BOLIVIA PROGRAM FOR IMPROVING CENTRAL BANK REPORTING AND PROCEDURES ON REMITTANCES SEPTEMBER 2010

Transcription

1 PROGRAM FOR IMPROVING CENTRAL BANK REPORTING AND PROCEDURES ON REMITTANCES BOLIVIA SEPTEMBER 2010 CENTRO DE ESTUDIOS MONETARIOS LATINOAMERICANOS Asociación Regional de Bancos Centrales

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4 PROGRAM FOR IMPROVING CENTRAL BANK REPORTING AND PROCEDURES ON REMITTANCES

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6 PROGRAM FOR IMPROVING CENTRAL BANK REPORTING AND PROCEDURES ON REMITTANCES BOLIVIA CENTER FOR LATIN AMERICAN MONETARY STUDIES MULTILATERAL INVESTMENT FUND OF THE INTER AMERICAN DEVELOPMENT BANK

7 First English Edition, 2010 Also published in Spanish Derechos exclusivos es español conforme a la ley Centro de Estudios Monetarios Latinoamericanos, 2010 Durango 54, México, D.F ISBN Printed and made in Mexico Impreso y hecho en México

8 Foreword The importance of international remittance flows to Latin American and Caribbean economies has increased substantially, both in terms of macroeconomic stability given the magnitude of these capital inflows, and of economic development in view of their impact on financial inclusion and poverty alleviation. The Center for Latin American Monetary Studies (CEMLA), with the support of its central bank members, has played a proactive role in the field of remittances. The organization of several capacity-building and technical assistance events by CEMLA, has clearly shown central banks interest in obtaining improved information on the size and characteristics of these flows. More reliable data is needed to have a proper understanding of the market structure for remittances and the behavior of involved agents. Such information allows to foster the implementation of policies and regulations aimed at reducing the cost of money transfers, providing greater security and transparency, and avoiding unsuitable practices that may deter an efficient development of the market. In mid-2004, CEMLA and the Multilateral Investment Fund (MIF) began designing a program aimed at improving the statistical measurement of international remittance flows. MIF s financial contribution was approved by its Donors Committee in February 2005 under the title Improvement of Central Bank Information and Procedures in the Area of Remittances (RG-M1059). In April of the same year, CEMLA s Board of Governors meeting in Cartagena, Colombia, formally approved the Center s participation as executing agency for the project. The institutional arrangements for the Measurement Program (as it is referred to) comprise a Working Group on Remittances (WGR) formed by experts from central banks in Latin America and the Caribbean, and a Remittances International Steering Committee (RISC) comprising experts from extra-regional central banks and international organizations. Twenty-three of CEMLA s thirty regional central bank members signed up for the project. The first phase of the project identified limitations on the availability and quality of data on remittances markets and flows, thus serving as the starting point for the design of the Program. Some of the detected shortcomings were: i) the absence of an agreement on basic balance of payments definitions; ii) a lack of precision in measuring the flows; iii) insufficient compilation of statistical data via direct reporting; iv) a deficit of information on the structure of international remittance operators, and v) the need to clarify regulatory and jurisdictional aspects applicable to the providers of these services. In view of the above, the Program seeks to improve central bank data and procedures in the area of remittances, evaluating and recommending steps to lift the foregoing restrictions. In addition, the Program is expected to contribute to: the use of formal remittance transfer systems by originators and beneficiaries through financial literacy campaigns; cost transparency among regulators in both originating and beneficiary countries; a better understanding of the microeconomic dynamics in remittances markets; and the dissemination of best practices and lessons learned from the studies that were carried out in the region. In the pursuit of these objectives, the Program includes Country Missions for the analysis of different aspects pertaining to the measurement of remittance flows and the functioning of this market. Deliverables include public reports describing central bank procedures and other relevant aspects of the remittances market. In addition, the Program contemplates the organization of sensitization events, training courses and technical assistance. These activities all benefit from the technical cooperation of WGR and RISC. The present Report, International Remittances in Bolivia, is one of the descriptive documents in the series, and was prepared with the active participation of the Banco Central de Bolivia. Javier Guzmán Calafell General Director CEMLA Julie T. Katzman General Manager FOMIN/BID

9 Acknowledgements This report is based on the findings of the Mission that visited Bolivia in June 2008, comprising two teams. The international team was led by René Maldonado from the Center for Latin American Monetary Studies and included Xiomara Hurtado de García (Banco Central de la Reserva El Salvador) and John Wilson (Remittances Programme consultant). The international team worked in close coordination with the local team formed by Freddy Gumiel, Denise Salazar and Jonathan Cáceres, from Banco Central de Bolivia. This report was prepared by René Maldonado, assisted by Melina Saldaña, Raúl Morales and the Banco Central de Bolivia team, and benefited from comments by other mission team members.

