CONFORMED COPY LOAN NUMBER 3708 PA LOAN NUMBER 3708 PA

Transcription

1 Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 3708 PA Public Disclosure Authorized Loan Agreement (Natural Resources Management Project) between REPUBLIC OF PARAGUAY Public Disclosure Authorized and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated June 8, 1994 LOAN NUMBER 3708 PA LOAN AGREEMENT Public Disclosure Authorized AGREEMENT, dated June 8, 1994, between REPUBLIC OF PARAGUAY (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Bank to assist in the financing of the Project; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan 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 The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications set forth below (the General Conditions) constitute an integral part of this

2 Agreement: (a) The last sentence of Section 3.02 is deleted. (b) In Section 6.02, subparagraph (k) is relettered as sub-paragraph (l) and a new subparagraph (k) is added to read: "(k) An extraordinary situation shall have arisen under which any further withdrawals under the Loan would be inconsistent with the provisions of Article III, Section 3 of the Bank s Articles of Agreement." Section Unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Agro-ecological Zoning Study" means the study to be carried out in accordance with the terms and conditions of the Loan Agreement entered into between the Borrower and the Bank on April 28, 1992; (b) "AUCA" means an Association of Farm Credit Users (Asociacion de Usuarios de Credito Agricola) of the Borrower, established pursuant to Article 34 of Law No 551/75; (c) Borrower; "BCP" means the Central Bank (Banco Central del Paraguay) of the (d) "Beneficiary" means an individual: (i) who owns not more than 300 hectares of land in the Project Area; (ii) who is engaged in or will be engaged in an On-farm Investment; and (iii) to whom the Borrower, through MAG/DINCAP, proposes to make or has made a Subgrant under a FOCORN Subgrant Agreement; (e) "BNF" means the National Development Bank (Banco Nacional de Fomento) of the Borrower; (f) "CAH" means the Smallholder Credit Agency (Credito Agricola de Habilitacion) of the Borrower established as a public entity with juridical personality pursuant to Law No 551/75; (g) "CAH Credit Regulations" means CAH s statement of lending and investment policy approved by CAH on April 22, 1992, and to be amended in accordance with paragraph 3 (c) (iv) of Schedule 1 to this Agreement, for purposes of carrying out Part E.1 of the Project, as such regulations may be amended from time to time; (h) "CAH Subsidiary Grant Agreement" means the agreement to be entered into between the Borrower and CAH pursuant to Section 3.01 (c) of this Agreement, as the same may be amended from time to time; (i) "CAH Subloan Agreement" means an agreement entered into or to be entered into between CAH and a Small Farmer referred to in Section 3.01 (a) (iii) of this Agreement; (j) "CICAR" means the Rural Research and Training Center (Centro de Investigacion y Capacitacion Agropecuaria Regional) within MAG, to be established in accordance with Section 7.01 (a) of this Agreement; (k) "Convenios" means the agreements and the inter-institutional arrangement referred to in Section 3.01 (d) of this Agreement, as the same may be amended from time to time; (l) "Cooperative" means an association of 10 or more individuals governed by Law No 349/72 (Ley No 349/72) of the Borrower dated January 12, 1972, as amended to the date of this agreement; (m) "CRAE" means the Regional Environmental Center (Centro Regional Ambiental del Este) within MAG, to be established in accordance with Section 7.01 (a) of this Agreement; (n) "DCV" means Directorate of Rural Roads (Direccion de Caminos Vecinales) of MOPC; (o) "DINCAP" means the National Directorate of Project Coordination

