World Bank Document€¦ · deferred share distribution accounts (DSDAs). Such accounts would be managed in a way similar to, and operationally integrated with, the private pension

Document of

The World Bank

Report No. T-6412-BO

TECHNICAL ANNEX

BOLIVIA

FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT

NOVEMBER 7, 1995

Public Sector Modernization and Private Sector Development DivisionCountry Department IIILatin America and the Caribbean Region

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CURRENCY EQUIVALENTS(Exchange Rate Effective October 1995)

Currency Unit = Boliviano (Bs)US$1.00 = Bs 4.86Bs 1.00 = US$0.21

ABBREVIATIONS AND ACRONYMS

AFPs - Pension Fund AdministratorsBCB - Central Bank of BoliviaCAS - Country Assistance StrategyCIF - Cost, Insurance and FreightCNV - Comisi6n Nacional de Valores - Securities & Exchange CommissionCPAC - Capitalization Program Adjustment CreditEU - European UnionESAF - Enhanced Structural Adjustment FacilityFOPEBA - Basic Pension FundFC - Complementary Pension FundFSAC - Financial Sector Adjustment CreditGDP - Gross Domestic ProductICB - International Competitive BiddingIDA - International Development AssociationIDB - Inter-American Development BankIMF - International Monetary FundINASEP - Institutto Nacional de Seguros de Pensiones - National Institute of PensionsPPF - Project Preparation FacilityRUN - Registro Unico Nacional - National Registry SystemSAC - Structural Adjustment CreditSDR - Special Drawing RightsSBEF - Superintendency of Banks & Financial EntitiesSIREFI - Financial Sector Regulatory SystemSNSR - Superintendency of Insurance and ReinsuranceTGN - Tesoreria General de la Nacion - Treasury of the Nation

FISCAL YEAR

January 1 to December 31

BOLIVIA

FINANCIAL MARKETS AND PENSION REFORMTECHNICAL ASSISTANCE PROJECT

Credit and Project Summary

Borrower: Republic of Bolivia

ImplementingAgency: Ministry of Capitalization, Superintendency of Banks, Comisi6n Nacional de

Valores

Beneficiaries: Ministry of Capitalization, Superintendency of Banks, Comisi6n Nacional deValores, and Superintendency of Pensions

Poverty Category: Not applicable

Amount: SDR 6.1 million (US$ 9 million equivalent)

Terms: Standard IDA terms of 40 years maturity with 10 years grace period, and0.75% service charge, less any waivers

Commitment Fee: 0.50% on undisbursed credit balances, beginning 60 days after signing, less anywaivers

Financing Plan: See Schedule A.

Rate of Return: The project's institution building features make it not amenable to thecalculation of rates of return. Measurement of benefits would be throughassessment of: (i) the efficiency and transparency of the financial marketsregulated; (ii) the solvency of financial intermediaries; and (iii) the growth of thedepth of markets.

Staff AppraisalReport: n.a.

Project IdentificationNumber: BO-PA-34606

Map: IBRD 20516

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BOLIVIA - FINANCLAL MARKETS TECHNICAL ASSISTANCE PROJECT

TECHNICAL ANNEX - THE PROJECT

Table of ContentsPage No.

Section A: Detailed Project Description 11. Pensions and Contractual Savings Reform and Regulation

Background and Sector Strategy 1Technical Assistance 2

A. Secretariat of Pensions 3B. Superintendency of Pensions 4C. Instituto Nacional de Seguros de Pensiones (INASEP) 5D. FOPEBA 5

Cost Estimate 6

II. Development of the Deferred-Distribution Capitalization Program 6Background 6Technical Assistance Program 7Cost Estimate 8

III. Securities Regulation 8Background and Sector Strategy 8Technical Assistance Program 9Cost Estimate 11

IV. Superintendency of Banks 11Background and Sector Strategy 11Technical Assistance 11Cost Estimate 12

V Credit Administration - Operation of the Project Unit 13

Section B: Procurement and Disbursement 13

SchedulesSchedule 1: Implementation Program and Indicators 15Schedule 2: Training Plan 20

BOLIVIA - FINANCIAL MARKETS TECHNICAL ASSISTANCE PROJECT

TECHNICAL ANNEX - THE PROJECT

Section A: Detailed Project Description

Pensions and Contractual Savings Reform and Regulation

Background and Sector Strategy

1. Structure and Regulation. Bolivia's Social Security system is currently a defined-benefit systemproviding benefits for retirement, survivorship and disability pensions, and medical insurance. Contributorsaccount for approximately 22% of the urban economically active population. Of the 304,000 contributorsto the system and 114,000 pensioners, about 65% are public sector employees. Mandatory pensioninsurance operates through: (i) a national fund that covers basic pensions (FOPEBA); (ii) 24complementary funds (FCs) organized on a sectoral or industrial basis; (iii) three insurance schemes thatcover health and pensions for bank employees, police and military, and (iv) eight pension schemes foruniversity employees. The Instituto Nacional de Seguros de Pensiones (INASEP) supervises the pensionschemes. Effective supervision to date has been extremely weak and registry of individuals has been poor.

2. Contributions are of 9% of gross salaries to FOPEBA and are mandatory for covered workers.T'he employer pays 5% of salaries; the employee pays 2.5% and the Government is expected to pay 1.5%.Until a payment in 1993, no Government contributions were made for 30 years. Contributions to the FCsaverage an additional 6.3% of gross salaries. Total contributions amounted to US$173 million in 1994.FOPEBA receives financial support from the Treasury (TGN), including an estimated US$35 million tocover its financial deficit in 1994. Two FCs received the support of the TGN in 1993. Given the currentrelationship between contributors to retirees, the total contribution rate required only for FOPEBA to beself-sufficient would be 14.6% if collection would improve strongly. However, currently there are 114public and private enterprises with more than US$31 million in arrears to FOPEBA.

3. Benefits. The current system offers modest benefits to begin with, yet they are not indexed toinflation. The retirement age is low -- 50 and 55 years for women and men, respectively. Pension benefitsincrease with years of service. The average pension benefit for the combined FOPEBA and FCs wasUS$97 per month in 1993, with a minimum of US$41 and a maximum of US$400. 70% of pensionersreceived a pension equal to under 2/3 of the minimum salary in 1989, and in 1992, 81 % of FOPEBA'sretirees had monthly pension benefits below US$56.

4. Proposed Reforms - Individual Capitalization Scheme. The main objectives of the reform programare to: (i) improve the services to retirees and affiliates; (ii) provide individual choice of pensionadministrators (AFPs); (iii) improve the management and efficiency of long term savings; and (iv) ensuremarket rates of return to pension savings. The new system would be characterized by: (i) mandatorydefined contributions from workers; (ii) private administration of contributions; and (iii) strong regulationand supervision. The new pension system would gradually replace the current one as younger members,new entrants to the workforce, and voluntary members join the new system. The program for undertakingthe above reforms will entail passing a Pensions Law and the development of a Superintendency ofPensions. The Pensions Law which is in a draft form that is consistent with the principles agreed on for theCPAC, has been presented to the President of Bolivia and is expected to be approved by Congress inMarch, 1996. Supervision of the AFPs selected by the international bidding process would be performedby the Superintendency of Pensions, an autonomous regulatory institution which would be established priorto the opening for business of the first administrator. The Superintendency under the new system wouldregulate the system's operations and administrators of investments of pension funds, authorize creation and

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operation of pension funds, assure solvency and prudent management of administrators, supervise themanagement of individual accounts, interpret legislation related to long-term social security and dictatenorms, supervise the validity of investment securities in the market through the Superintendency ofSecurities, and authorize entities to act as custodians of financial securities. Contributions would be 10%of salaries for individual capitalization account (retirement), an estimated 2% for coverage in cases ofgeneral disability and survivorship and an estimated 2% administration fee which would be levied by thepension fund administrator. Funds would be deposited into an individual capitalization account. Eachindividual's account would accrue interest, dividends and capital gains from the investment of thecontributions. Benefits would be according to the level of accumulated contributions and investmentreturns. Transition Arrangements wvould be such that workers would have the option to stay with theFOPEBA or FCs or to elect to become a member in the new system. Workers incorporating into the newsystem would receive a Transfer Incentive (Incentivo de Traspaso). Workers electing to remain in the oldsystem would receive benefits as expected under their basic and supplementary funds. Workers enteringthe labor force for the first time would be required to join the new system.