10 INDEX 1 ECONOMIC BACKGROUND AND THE REMITTANCES CONTEXT Macroeconomic Performance Labor Environment and the Migratory Process Labor Environment Migratory Processes Evolution and Importance of Remittances Measurement and Provision of Remittances Services INSTITUTIONAL ASPECTS General Legal Framework Financial Regulations Payments Systems Regulations General Norms and Regulations for the Foreign Exchange Market in Bolivia Tax regulations related to remittances Main information reporting requirements Anti-Money Laundering Regulations Regulation, Supervision and Oversight Authorities Role of the Banco Central de Bolivia Superintendencia de Bancos y Entidades Financieras Ministry of Foreign Relations The Role of other Relevant Organizations Ministerio de Hacienda Instituto Nacional de Estadística Unidad de Análisis de Políticas Sociales y Económicas Superintendencia de Empresas Ministerio de Trabajo Ministerio de Justicia Asociación de Bancos Privados de Bolivia Asociación de Entidades Financieras Especializadas en Microfinanzas International Migration Organization Asociación de Cooperación Bolivia-España y Asociación de Migrantes Bolivia- España DESCRIPTION OF REMITTANCES Definition and Concept of Remittances Description of Originators Description of Beneficiaries Remittance Indicators in Bolivia INTERNATIONAL REMITTANCE SERVICE PROVIDERS Institutional Providers...33 SEPTEMBER 2010 vii

11 4.2 Registered Institutional Providers Commercial Banks Private Financial Funds Mutual Savings and Loans Savings and Credit Cooperatives Unregistered Institutional Providers Couriers Exchange Houses Specialized Transfer Entities Non-Institutional Providers Cash Transported by Travelers Cash Transported by Messengers Other Means of Transport and Payment of Remittances MEANS OF PAYMENT FOR REMITTANCES Cash Cheques Account Deposits Postal Instruments Payment Cards Electronic Money SYSTEMS AND CHANNELS FOR THE TRANSFER AND PAYMENT OF REMITTANCES Information Transfer Systems Systems Abroad Cross-Border Systems Local Systems Large Value Payment Systems Low Value Payment Systems Cheque Clearing House Clearing House for Electronic Transfers Clearing House for ATM Networks and International Debit, Credit and Stored Value Cards Other Systems and Channels COSTS, TIME AND ACCESS Remittance Costs Commission Charges Exchange Rate Differential Tax Costs Access Costs Costs, Time and Access for Other Non-Institutional Channels...58 VIII SEPTEMBER 2010

12 8 MEASUREMENT METHODOLOGY Responsibility and Coordination Measurement by Channels Registered Institutional Reports by Financial Intermediaries Non-Registered Institutional International Card Administrators Non- Institutional Cash Postal Service Data Validation and Confrontation Trends, Progress and Challenges TRANSPARENCY AND DATA PUBLICATION Official Information Information Supplied by RSPs...67 ANNEXES Annex 1. Statistical Annex...68 Annex 2. Financial entities form...72 Annex 3. Current legislation in Bolivia...73 Annex 4: Remittances, number of transactions and values for selected countries, LIST OF TABLES Table 1. Balance of Payments and International Investment Position... 4 Table 2. Macroeconomic indicators... 5 Table 3. Total remittances in Relation to Other ITEMS... 9 Table 4. Remittances Legislation in Bolivia, as of July Table 5. Current Norms Governing Migratory and Consular Matters Table 6. Regulated Entities Paticipating in the Remittances Market Table 7. Commercial Banks Participating in the Remittances Market Table 8. Market Share of Remittance-Disbursing Banks Table 9. Remittance-Disbursing Private Financial Funds Table 10. Remittance-Disbursing Mutual Savings And Loans Table 11. Remittance-disbursing exchange houses Table 12. Financial Services Offered by Financial Intermediation Institutions LIST OF FIGURES Figure 1: GDP per capita, Gross National Income and Private Consumption... 2 Figure 2. Variation in the National Consumer Price Index and Inflation Trend Indicators... 2 Figure 3. Exchange Rates for Selected Economies... 3 SEPTEMBER 2010 IX

13 Figure 4. Main Items on Current Account... 3 Figure 5. Net International Reserves at BCB... 4 Figure 6. Open Unemployment Rate... 6 Figure 7. International Migratory Flows of Bolivians... 7 Figure 8. Bolivians Living Abroad... 8 Figure 9. Main Countries in Which Bolivian Migrants Reside... 8 Figure 10. Total Remittances... 9 Figure 11. Remittance Inflows and FDI in Bolivia Figure 12. Receipt of Remittances by Country Groups Figure 13. Originator Shares by Country of Residence Figure 14. Share in the Flow of Remittances by Country of Origin Figure 15. Remittance Flows by Place of Origin and Gender Figure 16. Distribution of Migration by Age Figure 17. Occupation of Bolivians at Time of Migration Figure 18. Originators and Income by Educational Level Figure 19. Income Uses by Bolivian Migrants in Spain Figure 20. Family Relationship between originators in Spain and Bolivian Beneficiaries Figure 21. Beneficiary Households by Income LeveL Figure 22. Distribution of Beneficiaries by Educational Level Figure 23. Percentage Distribution of Beneficiaries by Occupation Figure 24. Remittances Use Figure 25. Average Remittance Amount by Country of Origin Figure 26. Distribution of Remittances Received from Spain Figure 27. Frequency of Reception of Remittances from Spain Figure 28. International Remittance Service Providers Figure 29. Shares of Registered Institutional Providers in the Remittances Market Figure 30. Market Share of Registered and Unregistered Agents Figure 31. Remittances Market Shares by Type of Instrument Figure 32. Distribution of Remittances by Currency Figure 33. Distribution of Remittances by Currency and Disburser Figure 34. Distribution of Remittances by Means of Payment Figure 35. Dollarization of Deposits and Large and Small Value Foreign Currency Transactions Figure 36. Evolution of Commissions Charged by Remittance Originators Figure 37. Exchange Rate Differential by Type of Entity Figure 38. Evolution of the Monthly Exchange Rate LIST OF CHARTS Chart 1. Remittances Path through the Payments System Chart 2. Information Transfer Schematic X SEPTEMBER 2010

