Resolution 102/97 Approving the Regulation for Open Market Operations

BOARD RESOLUTION NO. 102/97 SUBJECT: CURRENCY AND CREDIT - APPROVES REGULATION FOR OPEN MARKET OPERATIONS

SEEN:

The Law of the Central Bank of Bolivia (BCB), No. 1670 of October 31, 1995. The Pension Law, No. 1732 of November 29, 1996. Technical Report No. 15/96 of December 30, 1996. Legal Report S-JIN No. 331/96 of December 30, 1996. The Regulation for the Issuance and Operation of Negotiable Deposit Certificates (CDs), modified and supplemented according to Board Resolution 027/91 of March 26, 1991, and Extraordinary Act No. 4 of the Open Market Operations Committee (COMA) of June 17, 1992. The Regulation for Foreign Exchange Swap Operations, approved by Board Resolution 27/95 of April 4, 1995. The Regulation for Operations with Letters Issued by the General Treasury of the Nation (LTs), approved by Board Resolution 150/93 of December 7, 1995. The Regulation of the Open Market Operations Committee (COMA), modified by BCB Board Resolution No. 148/93 of December 7, 1993.

CONSIDERING:

That Article 6 of Law No. 1670 empowers the Central Bank of Bolivia (BCB) to execute monetary policy and regulate the quantity of money and the volume of credit according to its monetary program, being able to issue, place, and acquire securities and carry out other open market operations for this purpose.

That in order to regulate the liquidity of the economy, the stability of the purchasing power of the currency, and ensure compliance with the monetary targets defined for each management period, it corresponds to the BCB to control the volume and composition of the available means of payment in the economy, through open market operations.

That Law 1732 of November 29, 1996, created the Financial Regulation System (SIREFI), which is governed by the General Superintendency and integrated by Sectoral Superintendencies, including the Superintendency of Banks and Financial Entities (SBEF), the Superintendency of Insurance and Reinsurance, the Superintendency of Pensions, and the Superintendency of Securities.

That given the importance of open market operations in the execution of the BCB's monetary policy, it has been deemed convenient to issue a specific Regulation for this type of operation.

That the technical and legal reports indicate that the draft Regulation meets the necessary requirements and that there is no legal impediment to its approval.

That, Article 54, subsection b) of Law 1670 of October 31, 1995, empowers the Board of Directors to issue norms for open market operations.

Therefore,

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

Article 1.- Approve the Regulation for Open Market Operations in its VII Chapters and 20 articles, which, as an annex, forms part of this Resolution.

Article 2.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

22.IV.97

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Juan Antonio Morales A.

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Armando Pinell S. Jaime Ponce G.

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Juan Medinacelli V. Edgar Millares A.

REGULATION OF OPEN MARKET OPERATIONS

CHAPTER I OBJECT AND SCOPE OF THE REGULATION

Article 1 (Object). This Regulation aims to establish the norms for Open Market Operations (OMA) to be carried out by the Central Bank of Bolivia (BCB) with financial entities or public institutions.

Article 2 (Definition of OMA). OMAs are operations with securities carried out by the BCB on its own account, for monetary policy objectives, or on behalf of the General Treasury of the Nation (TGN) in its capacity as the Government's financial agent. They consist of the purchase, sale, or repurchase of securities, either through public auction, money market operations, or other mechanisms that the BCB Board of Directors may authorize for such transactions.

Article 3 (Legal Basis). The Law of Banks and Financial Entities (No. 1488 of April 14, 1993), the BCB Law (No. 1670 of October 31, 1995), and the Statute of the Issuing Entity (of February 20, 1997) empower the Central Bank of Bolivia to execute OMAs.

CHAPTER II DEFINITION OF POLICIES AND OBJECTIVES OF OPEN MARKET OPERATIONS

Article 4 (Definition of Policies). The BCB Board of Directors is responsible for the definition of monetary policies in general and of Open Market Operations Policies in particular. At the beginning of each quarter, the Board of Directors will define general guidelines for OMAs.

Article 5 (Objectives of OMAs). The OMAs carried out by the BCB on its own account or on behalf of the TGN will have the following primary objectives: I. Compliance with Monetary Policy Targets. II. Regulation of the Economy's Liquidity. III. Compliance with the TGN's Internal Financing Targets.

CHAPTER III ATTRIBUTES OF THE POLICY, EXECUTION, EVALUATION, AND CONTROL BODIES OF OPEN MARKET OPERATIONS

Article 6 (Open Market Operations Committee). The Open Market Operations Committee (COMA) has the functions of interpreting and applying the guidelines approved by the BCB Board of Directors regarding OMAs.

Article 7 (Application of OMA Policies). Based on the guidelines defined by the Board of Directors, the COMA will determine weekly or with the periodicity it decides, the global amounts, negotiation rates, securities to be negotiated, and negotiation modality. The COMA may also define, as appropriate, autonomous negotiation ranges for certain OMAs carried out by the Execution Body.

Article 8 (Execution Body). By virtue of the attributes granted in this Regulation and subject to the guidelines of the Board of Directors and the determinations of the COMA, the Currency and Credit Management (GMYC) is responsible for the execution of OMAs at the BCB and for formulating recommendations on amounts, terms, securities, rates, and classes of OMAs, based on the analysis of the market liquidity situation and the compliance with monetary policy targets. The GMYC must present a quarterly report to the Board of Directors on the behavior of OMAs.

