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CONFORMED COPY 
 
LOAN NUMBER 7408-PAN 
 
Loan Agreement 
 
(Public Finance and Institutional Development Policy Loan) 
 
between 
 
REPUBLIC OF PANAMA 
 
and 
 
INTERNATIONAL BANK FOR RECONSTRUCTION 
AND DEVELOPMENT 
 
Dated November 7, 2006
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LOAN NUMBER 7408-PAN 
 
LOAN AGREEMENT 
 
Agreement dated November 7, 2006, entered into between REPUBLIC OF PANAMA 
(
“Borrower”) and INTERNATIONAL BANK FOR RECONSTRUCTION AND 
DEVELOPMENT (“Bank”) for the purpose of providing financing in support of the 
Program (as defined in the Appendix to this Agreement).  The Bank has decided to 
provide this financing on the basis, 
inter alia
,
of:  (a) the actions which the Borrower has 
already taken under the Program and which are described in Section I  of Schedule 1 to 
this Agreement; and (b) the Borrower’s maintenance of an appropriate macro-economic 
policy framework. The Borrower and the Bank therefore hereby agree as follows: 
 
ARTICLE I
—GENERAL CONDITIONS; DEFINITIONS 
 
1.01. 
The General Conditions (as defined in the Appendix to this Agreement) 
constitute an integral part of this Agreement. 
 
1.02. 
Unless the context requires otherwise, the capitalized terms used in the Loan 
Agreement have the meanings ascribed to them in the General Conditions or in 
the Appendix to this Agreement. 
 
ARTICLE II
—LOAN 
 
2.01. 
The Bank agrees to lend to the Borrower, on the terms and conditions set forth or 
referred to in this Agreement, the amount of $60,000,000 (sixty million Dollars) 
as such amount may be converted from time to time through a Currency 
Conversion in accordance with the provisions of Section 2.08 of this Agreement 
(“Loan”). 
 
2.02. 
The Borrower may withdraw the proceeds of the Loan in support of the Program 
in accordance with Section II of Schedule 1 to this Agreement.
 
2.03. 
The Commitment Charge payable by the Borrower shall be equal to three-fourths 
of one percent (3/4 of 1%) per annum on the Unwithdrawn Loan Balance, subject 
to any waiver of a portion of such charge as may be determined by the Bank from 
time to time. 
 
2.04. 
The Front-end Fee payable by the Borrower shall be equal to one percent 
(1.00%) of the Loan amount, subject to any waiver of a portion of such fee as 
may be determined by the Bank from time to time.  The Borrower shall pay the 
Front-end Fee not later than sixty days after the Effective Date. 
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2
2.05. 
The interest payable by the Borrower for each Interest Period shall be at a rate 
equal to LIBOR for the Loan Currency plus the Fixed Spread, subject to any 
waiver of a portion of such interest as may be determined by the Bank from time 
to time; provided that, upon a Conversion of all or any portion of the principal 
amount of the Loan, the interest payable by the Borrower during the Conversion 
Period on such amount shall be determined in accordance with the relevant 
provisions of Article IV of the General Conditions. 
 
2.06. 
The Payment Dates are May 15
 
and November 15 in each year. 
 
2.07. 
The principal amount of the Loan shall be repaid in accordance with the 
provisions of Schedule 2 to this Agreement. 
 
2.08. 
(a) 
The Borrower may at any time request any of the following Conversions 
of the terms of the Loan in order to facilitate prudent debt management: 
(i) a change of the Loan Currency of all or any portion of the principal 
amount of the Loan, withdrawn or unwithdrawn, to an Approved 
Currency; (ii) a change of the interest rate basis applicable to all or any 
portion of the principal amount of the Loan from a Variable Rate to a 
Fixed Rate, or vice versa; and (iii) the setting of limits on the Variable 
Rate applicable to all or any portion of the principal amount of the Loan 
withdrawn and outstanding by the establishment of an Interest Rate Cap 
or Interest Rate Collar on the Variable Rate. 
 
(b) 
Any conversion requested pursuant to paragraph (a) of this Section that 
is accepted by the Bank shall be considered a “Conversion”, as defined 
in the General Conditions, and shall be effected in accordance with the 
provisions of Article IV of the General Conditions and of the Conversion 
Guidelines.  
 