14 Chart 3. Transfer of Remittances Originating as Cash Deposits at Agencies Chart 4. Transfer of Remittances Originating as Non-Cash Deposits at Agencies Abroad Chart 5. Remittance Path through Cross-Border Systems Chart 6. Low Value Payment Systems Chart 7. Use of Cards for Sending Remittances Chart 8. Forms RF 1 and 2: Money Transfer Operators and Banks under Agreements with Remittance Companies Chart 9. Form for Money Orders, Bank Transfers, Cheques and other Types of Electronic Transfers SEPTEMBER 2010 XI

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16 1 ECONOMIC BACKGROUND AND THE REMITTANCES CONTEXT 1.1 MACROECONOMIC PERFORMANCE The real growth rate of Bolivia s gross domestic product (GDP) averaged 4.4% during , resulting in 2% growth in per capita GDP. The best performance was produced by hydrocarbon and industrial activities, especially the natural gas subsector. During , however, the level of economic activity was affected by both internal and external factors. On the external front, price movements in the majority of export products affected the performance of the mining, agricultural and industrial sectors. Furthermore, external demand was impacted by the devaluation of the Brazilian real in early 1999, the deceleration of the US economy in 2000 which worsened in 2001 and the lower rate of expansion in European countries. On the domestic front, the finalization of the gas sales contract with Argentina and the conclusion of the construction of the gas pipeline to Brazil stand out in During 2000 internal production and demand were affected by the eradication of coca plantations, the customs reform and social conflict. By 2001 these factors were reflected in reduced activity in commerce and manufacturing, as well as by weakness in private construction. The international context was favorable in 2003 in contrast to the previous year due to lower international inflation as well as lower interest rates on international markets. The internal environment, however, was characterized by weakness in private consumption and the low levels of gross capital formation, due mainly to the decline in foreign direct investment. GDP expanded by 4.2% in 2004 the highest growth rate since 1999 with a positive impact on per capita output. The GDP growth rate of 4.4% in 2005 responded to the performance of the extractive sector (hydrocarbons and mining). Exports of natural gas to Brazil and Argentina grew significantly that year and the hydrocarbon sector expanded by 15.1%. The 4.8% growth rate obtained in 2006 was due to greater exports of raw materials in response to the acceleration of growth in Asia (mainly China). During 2007, growth reaches 4.6% in spite of the adverse impact of the El Niño phenomenon on the agricultural sector. Internal demand was the main driving force for economic growth that year, on the strength of private consumption and public investment. Output continued to grow in 2008 at a 6.15% rate based mainly on internal demand and the expansion of the extractive sector. Metallic and non-metallic minerals (56.3%), construction (19%), retail (4.7%) and financial services (4.8%) were the sectors exhibiting the highest growth. On a separate note, with the enactment of Banco Central de Bolivia (BCB) Law No in 1995 the Central Bank acquired the primary responsibility for attaining stability in the internal purchasing power of the local currency. The BCB currently employs a regime of intermediate quantitative targets by setting ceilings on its net domestic credit. Said variable must evolve in keeping with the established inflation target. Since the central bank has no direct control over the intermediate target, monetary policy actions are implemented by means of an operational target consisting of the excess liquidity of the financial system, defined as excess bank reserves at the BCB. A target inflation range fluctuating between 3% and 5% was established in SEPTEMBER

17 FIGURE 1: GDP PER CAPITA, GROSS NATIONAL INCOME AND PRIVATE CONSUMPTION USD millions 1,800 1,651 1,707 % 7 1,600 1,400 1,200 1, , ,182 1, (e) Per capita GDP Per capita gross national disposable income 0 Source: Instituto Nacional de Estadística and Banco Central de Bolivia. Note: (e) stands for estimated values. FIGURE 2. VARIATION IN THE NATIONAL CONSUMER PRICE INDEX AND INFLATION TREND INDICATORS Source: Banco Central de Bolivia. Notes: IPC is the consumer price index; IPC-N is the core consumer price index; IPC-S is the underlying consumer price index and IPC-SA is the annualized underlying consumer price index. During inflation showed a rising trend, reaching 11.73% by December This was due mainly to supply shocks, imported inflation and the increase in aggregate demand. Despite measures adopted by BCB to reduce inflation, by December 2008 it had reached 11.85%. The exchange rate of the boliviano (BOB) with respect to the United States dollar (USD) exhibited an increasing trend from the second half of 2005 through October There has also been a notable widening of the margin between buying and selling rates, as a result of a 2 SEPTEMBER 2010