Article 9 (Autonomy Margins). The GMYC may carry out daily operations, applying the amounts, types of securities, negotiation rates, and other modalities of OMAs defined by the COMA. In authorized cases, the GMYC may operate autonomously within the ranges approved for that effect by the COMA. If due to situational circumstances it is necessary to carry out operations outside the approved autonomous negotiation ranges, the GMYC must obtain prior and express authorization from the President of the COMA.

Article 10 (Evaluation Body). The Economic Policy Advisory is responsible for evaluating the behavior of OMAs, must present a Quarterly Report to the Board of Directors regarding them, including their impacts on the Monetary Program.

Article 11 (Control Body). The Internal Audit Unit of the BCB is responsible for controlling compliance with this Regulation and the execution of OMAs, must present reports to the Board of Directors each quarter.

CHAPTER IV MODALITIES OF OPEN MARKET OPERATIONS

Article 12 (Operational Mechanisms). OMAs may be carried out through public auction, the BCB money market, or other mechanisms authorized for that effect:

I. Public Auction. It is a competitive mechanism among authorized participants, through which primary allocation of securities is carried out. Financial agents can access the auction until the deadline hour set for the effect, presenting their proposals in a closed envelope with all corresponding supporting documentation. The time of submission of requests does not establish any order of precedence. For requests to be considered valid, financial agents must specify the quantity and type of securities they wish to buy, discount rate, currency, term, and other particular variables that are pertinent to the operations.

II. Money Market. It is a mechanism through which the BCB carries out purchase, sale, or repurchase operations of public securities issued by the TGN or the BCB, authorized by the COMA, with institutions authorized in this Regulation. In the money market, economic agents have the possibility to redeem in advance operations or transactions with securities, under the conditions determined by the COMA.

III. Other Mechanisms. The BCB Board of Directors may authorize the execution of OMAs with mechanisms different from those of the public auction and the operations defined for the money market.

Article 13 (Types of Operations). The types of OMAs carried out by the BCB may be the following:

I. Primary Placement of Securities. Primary placement will be carried out with securities issued, administered, or authorized by the BCB. The placement or sale of securities will be carried out through public auction or money market operations, and a public call for this effect must be carried out previously, disseminated through written, oral, or electronic media.

II. Secondary Market Operations with Securities. Secondary operations can be carried out with any security issued by the TGN or the BCB, through repurchase operations, swaps, purchase, sale of securities, and others authorized by the BCB Board of Directors and by the COMA.

CHAPTER V GUIDELINES OF OPEN MARKET OPERATIONS

Article 14 (Amount Available for Open Market Operations). The COMA will define the total amounts to be placed in the programmed period. The GMYC will adjust the daily amounts to be negotiated, in order to optimize the performance of OMAs, taking into consideration market conditions and the objectives pursued by such operations.

Article 15 (Rates Defined for Open Market Operations). Taking into consideration the conditions of the financial market, the COMA will approve: I. Ranges of discount or interest rates, applicable to both primary or secondary operations, depending on the type of operation. II. Ranges of premium rates, applicable to repurchase purchase or sale operations, exclusively in the BCB money market. III. Ranges of reference interest rates ("prima" rate), applicable in swap operations in auction and in the money market. IV. Other rates or ranges applicable depending on the type of operation.

CHAPTER VI REQUIREMENTS EXIGIBLE OF PARTICIPANTS

Article 16 (Participants in Auctions). Only banks and financial entities that are enabled for their operation by the corresponding Sectoral Superintendencies of the Financial Regulation System (SIREFI) may participate in public auctions. Additionally, these entities must accredit the following documents or others at the request of the BCB:

• Application for participation in the public auction.
• Payment document for the operation, which can be carried out with matured securities duly endorsed, deposit slips, or letter of authorization for debit from their accounts at the BCB.
• Copy of the RUC (Taxpayer Registry Code). This document must be presented only the first time and when there is any modification.

Article 17 (Participants in the Money Market). Banks and financial entities that are enabled for their operation by the corresponding Sectoral Superintendencies of SIREFI may participate in the money market. Public entities that have been duly authorized by the National Secretariat of Treasury for that effect may also participate in money market operations. Private individuals and non-financial entities of the private sector may only access OMAs indirectly, through financial entities included in the SIREFI regime, with the purpose of fostering the development of the secondary securities market. Additionally, financial and public entities wishing to participate in the money market must accredit the following documents or others at the request of the BCB:

For the first time and when modifications exist:

• Card of registration of authorized signatures for OMAs.
• For financial entities: Notarized power of attorney authorizing them to participate in OMAs with the BCB, which must specify the maximum authorized operation amounts.

For each operation:

• Application for purchase, sale, repurchase, or swap operation, duly filled out.
• Payment document supporting the operation.

CHAPTER VII OTHER PROVISIONS

Article 18 (Regulation of Unforeseen Operational Aspects). The COMA may regulate any operational aspect not foreseen in this Regulation.

Article 19 (Previous Regulations). The regulations for the issuance of securities of CDs, LTs, and SWAPs, approved by Board Resolutions No. 027/91, 150/93, and 27/95, respectively, and the COMA Regulation (R.D. No. 148/93), will maintain their validity as long as their provisions do not contravene those of this Regulation. These provisions must be adapted to this Regulation within a period not greater than three months.

Article 20 (Validity). This Regulation will apply to all OMAs carried out by the BCB starting from May 15, 1997.

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