G7 explores use of frozen Russian assets to support Ukraine, draft statement reveals

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25th May 2024 – (Stresa) Finance chiefs from the Group of Seven (G7) industrial democracies stated that they will explore options to utilize future income from frozen Russian assets to aid Ukraine, according to a draft statement seen by Reuters. The G7 and its allies froze approximately US$300 billion of Russian assets shortly after Russia’s invasion of its neighbouring country in February 2022.

The draft statement highlighted that progress is being made in discussions regarding possible avenues to release the significant profits generated by immobilised Russian sovereign assets for the benefit of Ukraine. Negotiators from the G7 have been engaged in talks for several weeks to determine the best approach to leverage these assets, which mainly consist of major currencies and government bonds held in European-based depositories.

The United States has been urging its G7 partners, including Japan, Germany, France, Britain, Italy, and Canada, to support a loan that could provide Ukraine with up to US$50 billion in the near future. However, the cautious wording in the statement, lacking specific figures or details, reflects the legal and technical complexities that need to be resolved before issuing such a loan.

According to a G7 source, the draft statement is not expected to undergo significant changes before the final version is released later on Saturday. The finance ministers and central bankers, gathering in Stresa, northern Italy, will present funding options for Ukraine to the G7 heads of government at a summit in mid-June.

The G7 emphasised that Russia’s sovereign assets will remain immobilized in their respective jurisdictions until Russia compensates Ukraine for the damage caused. The ongoing conflict between Russia and Ukraine has left Ukraine struggling to contain a Russian offensive in the northern and eastern regions.

In addition to the discussion on Ukraine, the G7 ministers expressed concerns about China’s use of non-market policies, referring to its industrial “overcapacity.” They pledged to monitor the potential negative impacts of overcapacity and consider measures to ensure a level playing field in line with World Trade Organisation (WTO) principles.

The draft statement also revealed that the G7 aims to finalize the first pillar of an agreement on a global minimum tax rate for multinational corporations by the end of the following month. This pillar seeks to redistribute the taxing rights of predominantly US-based digital giants, enabling around US$200 billion of corporate profits to be taxed in the countries where the companies operate.

Furthermore, the G7 finance leaders reaffirmed their commitment to exchange-rate stability and warned against excessively volatile and disorderly currency movements. Japan had requested this commitment, asserting that it provides the freedom to intervene in currency markets to counter excessive yen fluctuations.

The G7’s draft statement additionally called on Israel to maintain correspondent banking links between Israeli and Palestinian banks, ensuring the continuity of vital transactions, trade, and services. This echoed a recent warning from US Treasury Secretary Janet Yellen, urging against severing a critical financial lifeline for the embattled territories.