Resolution 012/2002 Approving Modifications to the Legal Reserve Regulation

RESOLUTION OF THE BOARD OF DIRECTORS NO. 012/2002 SUBJECT: ECONOMIC POLICY ADVISORY – APPROVES MODIFICATIONS TO THE LEGAL RESERVE REGULATION

VIEWED:
Law 1670 of the Central Bank of Bolivia (BCB) of October 31, 1995.
Supreme Decree 26390 of November 8, 2001.
Board of Directors Resolutions 088/2000 of November 28, 2000; 049/2001 of June 5, 2001; 071/2001 of July 31, 2001; 113/2001 of November 13, 2001; 116/2001 of November 20, 2001; and 120/2001 of November 29, 2001.
Technical Report from the Economic Policy Advisory APEC-INEP No. 001/2002 of January 15, 2002.
Legal Report SANO No. 010/2002 of January 22, 2002.

CONSIDERING:
That the Central Bank of Bolivia, in compliance with Law 1670, has established a legal reserve regime of mandatory compliance for banks and financial intermediation entities.

That pursuant to Supreme Decree 26390, legally established financial entities in Bolivia and any natural, legal, or collective person are authorized to voluntarily and freely carry out any type of legal acts, operations, and contracts that will be charged and paid in national currency with value maintenance according to the daily evolution of the Housing Development Unit (UFV).

That the Economic Policy Advisory recommends the modification of Articles 2, 4, 5, 7, 11, 14, 15, 21, 22, 26, 28, 31 and the elimination of Article 34 of the Legal Reserve Regulation.

That in virtue of the powers conferred by articles 7, 8, and 54, subsections a), i), and o) of Law 1670, the Board of Directors of the BCB is empowered to modify existing regulations.

THEREFORE,
THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA RESOLVES:

Article 1.- Modify Article 2 of the Legal Reserve Regulation, in the following terms:
SAYS:
Legal Reserve in Securities: Legal reserve required and constituted in cash by financial entities in the accounts enabled for this effect, to be invested by the Trustees of the RAL-MN and RAL-ME Funds in securities, bonds, or authorized instruments. SHOULD SAY:
“Legal Reserve in Securities: Legal reserve required and constituted in cash by financial entities in the accounts enabled for this effect, to be invested by the Trustees of the RAL-MN, RAL-MNUFV, and RAL-ME Funds in securities, bonds, or authorized instruments.”

SAYS:
RAL Fund: Liquidity Asset Requirement Fund that will have a component in national currency (RAL-MN Fund) and another in foreign currency (RAL-ME Fund).
SHOULD SAY:
“RAL Fund: Liquidity Asset Requirement Fund that will have a component in national currency (RAL-MN Fund), another in national currency with value maintenance relative to the UFV (RAL-MNUFV Fund), and a third in foreign currency (RAL-ME Fund).”

SAYS:
Trustee of RAL-MN: The BCB or the bank acting as trustee in the administration of the RAL-MN Fund. When it concerns a bank other than the BCB, it will be selected based on competitive mechanisms and technical and economic criteria approved by the BCB Board of Directors through an express resolution. SHOULD SAY:
“Trustee of RAL-MN: The BCB or the financial entity acting as trustee in the administration of the RAL-MN Fund. When it concerns a financial entity other than the BCB, it will be selected based on competitive mechanisms and technical and economic criteria approved by the BCB Board of Directors through an express resolution.”

The following terms and abbreviations are added:
“MNUFV: National Currency with Value Maintenance relative to the Housing Development Unit (UFV).
RAL Fund in National Currency with value maintenance relative to the UFV (RAL-MNUFV): Fund administered by the BCB or by one or more Trustees contracted by the BCB and constituted by national sovereign titles in MNUFV or in national currency, acquired with the funds of the legal reserve in securities in MNUFV. Trustee of RAL-MNUFV: The BCB or the financial entity acting as trustee in the administration of the RAL-MNUFV Fund. When it concerns a financial entity other than the BCB, it will be selected based on competitive mechanisms and technical and economic criteria approved by the BCB Board of Directors through an express resolution.”

Article 2.- Modify the third paragraph of Article 4 of the Legal Reserve Regulation, in the following terms:
SAYS:
The terms of the legal reserve for Time Deposits (DPF), according to the terms and currencies of the deposits, are established in the following table:

LEGAL RESERVE FOR DPF ACCORDING TO MATURITY TERM AND CURRENCY

ORIGINAL TERM OF DPF	NATIONAL CURRENCY - Securities	NATIONAL CURRENCY - Cash	FOREIGN CURRENCY AND MVDOL - Securities	FOREIGN CURRENCY AND MVDOL - Cash
30 to 60 days	No Reserve*	Reserve	Reserve
Greater than 60 days up to 180 days	No Reserve*	No Reserve*	Reserve	Reserve
Greater than 180 days up to 360 days	No Reserve*	No Reserve*	Reserve	Reserve
Greater than 360 days up to 720 days	No Reserve*	No Reserve*	Reserve	No Reserve*
Greater than 720 days	No Reserve*	No Reserve*	No Reserve*	No Reserve*

*Only time deposits of 30 days or more are considered DPF. To access the reserve exemption, there is an obligation to previously register the DPF at the BCB.

SHOULD SAY:
“The terms of the legal reserve for Time Deposits (DPF), according to the terms and denominations of the deposits, are established in the following table:

LEGAL RESERVE FOR DPF ACCORDING TO MATURITY TERM AND DENOMINATION

ORIGINAL TERM OF DPF	NATIONAL CURRENCY AND MNUFV - Securities	NATIONAL CURRENCY AND MNUFV - Cash	FOREIGN CURRENCY AND MVDOL - Securities	FOREIGN CURRENCY AND MVDOL - Cash
30 to 60 days	No Reserve*	Reserve	Reserve
Greater than 60 days up to 180 days	No Reserve*	No Reserve*	Reserve	Reserve
Greater than 180 days up to 360 days	No Reserve*	No Reserve*	Reserve	Reserve
Greater than 360 days up to 720 days	No Reserve*	No Reserve*	Reserve	No Reserve*
Greater than 720 days	No Reserve*	No Reserve*	No Reserve*	No Reserve*

*Only time deposits of 30 days or more are considered DPF. To access the reserve exemption, there is an obligation to previously register the DPF at the BCB.”

Article 3.- Modify the third and fourth paragraphs of Article 5 of the Legal Reserve Regulation, in the following terms:
SAYS:
Time deposits in national currency, with an original maturity term of 30 to 60 days, registered at the BCB, will be exempt from the legal reserve in securities.
Time deposits in national currency, with an original maturity term greater than sixty days, registered at the BCB, will be exempt from the legal reserve.
SHOULD SAY:
“Time deposits in national currency and MNUFV, with an original maturity term of 30 to 60 days, registered at the BCB, will be exempt from the legal reserve in securities.
Time deposits in national currency and MNUFV, with an original maturity term greater than sixty days, registered at the BCB, will be exempt from the legal reserve.”

Article 4.- Modify Article 7 of the Legal Reserve Regulation, in the following terms:
SAYS:
The legal reserve percentages on liabilities in national currency, MVDOL, and foreign currency, detailed in Articles 3 and 4, are the following:
two percent (2%) for cash reserve ten percent (10%) for securities reserve SHOULD SAY:
“The legal reserve percentages on liabilities in national currency, MNUFV, MVDOL, and foreign currency, detailed in Articles 3 and 4, are the following:
two percent (2%) for cash reserve ten percent (10%) for securities reserve”

Article 5.- Modify the first, third, and fourth paragraphs of Article 11 of the Legal Reserve Regulation, in the following terms:
SAYS:
Banking entities must maintain at the BCB a single account called “current and reserve account” in each of the three denominations (national currency, MVDOL, and foreign currency), in replacement of the current and legal reserve in cash accounts they maintained at the BCB. Non-banking financial entities that maintained legal reserve in cash accounts at the BCB, may maintain only one account called reserve account in each of the three denominations (national currency, MVDOL, and foreign currency), in replacement of the aforementioned legal reserve in cash accounts. The legal reserve in cash must be constituted: (i) in national currency, for deposits in the same currency, (ii) in MVDOL, for deposits in MVDOL, and, (iii) in US dollars, for deposits in foreign currency. SHOULD SAY:
“Banking entities must maintain at the BCB a single account called “current and reserve account” in each of the four denominations (national currency, MNUFV, MVDOL, and foreign currency).
Non-banking financial entities that maintained legal reserve in cash accounts at the BCB, may maintain only one account called reserve account in each of the four denominations (national currency, MNUFV, MVDOL, and foreign currency). The legal reserve in cash must be constituted: (i) in national currency, for deposits in the same currency, (ii) in MNUFV for deposits in MNUFV, (iii) in MVDOL, for deposits in MVDOL and, (iv) in US dollars, for deposits in foreign currency.”

Article 6.- Modify the first paragraph of Article 14 of the Legal Reserve Regulation, in the following terms:
SAYS:
Financial entities must report daily until 15:00 hours, to the Financial Entities Management of the BCB and to the SBEF, the total of their liabilities subject to legal reserve, by currency and by type of deposit, corresponding to the previous business day. SHOULD SAY:
“Financial entities must report daily until 15:00 hours, to the Financial Entities Management of the BCB and to the SBEF, the total of their liabilities subject to legal reserve, by denomination and by type of deposit, corresponding to the previous business day.”

Article 7.- Modify Article 15 of the Legal Reserve Regulation, in the following terms:
SAYS:
Article 15 (Compensation by Currencies).
The legal reserve in cash must be constituted in the denomination in which the deposits were captured. Compensations between currencies for the legal reserve in cash will not be allowed. The legal reserve in securities must be constituted in accordance with Article 21 of this Regulation. Regarding the legal reserve constituted in MVDOL, the BCB will recognize in favor of financial entities the differential by exchange rate only up to the limit of the required legal reserve. SHOULD SAY:
“Article 15 (Compensation by Denominations).
The legal reserve in cash must be constituted in the denomination in which the deposits were captured. Compensations between denominations for the legal reserve in cash will not be allowed. The legal reserve in securities must be constituted in accordance with Article 21 of this Regulation. Regarding the legal reserve constituted in MNUFV and MVDOL, the BCB will recognize in favor of financial entities the differential by variation of the UFV for MNUFV and by variation of the exchange rate for MVDOL only up to the limit of the required legal reserve in cash.”

Article 8.- Modify Article 21 of the Legal Reserve Regulation, in the following terms:
SAYS:
The legal reserve in securities must be constituted: (i) for deposits in national currency, deposits in the same currency that will be invested by the Trustee of the RAL-MN Fund in national sovereign fixed-income and public offering securities, denominated in national currency; (ii) for deposits in foreign currency and MVDOL, deposits in US dollars that will be invested by the Trustee or Trustees of the RAL-ME Fund in accordance with investment guidelines expressly approved by the BCB Board of Directors through an express resolution. SHOULD SAY:
“The legal reserve in securities must be constituted: (i) for deposits in national currency, deposits in the same currency that will be invested by the Trustee of the RAL-MN Fund in national sovereign fixed-income and public offering securities, denominated in national currency; (ii) for deposits in MNUFV, deposits in the same denomination that will be invested by the Trustee of the RAL-MNUFV Fund in national sovereign fixed-income and public offering securities, denominated in MNUFV or in national currency; and (iii) for deposits in foreign currency and MVDOL, deposits in US dollars that will be invested by the Trustee or Trustees of the RAL-ME Fund in accordance with investment guidelines approved by the BCB Board of Directors through an express resolution.”

