BOARD OF DIRECTORS

BOARD RESOLUTION NO. 022/2022

SUBJECT: INTERNATIONAL OPERATIONS MANAGEMENT – APPROVAL OF THE REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES.

VIEWED:

• The Political Constitution of the State of February 7, 2009.
• Law No. 1670 of October 31, 1995, of the Central Bank of Bolivia (BCB) and its modifications.
• Board Resolution No. 128/2005 of October 21, 2005, which approves the Statute of the BCB and its modifications.
• The Report from the International Operations Management BCB-GOI-SRES-DNI-INF-2022-8 of March 24, 2022.
• The Report from the Legal Affairs Management BCB-GAL-SANO-DLBCI-INF-2022-50 of March 25, 2022.

CONSIDERING:

• That Article 328 of the Political Constitution of the State determines that the BCB, in coordination with the economic policy determined by the Executive Branch, has among other attributions, the administration of International Reserves.
• That Article 1 of Law No. 1670 of the BCB, modified by Article 67, section A3, numeral 1 of Law No. 1864 of June 15, 1998, states that the BCB is a state institution, of public law, autonomous in nature, of indefinite duration, with its own legal personality and assets, and with its legal domicile in the city of La Paz. It is the sole monetary and exchange authority of the country with administrative, technical, and financial competence and specialized normative faculties of general application.
• That Article 14 of the aforementioned Law No. 1670 establishes that the BCB will ensure the strengthening of International Reserves so as to allow the normal functioning of Bolivia's international payments.
• That Article 16 of Law No. 1670 establishes that the BCB will administer and manage its International Reserves, being able to invest them and deposit them in custody, as well to dispose of and pledge them, in the manner it considers most appropriate for the fulfillment of its object and functions and for their adequate safeguarding and security. It may also purchase foreign exchange hedging instruments with the objective of reducing risks and in the case of the pledge of gold, this must have legislative approval.

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• That Article 17 of Law No. 1670 of the BCB refers that International Reserves are unseizable and cannot be subject to precautionary, administrative, or judicial measures. Nor can they be subject to any state tax or contribution.
• That Article 44 of Law No. 1670 of the BCB establishes that the highest authority of the Central Bank of Bolivia is its Board of Directors, which is responsible for defining its policies, specialized normative rules of general application, and internal norms; as well as establishing administrative, operational, and financial strategies of the BCB, approving their respective short and medium-term programs.
• That subsections a) and o) of Article 54 of Law No. 1670 of the BCB provide that the BCB Board of Directors has the attributions to issue norms and adopt general decisions that are necessary for the BCB to fulfill the functions, competencies, and faculties assigned to it by the Law, as well as to approve, modify, and interpret the Statute and Regulations of the BCB, by two-thirds of the votes of all its members, without the need for any additional administrative act.
• That subsections 5) and 29) of Article 11 of the Statute of the Central Bank of Bolivia approved by Board Resolution No. 128/2005 and its modifications, provide among other attributions of the Board, to approve the Policy and norms for the Administration of International Reserves, as well as to approve, modify, and interpret the Statute and Regulations of the BCB, by two-thirds of the votes of all its members, without the need for an additional administrative act.
• That Article 26 of the BCB Statute determines that the Board pronounces itself on matters within its competence through resolutions and can also do so through decisions that will be expressly recorded in the minutes. It also refers that every draft Board Resolution must be motivated and justified by a Technical Report from the Management or Managements to whom the matter subject to the Resolution corresponds, and by a Report from the Legal Affairs Management. These reports must be sent to the Board by the General Management with its recommendation.
• That the Report BCB-GOI-SRES-DNI-INF-2022-8 recommends approving the Regulation for the Administration of International Reserves, in order to frame general and fundamental aspects of reserve administration and reflect the BCB's risk-return profile.
• That the Report BCB-GAL-SANO-DLBCI-INF-2022-50 concludes that the approval of the Regulation for the Administration of International Reserves is technically and legally viable, as it does not contravene the legal order, recommending its approval.

