Nicaragua - Highway Project : Loan 0045 - Loan Agreement - Conformed

LOAN NUMBER 45 NI Loan Agreement (Highway Project) BETWEEN REPUBLIC OF NICARAGUA AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED JUNE 7, 1951 PRESS OF BYRON S. ADAMS, WASHINGTON Loan 01greemeut AGREEMENT, dated June 7, 1951, between REPUBLIC OF NICARAGUA (hereinafter called the Borrower) and INTER- NATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). ARTICLE I The Loan SECTION 1.01. The Bank agrees to lend to the Borrower, on the terms and conditions hereinafter in this A.reement set forth or referred to, the sum of three million five hun- dred thousand dollars ($3,500,000), or the equivalent in currencies other than dollars. SECTION 1.02. The parties to this Agreement accept all the provisions of Loan Regulations No. 3 of the Bank dated December 6, 1950 (hereinafter called the Loan Regula- tions), a copy of which has been furnished to the Borrower, with the same force and effect as if they were fully set forth herein. SECTION 1.03. The Bank shall open a Loan Account on its books in the name of the Borrower and shall credit to such Account the amount of the Loan. The amount of the Loan may be withdrawn from the Loan Account as pro- vided in, and subject to the rights of cancellation and sus- pension set forth in, the Loan Regulations. Copies of forms of withdrawal applications have been delivered to the Borrower. SECTION 1.04. The Borrower shall pay to the Bank a commitment charge at the rate of three quarters of one per cent (% of 1%) per annum on the principal amount of the Loan not so withdrawn from time to time. For the pur- 4 poses of Section 2.02 of the Loan Regulations the term "Effective Date" shall mean the Effective Date or August 15, 1951, whichever shall be the earlier, or such other date as shall be agreed upon between the Borrower and the Bank. SECTION 1.05. The Borrower shall pay interest at the rate of four and one-eighth per cent (41/8 o) per annum oin the principal amount of the Loan so withdrawn and out- standing from time to time. SECTION 1.06. Interest and commitment charge shall be payable semi-annually on March 15 and September 15 in each year. SECTION 1.07. The Borrower shall repay the principal of the Loan in accordance with the amortization schedule set forth in Schedule 1 to this Agreement. ARTICLE II Use of Proceeds of the Loan SEcTION 2.01. The Borrower shall cause the proceeds of the Loan to be applied exclusively to the cost of goods which will be required for the carrying out of the Project as described in Schedule 2 attached hereto. The specific goods to be purchased out of the proceeds of the Loan shall be determined by agreement between the Bank and the Borrower, and the list of such goods may be modified from time to time by agreement between them. SECTION 2.02. The Borrower shall cause all goods pur- chased in whole or in part with the proceeds of the Loan to be used in the territories of the Borrower exclusively in the carrying out of the Project. SECTION 2.03. All contracts entered into by the Borrower for the carrying out of the Project or for the purchase of 5 goods to be used in the carrying out of the Project shall be in form and substance satisfactory to the Bank. ARTICLE III Bonds SECTION 3.01. The Borrower shall execute and deliver Bonds representing the principal amount of the Loan as provided in the Loan Regulations. SECTION 3.02. The Minister of Finance and Public Credit (Ministro de Hacienda y Credito P,iblico) of the Bor- rower and such person or persons as he shall appoint in writing are designated as authorized representatives of the Borrower for the purposes of Section 6.12 of the Loan Regulations. ARTICLE IV Partieilar Covenants SECTION 4.01. (a) The Borrower shall cause the carrying out of the Project to proceed with due diligence and effi- ciency and in conformity with sound engineering practice. (b) The Borrower shall cause to be furnished to the Bank, promptly upon their preparation, the plans for the Project and any material modifications subsequently made therein. (c) The Borrower shall cause to be maintained books, accounts and records adequate to identify the goods pur- chased in whole or in part with the proceeds of the Loan, to disclose the end-use thereof in the Project, to record the progress of the Project and to reflect the operations and transactions of the Borrower in connection with the Project. SECTION 4.02. The Borrower and the Bank will cooperate fully to assure that the purposes of the Loan shall be ac- complished. To