Page 1 CONFORMED COPY CREDIT NUMBER 4369-AM Financing Agreement (Fourth Poverty Reduction Support Credit) between REPUBLIC OF ARMENIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated November 29, 2007 Page 2 FINANCING AGREEMENT Agreement dated November 29, 2007, entered into between REPBULIC OF ARMENIA ( “Recipient”) and INTERNATIONAL DEVELOPMENT ASSOCIATION (“Association”) for the purpose of providing financing in support of the Program (as defined in the Appendix to this Agreement). The Association has decided to provide this financing on the basis, inter alia, of: (a) the actions which the Recipient has already taken under the Program and which are described in Section I.A. of Schedule 1 to this Agreement; and (b) the Recipient’s maintenance of an appropriate macro-economic policy framework. The Recipient and the Association 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 this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II - FINANCING 2.01. The Association agrees to extend to the Recipient, on the terms and conditions set forth or referred to in this Agreement, a credit in an amount equivalent to twelve million Special Drawing Rights (SDR 12,000,000) (variously, “Credit” and “Financing”). 2.02. The Recipient may withdraw the proceeds of the Financing in support of the Program in accordance with Section II of Schedule 1 to this Agreement. 2.03. The Maximum Commitment Charge Rate payable by the Recipient on the Unwithdrawn Financing Balance shall be one-half of one percent (1/2 of 1%) per annum. 2.04. The Service Charge payable by the Recipient on the Withdrawn Credit Balance shall be equal to three-fourths of one percent (3/4 of 1%) per annum. 2.05. The Payment Dates are May 15 and November 15 in each year. Page 3 2 2.06. The principal amount of the Credit shall be repaid in accordance with repayment schedule set forth in Schedule 2 to this Agreement. 2.07. The Payment Currency is Dollars. ARTICLE III - PROGRAM 3.01 The Recipient declares its commitment to the Program and its implementation. To this end: (a) the Recipient 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; (b) prior to each such exchange of views, the Recipient 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; and (c) without limitation upon the provisions of paragraphs (a) and (b) of this Section, the Recipient shall exchange views with the Association on any proposed action to be taken after the disbursement of the Financing 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 ASSOCIATION 4.01. The Additional Event of Suspension consists of the following: A situation has arisen which shall make it improbable that the Program, or a significant part of it, will be carried out. ARTICLE V - TERMINATION 5.01. The Effectiveness Deadline is the date ninety (90) days after the date of this Agreement. ARTICLE VI - REPRESENTATIVE; ADDRESSES 6.01. The Recipient ’s Representative is the Minister of Finance and Economy. Page 4 3 6.02. The Recipient ’s Address is: Ministry of Finance and Economy 1 Melik-Adamyan Street Republic Square Yerevan 375010 Republic of Armenia Telex: 243331 LADA SU 6.03. The Association’s Address is: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: INDEVAS 248423(MCI) 1-202-477-6391 Washington, D.C. AGREED at Yerevan, Republic of Armenia, as of the day and year first above written. REPUBLIC OF ARMENIA By /s/ Vardan Khachatryan Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Naira Melkumyan Authorized Representative Page 5 4 SCHEDULE 1 Program Actions; Availability of Financing Proceeds Section I. Actions Taken under the Program The actions taken by the Recipient under the Program include the following: 1. The State Tax Service of the Recipient has implemented self-assessment systems, and has adhered to a satisfactory reform plan for its Large Taxpayer Unit. 2. The Recipient has: (a) made satisfactory progress in implementing its comprehensive post-release review program to support the implementation of direct trader input in customs; and (b) developed a satisfactory guarantee mechanism scheme for approved importers. 3. The Government Decree No. 42 (dated October 11, 2007), has been issued for the revision of the Law on Registration of Legal Entities of the Recipient, in order to provide public access to key company records, including internet access to business registry. 4. The Recipient has submitted to Parliament a revis ion of the Recipient’s Securities Law, which includes a requirement of public disclosure of owners of publicly traded companies. 5. The Recipient has made satisfactory progress in the reform of its civil aviation regime to open reciprocal access to major partners in aviation services, in line with its Policy Statement, dated December 1, 2005 and endorsed by the Recipient in its Protocol Decision No. 40 of November 30, 2006. 6. The Ministry of Transport and Communication of the Recipient has issued the Order No. N363-A (dated October 10, 2007), in order to adapt the Armenian table of frequency allocations to conform to the ITU Table of Frequency Allocations. 