18 decision by the monetary and exchange authority aimed at contributing to re-monetize the economy. By end-2008 the nominal exchange rate had fallen to its lowest level in recent years with the local currency trading at 7.07 bolivianos per dollar. FIGURE 3. EXCHANGE RATES FOR SELECTED ECONOMIES Index: January 2003=100 Source: Banco Central de Bolivia. FIGURE 4. MAIN ITEMS ON CURRENT ACCOUNT USD millions 3,000 2,000 Exports Current Account Current unilateral transfers Imports Privante transfers Rents (net) 1, ,000-2,000-3, I/2006 II/2006 III/2006 IV/2006 I/2007 II/2007 III/2007 IV/2007 I/2008 II/2008 III/2008 IV/2008 I/2009 II/2009 III/2009 IV/2009 Source: Banco Central de Bolivia. Figure 3 shows the behavior of the exchange rates of Bolivia and other countries in the region for the period January 2006 through June It may be observed that Bolivia s exchange rate remained stable throughout this period. In contrast, the exchange rates of other countries SEPTEMBER

19 showed greater fluctuations: appreciation until September 2008 followed by depreciations and then new appreciations until end TABLE 1. BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION In USD millions 2005p 2006p 2007p 2008p I. Current account , , ,015.0 II.A Capital and financial account II.B Capital and financial account (excludes errors and omissions) Errors and omissions III. Total balance of payments (I + II.A) , , ,374.0 IV. Financing , , ,374.0 Source: Banco Central de Bolivia. (Economic Policy Department - External Sector Area). Note: p stands for preliminary data. In recent years, Bolivia s balance of payments is characterized as follows: a) an important rise in the value of merchandise exports; b) growing inflows of family remittances, although these fell with respect to gross domestic product (GDP) during 2008 and 2009; c) a high current account surplus in the balance of payments, following significant deficits until 2002; d) a moderate surplus on the capital and financial account, and e) strong accumulation of international reserves: by the end of 2008 reserves had reached USD 7,772 million, equivalent to 16 months of imports of goods and services. USD millions 11,000 FIGURE 5. NET INTERNATIONAL RESERVES AT BCB 9,000 Reserves Coverage 514.9% 511.2% 509.1% 500.6% 7,000 5,000 3, % 274.8% 440.6% 449.7% 412.5% 349.8% 347.9% 375.5% 1,000-1,000 I/2006 II/2006 III/2006 IV/2006 I/2007 II/2007 III/2007 IV/2007 I/2008 II/2008 III/2008 IV/2008 I/2009 II/2009 III/2009 Source: Own elaboration, based on BCB data. Note: coverage refers to the ratio of net international reserves to merchandise imports. 4 SEPTEMBER 2010

20 As a HIPC 1, Bolivia benefited from substantial debt relief between 1998 and Thus, in 1998 the Executive Boards of the International Monetary Fund (IMF) and the World Bank approved the so-called Completion Point for Bolivia in the HIPC 1 framework. From that point forward, the international financial community began effecting the relief that had been committed within the framework of said initiative. Furthermore, in 2000 the Boards of the World Bank and IMF authorized the Completion Point for Bolivia for the enhanced HIPC Initiative (HIPC II) and, subsequently, the so-called Post-HIPC which awarded additional debt relief. In 2005, 2006 and 2007 the country benefited from the Multilateral Debt Relief Initiative as debts totaling approximately 3 billion dollars with the IMF, World Bank and IADB were written off. TABLE 2. MACROECONOMIC INDICATORS p 2008p 2009p GDP (in BOB millions) 56,682 61,904 69,626 77,024 91, , , ,393 GDP (growth in constant BOB) Imports (in USD millions) a 1, , , , , , , ,622.7 Exports (in USD millions) a 1, , , , , , , ,922.7 Current account balance (as a percentage of GDP) Change in CPI (end of NA period) Average unemployment NA NA rate (of the EAP) Public sector deficit (as a NA percentage of nominal GDP) Interest rate (end of period) Nominal exchange rate (end of period) Source: Banco Central de Bolivia and Instituto Nacional de Estadística. Note: p stand for preliminary values. a corresponds to official figures. NA stands for non-available. 1.2 LABOR ENVIRONMENT AND THE MIGRATORY PROCESS Labor Environment During the first half of the previous decade the unemployment rate in Bolivia remained around 5.5% but began climbing in 2006 when it reached 8%. For several years the government has been implementing programs in order to allay the effects of unemployment. Thus, the Employment Emergency National Plan (PLANE) was introduced on September 15, 2001 with the aim of alleviating the impact of reduced income from job losses on the poorer population segments. PLANE is financed with international aid resources. Subsequently, the Social Protection Network (January 31, 2004) and the Program against Poverty and in Support 1 Highly Indebted Poor Country SEPTEMBER

21 of Social Investment (PROPAIS) were established, aimed at implementing small neighborhood and communal infrastructure and equipment projects Migratory Processes In recent years, particularly since 2003, there has been significant external migration of Bolivians. These flows contain a temporal South-South component, mainly to Argentina, where large numbers of migrants do not go to settle but simply cross the borders periodically to work and then return once the high employment demand season is over in this country. More recently there has been a change in destinations for Bolivian migration, with a pronounced trend towards Europe. % FIGURE 6. OPEN UNEMPLOYMENT RATE Percentage, (p) Open unemployment rate (OUR) Urban unemployment rate Unemployment rate for men Rural unemployment rate Unemployment rate for women Source: Instituto Nacional de Estadística y UDAPE. Note: p stands for preliminary data. As in most Latin American countries, there is no accurate official information on the number of nationals living abroad. This is for a variety of reasons, such as the presence of informal migration or the use of non-transparent channels for border crossing, that leave much of this migration beyond the reach of the local compilers. There are various estimates of the total number of Bolivians living abroad that place total migration by 2007 between 2 and 2.5 million. There are now some official initiatives, however, that seek a more precise quantification of the migratory phenomenon. The Foreign Ministry, for example, used its Embassies to compile information from the consular registries and calculated that in 2007 there were 1.7 million Bolivians living abroad.. If one takes into account the non-permanent migratory flows to bordering countries the Figure is probably higher and closer to the unofficial estimates. % Further detail may be found at 6 SEPTEMBER 2010

22 The data from the consular registries shows that in 2007 most Bolivians abroad were in South America, a region that hosts 64% of migrants (52% in Argentina), while 21% were in Europe, 14% in North America, and less than 1% in Central America and the Caribbean. It is not expected that migration to the United States will increase significantly in the future in view of the labor and migration restrictions imposed by this country. Other traditional migrant destinations such as Brazil and Chile have maintained their shares of 4% and 3%, respectively. One should note the growing importance of Spain as a destination for Bolivian migrants, while new countries such as Italy and England appear to be joining the list of destinations and have increased their shares in recent years to reach somewhat more than 1% in each case by ,000 FIGURE 7. INTERNATIONAL MIGRATORY FLOWS OF BOLIVIANS 400,000 Net (D-A) Arrivals Departures 300, , , , % flow % accumulated Arrivals Departures Net accumulated (left axis) Source: Own elaboration, with data from Instituto Nacional de Estadística. The above data from the consular registries shows that in 2007 most Bolivians abroad were in South America, a region that hosts 64% of migrants (52% in Argentina), while 21% were in Europe, 14% in North America, and less than 1% in Central America and the Caribbean. It is not expected that migration to the United States will increase significantly in the future in view of the labor and migration restrictions imposed by this country. Other traditional migrant destinations such as Brazil and Chile have maintained their shares of 4% and 3%, respectively. One should note the growing importance of Spain as a destination for Bolivian migrants, while SEPTEMBER

23 new countries such as Italy and England appear to be joining the list of destinations and have increased their shares in recent years to reach somewhat more than 1% in each case by EVOLUTION AND IMPORTANCE OF REMITTANCES Total remittances received in Bolivia over recent years have attained significant volumes, reaching USD 1,097.2 at the end of While there is an outflow of remittances abroad, these are diminishing as they represented 37.5% of inflows in 2002 but only 7% in In this sense Bolivia is predominantly a recipient country of remittances. FIGURE 8. BOLIVIANS LIVING ABROAD 1,200,000 1,173,467 1,000, , , , , ,720 Central America and the Caribbean 123, ,950 North America Europe South America Source: Consular registries, Foreign Ministry. Note: Preliminary figures at FIGURE 9. MAIN COUNTRIES IN WHICH BOLIVIAN MIGRANTS RESIDE Argentina Spain United States Brazil Chile Italy United Kingdom Other countries in Europe Switzertland Other countries in South America Canada Cuba Mexico Sweden Other countries in Central America and the Caribbean Source: Consular registries, Foreign Ministry. Note: Figures at , , , ,000 1,000,000 Number of Bolivians 8 SEPTEMBER 2010

24 Income from remittances has increased year after year and it is expected this trend will continue. Remittances grew from USD 83 million in 2002 to USD 1,021 million in Income from remittances reached USD 1,097 in 2008 despite the slowdown in the world economy and the retraction in migratory flows, especially to Spain where since the end of 2007 visas are required for Bolivians. The observed increases in remittance flows are both the result of the larger migration flows and of the change in migrant destinations, with a significant increase in the migration of Bolivians to Europe where the average remittance tends to exceed that coming from neighboring countries such as Argentina, Brazil and Chile. FIGURE 10. TOTAL REMITTANCES USD millions 1,400 % 1,200 1, Net flow Outflows Inflows Growth rate of inflows (right axis) Source: Banco Central de Bolivia. TABLE 3. TOTAL REMITTANCES IN RELATION TO OTHER ITEMS In percentages Total remittances: Income (in USD millions) ,020 1,097 1,022 GDP Net national income NA Household consumption Current income NA Exports Goods Services Imports Goods Services Total current transfers Foreign Direct Investment NP a International reserves Sources: Banco Central de Bolivia and Instituto Nacional de Estadística. Notes: a FDI was negative that year. NP stands for non-applicable and NA for non-available data. SEPTEMBER

