1. BOLIVIA PENSION FUND MANAGEMENT From Public to Private H. von Gersdorff

2. THE OLD DEFINED-BENEFIT PENSION SYSTEM * Of a basic pension system, administered by a public agency (FOPEBA) * 38 Complementary Funds, including the eight social security funds of public universities. IN 1996, THE SYSTEM CONSISTED FOPEBA coverage: 4 Approximately 300,000 active affiliates, of which about 65% were public sector employees. 4 Retirees added up to roughly 120,000. 4 Affiliates as a share of the total (urban) economically active population in 1996 were roughly 12% (22%).

3. MEMBERS BY MANAGING INSTITUTION NUMBER OF INDIVIDUALS UP TO DEC. 1995 ENTITIES 14.000 2.552 12.505 7.668 306.570 306.698

4. MINIMUMAVERAGEMAXIMUM CONTRIBUTION RATES (*)8,9 %14,5 %22 % Employee 2,5 %7,0 %13,0 % Employer4,5 %6,0 %11,0 % State1,5 %1,5 %1,5 % $US MILLIONS% GDP (*) COSSMIL IS NOT INCLUDED Annual Pension Amount 250 3,6 % Annual Contributions 205 3,0 % Reserves 114 1,6 % Deficit (NPV 96) 3.175

5. THE NEW DEFINED-CONTRIBUTION PENSION SYSTEM CONTRIBUTIONS 12.5%, WHICH INCLUDES: ò Closed the old pension system and ò Established a new pension system based on individual capitalization accounts. LAW 1732 ENACTED ON NOVEMBER 1996 : AFFILIATION 4 All current contributors to the old pension system were automatically transferred to the individual capitalization system on May 1, 1997 è to be deposited in each individual’s account. è insurance premium. è for the AFPs’. 10% 2% 0.5%

6. ¶ Corporations Established in Bolivia. · 1.000.000 SDRs. ¹ Infrastructure. FUNDS ADMINISTRATION GIVEN BY THE SUPERINTENDENCY LICENSE AFP CONSTITUTION AFP PUBLIC INTERNATIONAL BIDDING CompetitiveTransparencyEficiency AFP ¶ Separate Equity · Prudent Investment Criteria ¸ Efficient Administration ¹ Quality Services WHO MANAGES THE SYSTEM?

7. MANAGEMENT Individual Capitalization accounts and Collective Capitalization Fund managed by two private pension fund administrators (AFPs). COMPETITION IN THE MAYOR CITIES PLANNED FOR JANUARY 1º, 2000. La Paz Cochabamba Santa Cruz El Alto Initially these AFPs share the market in the four major cities of the country. and Have regional monopolies in their area of exclusivity. THE MARKET WILL OPEN TO NEW ENTRANTS. IN MAY 2002

8. ò Instead of privatizing Bolivia held bidding for 50% of shares and management control of enterprises. Bidders bid amount to be invested in enterprise. ò 50% of shares of Government transferred to Bolivians older than 21 in 1995. Shares to be managed by AFP in Collective Capitalization Fund and used to pay old age benefit at age 65. CAPITALIZATION

9. Strategic Partner Capital Injections by Enterprise (Millions US$)

10. ò Transaction in markets authorized by the regulatory framework and the Pensions Superintendency. ò Only in securities authorized by the Pension Law or Supreme Decree issued by the Executive. ò Diversification requirements through limits by categories of assets according to their risk rating. ò Limits by issuer and groups of issuers. ò Limits for foreign investments established by the board of directors of the Central Bank, between 10 % and 50 % of the ICF. INVESTMENT

11. TRANSITION Reduces the net present value of the Government liabilities. Gives a clear signal about the commitment to the reform. Simplifies the process of reform. Is equitable among all sectors of the working population. Makes clear that the members are the owners of the resources in the system. THE OLD PENSION SYSTEM CLOSES COMPLETELY AT THE START OF THE NEW PENSION SYSTEM. BENEFITS THE NEW SYSTEM INCORPORATES ALL WORKERS, WITHOUT EXCEPTIONS FOR THE PRESIDENT, MILITARY, POLICE, OIL WORKERS, POLITICIANS, JUDICIARY ETC.

12. % of GDP US$ mn. (1996) FINANCING REQUIREMENTS ACTUAL FINANCING REQUIREMENTS YEAR199019961997199819992000 % OF GDP 0.72.13.23.63.74.3 PLANNED FINANCING REQUIREMENTS YEAR1997199819992000200720272037 2.5 170 4.1 289 3.9 285 3.3 252 1.33 134 0.86 141 0.18 72

13. THE OBJECTIVES FOR THE BIDDING PROCESS WERE TO ATTRACT A LARGE NUMBER OF REPUTABLE AND EXPERIENCED PENSION FUND MANAGERS, TO CREATE A COMPETITIVE PROCESS AND TO SELECT THE BEST POSSIBLE AFPs. Asset Administration At least US$10 billion in assets under management, at least 20 years of portfolio management, and at least 10 years of experience as an international portfolio investor. THE MAIN CRITERIA TO QUALIFY WERE: SELECTION OF THE AFPs

