Turkey - Structural Adjustment Loan : Loan 1818 - Loan Agreement - Conformed

, OFFICIAL ()c=u TIFD O)C bW W-T S LOAN NUMER I!~ TU Loan Agreement (Structural Adjustment Loan) between REPUBLIC OF TURKEY and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated KoCL, 1980 LOAN AGREEMENT AGREEMENT, dated ,AAL 64- 1980, between REPUBLIC OF TURKEY (hereinafter called the Borrower) and INTER- NATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) the Borrower is undertaking a comprehensive economic program for the short-term stabilization, the medium- term recovery and long-term development of its economy; (B) In furtherance thereof, the Borrower intends, inter alia, to implement economic measures summarized in the letter dated February 7, 1980, addressed to the Bank by the Borrower; and (C) The Borrower has requested the Bank's assistance in achieving the above objectives and increasing the utilization of its productive capacity in industry and agriculture through the provision of part of the foreign ezchange required to finance essential imports of raw materials and intermediate goods as specified in Schedule 1 to this Agreement. WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan to the Borrower upon the terms and conditions hereinafter set forth; 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 Loan and Guarantee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank 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: -2- (a) "Lt" and "Lira" mean the currency of the Borrower; (b) "Project Account" means the account established in T.C. Merkez Bankasi pursuant to Section 3.02 of this Agreement; (c) "T.C. Merkez Bankasi" means Tiirkiye Cumhuriyet Merkez Bankasi, the Central Bank of the Republic of Turkey established and operating pursuant to Law No. 1211 promulgated in the Official Gazette of the Republic of Turkey No. 13409 of January 26, 1970 as amended; (d) "SEE" means a State Economic Enterprise, or a corpora- tion, enterprise or entity, 50% or more of whose capital is owned or controlled by the Borrower or any of its administrative sub- divisions, agencies or instrumentalities; and (e) "Private Sector Firm" means a firm, corporation, part- nership or any other manufacturing entity 50% or more of whose capital is owned or controlled by persons or entities other than the Borrower, its administrative subdivisions, agencies or instru- mentalities, including SEEs. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to two hundred million dollars ($200,000,000). 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, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank, for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of the imported goods included in such Schedule. Section 2.03. Ex.,ept as the Bank shall otherwise agree, the procurement of the goods to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. -3- Section 2.04. The Closing Date shall be September 30, 1981, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of eight and twenty-five hundredths per cent (8.25%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semiannually on June 1 and December 1 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. Section 2.09. (a) T.C. Merkez Bankasi 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 shall entrust T.C. Merkez Bankasi with responsibility for the coordination and collection of relevant documentation, and the preparation of withdrawal applications, under the Loan, which withdrawal applications shall to the extent practicable be con- solidated so as to provide for withdrawal of at least $25,000 equivalent. Each such withdrawal application shall be submitted to the Bank with a statement of the cumulative amount claimed for withdrawal from the Loan Account on account of expenditures made or to be made by Private Sector Firms under such application and all earlier applications submitted to the Bank. ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out the Project described in Schedule 2 to this Agreement, or cause the Project -4- to be carried out with due diligence and efficiency and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 3.02. The Borrower shall open an account (the Project Account) with T.C. Merkez Bankasi and shall deposit in said account in accordance with its usual financial procedures, upon each withdrawal from the Loan Account, the equivalent in Liras of the currency or currencies withdrawn from the Loan Account (such equivalent to be determined as of the respective date of such withdrawals). The amounts so deposited in the Project Account shall be used exclusively to finance expenditures included in the Borrower's development programs. Section 3.03. Without limitation or restriction to the generality of Section 3.01 of this Agreement, the Borrower shall: (a) promptly upon receipt of appropriate applications from the eligible importers issue, or cause to be issued, such import licenses as shall be required to carry out the Project, taking into account, in light of inter alia installed capacity, recent performance and export potential of the applicant of such license, the extent to which domestic production of such commodities cannot meet domestic demand for such commodities and the need to allocate import licenses equitably among Turkish firms both public and private; (b) make available, or cause to be made available, to the licensed importers promptly as needed, such amounts of foreign exchange as shall be required to import goods to be financed out of the proceeds of the Loan; and (c) take all such action as shall be necessary or convenient to facilitate the timely importation of goods to be financed out of the proceeds of the Loan. Section 3.04. From April 1, 1980 until March 31, 1981, the Borrower shall, promptly as needed, provide to eligible manufacturers out of resources other than the proceeds of the Loan not less than the equivalent of $30,000,000 in foreign exchange on account of expenditures for spare parts. -5- Section 3.05. The Borrower shall allocate not less than the equivalent of $65,000,000 of the proceeds of the Loan and not less than the equivalent of $10,000,000 of the foreign exchange resources referred to in Section 3.04 of this Agreement to Private Sector Firms. Section 3.06. (a) The Borrower undertakes that adequate provision will be made for the insurance of the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such goods. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. Section 3.07. The Borrower shall: (i) maintain records and procedures adequate to record and monitor the p-ogress of the Project (including its cost and the benefits to je derived from it), to identify the goods and services financed out of the proceeds of the Loan, their procurement, and to disclose their use in the Project; (ii) enable the Bank's accredited repre- sentatives to visit the facilities benefiting from the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) furnish to the Bank at regular intervals all such information as the Bank shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds and their procurement. Section 3.08. (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 economic program and the measures referred to in paragraphs (A) and (B) of the Preamble to this Agreement. (b) In any event, such exchanges of views shall take place at least (i) once during the period from the date hereof through July 31, 1980 and (ii) once during the period from August 1, 1980 through December 31, 1980. For the purpose of such exchanges of views, the Borrower shall furnish to the Bank at least two weeks in advance a report containing such information as the Bank shall reasonably request; such reports shall contain inter alia: -6- (i) an account of actual export performance in relation to the targets established under the economic program and the measures referred to in paragraphs (A) and (B) of the Preamble to this Agreement; (ii) the status of external borrowing and plans for external debt management in the near term; (iii) the status of domestic resource mobilization effort, especially in respect of the important objective of eliminating the overall public sector deficit in the 1980 and future budgets and the performance of State Economic Enterprises; and (iv) the projected levels of public sector investments taking into consideration the financial resources available. ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest anG other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. -7- (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative subdivision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including assets held by T.C. Merkez Bankasi or any other institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. Section 4.02. The Borrower shall cause its departments and agencies responsible for carrying out the Project to register in their respective accounts all their receipts and payments in such a manner so as to identify all such receipts and payments for or in connection with the Project, all in accordance with sound accounting principles consistently applied. ARTICLE V Termination Section 5.01. The date A /9t , is hereby specified for the purposes of Section 12.01: of the General Conditions. ARTICLE VI Representative of the Borrower; Addresses Section 6.01. The Minister 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: -8- For the Borrower: Maliye Bakanligi Hazine Genel Mudurlugu ve Milletlerarasi Iktisadi Isbirligi Teskilati Genel Sekreterligi Ankara, Turkey Cable address: MALIYE Hazine Ankara 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 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 TURKEY Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By )S Aes Art 4 Regional Vice President Europe, Middle East and North Africa -9- SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of imported commod- ity groups to be financed out of the proceeds of the Loan and the allocation of the amounts of the Loan to each Category: Amount of the Loan Allocated (Expressed in Category Dollar Equivalent) (1) Agriculture 100,000,000 (a) Materials for produc- tion of fertilizers phosphate rock phosphoric acid ammonia sulphuric acid sulphur potassium chloride pyrite (b) Plant protection chemicals and their raw materials (2) Industry 100,000,000 (a) Steel industry billet coil tinplate tin other steel products, including alloy and special steels for engineering industries, such as machinery, commercial ve- hicles, internal combustion engines, pumps and valves - 10 - Amount of the Loan Allocated (Expressed in Category Dollar Equivalent) (b) Copper concentrate metal (c) Aluminum ingot wire (d) Petrochemicals and chemicals feedstocks intermediates other chemicals and dyes for cotton, woollen and synthetic textiles, leather tanning, plastics, adhe- sives, paints and glass TOTAL 200,000,000 2. Notwithstanding the provisions of paragraph 1 above: (a) no withdrawals shall be made in respect of: (i) expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower; (ii) payments made prior to the date of this Agreement, except that withdrawals in an aggregate amount not exceeding the equivalent of $10,000,000 may be made on account of payments made for such expenditures before that date but after February 1, 1980; (iii) payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; - 11 - (iv) expenditures for goods procured under invoices for less than $5,000 equivalent; and (b) no withdrawals shall be made and no commitments shall be entered into to pay amounts to the Borrower or others in respect of expenditures to be financed under this Agreement after the aggregate of the proceeds of the Loan withdrawn from the Loan Account and the amount of commitments entered into by the Bank upon the Borrower's request in respect of expenditures to be financed under the Loan shall have reached the amount of $100,000,000 equivalent and $150,000,000 equivalent, each time, unless the Bank shall be satisfied, after the exchanges of views which shall take place pursuant to Section 3.08 (b) (i) and (ii) of this Agreement, respectively, with the progress achieved by the Borrower in the carrying out of the economic program and the measures referred to in paragraphs (A) and (B) of the Preamble to this Agreement and in particular of the measures described in Schedule 5 to this Agreement. 