Resolution 090/99 Approving the New Regulation for the Administration of International Reserves

BOARD RESOLUTION NO. 090/99 SUBJECT: INTERNATIONAL OPERATIONS – APPROVES NEW REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES.

SEEING: Law 1670 of October 31, 1995, Chapter II, regarding the functions of the BCB concerning International Reserves. The Statute of the Central Bank of Bolivia of February 20, 1997. The Regulation for the Administration of International Reserves, approved by Board Resolution No. 080/97 of February 18, 1997. The Report from the International Operations Management (GOI) No. 018/99 of October 8, 1999. The Report from the Legal Affairs Management (GAL) No. 053/99 of October 8, 1999.

CONSIDERING: That the International Operations Management, in its Report GOI No. 018/99 of October 8, 1999, recommends modifying the current Regulation for the Administration of International Reserves, in order to establish and differentiate with greater clarity the instances for defining investment policies from those corresponding to their execution, incorporating additional functions that allow for adequate and timely risk control in investments.

That in the opinion of the Legal Affairs Management, according to its Report No. GAL No. 053/99 of October 8, 1999, the Board is authorized to approve, modify, and interpret the Regulations of the BCB in accordance with the attribution conferred by Article 54, subsection o) of Law 1670.

THEREFORE,

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

//2. B.R. No. 090/99 Article 1.- Approve the new Regulation for the Administration of International Reserves, which, as an annex, forms part of this Resolution.

Article 2.- Repeal Board Resolution No. 080/97 of February 18, 1997, and all provisions contrary to this Regulation.

Article 3.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, October 12, 1999

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Juan Antonio Morales A.

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Armando Pinell S. Jaime Ponce G.

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Juan Medinaceli V. Armando Méndez M.

//3. B.R. No. 090/99 REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES

CHAPTER I OBJECT AND SCOPE OF THE REGULATION

Article 1.- This Regulation aims to establish the norms and procedures to which the administration of the international reserves of the Central Bank of Bolivia (BCB) will be subject, with criteria of capital preservation, security, liquidity, and profitability.

CHAPTER II DECISION, EXECUTION, AND CONTROL BODIES

Article 2.- The BCB Board defines the administration norms and the strategies and policies for the investment of international reserves.

Article 3.- The Reserve Administration Committee, constituted in accordance with the Bank's Statute, approves the periodic investment guidelines, within the framework of the norms, strategies, and policies determined by the Board.

Article 4.- The International Operations Management is responsible for the execution of international reserve investments, applying the provisions of this Regulation.

Article 5.- The Committee meets weekly for the evaluation and follow-up of investments executed by the International Operations Management, and exceptionally, upon convocation by its President.

Article 6.- The Investment Control Department of the International Operations Management must present to the Reserve Administration Committee, weekly, an evaluation report on the execution of direct and delegated investments, the returns obtained, the comparison with defined Benchmarks, and compliance with the norms, policies, strategies, guidelines, and limits established by the Board. The International Operations Management will submit to the Board a quarterly Report on the Administration of International Reserves.

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Article 7.- The Internal Audit Management will present to the Board a quarterly report on compliance with the norms and investment policies of international reserves.

CHAPTER III MODALITIES OF RESERVE ADMINISTRATION

Article 8.- Two modalities are established to administer international reserve investments: Direct Administration and Delegated Administration.

DIRECT ADMINISTRATION

Article 9.- The Direct Administration of international reserves is carried out through the International Operations Management.

DELEGATED ADMINISTRATION

Article 10.- The Delegated Administration of international reserves is carried out through banks or financial institutions authorized for this effect, under the supervision of the International Operations Management, which must periodically inform the Committee.

Article 11.- The BCB Board approves the specifications under which banks or financial institutions provide the Delegated Administration service, including structures by currency and by asset type, the average portfolio term (duration), reference comparators (benchmarks), and others it deems necessary.

