Central Bank of Bolivia

Board of Directors

BOARD RESOLUTION NO. 097/2018

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

VISTOS (SEEING):

• The Political Constitution of the State approved by referendum on January 25, 2009, and published on February 7, 2009.
• Law No. 1670 of October 31, 1995 of the Central Bank of Bolivia (BCB).
• The BCB Statute approved by Board Resolution No. 128/2005 of October 21, 2005, and its subsequent modifications.
• The Regulation for the Administration of International Reserves approved by Board Resolution No. 122/2016 of July 5, 2016.
• The modifications to the Regulation for the Administration of International Reserves approved by Board Resolutions No. 084/2017 and 175/2017 of June 27 and December 12, 2017, respectively.
• The Report from the International Operations Management BCB-GOI-SRES-DNI-INF-2018-25 of July 27, 2018.
• The Report from the Legal Affairs Management BCB-GAL-SANO-DLBCI-INF-2018-227 of July 27, 2018.

CONSIDERANDO (CONSIDERING):

• That the Political Constitution of the State establishes in its article 328 that it is an attribute of the BCB, in coordination with the economic policy determined by the Executive Branch, in addition to those indicated by Law, to administer international reserves.
• That in accordance with what is provided in article 16 of Law No. 1670, the Central Bank of Bolivia has the function of administering and managing International Reserves, being able to invest them and deposit them in custody, as well as 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.
• That within the framework of the aforementioned, the Central Bank of Bolivia has approved through Board Resolution No. 122/2016 the Regulation for the Administration of International Reserves, establishing the policies and norms for its correct administration.
• That the Report from the International Operations Management BCB-GOI-SRES-DNI-INF-2018-25, recommends approving a new Regulation for the Administration of International Reserves in order to optimize the management of said reserves.

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That the Report from the Legal Affairs Management BCB-GAL-SANO-DLBCI-INF-2018-227, concludes that the project of the new Regulation for the Administration of International Reserves proposed by the GOI is legally procedent, insofar as it does not contravene the current legal framework, being the competence of the BCB Board to consider its approval, by two-thirds of the votes of all its members, as established in articles 54 subsection o) of Law No. 1670 and 11 of the BCB Statute.

THEREFORE,

THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA

RESOLVES:

Article 1.- Approve the new Regulation for the Administration of International Reserves, which, as an annex, forms an integral part of this Resolution, which will enter into force on the day of its approval.

Article 2.- Repeal Board Resolutions No. 122/2016, No. 084/2017 and 175/2017, of January 26, 2016, June 27 and December 12, 2017 respectively, and all provisions contrary to this Regulation from the date of this Resolution.

Article 3.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, July 31, 2018

Pablo Ramos Sánchez Abraham Pérez Alandia Gabriel Herbas Camacho Luis Baudoin Olea Ronald Polo Rivero Sergio Velarde Vera

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ANNEX

REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES

CHAPTER I

GENERAL PROVISIONS

Article 1.- (Object) The purpose of this Regulation is to establish the policies and norms for the administration 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 security, capital preservation, liquidity, diversification, and profitability, in that order of priority.

Article 3.- (International Reserves Committee) I. The International Reserves Committee, constituted in accordance with the BCB Statute, meets at least once a month to evaluate the investments made by the International Operations Management and by delegated administrators. II. Before the start of each quarter, it determines the minimum and maximum levels of the Precautionary Tranche, Working Capital, and the Investment Tranche portfolios. If necessary, it can modify these decisions within the same quarter. III. It defines the treatment to be applied to investments whose credit risk rating decreases to a level below the minimum required in article 15 of this Regulation. IV. It defines the treatment for cases where mergers, absorptions, or subrogations of financial entities occur in which there are investments, current accounts are maintained, or delegated administration or securities custody services are provided.

Article 4.- (Execution of Investments) The International Operations Management through the Reserves Sub-management is responsible for the execution of the investments of the international reserves, applying

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the provisions of this Regulation, presenting periodic reports to the International Reserves Committee and the BCB Board. The Investment Control Department of the International Operations Management will carry out control over the compliance with the norms, policies, and limits established by the BCB Board in the investment of international reserves, presenting periodic reports to the International Reserves Committee.