3 and Administration (Direccion Nacional de Coordinacion y Administracion de Proyectos) within MAG, established pursuant to Law No. 81/92 (Ley No 81/92) of the Borrower dated November 22, 1992; (p) "DINCAP Action Plan" means the plan of action of DINCAP, dated September 30, 1993 satisfactory to the Bank, to strengthen its accounting system and administrative capabilities, as such plan may be revised from time to time, in a manner satisfactory to the Bank; (q) "FOCORN" means the Natural Resources Conservation Fund (Fondo de Conservacion de Recursos Naturales) of the Borrower, to be established in accordance with paragraph 3 (d) (i) of Schedule 1 to this Agreement; (r) "FOCORN Operating Regulations" means the statement of investment policy and eligibility criteria, for providing Subgrants to the Beneficiaries, to be approved by the Borrower, through MAG, in accordance with paragraph 3 (d) (ii) of Schedule 1 to this Agreement, as such regulations may be amended from time to time; (s) "FOCORN Subgrant Agreement" means an agreement entered into or to be entered into between a Beneficiary and the Borrower, through MAG/DINCAP, pursuant to Section 3.07 (c) of this Agreement; (t) "Guarani" means the currency of the Borrower; (u) "IBR" means the Rural Welfare Institute (Instituto de Bienestar Rural) of the Borrower established as public entity with juridical personality pursuant to Law No 852/63; (v) "Implementation Letter" means the letter of even date herewith from the Borrower to the Bank containing reference to: (i) the staffing and budgetary requirements referred to in Section 3.05 (a) and (b) of this Agreement; (ii) the matters to be examined during the reviews referred to in Section 3.12 of this Agreement; and (iii) the monitoring and evaluation program referred to in Section 3.17 of this Agreement; (w) "INDI" means the Paraguayan Institute for Indigenous People (Instituto Paraguayo del Indigena) of the Borrower established as a public entity with juridical personality pursuant to Article 28 of Law No 904/81; (x) "INDI Contractual Arrangement" means the agreement to be entered into between INDI and IBR pursuant to Section 3.01 (b) (ii) of this Agreement, as the same may be amended from time to time; (y) "INDI Subsidiary Grant Agreement" means the agreement to be entered into between the Borrower and INDI, pursuant to Section 3.01 (b) (i) of this Agreement, as the same may be amended from time to time; (z) "JVCRN" means each Local Natural Resource Management Group (Junta Vecinal para la Conservacion de Recursos Naturales) to be established as a legal entity in accordance with Article 118 of the Borrower s Civil Code, for purposes of assisting the Borrower in carrying out Part A.1 (a) of the Project; (aa) "Law No 551/75" means Ley No 551/75 of the Borrower dated December 19, 1975, as amended to the date of this Agreement; (bb) "Law No 852/63" means Ley No 852/63 of the Borrower dated March 22, 1963 and such term includes the regulations to such Law, as amended to the date of this Agreement; (cc) "Law No 904/81" means Ley No 904/81 of the Borrower dated December 18, 1981 of the Borrower, and such term includes the regulations to the provisions related to INDI within such Law, as amended to the date of this Agreement; (dd) "MAG" means the Ministry of Agriculture and Livestock (Ministerio de Agricultura y Ganaderia) of the Borrower; (ee) "MEC" means the Ministry of Education (Ministerio de Educacion y Culto) of the Borrower; (ff) "MIC" means the Ministry of Industry and Commerce (Ministerio de Industria y Comercio) of the Borrower;

4 (gg) "MOPC" means the Ministry of Public Works and Communications (Ministerio de Obras Publicas y Comunicaciones) of the Borrower; (hh) "MSPBS" means the Ministry of Health and Welfare (Ministerio de Salud Publica y Bienestar Social) of the Borrower; (ii) "Municipality" means an administrative subdivision of the Borrower established with legal personality in accordance with Article 166 of the Borrower s Constitution; (jj) "Municipal Agreements" means any of the agreements referred to in Section 3.04 (a) of this Agreement, as the same may be amended from time to time; (kk) "On-farm Investment" means a specific project to be financed under a Subgrant to mitigate the damage caused by soil erosion or degradation due to the indiscriminate use of land into agricultural production; (ll) "POA" means each annual operating plan of the Project; (mm) "Project Area" means an area of about 2 million hectares covering the Department of Alto Parana, the part of the Department of Itapua lying to the north of the River Pirapo, the District of Bellavista and such part of the Department of Caazapa in which the San Rafael National Park is located, within the Borrower s territory; (nn) "Project Entities" means CICAR, CRAE or UCTAP, as the case may be, as set forth in Schedule 7 to this Agreement; (oo) "Protected Area" means an area of about 109,300 hectares of forestry reserves and national parks in the Project Area, including the San Rafael National Park, as the same may be amended from time to time, in terms and manner satisfactory to the Bank; (pp) "Regional Operations Committee" means the committee referred to in Section 3.05 (c) of this Agreement; (qq) "San Rafael National Park" means the park created by the Borrower pursuant to Decree No 13680, dated May 29, 1992; (rr) "Small Farmer" means an individual, Cooperative or AUCA eligible for a Subloan, under the CAH Credit Regulations, which is engaged in or to be engaged in a Subproject and to whom CAH proposes to make or has made a Subloan; (ss) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (tt) "Subgrant" means a grant made or to be made by the Borrower, through MAG/DINCAP, to a Beneficiary; (uu) "Subloan" means a loan made or proposed to be made by CAH to a Small Farmer; (vv) "Subproject" means a specific project to be financed under a Subloan consisting of investments in agricultural productive activities, and small-scale industrial activities, including, inter alia, agro-industrial activities; (ww) "UCTAP" means the Project s Technical and Administrative Coordination Unit (Unidad de Coordinacion Tecnica y Administracion del Proyecto) within DINCAP, to be established in accordance with Section 7.01 (a) of this Agreement; and (xx) "UNDP Agreement" means the agreement referred to in Section 3.14 of this Agreement, as the same may be amended from time to time, in terms satisfactory to the Bank. ARTICLE II The Loan

