HomeBureau of European and Eurasian AffairsRemarks & Releases...Penny Pritzker Special Representative Delivers Remarks to Council on Foreign Relations

# 									Penny Pritzker Special Representative Delivers Remarks to Council on Foreign Relations							

Remarks

Penny Pritzker, Special Representative for Ukraine’s Economic Recovery

May 28, 2024

## INTRODUCTION

I am so honored to be with you all today. Thank you, Mike, for that very warm introduction. Thank you for your tireless efforts to find solutions to our many global challenges and for your friendship.

Thank you to the entire Council on Foreign Relations community for hosting me today. I have been a proud CFR member for years and was a former board member. It is always a real privilege to have the opportunity to talk to you – a group of “doers” who are so committed to our planet’s collective peace and economic security.

I am particularly grateful for the “Europe brain trust” at CFR: Charlie Kupchan, Liana Fix, Thomas Graham, and, of course, Ambassador Stephen Sestanovich whose work for the United States on the newly independent states of the former Soviet Union continues to have an influence today.

## THE SITUATION ON THE GROUND TODAY

Let me start by talking about the situation on the ground in Ukraine today.

On the battlefield, there’s no doubt the past months have been very difficult, with the delays in our security and economic assistance leading to a situation in which Ukraine has lost ground in the war. This is undeniable.

Since March 22, Vladimir Putin has doubled down on his cruelty, stepping up his attacks on Ukraine’s energy infrastructure, laying siege to Ukraine’s beautiful second city, Kharkiv, and seeking to break the psyche of the Ukrainian people.

He has intensified his shelling of hospitals, schools, and homes around the towns of Chasiv Yar and Vovchansk near Kharkiv. He has positioned 30,000 troops just over the border from Kharkiv, in apparent preparation for further assault.

These attacks have forced more than 10,000 residents from the oblast to flee their homes and created an 8GW energy generation gap headed into the summer.

He depends upon his dark alliance for these attacks, with Iranian drones, North Korean artillery, and Chinese satellite imagery all contributing to the death, destruction, and the needless suffering we are witnessing.

So, without a doubt, these are sobering facts.

And yet, amid the dark headlines, I am here today to talk about why there is real reason for optimism toward Ukraine due to facts and trends that we see and which the media does not often capture.

As we head toward the Ukraine Reconstruction Conference in Berlin in June, it is important that we not just take advantage of these trends, but also take heart from them. They show our belief in Ukraine’s future is not based on pollyannish fantasy, but based on the reality we see at play.

I have travelled to Ukraine five times since being named President Biden’s Special Representative for Ukraine’s Economic Recovery, most recently visiting just two weeks ago, and I have seen these trends with my own eyes. What we see is that, with our help, Ukraine can and will win this war. Today I’d like to explain why we believe it will win and describe a few key things that must happen on the economic side for that victory to take place.

First, militarily, though the supplemental was delayed, Ukraine is now getting what it needs.

In the 31 days since President Biden signed the supplemental legislation, the United States has flooded the zone with weapons and equipment – including over $1.4 billion in munitions, including air defense systems, ammunition, armored vehicles, small arms, and other equipment.

The democratic world is there with us. The Czechs are leading a European effort to rush 500 thousand artillery rounds to Ukraine. The UK has just announced a new multiyear military package; Germany is supplying a new Patriot system; Australia is providing a new air defense system of its own; and Ukrainian-manned F-16s will be flying over their air space within months, provided by the Europeans.

Ukraine is wasting no time putting this wave of support into action, and it’s difficult but necessary new conscription law, which just went into force, will help it ensure it has the troops necessary to defend itself.

This is, of course, on top of the huge success Ukraine has seen in the Black Sea, where it has pinned back Russia’s fleet, and its overall success on the battlefield, where it has by and large held a much larger force at bay along front lines that are over 600 miles long.

Economically, we are also seeing Ukraine take important strides forward.

Take Ukraine’s defense industrial base. The number of drone manufacturers has grown from 9 to over 200. Cyber, robotic systems and demining expertise are skyrocketing. And data from the battlefield is helping Ukraine’s defense industries reduce the time for development of new technologies from years to weeks—with concrete impacts on battlefield effectiveness.

As the drone manufacturer Brave1 says, Ukraine is “where the technology of victories are born”.

American defense CEOs would agree. They literally marvel at the innovation of Ukraine’s defense production, sometimes combining different technologies — precision missiles, drones, armored vehicles — with American, Soviet, and European parts to create wholly new systems.

It is this kind of creativity that is putting Ukraine’s defense companies at the leading edge of modern warfare technology. In fact, three key American defense companies are working right now with their Ukrainian counterparts – and us – to co-produce low and medium caliber munitions made in – and for – Ukraine. Another is working on the very first joint venture between an American and a Ukrainian defense company.

