Resolution 162/2011

BOARD RESOLUTION NO. 162/2011 SUBJECT: BOARD - APPEAL AGAINST BOARD RESOLUTION NO. 145/2011, OF NOVEMBER 8, 2011, WHICH MODIFIES ARTICLE THREE OF THE REGULATIONS FOR OPERATIONS OF ACCOUNTS IN BOLIVIANOS WITH UFV VALUE MAINTENANCE

VIEWED: The Political Constitution of the State, approved by referendum on January 25, 2009, and promulgated on February 7, 2009. Law No. 1670, of October 31, 1995, of the Central Bank of Bolivia (BCB). Law No. 2434, of December 21, 2002, on Updating and Value Maintenance. Law No. 62, of November 28, 2010, on the General State Budget – Management 2011. Supreme Decree No. 26878, of December 21, 2002. Supreme Decree No. 27028, of May 8, 2003, which regulates Law No. 2434. Board Resolution No. 017/2003, of February 6, 2003, which approves the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance regarding the Housing Development Unit (UFV). Board Resolution No. 145/2011, of November 8, 2011, which approves the modification of Article 3 of the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance. The note BCB-GOI-CE-2011-15 of August 24, 2011. The note BCB-PRES-CE-2011-1014 of October 19, 2011. The note BCB-GOI-SOEXT-DDEX-CE-2011-1167 of November 10, 2011. The note BCB-GOI-CE-2011-31 of December 6, 2011. The Revocation Appeal against Board Resolution No. 145/2011 of December 7, 2011, filed by the Minister of Economy and Public Finance. The Report of the International Operations Management BCB-GOI-INF-2011-6, of December 13, 2011.

//2. B.R. No. 162/2011 The Report of the Legal Affairs Management BCB-GAL-SANO-INF-2011-468, of December 13, 2011.

CONSIDERING: That through Board Resolution No. 145/2011, of November 8, 2011, the Highest Authority of the BCB resolved to modify Article 3 of the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance, providing as follows:

SAYS:- Article 3.- (Indexation) All inflation indexation costs corresponding to accounts in Bolivianos with UFV value maintenance that the Government enables at the BCB, other than those mentioned in Article 1 of the present Board Resolution, shall be assumed by the TGN, with the exception of the costs originating from the accounts “Alivio HIPC II”, “Alivio más allá del HIPC II”, “Diálogo 2000”, “Municipal Solidarity Fund for School Education and Public Health” and “National Solidarity Fund”.

SHOULD SAY:- “Article 3.- (Indexation) All inflation indexation costs corresponding to accounts in Bolivianos with UFV value maintenance that the Government enables at the BCB, other than those mentioned in Article 1 of the present Board Resolution, shall be assumed by the TGN, with the exception of the costs originating from the accounts “Alivio HIPC II”, “Diálogo 2000”, “Municipal Solidarity Fund for School Education and Public Health” and “National Solidarity Fund”. The account “Alivio más allá del HIPC II” will be open in Bolivianos and will not have UFV value maintenance.”

That consequently, by virtue of said modification, the Board of the Issuing Entity resolved that the BCB not continue to assume the inflation indexation cost corresponding to the account in Bolivianos with UFV value maintenance named “Alivio más allá del HIPC II”, also determining that said account will be open in Bolivianos and will not have UFV value maintenance.

That article 55 of Law No. 1670 provides that resolutions of the BCB Board may be appealed by any natural or legal person, by filing a revocation appeal with devolutive effect before the same Board, within thirty (30) days of the Resolution being known by the interested or affected persons, and the Board must rule within a period of twenty (20) days following the filing of said appeal.

//3. B.R. No. 162/2011 CONSIDERING: That with the formalities and within the period established in article 55 of Law No. 1670, the Minister of Economy and Public Finance, on behalf of the General Treasury of the Nation (TGN), through a memorial of December 8, 2011, files a Revocation Appeal against Board Resolution No. 145/2011, arguing primarily the following:

1. The violation of article 6 numeral 1 and article 7 of Supreme Decree No. 27028, stating that these dispose the obligation to maintain the resources of the “Cuenta Alivio Más Allá del HIPC II” converted into UFV and that the opening and/or closing of accounts are a means to fulfill this obligation and not an end in itself, making article 10 of said Supreme Decree No. 27028 inapplicable. Likewise, they state that the BCB committed to maintaining the obligations of the More Beyond HIPC II program in UFV, according to note BCB-GOI-SOEXT-DDEX-CE-2011-1167, of November 10, 2011.

