU, and the United States. But most of them have not been implemented.

As RBC-Ukraine was told, the new proposals from the US include reforms in the Accounting Chamber, which audits the use of public funds. According to the US, it needs to be as politically independent as possible, including in terms of control over the use of Western aid.

The US proposals also include reforms in the customs sector, strengthening the National Anti-Corruption Bureau wiretapping powers, and a number of changes in the work of the Economic Security Bureau and Asset Recovery and Management Agency. The issue of the Lozovyi amendments, which provide for immunity from criminal liability for corruption after the expiring of pre-trial investigation, is also raised.

Several sources confirmed to RBC-Ukraine that the reforms concern these areas in particular. "These are the preliminary conditions that the United States imposes on us to receive tranches," said one of the sources familiar with the contents of the document.

So far, the full list of conditions has not been disclosed by either Ukraine or the United States. "And about conditions. So we know there are some conditions for us to use this. I'm not able to talk specifically on that at this point, but I can tell you that is also something that from our own Congress, there's a lot of interest to make sure that as we are giving this assistance, it is in concert with Ukraine's effort also to take steps that are transforming the country. For us, that's the rationale as to why it's in US interests, in addition to your fight for freedom," US Ambassador to Ukraine Bridget Brink said.

Loan terms are standard practice

Loan conditions are an absolutely standard practice. Nowadays, Ukraine receives all loans subject to certain conditions, both from the IMF and the EU. For example, the €50 billion Ukraine Facility program until 2027 has almost 140 conditions, and failure to meet them could reduce the size of the tranches.

The US has imposed conditions before, not only on loans but also on grant aid. They were informal, although binding. Last summer, such a categorical condition for continuing monthly budget support was to strengthen the Specialized Anti-Corruption Prosecutor's Office's institutional independence. In 2016, continued funding from the United States depended on changes in the leadership of the Prosecutor General's Office.

So, now terms of the US financing loan are not a surprise, even if they are not standard financial terms, such as term, interest, and the possibility of debt relief, says Oleksandr Parashchiy, head of the analytical department at IK Concorde Capital.

"Previously, the United States did not formulate conditions for financing, at least not publicly. But there were probably some general conditions/expectations, for example, that Ukraine would fight corruption and carry out certain reforms (for example, under obligations to the IMF or the EU). Probably, such expectations still exist," Parashchiy said.

Currently, the parties are agreeing on reform proposals. "There is no clear final version yet. The process of negotiations is underway," one of the Ukrainian officials involved in these talks told the media. According to unofficial information, some proposals, in particular those concerning the Accounting Chamber, are not fully accepted by the Ukrainian side.

It is also extremely difficult to agree on the conditions for the NABU. However, as several informed interlocutors assured the media, the issue of strengthening anti-corruption bodies has not been removed from the agenda.

According to their information, the final version of the list of reforms necessary to receive budgetary funding from the United States is planned to be agreed upon by mid-June at the latest. "The sooner we do this, the better it will be for everyone. But there will definitely be no money in the budget from the US by June," said one of the government sources.