2.09. 
Without limitation upon the provisions of paragraph (a) of Section 2.08 of this 
Agreement and unless otherwise notified by the Borrower to the Bank in 
accordance with the provisions of the Conversion Guidelines, the interest rate 
basis applicable to consecutive withdrawals from the Loan Account which in the 
aggregate equal US$60,000,000 (sixty million Dollars), shall be converted from 
the initial Variable Rate to a Fixed Rate for the full maturity of such amount in 
accordance with the provisions of the General Conditions and of the Conversion 
Guidelines. 
 
2.10. 
Without limitation upon the provisions of Section 5.10 of the General 
Conditions, the Borrower shall promptly furnish to the Bank such information 
relating to the provisions of this Article II as the Bank may, from time to time, 
reasonably request. 
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ARTICLE III
—PROGRAM 
 
3.01. 
The Borrower declares its commitment to the Program and its implementation.  
To this end: 
 
(a) 
the Borrower and the Bank shall from time to time, at the request of 
either party, exchange views on the progress achieved in carrying out the 
Program; 
 
(b) 
prior to each such exchange of views, the Borrower shall furnish to the 
Bank for its review and comment a report on the progress achieved in 
carrying out the Program, in such detail as the Bank shall reasonably 
request; and 
 
(c) 
without limitation upon the provisions of paragraphs (a) and (b) of this 
Section, the Borrower shall exchange views with the Bank on any 
proposed action to be taken after the disbursement of the Loan which 
would have the effect of materially reversing the objectives of the 
Program, or any action taken under the Program, including any action 
specified in Section I of Schedule 1 to this Agreement. 
 
ARTICLE IV
—REMEDIES OF THE BANK 
 
4.01. 
The Additional Events of Suspension consist of the following: 
 
(a) 
A situation has arisen which shall make it improbable that the Program, 
or a significant part of it, will be carried out. 
 
(b) 
The Borrower’s macroeconomic policy framework has become 
inconsistent with the objectives of the Program. 
 
(c) 
An action has been taken or a policy has been adopted to reverse any 
action or policy under the Program, including any action listed under 
Section I of Schedule 1 to this Agreement, in a manner that would, in the 
opinion of the Bank, adversely affect the achievement of the objectives 
of the Program. 
 
4.02. 
The Additional Events of Acceleration consist of the following: 
 
(a) 
Any event specified in paragraph (c) of Section 4.01 of this Agreement 
occurs and is continuing for a period of 30 days after notice of the event 
has been given by the Bank to the Borrower. 
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(b) 
Any event specified in paragraphs (a) or (b) of Section 4.01 of this 
Agreement occurs. 
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ARTICLE V
—EFFECTIVENESS
 
5.01. 
Without prejudice to the provisions of the General Conditions, the Effectiveness 
Deadline is the date (90) days after the date of this Agreement, but in no case later than 
the eighteen months after the Bank’s approval of the Loan which expires on April 7, 
2008. 
 
ARTICLE VI 
—
REPRESENTATIVE; ADDRESSES
 
6.01. 
The Borrower’s Representative is its Minister of Economy and Finance. 
 
6.02. 
The Borrower’s Address is: 
 
Ministry of Economy and Finance 
 
Edificio Ogawa, 2 piso 
 
Avenida España  
 
Apartado 7304, Zona 5 
Panamá, Republic of Panamá 
 
Telephone: 
    Facsimile: 
 
(507) 
507-7008 
    (507) 
507-7045 
(507) 
506-6753 
     
 
6.03. 
The Bank’s Address is: 
 
International Bank for  
Reconstruction and Development 
1818 H Street, N.W. 
Washington, D.C. 20433 
United States of America 
 
Cable 
address: 
 Telex: 
  Facsimile: 
 
INTBAFRAD  
248423(MCI) 
or 
1-202-477-6391 
Washington, D.C. 
 64145(MCI) 
 
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6
AGREED at the District of Columbia, United States of America, as of the day 
and year first above written. 
 
