Resolution 068/2001 Approving the Regulation of Repo Operations with FERE Bonds

BOARD RESOLUTION NO. 068/2001 SUBJECT: MONETARY OPERATIONS MANAGEMENT – APPROVES REGULATION OF REPO OPERATIONS WITH FERE BONDS.

HAVING SEEN: Law 1670 of October 31, 1995. Law 2196 of the Special Fund for Economic Reactivation (FERE) of May 2, 2001. Supreme Decree 26195, regulatory of Law 2196 of May 24, 2001. Board Resolution No. 083/2000 of November 21, 2000, which approves the Regulation of Repo Operations. Board Resolution No. 035/2001 of May 3, 2001, which approves the Regulation of Open Market Operations (OMA).

Board Resolution 066/2001 of July 3, 2001, which authorizes the BCB to exceptionally conduct repo operations with FERE Bonds. The Report from the Monetary Operations Management SOMA No. 005/2001 of July 12, 2001. The Report from the Legal Affairs Management SANO No. 014/2001 of July 17, 2001.

CONSIDERING: That Article 6 of Law 1670 empowers the Central Bank of Bolivia to execute monetary policy and regulate the money supply and credit volume according to its monetary program, being able to issue, place, and acquire securities and conduct other open market operations, such as all those related to purchase or sale of repo operations.

//2. B.D. No. 068/2001 That Article 54 subsection d) of Law 1670 empowers the BCB Board to issue norms for Open Market Operations.

That Article 3 of the FERE Law authorizes NAFIBO S.A.M. to issue the so-called "FERE bonds" with characteristics similar to securities issued by the TGN and the Central Bank of Bolivia and with the guarantee of the TGN. That Article 1 of Board Resolution 066/2001 exceptionally authorizes the conduct of repo operations with FERE bonds at the Central Bank of Bolivia, 180 days after their issuance and subject to the approval of a specific regulation. That the Report from the Monetary Operations Management SOMA No. 005/2001 recommends to the Board of the Central Bank of Bolivia the approval of a Special Regulation to conduct repo operations with FERE bonds, within the framework of the Regulation of Open Market Operations. That in the opinion of the Legal Affairs Management, there is no legal impediment for the Board to approve this Regulation.

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

Article 1.- Approve the Regulation of Repo Operations with FERE Bonds in its V Chapters and 18 articles, which as an annex forms part of this Resolution.

Article 2.- This Regulation will enter into force from the signing of the contracts with NAFIBO and the Ministry of Finance provided for in Board Resolution 066/2001. Article 3.- The Presidency and the General Management are charged with the execution and compliance of this Resolution. La Paz, July 17, 2001

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Juan Antonio Morales A.

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Armando Pinell S. Jaime Ponce G. Juan Medinaceli V.

//3. B.D. No. 068/2001 ANNEX REGULATION OF REPO OPERATIONS WITH FERE BONDS

CHAPTER I OBJECT, NATURE AND VALUE

Article 1 (Object). This Regulation aims to regulate the Repo Operations with FERE bonds conducted by the Central Bank of Bolivia (OR-BCB-FERE), within the framework of Board Resolution 066/2001, with authorized financial entities.

Article 2 (Definition). An OR-BCB-FERE consists of the sale that an agent (the reported party) makes at a certain price (outward value), calculated on the basis of unit values of "FERE bonds" issued by NAFIBO S.A.M., to the BCB (the reporter), with the commitment of the reported party to repurchase these securities within a term and at a price (inward value) pre-established on the date of the transaction. The repurchase date cannot be later than the maturity date of the reported security.

Article 3 (Unit outward value). The unit outward value of the repo cannot exceed the unit market price of the reported security. In case there is no market reference for the security, the Open Market Operations Committee (COMA) will define the valuation procedure for it. Likewise, for the calculation of the unit outward value, the COMA may consider hedging mechanisms ("haircuts") that allow reducing the risk of loss for the BCB due to fluctuations in the market price of the reported securities. If during the validity of the repo the price of the security deteriorates by a margin greater than the coverage ("haircut"), the BCB may demand additional guarantees from the reported party.

Article 4 (Unit inward value). The unit inward value must establish a premium in favor of the reporter, calculated according to the following formula:

⎥ ⎦ ⎤ ⎢ ⎣ ⎡ += 360 1 PL TPVUIVUV

//4. B.D. No. 068/2001 Where: VUV = Unit inward value of the repo; VUI = Unit outward value of the repo; TP = Premium rate; and PL = Term of the repo operation in days.

