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CONFORMED COPY
CREDIT NUMBER 3508 AM
Development Credit Agreement
(Fourth Structural Adjustment Credit)
between
REPUBLIC OF ARMENIA 
and
INTERNATIONAL DEVELOPMENT ASSOCIATION
Dated May 31, 2001
CREDIT NUMBER 3508 AM
DEVELOPMENT CREDIT AGREEMENT
AGREEMENT, dated May 31, 2001 between REPUBLIC OF ARMENIA (the Borrower) and 
INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association).
WHEREAS (A) the Association has received from the Borrower a letter dated March 
5, 2001, describing a program of actions, objectives and policies designed to achieve 
structural adjustment of the Borrower's economy (hereinafter called the Program), 
declaring the Borrower's commitment to the execution of the Program, and requesting 
assistance from the Association in support of the Program during the execution 
thereof; and
(B)
on the basis, inter alia, of the foregoing, the Association has decided 
in support of the Program to provide such assistance to the Borrower by making the 
Credit as hereinafter provided;
NOW THEREFORE the parties hereto hereby agree as follows:
ARTICLE I
General Conditions; Definitions
Section 1.01. The "General Conditions Applicable to Development Credit 
Agreements" of the Association, dated January 1, 1985, (as amended through October 6, 
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1999) with the modifications thereof set forth below (the General Conditions) 
constitute an integral part of this Agreement:
(a)
Section 2.01, paragraph 12, is modified to read:
"‘Project’ means the program, referred to in the Preamble to the 
Development Credit Agreement, in support of which the Credit is made.";
(b)
Section 4.01 is modified to read:
"Except as the Borrower and the Association shall otherwise agree, 
withdrawals from the Credit Account shall be made in the currency of the 
deposit account specified in Section 2.02 of the Development Credit 
Agreement.";
(c)
Section 5.01 is modified to read:
"The Borrower shall be entitled to withdraw the proceeds of the Credit 
from the Credit Account in accordance with the provisions of the Development 
Credit Agreement and of these General Conditions";
(d)
The last sentence of Section 5.03 is deleted;
(e)
Section 9.06 (c) is modified to read:
"(c) Not later than six (6) months after the Closing Date or such later 
date as may be agreed for this purpose between the Borrower and the 
Association, the Borrower shall prepare and furnish to the Association a 
report, of such scope and in such detail as the Association shall reasonably 
request, on the execution of the program referred to in the Preamble to the 
Development Credit Agreement, the performance by the Borrower and the 
Association of their respective obligations under the Development Credit 
Agreement and the accomplishment of the purposes of the Credit."; and
(f)
Section 9.04 is deleted and Sections 9.05, 9.06 (as modified above), 9.07 
and 9.08 are renumbered, respectively, Sections 9.04, 9.05, 9.06 and 9.07. 
Section 1.02. 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)
"Category A Proceeds" means an amount out of the proceeds of the Credit 
equivalent to SDR 11,500,000 to be made available subject to the provisions of 
paragraph 2.02 (d) (i) of this Agreement;
(b)
"Category B Proceeds" means an amount out of the proceeds of the Credit 
equivalent to SDR 15,400,000 to be made available subject to the provisions of 
paragraph 2.02 (d) (ii) of this Agreement;
(c)
"Comprehensive Heating Strategy and Action Plan" means the action plan 
and heating strategy to be adopted by the Borrower covering legal, regulatory, market 
structure and financing issues in the heating sector;
(d)
"Deposit Account" means the account referred to in Section 2.02 (b) of 
this Agreement;
(e)
"Medium Term Action Plan for Improving the Business Environment" means 
the action plan for improving the Borrower’s business environment and removing 
administrative barriers for investments, adopted by the Borrower’s Decision No. 58, 
dated December 28, 2000;
(f)
"Medium Term Action Plan for Reforming Tax and Custom Administration" 
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means the action plan for reforming the Borrower’s tax and custom administration 
adopted by the Borrower’s Decree No. 167 dated March 9, 2001;
(g)
"State Health Agency" means the Borrower’s State Health Agency, 
established by Decree No. 593, dated December 18, 1997; and
(h)
"Social Insurance Fund" means the Borrower’s Social Insurance Fund 
established by Decree No. 656, dated October 28, 1998.