CHAPTER II

ON INTERNATIONAL RESERVES

SECTION I

OBJECT AND STRUCTURE OF INTERNATIONAL RESERVES

Article 5.- (Object) International reserves have the object of maintaining the normal functioning of the country's international payments and backing monetary and exchange rate policies.

Article 6.- (Structure of International Reserves) I. International reserves are composed of international monetary reserves and gold reserves. II. International monetary reserves are broken down into the Precautionary Tranche and the Investment Tranche.

Article 7.- (Precautionary Tranche) I. The object of the Precautionary Tranche, constituted by Working Capital, the Liquidity Portfolio, and the 0-3 years Portfolio, is to cover liquidity needs to meet international payment requirements and those arising from extraordinary events. II. The minimum and maximum levels of the Precautionary Tranche are determined by the International Reserves Committee.

Article 8.- (Working Capital) I. The object of working capital is to meet immediate payment requirements and fund transfers abroad. It is composed of investments of up to 7 days, balances in current accounts abroad, and US dollar banknotes. II. The General Management, in coordination with the Treasury and International Operations Managements, will approve the amounts and dates for sending or receiving foreign currency in banknotes.

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Article 9.- (Liquidity and 0-3 years Portfolios) I. The object of the Liquidity and 0-3 years Portfolios is to meet liquidity requirements not covered by Working Capital. II. The Liquidity Portfolio maintains short-term investments detailed in article 13 of this Regulation. III. The 0-3 years Portfolio maintains short and medium-term investments detailed in article 13 of this Regulation.

Article 10.- (Investment Tranche) I. The object of the Investment Tranche is to diversify the investment of international reserves and increase its value over a long-term horizon. II. Its size is determined by the difference between the total International Monetary Reserves and the Precautionary Tranche. III. It is constituted by the Portfolios: Medium Term 0-5 years, Global (in currencies authorized by the Board), and holdings of Special Drawing Rights. This tranche is invested in the instruments and operations indicated in article 13 of this Regulation. IV. The Medium Term 0-5 years portfolio will hold each of its investments until maturity. The International Reserves Committee may exceptionally define sales before the maturity of an investment.

Article 11.- (Authorized Currencies) I. Working Capital is constituted by currencies from countries that comply with what is established in article 15 of this Regulation. II. The Liquidity and 0-3 years Portfolios are constituted in US dollars (USD) and other currencies with full coverage against the USD. III. The minimum and maximum limits of the currencies that make up the Investment Tranche are determined by the BCB Board.

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SECTION II

REFERENCE COMPARATORS, AUTHORIZED INSTRUMENTS AND OPERATIONS

Article 12.- (Reference Comparators) The following reference comparators are established:

Tranche	Portfolio	Reference Comparator (Benchmark)
Precautionary	Working Capital	Average Overnight LIBID in USD
	0-3 years Portfolio	Merrill Lynch US Treasuries Index 0 to 3 years
	Liquidity Portfolio	Average 6-month LIBID in USD
Investment	Medium Term 0-5 years	BIS MTI Bonds 0-5 years
	Global (1)	Merrill Lynch AAA Bonds Index 0-5 years in EUR (EGAV), FIXBIS 6 months in AUD, FIXBIS 6 months in CAD, 6-month deposit index in CNH, and BISP CNY index of Chinese Government bonds in CNY.

(1) The weight of each index in the comparator will be based on the average balance of each Portfolio and its currencies.

Article 13.- (Authorized Instruments and Operations) The authorized instruments and operations are the following:

• Overnight Deposits
• Securities Lending.
• Foreign Exchange Purchase – Sale

With a maximum residual maturity of 1 year:

• Commercial Paper
• Certificates of Deposit
• Time Deposits
• Bank Medium Term Notes
• Foreign Exchange Swaps

With a maximum maturity of 10 years:

• Bonds issued by governments
• Bonds issued by regional or municipal governments.
• Bonds issued by agencies
• Bonds issued by supranational organizations
• Floating Rate Notes
• Interest Rate Futures Contracts
• Investment Funds composed of instruments authorized in this Regulation
• Structured Notes

