Romania becomes embroiled in row over revival of Soviet-era development bank

Romania is the latest country to become entangled in a wider row regarding the revival of the Soviet-era International Investment Bank (IIB), currently based in Russia.

Florin Cîțu, a Romanian senator, last week accused the country’s finance minister, Eugen Teodorovici, of agreeing a deal that would see the Russian bank become the leading partner and investor in Romania’s sovereign wealth fund. Last year, Romania paid the bank four million euros to increase its stake to 7.04 per cent. On March 26 it was reported that Romania is due to pay the bank a further 3.6 million euros this year. “Mr Teodorovici has betrayed the interests of Romania and its strategic partners,” said Mr Cîțu.

There is growing unease across emerging Europe at the revival of the IIB, created in 1970 with the objective of fostering trade and economic cooperation within the Soviet Council for Mutual Economic Assistance (Comecon).

“Due to the peculiarities of the planned economy, the IIB could barely fulfil its core objectives: fostering competition for loans and reviewing economic projects. Nevertheless, as the bank had a wide-ranging and well-functioning international network, the KGB frequently used it as a cover organisation,” wrote András Rácz in a recent piece for the European Council on Foreign Relations.

Russia is the bank’s largest shareholder, but a small number of EU members (Bulgaria, the Czech Republic, Hungary and Romania) also hold stakes, alongside Cuba, Mongolia and Vietnam.

Hungary recently passed legislation that will allow the IIB would move its headquarters to Budapest. Under that law, it would be granted privileges and immunities in accordance with its status as a treaty-based international development bank, including diplomatic status (and immunity) for its staff. The IIB is due to relocate its headquarters to Hungary in the second half of this year.

“In its current form, the [Hungarian] law could create serious security problems for not only Hungary but every member of the European Union and NATO,” says Mr Rácz.

Hungarian opposition MP Zita Gurmai has called the bank “[Vladimir] Putin’s Trojan horse” while the US state department has warned that Russia would use the IIB “to expand its malign influence in Hungary and across the region.”

In an interview with the Financial Times, the bank’s chief executive, Nikolay Kosov, insisted however that the bank is “completely free from any influence of Russian secret services — or those of the EU and NATO.”