ARTICLE II
The Credit
Section 2.01. The Association agrees to lend to the Borrower, on the terms and 
conditions set forth or referred to in the Development Credit  Agreement, an amount in 
various currencies equivalent to thirty-eight million four hundred thousand Special 
Drawing Rights (SDR 38,400,000).
Section 2.02. (a) Subject to the provisions of paragraphs (b), (c) and (d) of 
this Section, the Borrower shall be entitled to withdraw the proceeds of the Credit 
from the Credit Account in support of the Program.
(b)
The Borrower shall open, prior to furnishing to the Association the first 
request for withdrawal from the Credit Account, and thereafter maintain in its central 
bank, a deposit account in Dollars on terms and conditions satisfactory to the 
Association. All withdrawals from the Credit Account shall be deposited by the 
Association into the Deposit Account.
(c)
The Borrower undertakes that the proceeds of the Credit shall not be used 
to finance expenditures excluded pursuant to the provisions of Schedule 1 to this 
Agreement. If the Association shall have determined at any time that any proceeds of 
the Credit shall have been used to make a payment for an expenditure so excluded, the 
Borrower shall, promptly upon notice from the Association, (i) deposit into the 
Deposit Account an amount equal to the amount of said payment, or (ii) if the 
Association shall so request, refund such amount to the  Association. Amounts refunded 
to the Association upon such request shall be credited to the Credit Account for 
cancellation.
(d)
No withdrawals shall be made from the Credit Account in respect of:
(i)
Category A Proceeds after the aggregate of the proceeds of the 
Credit withdrawn from the Credit Account, but not including 
Category B Proceeds, shall have reached the equivalent of SDR 
11,500,000, unless the Association shall be satisfied, after an 
exchange of views as described in Section 3.01 of this Agreement 
based on evidence satisfactory to the Association:
(A)
with the progress achieved by the Borrower in the carrying 
out of the Program; 
(B)
that the macroeconomic policy framework of the Borrower is 
satisfactory, as measured on the basis of indicators agreed 
between the Borrower and the Association; and 
(C)
that the actions described in Section I of Schedule 2 to 
this Agreement have been taken.
(ii)
Category B Proceeds unless the Association shall be satisfied, 
after an exchange of views as described in Section 3.01 of this 
Agreement based on evidence satisfactory to the Association:
(A)
with the progress achieved by the Borrower in the carrying 
out of the Program;
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(B)
that the macroeconomic policy framework of the Borrower is 
satisfactory, as measured on the basis of indicators agreed 
between the Borrower and the Association; and
(C)
that the actions described in Section II of Schedule 2 to 
this Agreement have been taken.
(e)
If, after said exchange of views, the Association is not so satisfied, 
the Association may give notice to the Borrower to that effect and, if within ninety 
(90) days after such notice, the Borrower shall not have taken steps satisfactory to 
the Association, in respect of (d) (i) (A), (B) and (C) and (d) (ii) (A), (B) and (C) 
above, then the Association may, by notice to the Borrower, cancel the unwithdrawn 
amount of the Credit or any part thereof.
Section 2.03. The Closing Date shall be March 31, 2002 or such later date as the 
Association shall establish. The Association shall promptly notify the Borrower of 
such later date.
Section 2.04. (a) The Borrower shall pay to the Association a commitment charge 
on the principal amount of the Credit not withdrawn from time to time at a rate to be 
set by the Association as of June 30 of each year, but not to exceed the rate of 
one-half of one percent (1/2 of 1%) per annum.
(b)
The commitment charge shall accrue: (i) from the date sixty (60) days 
after the date of this Agreement (the accrual date) to the respective dates on which 
amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; and 
(ii) at the rate set as of the June 30 immediately preceding the accrual date and at 
such other rates as may be set from time to time thereafter pursuant to paragraph (a) 
above. The rate set as of June 30 in each year shall be applied from the next date in 
that year specified in Section 2.06 of this Agreement.
(c)
The commitment charge shall be paid: (i) at such places as the 
Association shall reasonably request ; (ii) without restrictions of any kind imposed 
by, or in the territory of, the Borrower; and (iii) in the currency specified in this 
Agreement for the purposes of Section 4.02 of the General Conditions or in such other 
eligible currency or currencies as may from time to time be designated or selected 
pursuant to the provisions of that Section.
Section 2.05. The Borrower shall pay to the Association a service charge at the 
rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of 
the Credit withdrawn and outstanding from time to time.
Section 2.06. Commitment charges and service charges shall be payable 
semiannually on June 15 and December 15 in each year.
