Loan Agreement. (Second Northeast Basic Health Services Project) between FEDERATIVE REPUBLIC OF BRAZIL. and

Transcription

1 Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 3135-BR Public Disclosure Authorized Loan Agreement (Second Northeast Basic Health Services Project) between FEDERATIVE REPUBLIC OF BRAZIL Public Disclosure Authorized and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated September 26, 1990 LOAN AGREEMENT LOAN NUMBER 3135-BR AGREEMENT, dated September 26, 1990, between FEDERATIVE REPUBLIC OF BRAZIL (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). Public Disclosure Authorized WHEREAS (A) 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 ; (B) will be carried out by the Borrower with the participation, in respect of different parts thereof, of the following political subdivisions of the Borrower: State of Alagoas (AL State), State of Bahia (BA State), State of Ceara (CE State), State of Maranhao (MA State), State of Paraiba (PB State), State of Pernambuco (PE State), and State of Sergipe (SE State) (any of such States is called hereinafter individually a State and all, collectively, the States); (C) for the purpose of carrying out, the Borrower will make available to each of the States the proceeds of the Loan as provided in this Agreement; (D) the Borrower represents and warrants that each of the States has entered into a SUDS Agreement (as such term is defined hereinafter) with the Borrower on the following dates, and each such agreement is legally valid and binding upon the parties thereto in accordance with its terms and conditions: AL State on July 21, 1987, BA State on July 22, 1987, CE State on October 15, 1987, MA State on January 20, 1988, PB State on October 20, 1987, PE State on June 19, 1987, and SE State on August 7, 1987;

2 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 last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 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) "BHCM" and "BHS" mean the Basic Health Care Module and the Basic Health Services Program Package, respectively, both part of the model for the provision of basic health services to be utilized by the States under Parts B(l), C(l), D(l), E(l), F(l), G(l) and H(l) of, as described in the Annex to Schedule 2 to this Agreement; (b) "Central Bank" means Banco Central do Brasil; (c) "CIMS Agreement" means each agreement, satisfactory to the Bank, denominated "Termo de Adesao" (Adhesion Terms) to each SUDS Agreement (as such term is defined hereinafter), entered into for purposes of the carrying out of between one or more Municipalities (as such term is defined hereinafter) and a State, and the Borrower acting through MOH and also, if required, through MOE, and INAMPS, in accordance with the terms and conditions of the respective SUDS Agreement; (d) "CIPLAN" means the Borrower s Interministerial Commission for Planning and Coordination in the Borrower s health sector, and the term includes any other Borrower s agency or administrative sub-division that may perform in the future the functions relevant to currently being performed by CIPLAN; (e) "Council" means an interinstitutional council established, or to be established, pursuant to the corresponding SUDS Agreement for purposes of coordinating, planning and supervising the execution of the Borrower s state, regional and municipal health programs; (f) "Cruzeiros" means the currency unit of the Borrower; (g) "DIRES" means Direcao Regional de Saude, the Regional Health Directorate of the States; (h) "Eligible Municipality" means a Municipality within any of the States and which is listed in the annex to the corresponding State Convenio (as such term is defined hereinafter), which Municipality owns or operates, or is expected to own or operate, health facilities under the Borrower s unified health system and has: (i) entered into a CIMS Agreement; or (ii) entered into an agreement, satisfactory to the Bank, with the Borrower, pursuant to paragraph (b)(ii) of Section 3.01 of this Agreement; or (iii) entered into an agreement, satisfactory to the Bank, with its respective State, acting through its SES, establishing the terms and conditions for the participation and responsibilities of such Municipality in the carrying out of the Project; or (iv) has declared its adhesion to the Manual (as such term is defined hereinafter), in a manner satisfactory to the Borrower, acting through MOH, and the Bank; (i) "FSRMM" means Adicional ao Frete Para a Renovacao da Marinha Mercante - AFRMM, the Borrower s Freight Surcharge for the Renewal of the Merchant Marine established by Decree Law of December 30, 1970, as amended to December 31, 1987, or any other tax, levy or charge that, in the opinion of the Bank, may substitute it, in whole or in part, after January 1, 1988; (j) "Health Legislation" means the provisions of Titulo VIII, Capitulo II, Secao II of the Borrower s Constitution and all of the Borrower s laws, decree-laws,

