Conformed Copy - L3357 - Agricultural Sector Adjustment Loan II - Guarantee Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3357 ME (Agricultural Sector Adjustment Loan II) between UNITED MEXICAN STATES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated June 26, 1991 LOAN NUMBER 3357 ME GUARANTEE AGREEMENT AGREEMENT, dated June 26, 1991, between UNITED MEXICAN STATES (the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Bank has received a letter dated May 29, 1991 from the Guarantor describing a program of actions, (taken and to be taken) objectives and policies designed to promote greater efficiency and higher productivity in the Guarantor's agricultural and agro-industrial sectors, reduce poverty and malnutrition and improve the cost-effectiveness of government expenditures in food and nutrition programs (hereinafter called the Program), declaring the Guarantor's commitment to the execution of the Program, and requesting assistance from the Bank in the financing of imported goods required during such execution; (B) on the basis, inter alia, of the foregoing, the Bank has decided, in support of the Program, to provide such assistance to the Guarantor by making a loan in various currencies equivalent to four hundred million dollars ($400,000,000) to Nacional Financiera, S.N.C. (the Borrower), on the terms and conditions set forth in the Page 2 Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the Borrower in respect of such loan and to undertake other obligations as provided in this Agreement; and WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed so to guarantee such obligations of the Borrower and to undertake such other obligations 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, (the General Conditions) with the modifications set forth in Section 1.01 of the Loan Agreement constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to, and Section 1.02 of the Loan Agreement have the respective meanings therein set forth. ARTICLE II Guarantee; Transfer of Loan Proceeds Section 2.01. Without limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, and the punctual performance of all the other obligations of the Borrower, all as set forth in the Loan Agreement. Section 2.02. The Guarantor shall enter into the contractual arrangements with the Borrower referred to in Section 3.01 of the Loan Agreement and, unless the Bank shall otherwise agree, shall not change or fail to enforce any provision of such contractual arrangements. ARTICLE III Other Covenants Section 3.01. (a) The Guarantor and the Borrower, pursuant to Section 3.02 of the Loan Agreement, shall, at the request of either party, exchange views with the Bank on the progress achieved in carrying out the Program, the Project and the actions specified in the Schedule to this Agreement. (b) Not later than 10 days prior to each such exchange of views, the Guarantor shall furnish to the Bank a report, in such detail as the Bank shall reasonably request, on such progress achieved. 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 4 to the Loan Agreement. Section 3.03. The Guarantor shall provide or cause to be provided to the Borrower, in a timely manner, all documents and records in respect of the expenditures financed out of the proceeds of the Loan required to enable the Borrower to comply with the provisions of Section 4.01 of the Loan Agreement. Section 3.04. The Guarantor shall, carry out, or cause to be Page 3 carried out, the studies described in Part B of the Project described in Schedule 2 to the Loan Agreement, under terms of reference satisfactory to the Bank, and provide to the Bank, for its review and comments, copies of such studies. Section 3.05. The Guarantor shall furnish to the Bank, not later than September 30, 1991, an action plan, satisfactory to the Bank, to eliminate the system of crop production targets, based on the results and recommendations of the study referred to in Section 6.01 (b) of the Loan Agreement and the Bank's comments thereon. Section 3.06. The Guarantor shall, by not later than September 30, 1991, eliminate all import permits for green coffee. ARTICLE IV Representative of the Guarantor; Addresses Section 4.01. The Director General de Captacion de Credito Externo de la Secretaria de Hacienda y Credito Publico of the Guarantor is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Conditions. Section 4.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Guarantor: Direccion General de Captacion de Credito Externo Secretaria de Hacienda y Credito Publico Palacio Nacional, Primer Patio Mariano Oficina 4025 06066 Mexico, D.F. Mexico Telex: 1777313-SCHDCMIE Fax: 525-5227550 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 197688 (TRT) Washington, D.C. 248423 (RCA) 64145 (WUI) or 82987 (FTCC) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Mexico City, Mexico, as of the day and year first above written. UNITED MEXICAN STATES By /s/ Jose Angel Gurria Authorized Representative Page 4 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Acting Regional Vice President Latin America and the Caribbean Honarary Witness: /s/ Luis Tellez Kuenzier UNITED MEXICAN STATES SCHEDULE Actions Referred to in Paragraph 4 of Schedule 1 to the Loan Agreement 1. The Guarantor shall have: (a) implemented a system, satis- factory to the Bank, to eliminate CONASUPO's monopoly on imports of powdered milk and to allocate import permits for powdered milk on a transparent, competitive and efficient basis; (b) eliminated all export permits for fluid milk (leche fresca) and powdered milk; (c) allowed for the price of tobacco to be freely determined by the market; (d) not increased the nominal protection for wheat above the level existing at May 1, 1991, as determined by a methodology agreed between the Guarantor and the Bank; (e) flexibilized prices subject to the control of the Guarantor for the following products: cookies, pastas, edible oils, cigarettes, eggs, dairy products and beef. For purposes of this paragraph, a price shall have been flexibilized when the determination of the respective price conforms to criteria and procedures agreed between the Guarantor and the Bank; (f) not increased, in real dollar terms: (i) the guarantee price for maize above the level set for the 1990 Autumn/Winter crop cycle for 1990/1991; and (ii) the domestic price for refined sugar above the level existing on January 1, 1991. For measuring compliance with the above actions, the Bank shall utilize a methodology agreed with the Guarantor; (g) exchanged views with the Bank on the results of the study referred to in Part B.3 of the Project and, based on such exchange of views, approved a policy for the sugar sector acceptable to the Guarantor and the Bank; (h) (i) not increased the nominal price of barley for the period June 1, 1991 through January 31, 1992 above the level of $680,000 pesos per ton; and (ii) set the nominal price of barley for the period February 1, 1992 through January 31, 1993 at a level not to exceed $714,000 pesos per ton; and (i) maintained its policy of allowing prices of pesticides to be freely determined by the market. 2. The Guarantor shall have prepared and furnished to the Bank an action plan, satisfactory to the Bank, based upon the results and recommendations of the study referred to in Part B.1 of Schedule 2 to the Loan Agreement. 3. The Guarantor shall have prepared and furnished to the Bank an action plan, satisfactory to the Bank, based upon the results and recommendations of the studies referred to in Parts B.2 and B.4 of Schedule 2 to the Loan Agreement. 4. A proposed 1992 Fiscal Year budget for agriculture shall have been submitted to the Guarantor's Congress which budget's level and composition is consistent, in the opinion of the Guarantor and the Bank, with the Guarantor's macroeconomic policy framework and with an efficient allocation of government resources at the sectoral level. 5. The Production Targets Action Plan is being implemented in accordance with its respective objectives, action timetables and other terms. 6. The Guarantor shall have eliminated: (a) all restrictions that prevent private sector competition with PRONASE; (b) PRONASE's Page 5 monopoly of germplasm produced by INIFAP; and (c) restrictions or limitations on plant breeding by the private sector. 7. (a) The Guarantor shall have submitted to the Bank an evaluation, satisfactory to the Bank, of the Selected Food and Nutrition Program in accordance with the MES Implementation Plan. (b) The Guarantor shall have prepared and submitted to the Bank a general action plan and individual action plans for each participating governmental department or agency, for the implementation of the Food and Nutrition Program during the period 1993-1994, all such action plans to be acceptable to the Bank. 8. The Bank shall have received, pursuant and subject to the terms and conditions of Section 4.01 of the Loan Agreement, the respective audit related to withdrawals under the first tranche.