5 Section The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, various currencies that shall have an aggregate value equivalent to the amount of fifty million Dollars ($50,000,000), being the sum of withdrawals of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal. Section (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. (b) The Borrower shall, for the purposes of the Project, open and maintain in Dollars a special deposit account in BCP on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 5 to this Agreement. Section The Closing Date shall be December 31, 2002, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Interest Period equal to the Cost of Qualified Borrowings determined in respect of the preceding Semester, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rate applicable during such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Semester. (c) For the purposes of this Section: (i) (ii) (iii) "Interest Period" means a six-month period ending on the date immediately preceding each date specified in Section 2.06 of this Agreement, beginning with the Interest Period in which this Agreement is signed. "Cost of Qualified Borrowings" means the cost, as reasonably determined by the Bank and expressed as a percentage per annum, of the outstanding borrowings of the Bank drawn down after June 30, 1982, excluding such borrowings or portions thereof as the Bank has allocated to fund: (A) the Bank s investments; and (B) loans which may be made by the Bank after July 1, 1989 bearing interest rates determined otherwise than as provided in paragraph (a) of this Section. "Semester" means the first six months or the second six months of a calendar year. (d) On such date as the Bank may specify by no less than six months notice to the Borrower, paragraphs (a), (b) and (c) (iii) of this Section shall be amended to read as follows: "(a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Quarter equal to the Cost of Qualified Borrowings determined in respect of the preceding Quarter, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall

6 pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rates applicable during such Interest Period." "(b) As soon as practicable after the end of each Quarter, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Quarter." "(c) (iii) Quarter means a three-month period commencing on January 1, April 1, July 1 or October 1 in a calendar year." Section Interest and other charges shall be payable semiannually on June 15 and December 15 in each year. Section The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. ARTICLE III Execution of the Project Section (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, shall: (i) (ii) (iii) carry out through: (A) MAG/DINCAP, Parts A, B.2 and D of the Project; (B) MSPBS, Part B.3 of the Project; (C) MEC, Part B.4 of the Project; and (D) MOPC, Part C of the Project, with the participation of the Project Entities as indicated in Schedule 7 to this Agreement, with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, health, education, agricultural, ecological, conservation and environmental practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for such Parts of the Project; cause INDI to carry out Part B.1 of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, technical, agricultural, ecological, conservation and environmental practices, and shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable INDI to carry out Part B.1 of the Project and shall not take or permit to be taken any action which would prevent or interfere with the carrying out of such Part of the Project by INDI; and cause CAH to carry out: (A) Part E.1 of the Project pursuant to subloan agreements to be entered into between CAH and the Small Farmers under terms and conditions satisfactory to the Bank which shall include, inter alia, those set forth in Schedule 6 to this Agreement, and in the CAH Credit Regulations; and (B) Part E.2 of the Project, all with due diligence and efficiency and in conformity with appropriate administrative, financial, technical, agri- cultural, ecological, conservation and environ- mental practices, and shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable CAH to carry out Part E of the Project, and shall not take or permit to be taken any action which would prevent or interfere with the carrying out of such Part of the Project by CAH. (b) The Borrower shall: (i) enter into an agreement with INDI, satisfactory to the Bank, providing, inter alia, for: (A) the transfer, on a grant basis, to INDI of the portion of the proceeds of the Loan allocated to Part B.1 of the Project; and (B) the obligation of INDI to carry out Part B.1 of the Project and to comply with all the other applicable provisions

7 of this Agreement including, inter alia, those set forth in Sections 3.02, 3.03, 3.10, 3.11 and 4.01; and (ii) cause INDI to enter into a contractual arrangement with IBR, satisfactory to the Bank, for purposes of defining IBR s coordinating functions with respect to Part B.1 of the Project. (c) The Borrower shall enter into an agreement with CAH, satisfactory to the Bank, providing, inter alia, for: (i) (ii) the transfer, on a grant basis, to CAH of the portion of the proceeds of the Loan, allocated to Part E of the Project; and the obligation of CAH to carry out Part E of the Project as provided in paragraph (a) (iii) above, and to comply with the applicable provisions of this Agreement, including, inter alia, those set forth in Sections 3.02, 3.03, 3.10, 3.11, 4.01 and Schedule 6. (d) The Borrower: (i) through MAG/DINCAP and MEC, shall enter into an agreement with INDI, satisfactory to the Bank, for purposes of defining the functions of UCTAP and INDI with respect to Part B.4 of the Project; (ii) through MAG/DINCAP shall enter into an arrangement with MIC, satisfactory to the Bank, for purposes of defining MIC s functions with respect to Part A of the Project; (iii) through MAG/DINCAP and MSPBS, shall enter into an agreement with INDI, satisfactory to the Bank, for purposes of defining the functions of UCTAP and INDI with respect to Part B.3 of the Project; and (iv) through MAG/DINCAP, shall enter into an agreement with IBR, satisfactory to the Bank, for purposes of defining the functions of IBR with respect to Part A.2 (c) of the Project. (e) The Borrower shall exercise its rights and comply with its obligations under the INDI Subsidiary Grant Agreement and the CAH Subsidiary Grant Agreement in such manner as to protect the interests of the Borrower and the Bank, and to accomplish the purposes of the Loan, and except as the Bank shall otherwise agree, the Borrower shall not amend, suspend, terminate or fail to enforce either the INDI Subsidiary Grant Agreement or the CAH Subsidiary Grant Agreement or any provision thereof, respectively. (f) The Borrower shall, and shall cause the parties to the Convenios to comply with the provisions set forth therein. Section Except as the Bank shall otherwise agree, procurement of the goods, works and consultants services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. Section The Bank and the Borrower hereby agree that the obligations set forth in Sections , 9.06, 9.07, 9.08 and 9.09 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 B.1 and E of the Project shall be carried out by INDI and CAH, respectively. Section (a) Without limitation to the provisions of Section 3.01 (a) (i) of this Agreement, the Borrower, through MAG/DINCAP, shall enter into an agreement, satisfactory to the Bank: (i) with each Municipality which has jurisdiction in the Project Area for purposes of defining the assistance to be provided by such Municipality in the carrying out of Parts A.1 (b) and (c), A.2 and A.3 of the Project; and (ii) with each Municipality (which has jurisdiction in the Project Area) and JVCRN for purposes of defining the assistance to be provided by such Municipality and JVCRN in the carrying out of Part A.1 (a) of the Project. (b) Except as the Bank shall otherwise agree, the Borrower shall not amend, suspend, terminate or fail to enforce the Municipal Agreements or any provision thereof. Section (a) Without limitation to the provisions of Section 3.01 (a) (i) of this Agreement, the Borrower, through MAG, shall operate and maintain at all times a: (i) rural research and training center (CICAR); (ii) regional environmental center (CRAE); and (iii) technical and administrative coordination unit (UCTAP) within DINCAP, with a budget and functions and responsibilities satisfactory to the Bank, including, inter

8 alia, in the case of UCTAP, the execution of the activities to be carried out under Parts A, B.2 and D of the Project, and the supervision and coordination of all the activities to be carried out under the Project. (b) The Borrower shall ensure that CICAR, CRAE and UCTAP are at all times headed by qualified professionals assisted by competent staff. (c) The Borrower, through MAG, shall establish and thereafter maintain, until the completion of the Project, a regional operations committee (the Regional Operations Committee) with functions and responsibilities satisfactory to the Bank, including, inter alia, the provision of advice to UCTAP in carrying out its functions. Section The Borrower shall: (a) not later than June 30, 1994 review jointly with the Bank the conclusions and recommendations of the Agro-ecological Zoning Study in order to determine the actions to be adopted by the Borrower; (b) not later than December 31, 1994, prepare and furnish to the Bank an action plan which shall include, inte alia, a timetable and performance indicators, to implement the actions referred to in (a) herein; and (c) immediately thereafter, carry out such action plan in accordance with its terms. Section (a) With respect to Part A.4 of the Project and without limitation to the provisions of Section 3.01 (a) (i) of this Agreement, the Borrower shall establish a fund for the conservation of natural resources (FOCORN) and immediately thereafter, open and maintain an account until the completion of the Project, under terms and conditions satisfactory to the Bank. (b) The Borrower shall, at all times, maintain in the FOCORN account a positive balance, equal to one-third of the annual amount to be disbursed under Part A.4 of the Project, as referred to in each POA. (c) The Borrower, through MAG/DINCAP, shall enter into a subgrant agreement, with each Beneficiary, under terms and conditions satisfactory to the Bank, including, inter alia, those set forth in Section III of Schedule 6 to this Agreement and in the FOCORN Operating Regulations. Section With regard to Part C of the Project and without limitation to the provisions of Section 3.01 (a) (i) of this Agreement, the Borrower, through MOPC, shall: (a) with the assistance of DCV, carry out: (i) (ii) prior to the initiation of any specific civil work under Part C.1 of the Project, an environmental impact assessment of such work, under terms and in a manner satisfactory to the Bank; and the civil works which have been determined to be environmentally viable as a result of the assessment referred to in paragraph (i) above; and (b) with the assistance of DINCAP, procure the maintenance equipment necessary to carry out Part C.2 of the Project. Section In the event that the number of CAH s loans in arrears for more than ninety days exceeds 10% of CAH s outstanding loan portfolio as of September 30 of each year, starting in September 1994, the Borrower shall cause CAH: (a) to furnish to the Bank, not later than November 30 of that year, starting in 1994 an action plan satisfactory to the Bank, to limit the number of its loans in arrears for more than ninety days to 10% of its outstanding loan portfolio; and (b) to carry out such action plan immediately thereafter, until at least the completion of the Project, in a manner satisfactory to the Bank. Section (a) Without limitation to the provisions of Section 9.06 of the General Conditions, the Borrower, through MAG, shall not later than June 30 of each year, starting in 1994, furnish to the Bank, for its review, the POA for the following calendar year, which shall include inter alia, a description of all the activities related to the execution of the Project for the year in question.

9 (b) As part of the review referred to in paragraph (a) above, the Bank may recommend to the Borrower to make adjustments in the POA in question. The Borrower shall, not later than 60 days after the conclusion of the review in question, furnish to the Bank, the revised POA, which shall include the Bank s recommendations and shall thereafter carry out, or cause to be carried out, such revised POA in accordance with its terms. Section Without limitation to the provisions of Section 9.07 of the General Conditions and Section 3.01 of this Agreement, the Borrower, through MAG/DINCAP, shall not later than January 31 and July 31 of each year, starting in January, 1995 until the completion of the Project, prepare and furnish to the Bank, a report of such scope and in such detail as the Bank may reasonably request, on the progress achieved by: (i) it; (ii) the Project Entities; and (iii) INDI and CAH, in carrying out their respective Parts of the Project. Section (a) Without limitation to the provisions of Section 9.01 of the General Conditions, the Borrower shall, and shall cause INDI and CAH, to review jointly with the Bank by not later than November 20 of each year, starting in 1995, the progress made by the Borrower, INDI and CAH in: (i) carrying out their respective Parts of the Project; and (ii) achieving the objectives of the Project. Such review shall focus, inter alia, on discussing the topics referred to in the Implementation Letter with regard to annual reviews, the progress reports and the monitoring and evaluation program referred to in Sections 3.11 and 3.17 of this Agreement, respectively. As part of each such review, the Bank may require that the Borrower prepare an action plan, satisfactory to the Bank, to make adjustments in Project implementation. The Borrower shall furnish such action plan to the Bank not later than 30 days after the conclusion of the review in question and shall thereafter carry out, or cause to be carried out, such action plan in accordance with its terms. (b) The Borrower shall, and shall cause INDI and CAH to participate in a Project implementation mid-term review to be held with the Bank as part of the annual review to be held in November, During such mid-term review, attention shall particularly focus on the topics referred to in the Implementation Letter with regard to the mid-term review, the progress reports and the monitoring and evaluation program. Section In the event that the Borrower decides to undertake a resettlement action with respect to the population living in the San Rafael National Park, the Borrower shall, and shall cause IBR to carry out such resettlement action in accordance with the resettlement plan referred to in paragraph 3 (b) of Schedule 1 to this Agreement, in a manner satisfactory to the Bank. Section The Borrower, through MAG/DINCAP, shall enter into a service agreement with UNDP (the United Nations Development Programme), satisfactory to the Bank, which shall include, inter alia, the obligation of UNDP to assist the Borrower, through MAG, in hiring the consultants under Parts A.1, A.2, A.3, B.2, and D of the Project. Section In the event that the Borrower decides to undertake a resettlement action with respect to the population living in the area to be expanded under Part B.1 of the Project, the Borrower shall: (a) prior to undertaking any action to expand the area referred to in such Part of the Project, furnish to the Bank a resettlement plan satisfactory to the Bank, which shall include, inter alia, a compensation plan; and (b) carry out and cause IBR to carry out such resettlement action in accordance with the resettlement plan referred to in paragraph (a) above. Section Without limitation to the provisions of Section 3.01 (a) (ii) of this Agreement, the Borrower shall cause INDI to complete by December 31, 1998 the land regularization activities under Part B.1 of the Project. Section The Borrower, through MAG, shall monitor and evaluate the Project in accordance with a program satisfactory to the Bank. Section The Borrower, through MAG/DINCAP, shall carry out phase two of DINCAP s Action Plan in accordance with the terms set forth therein,

