Resolution 028/2004: Approval of Investment Guidelines for the Administration of the Foreign Currency Liquid Asset Requirement Fund (RAL-ME)

BOARD RESOLUTION NO. 028/2004

SUBJECT: INTERNATIONAL OPERATIONS MANAGEMENT – APPROVES INVESTMENT GUIDELINES FOR THE ADMINISTRATION OF THE LIQUID ASSET REQUIREMENT FUND (RAL) IN FOREIGN CURRENCY.

HAVING REVIEWED:

Law No. 1670 of October 31, 1995.
The Consolidated Text of the Legal Reserve Regulation for institutions of the Financial System, approved by Board Resolution No. 088/2000 of November 28, 2000. 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 (GOI) No. 002/2004 of February 18, 2004. The Report from the Legal Affairs Management (SANO) No. 035/2004 of February 19, 2004.

CONSIDERING:

That Article 26 of the Legal Reserve Regulation for Institutions of the Financial System establishes that the Administration of the Foreign Currency Liquid Asset Requirement Fund (RAL-ME) shall be entrusted to a specialized trust entity with recognized technical capacity and international solvency, in accordance with the norms approved by the Central Bank of Bolivia (BCB).

That the Contract signed with Dresdner Bank AG as Delegated Administrator of the RAL-ME concludes on June 30, 2004.

That the International Operations Management, in its Report GOI No. 002/2004, recommends to the Board the approval of investment guidelines for the Administration of the RAL-ME Fund.

That according to Report SANO No. 035/2004 from the Legal Affairs Management, there is no legal impediment for the BCB Board to approve the guidelines for the Administration of the RAL-ME Fund.

THEREFORE,

THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA

RESOLVES:

Article 1.- Approve, effective July 1, 2004, the investment guidelines for the Administration of the RAL-ME Fund in the capacity of a Trust, in accordance with the following terms:

a) Country and Currency:
Investments in the market and currency of the United States of America are authorized.

b) Counterparties:
Investments in banking corporations and non-banking corporations that possess a short-term issuer credit risk rating equal to or greater than A-1, or a long-term rating of A, as applicable to the maturity of the investment made, according to the Standard & Poor's Risk Rating Agency, are authorized.

Investments in sovereign instruments of the United States of America and its Government Agencies that possess a long-term issuer credit risk rating equal to AAA, according to the Standard & Poor's Risk Rating Agency, are authorized.

Investments in the Bank for International Settlements (BIS) and supranational entities that possess a long-term issuer credit risk rating equal to AAA, according to the Standard & Poor's Risk Rating Agency, are authorized.

c) Intermediaries:
Intermediation is carried out exclusively with financial institutions that hold the category of authorized primary dealers.

d) Instruments:
Sovereign

• Government bonds of the United States of America.
• Bonds of government agencies of the United States of America.
  Supranational
• Bonds.
  Banking Corporates
• Certificates of deposit.
• Bank commercial paper.
• Bonds.
  Non-Banking Corporates
• Commercial paper.
• Bonds.

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

f) Reference Comparator (Benchmark)
Salomon Brothers Six Month US Treasury Bill Index.

g) Other Operations
Cash accounts may only be maintained with the Custodian.

h) Restrictions
Investments in non-banking corporations must not exceed 20% 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 60% of the portfolio.
Investments in each banking corporation must not exceed 10% of the portfolio.

Investments in variable interest obligations are not permitted.
Open positions, nor short sales, are not accepted.
Investments in agencies of banks or financial institutions 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 RAL-ME Fund, effective July 1, 2004, shall be carried out through financial entities and their fund managers that possess a long-term issuer credit risk rating equal to or greater than A-.

Article 3.- The selection process for the Delegated Administrator of the RAL-ME Fund shall be subject to what is established in the regulation for the Contracting of Specialized Goods and Services Abroad.

Article 4.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, March 2, 2004

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Juan Antonio Morales A.

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Juan Medinaceli V. Enrique Ackermann A.

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José Luis Evia V. Fernando Paz B.