BOARD OF DIRECTORS

BOARD RESOLUTION NO. 054/2023

SUBJECT: ECONOMIC POLICY ADVISORY AND FINANCIAL ENTITIES MANAGEMENT – MODIFY THE LEGAL RESERVE REGULATION FOR FINANCIAL INTERMEDIATION ENTITIES.

VIEWED:

• The Political Constitution of the State of February 7, 2009.
• Law No. 1670 of October 31, 1995, of the Central Bank of Bolivia and its modifications.
• Law No. 393 of August 21, 2013, on Financial Services.
• Supreme Decree No. 4539 of July 7, 2021.
• Board Resolution No. 095/2022 of October 6, 2022, which approves the Statute of the Central Bank of Bolivia.
• Board Resolution No. 076/2022 of August 26, 2022, which approves the Legal Reserve Regulation for Financial Intermediation Entities and its modifications.
• Report BCB-APEC-SADBC-INF-2023-10 of March 23, 2023, from the Economic Policy Advisory (APEC) and the Financial Entities Management (GEF).
• Report BCB-GAL-SANO-DLBCI-INF-2023-109 of March 24, 2023, from the Legal Affairs Management.

CONSIDERING:

That Article 327 of the Political Constitution of the State states that the Central Bank of Bolivia (BCB) is a public law institution, with legal personality and its own assets. Within the framework of the State's economic policy, it is the function of the BCB to maintain the stability of the internal purchasing power of the currency, to contribute to economic and social development.

That Article 328 of the Political Constitution of the State states that the BCB, in coordination with the economic policy determined by the Executive Branch, in addition to those specified by law, has the following attributes: 1. Determine and execute monetary policy. 2. Execute exchange rate policy. 3. Regulate the payment system. 4. Authorize the issuance of currency. 5. Administer international reserves.

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That Article 1 of Law No. 1670 of the Central Bank of Bolivia, modified by Article 67, section A3, item 1 of Law No. 1864 of June 15, 1998, on Popular Property and Credit, determines that the BCB is a State institution, of public law, of an autarkic nature, of indefinite duration, with its own legal personality and assets and with legal domicile in the city of La Paz. It is the sole monetary and exchange rate authority of the country, with administrative, technical, and financial competence and specialized regulatory powers of general application.

That Article 2 establishes that the object of the BCB is to seek the stability of the internal purchasing power of the national currency.

That Article 3 of Law No. 1670 provides that the BCB will formulate policies of general application in monetary, exchange rate, and payment system matters to fulfill its object.

That Article 7 of Law No. 1670 determines that the BCB may establish Legal Reserves of mandatory compliance by Banks and Financial Intermediation Entities (EIF). Their composition, amount, method of calculation, characteristics, and remuneration shall be established by the Board of Directors of the Bank, by an absolute majority of votes. The control and supervision of the Legal Reserve shall correspond to the current Authority for the Supervision of the Financial System.

That Article 37 of Law No. 1670 establishes that the BCB will be the depository of the liquid reserves intended to cover the Legal Reserve and attend to the payment system and other operations with the BCB of EIF subject to the authorization and control of the Authority for the Supervision of the Financial System.

That Article 44 of Law No. 1670 provides that the highest authority of the BCB is its Board of Directors, which is responsible for defining its policies, specialized regulations of general application, and internal rules; as well as for establishing administrative, operational, and financial strategies of the Issuing Entity, approving their respective short and medium-term programs.

That subsections a) and i) of Article 54 of Law No. 1670 indicate as attributes of the BCB Board of Directors to issue regulations and adopt general decisions that are necessary for the Issuing Entity to fulfill the functions, competencies, and powers assigned by Law; to fix and regulate the administration of the Legal Reserve to which banks and other financial entities must be subject, disposing of measures for its compliance; 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.

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That Article 430 of Law No. 393 determines that the BCB may grant liquidity credits to EIF with the guarantee of the constituted Legal Reserve, as well as with other guarantees determined by the Issuing Entity, according to a regulation approved by its Board of Directors.

That Supreme Decree No. 4539 aims to comprehensively incentivize the use of electricity with the purpose of contributing to the improvement of the environment, energy savings, and efficiency through, among others, financial incentives for the manufacture, assembly, and purchase of electric and hybrid motor vehicles and electric and hybrid agricultural machinery.

That items 1) and 7) of Article 10 of the BCB Statute determine that the Board of Directors of the Issuing Entity has the attributes to approve general decisions and issue regulations that are necessary for the BCB to fulfill the functions, competencies, and powers assigned to it by Law; to establish by absolute majority of votes, Legal Reserves of mandatory compliance by EIF and approve their composition, amount, calculation, characteristics, forms of administration, custody, and remuneration, according to Regulation.

That Article 24 refers that resolutions and decisions of the Board of Directors are adopted by a simple majority of votes of the members present in a meeting, except in cases where Law No. 1670 or this Statute require qualified majorities.

That Article 26 of the Statute of the Issuing Entity stipulates that the Board of Directors pronounces on matters within its competence through resolutions. It may also do so through decisions that will be expressly recorded in the minutes. Likewise, every draft resolution of the Board of Directors must be motivated and justified by a technical report from the Management or Managements to which the matter subject to the resolution corresponds and by a report from the Legal Affairs Management. These reports must be sent to the Board of Directors by the General Management with its recommendation.

That the Legal Reserve Regulation for Financial Intermediation Entities, approved by Board Resolution No. 076/2022 of August 26, 2022, provides in its Article 1 that its object is to fix and regulate the administration of the Legal Reserve and the resources resulting from its modification, in order to have instruments of monetary regulation and preservation of the stability of the financial system.

That Article 2 of the Legal Reserve Regulation for Financial Intermediation Entities provides that all EIF, authorized for their operation by the

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Authority for the Supervision of the Financial System ASFI, are subject to the provisions of this Regulation.