Article 12.- The BCB President, upon recommendation of the Reserve Administration Committee, approves the awarding of the Delegated Administration service to banks or financial institutions that are selected based on a competitive proposal process, in accordance with current norms for service contracting.

Article 13.- The total delegated amount must not exceed 40% of the investment capital.

Article 14.- The amount delegated per institution must not exceed 20% of the investment capital.

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CHAPTER IV PORTFOLIO STRUCTURE AND LIMITS

Article 15.- The international reserve investment portfolio is composed of gold reserves and international monetary reserves, the latter classified into working capital and investment capital.

INTERNATIONAL MONETARY RESERVES

WORKING CAPITAL

Article 16.- Working capital consists of balances in current accounts in foreign banks, overnight deposits, weekend deposits, and foreign currency cash deposited in the BCB vault or in national banks designated for this effect.

Article 17.- The minimum and maximum levels of working capital are determined annually by the Board. In exceptional circumstances, the Committee may increase the maximum limit, informing the Board about this fact at its next meeting.

INVESTMENT CAPITAL

Article 18.- Investment capital consists of fixed-income instruments in money and capital markets, and holdings of foreign currencies in international monetary organizations. Its investment is carried out under the modalities of Direct Administration and Delegated Administration.

INVESTMENT LIMITS BY TYPE OF ISSUER

Article 19.- The following maximum limits per issuer are established:

Type of issuer	Maximum allowed on international monetary reserves
Supranational issuers	15%
Banking issuers	50%
Sovereign issuers	80%

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INVESTMENT LIMITS BY ISSUER WITH BANKING RISK

Article 20.- Institutions eligible for the placement of international reserves, both for working capital and investment capital modalities, are those that have equity greater than US$ 1,000 million and have a short-term rating of P-1, and a long-term rating equal to or higher than Aa3, according to international rating agencies Moody’s Investors Services and Standard & Poor’s, with the following limits:

Rating according to Moody’s	Maximum allowed per entity on working capital	Maximum allowed per entity on investment capital
Aaa	60%	6%
Aa1	60%	6%
Aa2	50%	5%
Aa3	50%	5%

SOVEREIGN RISK ISSUERS

Article 21.- Sovereign titles from countries that have maintained a long-term sovereign risk rating equal to or higher than Aa3 in the last 24 months will be eligible for investment.

INVESTMENT LIMITS BY SUPRANATIONAL ISSUERS

Article 22.- Investments in the Bank for International Settlements (BIS) and in supranational entities that have a long-term rating equal to or higher than Aa3 may reach a maximum of 6% of investment capital.

Article 23.- The Board will set the maximum limits for the investment of international reserves in each of the worldwide or regional multilateral organizations where the country holds shareholding participation.

INVESTMENT LIMITS ON THE TOTAL OF EACH ISSUE

Article 24.- Investment may only reach a maximum of 10% of the value of a banking, sovereign, or supranational issue.

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INTERMEDIARIES

Article 25.- Intermediation is carried out exclusively with financial institutions that have a rating of at least A1 in countries eligible by sovereign risk or with entities that have the category of authorized primary dealers in the United States of America, the United Kingdom, and France.

INTERNATIONAL GOLD RESERVES

GOLD INVESTMENT ABROAD

Article 26.- It corresponds to the BCB Board to establish the maximum percentage of gold reserves that will be invested abroad.

GOLD PURCHASES AND SALES

Article 27.- Gold purchase or sale operations must be expressly authorized by Board Resolution, except for the cases stated in Article 28.

Article 28.- In cases where, due to the effect of physical gold transfers to or from abroad, it is necessary to carry out gold purchases or sales to complete the operation, the International Operations Management is authorized to execute them, with a maximum limit of 500 troy fine ounces per each operation, having to inform the Board about the particular matter.

AUTHORIZED MARKETS

Article 29.- The authorized markets for gold investment must have a long-term sovereign risk rating of Aaa.

