Bolivia - Ulla Ulla Development Project : Credit 0762 - Credit Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 762 BO Development Credit Agreement (Ulla Ulla Development Project) between REPUBLIC OF BOLIVIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated April 6, 1978 CREDIT NUMBER 762 BO DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated April 6, 1978, between REPUBLIC OF BOLIVIA (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association.) WHEREAS (A) the Borrower has requested the Association to assist in the financing of the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; (B) the Borrower has also requested the Bank to provide additional assistance towards the financing of the Project and by an agreement of even date herewith between the Borrower and the Bank (hereinafter called the Loan Agreement) the Bank is agreeing to provide such assistance in an aggregate principal amount equivalent to nine million dollars ($9,000,000) (hereinafter called the Loan); (C) the Borrower and the Association intend, to the extent practicable, that the proceeds of the Credit provided for in this Agreement be disbursed on account of expenditures on the Project before disbursements of the proceeds of the Loan provided for in the Loan Agreement are made; (D) the Project, with the exception of Parts A.3 and C.1 thereof, will be carried out by Instituto Nacional de Fomento Lanero with the Borrower's assistance and, as part of such assistance, the Borrower will make available to Instituto Nacional de Fomento Lanero part of the proceeds of the Credit as herein- after provided; and WHEREAS the Association has agreed, on the basis inter alia of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth hereinafter and in the Project Agreement of even date herewith between the Bank, the Association and Instituto Nacional de Fomento Lanero; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Development -2- Credit Agreements of the Association, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agree- ments of the Association being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "INFOL" means Instituto Nacional de Fomento Lanero, a decentralized public entity under the authority of the Borrower's Ministerios de Asuntos Campesinos y Agropecuarios e Industria, Comercio y Turismo, established by Decreto Supremo No. 15138 of November 25, 1977 and operating pursuant to the laws of the Borrower; (b) "Project Agreement" means the agreement between the Bank, the Association and INFOL of even date herewith, as the same may be amended from time to time, and such term includes all schedules to the Project Agreement and all agreements supplemental to the Project Agreement; (c) "Financing Agreement" means the agreement to be entered into between the Borrower and INFOL pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Financing Agreement; (d) "Loan Agreement" means the agreement of even date here- with between the Borrower and the Bank for the purpose of the Project, as such agreement may be amended from time to time; and such term includes the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated March 15, 1974, as made applicable to such agreement, all agreements supplemental to the Loan Agreement and the schedule to the Loan Agreement; (e) "Banco Central" means Banco Central de Bolivia; (f) "BAB" means Banco Agricola de Bolivia, an agricultural bank organized and operating pursuant to the laws of the Borrower; (g) "BE" means Banco del Estado, a commercial bank organized and operating pursuant to the laws of the Borrower; -3- (h) "BAB Subsidiary Loan Agreement" means the subsidiary loan agreement to be entered into between Banco Central and BAB pursuant to Section 3.02 (c) of this Agreement, as the same may be amended from time to time; and "BAB Subsidiary Loan" means the loan provided for in the BAB Subsidiary Loan Agreement; (i) "BE Subsidiary Loan Agreement" means the subsidiary loan agreement to be entered into between Banco Central and BE pursuant to Section 3.02 (c) of this Agreement, as the same may be amended from time to time; and "BE Subsidiary Loan" means the loan provided for in the BE Subsidiary Loan Agreement; (j) "Sub-loan" means a loan to finance working capital or an Investment Project, made or proposed to be made by BAB to a farmer or a farmer group or by BE to a textile artisan or a textile artisan group, as the case may be, in accordance with the provi- sions of this Agreement; (k) "Investment Project" means a project consisting of on- farm improvements or herd development to be carried out by a farmer or a farmer group, or of the development of an artisanal handicraft business to be carried out by a textile artisan or a textile artisan group, as the case may be, and to be financed by means of a Sub-loan; (1) "Project Area" means an area of about 300,000 ha in the Franz Tamayo and Saavedra Provinces, both in the Departamento de la Paz of the Borrower; (m) "INBOPIA" means Instituto Boliviano de Pequeffa Industria y Artesanfa, a decentralized public entity under the authority of the Borrower's Ministerio de Industria, Comercio y Turismo, established by Decreto Supremo No. 11734 of August 28, 1974 and operating pursuant to the laws of the Borrower; (n) "FOMO" means Servicio Nacional de Formaci6n de Mano de Obra, the Borrower's National Manpower Development Service, a decentralized public service institution under the authority of the Ministerio de Trabajo y Desarrollo Laboral; (o) "MPSSP" means Ministerio de Previsi6n Social y Salud Piblica, the Borrower's Ministry in charge of Social Security and Health; -4- (p) "FOTRAMA" means Fomento al Trabajo Manual, a cooperative established by Resoluci6n No. 218, dated September 28, 1962, of Consejo Instituto Nacional de Cooperativas (INALCO); (q) "ASI" means the agricultural and social infrastructure division of INFOL; (r) "IDIF" means Instituto de Investigaciones Fisicas, a research institute established by a Resoluci6n of the Consejo Universitario of the University of San Andres, adopted on February 12, 1952; and (s) "Peso" and "b$" means the currency of the Borrower. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various currencies equiva- lent to nine million dollars ($9,000,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower, the Bank and the Associa- tion, for expenditures Yaade (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods and civil works to be financed out of the proceeds of the Credit, shall be governed by the provisions set forth or referred to in Section 2.04 of the Project Agreement. Section 2.04. The Closing Date shall be June 30, 1983 or such later date as the Association shall establish. The Associa- tion shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. -5- Section 2.06. Service charges shall be payable semiannually on April 1 and October 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each April 1 and October 1 commencing April 1, 1988, and ending October 1, 2027, each installment to and including the installment payable on October 1, 1997, to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.09. INFOL is designated as representative of the Borrower for the purposes of taking any action required or per- mitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions with the excep- tion of any action relating to Parts A.3 and C.1 of the Project. ARTICLE III Execution of the Project Section 3.01.(a) Without any limitation or restriction upon any of its other obligations under the Development Credit Agree- ment, the Borrower shall cause INFOL to perform in accordance with the provisions of the Project Agreement and the Financing Agreement all the obligations therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable INFOL to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall make the proceeds of the Credit allocated from time to time to Categories (1) through (4) of Schedule 1 to this Agreement, as such Schedule may be amended from time to time, available to INFOL under a financing agreement to be entered into between the Borrower and INFOL under terms and condi- tions which shall have been approved by the Association including, inter alia, the following: . - 6 - (i) the proceeds of the Credit to be made available to INFOL for purposes of carrying out Part B of the Project, shall be lent in Pesos, at an interest rate of 12 per cent per annum and shall be repay- able in Pesos within a period of fifteen years including five years of grace; (ii) the proceeds of the Credit to be made available to INFOL for purposes of carrying out Part A.2 of the Project, shall be lent in Pesos, free of interest, and shall be repayable in Pesos within a period of fourteen years including four years of grace; and (iii) the remainder of the proceeds of the Credit referred to above in this paragraph, shall be made available to INFOL by way of grant. (c) The Borrower shall exercise its rights under the Financ- ing Agreement in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Credit, and except as the Association shall otherwise agree, the Borrower shall not assign, nor amend, abrogate or waive the Financing Agreement or any provision thereof. Section 3.02. Except as the Association shall otherwise agree, the Borrower shall: (a) (i) open with Banco Central an account for the purpose of recording all receipts and payments of money for or in connec- tion with Part A.3 of the Project; and (ii) deposit in such account upon withdrawal from the Credit Account, such amounts in Pesos as shall be equivalent to the amounts withdrawn by the Borrower from time to time from the Credit Account for Sub-loans made by BAB; (b) (i) open with Banco Central an account for the purpose of recording all receipts and payments of money for or in connec- tion with Part C.1 of the Project; and (ii) deposit in such account upon withdrawal from the Credit Account, such amounts in Pesos as shall be equivalent to the amounts withdrawn by the Borrower from time to time from the Credit Account for Sub-loans made by BE; (c) cause Banco Central (1) to enter with BAB into the BAB Subsidiary Loan Agreement and (2) to enter with BE into the BE -7- Subsidiary Loan Agreement, under which Banco Central shall lend to BAB and BE such amounts as shall have been credited to their respective accounts pursuant to paragraphs (a) and (b) hereof on such terms and conditions as set forth in Schedule 4 to this Agreement, as such Schedule may be amended from time to time, and such other terms and conditions as shall be satisfactory to the Association; (d) pay Banco Central a service commission of 0.25% per annum of the principal amount outstanding of the Sub-loans; and (e) cause Banco Central, BAB and BE to use all funds accru- ing from the carrying out of Parts A.3 and C.1 of the Project for: (i) financing by BAB of on-farm investments and herd develop- ment by farmers raising alpaca and llama livestock; and (ii) financing by BE of raw materials, equipment and workshops for textile artisans. Section 3.03. The Borrower shall cause BAB to establish an office in the Project Area at such a location and with such staff, facilities and resources as shall be necessary to assist INFOL in the carrying out of Part A.3 of the Project. Section 3.04. The Borrower shall promptly commence negotia- tions for the acquisition of llama dehairing technology and, not later than June 30, 1978 or such later date as the Association shall agree, furnish to the Association, for its approval, a proposal for such acquisition. ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall keep or cause to be kept such separate accounts and records as shall be adequate to reflect in accordance with consistently maintained sound accounting prac- tices the operations, resources and expenditures, in respect of the Project, of Banco Central, BAB, BE and any departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall cause BAB and BE to have: (i) the accounts referred to in paragraph (a) of this Section, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by auditors acceptable to the - 8 - Association; (ii) furnish to the Association as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of such accounts for such year as so audited, (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning such accounts and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. The Borrower shall: (a) cause all roads and drinking water supply facilities included in the Project Area to be adequately maintained and cause the necessary repair thereof to be made, all in accordance with appropriate engineering practices; (b) (i) operate and maintain the health facilities included in Part E of the Project in conformity with appropriate public health practices; (ii) staff such facilities with adequate person- nel; and (iii) provide such personnel with such incentives as shall be appropriate; (c) cause all educational facilities included in Part G of the Project to be adequately maintained and cause the necessary repairs thereof to be made, all in accordance with appropriate educational and engineering practices; and (d) provide, promptly as needed, the funds, facilities, services and other resources required for the above purposes. Section 4.04. The Borrower shall staff INFOL with competent personnel in sufficient numbers and provide such personnel with such incentives as shall be appropriate in the circumstances. Section 4.05. The Borrower shall take all action necessary to ensure that all requests for permits to construct new wool processing plants or expand the capacity of existing plants will be approved only after consultation with INFOL. Section 4.06. The Borrower shall use its best efforts in its discussions with the governments of Argentina, Chile and Peru to achieve a reasonable extension beyond 1979 of the moratorium established under an international agreement dated August 16, 1969 prohibiting all killing, marketing and exporting of vicuffas' skins or fleece. -9- ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the Genaral Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) INFOL shall have failed to perform any covenant, agree- ment or obligation of INFOL under the Project Agreement; (b) an extraordinary situation shall have arisen which shall make it improbable that INFOL will be able to perform its obliga- tions under the Project Agreement; (c) Decreto Supremo No. 15138 of the Borrower shall have been amended, suspended, abrogated, repealed or waived in such a way as to affect materially and adversely the ability of INFOL to carry out the covenants, agreements and obligations set forth in the Project Agreement; and (d) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of INFOL or for the suspension of its operations. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof: (a) any event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Association to the Borrower and INFOL; and (b) any event specified in paragraphs (c) to (d) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit Agreement within the meaning of Sectior 12.01 (b) of the General Conditions: .- 10 - (a) the Financing Agreement has been executed on behalf of the Borrower and INFOL; and (b) the conditions precedent to the effectiveness of the Loan Agreement, other than the condition set forth in Section 6.01 (b) thereof, have been fulfilled. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Agreement has been duly authorized or ratified by INFOL, and is legally binding upon INFOL in accordance with its terms; and (b) that the Financing Agreement has been duly authorized or ratified by the Borrower and INFOL and is legally binding upon the Borrower and INFOL in accordance with its terms. Section 6.03. The date July 6, 1978, is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 6.04. The obligations of the Borrower under Sections 3.02 (e), 3.03, 4.01 through 4.06 of this Agreement and the provisions of Section 5.