Resolution 175/2004

BOARD RESOLUTION NO. 175/2004 SUBJECT: INTERNATIONAL OPERATIONS MANAGEMENT – APPROVES REGULATION FOR THE ADMINISTRATION OF INTERNATIONAL RESERVES.

HAVING SEEN: Law No. 1670 of October 31, 1995. Board Resolution No. 139/2003 of December 4, 2003, which approves the Regulation for the Administration of International Reserves. Report from the International Operations Management (GOI) No. 011/2004 of November 12, 2004. Report from the Legal Affairs Management (SANO) No. 309/2004 of November 15, 2004.

CONSIDERING:

That Chapter II of Title II of Law No. 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. 011/2004 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. 309/2004, the Regulation does not contravene current legal provisions and that, in accordance with the attribution conferred by Article 54, subsection o) of Law No. 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 forms part of this Resolution as an annex.

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

Article 3.- Repeal Board Resolution No. 139/2003 of December 4, 2003, 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, November 23, 2004

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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). This 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 of Directors). The Board of Directors of the BCB defines the administration norms, strategies, and investment policies for the international reserves.

Article 3.- (International Reserves Committee). The International Reserves Committee, constituted in accordance with the Statute of the BCB, 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.- (Meeting Frequency). The Committee meets at least twice a month 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 the Annual Investment Policy, and must present quarterly reports to the Board of Directors of the BCB.

The Investment Control Department of the GOI will conduct control over the compliance with the norms, policies, and limits established by the Board of Directors of the BCB 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 their fund managers, contracted in accordance with the provisions of the specific regulation for the contracting of these services and as established in Article 11 of this Regulation.

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 are composed 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 a net worth greater than US$ one billion and with a short-term credit rating equal to or higher than A-2 or a long-term rating equal to or higher than A, as appropriate 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 a net worth greater than US$ one billion and with a short-term issuer credit risk rating equal to or higher than A-2 or a long-term rating equal to or higher than A, as appropriate 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 A-2 or a long-term rating equal to or higher than A, as appropriate 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, in the last 24 months, a long-term sovereign credit risk rating equal to or higher than AA- 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. These bonds must not be subordinated issuances or callable (payable on demand).

Article 15.- (Intermediaries). Intermediation is carried out exclusively with financial institutions that have an issuer credit risk 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 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 exchange 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 and International Operations Managements, approves the amounts and dates for the shipment 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 holdings of foreign exchange 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 corresponds to the Board of Directors of the BCB 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 A. Balances in current accounts of authorized institutions may be maintained.

Article 23.- (Physical gold custodians). 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.- (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 institutions authorized to carry out investments, without physical movement of gold, "unallocated."

Article 25.- (Gold purchases and sales). Gold purchase or sale operations will be expressly authorized by Board 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 for consideration and approval by 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 Board of Directors of the BCB establishes 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 investment instruments. 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). 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 A and with a net worth 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, with or without collateral backing. Investment in subordinated debt is not permitted.

Article 31.- (Investment Returns). The return on the BCB's international reserves is evaluated with reference to the United States 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 period 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 Reserves Committee will annually define the international credit risk rating Agency that will be used for the control of credit risk ratings.

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