Resolution 007/98 - Denial of Revocation Appeals by Depositors of BIDESA Regarding Resolution 170/97

BOARD RESOLUTION NO. 007/98 SUBJECT: BOARD - DENIAL OF REVOCATION APPEALS FILED BY DEPOSITORS OF BANCO INTERNACIONAL DE DESARROLLO S.A. (BIDESA) IN LIQUIDATION, REGARDING THE BOARD RESOLUTION OF THE BCB NO. 170/97.

SEEN: The Law of the Central Bank of Bolivia No. 1670 of October 31, 1995. The Report from the Legal Advisory Office ALEG No. 028/98 of January 21, 1998. The revocation appeals filed by the depositors of BIDESA in liquidation, entered into the Legal Advisory Office of the BCB on January 8 and 9, 1998, with records Nos. 029, 030, 037, and 041, against the Board Resolution No. 170/97 of December 13, 1997, which authorizes the partial subrogation of rights of the depositors of BIDESA in liquidation.

The appeals raise identical arguments, citations, and grounds, concluding with the same petition, which are summarized in the following quotes:

"By Board Resolution of the BCB No. 170/97, prior procedures are established for the return of deposits from BIDESA in liquidation, absolutely violative of banking, commercial, and civil norms, totally inequitable and unjust, which constitute a merciless confiscation or seizure of the monies (...), entrusted to an entity AUTHORIZED AND SUPERVISED by the State."

"No legal provision of the Financial System; whether Law 1670 of October 31, 1995 (ORGANIC LAW OF THE C.B.C.), nor Supreme Decree 23881 of October 11, 1994, specific for these cases of subrogation by the C.B.C. of deposits of a bank in cases of liquidation, nor also Law 1488 of April 14, 1993 (LAW OF BANKS AND FINANCIAL ENTITIES), authorizes the Board of the Central Bank to set limits or fixed minimum amounts detrimental to those affected by a bank liquidation." For the appellants, "the main faculty granted by the Law (art. 38 subsection e of Law 1670), is to SUBROGATE, PARTIALLY OR FULLY, FOR CASH OR ON INSTALLMENTS. The correct interpretation of this mandatory norm of the Organic Law cited refers to the power (more properly the OBLIGATION) of the BCB to subrogate the rights of depositors of a Bank in Liquidation...".

//2. B.R. No. 007/98

The impugned Resolution must be modified because it "attacks the fundamental postulates of the Magna Carta" established in articles 6 and 7, subsections c), d), h), i) and j) and articles 19, 132, 143 and 157 of the Political Constitution of the State. According to the appellants, "every citizen has and enjoys the same rights without any type of distinction, but recognizing that payment will be made to a majority up to USD 5,000.- and not so the total to those who have sums greater than USD 5,000.-, one incurs in an illegal and discriminatory provision that attacks the fundamental postulates of the Magna Carta, which is general or for all and contains no discrimination whatsoever."

The appellants affirm that "Point 5 of the measures adopted by the Central Bank in its Communication (...) converts in one stroke and extinguishes deposits as simple CLAIMS IN BANKRUPTCY, stripping them, without mitigating factors, of the condition recognized and established by law as EXTRA-BANKRUPTCY (...)". With this provision, it "usurps competence from the Legislative Power, which is the only one that can modify the Commercial Code, therefore said resolution is null according to article 31 of the Political Constitution of the State, lacking competence for that Board to repeal or modify Laws."

"Laws 1488 and 1670 indicate that the State through the SBEF and the BCB norms, regulates, controls and authorizes the functioning of Banks (...). Banks thus authorized by the State are not entities like any other private commercial enterprise, but they fulfill an important economic role, providing a service of PUBLIC ORDER and, fundamentally, capturing money from the entire people which is of urgency and obligation for the State to safeguard (...). If that is the legal nature that the Law establishes for banks, in the absence of a legal Deposit Insurance system, in force in most countries of the world, it is of absolute legal dismay that the State assumes all responsibility emerging from the malfunctioning of BANKS AUTHORIZED before the general public (...). Then, the responsibility of the State in cases of bank insolvency is not only implicit or tacit, but EXPRESS, by having authorized their constitution (...)".

