Resolution 079/2002 Approving Modifications to the Legal Reserve Regulation

BOARD RESOLUTION NO. 079/2002 SUBJECT: ECONOMIC POLICY ADVISORY – APPROVES MODIFICATIONS TO THE LEGAL RESERVE REGULATION.

HAVING SEEN:

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, 012/2002, and 074/2002 dated June 5, 2001, November 13, 2001, November 29, 2001, January 22, 2002, and July 2, 2002, respectively.

Minutes No. 030/2002 of the Ordinary Meeting of the Board of Directors of the BCB of July 16, 2002.

Report from the Economic Policy Advisory and the Financial Entities Management GEF No. 205/2002 of July 22, 2002.

Report from the Legal Affairs Management SANO No. 757/2002 of July 22, 2002.

CONSIDERING:

That the Central Bank of Bolivia (BCB), in compliance with Law 1670, has established a Legal Reserve regime of mandatory compliance for banks and financial intermediation entities.

That the current Legal Reserve Regulation establishes the use of the first and second tranches of the Liquidity Asset Requirement Fund (Fondo RAL) as collateral for liquidity loans, which together represent 70% of the Fondo RAL.

That the obligations of non-bank financial entities with the public have registered a significant contraction in the last month, an aspect that has determined that these entities have requested liquidity loans in both tranches of the Fondo RAL.

That Report GEF No. 205/2002 recommends the use of the third tranche of the Fondo RAL as collateral for liquidity credits to non-bank entities, taking into account that these entities do not participate in the check clearing house and that this tranche is reserved as collateral to cover open positions in the clearing house.

That Report GEF No. 205/2002 also recommends incorporating the possibility of renewing credits with collateral from the second tranche of the Fondo RAL, to facilitate access of financial entities to these resources in situations of liquidity insufficiency.

That according to Minutes No. 030/2002, the Board authorizes the opening of current and reserve accounts at the BCB for non-bank entities that maintain obligations with the public exceeding $80 million.

That the Legal Affairs Management, in its report SANO No. 757/2002, states that in accordance with Article 54, subsections a) and q) of Law 1670, it corresponds to the BCB Board to consider the approval of the project for the modification of the legal reserve rules.

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

Article 1.- Approve, temporarily until October 27, 2002, and exclusively for non-bank financial entities authorized for operation by the Superintendence of Banks and Financial Entities, the granting of freely available liquidity credits up to an amount of 30% corresponding to the third tranche of the Fondo RAL, for a term not exceeding fourteen days, renewable. For this renewal to take place, all time deposits owned by the entity must have been reported outside the BCB, redeemed, or negotiated.

These credits will be granted upon written request to the Financial Entities Management of the BCB, substantiating the reasons for the requirement and demonstrating the lack of availability of TGN and/or BCB titles. The COMA will determine the interest rates and other operational aspects regarding these credits.

Article 2.- Modify, temporarily until October 27, 2002, the term of credits with collateral from the second tranche of the Fondo RAL up to fourteen days renewable. The renewals of credits with Fondo RAL collateral will be carried out upon written request of the entities, prior to payment of accrued interest.

Article 3.- Modify the first two paragraphs of Article 11 of the Legal Reserve Regulation, in the following terms:

SAYS: Banking entities must maintain at the BCB a single account called "current and reserve account" in each of the four denominations (national currency, MNUFV, MVDOL, and foreign currency).

Banking entities must constitute the reserve in cash, in the current and reserve account enabled at the BCB, or in the account enabled for this purpose in entities authorized by the BCB. This account will not be subject to any type of judicial seizure or retention by third parties.

SHOULD SAY: "Banking entities, and non-bank financial entities that in the last six months have registered an average of obligations with the public above $80 million, will maintain at the BCB a single account called "current and reserve account" in each of the four denominations (national currency, MNUFV, MVDOL, and foreign currency). Non-bank entities may only draw checks on this account for the collection of cash at BCB counters.

The entities indicated in the previous paragraph must constitute the reserve in cash, in the current and reserve account enabled at the BCB, or in the account enabled for this purpose in entities authorized by the BCB. This account will not be subject to any type of judicial seizure or retention by third parties."

Article 4.- These modifications will enter into force on July 24, 2002.

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

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

La Paz, July 23, 2002

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Juan Antonio Morales A.

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Armando Méndez M. Roberto Camacho S.

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Javier Comboni S. Enrique Ackermann A.