3 decrees, rules, regulations, administrative orders and by-laws, including, but without limitation to, Exposicao de Motivos No. 031 dated July 10, 1987, published in the Borrower s Official Gazette on July 21, 1987 and Decree No dated July 20, 1987, published in the Borrower s Official Gazette on July 21, 1987 establishing the Borrower s decentralized health system, Decree No dated June 21, 1988, published in the Borrower s Official Gazette on June 22, 1988, Portaria No. 09 dated April 14, 1988, published in the Borrower s Official Gazette on April 19, 1988, and which are effective as of November 30, 1989, and affect, directly or indirectly, the carrying out of ; (k) "INAMPS" means the Borrower s National Institute for Medical Assistance of the Social Security System in the Borrower s health sector, and the term includes any other Borrower s agency or administrative sub-division that may perform in the future the functions relevant to currently being performed by INAMPS; (l) "Manual" means a manual prepared by the Borrower and approved by the Bank, pursuant to Section 3.01 (b) (iii) of this Agreement, establishing the terms and conditions for the participation and responsibilities of certain Municipalities (see Section 1.02 (h) of this Agreement) in the carrying out of, or other health project or projects, if any; (m) "Model" means the model for the provision of basic health services in the Project Area (as such term is defined hereinafter) to be utilized under Parts B(l), C(l), D(l), E(l), F(l), G(l) and H(l) of, as substantially described in the Annex to Schedule 2 to this Agreement; (n) (o) "MOE" means the Borrower s Ministry of Education; "MOH" means the Borrower s Ministry of Health; (p) "Municipality" means a political subdivision of the Borrower (other than a State) which is listed in an annex to the corresponding State Convenio; (q) "Project Account" means each of the accounts to be opened and maintained in each State and the corresponding account to be opened and maintained by each Eligible Municipality within such State, for purposes of as provided in Section 3.01 (e)(ii) of, and paragraph 12 of Schedule 5 to, this Agreement; (r) "Project Area" means an area comprising the Municipalities in AL State (currently 48), the Municipalities in BA State (currently 109), the Municipalities in CE State (currently 62), the Municipalities in MA State (currently 51), the Municipalities in PB State (currently 58), the Municipalities in PE State (currently 112), and the Municipalities in SE State (currently 34), all as listed in an annex to the corresponding State Convenio, which annexes may be changed from time to time with the prior approval of the Bank; (s) "Project Manager" means the head of the Gerencia Geral do Projeto de Servicos Basicos de Saude para o Nordeste established by Portaria No. 09 referred to in Section 1.02 (j) of this Agreement; (t) each State; "SES" means Secretaria de Estado da Saude, the Secretariat of Health of (u) "CESA" and "FESA" mean the accounts referred to in paragraphs (b) and (c), respectively, of Section 2.02 of this Agreement, "Special Account" means either CESA or FESA unless the context shall otherwise require and "Account Bank" means the bank referred to in paragraph (c) of Section 2.02 of this Agreement; (v) "State Component" means each of Parts B through H of to be carried out with the participation of the corresponding State pursuant to Schedule 2 to this Agreement and the respective State Convenio entered into between the Borrower, acting through MOH, and such State pursuant to Section 3.01 (b)(i) of this Agreement; (w) "State Convenio" means each agreement, on terms satisfactory to the Bank, to be entered into by the Borrower, acting through MOH, and each State, acting through its SES, pursuant to Section 3.01 (b) (i) of this Agreement, for purposes of, inter alia, establishing the terms and conditions for the participation and responsibilities of that State in the carrying out of, and making a portion of the proceeds of the Loan available to such State for that purpose; and the term "State Convenio" includes all annexes, schedules and agreements supplemental to each State Convenio (including the annex referred to in paragraph (h) of this Section 1.02), and any

