Resolution 023/2008: Approval of Investment Guidelines for the Foreign Currency Liquid Asset Requirement Fund (Fondo RAL-ME)

BOARD RESOLUTION NO. 023/2008
SUBJECT: INTERNATIONAL OPERATIONS MANAGEMENT – APPROVES INVESTMENT GUIDELINES FOR THE ADMINISTRATION OF THE FOREIGN CURRENCY LIQUID ASSET REQUIREMENT FUND (FONDO RAL-ME).

VIEWED:
Law No. 1670 of October 31, 1995, of the Central Bank of Bolivia (BCB).
The new Legal Reserve Regulation approved by Board Resolution No. 048/2005, of April 20, 2005, and modified by Board Resolutions No. 118/2006, No. 106/2007, and No. 156/2007, of December 12, 2006, August 21, 2007, and December 18, 2007, respectively. The Regulation for the Administration of International Reserves approved by Board Resolution No. 153/2005, of December 6, 2005. The Regulation for the Contracting of Specialized Goods and Services Abroad approved by Board Resolution No. 063/2003 of June 6, 2003. The Report from the International Operations Management SR No. 004/2008 of February 26, 2008. The reports from the Legal Affairs Management SANO No. 042/2008 and SANO No. 046/2008 of February 29, 2008, and March 7, 2008, respectively.

CONSIDERING:
That Law No. 1670 in its article 7 provides that the Issuing Entity may establish mandatory legal reserves for financial intermediation entities and, for this purpose, will determine their composition, amount, calculation method, characteristics, and remuneration.

That in its article 37, the aforementioned law establishes that the BCB is the custodian of the liquid reserves intended to cover said reserve and may delegate the custody of these deposits according to specific regulations. That the Legal Reserve Regulation, in its article 23 subsection iii), determines that the Foreign Currency Liquid Asset Requirement Fund (Fondo RAL-ME) will be constituted by resources transferred every seven days from the legal reserve in securities, and will consist of sovereign titles, securities, cash, denominated in foreign currency, in accordance with the investment guidelines approved by the BCB Board. That article 25 of the Legal Reserve Regulation establishes that the Administration of the Fondo RAL-ME will be entrusted to a specialized entity in Delegated Administration, with recognized technical capacity and international solvency, in accordance with the norms approved by the BCB. That Article 34 of the Regulation for the Administration of International Reserves determines that, insofar as applicable, investments of third-party resources abroad will be carried out under the same norms, guidelines, restrictions, and limits of international reserves established in this Regulation. That the International Operations Management, in its Report SR No. 004/2008, recommends to the Board the approval of investment guidelines for the Administration of the Fondo RAL-ME. That in the opinion of the Legal Affairs Management, through reports SANO No. 042/2008 and SANO No. 046/2008, the Board of the Issuing Entity is competent and has no legal impediment to consider the approval of the investment guidelines for the administration of the Fondo RAL-ME, in accordance with the technical recommendation made by the International Operations Management.

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

Article 1.- Approve, effective July 1, 2008, the investment guidelines for the Administration of the Fondo RAL-ME, according to the following terms:
a) Country and Currency:
Investments in AAA-rated countries in US dollars are authorized. b) Counterparties:
Investments in banking corporations and non-banking corporations that have a short-term issuer credit risk rating equal to or higher than F-1 or a long-term rating of A, as applicable to the maturity of the investment made, according to Fitch Information Inc. Rating Agency or its equivalents according to Moody's or Standard & Poor's.

Investments will be made in non-subordinated debt securities without any component associated with the equity market.

Investments in AAA sovereign instruments and their Government Agencies that have a long-term issuer credit risk rating equal to AAA, according to the Credit Risk Rating Agency, are authorized. Investments in the Bank for International Settlements (BIS) and in supranational entities that have a long-term issuer credit risk rating equal to AAA, established by the aforementioned Credit Risk Rating Agency, are authorized.

c) Intermediaries:
Intermediation is carried out exclusively with financial institutions that have the category of authorized primary dealers.
Primary issuances may be negotiated directly with the issuer. d) Instruments:

Sovereign
− Government fixed-income securities.
− Government agency securities.
Supranational
− Securities.
Banking Corporate
− Certificates of deposit.
− Bank commercial paper.
− Bonds.
Non-banking Corporate
− Commercial paper.
− Bonds.

e) Duration
The average duration of the portfolio must not exceed 0.8 years.
The individual duration per security must not exceed 2 years.

f) Reference Comparator (Benchmark)
ML 3-6 month Treasury Bill Index

g) Other Operations
Cash accounts may only be maintained with the Custodian.
The Securities Custodian is authorized to conduct Securities Lending operations of the Fondo RAL ME securities for a term of one day.

h) Restrictions
Investments in non-banking corporations must not exceed 10% of the portfolio.
Investments in each non-banking corporation must not exceed 3% of the portfolio.
Investments in supranational entities must not exceed 20% of the portfolio.
Investments in banking corporations must not exceed 40% of the portfolio.
Investments in each banking corporation must not exceed 5% of the portfolio.
Investments in government agencies must not exceed 30% of the portfolio.
Investment or trading with institutions affiliated with the administrator is prohibited.
Investments in variable interest obligations are not permitted.
Open short or long positions are not accepted.
Investments in financial centers classified as offshore are prohibited.
All investments will be carried out exclusively under the delivery versus payment (DVP) modality.

Article 2.- The Delegated Administration of the Fondo RAL-ME will be carried out through financial entities and their fund managers that have a long-term issuer credit risk rating equal to or higher than A-.

Article 3.- The selection process for the Delegated Administrator of the Fondo RAL will be subject to what is established in the Regulation for the Contracting of Specialized Goods and Services Abroad.

Article 4.- Effective July 1, 2008, Board Resolution No. 028/2004 of March 2, 2004, is repealed.

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

La Paz, March 11, 2008

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Raúl Garrón Claure

______________________ ______________________ Gustavo Blacutt Alcalá Hugo Dorado Araníbar ______________________ ______________________ Ernesto Yáñez Aguilar Osvaldo Nina Baltazar