5. Proposed Reforms for Existing Pension Funds (FOPEBA and FCs). While the detailed reforms toexisting funds are currently being designed based on a series of studies underway, some of the conceptualobjectives of this reform area have been defined. Broadly, the objectives of this portion of the reformwould be to: (i) improve the contribution and benefit formula of the existing funds so as to make the fundsmore actuarially solvent and ensure a more equitable benefit; (ii) reduce losses in select funds byimprovements in management, financial control systems and accounting information systems; (iii) improvethe transparency of information so that pension fund members can make more rational labor and retirementdecisions; and (iv) improve regulation and supervision to ensure efficiency, solvency and maintenance ofthe public trust. In the latter case, existing funds would come under the regulatory authority of theINASEP. Reforms to the existing funds are based on studies being undertaken in the following areas:audits of the existing contributor, retiree and beneficiary base of each; audits of the financial statements;actuarial audits; evaluations of accounting and management information systems; and evaluations of theformulas for contributions and benefits based on the overall redesign of objectives.

6. Proposed Reforms for Deferred Share Distribution Accounts. The Government is inviting newinvestors to buy into Bolivia's principal public enterprises. With such investments, the Government woulddistribute shares to the new investor and also distribute the Government's shares to the Bolivian population.The Capitalization Law established the distribution of shares to Bolivians through privately-manageddeferred share distribution accounts (DSDAs). Such accounts would be managed in a way similar to, andoperationally integrated with, the private pension fund accounts indicated above. In this case, each Bolivianwho is an adult by December 1995, would receive a separate DSDA in an AFP. This account would have amarket value equivalent to the value of the shares distributed as well as accumulated dividends, interest andcapital gains. The AFP would have the authority to freely trade these shares in the secondary market,subject to the prudential limitations imposed by the Superintendency of Pensions. DSDA account holderswould be entitled to the cumulative amount in their account as retirement benefits upon reaching the age of60, or, in the case of death, the beneficiary would be entitled to the same. The objectives of the distributionsystem chosen are primarily efficiency in administration, transparency, and to increase the proportion of thepopulation which has some coverage for a minimal pension or survivors' benefit.

Technical Assistance

7. The aim of the technical assistance for contractual savings and pensions is focused in the followingareas: (i) establishment of the regulatory structure for the system of individual capitalization pension anddeferred-distribution accounts; (ii) assisting in the development of regulatory norms, deriving from, andrelating to, the Pensions Law; (iii) design of computerization, regulatory procedures and staffing for theproposed Superintendency of Pensions; (iv) restructuring institutions of the existing pension system; and (v)computerization of the proposed Superintendency of Pensions, INASEP and the Government's Pension

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Fund. Assistance would be provided to the Secretaria de Pensiones, the Superintendency of Pensions, theINASEP, and FOPEBA.

A. Secretariat of Pensions

Design of the Superintendency of Pensions. Short-term consultants would be contracted to design theorganizational structure of the Superintendency of Pensions, establish a personnel profile and termns ofreference for most positions, draft operating procedures, and draft an accounting and financial controlsystem on which the development of computerization (below) would draw upon.

Development of Regulatory Norms. The credit would support international short-term consultants,assisted by long-term local consultants in the development of regulatory norns. Such norms wouldinclude, inter alia, those for: establishing a pension fund (AFP); publicity by AFPs; requirements offund sales agents; regulation of new affiliates; amount and treatment of contributions; investmnentnorms; procedures for purchases, sales, custody and transfer of securities; and estimates of contributionamounts; criteria for permanent disability and procedures for claiming disability and death benefits,including formulas for distribution of funds to beneficiaries; norms for operational control of AFPs,including criteria for accounts and cross checking; norns for the disability coverage and insurancemechanisms; and accounting normns. The Secretariat of Pensions would also start work on the reformsrequired by the insurance industry to provide the products required by the new pension system andidentify further work in the sector.

Computerization - Initial Phase. Development of a computerized tracking, oversight and controlsystem would proceed in two stages, each supported by the Credit. The first phase would be thedevelopment of a system database and information system to process data in the design phase of thesystem and Superintendency. The credit would support the purchase of computers to carry out thisinitial phase as well as support select software.

Transfer Incenyive. Assistance would be provided under the Credit to finance an evaluation of theTransfer Incentive to be undertaken per individual account, to determine the amount to be provided tothe individual capitalization pension fund.

Development of Norms for Eisting Funds. Assistance would be provided by a series of phased visitsby short-term consultants to assist local long-term consultants to develop the following normns: (i)reaffiliation and control of accounts in relation to transfers to individual capitalization (new system)accounts; (ii) normns for enforcing employer and employee contributions and payment systems; (iii)norms to modify the benefit structure of FOPEBA including modifications to benefit levels andcalculations. Such a program would be ultimately instituted through INASEP; (iv) norms for merger;and (v) investment nonns.

International Bidding Process. Assistance would be provided under the Credit to finance activities topromote the pension reform process among potential investors suitable to set up AFPs and a law firm todraft administration contracts.

Assigning of DSDAs and Development of Norms and Procedures. With the support of the Creditthe bidding mechanism for DSDAs by the AFPs would be designed and the accounts would be assignedto the AFPs. With the assistance of short term consultants the specific norms and requirements, whichare not part of the general norms of the new pension system for the management of DSDAs, would bedesigned. In particular the distribution of benefits from the DSDAs will require specific norms andprocedures, and close supervision.

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Public Information Campaign. Funds would be used under the Credit for a public informationcampaign. Such a campaign would have as its focus explaining to current and potential pension systemmembers the nature of the individual capitalization account reform and explaining the options,advantages and disadvantages of transfer from the old- to the new-system. A firm with experience inpublic information campaigns would be contracted to design and carry out such a campaign.

B. Supenntendency of Pensions

8. The measures supported below would be undertaken after the Superintendency of Pensions is legallyconstituted:

Development ofOperating ------ -,s-s-s ------------Procedures. Short-.term consultants ti Total iCounter- eProposedwould be contracted to Cout part iDAdevelop operating Financed Creditprocedures which 2,164150would include inPtsupervision procedures 1m o710 310 1,400for AFPs, agents and Sc677 277 400brokers; proceduresfor affiliation and for 134 735 611transfer of pension ~j~ 205 205fuind members, ,5 ,3 ,1investment procedures 6 052 1,3 4,116and supervision procedures; testing mechanisms; program and documentation requirements. Inaddition, the consultants would be responsible for developing an accounting and financial controlsystem on which the development of computerization (below) would draw upon.

Computerization. A second phase in the development of a computerized tracking, oversight andcontrol system would be financed under the Credit. Principal modules would be control of investments,benefits, comnissions and costs; cross-checking of the identity of beneficiaries and the internalaccounting system of the Superintendency of Pensions. Other modules would trace data on AFPmanagement and sales agents. Such a system would have subsystems including those which monitorpension fuinds' prices, portfolio risk and exposure, monitoring sales agents, as well as an internalinformation system for the Superintendency. Development of these modules will encompass thedevelopment of an entire set of procedures and requirements. The consultants would also establish theoperating procedures for the risk classification commission, if warranted. Supplementary supportwould be financed under the Credit for refining and upgrading the software subsequent to initiation ofits use. A second, separate module would be developed using the same hardware to monitor andcontrol non-contributory funds.

Development of Regtlatory Norms. The credit would support follow-up visits to review and revisenorms developed in association with the Secretariat of Pensions above as necessary based on the versionof the Pension Law enacted and experience in imnplementation.

Training. Assistance would be provided through short- and long-term consultants providing trainingto the Superintendency of Pensions staff in: (i) pension accounting and financial management; (ii)account tracking, financial reporting and reconciliation procedures; (iii) evaluation of pension fundsolvency and liquidity needs; (iv) review of sales agents' compliance with operating requirements; (v)

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special training in tracking passive fund pension accounts; and (vii) evaluation of portfolio investmentsof pension funds. The most important training modules would be: Investments, management of systemsof prices, calculations of profitability, oversight of contributions, future benefits, valuation systems, andoversight and scrutiny of indicators. Training mechanisms would be through: (i) on-the-job training bythe consultant(s) developing operating procedures and norms; (ii) select visits by key Superintendencystaff to the Superintendency of Pensions in Chile and the National Social Security Institute, also inChile; (iii) select visits to regional conferences on pension reform; (iv) seminars established byspecialist consultants on the topics above; and (v) specific seminars by representatives of the stockexchanges, the Securities and Exchange Commission and the Central Bank.

C. Instituto Nacional de Seguros de Pensiones (INASEP)

Design of the new Structure of INASEP. Short-tern consultants would be contracted to revise theorganizational structure of INASEP, establish a personnel profile and terms of reference for mostpositions, guidelines for operating procedures, and norns/guidelines for a control and supervisionsystem.