2. Board Resolution No. 145/2011 contravenes articles 4 and 7 of the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance, since as a result of the appealed Board Resolution, a new Bolivian account would have been opened, with resources transferred to it without authorization or signature from the Undersecretariat of Treasury and Public Credit, in addition to constituting an arbitrary and unilateral act that did not take into account the policies emanating from the Executive Branch.

3. The arbitrary and unilateral approval of Board Resolution No. 145/2011 violates explicit regulations, causing discrepancies in the programming of the General Treasury of the Nation (TGN).

4. The lack of coordination by the BCB affects the economic planning structured by the Ministry of Economy and Public Finance (MEFP), causing harm to the Government's public policies. Likewise, they state that by the coordination established by article 326 of the Political Constitution of the State, the Issuing Entity is subordinated in the exercise of its functions to participation and coordination based on policies emanating from the Executive Branch, and must adhere to and submit to national policies.

5. The MEFP has the policy of maintaining the “Alivio más Allá del HIPC II” account in UFV in order to pay obligations with the public and private sectors programmed for each fiscal year through the revaluation of the balances of this account.

CONSIDERING: That regarding these considerations, according to what is stated in the Reports BCB-GOI-INF-2011-6 and BCB-GAL-SANO-INF-2011-468 of the International Operations and Legal Affairs Managements, respectively, and the information and criteria

//4. B.R. No. 162/2011 expressed in the Board meeting of December 13, 2011, it is necessary to state the following:

1. It must be clarified that articles 6 and 7 of Supreme Decree No. 27028 regulate the conversion to UFV on December 31, 2002, of the “balances” and “payment flows” of public sector obligations forgiven under the concept of external public debt within the relief granted “beyond HIPC II”, without said articles referring to the accounts in which the recovered resources are deposited; therefore, such provisions do not entail the obligation for the BCB to open UFV accounts, much less to assume the cost that the indexation they generate. Board Resolution No. 145/2011 does not violate article 6 paragraph 1 nor Supreme Decree No. 27028 or any other current legal provision. In principle, it must be taken into account that although Supreme Decree No. 27028 regulates Law No. 2434, said Law is limited to disposing of the update regarding the UFV of obligations originated in the HIPC II External Debt Relief Program, whose resources by legal mandate are destined to the reduction of poverty in the country, without reference to resources linked to the More Beyond HIPC II Program, whose funds are freely available by the TGN.

In other words, articles 6 and 7 of Supreme Decree No. 27028 are concretized in regulating the conversion to UFV of debt (balances or flows), forgiven at the exchange rate on a specific date (on December 31, 2002), from which the obligation to open and maintain accounts denominated in UFV for the deposit of effectively collected resources cannot be inferred, much less the obligation to cover the indexation cost to said denomination.

It must be highlighted that article 10 of Supreme Decree No. 27028 does refer to the “registration” of accounts; however, it only explicitly alludes to two accounts in the HIPC II External Debt Relief Program, these being the accounts of the Municipal Solidarity Fund for Health and Education and Diálogo 2000, destined to the different Municipal Governments and to the Health and Education sectors, which are registered by the BCB in UFV.

In this sense, it is not possible to overlook, when applying the provisions of Supreme Decree No. 27028, a norm that expressly regulates the registration of UFV accounts, which does not refer to the resources of the More Beyond HIPC II Program, which are freely available resources by the MEFP, within the framework of Supreme Decree No. 26878.

Consequently, Board Resolution No. 145/2011 does not contravene the current legal order, much less articles 6 and 7 of Supreme Decree No. 27028, since there is no Law or Supreme Decree that establishes the obligation to open or register accounts regarding the resources of the More Beyond HIPC II Relief Program in UFV, nor is there any norm that obliges the BCB to

//5. B.R. No. 162/2011 assume the cost of value maintenance of any UFV account, including those linked to the resources of the More Beyond HIPC II Relief Program.

On the other hand, regarding note BCB-GOI-SOEXT-DDEX-CE-2011-1167, it must be clarified that it refers to the payment of obligations of the “HIPC II External Debt Relief Program” in the period September to December 2011, within the framework of what is provided in the Final Provision of Law No. 169; therefore, the note in question does not contradict Board Resolution No. 145/2011.

