Resolution 075/2012 Approving the Regulation for the Administration of International Reserves

DIRECTORIAL RESOLUTION NO. 075/2012
SUBJECT: INTERNATIONAL OPERATIONS MANAGEMENT – APPROVES THE REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES.

HAVING SEEN:
The Political Constitution of the State approved by referendum on January 25, 2009, and published on February 7, 2009.
Law No. 1670 of October 31, 1995 of the Central Bank of Bolivia (BCB).
The BCB Statute approved by Directorial Resolution No. 128/2005 of October 21, 2005, and its subsequent modifications.
The Regulation for the Administration of International Reserves approved by Directorial Resolution No. 163/2011 of December 20, 2011.
Directorial Resolution No. 049/2012 of April 22, 2012, which modifies the Regulation for the Administration of International Reserves.
The Report from the International Operations Management BCB-GOI-SRES-INF-2012-18 of June 20, 2011.
The Report from the Legal Affairs Management BCB-GAL-SANO-INF-2012-186 of June 22, 2012.

CONSIDERING:
That the Political Constitution of the State establishes in its article 328 that it is the responsibility of the BCB, in coordination with the economic policy determined by the Executive Branch, in addition to those indicated by Law, to administer international reserves.

That in accordance with what is provided in article 16 of Law No. 1670, the Central Bank of Bolivia has the function of administering and managing International Reserves, being able to invest them and deposit them in custody, as well as dispose of and pledge them, in the manner it considers most appropriate for the fulfillment of its object and functions and for their adequate safeguarding and security.

That within the framework of the aforementioned, the Issuing Entity has approved through Directorial Resolution No. 163/2012 the Regulation for the Administration of International Reserves, establishing the policies and norms for its correct administration.

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That the Report from the International Operations Management BCB-GOI-SRES-INF-2012-18, recommends approving a new Regulation for the Administration of International Reserves in order to optimize the management and diversification of said reserves.

That the Report from the Legal Affairs Management BCB-GAL-SANO-INF-2012-186, concludes that the project of the new Regulation for the Administration of International Reserves proposed by the GOI is legally procedent, since it does not contravene the current legal framework, being the competence of the BCB Board of Directors to consider its approval.

That the BCB Board of Directors in its capacity as the highest authority of the Institution, is responsible for defining its policies, specialized normative of general application, and internal norms, being authorized to issue norms and adopt general decisions that may be necessary for the fulfillment of the functions, competencies, and powers assigned by Law to the Issuing Entity, as established in articles 44 and 54 item o) of Law No. 1670 and articles 9, 11, and 24 of the BCB Statute.

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

Article 1.- Approve the new Regulation for the Administration of International Reserves, which, as an annex, forms an integral part of this Resolution.

Article 2.- Repeal Directorial Resolutions No. 163/2011 and 049/2012 of December 20, 2011, and April 24, 2012, respectively, and all provisions contrary to this Regulation.

Article 3.- Establish the adaptation period for this new Regulation until December 31, 2012.

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

La Paz, June 26, 2012

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Marcelo Zabalaga Estrada

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_________________________ _________________________ Rafael Boyán Téllez Hugo Dorado Araníbar _________________________ _________________________ Rolando Marín Ibáñez Gustavo Blacutt Alcalá

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ANNEX
REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES

CHAPTER I
GENERAL PROVISIONS

Article 1.- (Object)
The purpose of this Regulation is to establish the policies and norms for the administration of the international reserves of the Central Bank of Bolivia (BCB).

Article 2.- (Investment Criteria)
The BCB's international reserves are invested with criteria of safety, capital preservation, liquidity, currency diversification, and profitability, in that order of priority.

Article 3.- (International Reserves Committee)
I. The International Reserves Committee, constituted in accordance with the BCB Statute, meets at least once a month to evaluate investments made by the International Operations Management and by delegated administrators.
II. Before the start of each quarter, it will determine the minimum and maximum level of working capital and the reference structure of the portfolios that make up the international reserves.
III. It will define the treatment to be applied to investments in which their credit risk rating decreases to a level below the minimum required in article 14 of this Regulation.
IV. It will define the treatment for cases where mergers, absorptions, or subrogations of financial entities occur in which there are investments, current accounts are maintained, or delegated administration or securities custody services are provided.