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date twenty years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Ministro de Finanzas of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purpose of Section 11.01 of the General Conditions: For the Borrower: Ministerio de Finanzas La Paz Bolivia - 11 - Cable address: Telex: MINFINANZAS BX 5332 La Paz For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF BOLIVIA By Is/ Carlos Iturralde Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Is/ Adalbert Krieger Regional Vice President Latin America and the Caribbean - 12 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit and of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit and of the Loan, the allocation of amounts of such proceeds to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit and of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Equipment, materials 4,400,000 and vehicles: (a) imported 100% of foreign expenditures (b) locally pro- 68% cured (2) Civil works 1,800,000 68% (3) Consultants' ser- 1,500,000 100% vices and overseas training (4) Project adminis- 5,500,000 68% tration and operat- ing costs except for Part C.3 of the Project (5) Sub-loans under 3,300,000 68% of amounts Parts A.3 and C.1 disbursed for of the Project such Parts (6) Unallocated 1,500,000 TOTAL 18,000,000 - 13 - 2. For the purposes of this Schedule, the term "foreign expen- ditures" means expenditures in the currency of any country other than the Bor-ower and for goods or services supplied from the territory of any country other than the Borrower. 3. The disbursement percentages have been calculated in com- pliance with the policy of the Bank and the Association that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procure- ment or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan or the Credit decreases or increases, the Bank or the Association may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank and the Association. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expendi- tures: (a) prior to the date of this Agreement; (b) on account of Category (5) for Part A.3 of the Project before the execution and delivery of the BAB Subsidiary Loan Agreement, and on account of Category (5) for Part C.1 of the Project before the execution and delivery of the BE Subsidiary Loan Agreement; and (c) on account of any of Categories (1), (2), (3) and (4), by any of the agencies or departments of the Borrower referred to in Section 2.03 of the Project Agreement unless such agency or department has made, to the satisfaction of the Bank and the Association, the applicable contractual arrangement with INFOL referred to in such Section. In addition, except as the Borrower, the Bank and the Asso- ciation shall otherwise agree, and until all amounts of the Credit shall have been withdrawn or committed, no withdrawals shall be made from the Loan Account except under commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions referred to in Section 1.01 of the Loan Agreement. - 14 - 5. Notwithstanding the allocation of an amount of the Loan or of the Credit or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank or the Association has reason- ably estimated that the amount of the Loan or of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Bank or the Association may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan or of the Credit, as the case may be, which are then allocated to another Category and which in the opinion of the Bank or the Association are not needed to meet other expenditures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further with- drawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Association or the Bank shall have reasonably deter- mined that the procurement of any item in any Category is incon- sistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan or of the Credit and the Bank or the Association may, without in any way restricting or limiting any other right, power or remedy of the Bank or of the Association under the Loan Agreement or the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Loan or of the Credit as, in the Bank's or the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan or of the Credit. - 15 - SCHEDULE 2 Description of the Project The Project consists of the comprehensive and integrated rural development of the Project Area to promote an orderly expansion of the alpaca/llama agro-industry, to conserve and expand the vicuffa resources, to improve the economic and social conditions of about 3,000 families living in said area, and to promote handicraft production of low-income families. The Project includes the following Parts: Part A: Development of Livestock (alpaca, llama, vicuffa) 1. Experiment Station - Establishment of an Experiment Station with laboratory equipment and facilities for research in alpaca/llama parasitology, bacteriology, biology, pasture and nutrition, and construction of an irrigation scheme on about 20 hectares of the Experiment Station to produce forage for use of said Station and a supply of grass seeds for utilization by farmers in the Project Area, and to determine the technical and economic feasibility of using irrigation to increase the carrying capacity of about 8,000 ha of range land in the Project Area. 2. Commercial Farm - Establishment of a Commercial Farm on about 2,500 hectares of range land in the Project Area, operating with about 2,000 alpacas and about 500 llamas and employing improved range and animal husbandry tech- niques currently available as well as those developed at the Experiment Station, to serve as a demonstration unit to farmers in the Project Area and to gain their confidence in the Project. 