Heavy cost to support Russia: sanctions and collapse of banking system

Hungary withdraws assets

The US imposed sanctions on the Budapest-based, Russian-controlled development bank on April 12, and the Hungarian government has now stated that it will leave the International Investment Bank (IIB).

The IIB, which was rumored to be in trouble even before the application of sanctions, will not be saved, Hungary is implying by its decision to exit as the bank’s second-largest shareholder. It has been rejected by Western financial institutions like Belgium’s Euroclear network, which settles securities transactions. Rating agencies have lowered the IIB’s bonds to junk status.

Hungary’s exit puts an end to Moscow’s hopes of creating an EIB(European Investment Bank)- or EBRD(European Bank for Reconstruction and Development)-style international financial organization, leaving it as the sole major shareholder.

The decision also represents a humiliating setback for Hungarian Prime Minister Viktor Orban’s plan to bring the IIB to Budapest in 2019 to improve Hungary’s position as a global financial hub and create tighter financial connections with Moscow. According to leaked documents supplied to the investigative CEE media network VSquare, Budapest had fought valiantly to keep the bank’s access to European financial networks open and had devised a plan to conceal Moscow’s domination by keeping Moscow’s stake below 50%.

Hungary is the final nation to withdraw from IIB. Following Russia’s invasion of Ukraine, the Czech Republic, Bulgaria, Slovakia, and Romania declared their intention to leave the IIB and the International Bank for Economic Cooperation (IBEC). Poland left the IIB back in 2000. The equity capital that the leaving countries invested has been rejected by the IIB.

Pressman said that Hungary “has dismissed the concerns of the United States government regarding the risks [the IIB’s continued presence] poses to the alliance, unlike other Nato allies previously engaged with this Russian entity.”

The IIB’s presence in Budapest enables Russia to increase its intelligence presence in Europe, opens the door for the Kremlin’s nefarious influence activities in Central Europe and the Western Balkans, and could act as a mechanism for corruption and illicit finance, including sanctions violations, according to a statement issued by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC). The bank is said to have coordinated its policy with the Kremlin by the US.

Budapest has not taken many steps to lessen its reliance on imported Russian energy, and just last week, Foreign Minister Peter Szijjarto signed new energy agreements in Moscow that will strengthen Russian influence for many years to come.

Since the start of the war, Hungary’s isolation from its Visegrad Four partners has grown even more, and regional collaboration is now all but nonexistent.

Personal sanctions are nigh

As ties between the two nations continue to deteriorate, a faction in the US Congress is crafting sanctions that would target prominent Hungarian political figures connected to the Orbán administration.

The law would name former officials and supporters of the government, most of whom are connected to Viktor Orbán’s Fidesz party.

According to people involved with the drafting process, the measure has been under development since last year and is anticipated to go before Congress as early as next month where it is likely to attract broad support.

The sanctions bill is being written at a time when relations between Washington and Budapest are progressively deteriorating, as originally reported by Radio Free Europe/Radio Liberty.

Along with Georgy Potapov and Imre Laszlóczki, the treasury department has also announced sanctions against the former IIB board chair Nikolay Kosov.

Hungary announced its choice to remove its officials from the bank and lashed out at US pressure.

The foreign minister, Péter Szijjártó, remarked during a press conference, “We accept and understand that we represent different positions, but we don’t understand why pressuring other states to change theirs is necessary.” “Since Hungary is a state, it should be treated as such rather than as a colony.”

The US ambassador, David Pressman, had earlier claimed that, in contrast to other NATO partners, the Hungarian government had disregarded US concerns regarding the bank’s operations. Pressman stated that Hungary “has disregarded the United States government’s concerns regarding the risks its continued presence poses to the alliance.” We are concerned about the leaders of Hungary’s continuous desire to strengthen ties with the Russian Federation.


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