Article 4.- (Execution of Investments)

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The International Operations Management, through the Reserves Sub-management, is responsible for the execution of international reserve investments, applying the provisions of this Regulation, presenting periodic reports to the International Reserves Committee and the BCB Board of Directors. The Investment Control Department of the International Operations Management will carry out control over the compliance with the norms, policies, and limits established by the BCB Board of Directors in the investment of international reserves, presenting periodic reports to the International Reserves Committee.

CHAPTER II
ON INTERNATIONAL RESERVES

SECTION I
STRUCTURE AND COMPOSITION OF INTERNATIONAL RESERVES

Article 5.- (International Reserves)
I. International reserves are composed of international monetary reserves and gold reserves.
II. International monetary reserves are composed of working capital and investment capital.

Article 6.- (Working Capital)
I. The objective of working capital is to meet immediate payment requirements and fund transfers abroad. It is composed of investments of up to 7 days, balances in current accounts abroad, and vault cash.
II. The General Management, in coordination with the Monetary Operations and International Operations Managements, will approve the amounts and dates for sending or receiving foreign currency in banknotes.

Article 7.- (Investment Capital)
Investment capital consists of the Liquidity, Investment, Euro, Global, MBS (Mortgage Backed Securities), TIPS (Treasury Inflation Protected

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Securities), Corporate, and Active Management portfolios, which will be composed of the instruments and operations authorized by article 11 of this Regulation.

Article 8.- (Gold Reserves)
I. Gold reserves consist of investments in time deposits, bonds denominated in gold, balances in allocated (physical) or unallocated (book entry) accounts, and gold bars that possess the quality of London Good Delivery Bars.
II. Investments may be made in countries with a long-term sovereign credit risk rating of AA-, in the Bank for International Settlements (BIS), the World Bank (WB), and in financial entities that are members of the London Bullion Market Association with a long-term rating equal to or greater than A and a short-term rating equal to or greater than A1.
III. The percentage of gold abroad and the operations for the purchase or sale of gold will be authorized by the BCB Board of Directors through an express resolution.
IV. Investments in gold by issuer must not exceed 40% of the portfolio value, excluding the BIS and the WB.

Article 9.- (Authorized Currencies)
I. Working capital is constituted predominantly in United States dollars and to a lesser extent in other currencies of countries that comply with what is established in article 13 of this Regulation.
II. The Liquidity, Investment, MBS, TIPS, and Corporate portfolios are constituted in United States dollars.
III. The Euro Portfolio is constituted in euros, the Global Portfolio is constituted in Australian dollars, Canadian dollars, and renminbi, and the Active Currency Portfolio is composed of United States dollars, euros, British pounds, Japanese yen, Canadian dollars, Australian dollars, and other currencies authorized by the International Reserves Committee.
IV. The limits of the currencies that make up international monetary reserves and gold will be determined by the BCB Board of Directors.

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SECTION II
REFERENCE BENCHMARKS AND AUTHORIZED INSTRUMENTS AND OPERATIONS

Article 10.- (Reference Benchmarks)
The following reference benchmarks are established:

Investment Capital Reference Benchmark (Benchmark) Liquidity Portfolio Average 6-month LIBID in USD Investment Portfolio Merrill Lynch US Treasuries Index 1 to 3 years (G102) MBS Portfolio Barclays US MBS TIPS Portfolio Barclays Capital US Govt. Inflation-linked Bond Index, 1-10 years Corporate Portfolio Merrill Lynch 1 to 3 years USD AAA-AA Corporate Index (C1B0) Euro Portfolio Merrill Lynch Index French Treasury Bills up to 1 year (G0FB) Global Portfolio 50% Fixbis 6 months in AUD and 50% Fixbis 6 months in CAD

Article 11.- (Authorized Instruments and Operations)
The instruments and operations authorized for Investment Capital are:

• Overnight Deposits
• Repurchase of securities (Repo and Reverse Repo)
• Securities Lending.
• Foreign Exchange Purchase - Sale

With a maximum maturity of 1 year:

• Commercial Paper
• Certificates of Deposit
• Time Deposits
• To Be Announced (TBA)

With a maximum maturity of 5 years

• Securities issued by corporations

With a maximum maturity of 10 years:

• Securities issued by governments
• Securities issued by agencies
• Securities issued by supranational organizations
• Floating Rate Notes
• Interest rate futures, forwards, and swaps contracts
• Foreign exchange futures, forwards, and swaps contracts.
• Bank for International Settlements investment funds

With a maturity up to 30 years

• Treasury Inflation Protected Securities (TIPS)
• Mortgage Backed Securities (MBS)

CHAPTER III
GLOBAL RISK POLICY

Article 12.- (Global Risk)
I. The probability of recording losses in a year must be less than an ex-ante objective of 10%.
II. The active risk exposure for each portfolio in Investment Capital is equivalent to an ex-ante tracking error of maximum 100 basis points, measured against the reference benchmarks defined in article 10 of this Regulation.

Article 13.- (Sovereign Risk)
The country where investments will be made and the country of the headquarters of the institutions in which the monetary reserve investments will be made or with which intermediation will be carried out, must have a long-term sovereign credit risk rating equal to or greater than A.

Article 14.- (Credit Risk)
I. The investment of international reserves is made with issuers or in issuances that have a short-term rating equal to or greater than A-1 and a long-term rating equal to or greater than A.

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II. Investments are made in non-subordinated debt securities and without any component associated with the equity market.
III. Investments of international reserves may be made in the BIS.

Article 15.- (Interest Rate Risk)
I. For the Liquidity portfolio, the maximum investment term per instrument is 1 year.
II. For the Investment, MBS, TIPS, and Corporate portfolios, the effective duration has a range of +/- 1 year with respect to the duration of its reference benchmark defined in article 10 of this Regulation.
III. For the Euro and Global Portfolios, the maximum investment term is 2 years.
IV. For the Liquidity, Euro, Investment, and Corporate portfolios, the convexity of each portfolio must be greater than -0.5.
V. The margin duration of each portfolio must be less than 2.5 for the Liquidity, Euro, and Investment portfolios.
VI. The margin duration of the Corporate Portfolio must be within +/- 2 with respect to the benchmark.

Article 16.- (Concentration Risk)
The limits for concentration on the total of international monetary reserves are:

Sector/issuer Total international monetary reserves Government 100% Agencies 70% Per agency 15% Supranational 70% Per supranational 15% Global Banking 50% Per banking issuer 5% Global Corporate 3% Per corporate issuer 0.1%

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CHAPTER IV
DELEGATED ADMINISTRATION AND SECURITIES CUSTODY

Article 17.- (Delegated Administration)
I. The delegated administration of international monetary reserves is carried out through international organizations, financial institutions, or fund administrators.
II. The BCB Board of Directors, through an express Resolution, will approve the investment guidelines for delegated administration, for subsequent contracting in accordance with what is provided by the specific regulation for the contracting of these services.
III. The total delegated amount must not exceed 20% of investment capital.
IV. The amount delegated per institution must not exceed 10% of investment capital.

Article 18.- (Custody)
The custody services for international reserve investments are carried out at the BIS and in banks or financial institutions that have a long-term issuer credit risk rating equal to or greater than A, and that comply with what is provided in article 13 of this Regulation.

CHAPTER V
COMMON PROVISIONS

Article 19.- (Investment Performance)
The performance of the BCB's international reserves will be evaluated with reference to the currency invested in each portfolio.

Article 20.- (Prohibitions)
Investments in agencies of banks or financial institutions classified as "Offshore" are prohibited, except Hong Kong for investments in the currency of China.

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Article 21.- (Intermediaries)
The purchase and sale of securities and currencies will be carried out with primary dealers, eligible financial institutions, or institutions registered in the Stock Exchanges of the countries defined in article 13 of this Regulation.

Article 22.- (Credit Risk Rating Agency)
The credit risk ratings mentioned in this Regulation correspond to the Standard & Poor’s Rating Agency. In case ratings from another Credit Rating Agency are used, ratings equivalent to the Standard & Poor’s Rating Agency will be taken into account.

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