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THEREFORE,

THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA

RESOLVES:

Article 1.- Approve the Regulation for the Administration of International Reserves, in its 3 Chapters, 26 Articles, and Transitional Provision, which as an annex forms part of this Board Resolution.

Article 2.- Repeal Board Resolution No. 107/2021 of September 30, 2021.

Article 3.- This resolution shall enter into force from its approval.

Article 4.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, March 29, 2022

SIGNED. ROGER EDWIN ROJAS ULO, Oscar Ferrufino Morro, Gabriel Herbas Camacho, Gumercindo Héctor Pino Guzmán, Diego Alejandro Pérez Cueto Eulert.

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ANNEX

REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES

CHAPTER I

GENERAL PROVISIONS

Article 1.- (Object)

This Regulation aims to establish the guidelines and general norms for the administration, evaluation, and control of the International Reserves of the Central Bank of Bolivia (BCB).

Article 2.- (Investment Criteria)

The BCB's International Reserves are invested with criteria of capital preservation, security, liquidity, diversification, and profitability, in that order of priority.

Article 3.- (Clarifying Definitions)

• Benchmark: Index or set of assets used as a comparison tool to evaluate the performance of an investment or portfolio.
• Special Drawing Rights (SDRs): Reserve asset created by the IMF in 1969 whose value is determined by a basket of currencies which at present is composed of United States Dollar (USD), Euro (EUR), Chinese Yuan Renminbi (CNY), Japanese Yen (JPY), and British Pound Sterling (GBP).
• Offshore Institutions: Financial institutions headquartered in a foreign country or territory where regulatory, normative, tax, and transparency standards are low or non-existent, or which are usually referred to as tax havens.
• London Bullion Market Association (LMBA): International precious metals trading association, headquartered in London. It is an independent authority that seeks to ensure standards of integrity and transparency in the precious metals industry.
• International Reserve Currencies: Currencies widely used by Central Banks in the investment of International Reserves; among them are the United States Dollar (USD), Australian Dollar (AUD), Canadian Dollar (CAD), Euro (EUR),

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Swiss Franc (CHF), British Pound Sterling (GBP), Japanese Yen (JPY), and Chinese Renminbi (CNH/CNY).

• Primary dealers: Banks or financial institutions that are committed to creating markets for financial instruments issued by a sovereign government to support the implementation of monetary policy, this includes participating in auctions of these securities. They are also authorized to negotiate other financial instruments.
• Value at Risk (VaR): Financial risk metric that measures the expected potential loss of an investment or portfolio for a given time period and confidence level.
• Credit Risk Rating: Evaluation tool assigned by a credit rating agency. The main rating agencies are Standard & Poor’s Global Market Intelligence LLC (S&P), Fitch Solutions Inc. (Fitch), and Moody’s Investors Service (Moody’s).

Article 4.- (Annual Investment Policy)

I. The Board of Directors will approve the Annual Investment Policy (AIP) of the International Reserves before the start of each fiscal year.

II. The AIP will establish guidelines for the investment and risk management of International Reserves, considering their level and market expectations for its period of validity.

III. The AIP defines at minimum the composition and guidelines of the tranches and portfolios that make up International Monetary Reserves and Gold Reserves.

Article 5.- (International Reserves Committee)

The International Reserves Committee (IRC), constituted in accordance with the BCB Statute, has the following attributions, in addition to those established in Article 55 of the BCB Statute:

I. Meet at least once a month, to evaluate investments made by the International Operations Management and by delegated administrators, within the framework of the guidelines established in this Regulation and in the AIP.

II. Define the treatment to be applied to investments in which their credit risk rating decreases to a level below the minimum required in this Regulation.

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III. Define the treatment for cases where mergers, absorptions, or subrogations of financial entities occur in which investments are held, current accounts are maintained, or delegated administration or securities custody services are provided.