10 and in a manner satisfactory to the Bank. ARTICLE IV Financial Covenants Section (a) The Borrower shall: (i) maintain or cause to be maintained records and separate accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of Parts A, B.2, B.3, B.4, C and D of the Project of the departments or agencies of the Borrower respon- sible for assisting in or carrying out the Project or any part thereof; and (ii) cause INDI and CAH to maintain records and separate accounts adequate to reflect in accordance with con- sistently maintained sound accounting practices, the operations, resources and expenditures in respect of Parts B.1 and E of the Project, respectively. (b) The Borrower shall and shall cause INDI and CAH to: (i) (ii) (iii) have the records and accounts referred to in paragraph (a) of this Section including those for the Special Account and INDI and CAH s financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied by independent auditors acceptable to the Bank; furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year: (A) a certified copy of the report of such audits by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (B) certified copies of INDI s and CAH s financial statements for such year as so audited; and furnish to the Bank such other information concerning said records and accounts and the audits thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall and shall cause INDI and CAH to: (i) (ii) (iii) (iv) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and separate accounts reflecting such expenditures; retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account or payment out of the Special Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; enable the Bank s representatives to examine such records; and 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 audits 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 Other Covenants Section The Borrower shall cause INDI and CAH:

11 (a) to take out and maintain with responsible insurers, or to make other provisions satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice; (b) to carry on their operations and conduct their affairs in accordance with sound administrative, financial, technical, ecological, agricultural conservation and environmental practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers; and (c) at all times to operate and to maintain their plants, machinery, equipment and other property, and from time to time, promptly as needed, to make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial, technical, ecological, agricultural conservation and environmental practices. ARTICLE VI Remedies of the Bank Section Pursuant to Section 6.02 (l) of the General Conditions, the following additional events are specified: (a) as a result of events which have occurred after the date of this Agreement, a situation shall have arisen which shall make it improbable that either INDI or CAH will be able to perform its obligations under the INDI Subsidiary Grant Agreement, the INDI Contractual Arrangement or the CAH Subsidiary Grant Agreement, respectively; (b) Law No 904/81 or any provision thereof shall have been amended, suspended, abrogated, repealed or waived so as to affect, in the opinion of the Bank, materially and adversely the ability of INDI to: (i) carry out Part B.1 of the Project; and (ii) perform its obligations under the INDI Subsidiary Grant Agreement, the INDI Contractual Arrangement or the agreements referred to in Section 3.01 (d) (i) and (iii) of this Agreement; (c) Law No 551/75 or any provision thereof shall have been amended, suspended, abrogated, repealed or waived so as to affect, in the opinion of the Bank, materially and adversely, the ability of CAH to: (i) carry out Part E of the Project; and (ii) perform its obligations under the CAH Subsidiary Grant Agreement; (d) CAH Credit Regulations or any provision thereof shall have been amended, suspended, abrogated, repealed or waived so as to affect, in the opinion of the Bank, materially and adversely the ability of CAH to carry out Part E.1 of the Project; (e) the Borrower or any authority having jurisdiction shall have taken any action for the dissolution or disestablishment of IBR, INDI or CAH or for the suspension of their operations; (f) the FOCORN Operating Regulations shall have been amended, suspended, abrogated, repealed or waived so as to affect, in the opinion of the Bank, materially and adversely the ability of the Borrower to carry out Part A.4 of the Project; (g) Decree No or any provisions thereof shall have been amended, suspended, abrogated, repealed or waived so as to affect, in the opinion of the Bank, materially and adversely the ability of the Borrower to carry out Part A.2 (c) of the Project; (h) Law No 852/63 or any provision thereof shall have been amended, suspended, abrogated, repealed or waived so as to affect, in the opinion of the Bank, materially and adversely the ability of IBR to: (i) assist the Borrower and INDI in the carrying out of Parts A.2 (c) and B.1 of the Project, respectively; and (ii) perform its obligations under either the INDI Contractual Arrangement or the agreement referred to in Section 3.01 (d) (iv) of this Agreement; (i) the UNDP Agreement shall have been amended or terminated, or any of its provisions shall have been waived, without the agreement of the Bank; and