Merger of Fondos Complementarios. The credit will assist the merger of the FondosComplementarios into FOPEBA. Specifically, assistance will be provided to create the legal basis forthe merger.

Development of a Database. Assistance would be provided by short- and long-term consultants in thedesign of a consolidated data base of demographic, economic and actuarial data by fund member inorder to effect the transition indicated above. The work would entail: (i) design of the data base; (ii)data collection (from each FC); (iii) data entry; (iv) initiation of data analysis; and (v) datadissemination to FOPEBA and those select FCs which remain after the merger and liquidation program.

* Development of Regulatory Procedures. Assistance would be provided by short- and long-termconsultants in the design of supervisory procedures.

* Training. Assistance would be provided through short- and long-term consultants providing training toINASEP staff in: (i) pension accounting and financial management; (ii) account tracking, financialreporting and reconciliation procedures; and (iii) evaluation of portfolio investments of pension funds.

D. FOPEBA

Strengthening the Administration. Assistance would be provided by a series of phased visits byshort-term consultants to review the audits of accounts, management of cash flows, and generaladrninistration systems.

Information Management. Assistance would be provided by a series of phased visits by short-termconsultants to identify hardware and software requirements for the operational and financialmanagement of FOPEBA. Subsequent assistance would be provided for the purchase of software forFOPEBA.

Development of a Database - Assistance would be provided by short- and long-term consultants in thedesign of a consolidated data base of actuarial data by fund member in order to effect the transitionindicated above. The work would entail: (i) design of the data base; (ii) data collection using existingFOPEBA forms; (iii) data entry; (iv) initiation of data analysis; and (v) data dissemination.

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Calculation of the Transfer Incentive. The Credit would assist this fundamental component of thereform by financing short-term consultants that will design the system to determine the current pensionsystem's liabilities with individual affiliates to-date and review the results.

* Studies of Worker Compensation. An evaluation of the existing workers compensation system wouldbe supported by the credit with the intent of developing separate treatment through subsequentlegislation to modify the existing system. A review would be undertaken including: (i) existingcoverage; (ii) contribution and benefit levels; (iii) benefit incidence and distribution; (iv) actuarialprojections of funding needs; and (v) evaluation of benefit incidence and levels against salaries. Fromthis review, the consultant(s) will develop a proposal for modifications to the existing workerscompensation system in Bolivia.

Cost Estimate

9. The total estimated cost of the program outlined in Table 1 above is US$ 6 million of which US$4.1million would be financed under the Credit.

Development of the Deferred-Distribution Capitalization Program

Background

10. The development and establishmentof deferred share distribution accounts as Description of The Deferred Distribution Program

described in paragraph 6. above and in theboxcrisba integral partgraph of th overnm s * Participation would be available for all registered Bolivians either 18 years ofbox IS an integral part of the Goverment's age and married or over 21 years of age (3.2 million people) as of Decemberreform and capitalization program. The 31, 1995;

DSDAs establish the link between the Registration would be through the Registro Unico Nacional (RUN), a registrysystem for all Bolivians whereby mobile units physically register each

capitalization program and the pension Bolivian and provide for a unique identity card;

reform by defining that the capitalized A Temporary Depository of Shares or Trustee would be established to serve asthe holder of shares between capitalization and distribution. Shares would

shares will be managed by private pension then be transferred to the AFPs as citizens are registered and are assigned an

managers. The main steps for the AFP;Private Management and Choice. Participants would be assigned to an AFP

establishment of the DSDAs are to register according to the terms of the international bidding and later on would be free

the Bolivian population, capitalization of the to change AFP;*Portfolio Mana-gement. AFPs would manage this non-contributory fund

enterprises, setting up a trustee to keep the portfolioofDSDAs. Portfoliodiversificationrequiremnents would be

shares until they are taken over by the established by the Superintendency of Pensions and, over time it is expected

AFPs, and transfer of the management of that gradual turover ofdthe porfolio could achieve such diversification;*Retirement Benefits. Individuals would receive their accumulated balances atthe shares to the AFPs. age 60. Their survivors would receive such balances in the case of death,

regardless of age. Under consideration is a plan that benefit payments wouldbe spread out over a number of years;

11. An important element of the AFPs would charge an administrative fee for administration of non-

distribution system will be the development contributory fund which would be deducted from the funds' assets, accordingto legal ceilings under development;of a Fiduciary Account and Transfer Supervision - Pension Svstem Superintendency. The system would be

System (indicated above). Once an supervised by a Superintendency of Pensions; andInformation on Account Balances. Each individual would be entitled to an

enterprise is capitalized, the resulting shares update on his or her account balance on a routine basis by visiting an

would be placed in a fiduciary account with authorized location. AFPs would be required to report movements on theaccounts of each individual who holds a non-contributory fund every five

a Trustee. Subsequently, once a system is years. Financial reports on the portfolios managed by all AFPs would be

in place whereby such shares can be published and publicly reported by the Superintendency of AFPs.

managed by an AFP, these shares would betransferred out of the Trustee's account to a custodian for safekeeping while the AFP would manage them.While the conceptualization of such a mechanism has been developed, establishing the actual proceduresfor account transfer, reconciliation, cross-check and control will require the assistance of the credit. Thedesign of the institutional arrangements are of utmost importance both for the success of the capitalizationprocess and the viability of the pension reform.

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12. To be able to distribute the capitalization shares it is necessary to register and provide identificationcards to all Bolivian adults. This National Registry (RUN) and the data base that it will generate willprovide an important instrument for other development endeavors. For instance it could facilitate thetargeting of social programs and broaden electoral participation. It is mainly for these additional benefitsthat IDB has agreed to finance most of the cost of the acceleration of the registry process.

13. In developing the pensions and deferred distribution programs in Bolivia, the authorities have beencognizant that the success of these programs will hinge, in part, upon effectively communicating both thecosts of maintaining the status quo, and the benefits of reform. A communications strategy is currentlybeing developed with IDA assistance incorporating this broad message as well as educating various targetaudiences about specific aspects of the program, to allay unwarranted fears, and build support amongstakeholders.

Technical Assistance Program

14. Technical assistance under the Credit would be provided as follows:

Fiduciary Account and Transfer System. Assistance has been provided for the recruitment of aTrustee that will keep the shares of the capitalized enterprises in trust and assist the Government im thecapitalization of the enterprises, the reform of the pension system, the distribution of the capitalized shares,and establish and develop the local custodian capacity. The trustee fees, of about US$250,000 for twoyears, would be paid from the dividends of the shares it holds in trust. However, in the event that duringthe first two years the dividends are insufficient to cover the fees of the trustee the difference would be coveredfrom the proceeds of the proposed credit. The project would also finance consultants that would beexpected to design thesupervision of the fiduciary . -- Laccount system, including capifilization IUS$)account verification, TIE Total Cost Counterpart Proposedreconciliation and control Financed IDAsystems; the transfer system Credit(from the fiduciary account to X _ Y | tt 527,000 50,000 477,000AFP), including mechanisms for . )transfer and amount verification;and arrangements for . IF 113,000 20,000 93,000traceability, including financial A4X E *>d 8,138,000 7,359,000 779,000market implications. The output R ,t000of this work would be a detailed La~t471,000 71,000implementation program in each 8 . 8 849,000 7,429,000 1,420,000area.

Supplemental specialized guidance will be needed in the development of a secure Cash DistributionSystem both to urban and rural areas. Although the actual costs of distribution of benefits will be borneby AFPs (deducted from account balance according to a formula under development) the rules forensuring a secure and equitable distribution will be developed under the Secretariat of Pensions andSecretariat of Capitalization. Funding would be provided under the credit for specialized short-termconsultants to assist in developing these rules and in developing a manual of procedures for thesupervision of this facet of the distribution.

* Acceleration of the Registry System. The Registro Unico Nacional (RUN) is charged with the task ofregistering and providing an identification to all Bolivian adults. The RUN currently registers individualsusing mobile units (one registrar, one policeman and one clerk) who travel to each village and transcribe

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the required information for each individual, including photograph and fingerprint. The RUN hascurrently registered approximately 450,000 Bolivians and aimns to have completed the registry of all3,200,000 Bolivians within 18 months. To accomplish this, the existing staff and resources of the RUNwill need to be supplemented by advisors and contracted assistants to amplify and accelerate the process.The proposed credit would support a portion of the extra advisory services and capital expendituresestimated to be required to complete the rural registration: a mainframe computer, related hardware andperipherals for the RUN computer center; and software for issuing the identification cards.

SIREFI. Currently, IDA is assisting the Secretariat of Capitalization in the analysis of the possibility toestablish an overall financial system regulatory entity. The Credit would support the recruitment of localand international legal consultants, particularly in the areas of administrative law and financial law.

Cost Estimate

15. As indicated in Table 2 above, the total estimated cost of the program outlined is US$ 8.8 million ofwhich US$ 1.4 million would be financed under the Credit.

Securities Regulation


16. A regulated securities market has been operating since 1989, with support by USAID until end-1993. The La Paz stock exchange offers all types of securities and the Santa Cruz exchange has focusedon commodities trading. The La Paz exchange initially traded only in Central Bank time deposits, thenexpanded in 1991 to corporate bonds, mandatory convertible bonds of banks, in 1993, to negotiable CDs ofbanks and repurchase agreements, and, in 1994, it started trading stocks. Trading volume has been small,regulation very weak and little transparency through information disclosure.

17. The existing laws governing securities transactions consists of the commercial code as thefoundation, upon which rests the Organic Law of the Comisi6n Nacional de Valores, CNV (underSupreme Decree), followed by regulations (circulars) issued by the CNV (promulgated by the Minster ofFinance) and finally the constitution and rulebooks of the two stock exchanges. A 1987 decree whichpromulgated the Commercial Code provided legislation governing the workings of a securities market inBolivia. A subsequent decree promulgated the Organic Law governing the CNV, charging it with theresponsibility to regulate and supervise stock markets, stock exchanges, and intermediaries in the publicoffer of securities. A new Securities Law that has been revised and cleared by IDA has been presented tothe Minister of Finance and is expected to be approved by Congress by late 1995.

18. The CNV monitors stock exchange trading by receiving and reconciling transaction data receivedat the end of each day from stockbrokers, in part by an automated surveillance system. This enables theCNV to detect, for example, a repurchase agreement involving a security which is past its maturity date.The CNV also collects, collates and disseminates market statistics for the two exchanges. The La Pazstock exchange publishes select statistics on market activity so that there is some duplication with datapublished by the CNV. Equity trading will become increasingly important as a result of the impact of thecapitalization program. In its regulatory and supervisory functions, the CNV will be challenged by thegreater potential price volatility of shares, the greater opportunities for price manipulation and gains frominsider dealing, and the likely lower liquidity and market depth in share trading than now exist in thepresent market for debt obligations. A cause of low morale and weak development of the CNV has beenuncertainty concerning its funding which until the end of 1993, had been provided almost entirely byUSAID. The CNV also receives US$300 per annum from each stockbroking firm. In this context, thereappears to be scope to increase the commnissions levied on transactions and market operators.

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19. Of the 18 members of the La Paz exchange, 10 firms are subsidiaries of banks. They arepermitted to trade portfolios on their own account (15 do so) and trade on behalf oftheir clients (11 do so).Turnover on the La Paz stock exchange in 1993 was of the order of US$ 600 million regaining the level of1990, after having declined by 50% to a low in 1992. Turnover was over US$1 billion in 1994. The rangeof instruments traded in purchase or sale transactions on the La Paz stock exchange has steadily evolvedand diversified since 1990, including both bond, CD and repurchase transactions. The majority of tradesare for short- and medium term debt instruments, and most transactions are in the secondary market forbank's fixed term time deposits and CDs, with repurchase agreements. Dealing is by open outcry at a call-over of listed securities. The listing and subsequent trading in shares, whether deriving from thecapitalization program, from direct privatizations, or from existing previously private companies, is likelyto be the next challenge to which the stock exchange will have to adapt.

20. There are five mutual funds in Bolivia, all of which are invested in US dollar-denominated debtinstruments which provide investors with a high yield by purchasing medium-term maturity instruments,hedging the liquidity risk with repurchase agreements and capturing the maturity premium. At presentthere is no specific regulation of fund managers or fund management as such but that is considered in thedraft Securities Law.

21. The main activity of the Santa Cruz stock exchange is the physical trading of commodities.Securities activities consist principally of the purchase or sale of foreign currency denominated bills ofexchange for their clients' account, and negotiable promissory notes for monthly installment paymentsspread over two years for equipment and automobiles. Turnover has risen steadily during 1993 fromJanuary's level of US$ 200,000 and is currently running at an average rate of US$ 1 million a month.There is no link to securities trading sessions at the La Paz stock exchange, since the two stock exchangescurrently trade different instruments. Four stockbroking firns are registered on the Santa Cruz exchange.

22. There are no custody, clearing and settlement arrangements at present offered by the exchange, andsecurities are physically moved between safe boxes. Similarly, clearing and settlement is done on a manualbasis for the securities and through funds transfers from banks to brokers and vice versa. There ishowever, a proposal by one company to offer custodial services on a commercial basis and the intention toestablish an electronic stock exchange.

23. Investors in Bolivia have no convenient way of assessing the quality of individual debt obligationssuch as commercial bank CDs or corporate bonds, or the credit standing of their issuers. While there areseveral newsletters prepared by brokers, there is no credit rating service available to investors and no creditrating agency.

Technical Assistance Program

24. The proposed technical assistance program has three objectives: (i) to establish stronger normativestandards for market participants in securities trading; (ii) to strengthen the capacity and procedures of theCNV in accordance with the functions of the institution established in the draft Securities Law; and (iii) toestablish a revised information system for continuous oversight of securities transactions.

25. Assistance will be provided under the Credit for the following:

Review and Improvement of CNV's Rulings and Regulations. Related to improving the legislation,select implementing regulations need to be drafted and CNVs circulars (nonus) and rulings need to bestrengthened and made compatible with the new law, the latter being the legal framework to beestablished as a disbursement condition under this component. Assistance would be provided byexternal consultants to: (i) revise existing rulings to strengthen and adapt thern to the new law; (ii) draftrulings on: requirements for equity issuance, capital requirements for issuers, brokerage margin lending,

lo

audit requirements for issuers, mutual fund regulations and rules for risk rating agencies; (iii) draftrulings on new financial instruments and requirements derived from the capitalization and pensionreform process and (iv) issue norms for approval and regulation of a central depository and clearingsystem.

Institutional Restructuring. _______An international consultantwould be contracted to do anassessment of the existing.structure of the CNV, prjected Total Cost Counter- Proposedregulatory needs in the part- IDAsecurities makers and the Financed Creditimpact of capitalization and _ 36,000 6,000 30,000from this develop a detailed 2institutional restructuring , Ritr2:''ss 242,000 4200 200,000program. Such a report would 246,000 46,000 200,000include: (i) an analysis of , 541.500 10,500 531,000current staff and future 54,0 ss50 531.,000requirements; (ii) an assessment s 75,000 15,000 60,000of the current organizational i!t sedw .structure and preparation of i 128,000 28,000 100,000modifications to this structure,as necessary; (iv) preparationof job descriptions and salary Mar ,sdeit Swi 73,000 11,000 62,000structures for key positions; (v)definition of revised budgetary .td 50,000 50,000projection procedures, including.frogectlonproedusetti uding lw>E!; and........................... .(vi) definitn ....... 1,391,500 158,500 1,233,000

supervision objectives andcriteria. Separate assistance would be contracted for: (i) preparation of offsite analysis procedures and amanual; (ii) preparation of on-site inspection procedures and a manual; and (iii) revision of the accountsmanual for financial reporting purposes by agents, brokers and issuers.

* Upgrading Supervision and Inspection Procedures. Consultants would be hired to prepare: (i)manuals for examination procedures of brokerage firms and bourses; (ii) revise charter of accounts forexchanges and brokerage houses; (iii) a manual for financial analysis of brokerage houses; and (iv)guidelines to assess quality of issue proposals. A long term consultant would be hired to strengthen thesupervision of issuers and traders of shares and American Depository Receipts (ADRs).

* Information Systems. Support would be provided for significant improvement in the computerizedsystem for the processing and oversight of securities transactions. An initial study would be undertakento review the existing system and develop the design specifications for an on-line, real-time monitoringsystem connected to the two securities exchanges and all agents and brokers. Further support would beprovided for the purchase of hardware, software and peripherals and related training for CNV staff inthe use of the system developed. Finally, subsequent support would be provided for refining thesoftware configurations in order to reflect changes in transactions and oversight needs during the periodsupported by the Credit.

* Training. Training would be undertaken in two phases: (i) a training program would be designed forCNV Staff. Once developed, such a program would be implemented as follows: The program wouldseek to develop the CNV staff emphasizing the following areas: (i) identification of the main risks insecurities trading; (ii) financial analysis of issuers, agents and brokers; (iii) examination procedures for

11

securities firms, courses and participants; and (iv) exchanges with international specialists throughparticipation in seminars and other events. Training would be undertaken through: (i) four internationalseminars on selected topics; (ii) four international courses in the examination of securities firms; (iii)ongoing internal training; and (iv) 24 work assignments in foreign securities supervision authorities.

