Resolution 128/2003 Approving the Regulation of Operations with Securities Issued by the General Treasury of the Nation for Fiscal Policy Purposes

BOARD RESOLUTION NO. 128/2003 SUBJECT: MONETARY OPERATIONS MANAGEMENT – APPROVES REGULATION OF OPERATIONS WITH SECURITIES ISSUED BY THE GENERAL TREASURY OF THE NATION FOR FISCAL POLICY PURPOSES.

HAVING SEEN:

Law of the Central Bank of Bolivia No. 1670 of October 31, 1995. Securities Market Law No. 1834, of March 31, 1998. Supreme Decree No. 23380 of December 29, 1992, which authorizes the General Treasury of the Nation to issue securities. Supreme Decree No. 23837 of August 12, 1994, which modifies Article 4 of Supreme Decree No. 23380. The Statute of the Central Bank of Bolivia, approved by Board Resolution No. 128/2001, of December 13, 2001. The Regulation of Operations with Securities Issued by the General Treasury of the Nation for Fiscal Policy Purposes, approved by Board Resolution No. 028/2001, of April 10, 2001. The Open Market Operations (OMA) Regulation, approved by Board Resolution No. 127/2003, of November 11, 2003. The Interinstitutional Agreement signed on January 6, 1999, between the Central Bank of Bolivia and the Ministry of Finance, the First Addendum to the Interinstitutional Agreement of January 6, 1999, signed on February 4, 1999, and the Second Addendum to the Interinstitutional Agreement of January 6, 1999, signed on October 24, 2003. The Technical Report of the Monetary Operations Management SOMA No. 012/2003, of September 29, 2003. The Report of the Legal Affairs Management SANO No. 199/2003 of October 31, 2003.

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CONSIDERING:

That Article 29, paragraph e) of Law No. 1670 of October 31, 1995, authorizes the Central Bank of Bolivia (BCB), in its capacity as Financial Agent of the Government, to participate in the issuance, administration, and placement of public debt securities.

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 financial agent of the government, the BCB may carry out, under the conditions determined by its Board, the deposit, custody, registration, administration, transaction, clearing, 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-entry annotations held by the deposit entity.

That paragraph 23) of Article 11 of the BCB Statute empowers the BCB Board to approve the regulation of the services provided by the BCB in its capacity as financial agent of the government.

That the Interinstitutional Agreement signed between the BCB and the Ministry of Finance on January 6, 1999, establishes the administrative guidelines for the issuance, placement, administration, and redemption operations of the General Treasury of the Nation securities.

That the Second Addendum to the Interinstitutional Agreement signed on January 6, 1999, between the BCB and the Ministry of Finance, determines the guidelines for the dematerialized issuance of securities and for the dematerialization of public securities issued under this Interinstitutional Agreement, through the Bolivian Securities Deposit Entity S.A.

That the Technical Report of the Monetary Operations Management No. 012/2003, recommends the modification of the current Regulation of Operations with Securities Issued by the General Treasury of the Nation for Fiscal Policy Purposes, so that these operations can also be carried out with public securities represented by book-entry annotations.

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

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THEREFORE,

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

Article 1.- Approve the Regulation of Operations with Securities Issued by the General Treasury of the Nation for Fiscal Policy Purposes, in its 6 chapters and 36 articles, which, as an annex, forms part of this Resolution, with effect from November 11, 2003.

Article 2.- Repeal, with effect from the approval of this Resolution, the Regulation of Operations with Securities Issued by the General Treasury of the Nation for Fiscal Policy Purposes, approved by Board Resolution No. 028/2001, of April 10, 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.

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ANNEX REGULATION OF OPERATIONS WITH SECURITIES ISSUED BY THE GENERAL TREASURY OF THE NATION FOR FISCAL POLICY PURPOSES

CHAPTER I GENERAL PROVISIONS

Article 1.- (Object) This Regulation aims to determine the conditions for the auction, allocation, redemption, administration, and control of operations with securities issued by the General Treasury of the Nation (TGN) for fiscal policy objectives.

Article 2.- (Administration) The Central Bank of Bolivia (BCB), in its capacity as Financial Agent of the Government, administers the auctions, allocations, redemptions, and other operations with securities issued by the TGN, at the request and on behalf and at the expense of the TGN. It may authorize the contracting of a Securities Deposit Entity to carry out operations with securities represented by book-entry annotations.

Article 3.- (Characteristics of Securities) The characteristics of the securities issued by the TGN will be defined by the latter. These securities may be allocated through Public Auction, Money Desk, or other mechanism that may be authorized by the Interinstitutional Council established in Article 6.

Article 4.- (Issuance Currency) The securities, which may be indexed, will be issued by the TGN in national currency or in United States dollars.

Article 5.- (Registration) For public offering, the securities issued by the TGN will be registered in the Securities Market Registry of the Superintendence of Pensions, Securities, and Insurance.

CHAPTER II ADMINISTRATION COUNCIL FOR SECURITIES OF THE GENERAL TREASURY OF THE NATION (CAVT)

Article 6.- (Object of the CAVT) The CAVT, composed of representatives from the BCB and the Ministry of Finance (MH), is the interinstitutional body responsible for establishing the policy and conditions of operations with securities issued by the TGN for fiscal policy objectives, which are administered by the BCB.

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Article 7.- (Organization) The CAVT is constituted as follows:

Representatives of the Central Bank of Bolivia • The President of the BCB, who presides over the meetings, or by delegation, a Director or the General Manager of the BCB. • The General Manager of the BCB. • The Manager of Monetary Operations of the BCB. • The Chief Advisor of Economic Policy of the BCB, with voice but no vote. • The Deputy Manager of Open Market Operations of the BCB, with voice but no vote, who acts as Secretary. • The Directors of the BCB may participate in the CAVT in an informative capacity.

Representatives of the Ministry of Finance • The Deputy Minister of Treasury and Public Credit. • The General Director of Public Credit of the TGN. • The Director of Internal Debt of the General Director of Public Credit, with voice but no vote.

Article 8.- (Powers) The CAVT has the following powers: a) Ensure compliance with this Regulation. b) Determine the dates of the auctions. c) Define the form of issuance, quantities offered by currency and term, and, where applicable, frequency of issuances. d) Reject bids, when it considers the rate too high or, alternatively, the price too low. e) Declare the auction totally or partially void, in the following cases:

• When no bids are submitted.
• When none of the bids meet the requirements established in this Regulation. f) Resolve situations not contemplated in this Regulation. g) Propose to the Ministry of Finance and the BCB Board amendments and/or modifications to the current provisions in this matter.

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h) Authorize the Executive Body established in Article 14, when applicable, to send the information of the dematerialized issuance of securities to the competent entity, for registration in the book-entry system.

Article 9.- (Sessions) Ordinary sessions of the CAVT will be held once a week. The President may convene extraordinary sessions when deemed necessary.

Article 10.- (Quorum) The quorum will be established with four of its members with voice and vote, one of whom must necessarily be a representative of the MH.

Article 11.- (Resolutions) The resolutions of the CAVT will be taken by a simple majority of votes of the members present at the session. In case of a tie, the President of the Council will have the casting vote.

Article 12.- (Minutes) The Secretary will draft the Minutes of each of the CAVT sessions, which will be approved in the next session.

Article 13.- (Activity Report) The President of the Council will keep the BCB Board informed about the development of the CAVT's activities. The MH representatives will report on securities operations to the MH authorities.

Article 14.- (Executive Body) The Monetary Operations Management of the BCB (GOM) will be responsible for carrying out all operations related to the Public Auction process, Money Desk, and other operations with securities authorized by the CAVT. The GOM, when applicable, is responsible for carrying out the control and supervision of operations carried out through the EDV.

CHAPTER III PUBLIC AUCTION

Article 15.- (Call for Bids) Auctions will be held at the BCB, with prior public notice at least one business day before their realization, in one or more written media, without prejudice to the use of other means or mechanisms authorized by the CAVT.

Article 16.- (Authorized Agents) All financial entities with a license granted by the Superintendence of Banks and Financial Entities or by the Superintendence of Pensions, Securities, and Insurance may participate in the auctions, with prior authorization from the CAVT, and meeting the requirements of Article 15 of the Open Market Operations Regulation and

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those defined in this Regulation. Private individuals and non-financial entities in the private sector may participate in Treasury Securities auctions through financial entities authorized by the CAVT.

Article 17.- (Application) The application for participation in the auction must specify the legal name of the applicant, number of bids, and for each of them, as applicable, rate or price, quantity of securities, currency, payment method, term of the security, as well as other additional data according to the call for bids.

The application must be submitted to the BCB up to 15 minutes before the time fixed for the opening of the auction session in one of the following forms: a) In a closed envelope, with signatures of its legal representatives duly registered in the Deputy Manager of Open Market Operations (SOMA). b) Through electronic means authorized by the COMA. c) Any other means accepted by the CAVT.

The SOMA will certify the time of receipt of the applications.

Article 18.- (Provision of Funds) To participate in the auction, authorized entities must provide funds in one of the following forms: a) Through written or electronic communication to the BCB authorizing the debit of their current and reserve accounts, for their own operations or on behalf of other authorized financial entities. This authorization may be indefinite. b) By depositing an amount equivalent to 2% of the nominal value of the securities requested into the "Diverse Creditors - Open Market" account, authorized for this purpose at the BCB.

Article 19.- (Acceptance of Terms and Conditions) With the written or electronic submission of the application, the applicant submits to the terms of this Regulation and the call for bids, and may not withdraw their application after the deadline mentioned in Article 17.

Article 20.- (Reading of Bids) In the public auction session, the number of applications and bids received, as well as their characteristics, will be announced, without specifying the legal name of the applicants.

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Article 21.- (Grounds for Rejection) The following are grounds for rejection of applications: a) Lack of provision of funds. b) If the application contains incomplete or incorrect information regarding what is established in this Regulation and the conditions defined in the public call for bids. c) Submission of the application outside the established schedule.

CHAPTER IV ALLOCATION AND SALE AT AUCTION

Article 22.- (Allocation) The allocation of Treasury Securities in public auction may be carried out: a) on explicit prices or rates proposed by participants and b) through proposals adhering to the prices or rates resulting from the auction.

a) In the first modality, the CAVT will allocate the Treasury Securities to the best proposals, in descending order of price or ascending in terms of discount rate or yield.

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

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

If at the margin the quantity demanded in a single bid exceeds the available remaining supply under this modality, only that remaining amount will be allocated.

b) In the second modality, the CAVT will define the maximum offer and will allocate the Treasury Securities to participating entities at the average price or rate obtained in the modality described in paragraph a) of this Article. The amount offered through this modality will be at most 50% of the total amount in each currency and term.

If the total demand for Treasury Securities in this modality exceeds the available supply, the CAVT will allocate them by pro-rata, up to the limit of the available amount.

The amount requested under this modality by each participating entity may 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 CAVT.

If there are no allocations in the first modality, and therefore it is not possible to determine an average allocation price or rate, the CAVT will not make assignments of Treasury Titles under this second modality.

The allocation of Treasury Securities may be carried out under other modalities proposed by the CAVT with the approval of the Monetary and Exchange Policy Committee.

Article 23.- (Issuance Preference) The MH will take in its favor, totally or partially, the bids not rejected in the auction and will have preference in the definition of the issuance requirements of securities for the next auction.

Article 24.- (Effective Sale) The sale will become effective 48 hours after the auction allocation or in another period defined by the CAVT. Within this period, the successful bidder must ensure the existence of sufficient funds in one of the accounts mentioned in Article 18.

Article 25.- (Sanctions) If on the day of the sale, the successful bidder does not have sufficient resources to make the payment for the securities issued for fiscal policy purposes, the BCB will consolidate in favor of the TGN, as a fine, 2% of their nominal value, without prejudice to other sanctions that the CAVT may determine.

Article 26.- (Publication) The Monetary Operations Management of the BCB will publish the results of the auction, without specifying the legal name of the successful bidders.

Article 27.- (Commercial Year) The calculation of rates and prices will be carried out taking as a base the commercial year of 360 days.

CHAPTER V ISSUANCE, REGISTRATION, AND CUSTODY

Article 28.- (Issuance of Securities) The BCB, on behalf of the TGN, will issue a security for each sale carried out through auction, Money Desk, and other mechanism authorized by the CAVT, with the characteristics and security requirements that back the issuance.

The buyer, in the case of physical issuances, must pay the cost of replacement of forms and custody as established in the Table of Commissions and Other Income of the BCB.

Article 29.- (Registration and Custody) The BCB will electronically register the name of the buyer of the securities and all definitive purchase and sale operations of the same, regardless of the records of securities represented by book-entry annotation held by the EDV, whose ownership information, for pertinent legal purposes, will prevail over that recorded in the BCB's registry.

It is mandatory to communicate to the SOMA, in writing or by another means authorized by the COMA, the definitive purchase and sale operations of the securities in the secondary market. In the event that this communication does not exist, the transfer of ownership of physical securities cannot be registered in the BCB and will lack validity for their holder until the omission of registration is remedied.

Additionally, the BCB may be custodian, in physical or electronic register, of the issued securities. The BCB may also register repo operations carried out between agents.

Article 30.- (Exchange Rate) Operations in national currency indexed to the United States dollar will be carried out at the BCB's buying exchange rate in effect on the date.

Article 31.- (Fractionation of Physical Securities) The securities issued by the TGN may be fractionated according to the modalities defined by the CAVT and the costs stipulated in the Table of Commissions and Other Income of the BCB, respecting the characteristics and conditions of the original issuance.

CHAPTER VI REPLACEMENT, REVERSION, REDEMPTION, AND PRESCRIPTION

Article 32.- (Replacement of Physical Securities) In the event of loss or misplacement of the allocated securities, their replacement will proceed according to the norms established in the Commercial Code.

Article 33.- (Reversion of Securities) Securities represented by book-entry annotations allocated are subject to reversion to their physical expression, solely to enable their negotiation in international markets, according to the current applicable regulations for this effect.

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Article 34.- (Redemption) Public securities issued by the TGN and, where applicable, their respective coupons will be redeemed by the BCB, on behalf and at the expense of the TGN, on the maturity dates, after verifying the ownership of the holder with the records of the BCB or with those of the EDV and, if necessary, upon presentation of the security. The CAVT may determine the modalities and conditions for early redemption and conversion of existing securities.

Additionally, the BCB may request verification of public securities with the records of the TGN. Interest will not be recognized after the maturity date, nor will automatic renewal of them be accepted.

If the maturity of the physical security or coupon coincides with a non-working day, they may be redeemed on the previous business day at the curve price at the request of the holder.

Dematerialized securities and coupons may be redeemed at the average curve price of the corresponding series. The initial buyer will always be the BCB, with an option for repurchase by the TGN based on its availability.

Article 35.- (Prescription) Actions to collect the issued securities prescribe in favor of the State within a period of ten years from the date of their enforceability.

Article 36.- (Transitory Provision) Securities issued by the TGN prior to this Regulation are subject to the provisions that gave rise to them, until their maturity.

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