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With maturity up to 30 years

• Treasury Inflation Protected Securities (TIPS)

CHAPTER III

ON GOLD RESERVES

Article 14.- (Gold Reserves) I. Gold reserves are constituted by investments in time deposits, bonds denominated in gold, balances in allocated (physically) or unallocated (book entry) accounts, and gold bars that have the quality of London Good Delivery Bars. II. Investments may be made in countries with a long-term sovereign credit risk rating of AA-, at the Bank for International Settlements (BIS), the World Bank (WB), and in financial entities that are members of the London Bullion Market Association with a long-term rating equal to or greater than A and a short-term rating equal to or greater than F1. III. The limit for gold investment abroad is 100%, and the amount of gold in bars purchased locally, which may remain in the BCB vault, will be up to 500 kilograms. IV. Investments in gold by issuer must not exceed 40% of the portfolio value excluding the BIS and the WB. V. The purchase of gold required to complete London Good Delivery Bars, resulting from the refining of locally purchased gold, is authorized.

CHAPTER IV

GLOBAL RISK POLICY

Article 15.- (Credit Risk) I. The country where the investments are made and the country of the parent company of the institutions in which the investments of monetary reserves are made or with which intermediation is carried out, must have a long-term sovereign credit risk rating equal to or greater than A. II. The investment of international reserves is made with issuers that have a short-term rating equal to or greater than F-1 and a long-term rating equal to or greater than A.

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III. Investments are made in non-subordinated debt securities and without any component associated with the equity market. IV. Investments of international reserves may be made in the BIS. V. The maximum credit loss in a year, measured by Value at Risk (VaR), is 1% for the total International Monetary Reserves, with a confidence level of 99.9%. VI. Investments may be made in the international organizations Financial Fund for the Development of the Plata Basin (FONPLATA) and the Latin American Bank of Foreign Trade (BLADEX). The limits of terms and maximum investment amount will be determined by the International Reserves Committee.

Article 16.- (Market Risk) I. The maximum investment term per instrument in the Liquidity Portfolio is 1 year. II. For the 0-3 years Portfolio, the duration range is +/- 0.6 years with respect to the duration of its reference comparator, the margin duration is less than or equal to 2 years, and convexity is greater than -0.5. III. The active risk exposure for the 0-3 years Portfolio is equivalent to an ex ante tracking error less than or equal to 100 basis points, measured against its reference comparator. IV. The average duration by currency of the Global Portfolio, excluding the euro, will have a range of +/- 0.5 years in relation to the duration of its reference comparator. V. The duration of the Euro component of the Global Portfolio will have a range of +/- 1.5 years in relation to the duration of its reference comparator.

Article 17.- (Concentration Risk) The limits by concentration on the total international monetary reserves are:

Sector/Issuer	Total International Monetary Reserves
Per Agency	15%
Per Regional or Municipal Government	10%
Per Supranational	15%
Per Banking Issuer	5%

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CHAPTER V

DELEGATED ADMINISTRATION AND CUSTODY OF SECURITIES

Article 18.- (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 will expressly approve the investment guidelines for delegated administration through a Resolution, for subsequent contracting in accordance with what is provided by the specific regulation for the contracting of these services. 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 19.- (Custody) The custody services for the investments of international reserves are carried out at the BIS and in banks or financial institutions that have a long-term issuer credit risk rating equal to or greater than A, and that comply with what is provided in article 15 of this Regulation.

CHAPTER VI

OTHER PROVISIONS

Article 20.- (Performance of Investments) The performance of the BCB's international reserves will be evaluated with reference to the currency invested in each portfolio.

Article 21.- (Prohibitions) Investments in agencies of banks or financial institutions classified as "Offshore" are prohibited.

Article 22.- (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 article 15 of this Regulation.

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Article 23.- (Credit Risk Rating Agency) The credit risk ratings mentioned in this Regulation correspond to Fitch Solutions Inc. In case ratings from another Credit Rating Agency are used, the ratings equivalent to Fitch Solutions Inc. will be taken into account.

Article 24.- (Audits on the Investment of International Reserves) The Internal Audit Management will carry out audits on the investment of international reserves on a semi-annual basis.

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