4 supplemental agreement to a SUDS Agreement that is consistent with, but different than, a State Convenio, and that may have been entered into by a State during the carrying out of ; (x) "State Decentralization Plan" means the plan of each State, already furnished to the Bank, for expanding and intensifying at the corresponding State, regional and municipal levels the decentralization of health care resources, including funds and administrative authority for the management and delivery of health care services, the training of and technical assistance to staff involved in the provision of said services, and the implementation of schedules and formulation of expenditure levels and plans for said decentralization, as updated from time to time pursuant to the provisions of Section 6.01 (d) of, or of paragraph 3(b)(ii) C of Schedule 1 to, this Agreement, or further updated pursuant to the provisions of the applicable State Convenio; (y) "SUDENE" means Superintendencia de Desenvolvimento do Nordeste, the Borrower s superintendence for development of the Borrower s northeast region; (z) "retaining" means any legal form of acquiring and utilizing services of staff for by a SES or any agency thereof, or on behalf or on account or for the benefit of a SES or an agency thereof, including any situation where staff is reassigned from other positions within the public sector, or by means of any other administrative arrangement adequate for that purpose; (aa) "SUDS Agreement" means each agreement referred to in clause (D) of the Preamble of this Agreement entered into between MOH, MOE, INAMPS, the Borrower s Ministry of Labor and Social Security and each of the States acting through its respective SES, or any other instrument or instruments enacted, issued or executed pursuant to Titulo VIII, Capitulo II, Secao II of the Borrower s Constitution, all for the purpose of putting into effect and executing the Borrower s unified health system in such State; and the term "SUDS Agreement" includes all annexes, schedules and agreements supplemental to each SUDS Agreement, other than a State Convenio, entered into by a State during the carrying out of ; and (bb) "IEC activities" means information, education and communication activities, including but not limited to, production and broadcasting of messages on health related matters on television and radio, and materials development and production. ARTICLE II The Loan Section The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, various currencies that shall have an aggregate value equivalent to the amount of two hundred sixty-seven million dollars US$267,000,000), 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, 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 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, open and thereafter maintain in dollars a special account in the Central Bank on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, this special account (hereinafter called CESA) shall be made exclusively to meet expenditures in Cruzeiros incurred in respect of the reasonable cost of goods and services required to carry out and to be financed by the Bank pursuant to paragraph (a) above. (c) The Borrower shall, for the purposes of, open and maintain thereafter in a bank acceptable to the Bank (the Account Bank) a special account in dollars on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, this special account (hereinafter called FESA) shall be made exclusively to meet expenditures in currencies other than Cruzeiros incurred in respect of the reasonable cost of goods and services required to carry out and to be financed by the Bank pursuant to paragraph (a) above. (d) Deposits into, and payments out of, the CESA and the FESA shall be made

5 in accordance with the provisions of Schedule 6 to this Agreement. The Borrower shall furnish to the Bank each month certified statements of the CESA and the FESA. Section The Closing Date shall be June 30, 1996, 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 l%) 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 l%). 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) "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. (ii) "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. (iii) "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 l%). 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 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 May 15 and November 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. Section The Minister of Health of the Borrower, or the person or persons designated by him, are designated as representatives of the Borrower for the purposes of taking any action required, or permitted to be taken, under the provisions of Section 2.02 (a) of this Agreement and Article V of the General Conditions.

6 ARTICLE III Execution of Section (a) The Borrower hereby declares its commitment to the objectives of, as set forth in Schedule 2 to this Agreement, and to this end the Borrower, acting through MOH, hereby undertakes the following: (i) to carry out Part A of, acting through MOH, with due diligence and efficiency and in conformity with appropriate administrative, financial and public health practices and terms of reference satisfactory to the Bank, and to provide promptly as needed the funds, facilities, services and other resources required for that purpose; (ii) to carry out Parts B through H of with the participation of each corresponding State as provided in the respective State Convenio; (iii) to cause each State to perform, in accordance with the provisions of its respective State Convenio, all the obligations of the State in question therein set forth; (iv) to take, or cause to be taken, all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable each State to perform its obligations under its respective State Convenio; and (v) not to take or permit to be taken any action which would prevent or interfere with the performance by any of the States of their obligations under their respective State Convenio. (b) As part of the foregoing, the Borrower, acting through MOH, shall: (i) enter into a State Convenio, satisfactory to the Bank, with each of the States, such State Convenio to contain, inter alia, the terms and conditions set forth in Schedule 5 to this Agreement; (ii) if resources under the Borrower s unified health system for are to be provided directly by the Borrower to any Municipality or Municipalities, enter into one or more agreements, satisfactory to the Bank, with such Municipality or Municipalities establishing the terms and conditions for the participation and responsibilities of such Municipality or Municipalities in the carrying out of ; and (iii) not later than November 30, 1990, prepare the draft Manual and submit it to the Bank for review and approval. (c) Except as the Bank shall otherwise agree, the Borrower: (i) shall not assign, amend, abrogate or waive any of the SUDS Agreements, or the State Convenios, or the agreements referred to in paragraph (h) (ii) of Section 1.02 of this Agreement, if applicable, or any provision of all of the above regarding the description or execution of or the compliance by the Borrower with each of the provisions set forth or referred to in this Agreement; (ii) shall take all necessary steps on its part as shall be required to enable the appropriate functioning of any Council established pursuant to the provisions of any of the instruments referred to in sub-paragraph (i) of this paragraph (c); and (iii) shall ensure the attendance of the corresponding SES s representative or representatives at all Project related meetings of any of such Councils. (d) Without limitation or restriction to the provisions of paragraph (a) of this Section 3.01, the Borrower, acting through MOH, shall maintain, until the completion report referred to in Section 9.07 (c) of the General Conditions has been furnished to the Bank, the necessary organizational arrangements as established by the Health Legislation to ensure that Part A of shall be carried out with due regard to maximizing the involvement of each SES for purposes, inter alia, of its own institutional development. (e) Without limitation or restriction to the provisions of paragraph (a) of this Section 3.01, the Borrower, acting through MOH, shall: (i) promptly upon final approval of the Borrower s budget, inform the Bank of the amounts approved in MOH s budget for purposes of, and, upon approval thereof, its schedule of disbursements; (ii) cause each of the States, through its respective SES, to open and thereafter maintain, and to cause each corresponding Eligible Municipality to open and thereafter maintain, in Cruzeiros, a Project Account in a bank, acceptable to the Borrower and the Bank, in accordance with the provisions of the corresponding State Convenio; and (iii) ensure that deposits into, and payments out of, each Project Account shall be made in accordance with the provisions of the respective State Convenios, other agreements which may be applicable pursuant to Section 1.02 (h) of this Agreement, if any, and the Manual, if applicable. (f) The Borrower shall ensure that Manager is at all times a person whose qualifications and experience are satisfactory to the Bank. (g) The Borrower shall, not later than May 31 of each year, furnish to the Bank for its approval a two-year plan for purposes of Part A.7 of, or an annually revised version thereof, as the case may be, and carry out the activities included in each of the aforesaid plans.

