A recent regulation from the government of Argentina that lifts payment restrictions to multilateral institutions may put the onus of timely payments to investors back onto private companies, rather than the government itself.

While the Argentine government has been apprehensive to transfer money abroad after the devaluation of the previously dollar-linked peso, it was still not clear whether or not the government would apply its restrictions to multilateral debt obligations, sources said.

"Right now it's the willingness and the ability [of financial institutions] to keep on making payments - there are no more government restrictions," said a Latin American analyst at Standard and Poor's. "This is important for international investors that not only have money invested in Argentina and in Latin America, but all over the world, because when investors see a stressful situation in any country they put their eyes on it to see if this criteria is followed and so far they have been."

At the kick-off of the Argentine crisis, the government entered into a controlled exchange system inflicting confusion and uncertainty about debt obligations and whether or not international investors were being exposed to governmental risk or the credit risk of financial institutions. However, the government's latest regulation, Communicacin A' 3471, issued by Argentina's Central Bank, will follow the historical path, allowing private companies to make foreign currency-denominated debt payments to those agencies without previous authorization from the Central Bank.

According to the analyst, the government's latest move gives way to S&P's preferred creditor status, which acknowledges a country or a corporates ability to make payments to multilateral institutions in a time of crisis.

The new regulations will facilitate operational procedures for payment of other financial obligations that were previously limited by constraints on foreign exchange transfers, difficulties in obtaining dollars even at the market rates, restrictions on the free use of bank deposits and the various and prolonged bank and foreign exchange holidays declared by the government.

While it seems as though some of the confusion has been cleared, investors will still face the credit risk of financial institutions, as the timely payment of multilateral debt obligations is still based on the ability and willingness of the institutions to make payments. The ability and willingness of these companies have been affected by the impact of the halted economy, devaluation of the peso, a freeze on tariffs, significant future regulatory risk and illiquidity throughout the financial system. "Our expectation is that we are going to see a lot of defaults this year," the analyst said.

Another Latin American analyst noted, "This was something that was necessary, but still not enough."

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