JPRM-2022-023-M — Policy for the Management of Remaining Local Investment Operations

[Logo: MONETARY AND FINANCIAL POLICY BOARD] [Logo: Republic of Ecuador]

Resolution No. JPRM-2022-023-M

THE MONETARY AND FINANCIAL POLICY BOARD

CONSIDERING:

That, Article 226 of the Constitution of the Republic of Ecuador prescribes that public servants and persons acting under state authority shall exercise only the competencies and powers attributed to them in the Constitution and the Law;

That, Article 227 of the same Constitution states that the Public Administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, coordination, planning, among others;

That, the first paragraph of Article 303 of the Constitution of the Republic determines that the formulation of monetary, credit, exchange, and financial policies is the exclusive authority of the Executive Branch and will be implemented through the Central Bank of Ecuador;

That, Article 47.1 of the Organic Code of Monetary and Financial Law created the Monetary and Financial Policy Board as part of the Executive Branch, responsible for the formulation of monetary policy, the highest governing body of the Central Bank of Ecuador, and determines its composition;

That, Article 47.6 of the same Code, regarding the functions of the Monetary and Financial Policy Board, among others, establishes: "(...) 1. Formulate policy in the monetary sphere and observe its application by the Central Bank of Ecuador to preserve the integrity and sustainability of the dollarization monetary system and the financial system, in accordance with the provisions of this Code; (...) 7. Formulate the policy for the operations of the Central Bank of Ecuador; (...)";

That, Article 56 of the same Code, as prohibitions for the Central Bank of Ecuador, provides: "The Central Bank of Ecuador shall not provide direct or indirect financing to the central government, the entity in charge of public finances, decentralized autonomous governments, public sector institutions, nor public property institutions. This prohibition includes:

1. The granting by the Central Bank of Ecuador of any direct or indirect loan, or short-term advance to the public sector;
2. The issuance of guarantees by the Central Bank of Ecuador for financial transactions carried out by the public sector;

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3. Any financial transaction by the Central Bank of Ecuador with any third party that constitutes a precondition for loan operations carried out by the public sector.

These prohibitions are excepted for contingent operations necessary for the foreign trade activity of the public sector under the conditions established by the Monetary and Financial Policy Board.

The Central Bank of Ecuador shall not purchase securities issued by the State, by any state entity of the public sector, without prejudice to the recapitalization contemplated in Article 29 of this Code. This prohibition includes the renewal and swap of all public securities held by the Central Bank of Ecuador.";

That, Article 56.1 supra, as quasi-fiscal prohibitions for the Central Bank of Ecuador, states: "Prohibition of quasi-fiscal operations by the Central Bank of Ecuador. The Central Bank of Ecuador is prohibited from carrying out any of the following activities:

1. Making investments, including the purchase of shares or participations in private and public companies, as well as the purchase of securities issued by said companies;
2. Providing aid, donations, or financial contributions to natural or legal persons;
3. Purchasing tangible movable or immovable goods for profit or with the intention of reselling them;
4. Receiving deposits, granting credits, or providing transaction services to natural or legal persons other than those determined in this Code;
5. Contributing to the paid-in capital of a legal person, or buying and selling securities of the same; and,
6. Issuing loans and/or bank guarantees for natural and legal persons.";

That, the Organic Law Reforming the Organic Code of Monetary and Financial Law for the Defense of Dollarization, published in Official Register Supplement No. 443 of May 3, 2021, repealed Articles 124, 125, and 129 of the Organic Code of Monetary and Financial Law, which contained the investment of liquidity surpluses, the domestic investment plan, and the limit on the granting of credits at the rediscount window and the investment of liquidity surpluses; as well as, reformed Articles 126, 127, and 128 regarding the issuance of securities by the Central Bank of Ecuador, open market operations, and the rediscount window;

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That, Transitory Provision Fifty-Two of the Organic Code of Monetary and Financial Law establishes: "Without prejudice to the prohibition established in Article 56 and the unnumbered article following this, all existing holdings in the possession of the Central Bank of Ecuador of State bonds, deposit certificates, and other titles issued by public entities, at the time of entry into force of this law, shall be maintained until maturity. The terms and conditions of such holdings shall remain unchanged.";

