Resolution 076/2003 Approving Modifications to the Foreign Exchange Position Regulations of the Financial System

RESOLUTION NO. 076/2003
SUBJECT: ECONOMIC POLICY ADVISORY - APPROVES MODIFICATIONS TO THE FOREIGN EXCHANGE POSITION REGULATIONS OF THE FINANCIAL SYSTEM.

VIEWING:
Law 1670 of October 31, 1995.
Board Resolution No. 109/97 of May 8, 1997.
Board Resolution No. 064/98 of July 7, 1998.
Board Resolution No. 011/02 of January 22, 2002.
Technical Reports from the Economic Policy Advisory APEC-INEP No. 033/2003 of June 18 and No. 035/03 of July 7, 2003.
Internal Communication from the Legal Affairs Management SANO No. 134/2003 of July 7, 2003.

CONSIDERING:
That the Central Bank of Bolivia, in compliance with Law 1670, has established a Foreign Exchange Position Regulation of mandatory compliance by the Institutions of the Financial System.

That the Technical Reports from the Economic Policy Advisory APEC-INEP No. 033/03 and No. 035/2003 indicate that the increase in provisions and allocated assets resulting from portfolio deterioration in the Financial System has caused financial entities to present short-selling positions, and recommend modifications to the Foreign Exchange Position Regulation of the Financial System.

That the report from the Legal Affairs Management SANO No. 134/2003 indicates that there is no legal impediment for the Board of Directors of the Central Bank of Bolivia to consider the approval of the modifications and complements to the Foreign Exchange Position Regulation of the Financial System, requested by the Economic Policy Advisory.

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

Article 1.- Add the following definition to Article 2 of the Foreign Exchange Position Regulation:
"Loan loss provisions: These are the consolidated balances recorded in the account 'Loan loss provisions' according to the Chart of Accounts for Banks and Financial Entities of the Superintendency of Banks and Financial Entities."

Article 2.- Modify subsections c) and d) of Article 4 of the Foreign Exchange Position Regulation of the Financial System, in the following terms:
SAYS:
c) An over-sold position in foreign currency up to the equivalent in US dollars of 20% (TWENTY PERCENT) of the value of book equity.
SHOULD SAY:
"c) An over-sold position in foreign currency up to the equivalent in US dollars of 20% (TWENTY PERCENT) of the sum of the value of book equity and a percentage of the balance of loan loss provisions in foreign currency and in national currency with value maintenance. The applicable percentage is determined in Article 4 of this Resolution."

SAYS:
d) An over-sold position in national currency with value maintenance relative to the US dollar, which, added to the over-sale in foreign currency, does not exceed 20% (TWENTY PERCENT) of the value of book equity.
SHOULD SAY:
"d) An over-sold position in national currency with value maintenance relative to the US dollar, which, added to the over-sale in foreign currency, does not exceed 20% (TWENTY PERCENT) of the sum of the value of book equity and a percentage of the balance of loan loss provisions in foreign currency and in national currency with value maintenance. The applicable percentage is determined in Article 4 of this Resolution."

Article 3.- Modify the following paragraph added to subsection d) of Article 4 (Board Resolution No. 011/2002 of January 22, 2002) of the Foreign Exchange Position Regulation of the Financial System, in the following terms:
SAYS:
In the event of an over-bought foreign currency exchange position, the over-sale in national currency with value maintenance relative to the US dollar must not exceed 20% (twenty percent) of book equity. In the event of an over-sold foreign currency position, the over-buy in national currency with value maintenance relative to the US dollar must not exceed 80% (eighty percent) of the value of book equity, minus the amount of investment in fixed assets. SHOULD SAY:
"In the event of an over-bought foreign currency exchange position, the over-sale in national currency with value maintenance relative to the US dollar must not exceed 20% (TWENTY PERCENT) of the sum of the value of book equity and a percentage of the balance of loan loss provisions in foreign currency and in national currency with value maintenance. The applicable percentage is determined in Article 4 of this Resolution. In the event of an over-sold foreign currency position, the over-buy in national currency with value maintenance relative to the US dollar must not exceed 80% (eighty percent) of the value of book equity, minus the amount of investment in fixed assets."

Article 4.- The following is incorporated as a transitional provision to the Foreign Exchange Position Regulation of the Financial System:

Transitional Provision.
The percentage of the balance of loan loss provisions in foreign currency and in national currency with value maintenance to be used for the calculation of the short-selling position limits, mentioned in articles 2 and 3 of this Board Resolution, will be adjusted according to the following schedule:

FROM: PERCENTAGE
July 15, 2003 100
December 31, 2003 90
June 30, 2004 70
December 31, 2004 50
June 30, 2005 25
December 31, 2005 0

Article 5.- The modifications and complements preceding will enter into force from July 15, 2003.

Article 6.- The Presidency and General Management are charged with the execution and compliance of this Resolution.

La Paz, July 8, 2003.

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Juan Antonio Morales A.

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Juan Medinaceli V. Armando Méndez M.

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Enrique Ackermann A.