7 Section (a) Except as the Bank shall otherwise agree, procurement of the goods, works and consultants services required for, and to be financed out of the proceeds of the Loan, shall be governed by the provisions of Schedule 4 to this Agreement. (b) The Borrower shall establish single registries of contractors and suppliers for purposes of to meet local registration requirements for procurement made pursuant to the provisions of Part C.l of Section I of Schedule 4 to this Agreement. (c) Not later than January 31 of each year, starting on January 31, 1990, the Borrower shall publish ads in two newspapers of wide national circulation in Brazil, acceptable to the Bank, in the Borrower s Diario Oficial and in Development Business or other specialized international publication, acceptable to the Bank, containing information, satisfactory to the Bank, about, the types and amounts of contracts expected to be awarded under in the next two years and requirements to be met for inclusion in the registry referred to in paragraph (b) of this Section. (d) The Borrower shall establish a time period of at least 30 days from the date of the last advertisement for the submission of bids for contracts procured in accordance with the provisions of Part C.l of Section I of Schedule 4 to this Agreement. Section Without restriction or limitation upon its obligations under Section 9.07 of the General Conditions, the Borrower shall, acting through MOH: (a) monitor the overall implementation of by the Borrower, the performance by each State in respect of the implementation of the corresponding State Component, the delivery of health services under, and the meeting of the targets under the applicable plans therefor; (b) prepare and submit for review and approval by the Bank, not later than three (3) months from the Effective Date, a set of indicators and performance criteria to be used for discharging its obligations under paragraph (a) of this Section 3.03; (c) submit progress reports to the Bank every year on the implementation and delivery of services by each State referred to in paragraph (a) of this Section 3.03, covering, inter alia, actual expenditures and budgetary authorizations under the corresponding part of ; (d) conduct periodic reviews jointly with the Bank, and in collaboration with CIPLAN and INAMPS and with the cooperation of each SES and based upon, inter alia, the set of indicators and performance criteria referred to in paragraph (b) of this Section 3.03; such reviews shall occur at least once each year at the request of either the Borrower or the Bank, and shall cover, inter alia, the overall implementation of by the Borrower, through MOH, and the performance by each State in respect of the implementation of the corresponding State Component and the plans for technical assistance and training and for adherence to schedules for decentralization, all under the applicable State Decentralization Plan, and the adequacy of the delivery of health services and of the expenditure levels there for on the basis of the reports mentioned in paragraphs (a) and (c) of this Section 3.03; and (e) prepare annually with the assistance of the applicable States, starting in 1990, a detailed analysis of sources and uses of funds in respect of States expenditures on health matters for the preceding year, and submit it to the Bank not later than December 31 of each year. Section The Bank and the Borrower hereby agree that the obligations set forth in Sections 9.04, 9.05, 9.06, 9.08, 9.09 and, subject to Section 3.01 of this Agreement, 9.07 of the General Conditions in respect of a State Component (relating to insurance, use of goods and services, plans and schedules, maintenance, land acquisition, and records and reports respectively) shall be carried out by the corresponding State under the applicable State Convenio. Section Without restriction or limitation to any other right, power or remedy of the Bank under this Agreement and in the event the Borrower, through MOH, and the Bank mutually agree that any of the States has failed to perform satisfactorily in its participation in the implementation of the corresponding State Component, or in adhering to any of the schedules for decentralization of financial resources and administrative authority for the provision of health services within the