REPUBLIC OF PANAMA 
 
By /s/ Federico Humbert 
 
Authorized Representative 
 
INTERNATIONAL BANK FOR 
 
RECONSTRUCTION AND DEVELOPMENT 
 
By /s/ Jane Armitage 
 
Authorized Representative 
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7
SCHEDULE 1 
 
Program Actions; Availability of Loan Proceeds 
 
Section I. 
Actions under the Program
The actions taken by the Borrower under the Program include the following: 
 
1. 
In order to improve fiscal sustainability, the Borrower has, in compliance with 
 
each and every required procedural step under its legal and constitutional 
 framework:
 
(a) 
(i) approved on January 31, 2005 and November 09, 2005, through its 
Parliament (
Asamblea Nacional
), Law No. 6 (
Ley “Que Implementa un 
Programa de Equidad Fiscal”)
 which records provisions for an increase in 
central government revenues, a deceleration in the growth of the public wage bill 
and public sector employment and a reduction in the NFPS deficits and Law No. 
34 (
Ley Que Modifica y Adiciona Articulos a la Ley 6 de 2005 Que Implementa 
un Programa de Equidad fiscal y Otras Disposiciones
); (ii) promulgated Law 
No. 6 through an Act of its Executive Branch (
Organo Ejecutivo
 
Nacional
)
dated 
February 02, 2005; (iii) caused Law No. 6 to be published in the Official Gazette 
(
Gaceta Oficial
)
No. 25232 of February 03, 2005  and Law No. 34 in No. 25424 
of November 14, 2005; and thereafter (iv) issued implementing regulations 
thereto, through Executive Decree 
(Decreto Ejecutivo)
 No. 177 of MEF dated 
December 09, 2005 and published in the Official Gazette No. 25444 dated 
December 14, 2005, and Executive Decree 
(Decreto Ejecutivo)
 No. 9 dated 
February 23, 2006 published in the Official Gazette No. 25493 dated February 
24, 2006.  
 
(b) 
(i) approved on December 21, 2005,  through its Parliament (
Asamblea 
Nacional
), Organic Law No. 51 for the reform of the social security system (
Ley 
“Que
 
Reforma la Ley Orgánica de la Caja de Seguro Social y Dicta Otras 
Disposiciones
”
)
which sets forth provisions to contain  the fiscal losses of the 
Borrower’s Social Security Institute; (ii) promulgated Organic Law No. 51 
through an Act of its Executive Branch (
Organo Ejecutivo Nacional
)
dated 
December 27, 2005; and (iii) caused  Organic Law No. 51 to be published in the 
Official Gazette (
Gaceta Oficial
)
No. 25453 of December 28, 2005.
 
2. 
In order to improve fiscal transparency and public expenditure management, the 
 Borrower 
has:
 
(a) 
(i) issued, through MEF, a report dated March 2006 on the Treasury 
General Account (
Cuenta General del Tesoro) 
operations for 2005 and a report 
dated June 2005 on the NFPS fiscal execution; and (ii) submitted annual and 
quarterly reports of the Borrower’s CGR dated March 31, 2005 through March 
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8
31, 2006, respectively, which attest to the launching of the publication by MEF 
and CGR of fiscal balance reports of the Borrower. 
 
(b) 
Reduced its end-of-fiscal-year outstanding accruals for central 
government expenditures from 13.1% in 2004 to 5.8% in 2005 as attested by the 
calculations based on the CGR reports dated December 31, 2004 and December 
31, 2005 respectively. 
 
(c) 
Issued, through MEF, on July 11, 2006, a circular on budget policies for 
fiscal year 2007 (
Política Presupuestaria para la Vigencia Fiscal 2007
)
which 
records the introduction of a medi
um
term budget framework for the Borrower’s 
fiscal years 2007 to 2010. 
 
(d) 
(i) adopted, in compliance with relevant procedural steps under its legal 
and constitutional framework, Decree No. 98 dated September 02, 2005 setting 
forth provisions allowing the launch, for public sector acquisitions, of a web-
based electronic procurement system (
Pan
amá Compra
)
intended to promote 
transparency and competition and support good governance; and (ii) caused the 
publication of Decree No.98 
in the Borrower’s Official Gazette (
Gaceta Oficial
 ) 
No. 25378 dated September 05, 2005. 
 
