Resolution 127/2003 Approving the Open Market Operations Regulation

BOARD RESOLUTION NO. 127/2003 SUBJECT: MONETARY OPERATIONS MANAGEMENT - APPROVES REGULATION OF OPEN MARKET OPERATIONS.

HAVING SEEN: The Law of the Central Bank of Bolivia No. 1670, of October 31, 1995. The Securities Market Law No. 1834, of March 31, 1998. The Statute of the Central Bank of Bolivia, approved by Board Resolution No. 128/2001, of December 13, 2001. The Open Market Operations Regulation (OMA), approved by Board Resolution No. 035/2001, of May 3, 2001. The Technical Report from the Monetary Operations Management SOMA No. 012/2003, September 29, 2003. The Report from the Legal Affairs Management SANO No. 199/2003, of October 31, 2003.

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

That Article 54 subsection d) of Law No. 1670 and numeral 4) of Article 11 of the BCB Statute empower the BCB Board of Directors to dictate and approve the rules for Open Market Operations.

That Article 87 of Law No. 1670 establishes that within the scope of its functions as monetary authority and payments system authority, and in its capacity as the government's financial agent, the BCB may carry out, under the conditions determined by its Board of Directors, the deposit, custody, registration, administration, transaction, compensation, and settlement of securities issued, guaranteed, or administered by the BCB and by the General Treasury of the Nation.

That Article 56 of Law No. 1834 establishes that the securities specified therein may be represented by book entries, under the responsibility of the deposit entity.

//2. B.D. No. 127/2003 That the Technical Report from the Monetary Operations Management No. 012/2003 recommends modifying the current Open Market Operations Regulation to allow the BCB to use public securities represented by book entries.

That in the opinion of the Legal Affairs Management, there is no legal impediment for the Board of Directors to approve the modifications to the aforementioned Regulation.

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

Article 1.- Approve the Open Market Operations Regulation in its 5 chapters and 16 articles, which forms part of this Resolution as an annex, with effect from November 11, 2003.

Article 2.- Repeal, from the approval of this Resolution, the Open Market Operations Regulation, approved by Board Resolution No. 035/2001, of May 3, 2001.

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

La Paz, November 11, 2003.

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Juan Antonio Morales A.

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Juan Medinaceli V. Enrique Ackermann A.

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José Luis Evia V. Fernando Paz B.

//3. B.D. No. 127/2003 ANNEX OPEN MARKET OPERATIONS REGULATION

CHAPTER I OBJECT AND SCOPE OF THE REGULATION

Article 1 (Object). This Regulation aims to establish the rules for Open Market Operations (OMA) carried out by the Central Bank of Bolivia (BCB) with financial entities or public institutions in compliance with its functions as monetary authority.

Article 2 (Definition of OMA). OMAs are operations with securities carried out by the BCB on its own account, for monetary policy objectives, in the primary or secondary market. These consist of the purchase, sale, repurchase, or other operations with securities, either through public auction, cash desk, or other mechanisms authorized by the BCB Board of Directors.

CHAPTER II POLICIES AND OBJECTIVES

Article 3 (Definition of Policies). The BCB Board of Directors defines monetary policies in general and open market operation policies in particular. It may authorize the contracting of a Securities Deposit Entity to carry out operations with securities represented by book entries.

At the beginning of each quarter, the Board of Directors will define general guidelines for OMAs taking into account the recommendations of the Economic Policy Advisory.

Article 4 (Objective of OMAs). The main objective of OMAs is the fulfillment of monetary policy.

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CHAPTER III EXECUTION, EVALUATION, AND CONTROL BODIES

Article 5 (Open Market Operations Committee). The Open Market Operations Committee (COMA), constituted in the manner established by the BCB Statute, has the function of applying the policies and guidelines approved by the BCB Board of Directors regarding OMAs.

Article 6 (Application of OMA Policies). The COMA will determine weekly the securities to be traded, their amounts, rates or prices, trading modality, and other characteristics based on the analysis of the market liquidity situation and the fulfillment of monetary policy targets and OMA guidelines defined by the Board of Directors.

Article 7 (Resolution of Unforeseen Operational Aspects). The COMA may resolve any operational aspect not foreseen in this Regulation.

Article 8 (Execution Body). Subject to the determinations of the COMA, the Monetary Operations Management (GOM) is responsible for the execution of OMAs at the BCB and for formulating recommendations on securities, amounts, terms, rates or prices, and types of OMAs. The GOM may carry out daily operations, using the different types of securities, amounts, rates or prices, and other modalities defined by the COMA. The GOM must present a quarterly report to the Board of Directors on the behavior of OMAs.

Article 9 (Autonomy Margins). The GOM may operate autonomously within the ranges of amounts, rates, prices, or terms approved for that purpose by the COMA. If due to situational circumstances the GOM considers it necessary to carry out operations outside the approved ranges, it must obtain prior and express authorization from the President of the COMA, who must inform the Committee at its next meeting.

Article 10 (Evaluation Body). The Economic Policy Advisory is responsible for evaluating the behavior of OMAs in relation to the Monetary Program, and must present a quarterly report to the Board of Directors.

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Article 11 (Audit). OMAs are subject to the control of the Internal Audit Unit of the BCB, which must present reports to the Board of Directors according to its Annual Audit Plan.

CHAPTER IV CHARACTERISTICS OF OPEN MARKET OPERATIONS

Article 12 (Operational Mechanisms). OMAs may be carried out through public auction, BCB cash desk, or other mechanisms authorized by the BCB Board of Directors.

I. Public Auction. It is a competitive mechanism for the allocation of securities, issued by the BCB or the TGN, to authorized institutions. Allocation in auction may be carried out in the following modalities:

a) Explicit Proposals. In this case, the COMA will allocate the securities to the best proposals (in descending order of prices, or ascending in terms of rates) made by the agents participating in the auction.

At the time of making the allocation, the COMA may reject bids with prices lower or rates higher than their reference levels.

If there is equality of prices, discount rates, or yields among bids within the margin, the securities will be allocated by the pro-rata system when applicable.

If in the margin the quantity demanded in a single bid exceeds the available supply remainder, only that remainder will be allocated.

b) Adhesion Proposals. In this case, the COMA will define the maximum offer, which cannot exceed 50% of the total amount in each currency and term, and will allocate the securities to the demanding entities at the average price or rate obtained in the modality described in subsection a) of this Article.

If the total demand for a security in this modality exceeds the available supply, the COMA will carry out the allocation by pro-rata, up to the limit of the available amount.

The amount requested under this modality by each participating entity must not exceed US$ 1,000,000 for foreign currency securities and Bs 1,000,000 for national currency securities, in each term. These amounts may be modified by the COMA.

The COMA will not allocate values under this second modality if there were no allocations in the first modality, as it would not be possible to determine an average allocation price or rate.

c) Under other modalities defined by the COMA with the approval of the Monetary and Exchange Policy Committee.

II. Cash Desk. It is a mechanism through which the GOM carries out purchase, sale, or repurchase operations with public securities issued by the TGN or the BCB, approved by the COMA, with authorized institutions. In the cash desk, economic agents also have the possibility to redeem operations or transactions with securities in advance, 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 public auction and cash desk operations.

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 by the BCB or placed by the BCB through the monetary regulation account. The placement or sale of securities will be carried out through public auction, cash desk, or another mechanism defined by the Board of Directors, and a public call for this purpose must be made previously, disseminated through written, oral, or electronic media. These securities must be registered in the Securities Market Registry.

II. Operations with Securities in the Secondary Market. Operations in the secondary market can be carried out with any security issued by the TGN or the BCB, through repurchase operations,

swaps,

//6. B.D. No. 127/2003 purchase, sale of securities, and others authorized by the BCB Board of Directors and by the COMA, when applicable.

CHAPTER V REQUIREMENTS REQUIRED OF PARTICIPANTS

Article 14 (Participants in Auction and Cash Desk). Financial entities with a license of operation granted by the Superintendence of Banks and Financial Entities or by the Superintendence of Pensions, Securities, and Insurance may participate in public auctions and the cash desk, with prior authorization from the COMA. Private individuals and non-financial entities in the private sector may participate in securities auctions through authorized financial entities.

Article 15 (Requirements to Participate in Auction). Entities participating in the public auction must provide funds in one of the following forms and accredit the documents cited below or others at the request of the BCB:

a) Through written or electronic communication to the BCB authorizing the debit of their current and reserve accounts, for their own operations or in favor of other authorized financial entities. This authorization may be indefinite.

b) Through a deposit equivalent to 2% of the nominal value of the securities demanded in the "Diverse Creditors - Open Market" account.

c) Application for participation in auction.

d) Copy of the RUC (Taxpayer Registry Code). This document must be presented only the first time and when there is any modification.

Article 16 (Requirements to Participate in Cash Desk). Entities wishing to participate in the cash desk must accredit the following documents or others at the request of the BCB:

For the first time and when modifications exist:

a) Notarized Power of Attorney authorizing the authorized signatures to participate in OMAs with the BCB, which must specify the maximum authorized operation amounts.

b) Registration card of authorized signatures for OMA.

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For each operation:

c) Application for purchase, sale, repurchase, swap, or other operation, duly filled out.

d) Payment document supporting the operation.

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