Conformed Copy - L3049 - Financial Sector Adjustment Loan - Loan Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3049 PH (Financial Sector Adjustment Loan) between REPUBLIC OF THE PHILIPPINES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated May 31, 1989 LOAN NUMBER 3049 PH LOAN AGREEMENT AGREEMENT, dated May 31, 1989, between REPUBLIC OF THE PHILIPPINES (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Bank has received a letter dated April 3, 1989 from the Borrower describing a program of actions, objectives and policies designed to achieve adjustment of the financial sector of the Borrower's economy (hereinafter called the Program), declaring the Borrower's commitment to the execution of the Program, and requesting assistance from the Bank in the financing of urgently needed imports required during such execution; and (B) on the basis, inter alia, of the foregoing, the Bank has decided in support of the Program to provide such assistance to Page 2 the Borrower by making the Loan in two tranches as hereinafter provided; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications thereof set forth below (the General Conditions) constitute an integral part of this Agreement: (a) Section 2.01, paragraph 11, shall be modified to read: "'Project' means the imports and other activities that may be financed out of the proceeds of the Loan pursuant to the provisions of Schedule 1 to the Loan Agreement."; (b) Section 9.07 (c) shall be modified to read: "(c) Not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution of the program referred to in the Preamble to the Loan Agreement, the performance by the Borrower and the Bank of their respective obligations under the Loan Agreement and the accomplishment of the purposes of the Loan."; and (c) The last sentence of Section 3.02 is deleted. Section 1.02. 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) "SITC" means the Standard International Trade Classification, Revision 3 (SITC, Rev. 3), published by the United Nations in Statistical Papers, Series M, No. 34/Rev.3 (1986); (b) "Peso" means the currency of the Borrower; (c) "CBP" means the Central Bank of the Philippines; (d) "DBP" means the Development Bank of the Philippines; (e) "PDIC" means the Philippines Deposit Insurance Corporation; and (f) "IGLF" means the Industrial Guarantee and Loan Fund . ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, various currencies that shall have an aggregate value equivalent to the amount of three hundred million dollars ($300,000,000), being the sum of withdrawals of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal. Page 3 Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement. Section 2.03. The Closing Date shall be December 31, 1991 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time at a rate per annum for each Interest Period equal to one- half of one percent per annum above the Cost of Qualified Borrowings for the last Semester ending prior to the commencement of such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower the Cost of Qualified Borrowings for such Semester. (c) For purposes of this Section: (i) "Interest Period" means the six - month period commencing on each date specified in Section 2.06 of this Agreement, including the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost of the outstanding borrowings of the Bank drawn down after June 30, 1982, expressed as a percentage per annum as reasonably determined by the Bank. (iii) "Semester" means the first six months or the second six months of a calendar year. Section 2.06. Interest and other charges shall be payable semiannually on June 15 and December 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 2 to this Agreement. Section 2.08. (a) CBP is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. (b) Without limitation or restriction to the foregoing, the Borrower hereby entrusts CBP with responsibility for the preparation of withdrawal applications under the Loan and for the collection of the documents and other evidence to be furnished to the Bank in support of such applications; such withdrawal applications shall to the extent practicable be consolidated so as to apply for withdrawal of aggregate amounts of not less than $20,000,000 equivalent. ARTICLE III Particular Covenants Section 3.01. (a) The Borrower and the Bank shall from time to time, at the request of either party, exchange views on the progress achieved in carrying out the Program. Page 4 (b) Prior to each such exchange of views, the Borrower shall furnish to the Bank for its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Bank shall reasonably request. Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.03. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with consistently maintained sound accounting practices the expenditures financed out of the proceeds of the Loan. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audits referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE IV Additional Event of Suspension Page 5 Section 4.01. Pursuant to Section 6.02 (k) of the General Conditions, the following additional event is specified, namely, that a situation has arisen which shall make it improbable that the Program, or a significant part thereof, will be carried out. ARTICLE V Termination Section 5.01. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VI Representative of the Borrower; Addresses Section 6.01. Except as provided in Section 2.08 (a) of this Agreement, The Secretary of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Secretary of Finance Department of Finance Manila Philippines Cable address: Telex: MINFIN 7550 CBP-PH Manila 40268 CB-CONF For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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 THE PHILIPPINES By /s/ Emmanuel Pelaez Authorized Representative Page 6 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Attila Karaosmanoglu Regional Vice President Asia SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. Subject to the provisions set forth or referred to in this Schedule, the proceeds of the Loan may be withdrawn from the Loan Account for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods required during the execution of the Program and to be financed out of such proceeds. 2. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) expenditures for goods included in the following SITC groups or sub-groups, or any successor groups or sub-groups under future revisions to the SITC, as designated by the Bank by notice to the Borrower: Group Sub-group Description of Items 112 - Alcoholic beverages 121 - Tobacco, unmanu- factured, tobacco refuse 122 - Tobacco, manufactured (whether or not con- taining tobacco sub- stitutes) 525 - Radioactive and associated materials 667 - Pearls, precious and semi-precious stones, unworked or worked 718 718.7 Nuclear reactors, and parts thereof, fuel elements (cartridges), non-irradiated for nuclear reactors Group Sub-group Description of Items 897 897.3 Jewelry of gold, silver or platinum group metals (except watches and watch cases) and goldsmiths' or silversmiths' wares (including set gems) Page 7 971 - Gold, non- monetary (excluding gold ores and concentrates) (b) expenditures in the currency of the Borrower or for goods supplied from the territory of the Borrower; (c) payments made for expenditures prior to the date of this Agreement; (d) expenditures for goods supplied under a contract which any national or international financing institution or agency other than the Bank shall have financed or agreed to finance; and (e) expenditures for goods intended for a military or para- military purpose or for luxury consumption . 3. No withdrawal shall be made and no commitment shall be entered into to pay amounts to or on the order of the Borrower in respect of expenditures to be financed out of the proceeds of the Loan after the aggregate of the proceeds of the Loan withdrawn from the Loan Account and the total amount of such commitments shall have reached the equivalent of $150,000,000, unless the Bank shall be satisfied, after an exchange of views as described in Section 3.01 of this Agreement based on evidence satisfactory to the Bank: (a) with the progress achieved by the Borrower in the carrying out of the Program, and (b) that the actions described in Schedule 4 to this Agreement have been taken. 4. If, after the exchange of views described in paragraph 3 above, the Bank shall have given notice to the Borrower that the progress achieved and actions taken are not satisfactory and, within 90 days after such notice, the Borrower shall not have achieved progress and taken actions satisfactory to the Bank, then the Bank may, by notice to the Borrower, cancel the unwithdrawn amount of the Loan or any part thereof. SCHEDULE 2 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* December 15, 1994 5,505,000 June 15, 1995 5,720,000 December 15, 1995 5,935,000 June 15, 1996 6,165,000 December 15, 1996 6,400,000 June 15, 1997 6,645,000 December 15, 1997 6,900,000 June 15, 1998 7,160,000 December 15, 1998 7,435,000 June 15, 1999 7,720,000 December 15, 1999 8,015,000 June 15, 2000 8,325,000 December 15, 2000 8,640,000 June 15, 2001 8,970,000 December 15, 2001 9,315,000 June 15, 2002 9,670,000 December 15, 2002 10,040,000 June 15, 2003 10,425,000 December 15, 2003 10,825,000 June 15, 2004 11,240,000 December 15, 2004 11,665,000 June 15, 2005 12,115,000 December 15, 2005 12,575,000 Page 8 June 15, 2006 13,060,000 December 15, 2006 13,560,000 June 15, 2007 14,075,000 December 15, 2007 14,615,000 June 15, 2008 15,175,000 December 15, 2008 15,755,000 June 15, 2009 16,355,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and 4.03. Premiums on Prepayment