IV. Periodically evaluate and follow up on compliance with the AIP, as well as approve additional guidelines within the framework of this Regulation and the AIP.

Article 6.- (Areas responsible for execution)

I. The International Operations Management, through the Reserves Sub-management, is in charge of the execution, recording, and follow-up of International Reserves investments, applying the provisions of this Regulation and the current AIP, reporting to the IRC at each meeting and to the BCB Board of Directors when necessary.

II. The Investment Control Department of the International Operations Management is in charge of controlling compliance with the norms, policies, investment limits, and risks established by the BCB Board of Directors and the IRC in the investment of International Reserves, must report these aspects to the IRC at each meeting and to the BCB Board of Directors when necessary. It will also generate early warnings for adequate risk management.

Article 7.- (Audits on International Reserves Investment)

The Internal Audit Management will conduct audits on the investment of International Reserves on a semi-annual basis.

Article 8.- (Import and export of foreign currency in banknotes)

I. The International Operations Management, in coordination with the Treasury Management, will manage the import and export of foreign currency in banknotes, with prior knowledge of the General Management.

II. The International Operations Management will report on the import and export of foreign currency in banknotes carried out at the next IRC meeting.

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CHAPTER II

INTERNATIONAL RESERVES

Article 9.- (Object of International Reserves)

International Reserves have the object of maintaining the normal functioning of the country's international payments and backing monetary and exchange rate policies.

Article 10.- (Structure of International Reserves)

International Reserves are composed of International Monetary Reserves, Gold Reserves, and SDR Holdings.

Article 11.- (International Monetary Reserves)

I. International Monetary Reserves are composed of the following tranches:

i. **Liquidity Tranche:** Its object is to cover international payment requirements and meet the liquidity requirements of the national financial system.

ii. **Investment Tranche:** Its object is to diversify and increase the value of reserve investments, with limited risk over a medium-term horizon.

iii. **Long-Term Tranche:** Its object is to increase the value of investments over a long-term horizon, being able to maintain investments to maturity.

II. The AIP will define the portfolios of each tranche considering liquidity and risk and return of investments, in line with the investment criteria established in Article 2 of this Regulation.

Article 12.- (Gold Reserves)

I. Gold Reserves consist of physical gold in BCB vaults, investments in time deposits, bonds denominated in gold, and balances in gold accounts.

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II. The total of Gold Reserves may be invested abroad.

Article 13.- (SDR Holdings)

SDR Holdings are a reserve asset that allows complementing International Reserves and represent a potential right against International Reserve Currencies.

Article 14.- (Authorized Currencies)

I. International Monetary Reserves are constituted by currencies recognized as International Reserve Currencies.

II. The exposure of International Monetary Reserves in investments denominated in currencies other than the United States dollar must have full coverage of foreign exchange risk and be authorized by the Board of Directors.

Article 15.- (Benchmarks)

Benchmarks may be indices or portfolios formed by sovereign government securities and/or securities issued by the Bank for International Settlements (BIS) and internally constructed benchmarks. In the case of short-term investments, indices formed by securities from sectors authorized in this Regulation may also be considered.

Article 16.- (Return on Investments)

The Investment Control Department will calculate the return on the BCB's International Reserves according to international standards. The return will be evaluated with reference to its benchmark and in the currency invested in each portfolio.

Article 17.- (Intermediaries)

The purchase and sale of securities and currencies will be carried out with primary dealers, eligible financial institutions, or institutions registered in the Stock Exchanges of the countries defined in the risk policy of this Regulation.

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Article 18.- (Investment Sectors)

The authorized investment sectors for the investment of International Reserves are Government, Government Agencies, Supranational, and Banking.

