By Haggai Carmon

In 2002, Argentina defaulted on $95 billion dollars worth of bonds. When hedge funds and other creditors sued Argentina in the United States District Court in New York, they may have won the right to recover the money they’d lost, but the difficult part is executing the judgment – that is, finding enough Argentinean funds to satisfy the judgment.

When Argentina nationalized private pension assets in December of last year, a U.S. court ruled that as the assets were now Argentinean state property, they could be seized by the creditors to execute their judgment. (Argentina has approximately $200 million in retirement assets held in investments in New York.) But the U.S. Court of Appeals for the Second Circuit has just overturned this ruling, saying that the creditors cannot, after all, look to pension assets in the U.S. to satisfy their claims.

According to the appeals court decision, the pension funds are protected by the Foreign Sovereign Immunities Act: “We understand the frustration of the plaintiffs who are attempting to recover on judgments they have secured. Nevertheless, we must respect the act’s strict limitations on attaching and executing upon assets of a foreign state.”

The retirement assets, which are owned by Argentina’s social security system, cannot be seized to benefit the defaulted bond holders because their purposes are not commercial. Judge J. Clifford Wallace wrote in the decision: “The funds at issue are expressly designated by Argentine law as social security assets, and therefore, their investment (and concomitant payment to Argentine pensioners) is a quintessentially governmental activity, and not a commercial activity.”