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Bolivia Tightens Regulatory Grip on Financial Institutions

La Paz, Bolivia - In a bid to strengthen its control over the country’s financial sector, the Bolivian government has enacted a raft of new regulations aimed at promoting transparency, stability and economic growth.

Financial Services Law: A Key Instrument for Control

The Financial Services Law, which came into effect in 2013, created a Financial Stability Board comprising key stakeholders including:

  • The Central Bank
  • The Ministry of Economy and Public Finance
  • The Supervisory Authority Financial System (ASFI)

Responsibilities of the Financial Stability Board

  • Issuing decrees and resolutions to regulate the banking sector
  • ASFI monitors and supervises financial institutions

Powers of the Government

The government has also given itself a range of powers to intervene in the management of financial institutions, including:

  • Requiring them to offer credit to sectors deemed strategic by the state
  • Fixing maximum interest rates that banks can charge
  • Determining loan repayment grace periods
  • Setting the type of collateral that can be used against a loan

Punitive Measures

The law also gives the government the power to seek punitive punishment for financial institutions that fail to comply with regulations.

Increased Taxes on Bank Profits

In 2016, the Bolivian government increased taxes on bank profits by three percent, bringing the total tax rate to above 50 percent in some cases. Foreign banks are also subject to a 12.5 percent remittance tax, increasing the effective tax rate to over 60 percent.

Financial Transaction Tax

The government has also introduced a financial transaction tax (ITF) of 0.03 percent on all bank transfers in US dollars within and leaving the country. Additionally, any banking transaction above $10,000 in one operation or transactions totaling $10,000 in three consecutive days requires the filing of a form stating the source of funds.

Foreign Exchange Regulations

The government has also introduced regulations governing foreign exchange transactions, including:

  • Requiring hard-currency cash transfers equal to or greater than $10,000 to be registered with the customs office
  • Transactions above $500,000 must be authorized by the Ministry of Economics and Public Finance through a ministerial resolution

Impact on Foreign Banks

The new regulations are likely to have significant implications for foreign banks operating in Bolivia, which may find it increasingly difficult to remit profits from the country due to the high tax rates. The government’s increased control over financial institutions is also likely to make it more challenging for foreign banks to operate in the country.

Conclusion

The Bolivian government’s efforts to strengthen its control over the financial sector are part of a broader strategy to promote economic growth and stability in the country. While the new regulations may present challenges for foreign banks, they are likely to benefit local financial institutions and contribute to the development of Bolivia’s economy.