That, by Resolution No. JPRM-2022-002-M, of January 20, 2022, the Monetary and Financial Policy Board repealed Chapter VI: "Monetary Policy Instruments", of Title I: "Monetary System", of Book I: "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions issued by the former Monetary and Financial Policy Board, except for what relates to the Domestic Liquidity Coefficient;

That, by Resolution No. JPRM-2022-020-M, of August 4, 2022, the Monetary and Financial Policy Board issued the "Monetary System Rules", in whose Chapter IV are contained the "Policies for the Investment of Liquidity Surpluses";

That, it is necessary to adapt regulations in accordance with the current normative provisions provided in the Organic Code of Monetary and Financial Law, with respect to the policy for the local investment operations of the Central Bank of Ecuador;

That, the Monetary and Financial Policy Board, in ordinary session by technological means, on September 23, 2022, reviewed the proposal sent via Memorandum No. BCE-BCE-2022-0194-M, of September 8, 2022, by the General Manager of the Central Bank of Ecuador to the President of the Monetary and Financial Policy Board; as well as, Technical Report No. BCE-SGOPE-050-2022 / BCE-DNOP-089-2022, of September 1, 2022, and Legal Report No. BCE-CGJ-116-2022, of September 2, 2022; and,

In exercise of its functions and in attention to Article 47.7 of the Organic Code of Monetary and Financial Law, the Monetary and Financial Policy Board resolves to issue the:

POLICY FOR THE MANAGEMENT OF REMAINING LOCAL INVESTMENT OPERATIONS OF THE CENTRAL BANK OF ECUADOR

Art. 1.- The five current portfolios maintained by the Central Bank of Ecuador, as part of the former Liquidity Surplus Investment Program, approved by the former Monetary and Financial Policy Board; as well as, the portfolios resulting from local investments made by the Central Bank of Ecuador within the scope of its management, will be administered independently, under the terms and conditions established in each of the current instruments until their maturity.

Art. 2.- The Central Bank of Ecuador will maintain the contingent instrument delivered by the entity in charge of public finances provided for in the public interest housing financing policy, approved by the former Monetary and Financial Policy Board, until the maturity of the investments in securitizations that will be maintained within the local investment portfolio of the Central Bank of Ecuador.

If the investments in securitizations corresponding to the Central Bank of Ecuador are not fully cancelled due to the lack of sufficient resources in the securitization trusts, said securities will be covered by the contingent instrument issued by the entity in charge of public finances.

Art. 3.- If the remaining local investments of the Central Bank of Ecuador incur in default, a surcharge of ten percent (10%) annually on the rate that is currently in effect for the operation at the time the default occurs will be charged; this will be charged only for the days of the overdue capital, whether in maturity operations or those that amortize through dividends; and, according to the number of days that have elapsed from the maturity date until the payment thereof.

In the case of local investments that expressly have a default rate agreed upon between the parties, said rate will be charged.

GENERAL PROVISIONS

FIRST: The Central Bank of Ecuador must timely manage the recovery and collection of resources invested in the instruments of the five current portfolios; and, in case of non-compliance by any of the counterparties, the General Management of the Central Bank of Ecuador must present a report for the knowledge of the Monetary and Financial Policy Board.

SECOND: The Central Bank of Ecuador will bring to the attention of the financial system control bodies the non-compliance of counterparties regarding the terms and conditions established in each of the current instruments, for the pertinent purposes, in the cases that correspond.

SINGLE REPEALING PROVISION.- Chapter IV: "Policies for the Investment of Liquidity Surpluses" of Resolution No. JPRM-2022-020-M, of August 4, 2022, which contains the "Monetary System Rules", issued by this Monetary and Financial Policy Board, is expressly repealed.

FINAL PROVISION.- This resolution will enter into force from its issuance, without prejudice to its publication in the Official Register.

The publication on the institutional website is entrusted to the Document Management and Archive Directorate of the Central Bank of Ecuador.

NOTIFY.- Given in the Metropolitan District of Quito, on September 23, 2022.

THE PRESIDENT

[Signature] Dr. TATIANA MARIBEL RODRÍGUEZ CERÓN

The aforementioned resolution was signed by Dr. Tatiana Maribel Rodríguez Cerón - President of the Monetary and Financial Policy Board, in the Metropolitan District of Quito, on September 23, 2022.- I CERTIFY.

ADMINISTRATIVE SECRETARY

[Signature] Att. MARÍA ALEXANDRA GUERRERO DEL POZO