Conformed Copy - C2497 - Financial Institutions Development Technical Assistance Project - Development Credit Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2497 MAG Development Credit Agreement (Financial Institutions Development Technical Assistance Project) between REPUBLIC OF MADAGASCAR and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated September 20, 1993 CREDIT NUMBER 2497 MAG DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated September 20, 1993, between REPUBLIC OF MADAGASCAR (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS: (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Borrower has stated in a letter, dated March 3, 1993, its policies and objectives designed to improve the financial sector in its territories (the Statement of Financial Sector Reform and Development Policy); (C) the Borrower intends to contract from the Government of the Swiss Confederation (Switzerland) a grant (the Swiss Grant) in an amount approximately equivalent to $600,000 to assist in financing Parts A (c) and A (f) of the Project on the terms and conditions set forth in an agreement (the Swiss Grant Agreement) to be entered into between the Borrower and Switzerland; (D) the Borrower intends to contract from the United States Agency for International Development (USAID) a grant (the USAID Grant) in an approximate amount of $3,000,000 to assist in financing Parts A (a) and A (h) of the Project on the terms and conditions set forth in an agreement (the USAID Grant Agreement) to be entered into between the Borrower and USAID; Page 2 (E) the Borrower intends to contract from Swedish Agency for International Technical and Economic Cooperation (BITS) a grant (the BITS Grant) in an amount not exceeding $500,000 equivalent to assist in financing Part A (i) of the Project on the terms and conditions set forth pursuant to arrangements (the BITS Grant Agreement) to be entered into between the Borrower and BITS; (F) Parts A and B of the Project will be carried out by Banque Centrale de la Rhungarumlautpublique Malgache (BCRM) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to BCRM a portion of the proceeds of the Credit as provided in this Agreement; 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 in this Agreement and in the Project Agreement of even date herewith between the Association and BCRM; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Development Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) 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 this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Project Preparation Advance" means the project preparation advance granted by the Association to the Borrower pursuant to an exchange of letters dated February 9, 1993 and February 24, 1993 between the Borrower and the Association; (b) "Special Account" means any of the accounts referred to in Section 2.02 (b) of this Agreement; (c) "BCRM" means Banque Centrale de la Rhungarumlautpublique Malgache, established and operating pursuant to its Statutes; (d) "BCRM's Statutes" means the statutes of BCRM, set forth in the Borrower's Ordonnance No. 73-025 dated June 12, 1973, as amended from time to time; (e) "Project Agreement" means the agreement between the Association and BCRM, of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement; (f) "Subsidiary Credit Agreement" means the agreement entered into between the Borrower and BCRM pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes any schedules to the Subsidiary Credit Agreement; (g) "CCBEF" means Commission de Contr\1ale des Banques et Etablissements Financiers, established and operating pursuant to the Borrower's Ordonnance No. 88-005 dated April 18, 1988, as amended from time to time; and (h) "BCRM and CCBEF Strategic Development Plans" means the plan respectively adopted by BCRM and CCBEF in April 1993, with a view to restructuring and strengthening their departments on a medium-term basis, and including a human resource and information technology strategy, as may be amended from time to time with the approval of the Association. Page 3 ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to four million six hundred thousand Special Drawing Rights (SDR 4,600,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (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. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special deposit account in the name of the Borrower's Ministry responsible for finance (the Finance Special Account) in a commercial bank and a special deposit account in the name of BCRM (the BCRM Special Account), in BCRM, on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Accounts shall be made in accordance with the provisions of Schedule 4 to this Agreement. (c) Promptly after the Effective Date, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay to itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be cancelled. Section 2.03. The Closing Date shall be September 30, 1998 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied from the next payment date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. 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. Section 2.06. Commitment charges and service charges shall be payable semiannually on June 15 and December 15 in each year. Page 4 Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each June 15 and December 15, commencing June 15, 2003 and ending December 15, 2032. Each installment to and including the installment payable on December 15, 2012 shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. (b) Whenever (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years, and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association, and after due consideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. 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. BCRM is designated as representative of the Borrower in respect of Parts A and B of the Project 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. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement and, to this end: (i) shall carry out Part C of the Project, through its Ministry responsible for budget, in cooperation with CCBEF and the Borrower's Ordre des Experts Comptables et Comptables Agrhungarumlauthungarumlauts, and Part D of the Project, through its Ministry responsible for finance, in cooperation with BCRM, with due diligence and efficiency and in conformity with appropriate administrative and financial practices and shall provide, promptly as needed, the funds, facilities, services and other resources required for such Parts of the Project; and (ii) without limitation or restriction upon any of its other obligations under the Development Credit Agreement, the Borrower shall cause BCRM to perform all its obligations set forth in the Project Agreement, shall take or cause to be Page 5 taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable BCRM 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 available to BCRM, on a grant basis, the portion of the proceeds of the Credit allocated to Categories (1) (a) and (b) and (2) (a) and (b) of the table set forth in paragraph 1 of Schedule 1 to this Agreement, under a subsidiary credit agreement to be entered into between the Borrower and BCRM, under terms and conditions which shall have been approved by the Association. (c) The Borrower shall exercise its rights under the Subsidiary Credit 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, amend, abrogate or waive the Subsidiary Credit Agreement or any provision thereof. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods and consultants' services required for Parts C and D of the Project, and to be financed out of the proceeds of the Credit, shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.03. The Borrower and the Association hereby agree that the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of Parts A and B of the Project shall be carried out by BCRM pursuant to Section 2.03 of the Project Agreement. Section 3.04. The Borrower shall: (a) maintain in functions, at all times, a coordinating officer in its Ministry responsible for finance and a coordinating officer within its Ministry responsible for budget, with responsi- bilities, qualifications and experience satisfactory to the Association; (b) prepare, through said coordinating officers, the programs, budgets and reports with respect to Parts C and D of the Project, referred to in paragraph 2 of the Schedule to the Project Agreement, in accordance with the provisions of said paragraph; and (c) participate in the midterm review of the Project provided for under said paragraph and, soon thereafter, implement the recommendations of such a review within its jurisdiction. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect, in accordance with sound accounting practices, the operations, resources and expenditures in respect of the Project of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section in respect of Parts C and D of the Project, including those for the Finance Special Account, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by Page 6 independent auditors acceptable to the 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 copy of 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 said records, accounts and the audit thereof as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit 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 expen- ditures; (ii) retain, until at least one year after the Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account or payment out of the Finance Special Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expen- ditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit 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 V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) A situation has arisen which shall make it improbable that the Statement of Financial Sector Reform and Development Policy, or a significant part thereof, will be carried out. (b) BCRM shall have failed to perform any of its obligations under the Project Agreement. (c) As a result of events which have occurred after the date of the Development Credit Agreement, an extraordinary situation shall have arisen which shall make it improbable that BCRM will be able to perform its obligations under the Project Agreement. (d) BCRM's Statutes (as revised in accordance with Section 6.01 (b) of this Agreement) shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the operations or financial condition of BCRM or the ability of BCRM to perform any of its obligations under the Project Agreement. Page 7 (e) The Borrower's Ordonnance No. 88-005 dated April 18, 1988 portant rhungarumlautglementation bancaire shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of CCBEF to carry out its responsibilities under Part B of the Project. (f) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution of BCRM or of CCBEF. (g) (i) Subject to subparagraph (ii) of this paragraph: (A) the right of the Borrower to withdraw the proceeds of any loan or grant made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms thereof, or (B) any such loan shall have become due and payable prior to the agreed maturity thereof. (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional events are specified: (a) any event specified in paragraph (b) 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 BCRM; (b) any event specified in paragraphs (d), (e) or (f) of Section 5.01 of this Agreement shall occur; and (c) the event specified in paragraph (g) (i) (B) of Section 5.01 of this Agreement shall occur, subject to the proviso of subparagraph (ii) of this paragraph. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Subsidiary Credit Agreement has been executed on behalf of the Borrower and BCRM; (b) the Ordonnance setting forth BCRM's revised Statutes, so as to make BCRM more independent and accountable in its operations, has been promulgated; (c) the audit report for BCRM's accounts for fiscal year 1992, prepared in accordance with the provisions of Section 4.01 of the Project Agreement, has been received by the Association; and (d) all conditions precedent to the effectiveness of the Swiss Grant Agreement, the USAID Grant Agreement and the BITS Grant Agreement have been fulfilled, other than those related to the Page 8 effectiveness of this Agreement. 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 BCRM and is legally binding upon BCRM in accordance with its terms; and (b) that the Subsidiary Credit Agreement has been duly authorized or ratified by the Borrower and BCRM and is legally binding upon the Borrower and BCRM in accordance with its terms. Section 6.03. 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. Section 6.04. The obligations of the Borrower under Section 4.01 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on the date fifteen years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. Except as provided in Section 2.09 of this Agreement, the Minister of the Borrower responsible for finance 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 purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance Antananarivo Madagascar Cable address: Telex: MINFIN 22489 Antananarivo For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) 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 MADAGASCAR Page 9 By /s/ Pierrot Rajaonarivelo Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Edward V.K. Jaycox Regional Vice President Africa SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Equipment, 100% of foreign vehicles expenditures and and supplies: 85% of local expenditures (a) for Part A 1,900,000 (b), (d), (e) and (g) of the Project (b) for Part B 150,000 of the Project (c) for Part C (b) 50,000 of the Project Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (2) Consultants' 100% services, auditing ser- vices and training: (a) for Part A (b), 1,110,000 (d), (e) and (g) of the Project (b) for Part B of 260,000 the Project (c) for Part C (a) 90,000 of the Project (d) for Part C (b) 330,000 of the Project (e) for Part D of 150,000 the Project (3) Refunding of Project 260,000 Amounts due pur- Preparation Advance suant to Section Page 10 2.02 (c) of this Agreement (4) Unallocated 300,000 _________ TOTAL 4,600,000 ========= 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made: (a) in respect of payments made for expenditures prior to the date of this Agreement; and (b) in respect of Categories (1) (c) and (2) (d), until an Ordonnance relative l'organisation des professions d'expert comptable et financier et de comptable agrhungarumlauthungarumlaut et la restructuration de l'ordre groupant les membres de ces professions, with contents satisfactory to the Association, has been promulgated. SCHEDULE 2 Description of the Project The objectives of the Project are to facilitate investment and growth in the productive sectors by improving the functioning of the Borrower's financial system. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: BCRM Strengthening BCRM's capacity to formulate and execute monetary policy through: (a) the development of its Research Department in the carrying out of specific data analysis and policy functions; (b) the improvement of open market operations; (c) the improvement of information and accounting systems in the management of foreign exchange and treasury operations; (d) a more efficient management of bank notes and coins and of payment system operations; (e) the introduction of improved accounting systems and procedures to better monitor and control accounting functions; (f) the establishment and operation of an internal audit unit with responsibilities separate from those linked with prudential supervision of financial institutions; (g) the improvement of: (i) administration and information technology systems for developing institutional capabilities; and (ii) external debt management; (h) the carrying out of a human resource study and Page 11 development plan for BCRM's staff; and (i) assistance in project management capacity. Part B: CCBEF Strengthening the supervisory capacities of CCBEF to undertake prudential supervision of financial institutions, including systematic on-site inspection of commercial banks. Part C: Auditing and Accounting (a) Introduction of international standards of accounting and disclosure through: (i) the adoption and progressive revision and improvement of the chart of accounts for banks and financial institutions (NPCB); and (ii) training and seminars in the financial sector for NPCB implementation. (b) Facilitating the implementation of the regulatory framework and of revised regulations to accelerate the development of the accounting profession, including the admission of appro- priately qualified accountants, whether Malagasy nationals or not, and the general application of International Accounting Standards and International Standards of Auditing throughout the Borrower's territories, and the training required therefor. Part D: Support to the privatization of state banks. * * * The Project is expected to be completed by March 31, 1998. SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods Part A: International Competitive Bidding 1. Except as provided in Part C hereof, goods shall be procured under contracts awarded 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 1992 (the Guidelines). For fixed-price contracts, the invitation to bid referred to in paragraph 2.13 of the Guidelines shall provide that, when contract award is delayed beyond the original bid validity period, the successful bidder's bid price will be increased for each week of delay by two predisclosed correction factors acceptable to the Association, one to be applied to all foreign currency components and the other to the local currency component of the bid price. Such an increase shall not be taken into account in the bid evaluation. 