Market Development and Promotion. The exchanges and brokerage houses currently lack theresources to finance a prograrn to develop and promote the securities market. It is believed that theCNV should take the leading role in these tasks during its embryonic stage. Assistance would thereforebe provided for: (i) support by a consultant to the Economic Studies Department in the CNV in thegathering, analysis, presentation, and distribution of statistical information, bulletins, etc; and (ii)organize seminars, conferences and workshops to promote the value of securities markets to both issuersand investors.

Cost Estimate

26. As indicated in Table 3 above, the total estimated cost of the program outlined above is US$ 1.4million of which US$ 1.2 million would be financed under the Credit.

Superintendency of Banks


27. The Government has taken significant measures to improve Banking regulation and supervisionsince 1987 when by Supreme Decree it reestablished an independent Banking Superintendency andstrengthened prudential regulations. With decision-making and financial autonomy and support from IDAtechnical assistance, the Superintendency of Banks (SBEF) gradually became an institution with areputation for objectivity and professionalism. Support was provided in the development of SBEFresolutions and circulars, on-the-job and external training of inspectors and financial analysts, audits ofbanks and computer equipment. In April, 1993, a revised Banking Law was passed. Prudential regulationprovisions proved critical to establishing a stronger regulatory framework for banking supervision.Establishing minimum loan classification and arrears standards, provisioning guidelines, loan concentrationlimits, limits on related-party lending, maximum leverage and minimum capital requirements provided thebasis for a stronger regulatory framework and, ultimately, the basis for stronger banking risk management.

28. At the same time regulation and supervision has been changing, so too has been the nature andsophistication of the banking system. The level of capitalization and deposit mobilization in the system hassignificantly increased over time, reflecting both capital requirements in relation to a growing asset base aswell as the need to provision loan losses. Non-bank financial institutions, often linked to banks such assavings and loans, leasing companies, deposit warehouses, and securities dealers have become increasinglyimportant. Moreover, instruments such as Government and private securities and credit card debt isbecoming increasingly important.

29. Given the nature of existing changes in the financial markets and expectations for the significantchanges outlined above resulting from Capitalization and contractual savings reforms, banks and otherfinancial institutions are facing a myriad of new risks that the SBEF needs to have the sophistication tomonitor and ensure adequate control.

Technical Assistance

30. Support would be provided for:

12

Strengthening of HumanResources. The SBEF is initiatinga program that will result in new m. . E Proposedhuman resources development Total Cost Counter- Proposedpolicy, staff rules and management Fin arte foreditAprocedures, and traimnng Financed Creditguidelines. International and local l 301,765 101,765 200,000consultants would be contracted *~MW~Wt~~under the Credit to design an U t Q . 281,717 86,717 195,000annual skills updating course andprovide training. New inspectors yg would be trained in credfit analysis 1,952 1651 9600techniques including collateral,cash-flow and risk concentration ~~o~d247,672 67,472 180,000analysis. More seasoned #~~nMinspectors would be trained in the 453,161 283,161 170,000following areas: (i) the nature of 4 SE 170,000commnercial nrsks in specificbusiness areas, including soya and X 250,000 250,000other agriculture, minerals and . .... .....mnining, select manufacturing and ::5 i:5eg0.0S>;:egsisgs:g,y5yis:<E 2,736,636 745,636 1,991,000select services; (ii) the nature ofvaluation and assessment of bank investments, including portfolio investments and investments insubsidiary companies; (iii) assessment of off-balance sheet risks, including securities transactions andtrust activities; (iv) collateral valuation techniques, particularly in real estate markets; and (v) interestrate and liquidity risk assessment. Training of financial analysts would focus on credit assessment withspecial emphasis on financial projection techniques, interest rate risks, refunding (liquidity) risk andsectoral risks. Training is coordinated with support from GTZ which has provided assistance in theassessment of institutions that cater to small-sized borrowers. In addition training in informatics wouldbe provided to improve the staff's understanding of the new informatic system. Support would beprovided for select attendance at specialized overseas courses to provide exposure to financial analystsand inspectors on analytical techniques not available in Bolivia. The focus of these courses would be onregional trends (CEMBLA); cross-border, including off-shore risks; off-balance sheet risk valuation,including derivative risks; and advanced courses in risk assessment offered by the US Federal Reserve.

Development of Norms. The ongoing program to keep banking regulations current with legal changesand market developments includes activities to: (i) draft regulations to the current Banking Law so as tomake it compatible in word and spirit within the legal framework established for the Central Bank, (ii)draft similar regulations to ensure the same compatibility with draft Insurance, Securities and Pensionslaws; (iii) draft policies and procedures for financial institutions in critical conditions; and (iv) reviewand modify as necessary the policies and procedures applicable to non-bank financial institutions.Select assistance would be provided for the contracting of international experts for short-term visits toimplement regulations. Such norms will include those on: capital adequacy, lending concentration,related-party risks, liquidity risk, interest rate risk, and off-balance sheet risks.

Update of Operational Guidelines. The SBEF's procedures and guidelines have allowed an adequatesupervision of Bolivia's banking system. However, they are becoming dated and need to be updated.The SBEF is planning to renew its internal organization, procedures and rules. It will also review andupdate the manuals for inspections, accounts, and financial analysis. Assistance would be provided toreview and evaluate the SBEF's inspections, reports on external audits, financial analysis, and portfolioevaluation. The expected output would be improved operational guidelines and manuals and a medium-term program for ongoing updates and improvements.

13

Institutional Development. The SBEF is adjusting to the new Central Bank Law that is expected to beapproved during the last quarter of 1995. This will imply some changes to the institution and itsprocedures. IDA will support the design of a strategic medium-term plan to achieve this changes. Inaddition, support will also be provided to help the SBEF's staff adjust to the changed institution and itsnew rules, systems, and policies. To improve the institution's capacity to identify and solve the newproblems its sector is facing, a new area of studies and statistics would be designed and set up with theaid of international consultants. The production and dissemination of statistics would also be reviewedand improved.

Strengthening of Information Systems. The SBEF is acquiring a new mainframe and software.Support would be provided for the development of a second-generation of software for the stand-aloneand networked system. Support is also needed to expand the scope of inputs and outputs in terms ofinstitutions and instruments of the risk analysis unit. The desktop computer hardware and software isincreasingly archaic and restricts the analytical techniques employed by inspectors. Also the mainframecentral system has inadequate peripherals to download information to personal computers so as topermit individualized analysis. Funds are needed for peripherals to link the mainframe to the stand-alone system.. Finally, funding is needed for computer-related training to facilitate wider-spread accessto mainframe processing techniques.

Cost Estimate

31. As indicated in Table 4 above, the estimated cost of the program outlined above is US$ 2.7 millionof which US$ 2 million would be financed under the credit.

Credit Administration - Operation of the Project Coordination Unit

32. A Project Coordination Unit - Costi f T4whflital Assist n etoestablished in the Ministry of Capitalization SupporE the Pruject Unit (USS)will be responsible for ensuring: (1)coordination and oversight of counterpart Total Counter- Proposed

requess forftmdig; (11 thatcountrpartCost part IDArequests for funding; (ii) that counterpart ~Financed Credit

agreements, including counterpart fundingagreements, are complied with; (iii) that 'B i i*z*mB4 158,000 25,000 133,000Republic of Bolivia and IDA procurement s Wl i...4procedures are complied with; (iv) that 94,600 14,600 80,000disbursements are effected expeditiously; (v) 14'0 :5,40

adequate management of the Special B 4 0 I t 15,000 15,000Account; and (vi) that audit and other toi i i 12,000 12,000reporting requirements are complied with i* -.. :'

under the Credit. The Project Unit would be _ 279,600 39,600 240,000staffed by a coordinator and an assistant andwould work together with the Procurement Unit established in the Ministry of Capitalization by previous creditsto process all procurement requests of the project.

33. As indicated in Table 5, US$ 240,000 of the Credit would be used to support the operation of thisunit. This would be for office equipment, setting up an audit and procurement system, and providingassistance in the management, planning, and coordination of the project.

14

Section B: Procurement and Disbursement

34. Procurement of all project components financed under the proposed Credit will be according toWorld Bank Guidelines for Procurement (January 1995). The Credit would finance US$ 9 millionequivalent (47% of total project costs of US$19.3 million), including 43% of foreign exchange costs andthe remaining US$10 million would be financed by Government counterpart resources. IDA's share offoreign exchange costs has been reduced because of the Borrower's decision to take advantage of theopportunity to lease and to use other sources of financing for most of the informatic equipment. The ProjectCoordination Unit would work together with the Procurement Unit, established in the Ministry of Capitalizationby previous credits, to process all procurement requests of the project. These procurement arrangements complywith IDA procurement procedures.

