MercoPress. South Atlantic News Agency

German high court rules Argentina must repay bondholders

Argentina has no excuse to avoid repaying private German sovereign bond holders who lost out in the worst sovereign debt collapse in modern history, Germany's top court said Friday.

The Karlsruhe-based Constitutional Court said in a statement that declaring a state of emergency, as Argentina did in early 2002 after defaulting on its debt, did not justify even a temporary refusal to repay private creditors. The ruling strengthens the case for repayments to German investors, many of them retirees, who refused to participate in a 102 billion US dollars debt swap paying investors about 40 cents in the dollar. They still hold an estimated 2.2 billion US dollars. The ruling is in line with a decision by the Higher Regional Court in Frankfurt last year that Argentina's economic recovery meant it was no longer valid to argue that the country could not afford to service its debt. The Frankfurt court, which is dealing with claims by German bondholders, had sought clarification from the Constitutional Court on whether a state of emergency can justify refusing or delaying payment under public international law. Argentina has recovered from the 2001/2002 financial crisis which plunged millions into poverty. It cancelled its 9.5 billion US dollars debt to the International Monetary Fund last year and has signed a deal to repay Spain almost one billion, although it still owes about 6.3 billion to the 19-nation Paris Club, which includes Germany. Since 2003 the Argentine economy has undergone a sustained expansion of 8 to 9 percent annually with record international reserves and unexpected energy demand. In spite of having cancelled debts with the IMF the Central Bank currently holds record international reserves and Argentina is undergoing a severe energy shortage precisely because of the strong demand from industry and consumers who have recovered the activity and employment level of 1998/99, the peak previous to the collapse and melting of the economy.