3. On-farm Investments and Herd Development - Provision of credit by BAB to individual farmers or groups of farmers in the Project Area and other areas of the Altiplano for the construction of spray-bath facilities, holding corrals, shearing sheds, and fiber classification and storage sheds, and for the purchase of mechanical shearing equipment, drugs, animals, fences, medical kits, hand shears, scales, fiber classifying tables and identification tags, all to improve traditional shearing techniques and fiber handling and classifying practices - 16 - and to provide facilities required to put a sound animal husbandry and range management program into effect. 4. Extension Services - Provision of extension services to farmers in the Project Area in such areas as improved technology for animal husbandry, including veterinary services, partly in the form of training of said farmers in simple procedures for control and prevention of internal and external parasites and first-aid and other practices, improved practices in herd and range manage- ment, improved shearing techniques, and preparation and execution of farm development plans. 5. Vicufa Conservation and Development - Provision of facilities, equipment and vehicles and recruitment and training of about six additional guards to strengthen the protection scheme for vicuffas and to introduce research and experimentation activities designed to establish a systematic vicuffa management program in the Ulla Ulla Vicuffa Reserve and throughout Bolivia. Part B: Wool Collection, Storage and Processing 1. Collection - Enlargement of the alpaca, llama and sheep wool collection network to all producing areas, by renting larger collection rooms and building five new collection posts, and improvement of the collection facilities, by equipping all collection posts with adequate furniture and office equipment and supplying said posts with vehicles to facilitate the flow of raw material to La Paz. 2. Storage - Construction of a warehouse in the El Alto section of La Paz, close to the spinning plant, to facilitate the seasonal collection of alpaca, llama and sheep wool, and purchase of two passenger vehicles, three hydraulic wool pressers, two forklift trucks, furniture and office equipment for the warehouse's operation. 3. Processing - Construction of a new spinning plant in La Paz, with a total annual capacity of about 300 m tons on a two-shift basis, and purchase of all neces- sary machinery and equipment, including a scouring unit, and provision of consultants' services to provide - 17 - technical know-how, to put the mill control program into effect and to set up a training program for the plant's personnel. Part C: Handicraft 1. Credit - Provision of credit by BE to about 3,400 small rural and urban artisan families in the Departments of La Paz and Cochabamba working with alpaca, llama and sheep wool to finance their capital requirements for an increased production and exports of typical handicraft items. 2. Technical Assistance - Provision of technical assistance to INBOPIA to help organize artisan production and marketing groups (including the production of radio programs in Aymarg and Quechua languages), achieve quality control and standards, prepare a national catalogue of handicraft to promote exports of handi- crafts, supervise FOMO's training program for partici- pating artisans, and coordinate the carrying out of the credit program, and provide technical assistance to artisans. 3. Purchasing Fund - Establishment of a purchasing fund of $100,000 equivalent to enable INBOPIA to ensure competi- tive market prices of the handicraft items produced by artisan organizations. Part D: Roads Construction and improvement of about 54 km of all- weather roads in the Project Area to ensure the flow of goods and services to and from the Project Area and the access of ASI personnel to farmer groups throughout the Project Area, and purchase of equipment for the con- struction and maintenance of the roads in the Project Area. Part E: Health Construction of a medical post with six beds near the Experiment Station and Commercial Farm included in the Project, installation of micro health posts in about 30 villages in the Project Area, and equipping the health - 18 - facility at Charazani, and training of community health workers. Part F: Water Supply and Waste Disposal Installation of about 1,200 pumps and about 1,000 pit privies to provide potable water supply and waste disposal facilities to about 2,000 families in the Project Area. Part G: Education Construction of an intermediate school for about 50 students, of about 25 new classrooms and of houses for teachers, renovation of existing classrooms, and provi- sion of textbooks and learning materials and of a teachers' training program. Part H: Promotion of Women Construction of five Mothers' Club Centers in strategic locations in the Project Area with adequate furniture and equipment, provision of training in handicraft skills and marketing, and of assistance to about 2,000 women in the Project Area to improve their health and nutrition, home care practices, and education. Training of talented local women to become promotion agents. Part I: Technology 1. Provision of technical assistance to enable INFOL to carry out a research program for the development of a technology in llama fiber dehairing or, subject to the prior approval of the Association referred to in Section 3.04 of this Agreement, acquisition of llama fiber dehairing technology. 