8 State in question, or in maintaining adequate delivery of health services and expenditure levels therefor and in meeting the targets under the applicable plans referred to in Section 3.03 (a) of this Agreement, the Bank may, after consultation with and by notice to the Borrower, reallocate or cancel, or any combination thereof, any amount of the proceeds of the Loan at that time allocated under Schedule 1 to this Agreement in respect of the corresponding State Component. ARTICLE IV Financial Covenants Section (a) The Borrower, acting through MOH, shall maintain or cause to be maintained separate records and accounts adequate to reflect, in accordance with sound accounting practices, the expenditures financed out of the proceeds of the Loan and the operations, resources and expenditures, in respect of, of the States, the Eligible Municipalities, and the departments and agencies of the Borrower responsible for the carrying out of, or any part thereof. (b) The Borrower, acting through MOH, shall, and shall cause each State, each Eligible Municipality, and the departments and agencies of the Borrower responsible for the carrying out of, or any part thereof, to: (i) have the records and accounts referred to in paragraph (a) of this Section 4.01, including those for the Special Accounts and each Project Account for each fiscal year, audited in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six (6) months after the end of each year, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records and accounts and the audit 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, acting through MOH, shall: (i) maintain, or cause to be maintained, in accordance with paragraph (a) of this Section, separate records and accounts reflecting such expenditures; (ii) retain, until at least one (1) year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) (iv) enable the Bank s representatives to examine such records and accounts; and ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section 4.01 and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditures 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 Remedies of the Bank Section Pursuant to Section 6.02 (k) of the General Conditions, the following additional events are specified; provided, however, that if any of the events specified in the following paragraphs (a) or (b) or (c) or (d) or (e) shall have occurred and be continuing, the suspension of the Borrower s right to make withdrawals from the Loan Account may be limited to withdrawals in respect of Project

9 expenditures related to the State or States, or Eligible Municipality or Eligible Municipalities affected: (a) a SUDS Agreement shall have terminated, or any party to any such SUDS Agreement shall have failed to comply with any of its respective obligations under such agreement and such failure will, in the Bank s opinion and without alternative arrangements satisfactory to the Bank having been made, materially and adversely affect the carrying out of ; (b) any of the States shall have failed to perform any of its obligations under its respective State Convenio; (c) a CIMS Agreement shall have terminated or any Eligible Municipality shall have failed to perform any of its obligations under the respective CIMS Agreement, or under any of the other agreements to which such Municipality is a party and which are referred to in paragraph (h) (ii) or (iii) of Section 1.02 of this Agreement, if any, or under the Manual, if applicable, and such failure will, in the Bank s opinion and without alternative arrangements satisfactory to the Bank having been made, materially affect the carrying out of the corresponding part of ; (d) as a result of events which have occurred after the date of this Agreement, an extraordinary situation shall have arisen which shall make it improbable that any of the States will be able to perform any of its obligations under its respective State Convenio, or any of the Eligible Municipalities will be able to perform any of its obligations under the respective CIMS Agreement, or any of the other agreements referred to in paragraph (h) (ii) or (iii) of Section 1.02 of this Agreement, if any, or under the Manual, if applicable; (e) any Council established pursuant to a SUDS Agreement shall have been disestablished or ceased to be operative; and (f) the Health Legislation shall have been amended, or otherwise changed or modified, and, in the opinion of the Bank, such amendment, change or modification shall materially and adversely affect the carrying out of. Section Pursuant to Section 7.01 (h) of the General Conditions, the following additional event is specified, namely, that any of the events specified in paragraphs (a) to (f) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty (60) days after notice thereof shall have been given by the Bank to the Borrower. ARTICLE VI Effective Date; Termination Section The following events are specified as additional conditions to the effectiveness of this Agreement within the meaning of Section (c) of the General Conditions: (a) that this Agreement has been duly registered by the Central Bank; (b) That the Borrower shall have entered into a State Convenio with at least one (1) of the States; (c) that the Bank shall have received evidence, satisfactory to the Bank, that counterpart funds required to carry out the first year of shall have been allocated in terms consistent with the estimated costs for the corresponding State Component in both the 1990 budget of the Borrower and the 1990 budget of at least one (1) of the States, if more than one (1) have been found meeting the requirements of paragraph (b) of this Section 6.01; (d) that the Bank shall have received, from the State taken into account for determining whether the requirements of paragraphs (b) and (c) of this Section 6.01 have been met, an update of such State s State Decentralization Plan satisfactory to the Bank and to MOH; and (e) that all necessary acts, consents and approvals to be performed or given by the Borrower, its political subdivisions or agencies, by any agency thereof, or otherwise to be performed or given in order to authorize the carrying out of the Project and to enable the Borrower, and the State taken into account for determining whether the requirements of paragraphs (b), (c) and (d) of this Section 6.01 have been met, to perform their respective obligations pursuant to this Agreement and the

