Resolution 021/99 Approving the Regulation of Operations with Securities Issued by the General Treasury of the Nation for Monetary Regulation Purposes

BOARD RESOLUTION NO. 021/99 SUBJECT: CURRENCY AND CREDIT – APPROVES REGULATION OF OPERATIONS WITH SECURITIES ISSUED BY THE GENERAL TREASURY OF THE NATION FOR MONETARY REGULATION PURPOSES.

HAVING SEEN: Law No. 1670 of the Central Bank of Bolivia (BCB) of October 31, 1995. The Inter-institutional Agreement signed on January 6, 1999, between the Central Bank of Bolivia and the Ministry of Finance, and the Addendum of February 4, 1999. The Open Market Operations Regulation, approved by Board Resolution No. 074/98 of August 11, 1998. The Regulation of Operations with Securities Issued by the General Treasury of the Nation for Fiscal Policy Purposes, approved by BCB Board Resolution No. 010/99 of March 2, 1999. The Report from the Currency and Credit Management No. 09/99 dated March 23, 1999. The Report from the Legal Advisory Office ALEG No. 055/99 dated March 17, 1999.

CONSIDERING: That Article 6 of Law 1670 authorizes the Central Bank of Bolivia to regulate the amount of money and the volume of credit according to its monetary program, through the execution of open market operations. That Clause Eighth of the Inter-institutional Agreement signed on January 6, 1999, between the Central Bank of Bolivia and the Ministry of Finance, establishes the conditions for the issuance of public securities for monetary regulation purposes. That Report No. 09/99 from the Currency and Credit Management recommends the approval by the Board of the draft Regulation of Operations with Securities Issued by the General Treasury of the Nation for Monetary Regulation Purposes. That in the opinion of the Legal Advisory Office, there is no legal impediment for the Board to approve the aforementioned Regulation.

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

Article 1.- Approve the Regulation of Operations with Securities Issued by the General Treasury of the Nation for Monetary Regulation Purposes, in its 5 chapters and 24 articles, which, as an annex, form part of this Resolution.

Article 2.- The aforementioned Regulation shall enter into force on April 1, 1999.

Article 3.- Repeal, effective April 1, 1999, the Regulation for Operations with Bills Issued by the General Treasury of the Nation (LTs), approved by Board Resolution No. 150/93 dated December 7, 1993.

Article 4.- The Presidency and General Management are charged with executing this Resolution.

La Paz, March 30, 1999

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Juan Antonio Morales A.

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Armando Pinell S. Jaime Ponce G.

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Juan Medinaceli Fernando Campero P.

REGULATION OF OPERATIONS WITH SECURITIES ISSUED BY THE GENERAL TREASURY OF THE NATION FOR MONETARY REGULATION PURPOSES

CHAPTER I GENERAL PROVISIONS

Article 1 (Object).- This Regulation aims to determine the conditions for the auction, allocation, redemption, administration, and control of operations with short- and long-term securities issued by the General Treasury of the Nation (TGN) and placed by the Central Bank of Bolivia (BCB) for monetary policy objectives, under the provisions of the Inter-institutional Agreement signed between the BCB and the Ministry of Finance (MH) on January 6, 1999, the Addendum to the Inter-institutional Agreement of February 4, 1999, and the Open Market Operations Regulation, approved by Board Resolution No. 074/98 of August 11, 1998.

Article 2 (Characteristics of Securities).- The securities covered by this regulation are LTs D and other securities authorized by the TGN, whose characteristics will be determined jointly by the TGN and the BCB, and will be allocated by the latter through Public Auction, Money Desk, or another mechanism authorized by the BCB Board.

Article 3 (Currency of Issuance).- Securities may be issued in national currency, national currency with value maintenance relative to the United States Dollar (MVDOL), or in United States Dollars. Securities with coupons may be fixed or variable income.

Article 4 (Registration).- For public offering, securities shall be registered in the National Registry of Securities of the Superintendence of Pensions, Securities, and Insurance.