The United States wants to unleash more joint Ukrainian-American defense production on Ukrainian soil. That’s why we just announced a $2 billion, first-of-its kind Ukraine Defense Enterprise Fund this month that will provide more financing for production, repair and maintenance.

The bigger economic picture is also encouraging.

Despite Russia’s war and having 17% of its territory occupied, Ukraine’s GDP grew 5% in 2023 and is on track to grow an additional 4.5% this year. Investment is up 17%. Tax revenues surged by 25% in January. More than 37K new businesses were registered in Ukraine in 2023, more than the number in 2021 before the war.

American companies beyond the defense sector are helping coauthor this recovery:

McDonalds added more stores in Ukraine and served over 100 million Ukrainians last year – sourcing 70% of its beef, dairy, vegetables and sunflower oil from inside Ukraine.

And ADM and Cargill are investing in agricultural projects and reinvesting profits back into Ukraine’s rich, black soil. Things ARE happening. That’s why over 50 American companies are coming to the Berlin conference to talk about their investments – and even expansions – in Ukraine.

While all of this is important and positive, we cannot be naïve about the challenges Ukraine faces, and these are not just challenges on the battlefield. We do believe Ukraine can and will win, with the support of the huge coalition on Ukraine’s side. But we have to be clear eyed about what it will take for the country to win not just the war but also to set itself up for the future.

So, let me describe what we think it will take.

To win for the long term there are five essential elements the Ukrainians together with the international community must tackle head-on. Elements that must be at the center of our discussions at the Ukraine Recovery Conference in Berlin in 14 days. They include:
        - Air defense systems needed to protect the border and over major population centers;
        - A culture that embraces rule of law and rejects corruption;
        - A government that has the capacity to define bankable projects for investment and provide cohesive, cross ministry planning;
        - A global marketplace offering risk management tools that make investment decisions easier;
        - And, finally, sufficient capital, especially the use of Russian sovereign assets to finance this vision.

Taken together, these five elements can be the rocket fuel that powers not just Ukraine’s true economic recovery but its journey to become the prosperous, democratic, independent country integrated into the EU and NATO that its people crave.

Let me lay each of these out in greater detail, as each are key U.S. priorities as we head to Berlin.

## AIR DEFENSE

First, Air Defense. Just look at Kyiv to see what the future can hold. Getting off the train from Poland, you find a bustling European city that has thriving industry, kids going to school, parents going to work, folks out shopping, a bustling nightlife, and even regular traffic jams. It has become Ukraine’s economic beacon, made possible by the protective umbrella of air defense. The same is starting to happen in Odesa.

In order to generate breakout economic activity, create jobs that draw back the Ukrainian diaspora and attract private sector investment, it is essential that we and our allies figure out how to provide sufficient air protection to Ukraine’s centers of commercial activity like Kharkiv, Dnipro, Lviv, and beyond.

Security is essential to attracting large scale investment.

## REFORM/CORRUPTION

Second, Ukraine’s defenses against corruption must be just as strong as its military defenses. Eight in ten Ukrainians say they believe more must be done about corruption, and we must help them. This means a judiciary protected from outside interference. This means a press free from political influence or pressure. This means digital customs and other tax collection systems. This means independent, empowered, well-resourced anti-corruption investigators, prosecutors, and judges. This means strengthening the rule of law for everyone.

When I speak to American CEOs, particularly those in the most crucial sectors like defense and energy, the first point they raise with me – after asking about the war – is always the need to fast-track reforms and address corruption.

American taxpayers and Congress also – justifiably – demand reform.

I am pleased to report that Ukraine has made major progress on its reform agenda, including making some tough decisions. In just the last six months, for example, Ukraine has passed legislation regarding asset declaration, anti-monopoly regulation, judicial discipline reform, and corporate governance.

I truly believe these efforts to change the culture in Ukraine will ultimately be just as much part of the Zelenskyy government’s legacy as winning the war itself. He understands fighting corruption is linked to Ukraine’s secure, prosperous, Western future. This requires not just a systems change but a culture change.

## CROSS-MINISTERIAL PROJECT PRIORITIZATION FOR RECONSTRUCTION

Meanwhile, even as we support Ukraine to strengthen its defenses and deepen reforms, we need to help Ukraine set up the ability to prioritize and prepare projects for investment and reconstruction.

The estimates to rebuild Ukraine by the World Bank are around $500 billion. There has never in history been such a significant need. To do this successfully and efficiently, coordination will be essential.

Just think— Unlike the Marshall plan where one actor – the United States – was driving the reconstruction of many countries across Western Europe; this is a case where many countries, businesses, people are driving the reconstruction of one nation, Ukraine. Obviously, that makes coordination more challenging, though it allows us to bring to bear unprecedented amounts of funding, creativity, expertise and experience to the challenge.