Additionally and without prejudice to what is stated, note BCB-GOI-SOEXT-DDEX-CE-2011-1167 also cannot be considered as a commitment of the BCB regarding the “Alivio más allá del HIPC II” account, as it is an informative note that does not constitute in any way a determinative act of the BCB Board.

2. Regarding the alleged violation of articles 4 and 7 of the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance, it is necessary to consider that Board Resolution No. 145/2011 is limited to modifying Article 3 of said Regulations, providing that the “Alivio más allá del HIPC II” account will be open in Bolivianos and will not have UFV value maintenance, which does not mean or entail by itself the opening of a new account or the unilateral determination to transfer the resources it holds, having limited the BCB to changing the denomination from UFV to Bolivianos.

In other words, as stated in Report BCB-GOI-INF-2011-6, by virtue of Board Resolution No. 145/2011, the conversion from UFV to Bolivianos of the “Alivio más allá del HIPC II” account has been carried out; consequently, there was no debit from the account nor opening of a new account, only the change of denomination from UFV to Bolivianos was made; therefore, no violation of articles 4 and 7 of the referred Regulations is evident.

3. Regarding the claim that the approval of Board Resolution No. 145/2011 supposedly constitutes an arbitrary and unilateral act causing discrepancies in the TGN program, it is necessary to consider the following:

Board Resolution No. 145/2011, being an act of normative order, is essentially a unilateral act since it responds to the normative competence of the BCB; therefore, it does not require prior consensus or compatibility before its issuance, especially when Law No. 1670 assigns the BCB functions as Financial Agent of the Government and regarding the Public Sector, and specifically, said norm expressly determines in paragraph o) of article 54 that it is the competence of the Board of the Issuing Entity to approve or modify the BCB regulations without the need for any additional administrative act.

Likewise, to consider Board Resolution No. 145/2011 arbitrary, it must have been issued contrary to justice, reason, or laws, dictated only by the will or whim of the competent organ or instance; however, as stated in Report BCB-GOI-INF-2011-4, technically the

//6. B.R. No. 162/2011 modification has the “purpose of preventing future positive operational results of the BCB from turning into negative results (Net loss of the period), which decreases the Institution's Equity”, recommending that the “Alivio más allá del HIPC II” account be converted from UFV to Bolivianos; therefore, it is a norm that safeguards the legitimate interests of the BCB in pursuit of fulfilling its object and functions, which is also subject to the attributions of the Board of the Issuing Entity and is framed within the legal order and has the corresponding technical backing.

Similarly, the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance regulate the enabling and operations of all Accounts in Bolivianos with UFV Value Maintenance requested by the TGN, establishing as a rule that the holders of these accounts shall assume the cost of indexation; as an exception to this determination, it contemplates the exclusion of certain accounts through which resources of the external debt relief are managed, destined to the reduction of poverty in the country, such as the accounts of the “Municipal Solidarity Fund for Health and Education” and “Diálogo 2000”.

Regarding the damage or harm caused to the economic planning structured by said state portfolio, it must be taken into account that the BCB does not constitute a financing institution through its operations, either directly or indirectly to the MEFP or another public institution; therefore, arguing possible harm due to the non-receipt of resources generated by the value maintenance of the Alivio más allá del HIPC II account is not pertinent, since financing does not constitute a function, attribution, or faculty of the Issuing Entity, much less is it related to or framed within its object, which is to maintain the internal purchasing power stability of the currency.

According to what was stated in report BCB-GOI-INF-2011-6, the Undersecretariat of Treasury and Public Credit has not requested any payment with resources from the “Alivio más allá del HIPC II” account since June 2008 (more than three and a half years); therefore, it cannot be affirmed that obligations to the public and private sectors are paid with this account.

4. Regarding the alleged lack of coordination in the appeal memorial, within the framework of what is provided in articles 326 and 328 of the Political Constitution of the State and what is provided in article 4 of Law No. 1670, it is necessary to highlight that such coordination does not imply or entail that the Issuing Entity is subordinated in its exercise to the existence of the same; that is, it does not mean or imply a sine qua non condition for the fulfillment of the functions, attributions, and faculties of the BCB imposed by the current legal order.

In this order, the BCB sent the notes BCB-GOI-CE-2011-15 and BCB-PRES-CE-2011-1014 to the MEFP, in which it was pointed out that the continuous increase in the valuation of the UFV with respect to the national currency generates a cost for the BCB due to exchange variation with respect to the Boliviano, and it was recommended the inclusion in the draft Law for Reformulation of the PGE – 2011 and, later, in the draft General State Budget Law for Management 2012, of an article that definitively and integrally converts to national currency the operations of the HIPC External Debt Relief Program and the relief granted beyond HIPC II.

Likewise, it is worth noting that according to what is provided in articles 44 and 54 inc. a) of Law No. 1670, which establish that the Board of the Issuing Entity as the highest authority is responsible for defining its policies, specialized normative rules of general application, and internal norms, for which it is empowered to issue norms and adopt general decisions that may be necessary for the BCB to fulfill the functions, competencies, and faculties assigned to it by the Law.

5. Regarding the claim that the MEFP has the policy of maintaining the “Alivio más allá del HIPC II” account in UFV in order to attend the payment of obligations programmed in each management through the revaluation of the balances of this account, it is necessary to point out that taking into account the second paragraph of Article 3 of the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance, modified by Board Resolution No. 145/2011, which provides that the “Alivio más allá del HIPC II” account will be open in Bolivianos and will not have UFV value maintenance, this provision limits the TGN to maintaining said account in UFV even assuming said entity the cost of indexation.

In this sense, in order to safeguard the rights that assist the TGN in the sense of not restricting in any way the realization of its interests and the fulfillment of its functions, through the maintenance of a UFV account, whose indexation cost is assumed by the TGN as the holder of said account, it is necessary to declare ineffective the second paragraph of Article 3 of the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance modified by Board Resolution No. 145/2011 and determine the reconversion of the “Alivio más allá del HIPC II” account from Bolivianos to UFV.

Likewise, considering that from November 15, 2011, to the date, the TGN was unable to maintain said account in UFV, and said entity could have assumed the cost of indexation, and in order to safeguard the legal security of the BCB and the determinations of its Board, it is pertinent to modify Article 2 of Board Resolution No. 145/2011, deferring its validity and therefore, providing that during said period the value of indexation be restored by the BCB.

Additionally, although it is stated that maintaining the value of the Alivio Más Allá del HIPC II account is adopted as policy, it is also the policy of the Central Government and the BCB, the bolivianization of the economy, which under the framework of what is provided by the second paragraph of article 326 of the Political Constitution of the State, seeks that economic agents use the national currency for their operations and economic transactions.

//7. B.R. No. 162/2011 That by virtue of article 55 of Law No. 1670, the Board of the BCB is empowered to resolve the Revocation Appeal filed by the MEFP, partially revoking Board Resolution No. 145/2011, of November 8, 2011.

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

Article 1.- Partially revoke Board Resolution No. 145/2011 of November 8, 2011, with Article 3 of the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance remaining drafted as follows:

SAYS:- Article 3.- (Indexation) All inflation indexation costs corresponding to accounts in Bolivianos with UFV value maintenance that the Government enables at the BCB, other than those mentioned in Article 1 of the present Board Resolution, shall be assumed by the TGN, with the exception of the costs originating from the accounts “Alivio HIPC II”, “Diálogo 2000”, “Municipal Solidarity Fund for School Education and Public Health” and “National Solidarity Fund”. The account “Alivio más allá del HIPC II” will be open in Bolivianos and will not have UFV value maintenance.

SHOULD SAY:- “Article 3.- (Indexation) All inflation indexation costs corresponding to accounts in Bolivianos with UFV value maintenance that the Government enables at the BCB, other than those mentioned in Article 1 of the present Board Resolution, shall be assumed by the TGN, with the exception of the costs originating from the accounts “Alivio HIPC II”, “Diálogo 2000”, “Municipal Solidarity Fund for School Education and Public Health” and “National Solidarity Fund”.”

Article 2.- Modify Article 2 of Board Resolution No. 145/2011, as follows:

SAYS:- Article 2.- The modification of Article 1 of the present Resolution will enter into force from November 15, 2011.

//8. B.R. No. 162/2011 SHOULD SAY:- “Article 2.- The modification of Article 3 of the Regulations for Operations of Accounts in Bolivianos with UFV Value Maintenance will enter into force from January 3, 2012.”

Article 3.- Operational areas are instructed to reconver the “Alivio más allá del HIPC II” account from Bolivianos to UFV. The indexation costs of this account will be assumed by the BCB until January 2, 2012.

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

La Paz, December 13, 2011

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Marcelo Zabalaga Estrada

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Hugo Dorado Araníbar Rolando Marín Ibáñez Ernesto Yáñez Aguilar