12 (j) the INDI Contractual Arrangement or any of the Convenios shall have been amended or terminated, or any of their provisions shall have been waived, without the agreement of the Bank. Section Pursuant to Section 7.01 (h) of the General Conditions, the following additional events are specified: (a) any event specified in paragraphs (a) or (b) or (c) or (d) or (f) or (g) or (h) or (i) or (j) of Section 6.01 of this Agreement shall occur and shall continue for a period of thirty days after notice thereof shall have been given by the Bank to the Borrower; and (b) any event specified in paragraph (e) of Section 6.01 of this Agreement shall occur. ARTICLE VII Effective Date; Termination Section The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section (c) of the General Conditions: (a) that CICAR, CRAE and UCTAP have: (i) been established with functions satisfactory to the Bank; and (ii) employed qualified professionals to head each of them; (b) that the: (i) CAH Subsidiary Grant Agreement; (ii) INDI Subsidiary Grant Agreement; (iii) INDI Contractual Arrangement; and (iv) Convenios, have been signed by the respective parties to such agreements and arrangement, respectively; (c) that MAG s existing administrative units to be involved in Project implementation have redefined their functions in accordance with the functions of CICAR, CRAE and UCTAP, in a manner satisfactory to the Bank; (d) that the UNDP Agreement has been signed by the respective parties to such agreement; Bank; (e) (f) that UCTAP has adopted an accounting system satisfactory to the that the Regional Operations Committee has been established; and (g) that the Borrower, through MAG/DINCAP, has carried out phase one of DINCAP s Action Plan in accordance with the terms set forth therein, and in a manner satisfactory to the Bank. Section The following are specified as additional matters, within the meaning of Section (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) that CICAR, CRAE and UCTAP have been duly established; (b) that the agreements and arrangements referred to in Section 7.01 (b) of this Agreement have been duly authorized or ratified by, and are legally binding upon the respective parties to such agreements and arrangements, respectively, in accordance with their terms; (c) that the UNDP Agreement has been duly authorized or ratified by, and is legally binding upon the parties to such agreement, in accordance with its terms; and (d) that the principles and rules of procurement set forth or referred to in Schedule 4 to this Agreement shall expressly govern all procurement of goods, works and consultants services referred to in Parts A, C.1 and C.2 of Section I and Section II of such Schedule, repectively. Section The date October 6, 1994 is hereby specified for the purposes of Section of the General Conditions. ARTICLE VIII

13 Representative of the Borrower; Addresses Section The Minister of Finance of the Borrower is designated as representative of the Borrower 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 Borrower: Ministerio de Hacienda Chile 128 Asuncion, Paraguay Cable address: Telex: For the Bank: MINISTERIO DE HACIENDA Asuncion, Paraguay International Bank for Reconstruction and Development Washington, D.C United States of America 1818 H Street, N.W. Cable address: INTBAFRAD Washington, D.C. Telex: (RCA) (FTCC) (WUI) or (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 PARAGUAY By /s/ Arsenio Vasconsellos Porta Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Shahid Javed Burki Regional Vice President Latin America and the Caribbean SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed

14 in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollars Equivalent to be Financed (1) Civil Works 11,900,000 79% (2) Goods 4,100,000 95% (3) Consultants 12,500,000 97% Services, Training and Studies (4) Subloans 5,000, % of amounts disbursed under a Subloan (5) Subgrants 5,000, % of amounts disbursed under a Subgrant (6) Incremental 11,500, % of payments Operating made for expendi- Costs under tures during 1994, the Project 1995 and 1996; 75% of payments made for expenditures during 1997; 50% of payments made for expenditures during 1998; and 25% of payments made for expenditures thereafter TOTAL 50,000,000 ========== 2. For the purposes of this Schedule the term "Incremental Operating Costs" means salaries, vehicle operating and maintenance expenditures, materials and supplies. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not to exceed $1,000,000, may be made in respect of Categories (1), (2), (3), (4) and (5) of the table in paragraph 1 of this Schedule on account of payments made for expenditures before that date but after December 31, 1993; (b) payments made for expenditures under Part A.2 (c) of the Project in the event that the Borrower decides to undertake a resettlement action with respect to the population living in the San Rafael National Park, unless the Bank shall have been furnished with a resettlement plan which shall include, inter alia, a compensation plan, satisfactory to the Bank; (c) payments made for expenditures under Part E of the Project, unless the Bank shall have received evidence, satisfactory to the Bank, that: (i) CAH s staff has received adequate training to carry out such Part of the Project; (ii) CAH has adopted appropriate operational procedures, satisfactory to the Bank, to carry out the environmental requirements under such Part of the Project; (iii) CAH has adopted an accounting system, satisfactory to the Bank, which will enable CAH to maintain an adequate control of: (A) its loan portfolio; and (B) the records and accounts to be maintained under Section 4.01 (a) (ii) of this Agreement; and (iv) the CAH Credit Regulations have been amended by CAH to incorporate provisions to