3. Notwithstanding the allocation of an amount of the Loan set forth in paragraph 1 of this Schedule, if the Bank has re - sonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the expenditures in that Category, the Bank may, by notice to the Borrower, reallocate to the respective Category, to the extent required to meet such estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures. 4. If the Bank shall have reasonably determined that the pro- curement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expen- ditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. - 12 - SCHEDULE 2 Description of the Project The Project consists of the provision of foreign exchange required for the importation of raw materials and intermediate goods described in Schedule 1 to this Agreement in order to improve the Borrower's productive capacity in industry and agri- culture as part of the Borrower's economic program and the mea- sures referred to in paragraphs (A) and (B) of the Preamble to this Agreement, including those described in Schedule 5 to this Agreement. - 13 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each June 1 and December 1 Beginning December 1, 1984 Through December 1, 1996 7,690,000 On June 1, 1997 7,750,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. - 14 - Premiums on Frepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1.45% More than three years but not more than six years before maturity 2.90% More than six years but not more than eleven years before maturity 5.35% More than eleven years but not more than fifteen years before maturity 7.30% More than fifteen years before maturity 8.25% - 15 - SCHEDULE 4 Procurement 1. Except as provided in paragraph 3 thereof, goods to be imported under a single contract estimated to cost $5,000,000 equivalent or more, shall be procured under contracts awarded in accordance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Cre- dits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. 2. Contracts for the purchase of goods estimated to cost less than the equivalent of $5,000,000 shall be awarded through normal trade channels on the basis of normal procurement procedures of the purchaser of such goods. 3. Contracts for commonly traded commodities may be awarded on the basis of price quotv'ions available from- organized inter- national commodity markets. 4. With respect to each contract costing $250,000 equivalent or more awarded pursuant to paragraphs 1 and 2 above and to be financed out of the proceeds of the Loan, 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; in respect of contracts referred to in paragraph 1 of this Schedule, in addition thereto, a description of advertising and tendering procedures followed, the analysis of the respective bids and recommendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guide- lines or this Schedule, promptly inform the Borrower and state the reasons for such determination. - 16 - SCHEDULE 5 Periodic Review In reviewing the progress achieved by the Borrower in the carrying out of the economic program and the measures referred to in paragraphs (A) and (B) of the Preamble to this Agreement, the Borrower and the Bank shall focus in particular on: 1. the adequacy of export promotion policies and administra- tive measures to facilitate attainment of an average real growth of exports of not less than 10% per annum over the period of 1979 through 1983, including: (a) review by October 31, 1980 of the efficiency of the interim arrangements established by the Borrower to cover export credit risk insurance and priority access of exporters to term credits, working capital credit and the like; (b) completion of the on-going review by October 31, 1980, of institutional arrangements to promote further development of the Borrower's traditional and non-traditional export products and commodities; and (c) initiation, to be made not later than April 30, 1980, of a study for the purpose of introducing more rational protection and incentive system based on tarrifs for industry. 2. Completion of an on-going comprehensive study on external debt management by October 31, 1980, with a view to introducing further improvements and refinements in the Borrower's external debt management policy. 3. Adequacy of measures to increase domestic resource mobili- zation, including (i) the objective of eliminating overall deficit financing in the public sector in 1980, (ii) the completion of a review by July 31, 1980, of measures needed to encourage increases in household savings and time deposits, and (iii) the review and further study of the various aspects of the Borrower's draft study of its financial sector. 4. Adequacy of the Borrower's measures to harmonize public investments, including those of SEE's in 1980 and 1981, with the available financial resources and the Borrower's investment priority criteria that: (i) existing productive capacity is used - 17 - efficiently and fully and critical bottlenecks removed; (ii) on-going projects be completed which, with modest additional resources, can be expected to yield speedy returns; and (iii) new productive projects stressing exports and employment generation. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this 2 day of , 198 0. FOR SECRETARY