that end, each of them shall furnish to the other all such information as it shall reasonably re- 6 quest with regard to the general status of the Loan. On the part of the Borrower, such information shall include information with respect to the Project and to financial and economic conditions in the territories of the Borrower and the international balance of payments position of the Bor- rower. The Borrower and the Bank will from time to time exchange views through their representatives with regard to matters relating to the purposes of the Loan and the maintenance of the service thereof. The Borrower will promptly inform the Bank of any condition that shall in- terfere with, or threaten to interfere with, the accomplish- ment of the purposes of the Loan or the maintenance of the service thereof. If the Borrower or any of its political subdivisions or any Agency shall propose to incur any sub- stantial external debt, the Borrower will inform the Bank of the proposal and, before the taking of the proposed ac- tion will afford the Bank all opportunity which is reason- ably practicable in the circumstances to exchange views with the Borrower with respect thereto; provided, how- ever, that the foregoing provisions of this sentence shall not apply to: (i) the incurring of additional external debt through utilization, in accordance with the terms of any credit established prior to the dale of this Agreement, of any unused amounts available under such credit; (ii) the entering into international payments or similar agree- ments the term of which is not more than one year and under which the transactions on each side are expected to balance over the period of the agreement; or (iii) the in- curring in the ordinary course of business of any indebted- ness maturing not more than two years after its date. The Borrower will afford all reasonable opportunity for ac- credited representatives of the Bank to visit any part of the territories of the Borrower for purposes related to the Loan. SECTION 4.03. It is the mutual intention of the Borrower and the Bank that no other external debt shall enjoy any priority over the Loan by way of a lien on governmental 7 assets. To that end, the Borrower undertakes that, except as the Bank shall otherwise agree, if any lien shall be cre- ated on any assets of the Borrower or any of its political subdivisions or any Agency as security for any external debt, such lien shall ipso facto equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan and the Bonds, and that in the crea- tion of any such lien express provision shall be made to that effect. However, this Section shall not apply to: (i) any lien created on any property at the time of purchase thereof solely as security for the payment of the purchase price of such property; (ii) any lien on commercial goods to secure debt maturing not more than one year after its date and to be paid out of the proceeds of sale of such com- mercial goods; or (iii) any lien to secure debt incurred in the ordinary course of banking business and maturing not more than one year after its date. SECTION 4.04. The principal of, and interest and other charges on, the Loan and the Bonds, shall be paid without deduction for and free from any taxes imposed by the Borrower or any taxing authority thereof or therein and free from all restrictions of the Borrower, its political sub- divisions or any Agency. The foregoing provision of this Section shall not apply to taxes on payments under any Bond to a holder thereof other than the Bank when such Bond is beneficially owned by an individual or corporate resident of the Borrower. The Loan Agreement and the Bonds shall be free of any issue, stamp or other tax im- posed by the Borrower or any taxing authority thereof or therein. SECTION 4.05. The Borrower shall satisfy the Bank that it has made adequate arrangements to insure the goods financed with the proceeds of the Loan against risks inci- dent to their purchase and importation into the territories of the Borrower. 