10 corresponding State Convenio, together with all necessary powers and rights in connection therewith, have been performed or given. 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 this Agreement has been duly registered by the Central Bank; (b) that the State Convenio taken into account for determining whether the requirements of Section 6.01 (b) of this Agreement have been met, has been duly authorized or ratified by the parties thereto, and is legally binding upon such parties in accordance with its terms and conditions; and (c) that all necessary acts, consents and approvals to be performed or given by the Borrower and the State taken into account for determining whether the requirements of Section 6.01 (b), (c) and (d) of this Agreement have been met, their political subdivisions or agencies, or by any agency thereof, or otherwise to be performed or given in order to authorize the carrying out of and to enable the Borrower and such State to perform their respective obligations pursuant to this Agreement, and to the corresponding SUDS Agreement and State Convenio together with all necessary powers and rights in connection therewith, have been performed or given. Section The date of December 26, 1990 is hereby specified for the purposes of Section of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section The Minister of Economy, Finance and Planning 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 da Economia, Fazenda e Planejamento Esplanada dos Ministerios, Bloco P, 8 Andar Brasilia, D.F. Brazil Cable address: MINIFAZ Brasilia, Brazil Telex: MFAZ BR With copies to: Ministerio da Saude Esplanada dos Ministerios, Bloco G, 5 Andar Brasilia, D.F. Brazil Cable address: MINSAUDE Brasilia, D.F. Telex: MNSA BR Departamento de Assuntos Internacionais Ministerio da Economia, Fazenda e Planejamento Esplanada dos Ministerios Bloco K, 5 Andar Brasilia, D.F. Brazil Cable address: Telex

11 DEAIN Brasilia, D.F BR 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) 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. FEDERATIVE REPUBLIC OF BRAZIL By /s/ Zelia Maria Cardoso de Mello Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ S. Shahid Husain 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 in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Works: (a) for Part A of 900,000 (b) for Part B of 10,000,000 (c) for Part C of 12,900,000 (d) for Part D of 8,100,000 (e) for Part E of 8,800,000 80%

12 (f) for Part F of 8,300,000 (g) for Part G of 12,600,000 (h) for Part H of 5,900,000 (2) Goods (other than vehicles, computers and software therefor, and drugs) and maintenance services: (a) for Part A of 300,000 (b) for Part B of 7,000,000 (except for Part B (2) (e) thereof) loo% of foreign expenditures (c) for Part C of 9,200,000 and 80% of local expenditures (except for Part C (2) (e) thereof) (d) for Part D of 6,900,000 (except for Part D (2) (e) thereof) (e) for Part E of 11,000,000 (except for Part E (2) (e) thereof) (f) for Part F of 10,200,000 (except for Part F (2) (e) thereof) (g) for Part G of 16,700,000 (except for Part G (2) (e) thereof) (h) for Part H of 4,700,000 (except for Part H (2) (e) thereof) (3) Technical assistance and special studies: (a) for Part A of 9,900,000 (b) for Part B of 1,100,000

13 (c) for Part C of 1,100, % (d) for Part D of 1,400,000 (e) for Part E of 1,000,000 (f) for Part F of 1,000,000 (g) for Part G of 1,400,000 (h) for Part H of 1,100,000 (4) Training, and transportation and per diem expenditures directly related to Project supervision: (a) for Part A of 9,900,000 of (b) for Part B of 5,100,000 (c) for Part C of 7,800,000 (d) for Part D of 5,700,000 loo% of foreign expenditures and 90% of local (e) for Part E of 4,900,000 expenditures (f) for Part F of 3,100,000 (g) for Part G of 8,100,000 (h) for Part H of 1,900,000 (5) Drugs (other than drugs supplied by the Central de Medicamentos): (a) for Part B (2) (e) 300,000 of (b) for Part C (2) (e) 400, % of foreign of expenditures and 90% of local (c) for Part D (2) (e) 300,000 expenditures of (d) for Part E (2) (e) 200,000 of (e) for Part F (2) (e) 200,000 of (f) for Part G (2) (e) 400,000

