Hungary pulls out of International Investment Bank

Following yesterday's announcement by the US, the Hungarian cabinet reviewed IIB's situation and decided to recall its delegates, according to press reports.

ECONOMY APRIL 13. 2023 17:09

In light of yesterday’s announcement, the government reviewed the situation of the International Investment Bank (IIB) and came to the conclusion that participation in the bank is no longer meaningful, therefore the government has decided to recall its delegates from the bank, the Hungarian economic paper Vilaggazdasag reported based on authentic sources.

US Ambassador David Pressman announced in Budapest on Wednesday afternoon that the United States was imposing sanctions on the Budapest-based IIB and three of its senior executives. Two of the executives are Russian nationals while Imre Laszloczki, a deputy head of IIB, is a Hungarian citizen.

The diplomat said that the United States was imposing sanctions on more than 50 institutions (including IIB) and individuals, because in their view, they „take the side of Russia.” The sanctions aim to curb Russia’s access to the international financial system. The US disapproves of Hungary’s „hosting” of the financial institution, whose senior officials have been granted diplomatic privileges, he said, adding that in his view, this was an issue that had to be solved.

He also stressed that the US considers Hungary an important ally and intends to maintain a constructive relationship with Hungary.

The Hungarian government assessed issues related to IIB ‘s situation and arrived at the decision that it will no longer have its representative in the international financial institution, according to information obtained by Vilaggazdasag.

Established in 1970, IIB was originally the bank of Comecon countries, providing loans to companies based in member countries. Currently, the bank supports small and medium-sized enterprises in the bank’s member countries and contributes to financing socially significant infrastructure projects. The IIB is based in Budapest since 2019, following unanimous support for the move from member states at the Council of Governors meeting at the end of 2018. Hungary signed a memorandum of understanding on the planned renewal of its membership of the IIB back in October 2014, after

the bank’s activities were radically transformed in the early 2010s to meet modern international standards.

This is evidenced by the fact that the IIB is registered with the UN as a multilateral intergovernmental development bank, whose goal is to promote social and economic development, prosperity and economic cooperation in its member states. The Russian and Hungarian parties have also revised the documents governing the establishment and operation of the bank under a new intergovernmental agreement. According to the information at the time, the reshaped bank’s objectives, operating strategy and lending mechanism were in line with the ideas elaborated for the development of the Hungarian national economy and the country’s so-called ‘eastward opening’ policy.

Russia is currently the largest owner of IIB with 45.44 per cent, followed by Hungary with 25.27 per cent. Cuba’s share is 2.83 per cent, followed by Mongolia with 1.8 per cent and Vietnam with 1.26 per cent. Up until very recently, the Czech Republic and Slovakia were also members of the international financial institution. Bulgaria and Romania are still members, although Bulgaria will cease to be shareholder from 15 August, according to press reports.

The reason for the membership of the region’s countries, including Hungary, is quite simple:

the IIB played an undeniably important role in Central Eastern Europe.

That is why Hungary has been a member. However, since the outbreak of the Russia-Ukraine war, the IIB has been drifting towards insolvency due to the Western sanctions. There have been also rumours that it will be forced to restructure its bonds by May 2023 at the latest. This means that there is no point in maintaining a Hungarian presence, Vilaggazdasag concludes.



Hungary, russia, sanctions, usa