35. Consultant's services shall be procured under contracts awarded in accordance with the provisionsof the "Guidelines for the Use of Consultants by World Bank Borrowers and the World Bank as ExecutingAgency" (August 1981). Contracts shall be based on the standard form of contract for consultants'services issued by the Bank, with such modifications as shall have been agreed by IDA. Prior IDA reviewof budgets, short lists, selection procedures, letters of invitation, proposals, and contracts shall not apply tocontracts for the employment of consulting firms and individuals estimated to cost less than $30,000equivalent each. However, all consultants or firms will be subject to Association review of: terms ofreferences, single source selections, critical nature assignments, and contract amendments raising the valueto $30,000 or above, as well as prior review for all service contracts, and employment of trainers. Foreignconsultants shall not be required to (a) enter into joint agreement ventures with local consultants, (b)legalize their proposals or related documentation as a prerequisite to participate in the selection procedure,or (c) register in the National Registry of Consultants or other registries.

Procurement Arrangements(Estimated Cost in US$)

Expenditure IDA Financed Procurement Not IDA Total

Category ICB Other Financed

Consultants 7,070,000 1,355,000 8,425,000(6,345,000) (6,345,000)

Training 426,000 426,000

(412,000) (412,000)

Services 417,000 65,000 482,000contracts a/ (417,000) (55,000) (472,000)

Goods/Equipment 1,650,000 121,000 8,205,000 9,976,000(1,650,000) (121,000) (1,771,000)

Total 2,067,000 7,682,000 9,560,000 19,309,000(2,067,000) (6,933,000) (9,000,000)

Note: Figures in parentheses indicate the amounts financed by IDAa/ For trustee of capitalized shares, legal support, and infornation campaign.

36. Goods financed under the Credit would be mainly computer equipment and would be procured asfollows: (i) ICB for contracts valued at more than US$25,000, using Bank-issued standard biddingdocuments satisfactory to IDA; and (ii) for contracts valued at US$25,000 or less, through nationalshopping procedures satisfactory to IDA (not exceeding US$250,000 in the aggregate). Prior review willbe mandatory for all ICB procurement, for service contracts (trustees, legal services, training, informationcampaigns) as well as for the first contract procured through shopping.

37. Disbursements will be administered by the Project Coordination Unit in the Ministry ofCapitalization. A Special Account will be established within the Bolivian Central Bank for the activities to

15

be financed by this Credit. An initial deposit of US$ 500,000 (equivalent to two months of estimateddisbursements) would be made into this account with subsequent deposits equalling the same amount untilcumulative withdrawals reach or exceed $3,500,000, following which, subsequent deposits would amountto $900,000. Statements of expenditure will be used for disbursements of up to US$25,000 equivalent inthe case of goods with the exception of the first purchase utilizing shopping procedures, US$30,000 in thecase of consulting firms and individual consultants. Disbursements would be made against 100% of the net-of-tax costs of local and foreign consultants, 100% of the net-of-tax expenses of training, 100% of the CIF costof imported goods and of the ex-factory cost of local goods and 84% of the cost of locally-procured goods, and100% of foreign expenditures and 84% of the cost of locally-procured service contracts. The Project is expectedto be completed by mid 1998. The closing date would be December 31, 1998.

38. Records and Auditing will be the responsibility of the Project Unit, which will establish separateaccounts for each component and will monitor all expenditures financed by the project. The BolivianCentral Bank will maintain separate records and accounts for all special account transactions under theCredit. Project accounts, the special account and statements of expenditures will be audited each year byauditors satisfactory to IDA and the audit report of the Borrower, CNV and SBEF will be sent to IDAwithin 180 days after the end of the fiscal year. In addition to this financial reporting, a full progress reportwill be prepared and submitted to IDA every January 31 and July 31, starting in January 1996. This reportwill detail all project and related activities, report on progress in relation to agreed schedules, and identifyany problems which may have been encountered and which could adversely affect the overall impact of theproject.

39. Agreed Actions: During negotiations agreement was reached on (i) consulting, equipment,training needs, and a financing plan of the project, including financing mechanisms (such as budgetarytransfers) to satisfy counterpart financing requirements for the period of the Credit, for the CNV and theSuperintendency of Pensions, (ii) terms of reference in the form of a matrix of key project activities,including objectives, outputs, timetables, implementation plan, and performance indicators; and (iii) inaddition to meeting all financial reporting requirements, a full progress report to be prepared and submittedto IDA every six months.

40. Credit Effectiveness: Effectiveness will be conditioned on (i) the appointment of a head of theproject unit; and (ii) issuance of a report by the Government providing greater clarity as to thecharacteristics of the deferred share distribution system.

41. Disbursement Conditions: There are no conditions for disbursement for most components of thecredit with the exception of (i) expenditures by the Superintendency of Pensions component, which requirecreating that institution; (ii) expenditures for drafting new securities regulations, which require a legalframework for the securities market, satisfactory to IDA; and (iii) expenditures for drafting new BankingLaw regulations, which require a legal framework for the Central Bank, satisfactory to IDA.

16

SCHEDULE ONE

BOLIVIA - FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT

IMPLEMENTATION PROGRAM AND INDICATORS

Main Project Component Expected Output - 1995 Expected Output - 1996 Expected Output - 1997Objectives Activities

Establish- Development and Drafting and review of norms completed for: establishing a pension fund (AFP); publicity Pensions law passed. Defined-contribution systeming and Implemen-tation of by AFPs; requirements of fund sales agents; regulation of new affiliates; amount and Superintendency of Pensions functioning linked to start of deferred-Strengtheni Prudential treatment of conributions; investment norms; procedures for purchases, sales, custody with independent staff and budget. distribution accounts.ng Pension Regulationts and and transfer of securities; limitations on and treatment of investments abroad; benefit Defined-Contribution pension system Consultant follow-up visitsSupervision aNorms for New norms, including criteria for calculation of recognition bonds, and estimates of begins mid-year.and Regu- Individual contribution amouints; criteria for permanent disability and procedures for claiming Consultant follow-up visits conducted to revise procedures basedlation if and Capitalization disability and death benefits, including distribution of funds to beneficiaries; norms for review and revised procedures based on on experience inwhen (Defined- operational control of AFPs, including criteria for accounts and cross checking; norms experience in implementation (late implementation.legislation is Contribution) for the disability coverage and insurance mechanisms; and accounting norms. 1996).enacted. Funds Initial normative circulars issued.

Principal implementing regulations issuedthrough Supreme Decree.

Development of Regulations incorporating the following norms drafted: (i) reaffiliation and control of Regulations issued by Supreme Decree, FOPEBA fully operational.Norms for Existing accounts in relation to transfers to individual capitalization (new system) accounts; (ii) including those for the functioning of Consolidation process ofFunds norms as to enforcing employer and employee contributions and payment systems; (iii) FOPEBA. Inorms for minimum actuarial funding requirements; (iv) norms for merger, and (v) Strategic objectives of the Govemment for complementary pension

investment norms. existing funds announced in conjunction unds to BAwith Supreme Decree.

Implementing norms issued by circular,and being implemented and monitored.

Consolidation process of complementarypension funds into FOPEBA begun.

Dev. of Investment Multi-year transition program for Passive funds from equity to a mixed security portfolio Supreme Decree issued providing norms Norms underNorms for passive developed. for passive funds. implementation.funds Portfolio transition program issued via Norms subject to review and

circular. revision based onexpenence.

Measures to Audits undertaken for 12 complementary pension funds (based on data to 1986). Norms issued to liquidate or merge 22 Consolidation process ofRestructure Administrative restructuring of INASEP completed. complementary pension funds; complementary pensionExisting Funds Evaluation of Transfer Incentive begun per funds into FOPEBA

individual account based on guidelines under way.issued in Supreme Decree. Evaluation of Transfer

Begin implementation of program for the Incentive continuing.merger and liquidation of FCs intoFOPEBA.

Studies of Workers Evaluation of existing workers compensation system undertaken. Recommendations developed for Legislaton drafted and

17


Compensation modification to existing legislation, existing submitted to Congress.organization of contributions and benefits.

Development of Design study initiated of consolidated data Initiation of data analysis.Database for base of demographic, economic and Data used for regulatoryManagement of actuarial data by fund member to effect over-sight and isExisting Funds the transition above. disseminated to

Data collection (from each FC) and data complementary funds.entry begun.