14 of (g) for Part H (2) (e) 200,000 of (6) IEC activities: (a) for Part A (7) 20,000,000 of (b) for Part B (5) 500,000 of (c) for Part C (5) 700,000 of (d) for Part D (5) 700, % of (e) for Part E (5) 500,000 of (f) for Part F (5) 500,000 of (g) for Part G (5) 700,000 of (h) for Part H (5) 400,000 of (7) Unallocated 43,000,000 TOTAL 267,000,000 =========== 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 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 exceeding the equivalent of $18,000,000, may be made on account of payments made for expenditures before that date but on or after February 1, 1988; (b) payments made for expenditures made by or in any State, unless either: (i) such State is the State taken into account for determining that the requirements of paragraphs (b), (c), (d), and (e) of Section 6.01 of this Agreement had been met as of the Effective Date; or (ii) the Borrower, acting through MOH, furnishes to the Bank evidence, satisfactory to the Bank, that: (A) (B) (C) (D) such State has entered into a State Convenio satisfactory to the Bank; such State has allocated in its budget for the applicable year counterpart funds required to carry out the activities scheduled for the first year of execution of the State Component; such State has prepared an update of its State Decentralization Plan, satisfactory to the Bank and to MOH; all necessary acts, consents and approvals to be performed or given by the Borrower, such State or States, and its political

15 subdivisions or agencies, by any agency thereof, or otherwise to be performed or given in order to authorize the carrying out of and to enable such State to perform its obligations pursuant to the respective SUDS Agreement and State Convenio together with all necessary powers and rights in connection therewith, have been performed or given; and (E) shall include certificates or legal opinions satisfactory to the Bank from counsel acceptable to the Bank, showing: (1) on behalf of the Borrower, that such SUDS Agreement and the respective State Convenio have been duly authorized or ratified by the Borrower and each of its agencies which is a party thereto and are legally binding upon the Borrower and agencies thereof in accordance with their terms; (2) on behalf of the State, that such SUDS Agreement and the respective State Convenio have been duly authorized or ratified by the State and are legally binding upon the State in accordance with their terms; and (3) that all necessary acts, consents and approvals to be performed or given by the Borrower, the States and its political subdivisions or agencies, or by any agency thereof or otherwise to be performed or given in order to authorize the carrying out of and to enable the Borrower and the State to perform their respective obligations pursuant to this Agreement, and the respective SUDS Agreement and State Convenio together with all necessary powers and rights in connection therewith, have been performed or given; (c) payments made for expenditures by any Municipality or on behalf thereof, unless such Municipality was, at the time the payments were made, an Eligible Municipality; (d) payments made on account of expenditures made by or in any State if, pursuant to any of the periodic reviews referred to in Section 3.03 (d) of this Agreement and in furtherance of any agreement reached between the Borrower and the Bank in accordance with the provisions of Section 3.05 of this Agreement, it would have been determined by the Bank that withdrawal of Loan proceeds to such State in respect of said expenditures should be discontinued; provided, however, that in this event the Bank may, after consultation with the Borrower, reallocate such Loan proceeds to one or more other States or cancel said Loan proceeds or any combination thereof; (e) expenditures in respect of, directly or indirectly, any of the special studies under Parts A.5, B.4, C.4, D.4, E.4, F.4, G.4 and H.4 of Schedule 2 to this Agreement, without the Bank having given, by notice to the Borrower, its prior approval of the draft proposals or any terms of reference for the study or studies in question; and (f) expenditures to be financed under Category 6 (a) of the table set forth in paragraph 1 of this Schedule, (i) without the Bank having given, by notice to the Borrower, its prior approval of the corresponding two-year plan for IEC activities under, or the annual revisions thereto, both to be furnished to the Bank pursuant to paragraph (g) of Section 3.01 of this Agreement, and (ii) unless the Bank is satisfied that the expenditures in question are included in the plan in question. SCHEDULE 2 Description of The two main objectives of are: (a) strengthening the provision of basic health services in selected low-income areas; and (b) reinforcing the implementation of sectoral reforms, including the decentralization of financial resources and administrative authority within the States. 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:

16 Part A: MOH Institutional Development (1) Oversight of the implementation of the civil works planned by the respective SES and assistance to each State in carrying out procurement of goods and services. (2) Execution of a technical assistance program to strengthen the organization, management, and operations of the MOH and each SES by: (a) improving their organizational structure and managerial capabilities, including enhancement of planning and implementation of systems at the local level for delivery of health care services that will ensure an integrated approach to health care; (b) improving their management of manpower and information systems, including elaboration of career plans, job descriptions and salary structures; (c) preparing their administrative and operational manuals, and the applicable State Decentralization Plan; and (d) streamlining their budgetary and financial accounting procedures. (3) Preparation and organization of workshops and other training modalities for service and administrative personnel in each State to improve their knowledge, skills and responsibilities in: (a) local level planning and administration of ; (b) manpower management; (c) management of the BHS; (d) personnel supervision; and (e) service monitoring and evaluation. (4) Organization of about ten (10) seminars among all of the States on different aspects of Project implementation. (5) Designing and carrying out of special studies, subject to the prior review and approval of the Bank, to improve the organization and management of the health system in each State. (6) Coordination of the periodic reviews of, to be held pursuant to Section 3.03 (d) of this Agreement, in collaboration with CIPLAN and INAMPS, if warranted, and with the participation of the Bank and the cooperation of the SESs. (7) Designing and carrying out IEC activities to be included in two-year plans, satisfactory to the Bank, to be prepared by MOH, and revised also by MOH before the end of the first year of each plan. (8) Construction, furnishing, equipping and maintenance of a center for health technology. Part B: AL State Component (1) Implementation of the Model described in the Annex hereto, in the Municipalities listed in an annex to the AL State Convenio, for the purpose of strengthening the planning, organization and implementation of local health systems. (2) A program of expansion of facilities, upgrading of existing buildings, construction of new facilities, and acquisition and utilization of equipment and health care delivery materials, as detailed in an annex to the AL State Convenio, as such annex may be amended from time to time by agreement between the Borrower and AL State, with the prior approval of the Bank, including: (a) construction, furnishing, equipping and maintenance of about 28 health posts, 49 health centers, 3 unidades mistas, 4 regional headquarters, 6 warehouses, and 1 maintenance center; (b) expansion, re-equipping and maintenance of about 14 health posts, 17 health centers, 7 unidades mistas, and 1 regional headquarters; (c) renovation, re-equipping and maintenance of about 177 health posts, 3 health centers, and 1 training center; (d) acquisition, utilization and maintenance of about 18 ambulances, 31 trucks, 20 cars, and 307 bicycles; (e) acquisition and utilization of drugs, vaccines, surgical materials, chemicals and other health service delivery materials; and (f) retaining of about 260 health professionals (physicians, nurses, dentists, biochemists, nutritionists), 460 auxiliary nurses, health technicians, social workers, sanitary workers and administrative auxiliaries, and 910 health attendants and administrative employees.

17 (3) Design and execution of a health staff training program, including: (a) workers; basic training for about 330 middle and 2,100 elementary level health (b) introductory and special training courses for about 1,800 superior, 2,900 middle and 3,100 elementary level health workers; (c) seminars and workshops for about 3,100 superior, 3,300 middle and 2,500 elementary level health workers; and (d) continuing education programs for about 9,700 superior and 860 middle level health workers. (4) Designing and carrying out special studies, subject to the prior review and approval by MOH and the Bank, to improve the organization and management of the AL State health system. (5) Designing and carrying out IEC activities based on annual implementation plans approved by the MOH and the Bank. Part C: BA State Component (1) Implementation of the Model described in the Annex hereto, in the Municipalities listed in an annex to the BA State Convenio, for the purpose of strengthening the planning, organization and implementation of local health systems. (2) A program of expansion of facilities, upgrading of existing buildings, construction of new facilities, and acquisition and utilization of equipment and health care delivery materials, as detailed in an annex to the BA State Convenio, as such annex may be amended from time to time by agreement between the Borrower and BA State, with the prior approval of the Bank, including: (a) construction, furnishing, equipping and maintenance of about 122 health posts, 69 health centers, 10 unidades mistas, and 6 regional headquarters; (b) expansion, re-equipping and maintenance of about 35 health posts, 30 health centers, 6 unidades mistas and 2 regional headquarters; (c) renovation, re-equipping and maintenance of about 79 health posts, 28 health centers, 8 casas de par to, and 1 training center; (d) acquisition, utilization and maintenance of about 11 trucks, 32 ambulances, 10 automobiles, 15 bicycles and 3 mopeds; (e) acquisition and utilization of drugs, vaccines, surgical material, chemical and other health service delivery materials; and (f) retaining about 290 health professionals (physicians, nurses, dentists, biochemists, economists, nutritionists, psychologists), 650 auxiliary nurses, laboratory technicians, sanitary workers and administrative auxiliaries, and 1550 health attendants, rural attendants, laboratory workers and administrative employees. (3) Design and execution of a health staff training program, including: (a) workers; and basic training for about 210 middle and 560 elementary level health (b) introductory and special training courses for about 4,400 superior, 2,800 middle and 6,800 elementary level health workers. (4) Designing and carrying out special studies, subject to the prior review and approval by MOH and the Bank, to improve the organization and management of the BA State health system. (5) Designing and carrying out IEC activities based on annual implementation plans approved by the MOH and the Bank. Part D: CE State Component (1) Implementation of the Model described in the Annex hereto, in the Municipalities listed in an annex to the CE State Convenio, for the purpose of strengthening the