Resolution 074/2002

BOARD RESOLUTION NO. 074/2002 SUBJECT: ECONOMIC POLICY ADVISORY – APPROVES MODIFICATIONS TO THE LEGAL RESERVE REGULATION.

HAVING REVIEWED: Law 1670 of the Central Bank of Bolivia of October 31, 1995. The Consolidated Text of the Legal Reserve Regulation approved by Board Resolution 088/2000 of November 28, 2000, and subsequent modifications approved by Board Resolutions 049/2001, 113/2001, 120/2001, and 012/2002 dated June 5, 2001, November 13, 2001, November 29, 2001, and January 22, 2002, respectively. The Technical Report from the Economic Policy Advisory (APEC-INEP) No. 029/02 of July 8, 2002. The Report from the Legal Affairs Management (SANO) No. 137/2002 of July 9, 2002.

CONSIDERING: That the Central Bank of Bolivia, in compliance with Law 1670, has established a legal reserve regime of mandatory compliance for institutions within the financial system.

That to date, credits guaranteed by the RAL Fund have far exceeded 7.5% of the constituted RAL Fund, a percentage from which the BCB may obtain resources additional to its own, as established in Article 28 of the Legal Reserve Regulation.

That the Economic Policy Advisory recommends the temporary creation of an Internal RAL-ME Fund, which strengthens the BCB's international reserves to address the situation of decreasing deposits in the national financial system, and allows for the normal functioning of the international and internal foreign currency payment system.

That the Economic Policy Advisory recommends extending the terms for credits guaranteed by the RAL Fund, facilitating access of financial entities to these resources in situations of liquidity insufficiency.

That, in virtue of the powers conferred by Articles 1, 7, 14, 37, and 54, subsections a), i), and o) of Law 1670, the BCB Board is authorized to modify the Legal Reserve Regulation.

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

Article 1.- Temporarily modify the Legal Reserve Regulation so that a portion of the legal reserve in titles for foreign currency and MVDOL deposits may be invested in a new fund at the BCB, called the Internal RAL-ME Fund, and the remainder, which will be called the External RAL-ME Fund, shall remain abroad, leaving the required legal reserve rates unchanged.

Article 2.- The Internal RAL-ME Fund, administered by the Financial Entities Management of the BCB, shall be constituted with resources representing up to 70% of the legal reserve in foreign currency and MVDOL titles, in accordance with the Legal Reserve Regulation, while the External RAL-ME Fund shall be composed of the remaining percentage. The BCB Board may increase the 70% limit through an express resolution.

Article 3.- Investments in the External RAL-ME Fund shall remain in accordance with the current guidelines for the RAL-ME Fund. The Internal RAL-ME Fund shall be invested in Certificates of Deposit (CDs) issued by the Monetary Operations Management of the BCB for this purpose. These CDs shall be dematerialized, non-reportable, with terms of up to fourteen days and a yield equal to the average obtained by the trustee of the External RAL-ME Fund in the previous seven days. The Open Market Operations Committee (COMA) shall define the terms and conditions for the early redemption of the CDs constituting this Fund, the administration commissions for the Internal RAL-ME Fund, and other operational aspects.

Transfers of funds between the External RAL-ME Fund and the Internal RAL-ME Fund shall not be subject to any commission.

Article 4.- Extend the terms of credits guaranteed by the resources constituted by each financial entity in the reserve in titles under the following terms: up to twenty-eight days renewable for the first tranche, and up to fourteen continuous days, or twenty discontinuous days during two consecutive reserve periods, for the second tranche. Renewals of credits guaranteed by the first tranche of the RAL Fund shall be carried out at the written request of the entities, prior to payment of accrued interest.

Article 5.- The provisions of the Legal Reserve Regulation that are not within the scope of the temporary modifications approved by this Board Resolution shall remain unchanged.

Article 6.- This Resolution shall enter into force on July 9, 2002, until October 27, 2002.

Article 7.- The Presidency and General Management are charged with the execution and compliance of this Resolution.

La Paz, July 2, 2002

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Juan Antonio Morales A.

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Juan Medinaceli V. Armando Méndez M.

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Roberto Camacho S. Javier Comboni S. Enrique Ackermann A.