Resolution 139/2003 Approving the Regulation for the Administration of International Reserves

BOARD RESOLUTION NO. 139/2003 SUBJECT: INTERNATIONAL OPERATIONS MANAGEMENT – APPROVES REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES.

HAVING SEEN: Law 1670 of October 31, 1995. Board Resolution No. 131/2003 of November 14, 2002, which approves the Regulation for the Administration of International Reserves. Report from the International Operations Management SR No. 06/2003 of December 2, 2003. Report from the Legal Affairs Management SANO No. 231/2003 of December 2, 2003. Note from the General Management GGRL. I. 956/2003 of December 3, 2003.

CONSIDERING: That Chapter II of Title of Law 1670 establishes the functions that the BCB must perform regarding International Reserves. That the Report from the International Operations Management SR No. 06/2003 recommends modifying the current Regulation for the Administration of International Reserves, in order to optimize the management and investment of said reserves. That according to the Report from the Legal Affairs Management SANO No. 231/2003, the Regulation does not contravene current legal provisions and that, in accordance with the attribution conferred by article 54, subsection o) of Law 1670, the Board is empowered to approve, modify, and interpret the regulations of the BCB.

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

Article 1.- Approve the new Regulation for the Administration of International Reserves, which, as an annex, forms part of this resolution.

Article 2.- Put this Regulation into effect on the day of its approval.

Article 3.- Repeal Board Resolution No. 131/2002 of November 14, 2002, and all provisions contrary to this Regulation.

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

La Paz, December 4, 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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Jaime Apt B.

ANNEX REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES

CHAPTER I OBJECT

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

CHAPTER II DECISION, EXECUTION, AND CONTROL BODIES

Article 2.- (Powers of the Board) The BCB Board defines the administration norms, strategies, and investment policies of the international reserves.

Article 3.- (Powers of the International Reserves Committee) The International Reserves Committee, constituted in accordance with the BCB Statute, approves periodic investment guidelines, within the framework of the norms, strategies, and policies determined by the Board.

Article 4.- (Meeting Frequency) The Committee meets at least twice a month for the evaluation and monitoring of investments executed by the International Operations Management, and exceptionally, upon convocation by its President.

Article 5.- (Powers of the International Operations Management) The International Operations Management, through the Reserves Sub-management, is responsible for the execution of international reserve investments, applying the provisions of this Regulation, and must present quarterly reports to the BCB Board, which must include the report from the Investment Control Department. The Investment Control Department, through the International Operations Management, will inform the International Reserves Committee and the General Management regarding compliance with the norms, policies, and limits established by the BCB Board.

CHAPTER III MODALITIES OF RESERVE ADMINISTRATION

Article 6.- (Modalities) Two modalities are established to administer international reserve investments: Direct Administration and Delegated Administration.

Article 7.- (Direct Administration) Direct Administration of international reserves is carried out through the International Operations Management.

Article 8.- (Delegated Administration) Delegated Administration of international reserves is carried out through banks and their fund managers, contracted in accordance with the provisions of the specific regulation for the contracting of these services and as established in Article 14 of this Regulation. The International Operations Management carries out the control and monitoring of Delegated Administrators.

CHAPTER IV STRUCTURE AND LIMITS OF INTERNATIONAL RESERVES

Article 9.- (Structure of International Reserves) International reserves are composed of gold reserves and international monetary reserves, the latter classified into working capital and investment capital.

Section A: International Monetary Reserves – Working Capital

Article 10.- (Composition) Working capital consists of balances in current accounts in foreign banks, overnight deposits, weekend deposits, and cash foreign currency deposited in the BCB vault. Its administration is carried out under the Direct Administration modality.

Article 11.- (Remittances of cash foreign currency to and from abroad) The General Management, in coordination with the Monetary Operations and International Operations Managements, approves the amounts and dates for the sending and/or receipt of remittances of United States dollar bills.

Section B: International Monetary Reserves – Investment Capital

Article 12.- (Composition) Investment capital consists of balances in current accounts in foreign banks, overnight deposits, weekend deposits, fixed-income instruments in money and capital markets, and holdings of foreign currency in international monetary organizations. Its investment is carried out under the modalities of Direct Administration and/or Delegated Administration.

Article 13.- (Investment in non-banking corporate risk) The placement of international reserves in non-banking corporations with equity greater than US$ one billion and with a short-term issuer credit risk rating equal to or higher than A-1 or long-term AA, as appropriate to the maturity of the investment made, is authorized, according to the Risk Rating Agency.

Article 14.- (Investment in banking corporate risk) The placement of international reserves in banking institutions with equity greater than US$ one billion and with a short-term issuer credit risk rating equal to or higher than A-1 or long-term equal to or higher than A, as appropriate to the maturity of the investment made, is authorized, according to the Risk Rating Agency.