CHAPTER II PUBLIC AUCTION

Article 5 (Call for Auction).- The public auction will be held at the BCB prior to the call, which will be published at least one business day before its realization. The publication will be made in at least one written communication medium, without prejudice to the use of other means authorized by the COMA.

Article 6 (Authorized Agents).- All financial entities with a license of operation granted by the corresponding Sectoral Superintendencies of the Financial Regulation System (SIREFI) that comply with the requirements of the Open Market Operations Regulation and those defined in this Regulation may participate in the auctions. Private individuals and non-financial entities in the private sector may participate in securities auctions through the financial entities included in the SIREFI regime.

Article 7 (Application).- For participation applications in the auction to be considered valid, financial agents must specify the legal name of the bidder, number of bids, and for each of them, as applicable, rate or price, quantity of securities, currency, payment method, term of the security, as well as other additional data according to the call. The application will be presented at the BCB up to 15 minutes before the time fixed for the opening of the auction session, in one of the following forms: a) In a closed envelope, with signatures of their legal representatives duly registered in the Sub-Management of Open Market Operations (SOMA). b) Through the Information System for Open Market Operations (SIOMA). c) Any other means enabled by the COMA. The SOMA will certify the time of receipt of the applications, without this implying any order of precedence.

Article 8 (Provision of Funds).- To participate in the auction, authorized entities must effect the provision of funds in one of the following forms: a) Through written communication to the BCB authorizing the debit of their current account or their legal reserve resources, for their own operations or in favor of other authorized financial entities. This authorization may be indefinite. b) Through a deposit equivalent to 2% of the nominal value of the demanded securities in the account named "Diverse Creditors - Treasury Securities Operations" at the BCB.

Article 9 (Acceptance of Terms and Conditions).- With the presentation of the application, the bidder submits to the terms of this Regulation and those of the call, and may not withdraw their application after the deadline mentioned in Article 7.

Article 10 (Reading of Bids).- In the public auction session, the number of applications and bids received, as well as their characteristics, will be announced.

Article 11 (Grounds for Rejection).- The following are grounds for rejection of applications: a) Lack of provision of funds. b) If the application contains incomplete, incorrect, or contradictory information.

CHAPTER III ALLOCATION AND SALE AT AUCTION

Article 12 (Allocation).- The allocation of securities in public auction will be carried out in two modalities: a) on explicit prices or rates proposed by participants; and b) through proposals adhering to the prices or rates resulting from the auction. a) In the first modality, the COMA will allocate Treasury Securities to the best proposals, in descending order of price or ascending in terms of discount rate or yield. At the time of making the allocation, the COMA may reject bids with prices lower or rates higher than their reference levels. If there is equality of prices, discount rates, or yields among bids at the margin, these will be allocated by the pro-rata system when applicable. The available offer under this modality will be calculated after deducting the amount demanded in modality b), which will represent up to 25% of the auction offer. If at the margin the quantity demanded in a single bid exceeds the remaining available offer under this modality, only said remainder will be allocated. b) In the second modality, the COMA will define the maximum offer and will allocate Treasury Securities to participating entities at the average price or rate obtained in the modality described in point a) of this article. The amount offered through this modality will be at most 25% of the total amount. If the total demand for securities in this modality exceeds the available offer, the COMA will effect the allocation by pro-rata, up to the limit of the available amount. In all cases, the amount requested under this modality by each participating entity may not exceed the value of US$ 1,000,000 for securities in foreign currency and Bs. 1,000,000 for securities in national currency. The COMA will not effect allocation of securities under this second modality if there are no allocations in the first modality, as it is not possible to determine an average allocation price or rate.

Article 13 (Effective Sale).- The sale will be effective 48 hours after the auction allocation or in another period defined by the COMA. Within this period, the allocatee must ensure the existence of sufficient funds in the following manner: a) In one of the accounts mentioned in Article 8. b) With matured securities issued by the BCB or TGN, endorsed in favor of the BCB. c) Other modalities authorized by the COMA.

