Resolution 035/2001 Approving the New Open Market Operations Regulation

BOARD RESOLUTION NO. 035/2001 SUBJECT: MONETARY OPERATIONS MANAGEMENT - APPROVES NEW OPEN MARKET OPERATIONS REGULATION.

HAVING VIEWED: Law No. 1670 of October 31, 1995. Board Resolution No. 074/98 of August 11, 1998, which approves the Open Market Operations Regulation. Board Resolution No. 028/2001 of April 10, 2001, which approves the new Regulation on Operations with Securities issued by the General Treasury of the Nation for Fiscal Policy purposes. Board Resolution No. 029/2001 of April 10, 2001, which approves the new Regulation on Operations for Monetary Regulation Purposes with Securities issued by the General Treasury of the Nation or by the Central Bank of Bolivia. The Report from the Monetary Operations Management SOMA No. 004/2001 of April 27, 2001. The Report from the Legal Affairs Management SANO No. 084/2001 of May 2, 2001.

CONSIDERING: That Article 6 of Law No. 1670 empowers the Central Bank of Bolivia to execute monetary policy and regulate the quantity of money and credit volume according to its monetary program, being able to issue, place, and acquire securities and carry out other open market operations for this purpose. That Article 54, paragraph d) of Law 1670 of October 31, 1995, empowers the Board of Directors to issue norms for open market operations. That the Technical Report from the Monetary Operations Management No. 004/2001 recommends the approval by the Board of Directors of the new Open Market Operations Regulation.

//2. B.D. No. 035/2001 That in the opinion of the Legal Affairs Management, there is no legal impediment for the Board of Directors to approve a new Regulation.

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

Article 1.- Approve the new Open Market Operations Regulation in its 5 chapters and 16 articles, which as an annex forms part of this Resolution, with effect from May 15, 2001.

Article 2.- Repeal with effect from May 15, 2001, the Regulation on Open Market Operations, approved by Board Resolution No. 074/98 of August 11, 1998.

Article 3.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, May 3, 2001

---

Juan Antonio Morales A.

---

Armando Pinell S. Jaime Ponce G.

---

Juan Medinaceli V. Armando Méndez M.

//3. B.D. No. 035/2001 ANNEX OPEN MARKET OPERATIONS REGULATION

CHAPTER I OBJECT AND SCOPE OF THE REGULATION

Article 1 (Objective). This Regulation aims to establish the rules for Open Market Operations (OMO) carried out by the Central Bank of Bolivia (BCB) with financial entities or public institutions in compliance with its functions as the monetary authority.

Article 2 (Definition of OMOs). OMOs are operations with securities carried out by the BCB on its own account, for monetary policy objectives, in the primary or secondary market. These consist of the purchase, sale, repurchase, or other operations with securities, either through public auction, money desk operations, or other mechanisms authorized by the BCB Board of Directors.

CHAPTER II POLICIES AND OBJECTIVES

Article 3 (Definition of Policies). The BCB Board of Directors defines monetary policies in general and open market operations policies in particular. At the beginning of each quarter, the Board of Directors will define general guidelines for OMOs taking into account the recommendations of the Economic Policy Advisory.

Article 4 (Objective of OMOs). The main objective of OMOs is the fulfillment of monetary policy.

//4. B.D. No. 035/2001

CHAPTER III EXECUTION, EVALUATION, AND CONTROL BODIES

Article 5 (Open Market Operations Committee). The Open Market Operations Committee (COMA), constituted in the manner established by the BCB Statute, has the function of applying the policies and guidelines approved by the BCB Board of Directors regarding OMOs.

Article 6 (Application of OMO Policies). The COMA will determine weekly the securities to be traded, their amounts, rates or prices, trading modality, and other characteristics based on the analysis of the market liquidity situation and the fulfillment of monetary policy targets and OMO guidelines defined by the Board of Directors.

Article 7 (Resolution of Unforeseen Operational Aspects). The COMA may resolve any operational aspect not foreseen in this Regulation.

Article 8 (Execution Body). Subject to the determinations of the COMA, the Monetary Operations Management (GOM) is responsible for the execution of OMOs at the BCB and for formulating recommendations on securities, amounts, terms, rates or prices, and types of OMOs. The GOM may carry out daily operations, using the different types of securities, amounts, rates or prices, and other modalities defined by the COMA. The GOM must present a quarterly report to the Board of Directors on the behavior of OMOs.

Article 9 (Autonomy Margins). The GOM may operate autonomously within the ranges of amounts, rates, prices, or terms approved for this purpose by the COMA. If due to situational circumstances the GOM considers it necessary to carry out operations outside the approved ranges, it must obtain prior and express authorization from the President of the COMA, who must inform the Committee at its next meeting.

