United States funds first eligible bilateral loan to Ukraine under Ukraine Loan Cooperation Mechanism / the G7's "ERA Loans for Ukraine" Initiative
What has happened… In June and then October this year, the G7 announced an agreement to launch the 'Extraordinary Revenue Acceleration (ERA) Loans for Ukraine' initiative ("ERA Loans for Ukraine Initiative"), where the G7 members agree to provide to Ukraine loans of up to €45 billion (approximately US$50 billion) against non-repayable financial support out of the Ukraine Loan Cooperation Mechanism ("ULCM"). The funding leg of the initiative consists of individual bilateral loans from each of the US, the UK, Canada and Japan and an exceptional macro-financial assistance loan facility ("MFA Loan") provided by the European Union. The ERA Loans for Ukraine Initiative has been designed so that these loans can be repaid without recourse to Ukraine, with funds for servicing and repaying the loans to be derived from the ULCM. The ULCM, administered by the European Commission, will itself be funded from extraordinary net profits generated by central securities depositaries in the European Union and (possibly) other G7 countries on Russian Central Bank assets and reserves which were immobilized in the international clearing systems shortly after Russia launched its illegal war of aggression. As and when war reparations are paid to Ukraine by the Russian Federation in the future, the proceeds of those reparations will also be available as a source of repayment of the ERA Loans.
On 9 December 2024, the United States and Ukraine entered into a US$20 billion financing (the "US ERA Loan"), the first of the non-EU bilateral loans to Ukraine under the ERA Loans for Ukraine Initiative eligible for support out of the ULCM. On 10 December 2024, the United States funded the full amount of the US$ 20 billion US ERA Loan into the Facilitation of Resources to Invest in Strengthening Ukraine Financial Intermediary Fund (F.O.R.T.I.S. Ukraine FIF) recently established by the World Bank, for further disbursement in the near future to eligible uses in Ukraine.
Who has it happened to… The US ERA Loan was extended by the United States to be applied towards essential projects for the benefit of Ukraine. In addition to the US ERA Loan and the MFA Loan, further eligible bilateral loans from the G7 (Canada, Japan, the UK) are contemplated over the coming months as part of the ERA Loans for Ukraine Initiative.
When did it happen… On 29 October 2024, the ULCM Regulation entered into force, creating the foundation for the ERA Loans for Ukraine Initiative. On 3 December 2024, Ukraine signed the ULCM Agreement with the European Commission, following which the two parties entered in to the EU MFA Loan. On 10 December 2024, the United States funded in full the US ERA Loan, consistent with the aim of the G7 to begin disbursing the funds under the ERA Loans for Ukraine Initiative by the end of the year and for each bilateral loan to enter into force no later than 30 June 2025.
Where will it be felt… The funding by the G7 under the ERA Loans for Ukraine Initiative forms part of the G7's support of Ukraine's fight for "sovereignty, freedom, independence, territorial integrity and its reconstruction". As per the original G7 Leaders' Communiqué, the ERA Loans for Ukraine Initiative is an expression of the G7's determination "to continue to provide military, budget, humanitarian, and reconstruction support to Ukraine and its people." As such, it sits alongside the US$15.6 billion four year programme under the Extended Fund Facility between the International Monetary Fund and Ukraine approved by the Executive Board of the IMF on 31 March 2023, as well as a variety of other bilateral and multilateral initiatives from the G7 and other international partners of Ukraine, which have provided vital budgetary and balance of payments support to Ukraine as it copes with the enormous economic, social and humanitarian costs of Russia's war of aggression.
Why do we care… The recovery and reconstruction cost to Ukraine of Russia's war of aggression was estimated at US$486 billion at end of 2023 in a joint damage and needs assessment conducted by the World Bank, the United Nations, Ukraine and the European Union. Finding a way to ensure that the aggressor state pays for the damage inflicted on Ukraine has been a source of considerable discussion in the global community, and much of the debate has centered around the potential use of Russian Central Bank assets and reserves which were immobilized in the international clearing systems after Russia launched its most recent invasion in early 2022. The ERA Loans for Ukraine Initiative represents an innovative effort to use extraordinary revenues generated by immobilized Russian sovereign assets to facilitate provision of substantial financial support to Ukraine while the war continues. The entry into the UCLM Agreement and the EU MFA Loan and the funding by the US of the US ERA Loan are all significant milestones for Ukraine and the G7 in the operationalization of the ERA Loans for Ukraine Initiative. US Secretary of the Treasury Janet L. Yellen observed that "the G7 […] are sending an unmistakable message of resolve by making Russia increasingly bear the costs of its illegal war, instead of taxpayers in our coalition". Ukrainian Minister of Finance Sergii Marchenko commented that "the disbursement of US$20 billion represents a historic act of solidarity. Utilizing immobilized Russian assets to support Ukraine sends a powerful message that aggression will not prevail." And finally, Ukrainian President Volodymyr Zelenskyy described the disbursement of the US ERA Loan as "a powerful act of justice… This sends a clear and resolute message: Russia must pay for its brutal war, Putin's regime must face the consequences of its violations of international law, war crimes and assault on democracy… [A]ccountability for acts of war is inevitable."
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