Section 2.07. (a)   Subject to paragraphs (b), (c) and (d) below, the Borrower 
shall repay the principal amount of the Credit in semiannual installments payable on 
each June 15 and December 15, commencing June 15, 2011 and ending December 15, 2040. 
Each installment to and including the installment payable on December 15, 2020 shall 
be one percent (1%) of such principal amount, and each installment thereafter shall be 
two percent (2%) of such principal amount.
(b)
Whenever: (i) the Borrower’s per capita gross national product (GNP), as 
determined by the Association, shall have exceeded for three (3) consecutive years the 
level established annually by the Association for determining eligibility to access 
the Association’s resources; and (ii) the Bank shall consider the Borrower 
creditworthy for Bank lending, the Association may, subsequent to the review and 
approval thereof by the Executive Directors of the Association and after due 
consideration by the Association of the development of the Borrower’s economy, modify 
the repayment of installments under paragraph (a) above by: (A) requiring the Borrower 
to repay twice the amount of each such installment not yet due until the principal 
amount of the Credit shall have been repaid; and (B) requiring the Borrower to 
commence repayment of the principal amount of the Credit as of the first semiannual 
payment date referred to in paragraph (a) above falling six (6) months or more after 
the date on which the Association notifies the Borrower that the events set out in 
this paragraph (b) have occurred, provided, however, that there shall be a grace 
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period of a minimum of five (5) years on such repayment of principal.
(c)
If so requested by the Borrower, the Association may revise the 
modification referred to in paragraph (b) above to include, in lieu of some or all of 
the increase in the amounts of such installments, the payment of interest at an annual 
rate agreed with the Association on the principal amount of the Credit withdrawn and 
outstanding from time to time, provided that, in the judgment of the Association, such 
revision shall not change the grant element obtained under the above-mentioned 
repayment modification.
(d)
If, at any time after a modification of terms pursuant to paragraph (b) 
above, the Association determines that the Borrower’s economic condition has 
deteriorated significantly, the Association may, if so requested by the Borrower, 
further modify the terms of repayment to conform to the schedule of installments as 
provided in paragraph (a) above.
Section 2.08. The currency of the United States of America is hereby specified 
for the purposes of Section 4.02 of the General Conditions.
ARTICLE III
Particular Covenants
Section 3.01. (a) The Borrower and the Association shall from time to time, at 
the request of either party, exchange views on the progress achieved in carrying out 
the Program and the actions specified in Schedule 2 to this Agreement.
(b)
Prior to each such exchange of views, the Borrower shall furnish to the 
Association for its review and comment a report on the progress achieved in carrying 
out the Program, in such detail as the Association shall reasonably request.
(c)
Without limitation upon the provisions of paragraph (a) of this Section, 
the Borrower shall exchange views with the Association on any proposed action to be 
taken after the disbursement of the Credit 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 Schedule 2 to this Agreement.
Section 3.02. Upon the Association’s request, the Borrower shall:
(a)
have the Deposit Account audited in accordance with appropriate auditing 
principles consistently applied, by independent auditors acceptable to the 
Association;
(b)
furnish to the Association as soon as available, but in any case not 
later than four (4) months after the date of the Association’s request for such audit, 
a certified copy of the report of such audit by said auditors, of such scope and in 
such detail as the Association shall have reasonably requested; and
(c)
furnish to the Association such other information concerning the Deposit 
Account and the audit thereof as the Association shall have reasonably requested.
ARTICLE IV
Additional Event of Suspension
Section 4.01. Pursuant to Section 6.02 (l) of the General Conditions, the 
following additional event is specified, namely, that a situation has arisen which 
shall make it improbable that the Program, or a significant part thereof, will be 
carried out.
ARTICLE V
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Termination
Section 5.01. The date ninety (90) days after the date of this Agreement is 
hereby specified for the purposes of Section 12.04 of the General Conditions.
ARTICLE VI
Representative of the Borrower; Addresses
Section 6.01. The Minister of Finance and Economy of the Borrower is designated 
as the representative of the Borrower for the purposes of Section 11.03 of the General 
Conditions.
Section 6.02. The following addresses are specified for the purposes of Section 
11.01 of the General Conditions:
For the Borrower:
Ministry of Finance and Economy
1, Government House
Republic Square
Yerevan 375010
Republic of Armenia
Telex:
Facsimile:
243331 LADA SU
(3741) 151-069
For the Association:
International Development Association 
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Cable address:
Telex:
Facsimile:
INDEVAS
248423 (MCI) or
(202) 477-6391
Washington, D.C.
