As the Russian invasion of Ukraine progresses, the government of Volodymyr Zelensky is looking against the clock for a way to finance its Armed Forces and the costly defense of its country.
The scenario is complex: after a significant investment and modernization of Russia’s military power, the Ukrainians are outgunned and outnumbered, not counting the Ukrainian air capacity, which is far less than the Russian.
In addition, its economy is paralyzed by the war, with little collection capacity and skyrocketing prices like oil.
In this context, the Ukrainian Ministry of Finance announced this week that they will resort to an old financial instrument to support their troops: the so-called “war bond” .
“At a time of military aggression by the Russian Federation, the Ministry of Finance offers foreign citizens, companies and investors to support the Ukrainian budget by investing in military government bonds,” the ministry explained through its Twitter account.
As specified by the Zelensky government, each bond will have a nominal value of 1,000 Ukrainian hryvnias (US$33) and the interest rate “will be determined at auction.”
“The proceeds from the bonds will be used to meet the needs of the Ukrainian Armed Forces,” he added.
In a meeting with foreign investors, the finance portfolio also gave signs of calm to the market, assuring that they will not default on their existing debts .
And it is that investors are worried that the invasion by Russia will push Kiev to default on its debt. For the same reason, in recent days there has been a sharp drop in the prices of outstanding Ukrainian bonds.
Faced with this difficult situation, “war bonds” seem to be a good way out (or, at least, a respite) to finance their defense. The collection —which began this Tuesday— managed to raise approximately US$270 million in one day .
But what are these bonds really and when have they been used in recent history?
What are they?
War bonds —similar to other debt instruments— are debts that a certain State acquires with investors (individual or institutional), which it undertakes to repay within a certain period with the corresponding interest.
In these cases, the money is used specifically to finance military operations during a period of war.
Normally, this fundraising exercise offers a type of return below the average and with a high percentage of risk because, if the war is lost, the money invested may also be lost.
Thus, investors are usually attracted by appealing to the patriotism and emotions of citizens who want to help defend a country.
Ukraine, for example, has called for support for its nation “in difficult times . “
War bonds are also a means of controlling inflation by taking money out of circulation in an economy stimulated in the midst of war.
At what other moments in history have they been used?
This is not the first time in history that this financial instrument has been used to support the Armed Forces of a given country in times of war.
The United States also issued these types of bonds to finance part of its defense spending during the First and Second World Wars.
Between 1917 and 1918, the US government issued so-called “Liberty Bonds” , creating a massive campaign to popularize the bonds through patriotic appeals. Even famous artists participated in the campaign, including Charles Chaplin and actress Ethel Barrymore.
Today it is believed that this financing tool was vital for raising funds for the defense of the country.
Then, in 1940, history repeated itself.
Although the possibility of charging taxes for the financing of the Armed Forces was evaluated, finally the bonds were resorted to again – this time they were called “War Bonds” or “Victory Bonds” – after the Japanese attack on Pearl Harbor in 1941.
The UK also issued war bonds in 1917.
The propaganda phrase to attract this type of investment said: “If you can not fight, you can help your country by investing everything you can in 5% Public Treasury Bonds… Unlike the soldier, the investor does not run any risk” .
The media in that country also joined the collection requests.
At the time, the British political magazine The Spectator wrote: “It is the people of Great Britain who must provide the cash to finance the war.”
Canada also adopted war bonds as a way to inject resources into its defense during World War I and World War II.
The country managed to engage millions of Canadians through aggressive campaigns with volunteers offering so-called “victory bonuses” door-to-door and to private corporations.
“The victory bonuses will help stop this” or “bring [the soldier] home with the victory bonus” were some of the slogans of the time.
Link: https://www.bbc.com/mundo/noticias-internacional-60528990
Author:
- Drafting
- BBC News World