7. The Recipient has implemented an acceptable illegal logging monitoring system, with autonomy built into the operations of its monitoring institution. Section II. Availability of Financing Proceeds A. General. The Recipient may withdraw the proceeds of the Financing in accordance with the provisions of this Section and such additional instructions as the Association may specify by notice to the Recipient. Page 6 5 B. Allocation of Financing Amounts. The Financing shall be withdrawn in a single tranche. The allocation of the amounts of the Financing to this end is set out in the table below: Allocations Amount of the Financing Allocated (expressed in SDR) Single Tranche 12,000,000 TOTAL AMOUNT 12,000,000 C. Deposits of Financing Amounts. Except as the Association may otherwise agree: 1. all withdrawals from the Financing Account shall be deposited by the Association into an account designated by the Recipient and acceptable to the Association; and 2. the Recipient shall ensure that upon each deposit of an amount of the Financing into this account, an equivalent amount is accounted for in the Recipient ’s budget management system, in a manner acceptable to the Association. D. Excluded Expenditures . The Recipient undertakes that the proceeds of the Financing shall not be used to finance Excluded Expenditures. If the Association determines at any time that an amount of the Financing was used to make a payment for an Excluded Expenditure, the Recipient shall, promptly upon notice from the Association, refund an amount equal to the amount of such payment to the Association. Amounts refunded to the Association upon such request shall be cancelled. E. Closing Date. The Closing Date is June 30, 2008. Page 7 6 SCHEDULE 2 Repayment Schedule Date Payment Due Principal Amount of the Credit repayable (expressed as a percentage)* On each May 15 and November 15 commencing May 15, 2018 to and including November 15, 2027: 5% _____________________ * The percentages represent the percentage of the principal amount of the Credit to be repaid, except as the Association may otherwise specify pursuant to Section 3.03 (b) of the General Conditions. Page 8 7 APPENDIX Section I. Definitions 1. “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 Association or the Bank has financed or agreed to finance, or which the Association or the Bank has financed or agreed to finance under another credit, grant or loan; (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 Association by notice to the Recipient: 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 Page 9 8 Group Sub-group Description of Item 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) (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 Recipient or international agreements to which the Recipient 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) with respect to which the Association determines that corrupt, fraudulent, collusive or coercive practices were engaged in by representatives of the Recipient or other recipient of the Financing proceeds, without the Recipient (or other such recipient) having taken timely and appropriate action satisfactory to the Association to address such practices when they occur. 2. “General Conditions” means the “International Development Association General Conditions for Credits and Grants”, dated July 1, 2005 (as amended through October 15, 2006) with the modifications set forth in Section II of this Appendix. 3. “ITU Table of Frequency Allocations” means the standards of frequency allocation set by the International Telecommunication Union, an international organization established to standardize and regulate international radio and telecommunications . Page 10 9 4. “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 October 22, 2007 from the Recipient to the Association declaring the Recipient’s commitment to the execution of the Program, and requesting assistance from the Association in support of the Program during its execution. 5. “Single Tranche” means the amount of the Financing allocated to the category entitled “Single Tranche” in the table set forth in Part B of Section II of Schedule 1 to this Agreement. Section II. Modifications to the General Conditions The modifications to the “International Development Association General Conditions for Credits and Grants”, dated July 1, 2005 (as amended through October 15, 2006) 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 4.01 ( Project Execution Generally ), and 4.09 ( Financial Management; Financial Statements; Audits ) are deleted in their entirety, and the remaining Sections in Article IV are renumbered accordingly. 4. Paragraph (a) of Section 4.05 (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 4.06 (renumbered as such pursuant to paragraph 3 above) is modified to read as follows: “Section 4.06. Plans; Documents; Records … (c) The Recipient shall retain all records (contracts, orders, invoices, bills, receipts and other documents) evidencing expenditures under the Financing until two years after the Closing Date. The Recipient shall enable the Association’s representatives to examine such records.” 6. Section 4.07 (renumbered as such pursuant to paragraph 3 above) is modified to read as follows: Section 4.07. Program Monitoring and Evaluation Page 11 10 … (c) The Recipient shall prepare, or cause to be prepared, and furnish to the Association not later than six months after the Closing Date, a report of such scope and in such detail as the Association shall reasonably request, on the execution of the Program, the performance by the Recipient and the Association of their respective obligations under the Legal Agreements and the accomplishment of the purposes of the Financing. 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: (a) The definition of the term “Eligible Expenditure” is modified to read as follows: “‘Eligible Expenditure’ means any use to which the Financing is put in support of the Program, other than to finance expenditures excluded pursuant to the Financing 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 Financing Agreement in support of which the Financing is made.” All references to “Project” throughout these General Conditions are deemed to be references to “Program”.