2. Provision of technical assistance for the development of simple low-cost solar energy collection and utili- zation devices for use in the Altiplano, including the services of a solar energy expert to assist IDIF in developing and testing solar devices for use in rural - 19 - areas and fellowships abroad, and purchase of equipment and tools for the workshop used by IDIF at the Uiversity of San Andr6s. The Project is expected to be completed by December 31, 1982. - 20 - SCHEDULE 3 BAB Subsidiary Loan, BE Subsidiary Loan, Sub-Loans A. Subsidiary Loan Terms and Conditions 1. Banco Central shall finance, under the BAB and BE Subsidiary Loans, 100% of the Sub-loans. 2. The BAB and BE Subsidiary Loans shall be repayable in Pesos by BAB and BE, respectively, to Banco Central in the same measure and on the same dates as the Sub-loans are repaid to BAB and BE. 3. The outstanding principal amount of the BAB and BE Sub- sidiary Loans shall bear interest at the rate of: (i) 10% per annum in the case of the BAB Subsidiary Loan and (ii) 8% per annum in the case of the BE Subsidiary Loan. 4. The Borrower shall assume the financial risk on Sub- loans made by BAB. BE shall assume the financial risk on Sub-loans made by it. 5. BAB and BE shall undertake to make Sub-loans in accor- dance with the provisions of paragraph B of this Schedule. 6. (a) BAB and BE shall undertake that any Sub-loan shall be made on terms whereby BAB and BE shall obtain, by written contract (with a farmer or a farmer group in the case of BAB, and with an artisan or an artisan group in the case of BE), or by other appropriate legal means, rights adequate to protect the interests of the Borrower, the Bank, the Association, BAB and BE, including the right of INFOL (for Sub-loans made by BAB), and INBOPIA (for Sub-loans made by BE) to: (i) require the farmer or the farmer group or the artisan or artisan group, as the case may be, to carry out the Investment Project with due diligence and efficiency and in accordance with appropriate technical and financial practices and to maintain adequate records; (ii) require that (1) goods and services to be financed out of the proceeds of the Sub-loan be purchased through regular commercial channels, at a reasonable price, account being taken also of other relevant factors such as time of delivery, efficiency and reliability of the goods and availability of service facilities and (2) the goods financed by the Sub-loan be used exclusively in the carrying out - 21 - of the Investment Project and the operation thereof, and be adequately maintained; (iii) require that the farmer or the farmer group or thp artisan or the artisan group, as the case may be, take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with appropriate practice; (iv) obtain all such information as the Borrower, the Bank, the Association, BAB or BE shall reasonably request relative to the foregoing; and (v) suspend or terminate the right of the farmer or the farmer group or the artisan or the artisan group, as the case may be, to the use of the proceeds of the Sub-loan, and accelerate the maturity of the Sub-loan, upon failure by such farmer or farmer group or artisan or artisan group, to perform its obligations under the contract with BAB or BE, respectively. (b) BAB or BE, as the case may be, shall exercise its rights in relation to each Sub-loan in such manner as to: (i) protect the interests of the Borrower, the Bank, the Association, and BAB or BE; (ii) comply with its obligations under the BAB or BE Subsidiary Loan Agreement; and (iii) achieve the purposes of the Project. 7. BAB shall undertake to channel about 70% of the credit for herd development to farmers or farmer groups in the Project Area, and to lend the balance to farmers or farmer groups in the central part of the Altiplano. 8. BAB shall give priority in selecting sub-borrowers to farmers who live on the farm and engage in raising alpacas and agree to accept ASI's supervision of the Investment Project. B. Sub-Loan Terms and Conditions 1. Any Sub-loan, other than a Sub-loan to finance working capital, shall be made on the basis of an Investment Project and the application for such Sub-loan shall be prepared with the assistance of: (i) ASI in the case of application at BAB and (ii) INBOPIA in the case of application at BE. 2. Sub-loans shalL be denominated and shall be repayable in Pesos. 3. Sub-loan contracts shall include the following provi- sions: - 22 - (a) The principal amount outstanding of each Sub-loan shall bear interest at the rate of twelve per cent (12%) per annum. (b) The repayment terms shall be within the limits set forth below: Final Maximum Maturity Type of Grace Including Sub-loan Period Grace Period (Years) (Years) (i) On-farm investment and herd development 4 10 (ii) Handicraft development 1 6 4. BAB shall obtain security in the form of a lien on the animals of the farmer or farmer group to whom a Sub-loan is made. BE shall obtain security in the form of (i) a lien on machinery and equipment in the case of a Sub-loan made for capital invest- ments, and (ii) a lien on raw materials and finished products in the case of a Sub-loan made for working capital. 5. BAB and BE shall adopt simplified procedures for sub- loan application and approval.