//5. B.D. No. 035/2001

Article 10 (Evaluation Body). The Economic Policy Advisory is responsible for evaluating the behavior of OMOs in relation to the Monetary Program, and must present a quarterly report to the Board of Directors.

Article 11 (Audit). OMOs are subject to the control of the Internal Audit Unit of the BCB, which must present reports to the Board of Directors every semester.

CHAPTER IV CHARACTERISTICS OF OPEN MARKET OPERATIONS

Article 12 (Operational Mechanisms). OMOs may be carried out through public auction, the BCB money desk, or other mechanisms authorized by the BCB Board of Directors.

I. Public Auction. It is a competitive mechanism for the allocation of securities, issued by the BCB or the TGN, to authorized institutions. Allocation in auction may be carried out in the following modalities:

a) Explicit proposals. In this case, the COMA will allocate securities to the best proposals (in descending order of prices, or ascending in terms of rates) made by the agents participating in the auction. At the time of making the allocation, the COMA may reject bids with prices lower or rates higher than their reference levels. If in the margin there is equality of prices, discount rates or yield between bids, the securities will be allocated by the prorata system when applicable.

If in the margin the quantity demanded in a single bid were superior to the available remaining supply, only that remaining amount will be allocated.

//6. B.D. No. 035/2001

b) Adhesion proposals. In this case, the COMA will define the maximum supply, which cannot exceed 50% of the total amount in each currency and term, and will allocate the securities to the demanding entities at the average price or rate obtained in the modality described in paragraph a) of this Article. If the total demand for a security in this modality were superior to the available supply, the COMA will carry out the allocation by prorata, up to the limit of the available amount. The amount requested under this modality by each participating entity shall not exceed the value of US$ 1,000,000 for securities in foreign currency and Bs. 1,000,000 for securities in national currency, in each term. These amounts may be modified by the COMA. The COMA will not carry out allocation of securities under this second modality if there were no allocations in the first modality, as it is not possible to determine an average price or rate of allocation.

c) Under other modalities defined by the COMA with the approval of the Monetary and Exchange Policy Committee.

II. Money Desk. It is a mechanism through which the GOM carries out purchase, sale, or repurchase operations with public securities issued by the TGN or the BCB, which the COMA approves, with authorized institutions. In the money desk, economic agents also have the possibility to redeem operations or transactions with securities in advance, under the conditions determined by the COMA.

III. Other Mechanisms. The BCB Board of Directors may authorize the execution of OMOs with mechanisms different from those of the public auction and money desk operations.

Article 13 (Types of Operations). The types of OMOs carried out by the BCB may be the following:

//7. B.D. No. 035/2001

I. Primary Placement of Securities. Primary placement will be carried out with the securities issued by the BCB or placed by the BCB through the monetary regulation account. The placement or sale of securities will be carried out through public auction, money desk, or another mechanism that defines the Board of Directors, and a public call must be made for this purpose, disseminated through written, oral, or electronic media. Such securities must be registered in the Securities Market Registry.

II. Operations with Securities in the Secondary Market. The operations in the secondary market can be carried out with any security issued by the TGN or the BCB, through repurchase operations, swaps, purchase, sale of securities, and others authorized by the BCB Board of Directors and by the COMA, when applicable.

CHAPTER V REQUIREMENTS REQUIRED OF PARTICIPANTS

Article 14 (Participants in Auction and Money Desk). Financial entities with a license of operation granted by the Superintendence of Banks and Financial Entities or by the Superintendence of Pensions, Securities, and Insurance may participate in public auctions and in the money desk, with prior authorization from the COMA. Private individuals and non-financial entities from the private sector may participate in securities auctions through authorized financial entities.

Article 15 (Requirements to Participate in Auction). The entities participating in the public auction must carry out the provision of funds in one of the following forms and accredit the documents cited below or others at the request of the BCB:

a) Through written or electronic communication to the BCB authorizing the debit of their current and reserve accounts, for their own operations or in favor of other authorized financial entities. This authorization may have indefinite character.

b) Through a deposit equivalent to 2% of the nominal value of the securities demanded in the "Diverse Creditors - Open Market" account.

c) Application for participation in auction.

d) Copy of the Taxpayer Registry (RUC). This document must be presented only the first time and when there is any modification.

//8. B.D. No. 035/2001

Article 16 (Requirements to Participate in Money Desk). The entities wishing to participate in the money desk must accredit the following documents or others at the request of the BCB:

For the first time and when there are modifications:

a) Notarized Power of Attorney authorizing the authorized signatures to participate in OMOs with the BCB, which must specify the maximum authorized amounts of operation.

b) Registration card of authorized signatures for OMOs.

For each operation:

c) Application for purchase, sale, repurchase, swap, or other operation, properly filled out.

d) Payment document supporting the operation.

---ooo---