Automation of Initial study undertaken of hardware and software requirements foT the operational and Hardware and software purchased andFOPEBA financial management of FOPEBA. installed.Information Operating procedures designed.Management

Design and Definition of Superintendency begins functioning under Ongoing review conductedDevelopment of the organizational structure of the Superintendency of Pensions; Law. of staffing, accounting andSuperintendency -required personnel profile; Supervision of pension funds (operating) financial control systemsof Pensions terms of reference for key positions in the Superintendency; begins mid-year. and operating procedures in

specifications for the accounting and financial control system and design operating Operating procedures for the risk order to revise eachprocedures; classification commission defined. according to experience.

-data base modules, including an investment module, management module and sales agents Review conducted of staffing skill profile indata base. relationship to evolving needs.

Review conducted of implementation ofaccounting and financial control system

Implementation of operating proceduresand development of procedures manualbegun;

Implementation of data base modulesbegun and revised as necessary.

. . ~~Design of public infonnation campaign undertaken.Public Infonmation Intemnational bidding process for public Completion of publicCampaign information agency begun. information campaign.

Initiation of execution of publicinformation campaign.

Computerization Completion of detailed study to develop the specifications for the hardware, software and Bidding documents for hardware and Supplementary supportof Super- peripherals needs. Output is technical specifications for international competitive bidding software. provided for refining andintendency of for equipment. Purchase of equipment including upgrading the softwarePensions installation., subsequent to initiation of

Software provided under agreement its use.reached between the Sup. of Pensionsand the Sup. of Pensions of Chile.

Select training of staff in equipment usebegun

Deferred Trustee Trustee for safekeeping of capitalized shares contracted. Transfer of capitalized shares to TrusteeShare Arrangements Completed dDistribution Shares of two capitalized enterprises transfered to Trustee. Cusomplnested. sed

Progrrngmnsautoinesalihd

18


Intemational AFPs selected by international bidding.Bidding

Acceleration of the Registro Unico Nacional RUN begins rural registration campaign using mobile units. RUN registry underway, with completion Registry data used toRegistry System. Design of RUN acceleration program completed, including detailed projections of needs for aimed at end-1 996. facilitate the assignment

increases in operating and capital expenditures. of pension fund managersPassing of exception law facilitating registry process to each adult bolivian andAdvisors and contracted assistants hired to amplify and accelerate the process. to assign to each suchIntemational tender specifications for equipment needed including computers, identity pension fund the shares

card peripherals and data storage equipment. of each such Bolivian.

Design of the Development of a detailed program for the share distribution program. Fiduciary Account system, including Initiation of passbookDistribution account verification, reconciliation and distrbutionProgram control. Initiation of benefit

Detailed transfer system (from the distnbution.fiduciary account to AFP), including Arrangements for consumermechanisms for random selection, chasms And trangverification of individual choice, account mechanisms, and tracingverification. control featires

Implementation plans for the distributionof passbooks, including verificationmechanisms.

Mechanisms for distribution of benefits,both urban and rural.

Initiation of the implementation of thedistribution system through theplacement of capitalized shares.

Strength- Strengthening of Recommendations for modifications to draft law concluded, including the drafting of Securities Law passed by Congress. Review and adoption ofening Sec- Legislation amended language for inclusion. Implementation of the plan for the issuance norms in accordance withurities Draft Securities Law presented to Minister of Finance. of norms. market developments.Regulation. Existing rulings reviewed to strengthen and conform them to the draft. Review and adoption of norms in

A plan for the issuancc of norms (rulings) established accordance with market developments.

Institutional Detailed institutional restructuring program Restructuring plan fullyRestructuring completed including: (i) assessment of implemented.

current staff and future requirements. (ii)preparation ofjob descriptions andsalary structure; (iii) support for budgetpreparations (incliding fee setting) anddefinition of procedures and manuals;(iv) definition of supervision objectivesand criteria; (v) determination ofinformation requirements; (vi)preparation of analysis procedures; and(vii) preparation of on-site inspectionprocedures.

Information Design of specifications for hardware, Implementation ofnewsoftware and peripherals completed. systems procedures

19


Systems Bidding and installation completed. completed.Specialized training initiated to improve

on-line links with exchanges andbrokerage firms.

Upgrading Consultants hired and work begun to Manuals for examinationSupervision and prepare: (i) manuals for examination procedures completed andInspection procedures of brokerage firms and implementation begun.Procedures bourses; (ii) revise charter of accounts Revised charter of accounts

for exchanges and brokerage houses; (iii) for exchanges anda manual for financial analysis of brokerage housesbrokerage houses; and (iv) guidelines to completed and issued.assess quality of issue proposals. Manual for financial

analysis of brokeragehouses issued.

Guidelines issued to assessquality of issue proposals.

Development of Work initiated to: (i) work with the Modify charter of accountsAuditing and accounting profession to develop in accordance withAccounting accounting standards for publicly listed market developments.Standards firms, investment banks, brokerage Implement revised extemnal

houses, bourses and agents; (ii) establish audit norms.through a CNV ruling a standardizedcharter of accounts established forissuers to improve the presentation offinancial data; and (iv) issue revisedextemnal audit norms for publicly-listedfirms, investment banks, brokeragehouses, bourses and agents.

Market Program begun to: (i) support Economic Studies Department in the CNV to gather, analyze Capacity of the Economic StudiesDevelopment and and distribute statistical information, bulletins, etc; and (ii) organize seminars, Department in the CNV improved toPromotion conferences and workshops to promote the value of securities markets to both issuers gather, process and distribute statistical

and investors. information.Norms issued for approval and regulation

of a central depository and clearingsystem.

Central depository and clearing systemestablished and subject to refinement.

Strength- Development of Diagnostic of non-banking financial institutions completed. Procedures for liquidation of financial Regulations for non-ening of Norms institutions approved and in place. banking financialBanking Regulations for non-banking financial insttutions in place.Supervision institutions completed. Regulations for financial

Regulations for financial services servlces Institutions Ininstitutions completed. Rules and procedures forRules and procedures for financial financial institutions ininstitutions in crisis completed. nsis in place.

20


Rules and procedures for supervision of Rules and procedures forfinancial conglomerates completed. supervision of financial

conglomerates in place.Regulations for riskassessment companiescompleted.Norms for new bankingfinancial instrumentsupdated and in place.

Improved Updated inspection and financial analysis manuals. Implementation of recommendations ofoperational updated manuals.systems Evaluation of of inspections and external

audits to financial institutions andimplementation of conclusions.

Evaluation of portfolio analysis andI implementation of conclusions.

Strengthening of Technical specifications for second-generation of hardware and software for the stand- Installation begun. Installation completed.Operating alone and networked system completed. Implementation begun.Software Hardware purchased.

21

SCHEDULE TWO

BOLIVIA - FINANCIAL MARKETS AND PENSION REFORM TECHNICAL ASSISTANCE PROJECT

TRAINING PLAN

Objectives/ Project Training Mode Design/Delivery & Monitoring of Training Activities - 1996 Design/Delivery and Expected Results of TrainingComponents Component Monitoring of Training

Activities Activities - 1997

Superinten- Operations, Local, On-the-job and Complete detailed traming in the functioning and financial Assistance through long Staff capable of applying the operating procedures ofthe Sup. dedency of Monitoring and overseas short term operation ofthe pesion's individual capitalization share and short-term Pensiones and utilizing computerized monitoring and controlPensions Financial twinning system in the areas of.() operations, (b) benefits, (c) consultants in procedures. Along with the twinning visits, this would result in

Control arrangements. investments, and (d) systems development, and monitoring, fmancial trained staff in the areas ofimplementing short term twinning arrangements with the control, and analytical

Developing Superintendency of Pensions in Chile. techniques. (i) Operations - management of individual accounts, affiliations,Institutional overdues, transfers, payments, payments due, operationalCapacity for accounting, and accounting for the contributory fund. PersonsPension trained would include I analyst and I assistant.Supervision ifand when (ii) Investments - investment limits and guidelines, portfoliolegislation is management, duration, rate or retum analysis, valuation ofenacted and domestic instruments, and risk classification. Persons trainedtraining would include 2 assistants and I analyst.implementing (iii) Benefits and Insurance - Methodologies to calculate old ageagencies in and disability benefits based on legal provisions. Trained staff. 2distribution analysts and 2 assistants.system andfinancial (iv) Systems: Training in analysis and utilization of computercontrol. systems for the control of the individual share capitalization

system. Staff trained: I analyst & I assistant.

Training in Local, On-the-job, Design and delivery through the Secretariat of Pensions. Staff capable of tracking and detecting risks of AFPs OR funds, toprudential attendance at overseas Assistance through long- and short-term consultants in the implementation of prudential apply judgements as to violations of the law /regulations, and tostandards seminars standards. track activities of participants in accordance with the law.

