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As the EU struggles, IIB promises help

A Russian-based IFI says it can help promote investment in Hungary during a meeting in Budapest.

Hungarian Economy Minister Mihály Varga, left, shakes hands with International Investment Bank Chairman Nyikolaj Kosov during a meeting of the bank in Budapest on June 23.

It was an ambitious claim, but the timing could not have been better.

As the world awoke to the shock of the Brexit vote on June 24, a Russian-backed international financial institution (IFI) was in Budapest promoting itself as an alternative to Western bodies – one that is ready to offer greater stability than that of the European Union.

At the 105th council meeting of the Moscow-based International Investment Bank (IIB) held in Budapest from June 22-24, the organization’s s board members highlighted new cooperation agreements and future plans, and presented the IIB as an attractive alternative to other international groupings.

“The potential of economic growth in the European Union and eurozone is problematic as the region has been almost stagnating since 2008,” Jozef Kollár, deputy chairman of the board at IIB told the Budapest Business Journal. A former Member of Parliament of the Slovak Republic, Kollár explained that multilateral development banks such as IIB could stimulate Hungary and the region’s economy and “support the internationalization” of small- and medium-sized enterprises (SMEs) in Central Europe.

As a “niche bank” focused on regional development with current assets “over €800 million”, IIB can take greater risks than commercial banks, according to Kollár. He explained that IIB’s new business model up to 2022 would continue to emphasize support of SMEs, as well as some bigger projects.

Radically restructured

Established in 1970 as a competitor to Western IFIs, the IIB has many countries allied to the old Soviet Union as members, including Bulgaria, Cuba, Czech Republic, Hungary, Mongolia, Romania, Russia, Slovakia, and Vietnam. The bank “promotes social and economic development, prosperity, and economic cooperation between its member states”, according to the IIB website. Hungary left the bank in 2000, citing insufficiently efficient and transparent operations, the Ministry of National Economy has said. But the country rejoined last year, at which time the ministry said the bank had been radically restructured

As a regional development bank, the role of IIB is to “cover the gap left by weak public investment… as a consequence of the lasting public debt crisis in the European Union,” Kollár said, adding that the bank is ready to fund collaborative projects between Hungary and Russia. “Commercial banks do not have a big risk appetite” following the financial crisis, which creates another opportunity for the IIB, he explained.

In one such project, the construction of a medical center in the Russian region of Novosibirsk with the participation of a Hungarian contractor, will be financed by IIB, the bank announced in a June 22 press release. The project will mark the first significant investment involving a Hungarian company since the country rejoined the bank.

Russia is IIB’s primary shareholder, with 47.92% of the bank’s paid-in capital, followed by Bulgaria with 13.48%. Hungary bought its way back in at €40 million for a 12.78% stake, making it IIB’s third largest shareholder.

Russia’s GDP contracted by 3.7% and the Russian ruble decreased in value by around 127% last year due to a combination of ongoing international sanctions against Russia as well as the falling price of oil in international markets, according to thediplomat.com.

While IIB was exempted from the EU’s sanctions in 2014, Russian business and monetary connections link the bank to the country’s economy. Despite Russia’s fiscal troubles, Kollár insisted that IIB as a supranational entity is not affected by sanctions.

At the end of the conference, IIB announced several cooperation agreements, including one with Hungary’s OTP Bank that “will allow both parties to bring their resources together for a greater impact”.

IIB also announced a deal to finance an infrastructure project at the Budapest University of Technology and Economics, in which the bank will provide a future credit line and guarantee worth €1.455 mln to Hungarian property management company H2Q.