That Report BCB-APEC-SADBC-INF-2023-10, issued by APEC and GEF concludes and recommends that in 2023, the national economy has been going through a period of uncertainty generated by social conflicts arising in Santa Cruz, as well as speculation regarding the exchange rate market, which has resulted in an increase in demand for US dollars by the population. Both factors have affected the dynamism of the national economy, especially the financial system. The recent behavior of reducing the deposit-credit gap and the liquidity of the financial system justifies the need to strengthen the dynamization of credits, especially those destined for the productive sector. For this, it will be necessary for EIF to have the necessary lendable funds for this purpose. Additionally, given the prevailing demand pressures for US dollars and considering the increase in liquidity in ME, it is also necessary to take measures to help EIF respond to this situation. In this sense, it is proposed and recommended to the BCB Board of Directors the approval of the Modifications to the Legal Reserve Regulation for EIF with the objective of strengthening the liquidity of the financial system. Previously, it is suggested to request the opinion of the BCB Legal Affairs Management.

That the Legal Affairs Management, through Report BCB-GAL-SANO-DLBCI-INF-2023-109 concludes that the proposal of APEC and GEF aims to modify the Legal Reserve Regulation for EIF in Articles 16, 38, and 41, through which it is intended to transfer a portion of the resources from FIUSEER, which are not guaranteeing liquidity loans, to the CPRO Fund, and to decrease the percentage of funds in custody for ME and MVDOL from 20% to 10%, which were approved by Board Resolution No. 076/2022 of August 26, 2022, and its modifications. Finally, it concludes that the content of the draft modifications to the Legal Reserve Regulation for Financial Intermediation Entities, proposed by APEC and GEF, is legally viable insofar as it does not contravene the legal order, consequently recommending its approval by the Board of Directors.

THEREFORE,

THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA,

RESOLVES:

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Article 1.- Modify Article 16 (Funds in Custody) of the Legal Reserve Regulation for Financial Intermediation Entities, with the following text:

“Article 16 (Funds in Custody) EIF may maintain up to 60% of their Legal Reserve requirement in Cash in National Currency (MN) and Non-Convertible Foreign Currency Funds (MNUFV) in Funds in Custody in any location. Any excess maintained by EIF above this percentage will not be recognized for reserve purposes.

EIF must maintain 10% of their Legal Reserve requirement in Cash in Foreign Currency (ME) and Foreign Currency Funds (MVDOL) in Funds in Custody in any location. Any excess maintained by EIF above this percentage will not be recognized for reserve purposes. The global deficiency in Funds in Custody in ME and MVDOL cannot be compensated with excess reserves in BCB accounts or reserves in securities.”

Article 2.- Modify Article 38 (Constitution of the Fund for Incentive for the Use of Electric and Renewable Energy) of the Legal Reserve Regulation for Financial Intermediation Entities, with the following text:

“Article 38 (Constitution of the Fund for Incentive for the Use of Electric and Renewable Energy). The Fund for Incentive for the Use of Electric and Renewable Energy (FIUSEER) is constituted in the BCB, in national currency (FIUSEER-MN) with resources from the CAPROSEN-MN Fund and in foreign currency (FIUSEER-ME) with resources from the CAPROSEN-ME Fund that did not guarantee liquidity loans with the BCB as of September 30, 2021, and December 22, 2022.

Likewise, it will be constituted in national currency (FIUSEER-MN) with resources from the CAPROSEN-MN Fund and in foreign currency (FIUSEER-ME) with resources from the CAPROSEN-ME Fund resulting from the early cancellation and maturity of liquidity loans with the guarantee of the CAPROSEN Fund.

Additionally, seventy percent (70%) of the resources of each EIF in the FIUSEER-ME, which are not guaranteeing liquidity loans with the BCB as of April 3, 2023, will become part of their participation in the CPRO-ME Fund.”

Article 3.- Modify Article 41.- (Constitution of the Fund for Credits destined for the Productive Sector) of the Legal Reserve Regulation for Financial Intermediation Entities, with the following text:

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“Article 41.- (Constitution of the Fund for Credits destined for the Productive Sector). The Fund for Credits destined for the Productive Sector (CPRO Fund) was constituted in the BCB, in national currency (CPRO Fund-MN) with available resources resulting from the modification of the Legal Reserve rate in Securities in MN-MNUFV effective from January 10, 2022, and the modification of the Legal Reserve rate in Securities in MN-UFR effective from December 12, 2022; and in foreign currency (CPRO Fund-ME) with available resources resulting from the modification of the Legal Reserve rate in Securities in ME-MVDOL effective from January 10, 2022, and the modification of the Legal Reserve rate in securities in ME-MVDOL effective from December 12, 2022; in addition to the voluntary contributions of EIF in ME and deposited in the BCB account at their correspondent bank abroad, made from January 18, 2022, to December 29, 2023.

Likewise, it will be constituted in foreign currency (CPRO Fund-ME) with seventy percent (70%) of the resources of the FIUSEER-ME, which are not guaranteeing liquidity loans with the BCB as of April 3, 2023.

The validity of this fund will be until March 31, 2025. The resources of each EIF in the fund will be returned by the BCB upon the expiration of the fund according to what is established in item 9 of article 42.”

Article 4.- The modifications to the Legal Reserve Regulation for Financial Intermediation Entities will enter into effect from March 28, 2023.

Article 5.- The Presidency and the General Management are charged with the compliance of this Resolution.

La Paz, March 24, 2023

SIGNED. ROGER EDWIN ROJAS ULO, Oscar Ferruño Morro, Gumercindo Héctor Pino Guzmán, Diego Alejandro Pérez Cueto Eulert.