8 SECTION 4.06. The Borrower will cause all machinery and equipment purchased with the proceeds of the Loan to be adequately maintained and repaired, and will cause suit- able workshops to be maintained in suitable places for that purpose. SECTION 4.07. The Borrower will cause the roads con- structed with the proceeds of the Loan to be adequately maintained and from time to time will cause all necessary repairs thereof to be made, all in accordance with sound engineering standards. SECTION 4.08. The Borrower will provide the currency of the Borrower required for carrying out the Project in accordance with the following plan: (a) not less than 2,600,000 c6rdobas will be provided out of the funds of the Recargos Cambiarios established pursuant to a Law of the Borrower dated November 9, 1950, entitled Ley Reguladora de Cambios Inter- nacionales. (b) the remainder will be provided by means of specific budget appropriations in annual amounts, satisfac- tory to the Bank, which shall be sufficient to meet the estimated expenditures for the Project payable in c6rdobas during the year covered by each such appropriation. SECTION 4.09. The amounts referred to in (a) and (b) of Section 4.08 will be deposited into accounts to be opened by the Borrower in the Banco Nacional de Nica- ragua. which will be available only for the purpose of meet- ing expenditures required for the Project and the Borrower will maintain in such accounts at all times an aggregate amount, satisfactory to the Bank, sufficient to meet the esti- mated expenditures for the Project payable in c6rdobas during the next six months period. 9 ARTICLE V Remedies of the Bank SECTION 5.01. If any event specified in paragraphs (a) or (b) of Section 5.02 of the Loan Regulations shall occur and shall have continued for a period of thirty days or if an event specified in paragraph (c) of Section 5.02 of the Loan Regulations shall occur and shall have continued for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower, then at any subsequent time during the continuance thereof, the Bank, at its option, may declare the principal of the Loan and of all the Bonds then outstanding to be due and payable immediately, and upon any such declaration such principal shall become due and payable immediately, anything in this Agreement or in the Bonds to the contrary notwithstanding. ARTICLE VI Miscellaneous. SECTION 6.01. The Closing Date shall be December 1, 1954. SECTION 6.02. The following addresses are specified for the purposes of Section 8.01 of the Loan Regulations: For the Borrower: Gobierno de Nicaragua Ministerio de Hacienda y Credito Piblico Palacio Nacional Managua, Nicaragua For the Bank: International Bank for Reconstruction and Development, 1818 H Street, N. W., Washington 25, D. C. 10 SECTION 6.03. The Minister of Finance and Public Credit (Ministro de Hacienda y Credito Piblico) or the Minister of Development and Public Works (Ministro de Fomento y Obras Plblicas) of the Borrower in office at the time in question is designated for the purposes of Section 8.03 of the Loan Regulations. SECTION 6.04. The date specified for the purposes of Section 9.04 of the Loan Regulations shall be August 15, 1951. SECTION 6.05. Wherever used in this Agreement the term Agency shall mean any agency or instrumentality of the Borrower or of any political subdivision of the Bor- rower and shall include any institution or organization which is owned or controlled directly or indirectly by the Borrower or by any political subdivision of the Borrower or the operations of which are conducted primarily in the interest of or for account of the Borrower or any political subdivision of the Borrower. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names and delivered in the District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF NICARAGUA By RENA SCHICK Authorized Representative INTERNATIONAL BANK FOR RECON- STRUCTION AND DEVELOPMENT By EUGENE R. BLACK President 11 SCHEDULE 1 Amortization Schedule Principal Amount Payment of Outstanding After Date Payment Due Principal Each Payment September 15, 1953 - $3,500,000 March 15, 1954 $ 87,000 3,413,000 September 15, 1954 88,000 3,325,000 March 15, 1955 198,000 3,127,000 September 15, 1955 202,000 2,925,000 March 15, 1956 218,000 2,707,000 September 15, 1956 222,000 2,485,000 March 15, 1957 227,000 2,258,000 September 15, 1957 231,000 2,027,000 March 15, 1958 236,000 1,791,000 September 15, 1958 241,000 1,550,000 March 15, 1959 246,000 1,304,000 September 15, 1959 250,000 1,054,000 March 15, 1960 256,000 798,000 September 15, 1960 261,000 537,000 March 15, 1961 266,000 271,000 September 15, 1961 271,000 - Premiums on Prepayment and Redemption The following percentages are specified as the premiums payable on repayment in advance of maturity of any part of the principal amount of the Loan pursuant to Section 2.05(b) of the Loan Regulations or on the redemption of any Bond prior to its maturity pursuant to Section 6.16 of the Loan Regulations: Time of Prepayment or Redemption Premium Not more