14. Records administration and maintenance At least 100,000 accounts, and 5 million transactions a year. Experience in establishing new systems At least 100,000 clients that did not have previous experience with a retirement plan THE MAIN CRITERIA TO QUALIFY WERE: SELECTION OF THE AFPs

15. Argentaria (Spain) – Invesco (USA) – AFP Magister (Chile) Banco Bilbao Vizcaya (Spain)Banco Bilbao Vizcaya (Spain) Citibank (USA)Citibank (USA) Dresdner Bank AG – Allianz AG Holding (Germany)Dresdner Bank AG – Allianz AG Holding (Germany) Franklin Templeton (USA) – AFP Provida (Chile)Franklin Templeton (USA) – AFP Provida (Chile) Goldman Sachs Assets Mgt. – Financial Administrative Services (USA)Goldman Sachs Assets Mgt. – Financial Administrative Services (USA) JP Morgan Asset Management (USA) – Aetna (USA) – AFP Santa María (Chile)JP Morgan Asset Management (USA) – Aetna (USA) – AFP Santa María (Chile) Morgan Stanley Asset Management (USA)- Cruz Blanca (Chile)Morgan Stanley Asset Management (USA)- Cruz Blanca (Chile) Swiss Bank Corp Brinson (Switzerland) – AON Consulting (USA)Swiss Bank Corp Brinson (Switzerland) – AON Consulting (USA) COMPANIES THAT QUALIFIED WERE: SELECTION OF THE AFPs

16. THE LOWEST BIDDER WAS ONE OF THE SELECTED AFP AND THE NEXT LOWEST BIDDER THAT MATCHED THE LOWEST BID WAS THE SECOND SELECTED AFP. p Asset management fee p fee for benefits payment. and p 0.5% of the affiliates salary. ECONOMIC BIDDING WAS ASSESSED ON ONE VARIABLE “AVERAGE MONTHLY MANAGEMENT FEE PER ACCOUNT”. AFP THIS FEE WAS A WEIGHTED AVERAGE OF:

17. ò Three managers submitted bids. ò Two selected managers agreed to charge a remarkably low “average monthly management fee per account” of $2.37, that is equivalent to about 1% of the average affiliate’s salary (0.5% of worker’s salary and 0.228% of first US$1 bn. in assets, 0.014 of US$1 – 1.2 bn., 0.0067 of US$1.2 – 1.5 bn. ). ò Securities Custody Commission of 0.2% of portfolio and trading costs are charged against the managed funds. ò The two winning bidders, BBV and Argentaria have an exclusive concession until 2002. ò Competition for the market instead of competition in the market resulting in competitive fees. ò Capitalization and pension assets that the AFP manages are kept by a global custodian. SELECTION OF THE AFPs

18. RESULTS u AFPs have 655,321 members (June 2001), of which 90% contribute, surpassing the targets set in the contract with the AFPs. Of the 614,600 fully validated accounts 229,605 are in the public sector and 355,605 in the private sector. u Process to transfer disability and survivorship insurance from AFPs to insurance companies has been launched and will be carried out through an international bidding process. u The Superintendency is operating and regulations are being issued and implemented.

19. Evolution of Number of AFP Affiliates

20. Number of Affiliates in each AFP, Jul. 1997-Apr. 2001 (as % of total affiliates )

21. RESULTS u Total contributions of Bs 5,193,790, of which 4.539.935.156 (87.41%) are fully credited to individual accounts and of which u 3.140.846.224 for pensions, u 625.942.336 professional risks, u 593.417.832 common risk, u 157.661.820 for fees u Value of investments is Bs5,823,261,872 of which 75% in public paper

22. Fund Value by AFP, June 1997-April 2001 (in Millions $US)

23. PORTFOLIO Instrum.Book Value US$ mn Yield in % Matur. in days Market Value Days to maturity Share portfolio Treasury Bonds (3) 5738.05,5046022,96263.32 Treasury Bonds (2) 758.341,211768487.98 Bonds 6010.72,8986014786.39 CD w/o coupons 968.6959510626811.11 CD with coupons 549.84904574085.99 Liquid 43 4.48 Total 908 951 100

24. Profits per Affiliate (in $US )

25. THE CONTRACT u The contract is what the companies are really bidding about. It is important to envision contingencies. In competition within the market there is more flexibility to address contingencies. In a bidding the country Is bound by the terms of the contract. u What happens when the contract comes to an end? How do you select the new managers? u Dispute resolution mechanisms.

26. THE CONTRACT Renegotiations: (i) minimum number of offices in each region of the country, (ii) target indicators and penalties if targets are not met, (iv) prohibition on merger with other AFPs or with any other entity not explicitly authorized by the Superintendent, (v) establishment of a benchmark for investment performance and (vi) a prohibition on delegating or entering into contractual obligations without the authorization of the superintendent. Required to sell one AFP when Argentaria and BBV merged in Spain