15 protect the environment, satisfactory to the Bank; (d) payments made for expenditures under Part A.4 of the Project, unless the Bank shall have received evidence, satisfactory to the Bank, that: (i) the Borrower has established the fund and opened the account referred to in Section 3.07 (a) of this Agreement; and (ii) the FOCORN Operating Regulations have been approved in terms and in a manner satisfactory to the Bank; and (e) payments made for expenditures under Part B.1 of the Project, unless the Bank shall have received evidence, satisfactory to the Bank, that INDI has adopted an accounting system satisfactory to the Bank which will enable INDI to maintain an adequate control of the records and accounts to be maintained under Section 4.01 (a) (ii) of this Agreement. SCHEDULE 2 Description of the Project The objectives of the Project are to: (a) establish the institutional framework necessary to resolve the major agricultural and natural resources problems in the Project Area; (b) obtain relevant information and implement a system of natural resources protection; (c) assist the Small Farmers in the Project Area in: (i) creating sustainable and diversified agricultural production systems; (ii) adopting natural resources conservation measures through appropriate land use planning; and (iii) improving their productivity through processing and marketing of agricultural products; and (d) encourage the participation of the rural community living in the Project Area in the management of natural resources. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: Part A: Agricultural Development 1. Carrying out of a program (including the acquisition of goods and the provision of technical assistance to MAG s staff required therefor) aimed at the restructuring of the agricultural production and natural resources management in the Project Area towards sustainable, conservation-oriented agriculture, through the activities included in the following plans: (a) a plan to slow down and reverse the degradation of soil and other natural resources; (b) a plan to support crop production and to provide specific alternatives for agricultural production; and (c) a plan to develop and test agro-forestry systems. 2. Carrying out of a program (including the acquisition of goods and the provision of technical assistance to MAG s staff required therefor) to expand the Protected Area, conduct forestry research and enforce environmental legislation, through the activities included in the following plans: (a) a plan to protect, conserve and recuperate the genetic diversity of the Project Area through reforestation and technology generation; (b) a plan to: (i) enforce the Borrower s environmental legislation; and (ii) strengthen the Borrower s environmental institutions; and (c) a plan to strengthen the Borrower s institutional presence in the Protected Area and to increase the size of the Protected Area. 3. Carrying out of a program (including the acquisition of goods and the provision of technical assistance to MAG s staff required therefor) to develop agro-industry and marketing of agricultural products for the benefit of agricultural producers, by means of the activities included in the following plans: (a) a plan to support the development of municipalities, cooperatives and other rural community organizations engaged in agriculture and small-

16 scale industrial activities; and (b) a plan to provide technical assistance to cooperatives and other entities which carry out agro-industry and marketing activities. 4. Financing of On-farm Investments. Part B: Indigenous Communities 1. Carrying out of a program (including the provision of external auditing services to INDI, acquisition of goods and the provision of technical assistance to INDI s staff required therefor) of regularization of land tenure and expansion of areas reserved to the indigenous population. 2. Carrying out of a program aimed at the diversification and improvement of agricultural production. 3. Carrying out of a program of improvement of health services to the indigenous population. 4. Carrying out of a program of promotion of primary and informal adult education to the indigenous population. Part C: Infrastructure Development 1. Realignment, reconstruction and improvement of about 455 kilometers of rural roads. 2. Carrying out of a maintenance program for the roads realigned, reconstructed or improved under Part C.1 of the Project, including the acquisition of goods required therefor. Part D: Institutional Development 1. Provision of technical assistance and training to MAG s staff (DINCAP, UCTAP, CICAR and CRAE) to strengthen MAG s institutional capacity, including the acquisition of goods and the provision of external auditing services required therefor. 2. Carrying out of special assessment studies to capitalize experience coming from the implementation of Parts A and E of the Project, to be coordinated by DINCAP. Part E: Agricultural Credit 1. Financing of Subprojects. 2. Provision of technical assistance and training to CAH s staff to strengthen CAH s institutional capacity, including the acquisition of goods required therefor. * * * The Project is expected to be completed by June 30, SCHEDULE 3 Amortization Schedule Date Payment Due Payment of Principal (expressed in dollars)* June 15, ,000 December 15, ,000 June 15, ,005,000 December 15, ,045,000 June 15, ,080,000 December 15, ,120,000 June 15, ,165,000 December 15, ,205,000 June 15, ,250,000 December 15, ,300,000 June 15, ,345,000

17 December 15, ,395,000 June 15, ,450,000 December 15, ,500,000 June 15, ,560,000 December 15, ,615,000 June 15, ,675,000 December 15, ,740,000 June 15, ,800,000 December 15, ,870,000 June 15, ,940,000 December 15, ,010,000 June 15, ,085,000 December 15, ,165,000 June 15, ,245,000 December 15, ,325,000 June 15, ,415,000 December 15, ,505,000 June 15, ,595,000 December 15, ,690,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and Premiums on Prepayment Pursuant to Section 3.04 (b) of the General Conditions, the premium payable on the principal amount of any maturity of the Loan to be prepaid shall be the percentage specified for the applicable time of prepayment below: Time of Prepayment Premium Not more than three years 0.15 before maturity More than three years but 0.30 not more than six years before maturity More than six years but 0.55 not more than 11 years before maturity More than 11 years but not 0.80 more than 16 years before maturity More than 16 years but not 0.90 more than 18 years before maturity More than 18 years before 1.00 maturity The interest rate (expressed as a percentage per annum) applicable to the Loan on the day of prepayment multiplied by: SCHEDULE 4 Procurement and Consultants Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding 1. Except as provided in Part C hereof, goods and works 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).