INVESTMENT LIMITS BY INSTITUTIONS

Article 30.- Gold investments are carried out in financial institutions that are members of the London Bullion Market Association and that have long-term ratings equal to or higher than Aa3, with the following limits:

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Rating according to Moody’s	Maximum allowed on the total value of gold
Aaa	25%
Aa1	25%
Aa2	20%
Aa3	20%

AUTHORIZED OPERATIONS AND INVESTMENT PERIOD

Article 31.- Gold may be invested in the following operations, with the maximum and average durations described below:

a) Time deposits (spot or forward). | Max duration: 1.5 years b) Gold/FX Swaps. | Max duration: 5.0 years c) Gold options for price hedging. | Max duration: 5.0 years d) Gold interest rate futures operations (GOLFRA). | Max duration: 5.0 years Average duration of gold investments: 3.5 years

The operations described in subsections b), c), and d), with terms greater than one year, must be authorized by express Board Resolution. Operations with terms less than one year must be approved by the Committee.

GOLD CUSTODIANS

Article 32.- The Custodians of gold invested abroad may be the Bank for International Settlements (BIS), the Bank of England, the Federal Reserve Bank of New York, the National Bank of Switzerland, and, exceptionally, other banks that meet the conditions of Article 36.

GOLD INVESTMENT MODALITIES

Article 33.- Gold investment operations may be carried out under the modality of physical gold movement, through the Custodian Agent (allocated), as well as in the modality of registration in the “Book Entries” of banks or institutions authorized to carry out investments, without physical movement of gold (unallocated).

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CHAPTER V DEFINITION OF THE ANNUAL INVESTMENT POLICY

Article 34.- The Reserve Administration Committee, through the International Operations Management, will present to the Board for consideration and approval, before the start of each management period, the investment policy for international reserves.

Article 35.- The BCB Board, upon approving the annual investment policy, establishes the limits or values for the following parameters: a) Minimum and maximum limits of working capital. b) Minimum and maximum limits for the matching asset portfolio. c) Currency structure with deviation ranges for working and investment capitals, based on criteria of asset and liability matching by currency, financial flows, and profitability. d) Duration d.1) Maximum global average duration of investment capital. d.2) Maximum average duration of the Bond Portfolio. d.3) Maximum individual duration per title. e) Reference comparators (Benchmarks) for working and investment capitals and for gold reserves. f) Eligible instruments for investments with banking, sovereign, and supranational risks. g) Other eligible operations, including purchase and sale of currencies in the modalities: spot and forward, repos, reverse repos, currency and interest rate swaps, and securities lending. h) Others that the Board considers convenient.

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CHAPTER VI CUSTODY

Article 36.- The Custody services for international reserve investments are carried out at the Bank for International Settlements and/or at banks or financial institutions in countries eligible by sovereign risk, with a minimum long-term rating of Aa3 and having equity superior to US$ 2 billion.

Article 37.- The BCB President, upon recommendation of the Reserve Administration Committee, approves the awarding of the Custody service to banks or financial institutions that are selected based on the competitive proposal process, in accordance with current norms for service contracting.

CHAPTER VII GENERAL PROVISIONS

Article 38.- Investments in agencies of banks or financial institutions classified as "Offshore" are prohibited.

Article 39.- The return of the investment portfolio will be evaluated with reference to the United States dollar.

Article 40.- Registered titles must be registered in the “Book Entries” of the issuers. In cases of physical title issuance, their holding must be assigned to the Custodian.

Article 41.- Investments in fixed-income titles must be carried out exclusively under the “delivery versus payment” modality, except for operations with the BIS which maintains custody of its own titles.

Article 42.- For market reasons, duly justified, the International Operations Management may modify the Committee's weekly investment guidelines, in consultation with its President. This Management must inform the Committee about the particular matter at its next meeting.

Article 43.- In cases where the rating of issuers or investment instruments decreases to a level below the minimum required, the Committee will determine the term within which the International Operations Management must liquidate those investments.

Article 44.- Investments of third-party resources (committed funds) will be carried out, insofar as applicable, under the same norms, guidelines, restrictions, and limits of investment capital, established in this Regulation.

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