Yellen to push G7 on bond for Ukraine backed by frozen Russian asset profits

David Lawder
Updated ·4 min read
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FILE PHOTO: U.S. Treasury Secretary Janet Yellen testifies during a U.S. House Committee on Financial Services hearing on the Annual Report of the Financial Stability Oversight Council, on Capitol Hill in Washington
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By David Lawder

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen will push fellow G7 finance officials next week to agree to a plan to bring forward the interest earnings on frozen Russian assets to provide more money to Ukraine quickly, a senior U.S. Treasury official said on Friday.

The official told reporters ahead of Yellen's May 21-25 trip to Frankfurt, Germany, and the Group of Seven finance ministers and central bank governors meeting in Stresa, Italy, that the G7 is "making progress" toward consensus on a plan to harness some $300 billion in Russian sovereign assets frozen since Moscow's February 2022 invasion of Ukraine.

The G7 finance ministers have been tasked with recommending a plan for G7 leaders to adopt at a summit in June in southern Italy. The G7 industrial democracies are the United States, Japan, Germany, France, Britain, Italy and Canada.

Yellen had previously pushed for full confiscation of the largely euro-denominated assets, but officials in Europe, concerned about risks to the euro and problematic legal precedents, have balked, opting instead for a more conservative plan to put the earnings -- estimated at around $3.5 billion per year -- into a fund for Ukraine.

Since then, the U.S. has proposed a plan to pull forward the interest on the assets to back a bond or a loan that would provide Ukraine perhaps $50 billion in the near term as it battles increasing Russian military pressure in its east and north.

The plan comes with some controversy, because it would require Western powers to hold the assets for around 20 years, said Josh Lipsky, senior director of the Atlantic Council's GeoEconomics Center.

"It's a big mountain to climb, and the U.S. is going to push this strongly at the G7," Lipsky said. "If it doesn't happen now, I'm not sure that it will in the near future."

The reaction from G7 finance ministries so far has been cautious. Japanese Finance Minister Shunichi Suzuki said on Friday that any proposals to use the frozen Russian assets must comply with international law.

The French Economics and Finance Ministry said in a statement: "France supports and shares the fact that more resources are needed for Ukraine. We have taken note of the U.S. proposal and we will work together technically at the G7 level and at the European level to determine the best option."

The U.S. Treasury official said there was a unified goal among the G7 countries to provide more money to Ukraine, and to demonstrate to Russian President Vladimir Putin that he cannot simply "wait out our coalition."

"What we are involved in is trying to engage in hard, detailed economic diplomacy to make sure we can all get on the same page. And I think we're making progress there," the official said, speaking on condition of anonymity.

Another G7 official said the U.S. proposal to use revenues from the Russian assets as collateral for a bond is still on the table, adding that G7 ministers will discuss its feasibility, but any final decision will be up to G7 leaders

CHINA TARIFFS, OVERCAPACITY

Yellen also intends to discuss joint efforts with G7 counterparts to combat China's excess industrial capacity in strategic industries, including electric vehicles, solar products and semiconductors. This will include the Biden administration's new punitive tariffs on Chinese imports announced on Tuesday.

The Treasury official said that Yellen was not seeking the same tariff approach from G7 counterparts, but it was important for the group to "speak with one voice" on the issue and make clear that it is unacceptable for China's industrial policies to create such huge spillovers to the rest of the world.

In Frankfurt, Yellen will receive an honorary doctorate from the Frankfurt School of Finance and Management and will deliver remarks on the importance of the transatlantic alliance.

She also will meet with leaders of European banks to discuss macroeconomic issues and efforts to combat illicit financing, including for Russia, the U.S. Treasury official said.

(Reporting by David Lawder in Washington; additional reporting by Giuseppe Fonte in Rome and Satoshi Sugiyama and Makiko Yamazaki in Tokyo; editing by Jonathan Oatis)