IMF warns EU about plans to use Russian assets for Ukraine.

The International Monetary Fund (IMF) has called for particular caution regarding the "compensation loan" plan that the European Union (EU) intends to provide to Ukraine. According to the IMF, any decision to use Russian sovereign assets must have a "solid legal basis" and vigilance must be exercised regarding "any impact on the international monetary system."

A call from the IMF

The Kyiv Post (Ukraine) reported on October 20th that the EU proposed a compensation loan to convert frozen sovereign assets of the Russian Central Bank into equivalent EU bonds. This loan would be secured by €176 billion ($191 billion) worth of assets held at Euroclear in Belgium.

However, the IMF did not offer a specific view on this financing method. Alfred Kammer, Director of the IMF's European Department, said the institution could not comment on the financial design of the loan.

During his presentation on the European Economic Outlook, Mr. Kammer emphasized: "We recommend that when using frozen Russian assets, countries considering doing so should seek a solid legal basis before proceeding and should also be wary of any impact on the international monetary system."

Although Mr. Kammer did not specify what those implications were, the IMF's warning set a high standard for legality and global stability for any action involving frozen state assets.

Legal risks and EU guarantees

The legal and financial risks have been hotly debated among European leaders and experts. Jamison Firestone, a New York-based lawyer, argues that the EU-proposed compensation loan for Ukraine poses no additional risk to Euroclear or Belgium. According to this argument, their holdings would simply convert from cash to equivalent-valued EU bonds, thus not increasing their financial or legal burden.

However, Belgian Prime Minister Bart De Wever stressed that the other 26 EU countries must jointly guarantee the loan and share the legal and financial risks. This is to avoid a situation where Belgium would be held responsible for repaying Russia if sanctions were lifted and Russia sought to compensate for its assets.

Besides legal concerns, some have also warned that the use of frozen Russian assets could harm G7 bond markets and undermine confidence in Western government bonds.

However, economist Elina Ribakova has called these warnings—including those coming from Saudi Arabia—"politically motivated market noise."

Ribakova commented on the strength of the European Central Bank (ECB), asserting that the ECB is "too big and too strong for any group of investors to resist."

The financial needs context of Ukraine

The IMF's caution stems from the fact that Ukraine is facing a significant financial gap. According to a reliable source who spoke to the Kyiv Post, the IMF estimates Ukraine's financial gap for the period 2026-2029 to be as much as $65 billion.

Although Ukraine is expected to receive $37.4 billion in international funding over the next two years, this figure still creates a similar deficit. Sergiy Nikolaychuk, Deputy Governor of the National Bank of Ukraine (NBU), noted that funding sources remain unclear for $12.7 billion in 2026 and $29 billion in 2027.

This urgent need for financing is increasing pressure on the EU to find innovative solutions, including the use of Russian assets, despite calls for caution from the IMF.