LOAN AGREEMENT. (Fourth Rural Credit Project) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT. and. Dated April 11, 1977

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1 Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 1399 PH Public Disclosure Authorized LOAN AGREEMENT (Fourth Rural Credit Project) Public Disclosure Authorized between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and Public Disclosure Authorized CENTRAL BANK OF THE PHILIPPINES Dated April 11, 1977

2 LOAN AGREEMENT AGREEMENT, dated April 11, 1977, tbetween INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and CENTRAL BANK OF THE PHILIPPINES (hereinafter called the Borrower).

3 -2- ARTICLE I General Conditions; Definitions Section 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 Wherever used in this Agreement, 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) "Rules and Regulations" means the Rules and Regulations issued by the Borrower setting forth the operating policies and procedures for the Project, including the terms and conditions of Sub-loans and their financing by the Borrower as the same may be amended by agreement between the Bank and the Borrower. (b) "Rural Bank" means a rural bank established, organized and operating under Republic Act 720 of the Guarantor, as amended, and selected by the Borrower to participate in the Project in accordance with the Rules and Regulations.

4 (c) "Savings and Loan Association" means a stock Savings and Loan Association established, organized and operating under R.A. 3779, as amended, other than those operating exclusively in the Greater Manila area, and selected by the Borrower to participate in the Project in accordance with the Rules and Regulations. (d) "Sub-loan" means a loan made or proposed to be made by a Rural Bank or a Savings and Loan Association to a Beneficiary to assist such Beneficiary in meeting expenditures for the reasonable cost of goods and services required to carry out investments under the Project. (e) "Beneficiary" means an individual farmer cultivating not more than 50 hectares of land dedicated to agricultural production, a person rendering direct agricultural production services to such farmer, a person engaged in poultry, swine or other livestock production, in coastal or inland fisheries, or in cottage or agro-industrial production, to which a Rural Bank or a Savings and Loan Association proposes to make or has made a Sub-loan. (f) "Small Beneficiary" means a Beneficiary: (i) whose total self-earned income is less than 7500 pesos per year; or (ii) whose total self-earned income is 7500 pesos or more and who earns 75% or more of such income from:

5 4- (A) agricultural operations carried out by such Beneficiary on a total land holding of less than 7 ha owned or leased by such Beneficiary; (B) a fishing enterprise owned or leased by such Beneficiary and operated by him and consisting of not more than 5 ha of fishponds or fishpens or of not more than one fishing vessel, such vessel not to exceed 5 tons; or (C) a cottage or agro-industrial enterprise owned or operated by such Beneficiary and consisting of fixed assets of less than 100,000 pesos excluding land. (g) "First, Second and Third Loans" means the loans made by the Bank to the Borrower under the loan agreements between them dated November 2, 1965 (Rural Credit Project, Loav No. 432-PH), June 4, 1969 (Second Rural Credit Project, Loan No. 607-PH) and June 17, 1974 (Third Rural Credit Project, Loan No PH), respectively. (h) "peso" means peso in the currency of the Guarantor.

6 - 5 - ARTICLE II The Loan Section 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 thirty-six million five hundred thousand dollars ($36,500,000). Section 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 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. Section Except as the Bank shall otherwise agree, contracts for the purchase of goods or for civil works to be financed out of the proceeds of the Loan, shall be procured in accordance with the provisions of Schedule 4 to this Agreement. Section The Closing Date shall be December 31, 1980 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date.

7 -6- Section 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 The Borrower shall pay interest at the rate of per cent ( %) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section Interest and other charges shall be payable semi-annually on March 1 and September 1 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.

8 - 7 - ARTICLE III Execution of the Project Section (a) The Borrower shall carry out, or shall cause to be carried out Parts A, B, C and D of the Project, with due diligence and efficiency and in conformity with appropriate technical, administrative and financial practices. (b) For the purpose of carrying out Part E of the Project, the Borrower shall make available to the Department of Agriculture of the Guarantor, on the basis of arrangements satisfactory to the Bank, funds from the proceeds of the Loan allocated under Category (5) of the table set forth in paragraph 1 of Schedule 1 of this Agreement. Section (a) The Borrower shall finance sub-loans, in local currency, utilizing the proceeds of the Loan allocated under Categories (1) and (2) of the table set forth in paragraph 1 of Schedule 1 of this Agreement and its own resources, on the basis of arrangements satisfactory to the Bank made between the Borrower and each Rural Bank and Savings and Loan Association in accordance with the Rules and Regulations. (b) The Borrower shall exercise its rights in relation to each Rural Bank and Savings and Loan Association in such manner as: (i) to achieve the purposes of the Project; (ii) to protect the interests of the Bank and the Borrower; and (iii) to comply with its obligations under this Agreement.