CHAPTER II PARTICIPANTS, CURRENCY AND MODALITIES

Article 5 (Participating entities). Entities holding a license from the Superintendence of Banks and Financial Entities (SBEF) or the Superintendence of Pensions, Values and Insurance (SPVS) are eligible to conduct OR-BCB-FERE, prior to compliance with the requirements established in Chapter IV of this Regulation. The COMA will determine the forms of participation of these entities.

Article 6 (Currency). OR-BCB-FERE are conducted indistinctly in any currency authorized by the COMA, the operation being executable in a currency different from that of the security (crossed repo).

Article 7 (Modalities). OR-BCB-FERE will be carried out according to the conditions and modalities established weekly by the COMA, in compliance with Article 6 of the Regulation of Repo Operations of November 21, 2000.

CHAPTER III EXECUTION, EVALUATION AND CONTROL BODIES

Article 8 (Execution Body). The Monetary Operations Management (GOM) is the body responsible within the BCB for the execution of OR-BCB-FERE, being able to conduct them within the autonomous trading ranges approved by the COMA. If due to situational circumstances it is necessary to conduct operations outside the approved autonomous trading ranges, the GOM must obtain prior and express authorization from the President of the COMA, which must be brought to the knowledge of the COMA at its next meeting.

//5. B.D. No. 068/2001 Article 9 (Evaluation Body). The Economic Policy Advisory is responsible for evaluating the behavior of OR-BCB-FERE and their impacts on the Monetary Program, presenting reports to the Board every quarter.

Article 10 (Control Body). The Internal Audit Management of the BCB is responsible for presenting semi-annual audits of OR-BCB-FERE to the Board regarding compliance with this Regulation.

CHAPTER IV REQUIREMENTS

Article 11 (Documentation). The entities defined in Article 5 that wish to participate in OR-BCB-FERE must present the following documents: I. Adhesion Contract to conduct OR-BCB-FERE, with indefinite validity, duly signed by the respective legal representatives. This contract must include the participant's authorization to debit their accounts upon maturity of the repo. II. Notarized Power of Attorney granted by the authorized financial entity in favor of its representative(s), which must include at least the following powers: a) General powers of administration and disposal. b) Express power to sign the Adhesion Contract of OR-BCB-FERE on behalf of the financial entity. c) Express power to bind and be responsible in the name of the entity for those officials whose authorized signatures are or will be registered in the General Secretariat of the BCB, for the sending of OR-BCB-FERE requests through the mechanisms approved by the COMA. III. For the first time or when there are modifications, registration in the General Secretariat of the BCB of the authorized signatures that present the Application Forms for Participation in OR-BCB-FERE.

//6. B.D. No. 068/2001 IV. Application Form for Participation in OR-BCB-FERE duly filled out and signed. The request may be sent in any of the modalities approved by the COMA.

Article 12 (Endorsement of securities). To conduct an OR-BCB-FERE, the authorized financial entities must present the securities duly endorsed in favor of the Issuing Entity.

Article 13 (Custody of securities). In all cases, the securities subject to OR-BCB-FERE must remain in deposit and custody of the BCB, during the validity of the operations.

CHAPTER V GENERAL PROVISIONS

Article 14 (Single operation). Entities that have an active OR-BCB-FERE cannot conduct a new operation of this type.

Article 15 (Certification). The BCB, at the request of the authorized financial entities, will extend certifications of the OR-BCB-FERE conducted with the BCB by the requesting entity.

Article 16 (Repurchase procedure). Upon maturity of the OR-BCB-FERE, the BCB will apply the following repurchase procedure: a) It will debit the corresponding amount from the Current and Reserve Account of the respective financial entity, liquidating the operation in this way. b) In case there are not sufficient resources in the Current and Reserve Account, the BCB will execute the repurchase operation by automatically granting the entity a liquidity credit guaranteed by the first tranche of its RAL Fund for the missing balance, liquidating the operation in this way.

//7. B.D. No. 068/2001 c) If there are no necessary resources in the first tranche of the RAL Fund to execute the repurchase operation, the BCB will consolidate the ownership of the reported securities in its favor and exercise its contractual rights agreed with NAFIBO and the Ministry of Finance.

Article 17 (Sanctions for non-compliance). Financial entities that fail to comply with the commitment to repurchase the "FERE bonds" at maturity will be disqualified from participating in Open Market Operations for a period of 3 months the first time, 6 months the second, and, in the event of a third contravention, the case will be submitted to the Board. The COMA may establish other sanctions.

Article 18 (Other operational aspects). The COMA may define and implement any operational aspect not provided for in this Regulation. ---ooo---