(e) 
(i) approved on June 08, 2006, through its Parliament (
Asamblea 
Nacional
), Law No. 22 for the modernization of public procurement (
Ley “Que
 
R
egula la Contratación Publica y Dicta Otra Disposición
”); (ii) promulgated 
Law No. 22 through an Act of its Executive Branch (
Organo Ejecutivo Nacional
)
dated June 27, 2006; and (iii) caused Law No. 22  to be published in the Official 
Gazette (
Gaceta Oficial
)
No. 25576 of June 28, 2006, all in compliance with 
each and every required procedural step therefore set forth under its legal and 
constitutional framework.
 
Section II. 
Availability of Loan Proceeds
A. General. 
 
The Borrower may withdraw the proceeds of the Loan in accordance 
with the provisions of this Section and such additional instructions as the Bank 
may specify by notice to the Borrower. 
 
B. 
Allocation of Loan Amounts.
 
The Loan shall be withdrawn in a single tranche.  
The allocation of the amounts of the Loan to this end is set out in the table below: 
 
Allocation 
Amount of the Loan 
Allocated 
(expressed in Dollars) 
Single Tranche 
60,000,000 
 
TOTAL AMOUNT 
60,000,000 
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C.
 
Payment of Front-end Fee.
 
No withdrawal shall be made from the Loan 
Account) until the Bank has received payment in full of the Front-end Fee.  
 
D. 
Deposits of Loan Amount.
 
Except as the Bank may otherwise agree:   
 
1. 
all withdrawals from the Loan Account shall be deposited by the Bank 
into an account designated by the Borrower and acceptable to the Bank, 
opened at 
Banco Nacional de Panam
á
;
and 
 
2.  
the Borrower shall ensure that upon each deposit of an amount of the 
Loan into this account, an equivalent amount is accounted for in the 
Borrower’s budget management system, in a manner acceptable to the 
Bank. 
 
E. Excluded 
Expenditures
.
The Borrower undertakes that the proceeds of the 
Loan shall not be used to finance Excluded Expenditures. If the Bank determines 
at any time that an amount of the Loan was used to make a payment for an 
Excluded Expenditure, the Borrower shall, promptly upon notice from the Bank, 
refund an amount equal to the amount of such payment to the Bank. Amounts 
refunded to the Bank upon such request shall be cancelled.
 
F. 
Closing Date.  
The Closing Date is June 30, 2007. 
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SCHEDULE 2 
 
Amortization Schedule 
 
The following table sets forth the Principal Payment Dates of the Loan and the 
percentage of the total principal amount of the Loan payable on each Principal 
Payment Date (
“Installment Share”).  If the proceeds of the Loan have been fully 
withdrawn as of the first Principal Payment Date, the principal amount of the 
Loan repayable by the Borrower on each Principal Payment Date shall be 
determined by the Bank by multiplying: (a) Withdrawn Loan Balance as of the 
first Principal Payment Date; by (b) the Installment Share for each Principal 
Payment Date
,
such repayable amount to be adjusted, as necessary, to deduct any 
amounts referred to in paragraph 4 of this Schedule, to which a Currency 
Conversion applies. 
 
Principal Payment Date 
Installment Share 
(Expressed as a Percentage) 
 
On each May 15 and  November 15  
 
Beginning November 15, 2008 
through November 15, 2023 
 
3.13 % 
On May 15, 2024 
2.97 % 
2.  
If the proceeds of the Loan have not been fully withdrawn as of the first Principal 
Payment Date, the principal amount of the Loan repayable by the Borrower on 
each Principal Payment Date shall be determined as follows: 
 
(a) 
To the extent that any proceeds of the Loan have been withdrawn as of 
the first Principal Payment Date, the Borrower shall repay the 
Withdrawn Loan Balance as of such date in accordance with paragraph 1 
of this Schedule. 
 