Article 19.- (Investment Operations and Instruments)

I. Authorized investment operations are:

- Establishment of time deposits
- Securities Lending
- Purchase-sale of assets, securities, and instruments
- Purchase-sale of currencies
- Risk hedging with derivatives
- Currency Swaps

II. Authorized investment instruments are:

- Overnight Deposits
- Commercial Paper
- Certificates of Deposit
- Time Deposits
- Bills
- Notes
- Bonds
- Medium Term Notes
- Floating Rate Notes
- Treasury Inflation Protected Securities (TIPS)

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• Interest rate futures/forward contracts
• Currency futures/forward contracts

Article 20.- (Delegated Administration)

I. The delegated administration of International Monetary Reserves is carried out through international organizations, financial institutions, or fund managers.

II. The BCB Board of Directors will expressly approve the investment guidelines for delegated administration within the framework of this Regulation, for subsequent contracting in accordance with what is provided by the specific regulation for the contracting of these specialized services abroad.

III. The total delegated amount must not exceed 15% of International Monetary Reserves.

IV. The amount delegated per institution must not exceed 5% of International Monetary Reserves.

Article 21.- (Custody)

The custody services for International Reserves investments are carried out by the Bank for International Settlements (BIS) and by banks or financial institutions that have a long-term issuer credit risk rating equal to or greater than A (S&P), A (Fitch), or A2 (Moody’s).

CHAPTER III

GLOBAL RISK POLICY

Article 22.- (Credit Risk Rating Agency)

The credit risk ratings mentioned in this Regulation correspond to the rating agencies Standard & Poor’s Global Market Intelligence LLC (S&P), Fitch Solutions Inc. (Fitch), and Moody’s Investors Service (Moody’s), using in the first instance the ratings of the agency with a valid contract with the BCB. In cases where the contracted rating agency does not assign a credit rating to a counterparty, the lowest rating of the other two agencies will be used.

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Article 23.- (Credit Risk)

I. The country where investments are made and the country of the headquarters of the institutions in which International Monetary Reserves investments are made or with which intermediation is carried out, must have a long-term sovereign credit risk rating equal to or greater than A (S&P), A (Fitch), or A2 (Moody’s).

II. For gold investments, the country where investments are made and the country of the headquarters of the institutions in which investments are made, must have a long-term sovereign credit risk rating equal to or greater than AA- (S&P), AA- (Fitch), or Aa3 (Moody’s).

III. The long-term issuer credit risk rating where International Reserves investments are made must be equal to or greater than A (S&P), A (Fitch), or A2 (Moody’s) and short-term equal to or greater than A-1 (S&P), F1 (Fitch), or P-1 (Moody’s).

IV. Investments are made in non-subordinated debt securities.

V. Investments are made in securities with no component associated with the equity market.

VI. Investments of International Reserves may be made in the international organizations Bank for International Settlements (BIS), World Bank (WB), and Latin American Bank of Foreign Trade (BLADEX).

VII. For gold investments, financial entities must be members of the London Bullion Market Association.

VIII. The maximum credit loss in a year, measured by Credit Value at Risk (Credit VaR), is 1% for International Monetary Reserves denominated in United States dollars, with a confidence level of 99.9%.

Article 24.- (Market Risk)

The maximum expected loss in a year under a confidence level of 95%, measured by Market Value at Risk (Market VaR), is 1% for International Monetary Reserves denominated in United States dollars.

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Article 25.- (Concentration Risk)

The concentration limits for investments denominated in United States dollars on the total of International Monetary Reserves are:

Issuer	International Monetary Reserves
Per Government	100%
Per Government Agency	15%
Per Supranational	15%
Per Banking Issuer	5%

I. The limits established in the previous paragraph do not apply to the international organization Bank for International Settlements (BIS) nor to Working Capital.

Article 26.- (Prohibitions)

Investments in agencies of banks or financial institutions classified as "Offshore" are prohibited.

TRANSITIONAL PROVISION

Investments of International Reserves made in authorized instruments prior to and not contemplated in this Regulation, may be maintained until their maturity or redemption. In the event of sale to cover the liquidity needs of International Reserves and fulfill their object, the involved areas will present technical and legal reports with the appropriate justification for the approval of the BCB Board of Directors.