Article 9.- Modify the second paragraph of Article 22 of the Legal Reserve Regulation, in the following terms:
SAYS:
The movement in reserve accounts will be made automatically based on the reserve and deposit reports sent by financial entities to the Financial Entities Management of the BCB.
SHOULD SAY:
“In the first week of the reserve period, the movement in reserve accounts will be made automatically based on the reserve and deposit reports sent by financial entities to the Financial Entities Management of the BCB.”

Article 10.- Modify the first and third paragraphs of Article 26 of the Legal Reserve Regulation, in the following terms:
SAYS:
The RAL-MN Fund will be administered by the Financial Entities Management of the BCB, or by one or more Trustees expressly contracted by the BCB for such effect, according to contracts signed with financial entities and within the operational guidelines determined by the Open Market Operations Committee (COMA). The commissions that Trustees charge for the administration of the RAL-MN and ME Funds will be charged to the resources of the Fund itself. The BCB Board of Directors will annually incorporate into the Commission and Other Income Table, the commissions that the BCB will charge for the administration of the RAL-MN and ME Funds. These commissions will be charged to the resources of the Fund itself. SHOULD SAY:
“The RAL-MN and RAL-MNUFV Funds will be administered by the Financial Entities Management of the BCB, or by one or more Trustees expressly contracted by the BCB for such effect, according to contracts signed with financial entities and within the operational guidelines determined by the Open Market Operations Committee (COMA). The commissions that Trustees charge for the administration of the RAL-MN, RAL-MNUFV, and RAL-ME Funds will be charged to the resources of the Fund itself. The BCB Board of Directors will annually incorporate into the Commission and Other Income Table, the commissions that the BCB will charge for the administration of the RAL-MN, RAL-MNUFV, and RAL-ME Funds. These commissions will be charged to the resources of the Fund itself.”

Article 11.- Modify the fifth paragraph of Article 28 of the Legal Reserve Regulation, in the following terms:
SAYS:
Upon maturity of the loans granted both in the first tranche and in the second, the BCB will automatically debit the loaned amount, its interests, and surcharges linked to said loans, from the current and reserve account that financial entities maintain at the BCB. In case of insufficient funds in said account, the guarantee of titles from the RAL Fund will be enforced. SHOULD SAY:
“Upon maturity of the loans granted both in the first tranche and in the second, the BCB will automatically debit the loaned amount, its interests, and surcharges linked to said loans, from the current and reserve account or from the reserve account, as applicable, that financial entities maintain at the BCB. In case of insufficient funds in said account, the guarantee of titles from the RAL Fund will be enforced.”

Article 12.- Modify Article 31 of the Legal Reserve Regulation, in the following terms:
SAYS:
The financial information of the RAL-MN and RAL-ME Funds will be in charge of the Financial Entities Management and International Operations Management, respectively. Financial intermediation entities may request information on the results of the Fund's administration from the Financial Entities Management when it concerns the RAL-MN Fund and from the International Operations Management if it concerns the RAL-ME Fund. SHOULD SAY:
“The financial information of the RAL-MN and RAL-MNUFV Funds will be in charge of the Financial Entities Management of the BCB. The financial information of the RAL-ME Fund will be in charge of the International Operations Management of the BCB. Financial intermediation entities may request information on the results of the Fund's administration from the Financial Entities Management when it concerns the RAL-MN and RAL-MNUFV Funds and from the International Operations Management if it concerns the RAL-ME Fund.”

Article 13.- Article 34 of the Legal Reserve Regulation is eliminated.

Article 14.- The modifications and additions preceding will enter into force as of February 15, 2002.

Article 15.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, January 22, 2002

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Juan Antonio Morales A.

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Juan Medinaceli V. Roberto Camacho S.

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Javier Comboni S. Enrique Ackermann A.