(b) 
Any amount withdrawn after the first Principal Payment Date shall be 
repaid on each Principal Payment Date falling after the date of such 
withdrawal in amounts determined by the Bank by multiplying the 
amount of each such withdrawal by a fraction, the numerator of which is 
the original Installment Share specified in the table in paragraph 1 of this 
Schedule for said Principal Payment Date (“Original Installment Share”) 
and the denominator of which is the sum of all remaining Original 
Installment Shares for Principal Payment Dates falling on or after such 
date, such amounts repayable to be adjusted, as necessary, to deduct
 
any
 
amounts referred to in paragraph 4 of this Schedule, to which a Currency 
Conversion applies.
 
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3. 
(a) 
Amounts of the Loan withdrawn within two calendar months prior to any 
Principal Payment Date shall, for the purposes solely of calculating the 
principal amounts payable on any Principal Payment Date, be treated as 
withdrawn and outstanding on the second Principal Payment Date 
following the date of withdrawal and shall be repayable on each 
Principal Payment Date commencing with the second Principal Payment 
Date following the date of withdrawal. 
 
(b) 
Notwithstanding the provisions of sub-paragraph (a) of this paragraph, if 
at any time the Bank adopts a due date billing system under which 
invoices are issued on or after the respective Principal Payment Date, the 
provisions of such sub-paragraph shall no longer apply to any 
withdrawals made after the adoption of such billing system.  
 
4. 
Notwithstanding the provisions of paragraphs 1 and 2 of this Schedule, upon a 
Currency Conversion of all or any portion of the Withdrawn Loan Balance to an 
Approved Currency, the amount so converted in the Approved Currency that is 
repayable on any Principal Payment Date occurring during the Conversion 
Period, shall be determined by the Bank by multiplying such amount in its 
currency of denomination immediately prior to the Conversion by either: (a) the 
exchange rate that reflects the amounts of principal in the Approved Currency 
payable by the Bank under the Currency Hedge Transaction relating to the 
Conversion; or (b) if the Bank so determines in accordance with the Conversion 
Guidelines, the exchange rate component of the Screen Rate.  
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APPENDIX 
 
Section I.  Definitions 
 
1.
 
“Banco Nacional de Panamá
”
means the Borrower’s national bank acting as its 
payment agent for the Loan. 
 
2. “CGR” 
means 
Contraloría General de la Republica, 
t
he Borrower’s Office of the 
Comptroller’s General. 
 
3. 
“Excluded Expenditure” means any expenditure: 
 
(a)  
for goods or services supplied under a contract which any national or 
international financing institution or agency other than the Bank or the 
Association has financed or agreed to finance, or which the Bank or the 
Association has financed or agreed to finance under another loan, credit, 
or grant; 
 
(b) 
for goods included in the following groups or sub-groups of the Standard 
International Trade Classification, Revision 3 (SITC, Rev.3), published 
by the United Nations in Statistical Papers, Series M, No. 34/Rev.3 
(1986) (the SITC), or any successor groups or subgroups under future 
revisions to the SITC, as designated by the Bank by notice to the 
Borrower: 
 
Group 
Sub-group 
Description of Item 
112  
Alcoholic 
beverages 
121 
 
Tobacco, un-manufactured, tobacco refuse 
122 
 
Tobacco, manufactured (whether or not 
containing tobacco substitutes) 
525 
 
Radioactive and associated materials 
667 
 
Pearls, precious and semiprecious stones, 
unworked or worked 
718 718.7 
 
Nuclear reactors, and parts thereof; fuel 
elements (cartridges), non-irradiated, for 
nuclear reactors 
728 
728.43  
Tobacco processing machinery 
897 
897.3 
Jewelry of gold, silver or platinum group 
metals (except watches and watch cases) 
and goldsmiths’ or silversmiths’ wares 
(including set gems) 
971  
 
Gold, non-monetary (excluding gold ores 
and concentrates) 
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(c) 
for goods intended for a military or paramilitary purpose or for luxury 
consumption; 
 
(d) 
for environmentally hazardous goods, the manufacture, use or import of 
which is prohibited under the laws of the Borrower or international 
agreements to which the Borrower is a party; 
 
(e) 
on account of any payment prohibited by a decision of the United 
Nations Security Council taken under Chapter VII of the Charter of the 
United Nations; and 
 
(f) 
under a contract with respect to which the Bank determines that corrupt, 
fraudulent, collusive or coercive practices were engaged in by 
representatives of the Borrower or other recipient of the Loan proceeds 
during the procurement or execution of such contract, without the 
Borrower (or other such recipient) having taken timely and appropriate 
action satisfactory to the Bank to remedy the situation. 
 