Article 14 (Sanctions).- If on the day of the sale the allocatee does not have sufficient resources to effect the payment of the securities issued for monetary policy purposes, the BCB will consolidate in its favor, as a penalty, 2% of their nominal value, without prejudice to other sanctions that the COMA might determine.

Article 15 (Publication).- The Currency and Credit Management of the BCB will publish the results of the auction, without specifying the legal name of the allocatees.

Article 16 (Commercial Year).- The calculation of rates will be made taking as a base the commercial year of 360 days.

CHAPTER IV ISSUANCE, REGISTRATION, AND CUSTODY

Article 17 (Issuance).- The BCB will place one title for each sale effected through Auction, Money Desk, and another mechanism authorized by the COMA, with the characteristics and security requirements that back the issuance. The buyer must pay the cost of replacement of forms and custody that are established in the Table of Terms and Conditions for the Collection of Commissions and Other Income of the BCB.

Article 18 (Registration and Custody).- The BCB will electronically register the name of the buyer of the securities and all definitive purchase and sale operations of the same. Communication to the SOMA, in writing or by another means authorized by the COMA, of the definitive purchase and sale operations of the same in the secondary market is mandatory. In case this communication does not exist, the transfer of ownership of the negotiated titles cannot be registered at the BCB and therefore lacks validity for its holder. Additionally, the BCB may be custodian, in physical or electronic register, of the issued titles. The BCB may also register repo operations carried out between agents.

Article 19 (Accounting Registration).- Treasury Securities placed on behalf and account of the BCB for monetary policy purposes will be registered in the BCB accounting as determined by the Inter-institutional Agreement and this Regulation, with the TGN not authorized to credit or debit the accounts that the BCB enables in its name and for this purpose. The resources resulting from the sale of these securities will be credited to the Monetary Regulation Account opened at the BCB in the name of the TGN, in the corresponding currencies. The BCB will account for operations carried out according to the following guidelines: a) Operations between the BCB and the TGN. Securities that the BCB acquires from the TGN on behalf of third parties will be registered in the BCB account named "Monetary Regulation Securities". Simultaneously, the BCB will credit the corresponding value of the acquired securities in the "Monetary Regulation Account" opened by the BCB in the name of the TGN. Monthly, or with the periodicity decided by the BCB Administration, the accrued interest on the titles current in the aforementioned "Monetary Regulation Account" will be credited. Upon maturity of the titles, or in case of early redemption, the BCB will debit the corresponding amount from the TGN's "Monetary Regulation Account". b) Operations between the BCB and system agents. Simultaneously with the operation between the TGN and the BCB, the latter will effect the placement to third parties crediting the BCB's "Monetary Regulation Securities" account and debiting at the same time the accounts indicated by the agents for the value of the mentioned titles. Upon maturity of the titles, or in case of early redemption, the value of the matured titles will be credited to the agents from the "Monetary Regulation Account". c) Cost of operations. The BCB will cover all costs related to operations with securities issued by the TGN for monetary regulation purposes.

Article 20 (Exchange Rate).- Operations in MVDOL will be effected at the BCB's buying exchange rate in effect on the date.

CHAPTER V REPLACEMENT, REDEMPTION, AND PRESCRIPTION

Article 21 (Replacement).- In case of loss or misplacement of the allocated securities, replacement will be proceeded according to the norms established in the Commercial Code.

Article 22 (Redemption).- Public securities and, when applicable, their respective coupons, will be paid by the BCB from the Monetary Regulation Account on the maturity dates, prior to verification of the holder's ownership with the BCB records and, if necessary, prior presentation of the title. The COMA may determine modalities of early redemption and conversion of current titles. Interest will not be recognized after the maturity date nor will automatic renewal of them be accepted.

Article 23 (Prescription).- Actions for the collection of titles prescribe in favor of the State within a period of ten years from the date of their enforceability.

Article 24 (Transitory Provision).- Securities issued by the TGN and placed by the BCB for monetary regulation purposes prior to this Regulation are subject to the provisions that gave them origin, until their maturity.