25 Family remittance flows have become more relevant in recent years, particularly in certain regions of the world where they represent an important source of external finance. Total remittance flows to Latin America and the Caribbean grew by 6% in 2007 and represented 1.9% of regional GDP. For Bolivia the inflow of family remittances in 2007 represented 7.5% of GDP compared to 1.1% in Remittance flows to Bolivia have contributed to improving living standards of beneficiary families. In addition, remittances represent an important source of income on the current account of the balance of payments, representing 12.6% of current income and more than 84% of current transfers in They were also equivalent to 19.3% of total imports and 15% of exports of goods and services, while they were more than twice the inflow of foreign direct investment. Furthermore, as may be observed in Figure 12, remittances exhibit lower volatility than foreign direct investment inflows. In 2005 the relative importance of remittances with respect to GDP in Bolivia was comparable to that observed in middle income remittance receiving countries. By the end of 2007, however, there was a notable increase in this ratio for Bolivia, which greatly surpassed that for low income economies. USD millions 1,200 1, FIGURE 11. REMITTANCE INFLOWS AND FDI IN BOLIVIA Source: Banco Central de Bolivia. % of GDP FIGURE 12. RECEIPT OF REMITTANCES BY COUNTRY GROUPS Source: UDAPE. Total remittance inflows Bolivia 2007 Low income Bolivia 2005 Middle income OECD industrialized 10 SEPTEMBER 2010

26 1.4 MEASUREMENT AND PROVISION OF REMITTANCES SERVICES Changes to migratory legislation in the various host countries of Bolivian migrants should be reflected in the structure by country of origin of remittance inflows. In particular one would expect a sustained increase in the share of flows from Europe especially countries such as Spain. It is estimated that in 2008 approximately 20,000 Bolivians obtained documents allowing them to live and work legally in Spain. In this context, certain associations such as Bolivia Spain Cooperation (ACOBE) are making efforts to allow for the legalization of Bolivians in the latter country by providing the administrative social insertion procedures at no cost to those who arrived in 2004 and for whatever reason were unable to regularize their situation in 2005 and thus remain undocumented in Spain. The Spanish Naturalization Act establishes as requisites for social insertion that the foreigner have resided continuously for at least three years in the country, have a current employment contract, have no criminal record either in Spain or Bolivia, and have relatives living in Spain or be able to provide a social insertion report from the City Council. It is worth mentioning that Supreme Decree of October 15, 2008 establishes and promotes measures so that Bolivian citizens residing in Spain and Italy under irregular migratory status may obtain official documents such as a passport and certificates of birth, marriage, non-inscription of marriage and criminal records. In addition, the National Accord for Bolivians Abroad of December 18, 2008 consolidates a permanent dialogue mechanism on migratory matters, with policies catering to and supporting Bolivian citizens residing abroad. SEPTEMBER

27 2 INSTITUTIONAL ASPECTS 2.1 GENERAL LEGAL FRAMEWORK The Table 4 summarizes the current legislation governing the remittances market in Bolivia. TABLE 4. REMITTANCES LEGISLATION IN BOLIVIA, AS OF JULY 2008 Legislation Objective Date Decree Law Bolivian Code of Commerce: establishes mechanisms for the creation and operations 25/02/1977 of commercial entities in Bolivia. Law 1182 Investment Law, establishing a free Foreign Exchange market. 17/09/1990 Supreme Decree Regulates the creation and establishment of Private Financial Funds. 12/05/1995 (DS) Law 1670 Banco Central de Bolivia Act, establishing the functioning, organization responsibilities, obligations and rights of the Monetary Authority. 31/10/1995 DS General Law for Cooperatives Societies, regulating the functioning of Credit 13/12/1996 Cooperatives. DS Rules governing the Financial Investigations Unit according to Law 1768 modifying 31/07/1997 the Penal Code. Law 1864 Property and Popular Credit Law, establishing government support for broadening 15/06/1998 coverage and services by entities such as Cooperative and others. Law 1488 Text as amended of Law Nº 1488 of Banks and Financial Entities, modified by Law No. 25/04/ of December 20 th, Law 3446 Financial Transactions Tax (ITF) Law. 21/07/2006 Source: Own elaboration, based on Bolivian legislation. There is no specific regulation of the international remittances market in Bolivia that establishes a legal framework for these activities. There is, however, legislation corresponding to other entities and activities directly related to international remittances. For example, if entities engaged or desiring to engage in cross-border remittance transactions belong to the supervised financial intermediation system, they are governed by the same law which regulates bank and financial entities. Other players, such as specialized money transfer firms and paying agents that do not form part of the financial market, are unregulated with respect to their operations and activities, except to the extent they must comply with general regulations regarding the provisions they must make as in the case of any other business engaging in general commercial activity. In this sense, in Bolivia there is no prohibition of engaging in activities related to remittances and thus this activity may be engaged in by any kind of entity, except that if it is supervised by any Supervisor it must comply with the rules and regulations set down by the controlling agency. By law the Banco Central de Bolivia is the only monetary and exchange authority in the country, setting down policies for the payments system and with powers to regulate financial cross-border transactions. Although to date there has been no regulation of remittances as part of the small value cross-border payments system, the BCB is contemplating the definition of a regulatory framework for these activities in the short term, pending the approval of a Payments Systems Law which is currently under parliamentary discussion. 12 SEPTEMBER 2010

