Orban calls US a friend after he pulls out of Russian-dominated IIB

Orban calls US a friend after he pulls out of Russian-dominated IIB
Just 24 hours after the US imposed sanctions, Orban signed a decree paving the way for Hungary to leave the Budapest-based development bank. / bne IntelliNews
By Tamas Csonka in Budapest April 14, 2023

Hungarian Prime Minister Viktor Orban sought to ease tensions with Washington in an interview with state radio on April 14, calling the United States a friend and an important ally, a day after Hungary apparently bowed to US pressure to pull out of the Russian-controlled International Investment Bank (IIB).

The conciliatory move comes after media reports that US lawmakers are preparing  draft legislation that would target several former Hungarian government officials and people close to the government with a travel ban to the US.

Local analysts argue that Orban’s accommodative response on the IIB does not mark a fundamental shift in policy, and that he has probably only toned down his rhetoric due to increased pressure from the Biden administration and the prospect of further sanctions facing Hungarian officials. 

The US announced sanctions on IIB and three executives on April 12 and just 24 hours later Orban signed a decree paving the way for Hungary to leave the Budapest-based development bank. This could spell the end for the former Comecon development bank, established in the 1970s and revived in 2012, as Hungary was the only significant shareholder remaining apart from Russia.

Washington had long raised concerns over the presence of the bank, but unlike other Nato allies, the Hungarian government dismissed these and remained committed to hosting the IIB. Following Russia’s invasion of Ukraine in February 2022, Bulgaria, Czechia, Romania, and Slovakia ended their participation in the bank.

According to the US, the IIB's presence in Budapest enables Russia to increase its intelligence presence in Europe, opens the door for the Kremlin’s malign influence activities in Central Europe and the Western Balkans, and could serve as a mechanism for corruption and illicit finance, including sanctions violations. 

The Hungarian government did not react to news of sanctions announced by US Ambassador to Hungary David Pressman for at least 20 hours, but on Thursday afternoon, the Economy Development Ministry confirmed that Hungary would withdraw as there was no sense in carrying on with its operations following the latest sanctions.

"We've never agreed with the sanctions [against Russia], but we don't dispute anyone's right, including that of the United States, to impose sanctions if they see fit," Orban noted in the interview.

IIB could have played an important role in developing Central European economies, he said, but ever since the outbreak of the war it was clear the bank's potential had been circumscribed and the recent sanctions "destroyed it", the prime minister said.

The prime minister maintained that the United States continues to "press" Hungary into supporting the war in Ukraine – the communication narrative used over the past months – but added that this difference of opinion is something that Hungarian-American friendship has to endure.

Diplomatic relations between Hungary and the US have sunk to an all-time low. Washington, along with Hungary’s EU allies, have been irritated by the country’s stance in the Ukraine war, the threats of vetoing sanctions, and lobbying for concessions for Russia, while Budapest continued to strengthen economic ties with Moscow since the breakout of the war, especially in the field of energy. 

Two months earlier at a closed caucus meeting ahead of the spring session of parliament, Orban named the Biden administration as an opponent of the government, among foreign actors whom he accused of financing the joint opposition in the 2022 election campaign. Biden's government has regularly criticised Orban's regime for violations of the rule of law, corruption, and for its targeting of LBGTQ people.

Ambassador  Pressman has been met with increasing anti-American rhetoric since submitting his credentials in September, and in mid-March, he was summoned to Washington by Secretary of State David Blinken to give an account of the situation in Hungary.

Orban himself has brandished his support for disgraced former US president Donald Trump, tweeting when Trump was charged with paying hush money to a porn star for keeping quiet about their relationship, "Keep on fighting, Mr. President! We are with you, @realDonaldTrump!"

In the radio interview, Orban also noted the government will take decisions on phasing out price caps when inflation "falls under a certain level", but did not specify details.

"Government measures to reduce inflation so far have not had a sufficient effect to warrant removing the price caps, but inflation should accelerate in May in June", he added.

Headline inflation in March slowed to 25.2% from 25.4% in the previous month, but core inflation continued to trek higher from 25.2% in February to 25.7% due to higher processed food and service prices, suggesting strong underlying inflationary pressures in the economy. Analysts predict that the phase-out of price caps could lift the headline data by 1-2pp.