GUARANTEE AGREEMENT UNITED MEXICAN STATES INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

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1 Public Disclosure Authorized Public Disclosure Authorized GUARANTEE AGREEMENT LOAN NUMBER 3 C0 I -ME (Financial Sector Restructuring Loan) Public Disclosure Authorized between UNITED MEXICAN STATES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized Dated ue 2, 1995

2 LOAN NUMBER 39 (I -ME GUARANTEE AGREEMENT AGREEMENT, dated we a 9 3, 1995, 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 19, 1995 from the Guarantor describing a program of actions, objectives and policies designed to achieve restructuring and development of the financial sector of the Guarantor's economy (the Program), declaring the Guarantor'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; WHEREAS (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 the amount of one billion Dollars ($1,000,000,000) to Nacional Financiera, S.N.C. (the Borrower), on the terms and conditions set forth in the 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:

3 -2- ARTICLE I General Conditions; Definitions Section The "General Conditions Applicable to Loan and Guarantee Agreements for Single Currency Loans" of the Bank, dated May 30, 1995 (the General Conditions) with the modifications set forth in Section 1.01 of the Loan Agreement constitute an integral part of this Agreement. Section Unless the context otherwise requires, the several terms defined in the General Conditions and Section 1.02 of the Loan Agreement have the respective meanings therein set forth.

4 -3- ARTICLE H Guarantee; Transfer of Loan Proceeds Section 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 The Guarantor shall enter into the contractual arrangements with the Borrower referred to in Section 3.01 (a) of the Loan Agreement and, unless the Bank shall otherwise agree, shall not change or fail to enforce any provision of such contractual arrangements.,

5 -4- ARTICLE III Other Covenants Section (a) The Guarantor 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 and the actions specified in Schedule 2 to this Agreement. (b) Prior to each exchange of views as referred to in paragraph (a) of this Section, the Guarantor 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. (c) Without limitation upon the provisions of paragraph (a) of this Section, the Guarantor shall exchange views with the Bank on any proposed action to be taken after the disbursement of the First or Second Tranche which would have the effect of materially reversing the objectives of the Program or any action taken under the Program, including any action specified in Section 5.01 of the Loan Agreement, in paragraph 4 of Schedule 1 to the Loan Agreement and in Schedule 2 to this Agreement. Section 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 1 to this Agreement. Section The Guarantor shall provide or cause to be provided to the Borrower, in 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 3.03 of the Loan Agreement.

6 -5- ARTICLE IV Representative of the Guarantor; Addresses Section The Director General de Cridito P6blico of the Guarantor is designated as representative of the Guarantor for the purposes of Section of the General Conditions. Section The following addresses are specified for the purposes of Section of the General Conditions: For the Guarantor: Direcci6n General de Credito Publico Secretaria de Hacienda y Crdito Piblico Insurgentes Sur 826 (Piso 9) Mexico, D.F. Mexico Telex: SHOCME For the Bank International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C United States of America Cable address: INTBAFRAD Washington, D.C. Telex: (TRT) (RCA) (WUI) or (FTCC)

7 -6- IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have cause this Agreement to be signed in their respective names in Mexico, D.F., United Mexican States, as of the day and year first above written. UNITED MEXICAN STATES By /.5, ( cih-fv-qo k-vaiz Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /~~ t~a aj& u-k Regional Vice President Latin America and the Caribbean

8 -7- SCHEDULE 1 Procurement Section I. Part A: Procurement of Goods General Goods shall be procured in accordance with the provisions of Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 (the Guidelines) and the following provisions of this Section, as applicable. Part B: International Competitive Bidding Except as otherwise provided in Part C of this Section, goods shall be procured under contracts awarded in accordance with the provisions of Section II of the Guidelines, subject to the provisions of paragraphs 2.63, 2.64 and 2.65 thereof. Part C: Other Procurement Procedures Goods estimated to cost less than $10,000,000 equivalent per contract may be procured: 1. by purchasers required to follow the Guarantor's procurement procedures for the.importation of goods, under contracts awarded in accordance with such procedures, provided that such procedures shall have been found acceptable by the Bank; and 2. by other purchasers: (a) (b) under contracts awarded on the basis of international shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines; or in the circumstances described in paragraph 3.7 of the Guidelines, under direct contracting procedures in accordance with the provisions of said paragraph of the Guidelines.

9 Part D: Review by the Bank of Procurement Decisions 1. Prior Review With respect to each contract estimated to cost more than $10,000,000 equivalent, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 2. Post Review With respect to each contract not governed by paragraph I of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply.

10 -9- SCHEDULE 2 Actions referred to in Paragraph 4 (c) of Schedule 1 to the Loan Agreement 1. The Guarantor, through SHCP: (i) has reviewed the results of the studies referred to in Section 5.01 (g) of the Loan Agreement with the Bank; (ii) has prepared an action plan on the basis of such reviews; and (iii) has taken all necessary official action for the implementation of such action plan on the basis of a phased implementation schedule. 2. The Guarantor, through CNBV and FOBAPROA, has reviewed with the Bank the results of all completed diagnostic studies for PROCAPTE banks and intervened banks. 3. The Guarantor, through CNBV, is executing CNBV's inspection program of banks and has reviewed the results with the Bank. 4. The Guarantor has furnished to the Bank for its review the restructuring plans of banks under FOBAPROA control (including implementation strategies), said plans to have been prepared in accordance with the Operating Guidelines and to have been approved by CNBV, SHCP and FOBAPROA. 5. The Guarantor has made progress in the execution of the bank restructuring plans referred to in paragraph 4 above in accordance with their terms. 6. The Guarantor, through CNBV, has issued regulations for revised uniform accounting principles (including consolidation of financial statements) for banks consistent with internationally accepted accounting principles, for application beginning January 1, 1996 and completion no later than for year-end 1996 accounts. 7. The Guarantor has issued revised accounting principles (including consolidation of financial statements) for non-bank financial institutions that are affiliates of financial groups with bank affiliates consistent with internationally accepted accounting principles. 8. The Guarantor, through CNBV, has issued supplemental internal instructions for inspection of banks (including development banks) covering, inter alia, asset classification and provisioning, exclusion of de facto treasury stock (stock owned or financed directly or indirectly by related entities, or covered by repurchase agreements) for purposes of capital adequacy standards, composition of Tier I capital (as said term is defined in SHCP's "Relas 2a los Requerimientos de Capitalizaci6n de las Instituciones de Banca MiltiRle" dated May 20, 1991, as amended); large exposures and concentration, and related party lending.

11 The Guarantor, through CNBV, has reviewed with the Bank the need for the issuance of new prudential regulations for banks and has issued such regulations to the extent necessary (such determination to be acceptable to the Bank). 10. The Guarantor, through CN3V, has issued new prudential regulations with respect to capital adequacy standards for brokerage firms.

12 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 International Bank for Reconstruction and Development. FOR SECRETARY