28 2.1.1 Financial Regulations As participants in the remittances market, those financial intermediaries supervised by the Superintendencia de Bancos y Entidades Financieras (SBEF, Bolivian banking and financial entities supervision agency) are subject to the provisions of Law 1488 which indicates in its article 5 that No natural or legal person may habitually undertake in the territory of the Republic those activities pertaining to financial intermediaries and supporting financial services, described in said Law, including acts of commerce set out in clauses 4, 5, 8, 12 and 20 of article 6 of the Code of Commerce, without prior authorization for incorporation and operation issued by the Supervisory Agency with the formalities of this Law. In this case, articles 38 and 39 of the above law specify the permitted transactions, which include remittances within the country and abroad. Article 25 of Law 1864 Property and Popular Credit Act, which refers to the promotion of cooperatives, indicates in clause c) that the State must support the broadening of services and coverage by financial intermediation cooperatives as set out in the Third Title of this Law, thus allowing cooperatives to widen their financial services to include the payment of remittances. Similarly, Supreme Decree sets out those transactions that may be undertaken by private financial funds, including remittances Payments Systems Regulations Article 54, clauses b) and o) of Law 1670 establish that it is an attribution of the Board of BCB to regulate the administration of payments systems among authorized financial intermediaries, and to approve, modify or interpret the BCB s Statutes and Regulations. Within this framework, RD Nº 070/2001 created the Sistema de Pagos de Alto Valor (SIPAV, the large value payments system) and approved the corresponding Regulations. In 2004 these regulations were updated by RD 166/2004, adapting them to the new conceptual design and developments in information technology. This Resolution regulates the functioning and transactions of the SIPAV and establishes the rights, obligations and responsibilities of the administrator and the participants. Subsequently in August 2007 the Board of the BCB, via RD 109/2007, approved the inclusion of non-bank entities supervised by the SBEF among SIPAV participants. In this way the coverage of electronic payments services was expanded to include these entities. In February 2008 the new Regulations on Electronic Clearing House and Clearing and Settlement Services came into force, with the aim of regulating the operations of electronic clearing houses and establishing the general framework for the clearing and settlement of payments instruments. Important future changes are anticipated in legislation relating to payments systems, given that the BCB has submitted a Payments Systems Bill which, among other aspects, provides BCB with the powers to supervise and control those unregulated entities which form part of those payments systems covered by the Law, which will eventually comprise remittance transfer and payment systems. Once the bill is enacted, BCB plans to implement the regulations required for the remittances market with respect to the registration of participants, the requisites for providing these services and the control of financial risks. SEPTEMBER

29 2.1.3 General Norms and Regulations for the Foreign Exchange Market in Bolivia Law 1182 guarantees the freedom of foreign exchange transactions, with no restrictions on the inflow or outflow of capital or on the remittance abroad of dividends, interest and royalties on the transfer of technology or other commercial concepts. All repatriations or transfers are subject to the payment of specific taxes. Article 3 of Law 1670 establishes in turn that BCB shall formulate the general policies applicable to monetary, foreign exchange and payment system matters in the pursuit of its objectives. Its article 14 indicates that BCB shall seek to strengthen International Reserves so as to ensure the normal operation of Bolivia s international payments systems, for which purpose article 19 defines BCB as responsible for establishing the exchange rate regime and executing exchange rate policy, regulating the convertibility of the Boliviano with respect to the currencies of other countries, and the procedures for determining the exchange rates for the local currency which must be published daily. Finally, article 20 empowers BCB to regulate cross-border financial transactions undertaken by individuals and public or private entities. In this context BCB established since December % commission on all transfers of funds abroad by financial entities through the monetary authority s accounts. Board Resolution Nº152/2007 of December 11, 2007 established that, as from January 2, 2008, BCB would charge no commission on remittances of USD 1,000 or less that were channelled through the national financial system. To this effect External Circular SGRAL Nº 003/2008 laid out the procedure to obtain the exemption as follows: Remittances to customers of financial entities shall not be subject to the 1% commission charged by BCB for transfers of funds from abroad, for payment of remittances of USD 1,000 or less received from abroad for their customers on a fifteen-day frequency or lower. To this effect the financial entity may transfer funds from abroad to the BCB account at Standard Chartered Bank, New York, consolidating all payments made and requesting the transfer of funds from abroad via BCB, attaching a list with the individual details on remittances sent during the period with the following information: i) transaction date; ii) transaction code, and iii) USD amount. The financial entity must certify that the final beneficiaries were not charged the 1% commission. With this information and the deposit on the BCB account abroad, the corresponding amount shall be credited to the financial entity s current and reserve requirement account without deducting the 1% commission. Remittances through money transfer operators are not subject to the 1% BCB commission of the transfer of funds from abroad, corresponding to the amounts credited to the accounts of the money transfer operators, so long as they are channeled through accounts declared to BCB. For this purpose, BCB sends a note to the financial entity specifying the legal name and account number of the money transfer operator authorized to engage in transactions exempted from the payment of the commission. The financial entities process the transfers of funds from abroad for payment into the accounts notified by BCB, which are exempt from the 1% commission. The commission-exempt amount on each global transfer is communicated by note to the money transfer operator by the financial entity, and copied to BCB. Every fifteen days or more, the financial entity may transfer funds from abroad to the BCB account at Standard Chartered Bank, New York, consolidating all payments made into the accounts notified by BCB. The request for transfer of funds from abroad must include details on the global amounts 14 SEPTEMBER 2010

30 not subject to the 1% charge reported by each money transfer operator. With this information and the payment into the BCB account abroad, the corresponding amount is credited to the financial entity s current and reserve account, without deducting the commission. The detailed information on payments made to final beneficiaries by money transfer operators must be sent directly by these companies to BCB, with no responsibility borne by the financial entities Tax regulations related to remittances As from 2006 Law 3446 established a temporary (36 month) Tax on Financial Transactions (ITF) setting a 0.15% levy on the value of all transactions with foreign currency accounts and domestic currency inflation-indexed accounts, while exempting all transactions in current and savings accounts (in foreign or inflation-indexed domestic currency) with balances below USD 2,000 or equivalent as well as the payment of remittances from abroad. This ITF was preceded by Law 2646 of 2004 which also had a temporary nature (24 months) Main information reporting requirements Banks and other financial intermediaries are required to report directly to the BCB all information of a monetary nature and in their capacity as creditors that the latter may request, as well as any data on the financial situation of an entity that the President of the BCB may directly request. Article 40 of this Law indicates that the SBEF is obliged to provide BCB with all the periodic information it receives from banks and other entities in the financial system. At the request of the BCB president, the bank supervisor must provide all detailed information on the financial and net worth situation of any given financial entity, including any on-site inspection reports. Article 42 of Law 1670 in turn establishes that BCB must periodically publish statistical and economic information on the economic and financial variables comprising its field of influence Anti-Money Laundering Regulations Similarly, there are other public entities with the power to compile information on participants in the remittances market on an obligatory basis, among them the Financial Investigation Unit (UIF) which by virtue of Law 1768 and Supreme Decree receives information on transactions undertaken by all entities under its control. In order to ensure universal coverage of obligated entities, the UIF issued Instruction 004/2008 during the second quarter of 2008 according to which all entities providing auxiliary financial services comprised by the application of Law 1768 as from May 2008 and engaging in the payment of remittances such as exchange houses, money transport companies and courier services must comply with the legal norms. To this end they must designate a Compliance Officer as the nexus between the company and UIF to ensure the sending of the suspicious transaction reports (ROS) when called for. To coordinates these reports, companies providing auxiliary financial services such as the above must provide UIF with the corresponding documentation on their incorporation and legal status, together with their tax identification number. SEPTEMBER

31 2.2 REGULATION, SUPERVISION AND OVERSIGHT AUTHORITIES Role of the Banco Central de Bolivia The legal basis for the Banco Central de Bolivia is Law 1670 which entrusts it with the objective of seeking stability of the internal purchasing power of the domestic currency. Its main functions are to: a. Establish the exchange rate regime and implement exchange rate policy. b. Regulate cross-border financial transactions undertaken by individuals and public or private entities. c. Implement monetary policy and control the money supply. d. Act as financial agent of the government. e. Promote the strengthening of international reserves. f. Publish statistical and economic information on the economic and financial variables comprised in its sphere of activities. The latter function establishes BCB as the official compiler of statistics on family remittances in Bolivia Superintendencia de Bancos y Entidades Financieras In 1987, in order to regulate the financial system, the government of Bolivia issued Supreme Decree 21660; additionally this legal diploma awarded independence to the SBEF with complete powers in the deployment of its attributes and responsibilities. Supreme Decree established: The restoration of the autonomy and attributes of the Bank Supervisory Agency, providing that within six months of the appointment of the Bank Supervisor the agency should reassume with complete powers those functions and attributes granted by the General Banking Law. A well-defined framework for private, national and foreign banking activities. A regulated financial structure for the banking system. The creation of controls and penalties for the financial system. The regulation of state banking activities and the liquidation of Banco de la Vivienda S.A.M. The need for an agreement with foreign private creditors on the treatment of the country s external debt, with a view to its conversion. The six month operational deadline was brought forward by a new Supreme Decree (DS) No of March 8, 1988 and its Charter Law were approved on May 26, 1989 by DS The latter establishes that the objective of the SBEF is to comply with and enforce all laws, decrees and regulations relating to the national financial system, to monitor the stability and solvency of the entities therein, and to ensure the prudent management of the public s deposits and savings in order to control the development of an appropriate assignment of credit resources to the various sectors of economic activity in the country. 16 SEPTEMBER 2010