Use of On-the-job and Undertake training of specialized systems staff by Continuation of previous Systems analysts trained in latest methodologies for modeling ofMainframe and overseas short term intemational experts in the areas of (a) software system training and processes under extended relational database systems, as well asDatabase twinning visits. engineering, (b) database modeling and design, and (c) adding relational object oriented programming and expert systems. Trained staffComputer UNIX operating systems for database administration. database management include I analyst and I assistant for training in Chile, and 20 staffTechniques tools including members on-site.

ORACLE - INFORMIXfor both basic andadvanced levels.

Comnunicatio Local, on -the-job. Traiing ofpersonnel inthe areas of control and Have staff fully trained and functional in the areas of(i) design ofns and Public dissemination of information, including a course provided standard formats for information distribution, (ii) implementationInfornation by an intemational expert. of adequate controls for dissemination of infomiation. Staff

trained: I analyst & I assistant.

Marketing of Overseas trips. Evaluation of viability of marketing capitalization shares in The relevant personnel will posses the knowledge to utilizecapitalization the London market and other European markets, including established instruments and mechanisms to register theshares (a) organizing personal interviews in coordination with the distribution of shares and to establish marketing mechanisms. 2

British consulate, on (i) directives of the London Stock staff would be trained.

22

Objectives/ Project Training Mode Design/Delivery & Monitoring of Training Activities - 1996 Design/Delivery and Expected Results of TrainingComponents Component Monitoring of Training

Activities Activities - 1997

Exchange, (ii) potential investors, (iii) intermediaries andpromoters, and (b) contacting the EEC to follow sameagenda.

Basic Pension On-the-job plus Training of local staff in new functions after organizational Training in reform of and (a) 20 staff to be trained and functional in new modules underFund extemal visits. restructuring o the institution, in each of the new system new system of restructured agency.(FOPEBA) modules covered through courses on the integrated professional risks,

information system given by local and internat. including local courses (b) 100 staff to be trained and operative in informationconsultants. with int. instruction., dissemination.

Training in communications and control of information Training in operation ofdissemination of FOPEBA, to be given by international the Recognition Bond (c) 6 staff to be trained and to formulate draft law andexpert. unit and calculation implementation on system of professional risks.

thereof. (d) 6 staff trained locally and 2 in Chile, on implementation of

Recognition Bond unit and fmnalizing calculations thereof

National Local, on-the-job. Training of staff in new functions of institution following Trained staff will perform (i) technical uniform operation of theInstitute of organizational restructuring, including new modules of the system in implementing agencies, (ii) Unifonm management ofInsurance and system. To be provided by local and extemal consultants. financial information in implementing units, and (iii) operation ofPensions systemic modules. 20 stafftrained.(INASEP)

Strengthe- Upgrading Local, On-the-job, Development of training Initiation of on-the-job training programn emphasizing: Staff capable of tracking and detecting risks of bourses, brokersning Supervision work assignments at program for CNV Staff with (i) identification of main risks in securities trading; anagtscorigothlw,mpenigrgutosadSecurities and Inspection other Latinwmerican CNV management assistance. (ii) financial analysis of issuers, agents and brokers; and agents acoding t o tementi regulations end

Supervision Procedures and regulators, overseas (iii) examtnination procedures; and (iv) exchanges with judgements as to violations of the intent of the law orand Regula- Techniques seminars international specialists, regulations, in terms of required solvency, transparency, safe andtion if and sound securities practices.whenlegislation isenacted.

Information On-the-job Development of training Training in use of Staff capable of using automated oversight systems to track marketSystems program with CNV oversight monitoring movements and monitor behavior of brokers and agents. Staff

management assistance. systems developed should also be able to use systems in the analysis of issuers,and use of data bourses, brokers and agents.processing techniques.

Auditing and Local, On-the-job Development of training Training in accounting standards for issuers, bourses, Staffcapable of applying accounting standards established and ofAccounting program with CNV agents and brokers in accordance with accounts using such standards for the sake of prudential assessment.Standards management assistance. manual issued and circulars issued.

Market Local, On-the-job,, Development of training Training in the Staff capable of understanding the cause and effect relationships inDevelopment work assignments at program with CNV economics of market market developments including forecasting. Staff also able toand Promotion other Latinamerican management assistance. transactions and in the foresee evolutions of transactions in a dynamic marketplace.

regulators, overseas dynamics of marketseminars development.

Prudential Local, On-the-job,, Development of training Training in prudential risks in securities transactions; Staff capable of disceming prudential risks and applying remedialNorms work assignments at program with CNV application of prudential standards established by measures. Staff able to discem risks in line with market

other Latinamerican management assistance. regulations; early-warning detection techniques; and development.regulators, overseas application of preventive and punitive measures.seminars

23

Objectives/ Project 1raining Mode Design'Delivery & Monitoring of T raining Activities - 1996 Design/Delivery and Expected Results of TrainingComponents Component Monitoring of Training

Activities Activities- 1997

Strength- Training of Local, Inteniational, On-the job inspector training in credit analysis techniques, including credit riskening of Inspectors overseas courses, On- assessment, cash flow analysis, collateral valuation, assessment of business andBancing the-job. sectoral risks: risks of financial investments.Supervision

Training of Local, Intemational, Course program to be Training on credit assessment with special emphasis on Financial Analysts able to forecast financial institution solvencvFinancial On-the-job, developed by SBEF financial projections, interest rate risks, refunding and profitability and discern tendencies so as to effect anAnalysts attendance at overseas management in association (liquidity) risk, sectoral risks, effects of effective early waning system.

courses. with SBEF human resources macroecotiomic risks on financial institution solvency Analysts able to discem the risks of increasingly complexcoordinator and profitability; risks of financial derivatives; exposures to capital markets instruments and actors.

interest rate risk, off-shore risks and off-balance sheetrisks.

24

SCHEDULE THREE

BOLIVIA - FINANCIAL MARKETS AND PENSION REFORMTECHNICAL ASSISTANCE PROJECT

BANK STAFF INPUTS FOR PROJECT SUPERVISION TO 1998

Approximate Activity Anticipated InputDate Skill Requirements in staff

weeks

01/96 Supervision Mission/Project LaunchReview contracts underway and project Financial Analyst 2unit accounting/reporting systems Banking Specialist 2Review consultant TORs/tasks underwayReview legal and regulatory progressReview institution-building measures todevelop Pensions SuperintendencyReview banking system component

01/96-06/96 Headquarters Supervision WorkReview of contracts, implementation Financial Economist 8targets,subcomponent budgets, Financial Analyst 7performance reports

07/96 Supervision MissionReview project targets versus Pensions Specialist 2implementation plan Banking Specialist 2Review procurement/disbursementReview draft regulatory provisions forall financial sector componentsReview progress in implementing sharedistribution systemReview arrangements for setting upFOPEBA and status of PensionSuperintendencyReview institution-building measures forSuperintendency of Banks

07/96-12/96 Headquarters Supervision WorkReview of consultant T.A. results Financial Economist 8including institutional set up for Financial Analyst 7FOPEBA, share distribution system;

25

review of contracts.

01/97 Supervision MissionReview institutional development of the Financial Sector Specialist 2Comisi6n Nacional de Valores Pensions Specialist 2Review implementation of regulatoryprovisions for pension fund managersReview bidding for pension fund managersReview capitalization share distributionsystemReview implementation of FOPEBA andmerger of complementary funds.

01/97-06/97 Headquarters Supervision WorkReview of contracts, implementation Financial Economist 8targets,subcomponent budgets, Financial Analyst 7performance reports, and disbursementperformance.

07/97-12/97 Headquarters Supervision WorkReview of AFP regulations and imple- Financial Economist 8mentation of CNV and Banking regulations Financial Analyst 7consistent under SIREFI structure; reviewof contracts and consultant T.A. results

07/97-07/98 Three Supervision MissionsReview progress in implementation of Financial Sector Specialist 6regulatory directives, institution Banking Specialist 6building measures, and AFP set-up

01/98-12/98 Headquarters Supervision WorkReview of bidding process and handover Financial Analyst 15of pension accounts to private AFPs, Financial Economist 15review of documented financial controlmeasures ensuring security and segregationof contributory & non-contributoryaccounts.

12/98 Final Supervision MissionReview of pension reform implementation, Financial Analyst 2and establishment of AFPs and FOPEBA, Financial Sector/targets met under CNV and Banking Pension Spec. 2sector

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Documents

World Bank Document€¦ · deferred share distribution accounts (DSDAs). Such accounts would be managed in a way similar to, and operationally integrated with, the private pension