Conformed Copy - C1834 - Industry and Trade Policy Adjustment Credit - Development Credit Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1834 MAG (Industry and Trade Policy Adjustment Credit) between DEMOCRATIC REPUBLIC OF MADAGASCAR and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated July 10, 1987 CREDIT NUMBER 1834 MAG DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated July 10, 1987, between DEMOCRATIC REPUBLIC OF MADAGASCAR (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS (A) the Association has received a letter, dated May 29, 1987, from the Borrower describing the program of actions, objectives and policies designed to improve the efficiency of the industry and trade policy of Madagascar (hereinafter called the Program) and declaring the Borrower's commitment to the execution of the Program; (B) the Borrower has also requested the Association, acting as Administrator of a Special Facility for Sub-Saharan Africa (the African Facility) established by its Executive Directors by Resolution No. IDA 85-1 of May 21, 1985, to provide additional assistance in support of the Program, and by an agreement of Page 2 even date herewith between the Borrower and the Association as Administrator of the African Facility (the African Facility Credit Agreement), the Association is agreeing to provide such assistance in an aggregate principal amount equivalent to fifty-two million two hundred thousand Special Drawing Rights (SDR 52,200,000); (C) the Borrower intends to contract from Saudi Fund for Development a loan, under the Special Joint Financing Program for the Special African Facility, in an amount equivalent to twelve million Saudi Rials (SR 12,000,000) in support of the Program; (D) the Borrower intends to contract from Japan Overseas Economic Cooperation Fund (hereinafter called OECF) under the Special Joint Financing Agreement for the Special African Facility a loan (the OECF Loan) in an amount of one billion yen (Y 1,000,000,000) to assist in supporting the Program on the terms and conditions set forth in an agreement (the OECF Loan Agreement) to be entered into between the Borrower and OECF; and (E) the Borrower intends to contract from the Association acting as Administrator on behalf of Japan a grant (the Japanese Grant Agreement) in an amount equivalent to one billion Yen (Y l,000,000,000) (the Japanese Grant) in support of the Program; 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; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.O1. The "General Conditions Applicable to Develop- ment Credit Agreements" of the Association, dated January 1, 1985, with the modifications thereof set forth below (the General Condi- tions) constitute an integral part of this Agreement: (a) Section 2.01, paragraph 9, shall be modified to read: "'Project' means the imports and other activities that may be financed out of the proceeds of the Credit pursuant to the provisions of Schedule 1 to the Development Credit Agreement."; (b) Section 9.06 (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 Association, the Borrower shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution of the Program referred to in the Preamble to the Development Credit Agreement, the performance by the Borrower and the Association of their respective obligations under the Development Credit Agreement and the accomplishment of the purposes of the Credit."; and (c) the last sentence of Section 3.02 is deleted. Section 1.O2. 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) "Special Account" means the account referred to in Sec- tion 2.02 (b) of this Agreement; (b) "Project Preparation Advance" means the project prepa- ration advance granted by the Association to the Borrower pursuant Page 3 to an exchange of letters, dated March 3, 1987, and March 20, 1987, between the Borrower and the Association; (c) "BNI" means Bankin'ny Indostria; (d) "BTM" means Bankin'ny Tantsaha Mpamokatra; and (e) "BFV" means Banky Fampandrosoana ny Varotra. ARTICLE II The Credit Section 2.O1. 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 twelve million five hundred thousand Special Drawing Rights (SDR 12,500,000). Section 2.O2. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Association. (b) The Borrower shall, for the purposes of the Program, cause its central bank to open and maintain in dollars a special account (Special Account A) in a commercial bank on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account 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 out- standing 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.O3. The Closing Date shall be December 31, 1989, or such later date as the Association shall establish. The Associa- tion shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge at the rate of one-half of one percent (1/2 of 1%) per annum on the principal amount of the Credit not withdrawn from time to time. The commitment charge shall accrue from a date sixty days after the date of the Development Credit Agreement to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or shall be cancelled. (b) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restric- tions 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.O5. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (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 January 15 and July 15 in each year. Section 2.O7. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each January 15 and July 15, commencing July 15, 1997, and ending Page 4 January 15, 2037. Each installment to and including the install- ment payable on January 15, 2007, shall be one-half of one percent (1/2 of 1%) of such principal amount, and each installment there- after shall be one and one-half percent (1-1/2%) of such principal amount. Section 2.O8. The currency of the United States of America is hereby specified for the purposes of Section 4.O2 of the General Conditions. ARTICLE III Particular Covenants Section 3.01. (a) The Borrower and the Association shall, from time to time, at the request of either party, exchange views on the progress achieved in carrying out the Program and the actions specified in Schedule 3 to this Agreement. (b) Prior to each such exchange of views, the Borrower shall furnish to the Association, for its review and comment, a report on the progress achieved in carrying out the Program, in such detail as the Association shall reasonably request. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods and services to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 2 to this Agreement. Section 3.03. By September 30, 1988, the Borrower shall complete: (i) an action program for the rehabilitation of public sector enterprises; and (ii) a study on the financial sector of the Borrower. To that end, the Borrower 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 the 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. Section 3.04. The Borrower shall take all appropriate actions for the implementation of the rehabilitation plans referred to in paragraph 1 (d) of Schedule 3 of this Agreement. Section 3.05. (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 Credit. (b) The Borrower shall: (i) have the records and accounts referred to in para- graph (a) of this Section, including those for Special Account A, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by 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 and accounts and the audit thereof as the Association shall, from time to time, reasonably request. (c) For all expenditures with respect to which withdrawals Page 5 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 expenditures; (ii) retain, until at least one year after the Associa- tion has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association'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 proce- dures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE IV Additional Events of Suspension Section 4.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) An event has occurred which shall make it improbable that the Program, or a significant part thereof, will be carried out. (b) (i) Subject to subparagraph (ii) of this paragraph: (A) the right of the Borrower to withdraw the proceeds of the African Facility Credit, the OECF Loan or the Japanese Grant, made to the Borrower for the financing of the Program shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the African Facility Credit Agreement, the OECF Loan Agreement or the Japanese Grant Agreement; or (B) the African Facility Credit or the OECF 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 Program are available to the Borrower from other sources on terms and conditions consistent with the obliga- tions of the Borrower under this Agreement. Section 4.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional event is specified, namely, that any event specified in paragraph (b) (i) (B) of Section 4.01 of this Agreement shall occur, subject to the proviso of paragraph Page 6 (b) (ii) of that Section. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) all conditions precedent to the effectiveness of the African Facility Credit Agreement, other than the effectiveness of this Agreement, have been fulfilled; (b) the Borrower shall have: (i) made its liberalized import regime applicable to the importation of all spare parts, raw materials, non-food consumer goods and equipment goods; and (ii) eliminated the separate categories from its liberalized import regime; (c) the Borrower shall have employed the consultants for the carrying out of the studies referred to in Section 3.03 of this Agreement; and (d) the Borrower shall have freed ex-factory prices for soap, candles, condensed milk, edible oil and baby food from all restrictions. Section 5.02. 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. 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 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministere aupres de la Pr