than 1 year before maturity /0 More than 1 year and not more than 3 years before maturity 3/% More than 3 years and not more than 5 years before maturity 1% More than 5 years and not more than 7 years before maturity 1% More than 7 years before maturity 2% 12 SCHEDULE 2 Description of the Project The Project is a, program for the construction of approxi- mately 266 Km. of paved all-weather roads, which will be an extension of the highway system of the Borrower. The roads will open up new agricultural areas and connect these areas with the Capital of the Borrower, while at the same time improving the means of reaching the Borrower's main ports. The construction program covers three regional groups: Northern, East-West, and Western. The specific works to be carried out are as follows: Approximate Length of Road in Kilometers 1. NORTHERN REGION Matagalpa-Tuma 40 Matagalpa-Jinotega 35 2. EAST-WEST REGION Managua-Santo Domingo-Masaya 31 Granada-Masaya 15 San Jorge-San Juan del Snr 31 3. WESTERN REGION Managua-Leon 80 Leon-Telica 8 Telica-Chinandega 27 These roads will be provided with an adequate stabilized base and surfaced with asphalt pavement having a mini- mum width of 5 meters. The shoulder to shoulder width will be not less than 7 meters. All roads will be provided with drainage, culverts, bridges and fenced rights of way. Suitable shops and facilities will be maintained for the repair and servicing of equipment purchased with the pro- ceeds of the Loan. Provision will also be made for the training of personnel to operate, service and repair such equipment. INTRNATIONAL BA1E FOR RECONSTRUCTION AND DEVELOPM FOR THE PRESS FOR LELEAEE A.M. EWSPAPEES, FRIDAY Press Release No. 248 June 8, 1951 The International Bank for Reconstruction and Development today made two loans totaling $4,700,000 to aid in the development of the Republic of Nicaragua -- one of $3,500,000 to the Government, for the purchase of equipment and machinery for high- way construction; the other of $1,200,000 to the Banco Nacional de Nicaragua for the purchase of agricultural machinery. The agricultural machinery loan is guaranteed by the Government of Nicaragua. The loan for highway construction will enable the Government to import equip- 1ent and materials to be used in eight road-building projects. The Government has selected those projects most urgently needed to improve comunicatioris between ma4or centers of production, consumption and export, and to open up new lands for the cultivation of coffee, cotton, corn, and other crops. The roads to be con- structed total 162 miles and will be asphalt paved, permitting heavy and intensive traffic throughout the year; they wiLl be built over a three and a half year period. The most important artery in the proposed system will be between Managua, capital of Nicaragua, and Leon, the country's second largest city, which at present are not connected by road. This new highway will follcw a route which will open up heretofore underdeveloped agricultural land which has potentialities for improved cultivation through mechanization. Conerce between the two cities, now carried on by rail only, will undoubtedly increase upon completion of the new highway. The other proposed roads will also open up new agricultural land, and crop production is expected to increase with the completion of new facilities for transport to the centers of consumption and export. The agricultural machinery loan will finance the purchase of eTuipment and spare parts to provide the farmers of Nicaragua with much-needed machinery. There are now only about 300 tractors in the entire country. The International Bank, through its loan, will finance purchases of cquAipmaent ranging from small tractors to heavy land- -2- clearing machinery. Training and servicing facilities, with repair andw aintenance equipment, will also be financed out of the loan. At present Nicaragua's two prin- cipal cash crops, coffee and, cotton, conmand high prices in the export market, and the present period of prosperity appears to be a favorable time to begin a farm mechanization program. The highway construction loan is for a term of ten years and carries an interest rate of 4 1/8% per annum, including the usual 1% commis9ion charge which, in ac- cordance with the Bank's Articles of Agreement, is allocated to its special reserve fund. Amortization payments, calculated to retire the loan by maturity, will start on March 15, 1954. The farm machinery loan is for a term of seven years and carries an interest rate of 4% per annum, including the lia conmission for allocation to the special reserve fund. Amortization payments will start March 15, 1954. A Bank mission visited Nicaragua early in 1951, and loan negotiations with a Nicaraguan delegation were started in ashington on May 14., 1951. After approval by the Bank's Executive Directors, the loan agreements were signed on June 7, 1951, by the Nicaraguan Charge d'Affaires, Dr. Rene Schick, on behalf of the Republic of Nicaragua, by Dr. Leon DeBayle, General Manager of the Banco Nacional de Nicaragua, on behalf of the Banco Nacional de Nicaragua, and by Eugene R. Black, President, on behalf of the International Bank for Peconstrction and Development. The guarantee agreement for the agricultural machinery loan was signed by the Nicaraguan Charge d'Affairs on behalf of Nicaragua and by Mr. Black on behalf of the Bank. d -3- SUPPLEMENTAL STATMET ON TiE LOANS TO NICARAGUA 'Economic Situation of Nicaragua Like many non-industrialized countries, Nicaragua is predominantly agricultural and pastoral, with most of its relatively small population engaged in raising coffee, field crops and livestock. Unlike many Latin American countries, Nicaragua has a relatively diversified agricultural economy. Its exports include not only coffee, its principal crop, but cotton, sesame seed, rice, cattle, gold and lumber. Between 1942 and 1949, the government budget had a deficit, but for the year ending June 1950, the budgot showed a small surplus. With the customs receipts from the present high level of imports, the budget for the current fiscal year should also balance. Nicaragua's foreign debt is small, amounting.to only $4,000,000. In recent years, the supply of money in circulation has risen steadily, with ,t of the increase in the form of bank deposits. At the end. of February 1951, the supply was 17% above the previous year and alm=st 70% higher than at the end of 1911.5. This trend originated froLm budgetary deficits and credit expansion and, more re--ntly. from higher export ]prices. In November 1950, the Government of Nicaragua established new foreign exchange controls which provided for an effective rate of 7 cordobas to the dollar. In ad- dition, it imposed surcharges of Up to 3 cordobas to the dollar on all imports except essentials, and required prior local currency deposits by importers equal to 100% of the value of merchandise for which a license id requested. Foreign ex- chanss reserves, which had fallen to $3,340,000 in October 1950, had increased to $6,660,000 by February 1951. It is too soon to determine to what extent this in- crease is due to the new regulations, because a part is attributable to seasonal factors. However, the new regulations account for some of the increase and further good results can be expected. With the exception of 1949 when the coffee c-rop was unusually poor, Nicaraguan exports in recent years have shown a steady increase in value. In 1945, they aounted to only $6,900,000; in 1950 they had increased to about $25,000,000 which level is expected to be maintained in 1951. Between 50 and 60 per cent of Nicaragua's exports are sold to the United States and substantially all of the rest is s.ld for dollars or other convertible currencies. Opportunities for expanding exports appear to be good. The export of bananas, which had declined because of the spread of banana disease, has begun to increase again. The cultivation of Nicaraguan cotton, which has found a ready market in England, has been expanding in the last three years. Rice and sesame seed are already major export items; and, with improved methods of production, an increase in the export of coffee may be ex- pected. In addition, a recent liberal tradeetreaty between Nicaragua and El Salvador should result in a new market for Nicaraguan exports. The outlook for improvements in Nicaragua's internal and external financial pce4tion is good. The budget is balanced and the Nicaraguan Government is making increased efforts to curb the expansion of money in circulation and to improve its balance of payments position. Highway Construction Projects At present thore are n:-'ximately 1,460 miles of roads of all types in Nicaragua. Most of them are dirt trails, suitable only for o,eartand. pack -4 animals. Loss than 5!O miles are suitable for all-weather traffic and only 140 miles are paved Nicaragua, an essentially agricultural country, is potentially suited to the growing of a wide variety of crops. Thousands of acres of rich soil -re now undeko veloped chiefly because no roads are available to open up new land or to provido transportation from the interior to the coast for ocean shipment. The construction of a highway system to permit easy mobility between zones of production and zones of consumption is of the highest priority in promoting the economic development of the country. All the new roads, which the Bank's loan will help to finance, will be 23 feet from shoulder to shoulder and constructed of hydraulic macadrn covered by an asphalt pavement 15 feet wide. Maintenance of the highways will be under the jurisdiction of the Ministry of Public Works and Development. Tbe highway construction projects cover three regional areas: North, East-West, Sri weotern. Novth Group: A road of 24 miles will be constructed betveen Matagalpa and the Tuna Elver. Ths road will open up new land well sulted for coffee production. In this e area, coffee is already being produced at the rate of over 12,000,000 pounds per year. The new road will expedite the marketing of coffee and thereby cut the loss due to spoilage, now estimated to be about 30% of the entire crop. Also in the North Group, a road of 21 miles will be constructed from Matagalpa to Jinoteea. In addition to making possible an increase in the production of coffee i .hic area, this road will serve the town of Jinotega (6,700 inhabitants), which ,t,he gateway to a high, rolling, fertile plateau suitable for the growing of wheat ari tho raising of livestock. East-West Group: A road of 19 miles will be constructed from k nagua through Santo Domingo tc Masaya. It will pass through a rich agricultural area, now prodtcing cereals, tobacco, fruits, vegetables, sesame, cotton and livestock. It will serve a rural area with a population of approximately 30,000 whose only means of transport at precent are oxcarts and pack animals over dirt roads. Another new road of 19 miles will join San Jorge with San Juan del Sur which are - present joined by a railroad. San Jorge is a lake port and San Juan del Sur has the only good natural harbor in the southern part of Nicaragua. Since cargo has to be reloaded at Rivas for re-shipment, the use of San Juan del Sur as a major port is limited. It is proposed to abandon the railroad and transfer the railroadequipment elsewhere. The existing roadbed will be used in the construction of the highway. Western Group: The longest road - 48 miles - to be constructed will connect Managua and Leon, Nicaragua's second largest city. These cities are now joined only by a railroad. Completion of this road is expected to increase comerce between the two cities. Two other roads of iles and 16 miles will be constructed between Leon and Telica, and between Telica and Chinandega. These roads, vbich in effect will be continuous, will serve approximately 70,000 inhabitants and wilppass through rich 0 farming areas. * -5 - Farm Mechani-:ation Pro;jct One of the best ways to improve the econmy of Nicaragua is to increase the production of exportable crops. Nicaragua has large agricultural resources and the times are propitious for developdng them. The people are increasingly mechan- ically minded and ready to modernize agricultural techniques. Individual land owners have shown that this modernization is not only possible but highly profit- able. Besides reducing costs and increasing output, the use of agricultural machinery will lead to improvement of the social and economic conditions of a large sector of the population. The International Bank's loan of $1,200,000 will be used by the National Bank of Nicaragua to provide dollars against which loans will be made in cordobas (Nicaraguan currency) to farmers for the purchase of machinery. With these cordobas, the ftmers will order machinery from the dealer, who, will deposit the cordobas with the *.ational Bank and receive dollars with which to pay the foreign manufacturer. For the present, tractor units will be principally imported. A unit will consist for the most part of a tractor and a suitable disk plow, disk harrow, and cultivator. Such a tractor unit will do all the field work except harvesting on 300 acres of cultivated crops. It is estimated that the income from increased crop production will pay for the tractors and accessories within a five-year period, the expected term of the loan from the National Bank to the farmer. Therterms of the Bank's loan provide for spare parts, repair and maintenance equipment, amounting to 20% of the value of the machinery. In addition, training, servicing and maintenance facilities will be established.