RIO DE JANEIRO, July 26 (Reuters) - U.S. Treasury Secretary Janet Yellen told Reuters on Friday that "things look good" for Group of Seven wealthy democracies to agree the terms of a $50 billion loan to Ukraine backed by Russian assets by October.
Yellen said in an interview on the sidelines of a G20 finance leaders meeting in Brazil that talks to advance the loan were constructive, including over U.S. demands for reassurances that the assets would stay frozen for a longer period of time.
"We've had constructive conversations here. And we're working closely together to try to move this forward," Yellen said. "I think things look good in terms of getting to a place where we can get this done probably by October."
The $50 billion loan, agreed in principle by G7 leaders in June, would be serviced with proceeds generated by some $300 billion of Russian central bank assets frozen in the West after Moscow invaded Ukraine in early 2022.
While there is not unanimous support among the G7 to fully confiscate the $300 billion of capital, the bloc agrees that it is legally possible to siphon off the profits that the assets are generating.
But Yellen said the U.S. has been pressing Europe for guarantees that the assets would stay frozen for a lengthy period of time - long enough to ensure that the asset earnings can pay back the loan until a peace agreement is reached that preserves Ukraine's sovereignty and compensates it for damages caused by Russia's invasion.
BUDGET COMPLICATIONS
Part of this need for certainty has to do with U.S. budget "scoring" calculations, she said.
"We need assurances that make it clear that American taxpayers are not going to be on the hook to pay off these loans. And we want to make sure it satisfies the budget scorers that these assets will be the source of repayment for these loans."
If the loan costs were to count against the U.S. budget, the Biden-Harris administration would have to seek approval from Congress, which could be difficult given past divisions over Ukraine funding and election-year politics.
The amounts to be contributed by G7 countries towards the loan have yet to be determined.
Most of the frozen money, about 210 billion euros ($228 billion), is in Europe. Around $10 billion is in the United States, $10 billion in Britain and some $30 billion in Japan.
That means the bulk of the money to service the loan will come from assets frozen by the EU, which renews its sanctions decision against Russia - including the freezing of the assets - every six months.
U.S. officials say this raises risks for the stability of the revenue, making it vulnerable to disagreements among the 27 EU governments.
ASSET OPTIONS
The EU is now considering an open-ended agreement on the freezing of the Russian central bank assets, with a change possible during annual reviews only if the Russian aggression ends and there are assurances of compensation by Russia.
Another option could be to extend the current six-month roll-over period for the freeze to 12, 24 or even 36 months.
"They have a number of alternatives that they're looking at, and I think they're trying to devise something that will work in the context of the EU and for us, too," Yellen said, when asked whether the proposals would meet U.S. needs.
Her sentiments on the progress of the talks match those of European Economic Commissioner Paolo Gentiloni, who said on Thursday that he envisions reaching a framework agreement for the loan in October, enabling contributing governments to sell bonds to raise funds for it by the end of the year.
G7 and G20 finance ministers and central bank governors will next meet in Washington on the sidelines of the International Monetary Fund and World Bank annual meetings scheduled for the week of Oct 20.
($1 = 0.9218 euros)
Reporting by David Lawder; Additional reporting by Jan Strupczewski; Editing by Andrea Ricci