Pursuant to Section 3.04 (b) of the General Conditions, the premium payabale on the principal amount of any maturity of the loan to be prepaid shall be the percentage specified for the applicable time of prepayment below: Time of Prepayment Premium The interest rate (ex- pressed as a percentage per annum) applicable to the Loan on the day of prepayment multiplied by: Not more than three years 0.15 before maturity More than three years but 0.30 not more than six years before maturity More than six years but 0.55 not more than 11 years before maturity More than 11 years but not 0.80 more than 16 years before maturity More than 16 years but not 0.90 more than 18 years before maturity More than 18 years before 1.00 maturity SCHEDULE 3 Procurement 1. Contracts for the procurement of goods estimated to cost the equivalent of $5,000,000 or more each shall be awarded through international competitive bidding in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines), subject to the following modifications: (a) Paragraph 2.8 of the Guidelines is deleted and the following is substituted therefor: "2.8 Notification and Advertising Page 9 The international community should be notified in a timely manner of the opportunity to bid. This will be done by advertising invitations to apply for inclusion in a bidder's invitation list, to apply for prequalification, or to bid; such advertisements should be placed in at least one newspaper of general circulation in the Borrower's country and, in addition, in at least one of the following forms: (i) a notice in the United Nations publication, Development Forum, Business Edition; or (ii) an advertisement in a newspaper, periodical or technical journal of wide international circula- tion; or (iii) a notice to local representatives of countries and territories referred to in the Guidelines, that are potential suppliers of the goods required." (b) The following is added at the end of paragraph 2.21 of the Guidelines: "As a further alternative, bidding documents may require the bidder to state the bid price in a single currency widely used in international trade and specified in the bidding documents." (c) Paragraphs 2.55 and 2.56 of the Guidelines are deleted. 2. Contracts for goods estimated to cost the equivalent of less than $5,000,000 each shall be awarded on the basis of the normal procurement procedures of the purchaser of such goods. 3. Contracts for commonly traded commodities may be awarded on the basis of prices available from organized international commodity markets. 4. With respect to each contract referred to in paragraph 1 of this Schedule, the Borrower shall furnish to the Bank, prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids and recommendations for award, a description of the advertising and tendering procedures followed and such other information as the Bank shall reasonably request. 4. With respect to each contract referred to in paragraph 2 of this Schedule, the Borrower shall furnish to the Bank, prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect thereof, such documentation and information as the Bank may reasonably request to support withdrawal applications in respect of such contract. 5. The provisions of the preceding paragraphs 3 and 4 shall not apply to contracts on account of which the Bank has authorized withdrawals from the Loan Account on the basis of statements of expenditure. SCHEDULE 4 Actions Referred to in Paragraph 3 (b) of Schedule 1 to this Agreement 1. Enactment of the amendments to the Central Banking Act substantially as introduced to the Legislature. Page 10 2 . Enactment of the amendments to PDIC Act substantially as introduced to the Legislature. 3. Satisfactory increase of PDIC's paid-in capital. 4. Completion of, and satisfactory progress towards the implementation of recommendations, agreed with the Bank, arising from, the following studies: (i) a comprehensive review of commercial bank reporting requirements to CBP; (ii) study of the principles and practices governing loan loss provisions of commercial banks in the Philippines; (iii) study of trust account management practices of commercial banks in the Philippines; and (iv) review and revision of accounting principles governing preparation and reporting of banks' financial conditions and operating results. 5. Satisfactory draft legislations for real estate mortgage and insolvency/reorganization shall have been submitted to the Legislature. 6. Apex and IGLF programs shall have been transferred to DBP. 7. All agricultural credit programs shall have been transferred to appropriate financial institution as agreed with the Bank. 8. In its transformation from retail to predominantly wholesale financial institution, DBP shall have achieved agreed interim performance targets. 9. Satisfactory action on reducing taxes on financial intermediation shall have begun.