"A very important point that supports that Institution, is established in the same Resolution of the Banking Superintendence No. 143/97 that resolves the forced liquidation of BIDESA. Among its grounds it expresses that the Banco Internacional de Desarrollo S.A., from March 1996 and throughout the 1997 management, registered several deficiencies, for which it disposed the application of the operational restrictions provided in Art. 112 of the Banks Law No. 1488 of April 14 //3. B.R. No. 007/98

of 1993. These deficiencies were maintained and accentuated from the month of September 1997. Now, the restrictions referred to in Art. 112 of the cited Law, are concretized and fulfill the obligation imposed on the Bank to deposit in the BCB all increase in its deposits (liability) and decrease in its assets (portfolio recoveries). That is, such monies constitute a legal reserve of 100%, there must exist and remain in the BCB, that fund of resources sufficient to cover and return the deposits, in addition to the resources from portfolio recoveries that also must be deposited in that Institution at 100%. One could not argue that there are none or do not exist. In such case, the responsibility is inverted absolutely against the Superintendence, as the controlling entity, and that Institution as depositary and regulator of the Legal Reserve."

"Finally, Mr. President and Members of the Board of the BCB, we must ask ourselves: What fear does the BCB have of subrogating our rights that are protected by the Law?; it seems that it distrusts the liquidation measure of BIDESA adopted by the Banking Superintendence?..."

CONSIDERING:

That according to Article 55 of Law 1670 of October 31, 1995, the Board must pronounce itself within twenty (20) days following the filing of a revocation appeal.

That since revocation is a legal action aimed at modifying, altering, suppressing or annulling the effects of an administrative act, it is essential that it incorporate adjetive or substantive legal grounds, of form or substance, demonstrating the alleged transgressions or violations of the law, regulations and current provisions.

That having analyzed the revocation requests, it has been established that these do not include the aforementioned legal elements because the Board of the BCB acted with full competence in issuing Resolution 170/97 of December 13, 1997, under the shelter and with the support of the following legal provisions: //4. B.R. No. 007/98

I) The BCB has normative competence of general application for the financial intermediation system as a whole and not for entities considered individually. The Law does not confer competence to the BCB nor faculty and attribution to decide on the authorization and liquidation of a financial intermediation entity. This is established in articles 11, 12, 13, 14 and 120 of Law 1488 and articles 30 and 31, subsections b) and c), of Law 1670. The control, supervision and oversight of the entities of the financial intermediation system, including the BCB, is a privative and inalienable faculty of the Superintendence of Banks and Financial Entities (SBEF), in accordance with articles 153 and 155 of Law 1488. The BCB does not exercise any control over the operations of banks, nor of the other entities that make up the financial intermediation system. Therefore, instructing the regularization of financial entities with patrimonial deficiency provided in articles 112 and following of Law 1488 is a privative attribute of the SBEF, as well as it is the competence of the Supervisory Authority to control its compliance and execution within the deadlines provided by law. In the same way, the control of compliance with the legal reserve norms dictated by the BCB is the exclusive competence of the SBEF, as provided in article 84 of Law 1488 and 7, second paragraph, of Law 1670. Being the depositary of the legal reserve and of the balances that financial entities maintain in their current accounts at the BCB, in no way generates responsibility for the Issuing Institute in case of liquidation of financial entities.

The BCB, like any other natural or collective person, is subject to the liquidation procedure established by law and, consequently, makes available to the Liquidator the available balances (reserve account and current account) that the liquidated bank maintains at the BCB, in accordance with what is provided in articles 122, 125 and 130 of Law 1488.

II) By mandate of Law 1670, the BCB has attributes and competencies regarding the fulfillment of its different functions and among them those referred to its condition as the governing body of the financial intermediation system. To this end, the Law confers express faculties on it in the form and with the scope established in its provisions; so that it is not authorized to exceed or leave the pre-established legal framework. The BCB, when defining its policies of general application, cannot dispense with its primary object which is to procure the stability of the internal purchasing power of the national currency. For that reason the law confers it specific potestative faculties from which it cannot depart, such as the operations provided in its Article 38, which were the ones that founded the issuance of the Board Resolution of the BCB No. 170/97. //5. B.R. No. 007/98

Supreme Decree No. 23881 of October 11, 1994, whose application the appellants allege, confers the same optional faculty to the Board of the BCB to subrogate the rights of savers and depositors of a financial intermediation entity in liquidation. However, its application in the present case is not legally pertinent, since a Law of the Republic promulgated subsequently as is Law No. 1670 of October 31, 1995, by its hierarchy and by its validity in time and space, establishes and defines in its Article 38 subsection e) the express and unequivocal legal framework to which the Board of the BCB must submit to exercise its faculty of subrogation. This is established in Article 228 of the Political Constitution of the State and Article 5 of the Law of Judicial Organization, which define the primacy of the application of the legal order and the preferential application of the special law over the general. Therefore, for the present case, Law No. 1670 is preferentially applicable.

