Resolution 122/2007 Approving the Foreign Exchange Position Regulation for Banking and Non-Banking Financial Entities

BOARD RESOLUTION NO. 122/2007 SUBJECT: ECONOMIC POLICY ADVISORY - APPROVES THE FOREIGN EXCHANGE POSITION REGULATION FOR BANKING AND NON-BANKING FINANCIAL ENTITIES.

HAVING REVIEWED: Law No. 1670 of the Central Bank of Bolivia (BCB) of October 31, 1995. The BCB Statute approved by Board Resolution No. 128/2005 of October 21, 2005, modified by Board Resolution No. 31/2006 of April 18, 2006. The Foreign Exchange Position Regulation of the Financial System approved by the BCB Board through Board Resolution No. 109/97 of May 8, 1997, and its modifications approved through Board Resolutions No. 148/97 of September 9, 1997, No. 064/98 of July 7, 1998, No. 011/02 of January 22, 2002, and No. 076/03 of July 8, 2003. The Report from the Economic Policy Advisory APEC-INEP No. 021/2007 of September 25, 2007. The Report from the Legal Affairs Management SANO No. 242/2007 of September 25, 2007.

CONSIDERING: That the BCB, in compliance with Law No. 1670, has established a Foreign Exchange Position Regulation of mandatory compliance for Institutions of the Financial System. That pursuant to articles 44 and 54, subsections a) and q) of Law No. 1670, the highest authority of the BCB is its Board, responsible for defining policies and specialized general application regulations, for which it is empowered to issue norms and adopt general decisions necessary for the BCB to fulfill the functions, competencies, and powers recognized by legal mandate, and to carry out all activities necessary to comply with its functions. That article 11, numeral 12) of the BCB Statute establishes that the Board of the Issuing Entity has the authority to determine the exchange regime and the country's exchange policy. That the Economic Policy Advisory recommends updating the norms on Foreign Exchange Position to adapt them to current operations in the country's financial system.

That the Legal Affairs Management states that there is no legal impediment for the Board of the Issuing Entity to consider the approval of the new Foreign Exchange Position Regulation for Banking and Non-Banking Financial Entities, recommended by the Economic Policy Advisory.

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

Article 1.- Approve the Foreign Exchange Position Regulation for Banking and Non-Banking Financial Entities, which as an annex forms part of this Resolution.

Article 2.- Repeal the provisions set forth in Board Resolutions 109/97 of May 8, 1997, No. 148/97 of August 9, 1997, No. 064/1998 of July 7, 1998, No. 011/2002 of January 22, 2002, and No. 076/2003 of July 8, 2003.

Article 3.- The Foreign Exchange Position Regulation for Banking and Non-Banking Financial Entities shall enter into force as of January 1, 2008.

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

La Paz, September 25, 2007

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Gustavo Blacutt Alcalá

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Hugo Dorado Araníbar Rolando Marín Ibáñez

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Ernesto Yánez Aguilar Osvaldo Nina Baltazar

ANNEX FOREIGN EXCHANGE POSITION REGULATION FOR BANKING AND NON-BANKING FINANCIAL ENTITIES

Article 1.- Objective This Regulation aims to regulate the foreign exchange position of banking and non-banking financial entities in denominations other than national currency, with the purpose of preserving the stability of the financial system, maintaining necessary control over the aggregated active and passive positions of financial institutions, and promoting the remonetization of the financial system.

Article 2.- Terms and Abbreviations For the purposes of this Regulation, the following terms and abbreviations are used:

Business Day: From Monday to Friday, excluding Saturdays, Sundays, and holidays. National Currency (NC): Currency referring exclusively to the Boliviano. Foreign Currency (FC): Monetary unit of the United States of America, denominated as the United States dollar. Other Foreign Currencies (OFC): All other currencies indicated in the BCB quotation table, with the exception of the United States Dollar. UFV: Housing Development Unit. National Currency with Value Maintenance (MVDOL): Accounting unit that allows the maintenance of the value of the Boliviano with respect to the United States Dollar. National Currency with Value Maintenance in relation to the Housing Development Unit (MNUFV): Denomination that allows the maintenance of the value of the Boliviano in relation to the Housing Development Unit. Accounting Equity: The equity arising from the consolidated Statement of Financial Position of a financial institution. Long Position: The excess of assets over liabilities in a specific denomination. Short Position: The excess of liabilities over assets in a specific denomination. Balanced Position: The equality or equilibrium between liabilities and assets in a specific denomination. Foreign Exchange Position: Long, short, or balanced position.

Article 3 (Calculation of the Position). The calculation of the foreign exchange position shall be carried out daily, based on balances at the close of each business day. The calculations of the exchange positions for each denomination defined in Article 2 shall be made in national currency and independently for MNUFV and for the sum of FC, MVDOL, and OFC.

Article 4 (Limits of the Exchange Position). Banking and non-banking financial entities may maintain an exchange position according to the following rules: a) For the sum of FC, MVDOL, and OFC, the limits are as follows: A long position up to the equivalent of 70% (SEVENTY PERCENT) of the value of accounting equity. A short position up to the equivalent of 20% (TWENTY PERCENT) of the value of accounting equity. b) A long position in MNUFV up to the equivalent of 20% (TWENTY PERCENT) of the value of accounting equity.

Article 5 (Information Monitoring). The Financial Entities Management of the BCB will monitor the exchange position of banking and non-banking financial entities, based on the daily information sent by these entities to the Superintendence of Banks and Financial Entities (SBEF).

Article 6 (Suspension of Operations). a. If it is determined that a financial intermediation entity exceeded the permitted limits for its exchange positions for more than two business days, the Financial Entities Management will inform the corresponding Managements so that they suspend, for a period equal to that of the infringement, the participation of the infringing entity in the following operations with the BCB: i. Purchase and sale of foreign currency at the BCB. ii. Open Market and Money Desk operations, including repos. b. If a financial entity exceeds the permitted limits for a period exceeding 15 business days, in addition to the sanctions established in subsection a) of this article, the Financial Entities Management will inform this situation to the General Manager, who will instruct the respective Area Managements to suspend, for the same time that the financial entity exceeded those limits, its participation in the Reciprocal Payments and Credits Agreement of ALADI. The Financial Entities Management will periodically inform the Financial System Analysis Committee about the institutions under sanction of this Regulation.

Article 7 (Controlling Entity). The SBEF, using the attributions granted to it by Law No. 1488, will establish control norms for the compliance of this Regulation, as well as the regime of administrative infractions and procedures for the imposition of sanctions. The SBEF will inform the BCB monthly about the fines and sanctions imposed on infringing entities.

Article 8 (Exception). The Productive Development Bank (BDP) is exempt from the application of this regulation. -- o --