What we need now is to lash Ukraine’s ingenuity to cross-ministerial project prioritization and preparation for reconstruction. It is essential to power the country into the future. It is essential to attract investors and significant capital. It is essential to having sufficient resources, labor, raw materials and more to actually build the Ukraine of the future.

This mechanism must be several things at once: Ukrainian-led, community-driven, and nationally-coordinated. At the same time, it must also be internationally-backed, grounded in data and supported by the best global engineering and planning prowess.

That is a tall order, but creating this is necessary. If we can get these pieces in place and ensure cross-ministerial political consensus around the right structure, plan and people, then Ukraine can realize a robust recovery.

The mechanism can do so many things: establish reconstruction goals; identify and prioritize investments; determine financing; ensure the availability of sufficient inputs and resources; set standards; and guarantee Euro-Atlantic-level openness and transparency. These are all things both Ukrainians and the international community are going to want and need for sufficient investment to occur.

Critical to Ukraine realizing its forward-looking economy and its dream of being part of the EU is how it develops its overall energy, transportation, and communications infrastructure. For the country to have
        - Decentralized energy generation and storage utilizing gas, nuclear power and renewables;
        - Rail, roads, ports, shipping, and air transportation;
        - As well as digital and ICT communications systems all seamlessly linked to the EU, the Single Market and the global economy will require the kind of coordinating effort I am describing.

Without a cross ministerial mechanism to coordinate the planning, engineering, resource management and financing of these foundational investments, it will not be possible for Ukraine to achieve its vision outlined in the Ukraine Plan and elsewhere.

We, governments and the private sector, must work together with Ukraine to broaden its private sector and frankly its public sector absorptive capacity. This will take hard work – feasibility studies, technical engineering, and business plans – but it will help project ideas and concepts become realizable projects that can and will draw investment. Helping Ukraine build out this absorptive capacity is essential and will increase the number of bankable projects, something that is sorely needed.

## RISK MANAGEMENT

Fourth, Ukraine’s full-scale recovery will also require that we help the private sector manage risk. And yes, this, too, is already happening. The U.S. Development Finance Corporation (DFC) is active and expanding its political risk insurance portfolio for Ukraine. The European Bank for Reconstruction and Development (EBRD) is leading the development of a facility to provide coverage against war-related risks.

The private sector is also involved. Marsh McClennan’s Unity Facility, for example, is a $50 million war risk insurance program covering ships transporting grain through the Black Sea. It is one of the main reasons Ukraine’s Black Sea export routes have now expanded to pre-war levels, hitting 13 million tons of exports in April alone.

But more must be done. Ukraine’s insurance premium market is just three percent of Poland’s. We are pushing for new lines of war risk insurance – for energy, cargo, land transportation and elsewhere. In fact, in Berlin, we plan to announce ways to put new capital to work to provide war risk insurance for small and medium-sized businesses.

Without a robust insurance market, robust investment is not possible.

## ACCESS TO FINANCE AND RUSSIAN SOVEREIGN ASSETS

Finally, we have to tap into new sources of capital that can finance the public and private sector reconstruction. On the private sector side, we must find ways to unlock more catalytic and working capital. The thirst is there. One major American bank has added 75 new business clients – a 15% increase in its client base – since February 2022. Ukraine needs more. To meet the needs, there must be more lending through banks, the IFIs and elsewhere at interest rates that recognize the risk and yet make investment profitable.

In addition, for Ukraine’s reconstruction, there is one crucial step that must be taken as a moral, legal and practical matter: Russia must be made to pay. Our Congress has given us the power to seize Russian assets in the United States, understanding that what Putin destroyed, Russia should – and must – pay for the rebuilding.

And we intend to work with the G7, by pulling forward the interest on frozen assets. This can and will unlock billions of dollars – and send a powerful message to Putin that time is not on his side.

## CLOSING

Taken together, these five efforts can provide the basis for Ukraine’s economy of the future. These are workstreams on which we must focus in Berlin. They are essential to fortify Ukraine’s remarkable – and underappreciated – unbreakability.

As I close, I want to talk about the story of Esper Bionics, the artificial limbs manufacturer I visited earlier this month in Kyiv. There’s a Ukrainian soldier named Valera Kucherenko who came for Esper’s help after he lost both hands in a grenade attack last October. They gave him two bionic hands.

Valera has said he was glad the prosthetics were made in a way that allowed him to return to the army, to continue fighting for his country.

When Ukrainians lose their hands, they build new ones, and return to fight.

And that is what is happening all over the country, across the economy at this very moment.

Just incredible. That is what I have seen personally over and over again.

So, when we say that Ukraine can and will win, with our help, it is Valera I think of.

The country is literally full of Valeras—not grabbing headlines, but using every ounce of their determination and ingenuity to fight and to win. And we must help them.

Thank you very much.

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