4.  
“General Conditions” means the “International Bank for Reconstruction and 
Development General Conditions for Loans”, dated July 1, 2005 with the 
modifications set forth in Section II of this Appendix. 
 
5. 
“MEF’ means, depending on the context, the Borrower’s Ministry of Economy 
and Finance or the Minister in charge of it. 
 
6.
 
“NFPS” means the Borrower’s Non Financial Public Sector, consisting of the 
central government, autonomous public sector institutions and public enterprises 
and excluding the Panama Canal Authority. 
 
7. 
“Program” means the program of actions, objectives and policies designed to 
promote growth and achieve sustainable reductions in poverty and set forth or 
referred to in the letter dated August 24, 2006 from the Borrower to the Bank 
declaring the Borrower’s commitment to the execution of the Program, and 
requesting assistance from the Bank in support of the Program during its 
execution. 
 
“Single Tranche” means the amount of the Loan allocated to the category entitled “Single 
Tranche” in the table set forth in Part B of Section II of Schedule 1 to this 
Agreement. 
 
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Section II.  Modifications to the General Conditions 
 
The modifications to the 
“International Bank for Reconstruction and Development 
General Conditions for Loans”, dated July 1, 2005 are as follows:   
1. 
The last sentence of paragraph (a) of Section 2.03 (relating to Applications for 
Withdrawal) is deleted in its entirety. 
2. 
Sections 2.04 (
Designated Accounts)
 and 2.05 (
Eligible Expenditures
)
are deleted 
in their entirety, and the remaining Sections in Article II are renumbered 
accordingly. 
3. 
Sections 5.01 (
Project Execution Generally
), and 5.09 (
Financial Management; 
Financial Statements; Audits
)
are deleted in their entirety, and the remaining 
Sections in Article V are renumbered accordingly. 
4. 
Paragraph (a) of Section 5.05 (renumbered as such pursuant to paragraph 3 above 
and relating to 
Use of Goods, Works and Services
)
is deleted in its entirety. 
 
5. 
Paragraph (c) of Section 5.06 (renumbered as such pursuant to paragraph 3 
above) is modified to read as follows: 
 
“Section 5.06. 
Plans; Documents; Records 
 
…
(c) 
The Borrower shall retain all records (contracts, orders, 
invoices, bills, receipts and other documents) evidencing expenditures 
under the Loan until two years after the Closing Date. The Borrower 
shall enable the Bank’s representatives to examine such records.” 
 
6. 
Paragraph (c) of Section 5.07 (renumbered as such pursuant to paragraph 3 
above) is modified to read as follows: 
 
“Section 5.07. 
Program Monitoring and Evaluation 
 
…
(c)  
The Borrower shall prepare, or cause to be prepared, and 
furnish to the Bank not later than six months after the Closing Date, a 
report of such scope and in such detail as the Bank shall reasonably 
request, on the execution of the Program, the performance by the Loan 
Parties and the Bank of their respective obligations under the Legal 
Agreements and the accomplishment of the purposes of the Loan.” 
 
7. 
The following terms and definitions set forth in the Appendix are modified or 
deleted as follows, and the following new terms and definitions are added in 
alphabetical order to the Appendix as follows, with the terms being renumbered 
accordingly: 
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(a) 
The definition of the term 
“Eligible Expenditure” is modified to read as 
follows:   
 
“‘Eligible Expenditure’ means any use to which the Loan is put in 
support of the Program, other than to finance expenditures excluded 
pursuant to the Loan Agreement.” 
 
(b) 
The term “Financial Statements” and its definition as set forth in the 
Appendix are deleted in their entirety. 
 
(c) 
The term “Project” is modified to read “Program” and its definition is 
modified to read as follows:  
 
“‘Program’ means the program referred to in the Loan Agreement in 
support of which the Loan is made.”  All references to “Project” 
throughout these General Conditions are deemed to be references to 
“Program”.