Resolution 153/2005 Approving the Regulation for the Administration of International Reserves

RESOLUTION OF THE BOARD OF DIRECTORS NO. 153/2005 SUBJECT: INTERNATIONAL OPERATIONS MANAGEMENT – APPROVES REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES.

HAVING SEEN: Law 1670 of October 31, 1995. Board of Directors Resolution No. 175/2004 of November 23, 2004, which approves the Regulation for the Administration of International Reserves. Report from the International Operations Management (GOI) No. 012/2005 of November 30, 2005. Report from the Legal Affairs Management (SANO) No. 292/2005 of December 1, 2005.

CONSIDERING: That Chapter II of Title II of Law 1670 establishes the functions that the Central Bank of Bolivia (BCB) must perform regarding International Reserves. That the Report from the International Operations Management (GOI) No. 012/2005 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. 292/2005, the Regulation does not contravene current legal provisions and that, in accordance with the authority granted by Article 54, subsection o) of Law 1670, the Board of Directors 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 of Directors Resolution No. 175/2004 of November 23, 2004, 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 6, 2005.

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Juan Antonio Morales A.

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Enrique Ackermann A. 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 purpose of this Regulation is 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 of Directors) The Board of Directors of the BCB defines the administration norms, strategies, and investment policies for international reserves.

Article 3.- (International Reserves Committee) The International Reserves Committee, constituted in accordance with the BCB Statute, approves periodic investment guidelines, evaluates, and monitors that investments carried out by the International Operations Management (GOI) and by Delegated Administrators are conducted within the framework of the norms, strategies, and policies determined by the Board of Directors.

Article 4.- (Frequency of Meetings) The Committee meets at least twice a month and, exceptionally, upon summons 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 the Annual Investment Policy, and must present quarterly reports to the BCB Board of Directors. The Investment Control Department of the GOI will conduct control over the compliance with the norms, policies, and limits established by the BCB Board of Directors in the investment of international reserves, presenting periodic reports to the International Reserves Committee.

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 financial institutions or fund managers, contracted in accordance with the specific regulation for the contracting of these services, which manage assets equal to or greater than US$ 150 billion.

The International Operations Management conducts control and monitoring of Delegated Administrators.

CHAPTER IV STRUCTURE AND LIMITS OF INTERNATIONAL RESERVES

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

Section A: International Monetary Reserves

Article 10.- (Investment in non-bank corporations) Investment of international monetary reserves in non-bank corporations with equity greater than US$ one billion and with a short-term credit rating equal to or higher than P-2 or a long-term credit rating equal to or higher than A2, as applicable to the maturity of the investment made, according to the Risk Rating Agency, is authorized.

Article 11.- (Investment in bank corporations) Investment of international monetary reserves in bank corporations with equity greater than US$ one billion and with a short-term issuer credit risk rating equal to or higher than P-2 or a long-term issuer credit risk rating equal to or higher than A2, as applicable to the maturity of the investment made, according to the Risk Rating Agency, is authorized.

Article 12.- (Investment in supranational organizations) Investment of international monetary reserves in the Bank for International Settlements (BIS) and in supranational organizations with a short-term issuer credit risk rating equal to or higher than P-2 or a long-term issuer credit risk rating equal to or higher than A2, as applicable to the maturity of the investment made, according to the Risk Rating Agency, is authorized.

Article 13.- (Investment in sovereign bonds) Investment of international monetary reserves in sovereign bonds of countries that have maintained a long-term sovereign credit risk rating equal to or higher than Aa3 in the last 24 months is authorized.

Article 14.- (Investment in government agencies) Investment of international monetary reserves in bonds of government agencies that have a long-term issuer credit risk rating of Aaa is authorized.

Article 15.- (Intermediaries) Intermediation is carried out exclusively with financial institutions that have an issuer credit risk rating of at least A3 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 16.- (Authorized Currencies) Investment of international monetary reserves is carried out in currencies of countries with sovereign credit risk established in Article 13 and in Special Drawing Rights (SDRs).

Article 17.- (Composition of Working Capital) Working capital consists of balances in current accounts in foreign banks, overnight deposits, weekend deposits, and foreign currency cash deposited in the BCB vault. Its investment is carried out under the Direct Administration modality.

Article 18.- (Transport of US dollars in cash to and from abroad) The General Management, in coordination with the Monetary Operations Management and International Operations Management, approves the amounts and dates for the sending or receipt of US dollars in banknotes.

Article 19.- (Composition of Investment Capital) Investment capital consists of balances in current accounts in foreign banks, overnight deposits, weekend deposits, fixed-income instruments in money and capital markets, and foreign currency holdings in international monetary organizations. Its investment is carried out under the modalities of Direct Administration or Delegated Administration.

Section B: Gold Reserves

Article 20.- (Investment of gold abroad) It is the responsibility of the BCB Board of Directors to establish the maximum percentage of gold reserves that are invested abroad.

Article 21.- (Authorized Countries) The countries in which gold investment is carried out must have a long-term sovereign credit risk rating of Aaa.

Article 22.- (Investments in authorized institutions) Gold investments are carried out in 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 A2. Balances in current accounts of authorized institutions may be maintained.

Article 23.- (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 24.- (Modalities of gold investments) Gold investment operations may be carried out under the modality of physical movement of gold, through the Custodian Agent, "allocated," as well as under the modality of registration in the "Book Entries" of institutions authorized to carry out investments, without physical movement of gold, "unallocated."

Article 25.- (Gold purchases and sales) Gold purchase or sale operations are expressly authorized by Board of Directors Resolution.

CHAPTER V DEFINITION OF THE ANNUAL INVESTMENT POLICY

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

Article 27.- (Content) Upon approving the annual investment policy, the BCB Board of Directors establishes the limits or values for the following parameters: a) Minimum and maximum limits of working capital. b) Structure of investment capital. c) Maximum average duration of portfolios and individual duration per investment instrument. d) Referential comparators (Benchmarks) for working and investment capital and for gold reserves. e) Authorized instruments for the investment of monetary and gold reserves. 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 of Directors deems convenient.

CHAPTER VI SECURITY CUSTODY SERVICE

Article 28.- (Custody) The Custody services for international reserve investments are carried out at the Bank for International Settlements (BIS), at the Central Banks of countries eligible for sovereign risk, or at banks or financial institutions of countries eligible for sovereign credit risk, with a minimum long-term issuer credit risk rating equal to or higher than A2 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.- (Classification of Issuer Debt) Investment of international reserves is carried out in debt classified by the issuer as senior. Investment in subordinated debt is not permitted.

Article 31.- (Return on Investments) The return on the BCB's international reserves is evaluated with reference to the United States of North American dollar.

Article 32.- (Liquidation of Investments) In cases where the issuer's credit risk rating decreases to a level below the minimum required, the International Reserves Committee determines the timeframe within which the International Operations Management must liquidate those investments.

Article 33.- (Mergers, acquisitions, and subrogations) In the event of mergers, acquisitions, 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 34.- (Third-party investments) Investments of third-party resources abroad will be carried out, insofar as applicable, under the same norms, guidelines, restrictions, and limits of international reserves established in this Regulation.

Article 35.- (Risk rating agency) The international credit risk rating agency to be used for the control of credit risk ratings will be contracted in accordance with current contracting norms. The credit risk ratings mentioned in this Regulation correspond to Moody's Investor Services. In the event that ratings from another Rating Agency are used, the corresponding equivalent ratings will be taken into account. -- o --