The citation of Article 128 of Law 1488 is concordant with the principle of legal option that the Board has to exercise or not its faculty of subrogation, when its last part literally says: "To cover these returns the Central Bank of Bolivia MAY subrogate the rights of the aforementioned creditors".

III) Regarding the provision of Article 4 of Resolution 170/97, referred to that the subrogation will be limited to the deposits constituted in BIDESA until October 31, 1997, the same has been conceived in protection of the savers themselves, since it has only a suspensive character for the deposits constituted after that date, which require express authorization of the Board, after special review and confirmation by the SBEF, of the authenticity and legitimacy of the deposits.

IV) The current legal order in Bolivia (Central Bank Law, Law of Banks and Financial Entities, Commercial Code and Civil Code) establishes the privileges and rights of creditors before an entity in liquidation. Nevertheless, to enforce these rights and privileges, it is necessary and indispensable that the interested creditors claim, accredit and prove them, submitting to a procedure that, in the special case of financial intermediation entities, is established in Law 1488 and in the Commercial Code insofar as applicable. Consequently, Article 5 of the Board Resolution of the BCB No. 170/97 of December 13, 1997, in no way is denying the extra-bankruptcy condition that the deposits and savings of BIDESA in liquidation have, since the Issuing Institute, like the other creditors, will claim its claims subject to what is established by Law. //6. B.R. No. 007/98

Law 1488, being a special law that regulates the liquidation procedure of banks, in its Article 133 establishes generally, that any person who has claims against the financial entity in liquidation, registers its claims with sufficient probatory documentation, whether they are extra-bankruptcy or bankruptcy claims. Juridically, this registration in no way represents the exclusion and convertibility of an extra-bankruptcy claim into a bankruptcy claim.

V) The citation made by the appellants of articles 6 and 7, subsections e), d), h) and j), 19, 132, 143 and 157 of the Political Constitution of the State as violated by the form and partial amount of the subrogation determined by the Board, is legally inconsistent. Article 132 refers to the economic organization, which must respond to principles of social justice that tend to ensure for all inhabitants, a dignified existence of the human being. This constitutional principle has no cause-and-effect relationship with the liquidation or bankruptcy of a private institution. The causes of liquidation are expressly contained in Article 120 of Law 1488 and the effects thereof are the procedural substitution and trusteeship of the institution by the SBEF, which in turn assumes the full legal personality of the entity in liquidation.

Article 143, cited by the appellants, refers to the fact that the State will determine the monetary, banking and credit policy, with the object of improving the conditions of the national economy. This is a principle of definition of national policies in monetary, exchange and credit matters, which has no relation with what the liquidation of an individual banking institution means, therefore, its citation is not adequate nor pertinent.

Article 157 of the Magna Carta corresponds to the title referred to the "social regime", where work and capital enjoy the protection of the State, that is the labor relationship of the right to work as a basis of coordination between the two factors of production. Consequently, the citation is not applicable to the case.

The citation of articles 6 and 7, the latter in several of its subsections, refers to the fundamental rights of persons, and like the previous ones, it does not bear a relationship of breach and illegality of the administrative act of the BCB that disposes the partial subrogation of claims, because Resolution No. 170/97, without discrimination of any nature, gives the same treatment to all depositors and savers of BIDESA in liquidation, subrogating without distinction of any type their rights in the same amount.

In definitive, the appellants do not prove that the Board Resolution of the BCB No. 170/97 has transgressed or violated any adjetive or substantive law but, on the contrary, only express interpretations and comments on the current legal order in the country. //7. B.R. No. 007/98

That by the aforementioned antecedents, having the BCB acted within its faculties and competencies, without violating current regulations, it is not possible to process the requested revocations.

THEREFORE,

THE BOARD OF THE CENTRAL BANK OF BOLIVIA

RESOLVES:

Article 1.- Accumulate in a single process the four revocation appeals filed by the depositors of BIDESA in liquidation, entered into the Legal Advisory Office of the BCB with records Nos. 029, 030, 037 and 041 on dates January 8 and 9, 1998, as they are connected in title and object.

Article 2.- Deny the revocation appeals referred to above, accumulated in a single process, for lacking valid legal grounds, leaving firm and subsistent the Board Resolution No. 170/97 of December 13, 1997.

27.I.98

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Juan Medinacelli V.

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Armando Pinell S. Jaime Ponce G. Juan Pablo Zegarra A.