9 - 8 - (c) The Borrower shall cause each Rural Bank and Savings and Loan Association: (i) to carry out its obligations under the Rules and Regulations and the arrangements referred to in paragraph (b) hereof; and (ii) to carry on its operations and to conduct its affairs in accordance with sound business practices, under the supervision of experienced and competent management, and to employ qualified personnel in adequate numbers. Section The Borrower shall maintain the Technical Support and Evaluation Unit in its Department of Rural Banks and Savings and Loan Associations: (i) to provide central technical support for Project implementation to the Borrower 's staff in the field and to the staff of Rural Banks and Savings and Loan Associations; (ii) to monitor the execution of the Project and evaluate its results; and (iii) to assist in the development and evaluation of other credit programs of said Department, including short-term production credit programs. Section With due regard to insuring the quality of sub-loan evaluation, the Borrower shall use its best efforts to gradually transfer authority for said evaluation and sub-loan approval to qualified Rural Banks and Savings and Loan Associations. Section In order to assist the Borrower in carrying out Parts B and C of the Project, the Borrower shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank.

10 - 9- Section Except as the Bank shall otherwise agree, the Borrower shall use its best efforts to ensure that funds not less than the equivalent of $11,000,000 of the proceeds of the Loan allocated under Categories (1) and (2) of the table set forth in paragraph 1 of Schedule 1 to this Agreement are used to finance sub-projects of Small Beneficiaries. Section Except as the Bank shall otherwise agree, the Borrower shall ensure that the financing of four-wheel tractors of more than 68 horsepower out of the proceeds of the Loan allocated under Category (1) of the table set forth in paragraph 1 of Schedule 1 of this Agreement shall be limited to not more than 1,000 such units or to a period of 18 months from the date of this Agreement, whichever shall occur first. Section The Borrower shall establish not later than December 31, 1977 or such other date as the Bank shall agree and thereafter maintain a Management Advisory Unit in its Department of Rural Banks and Savings and Loan Associations, with composition and terms of reference satisfactory to the Bank, and shall appoint to such Unit qualified and experienced senior officers.

11 Section Except as the Bank may otherwise agree, the Borrower shall furnish to the Bank for its comments, (i) not later than December 31, 1979, a preliminary draft of the study referred to in Part B of the Project, and (ii) not later than March 31, 1978, a preliminary draft of the Credit handbook referred to in Part C of the Project. Section 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 The Borrower: (i) shall maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Loan, and to disclose the use thereof in the Project; (ii) shall enable the Bank's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds.

12 ARTICLE IV Financial Covenants Section The Borrower shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section The Borrower shall: (i) have its accounts and 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 the Guarantor's Commission on Audit; (ii) furnish to the Bank as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said Commission on Audit, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of the Borrower and the audit thereof as the Bank shall from time to time reasonably request. Section (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets as security for any debt except as otherwise currently reported to the Bank or stated in writing.

13 (b) The Borrower undertakes that, except as the Bank shall otherwise agree, if any lien shall be created on any assets of the Borrower as security for any debt, such lien will ipso facto equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan, and in the creation of any such lien express provision will be made to that effect, at no cost to the Bank; provided, however, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of purchase thereof, solely as security for the payment of the purchase price of such property; or (D) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after the date on which it is originally incurred.

14 ARTICLE V Remedies of the Bank Section For the purposes of Section 6.02 of the General Condit'ins, the following additional events are specified pursuant to paragraph (k) thereof: (a) the Rules and Regulations shall have been suspended, waived, amended or abrogated without the prior agreement of the Bank; and (b) any other provision governing the activities of the Borrower, the Rural Banks or the Savings and Loan Associations shall have been suspended, amended or abrogated so as to affect materially and adversely the carrying out of the Project. Section For the purposes of Section 7.01 of the General Conditions, the following additional event is specified pursuant to paragraph (h) thereof, namely, that any event specified in Section 5.01 of this Agreement shall occur.