2. To the extent practicable, contracts for goods shall be grouped into bid packages estimated to cost the equivalent of $125,000 or more. 3. Goods to be procured through international competitive bidding shall be exempted from pre-shipment price inspection by a third party. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 hereof, goods manufactured in Madagascar may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. Page 12 Part C: Other Procurement Procedures 1. Items or groups of items for goods estimated to cost the equivalent of $125,000 or less per contract, up to an aggregate amount equivalent to $600,000, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association, provided that the technical and financial bids are simultaneously opened in public. 2. Items or groups of items for goods estimated to cost the equivalent of $50,000 or less per contract, up to an aggregate amount equivalent to $200,000, may be procured under contracts awarded on the basis of comparison of price quotations obtained from at least three suppliers eligible under the Guidelines, in accordance with procedures acceptable to the Association. Part D: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract estimated to cost the equivalent of $50,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of a Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to said paragraph 2 (d) shall be furnished to the Association prior to the making of the first payment out of a Special Account in respect of such contract. (b) With respect to each contract not governed by the preceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of a Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract, together with the other information required to be furnished to the Association, pursuant to said paragraph 3, shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to this Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Credit Account are to be made on the basis of statements of expenditure. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants 1. (a) In order to assist the Borrower in carrying out Parts C and D of the Project and BCRM in carrying out Parts A and B of the Project, the Borrower and BCRM shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981 (the Consultant Guidelines). (b) The Borrower and BCRM shall assign, before arrival at duty station, to each resident consultant, and if deemed appropriate to the Borrower or BCRM and the Association, to any other consultant, local counterpart staff with qualifications satisfactory to the Association. 2. Notwithstanding the provisions of paragraph 1 (a) of this Section, the provisions of the Consultant Guidelines requiring prior Association review or approval of budgets, short lists, selection Page 13 procedures, letters of invitation, proposals, evaluation reports and contracts shall not apply to contracts estimated to cost less than $50,000 equivalent each. However, this exception to prior Association review shall not apply to the terms of reference for such contracts nor to the employment of individuals, to single source selection of firms, to assignments of a critical nature as reasonably determined by the Association and to amendments of contracts raising the contract value to $50,000 equivalent or above. SCHEDULE 4 Special Accounts 1. For the purposes of this Schedule: (a) the term "eligible Categories" means: (i) Categories (1) (c) and (2) (c), (d) and (e) in the case of the Finance Special Account; and (ii) Categories (1) (a) and (b) and (2) (a) and (b) in the case of the BCRM Special Account, set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures 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 allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means: (i) an amount equivalent to $100,000 for the Finance Special Account, and (ii) an amount equivalent to $200,000 for the BCRM Special Account, to be withdrawn from the Credit Account and deposited into the Special Accounts pursuant to paragraph 3 (a) of this Schedule. 2. Payments out of a Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Association has received evidence satisfactory to it that a Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Association a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into a Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of a Special Account, the Borrower shall furnish to the Association requests for deposits into a Special Account at such intervals as the Association shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into a Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Association from the Credit Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said Page 14 documents and other evidence. 4. For each payment made by the Borrower out of a Special Account, the Borrower shall, at such time as the Association shall reasonably request, furnish to the Association such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Association shall not be required to make further deposits into a Special Account: (a) if, at any time, the Association shall have determined that all further withdrawals should be made by the Borrower directly from the Credit Account, in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) once the total unwithdrawn amount of the Credit allocated to the eligible Categories, less the amount of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in a Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of a Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association: (A) provide such additional evidence as the Association may request; or (B) deposit into a Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Association shall otherwise agree, no further deposit by the Association into a Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Association shall have determined at any time that any amount outstanding in a Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount. (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in a Special Account. (d) Refunds to the Association made pursuant to paragraph 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions.