June 28, (d) Public Disclosure Authorized

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1 The World Bank W I Strept, NW Tel. (202) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOP np DC Fax (202) INTERNATIONAL DEVELOPMENT ASSOCIATION Lic. Hector Guillermo Guill6n G6mez Secretario de Estado en el Despacho de Finanzas Secretaria de Finanzas Avenida Cervantes, Barrio El Jazmin Edificio SEFIN Tegucigalpa, M.D.C. Honduras, C.A. Dear Sir, June 28, 2012 Re: HONDURAS: Credit No.4381-HO (Education Quality, Governance and Institutional Strengthening Project) Amendment to the Financing Agreement We refer to the Financing Agreement for the above-captioned Project between the Republic of Honduras (the Recipiert) and the International Development Association (the Association), dated July 2, 2008, with respect to the above-captioned Project (the Financing Agreement). Please note that capitalized terms used in this letter (the Amendment Letter) and not defined herein have the meaning ascriled in them in the Financing Agreement. Pursuant to your letter dated June 20, 2012 to the Association, wherein a request is made to wave the withdrawal condition included in Section IV.B. 1 (c) of Schedule 2 to the Financing Agreement because an equivalent cordition has been complied with, we are pleased to inform you that the Association hereby agrees to waive said withdrawal condition. In addition, pursuant to the above-mentioned letter, wherein a request is also made to amend the Financing Agreement to: (a) reallocate funds between categories of Eligible Expenditures; (b) modify Project activities; and (c) reflect new implementation arrangements, we are pleased to inform you that the Association agrees to your request and proposes to amend the Financing Agreement as follows: 1. New sub-sections (c) and (d) are hereby added to Section 4.01 of the Financing Agreement to read in its "(c) (d) INPREMA Law or any provision thereof shall have been amended, suspended, abrogated, repealed, waived or not enforced in such a manner so as to affect materially and adversely, in the opinion of the Association, the ability of the Recipient to carry out the Project. INPREMA shall have failed to comply with any of its obligations under the PROHECO Affiliation Agreement and/or the PROHECO Debt Payment Agr.ement, in such a manner so as to affect materially and adversely, in the opinion of the Association, the ability of the Recipient to carry out the Project." 2. Section 4.02 (b) of the Financing Agreement is hereby amended to read in its entirety as follows: "(b) Any event specified in paragraph (b), and/or (c), and/or (d) of Section 4.01 of this Agreement occurs."

2 -2-3. Part 2.A of Schedule 1 to the Financing Agreement is hereby amended to read in its "A. Supporting the consolidation and institutionalization of the Recipient's school management system through: 1. the strengthening of the PROHECO through: (a) technical assistance to institutionalize PROHECO as a regular program of the SE; (b) activities aimed at informing PROHECO teachers about their individual pension benefits and rights; and (c) activit es aimed at strengthening the financial management and recording capabilities at the AECO level; and 2. the provision of training to: (a) the Recipient's school management entities to strengthen social management processes and to promote partnerships with other institutions that support the Recipient's education sector; and (b) rural school networks to strengthen their legal, administrative, technical and pedagogical skills for school management." 4. Part 2.B of Schedule 1 to the Financing Agreement is hereby amended to read in its "B. Strengthening the Recipient's school planning capacity and resource allocation for quality education, through: 1. the provision of training to school management entities within the rural school networks on the preparation and monitoring of outcories of PECs and PERs; and 2. the distribution of operational manuals for the preparation and monitoring of outcomes of PECs and PERs." 5. Part 2.C of Schedule 1 to the Financing Agreement is hereby amended to read in its "C. Supporting the development and implementation of a participatory monitoring and evalua:ion system for school management, through: 1. the development and installation of a web-based integrated education information system for rural school networks and schools within said networks, including the implementation of a school institutional evaluation module, integrating the PECs and the PE Rs; 2. the development of strategies, procedures and instruments to streng:hen the participatory monitoring of communities and parent associations for learning outcomes and teachers' performance."

3 -3-6. Section I.A.2 of Schedule 2 to the Financing Agreement is hereby amended to read in its "2. (a) The Recipient, through SE, shall maintain, throughout Project implementation, a project management unit (UGP), with composition, functions and resp:nsibilities acceptable to the Association and set forth in the Operational Mnual, including the administration of the Project. (b) The Recipient shall ensure that the UGP is, at all times during Project implementation, headed by a coordinator and assisted by staff in adequate numbers (including inter alia, a procurement specialist, a financial management specialist, a monitoring specialist and procurement and financial management assistants), all with qualifications and experience satisfactory to the Association. The Recipient undertakes that, unless the Association may ofherwise agree, UGP personnel shall only be hired based on professional criteria and shall only be replaced for reasons related to performance." 7. The table set forth in Section IV.A.2 of Schedule 2 to the Financing Agreement is hereby amended to read in its Amount of the Percentage of Expenditures Credit Allocated to be Financed "Category (expressed in SDR) (inclusive of Taxes) (1) Goods, consultant's services, 3,804, % Training for Part 1 of the Project (2) Goods, consultant's services, 1,016, % Training for Part 2 of the Project (3) Goods, consultant's services, 2,140, % Training and Operating Costs for Part 3.A of the Project (4) Goods, consultant's services, 1,465, % Training for Part 3 of the Project other than those covered by Category (3) above (5) Goods, consultant's services, 1,375, % Training and Operating Costs for Part 4 of the Project TOTAL AMOUNT 9,800,000" 8. Section V of Schedule 2 to the Financing Agreement is hereby amended to read in its

4 -4- "Section V. Other Undertakings 1. No later than March 31, 2013, the Recipient shall determine the entitlements for each PROHECO teacher with respect to the pension payments that such teacher and the employer have made since March 1, 1999, all in a manner satisfactory to the Association. 2. No later than March 31, 2013, the Recipient, through SEFIN, shall amend the PROHECO Debt Payment Agreement, in a manner satisfactory to the Association, to establish the amount of the debt that the Recipient, through SEFIN, shall pay to INPREMA accounting for the specific entitlements of each PROHECO teacher employed since March 1, 1999 to January 31, 2012 (as such entitlements were determined pursuant to parigraph 1 of this Section V). 3. The Recipient, through SEFIN and SE, shall exercise its rights and carry out its obligati ns under the PROHECO Affiliation Agreement and the PROHECO Debt Payment Agreement, in a manner satisfactory to the Association." 9. Section I of the Appendix to the Financing Agreement is hereby modified to: (a) Delete the following definitions (as a result existing definitions are renumbered to keep the alphabetical order): ECU", "EFA" and "EFA-PF". (b) Add the following definitions to read in their entirety as follows (as a result existing definitions are renumbered to keep the alphabetical order): (i) "'INPREMA" means Instituto Nacional de Previsi6n del Magisterio, the Recipient's nalional institute for teachers' pensions established under Decree No dated July 15, 1980 as amended thereof or any successor there o." (ii) (iii) "'INPREMA Law" means the Recipient's Legislative Decree No dated December 14, 2011 and published in the Recipient's Official Gazette on December 22, 2011." "'PROHECO Affiliation Agreement" means Convenio Interinstitucional de Afiliaci6n ae los Docentes del Programa Hondureiho de Educaci6n Comunitaria erl Sistema de Previsi6n Social del Magisterio, the agreement signed among SEFIN, SE and INPREMA, dated October 27, 2011, as said agreement may be amended from time to time with the agreement of the Association." (iv) "'PROHECO Debt Payment Agreement" means Convenio Interinstitucional de Cancelaci6n de la Deuda Contraida por los Docentes del Programa Hondureiho de Educaci6n Comunitaria al Sistema de Previsi6n Social del Magisterio, the agreement signed between SEFIN and INPREMA to cancel the Recipient's debt to INPREMA with respect to PROHECO teachers' and employers' contributions, dated October 27, 2011 as said agreement may be amended from lime to time with the agreement of the Association."

5 -5- (v) "'UGP" means Unidad de Gesti6n del Proyecto, the Recipient's Project Management Unit within SE, referred to in Section I. A. 2 of Schedule 2 of this Agreement, or any other successor thereto." (c) Amend the following definitions to read in their (i) "'Operating Costs" means in respect of the table in Section IV.A.2 of Schedule 2 to this Agreement, the incremental expenses incurred on account of Project implementation, including office equipment and supplies, vehicle operation and maintenance, communication and insurance costs, office administration costs, utilities, travel and per diem costs related to the supervision of the Project, supervision costs and salaries of locally contracted employees." (ii) "'PEC" means Proyecto Educativo de Centro, a plan for school improvement activities prepared annually by rural school management entities." Please confirm your agreement with the foregoing by signing and dating two originals of this Amendment Letter in the spaces provided below. The provisions set forth in this Amendment Letter shall become effective as of the date of the countersignature upon receipt by the Association of one fully executed original of this Amendment Letter. Please also note that the approved Restructuring Paper dated Jure 28, 2012 will be disclosed on the Association's external website. Very truly yours, INTERNATIONAII DEVE P N SSOCIATION By C. Felipe J io Direct r Central America Latin Amen ca and the Caribbean Region AGREED: REPUBLIC H S 7N By: th rized R ntative - Name: 4141 V" --r4 Title: I/~~~f o/ 2 -ws Date:2. /