15 -14- ARTICLE VI Termination Section The date July 11, 1977, is hereby specified for the purpose of Section of the General Conditions.

16 ARTICLE VII Addresses Section The following addresses are specified for the purposes of Section of the General Conditions: 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: (ITT) (RCA) or (WUI) For the Borrower: Central Bank of the Philippines Manila Philippines Cable address: PHILCENBANK Manila

17 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. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Is/ Gregory B. Votaw Acting Regional Vice President East Asia and Pacific CENTRAL BANK OF THE PHILIPPINES By /s/ Gregorio Licaros Authorized Representative

18 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 in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Sub-loans for 13,900,000 45% of the four-wheel amounts distractors bursed (2) Sub-loans for 15,000,000 45% of the other purposes amounts disbursed (3) Consultants' 120, % of foreign services and expenditures training or 40% (4) Service Vehicles: 160,000 (a) directly imported (b) locally manufactured 100% of foreign expenditures 100% of local expenditures (ex-factory) (c) imported but 40% locally procured

19 Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (5) Civil works and equipment under 200,000 66% Part E of the Project (6) Unallocated 7,120,000 TOTAL 36,500,000

20 For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Guarantor and for goods or services supplied from the territory of any country other than the Guarantor; and (b) the term "local expenditures" means expenditures in the currency of the Guarantor and for goods or services supplied from the territory of the Guarantor. 3. The disbursement percentages have been calculated in compliance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Guarantor on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement.

21 Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the 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, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures 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.

22 SCHEDULE 2 Description of the Project The Project, which is the continuation of the Borrower's medium- and long-term rural credit program, consists of: Part A: Lending Program The implementation of an agricultural credit operation consisting of the provision of medium- and long-term credit by Rural Banks and Savings and Loan Associations to farmers and rural entrepreneurs to finance investments in farm mechanization, light transportation, coastal and inland fisheries, small-scale livestock development, and cottage and agro-industries, and the financing of such credits by the Borrower. Part B: Study The completion of a study to assess the social and economic impact of farm mechanization in the Philippines. Part C: Training The expansion of a training program for the staff of the Department of Rural Banks and Savings and Loan Associations of the Borrower and the staff of rural banks and savings and loan associations to improve their lending operations and the production of a Credit Handbook. Part D: Vehicles The acquisition and utilization of vehicles for the use of field staff.

23 Part E: Agricultural Machinery Testing, Evaluation and Standardization Project The construction and equipping of an Agricultural Machinery Testing, Evaluation and Standardization Project at Los Baffos. The Project is expected to be completed by June 30, 1980.

24 SCHEDULE 3 Amortization Schedule Date Payment Due Payment of Principal (expressed in dollars)* On each March 1 and September 1 beginning March 1, 1982 through September 1, ,740,000 On March 1, ,700,000 * 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.

25 Premiums on Prepayment 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 1.70% More than three years but not more than six years before maturity 3.40% More than six years but not more than eleven years before maturity 6.25% More than eleven years but not more than thirteen years before maturity 7.35% More than thirteen years before maturity 8.50%

26 SCHEDULE 4 Procurement A. Procurement under Sub-loans 1. Subject to the provisions of paragraphs 2 of this Part A, the Borrower shall cause all goods and services to be financed out of the proceeds of Sub-loans to be procured at a reasonable price through regular commercial channels from responsible suppliers with adequate service facilities. 2. All contracts for goods or services to be financed under Sub-loans estimated to cost 10,000 pesos or more shall be procured after solicitation of at least three offers from responsible suppliers, provided however, that in remote areas where supplier representation is insufficient, the Borrower shall secure a certified statement from the financing institution that three offers could not be obtained. B. Other Procurement 1. All contracts for vehicles and equipment, and civil works, under Parts D and E of the Project estimated to cost the equivalent of $20,000 or more shall be procured through local competitive bidding in accordance with the Borrower's procedures. 2. All contracts for vehicles and equipment, and civil works, under Parts D and E of the Project estimated to cost less than $20,000 equivalent may be provided at a reasonable price in accordance with the Borrower's usual procedures.