 64145 (MCI)
IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized 
representatives, have caused this Agreement to be signed in their respective names in 
the District of Columbia, United States of America, as of the day and year first above 
written.
REPUBLIC OF ARMENIA
By /s/ Arman Kirakossian
Authorized Representative
INTERNATIONAL DEVELOPMENT ASSOCIATION
By /s/ Judy O’Connor
Acting Regional Vice President
Europe and  Central Asia
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SCHEDULE 1
Excluded Expenditures
For purposes of Section 2.02 (c) of this Agreement, the proceeds of the Credit 
shall not be used to finance any of the following expenditures:
1. 
expenditures in the currency of the Borrower or for goods or services supplied 
from the territory of the Borrower;
2.
expenditures for goods or services supplied under a contract which any national 
or international financing institution or agency other than the Bank or the 
Association shall have financed or agreed to finance, or which the Bank or the 
Association shall have financed or agreed to finance under another credit or a loan;
3.
expenditures for goods included in the following groups or subgroups 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 Association by notice to the Borrower:
Group
Subgroup
Description of Items
112
   -
Alcoholic beverages
121
   -
Tobacco, unmanufactured, 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)
4.
expenditures for goods intended for a military or paramilitary purpose or for 
luxury consumption;
5.
expenditures for environmentally hazardous goods (for purposes of this paragraph 
the term "environmentally hazardous goods" means 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); 
6.
expenditures: (a) in the territories of any country which is not a member of the 
Bank or for goods procured in, or services supplied from, such territories; or (b) on 
account of any payment to persons or entities, or any import of goods, if such payment 
or import is prohibited by a decision of the United Nations Security Council taken 
under Chapter VII of the Charter of the United Nations; and
7.
expenditures under a contract in respect of which the Association determines 
that corrupt or fraudulent practices were engaged in by representatives of the 
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Borrower or of a beneficiary of the Credit during the procurement or execution of such 
contract, without the Borrower having taken timely and appropriate action satisfactory 
to the Association to remedy the situation.
SCHEDULE 2
Actions Referred to in Section 2.02 (d) of this Agreement
Section I
1.
The Borrower has enacted: (a) an amended Law on Joint Stock Companies, in 
substance as agreed with the Association; and (b) a Law on Limited Liability 
Companies, in substance as agreed with the Association.
2.
The Borrower has adopted a legal framework for bankruptcy procedures 
satisfactory to the Association.
3.
The Borrower has demonstrated satisfactory progress in the implementation of the 
Medium Term Action Plan for Improving the Business Environment.
4.
The Borrower has demonstrated satisfactory progress in the implementation of the 
Medium Term Action Plan for Reforming Tax and Custom Administration.
5.
The Borrower has completed the tender for privatization of the Armenian Savings 
Bank and has announced a winner.
6.
The Borrower has adopted a strategy, satisfactory to the Association, for the 
improvement of the efficiency of the non-privatized sections of the power sector, 
including identification of the enterprises to be offered for sale during the calendar 
years 2001-2003 and the method of privatization to be employed.
7.
The Borrower has made satisfactory progress in the preparation of a 
Comprehensive Heating Strategy and Action Plan.
8.
The Borrower has adopted school rationalization plans, satisfactory to the 
Association, and has commenced implementation of said plans in three (3) education 
zones. 
9.
The Borrower has made satisfactory progress in advancing reforms in health 
financing, including: (a) approval of rationalization plans for the hospital networks 
for at least two (2) marzes; (b) no accumulation of arrears in payments by the State 
Health Agency to health providers for new contracts for the calendar year 2001; and 
(c) satisfactory progress with repayment of budget debts accumulated in calendar years 
1998-2000.
10.
The Borrower has: (a) completed (i) re-registration of the poverty benefit 
recipients, (ii) beneficiary assessment of the benefit, and (iii) establishment of the 
data base for poverty benefit recipients, satisfactory to the Association; and (b) 
introduced the new formula for eligibility assessment for the poverty benefit, 
satisfactory to the Association.
11.
The Borrower has completed the first phase of pension reform, satisfactory to 
the Association.
Section II
1.
The Borrower has completed the sale of power distribution companies in 
accordance with a process satisfactory to the Association.
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