Article 15.- (Investment in supranational risk) Investment in money and capital market instruments issued by international organizations with a short-term issuer credit risk rating equal to or higher than A-1 or long-term equal to or higher than A, as appropriate to the maturity of the investment made, is authorized, according to the Risk Rating Agency. Supranational risk includes the Bank for International Settlements (BIS).

Article 16.- (Investment in sovereign risk) Investment in sovereign bonds of countries that have maintained, over the last 24 months, a long-term sovereign credit risk rating equal to or higher than AA- is authorized.

Article 17.- (Intermediaries) Intermediation is carried out exclusively with financial institutions that have a credit risk issuer rating of at least A- in countries eligible for sovereign credit risk, with entities that have the category of authorized primary dealers in the United States of North America, the United Kingdom, and France, or with institutions authorized by the issuer to place the primary issuance (underwriters).

Article 18.- (Authorized Currencies) The Investment of International Monetary Reserves is carried out in currencies of countries with sovereign credit risk established in Article 16 and in Special Drawing Rights (SDRs).

Section C: Gold Reserves

Article 19.- (Investment of gold abroad) It corresponds to the BCB Board to establish the maximum percentage of gold reserves that are invested abroad.

Article 20.- (Authorized Markets) Authorized markets for gold investment must have a long-term sovereign credit risk rating of AAA.

Article 21.- (Investments in authorized institutions) Gold investments are carried out at the Bank for International Settlements, the World Bank, and banks that are members of the London Bullion Market Association and that have long-term issuer credit risk ratings equal to or higher than A.

Article 22.- (Custodians of physical gold) Custodians of physical gold invested abroad may be the Bank for International Settlements, the Bank of England, and the Federal Reserve Bank of the United States of North America.

Article 23.- (Gold investment modalities) Gold investment operations may be carried out under the modality of physical movement of gold, 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".

Article 24.- (Gold purchases and sales) Gold purchase or sale operations are expressly authorized by Board Resolution, except for the cases listed in Article 25.

Article 25.- (Authorization of gold purchase and sale operations) In cases of operations that require a change in the investment modality from unallocated to allocated or vice versa, the International Operations Management may carry out gold purchases or sales to complete the operation, with a maximum limit of 500 troy ounces fine per each operation, with prior authorization of the Board.

CHAPTER V DEFINITION OF ANNUAL INVESTMENT POLICY

Article 26.- (Presentation to Board) The International Reserves Committee, through the International Operations Management, will present to the consideration and approval of the Board, before the start of each management period, the investment policy of the international reserves.

Article 27.- (Content) Upon approving the annual investment policy, the BCB Board establishes the limits or values for the following parameters. a) Minimum and maximum limits of working capital. b) Structure of investment capital. c) Duration of portfolios. d) Referential comparators (Benchmarks) for working and investment capitals and for gold reserves. e) Authorized instruments and operations for investments of monetary reserves and gold. f) Limits on the total and individual amount under Delegated Administration. g) Global and individual limits for investments. h) Other authorized operations. i) Others that the Board considers convenient.

CHAPTER VI SECURITY CUSTODY SERVICE

Article 28.- (Custody) The Custody services of international reserve investments are carried out at the Bank for International Settlements (BIS), at the Central Banks of countries eligible for sovereign credit risk, and/or at banks or financial institutions of countries eligible for sovereign credit risk, with a minimum long-term issuer credit risk rating of A and with equity greater than US$ two billion.

CHAPTER VII FINAL PROVISIONS

Article 29.- (Prohibitions) Investments in agencies of banks or financial institutions classified as "Offshore" are prohibited.

Article 30.- (Investment Performance) The performance of the investment portfolio is evaluated with reference to the United States of North American dollar.

Article 31.- (Liquidation of Investments) In cases where the issuer credit risk rating decreases to a level below the minimum required, the International Reserves Committee determines the period within which the International Operations Management must liquidate those investments.

Article 32.- (Mergers, Acquisitions, and Subrogations) In the event of mergers, acquisitions, and/or subrogations of financial entities in which investments are held, current accounts are maintained, or Delegated Administration or Security Custody services are provided, the International Reserves Committee defines their treatment within the framework of this Regulation.

Article 33.- (Third-Party Investments) Investments of third-party resources abroad are carried out, insofar as applicable, under the same norms, guidelines, restrictions, and limits of investment capital, established in this Regulation.

Article 34.- (Current accounts in Japanese yen) The opening of current accounts denominated in yen, in Japanese banks with a short-term issuer credit risk rating equal to or higher than A-2, is authorized.

Article 35.- (Risk Rating Agency) For the control of credit risk ratings, those provided by the international credit risk rating agency Standard & Poor’s are used.

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