Page 1 CONFORMED COPY CREDIT NUMBER 3716 MAG Development Credit Agreement (Emergency Economic Recovery Credit) between REPUBLIC OF MADAGASCAR and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated November 15, 2002 Page 2 CONFORMED COPY CREDIT NUMBER 3716 MAG DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated November 15, 2002, between REPUBLIC OF MADAGASCAR (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS (A) the Borrower has transmitted to the Association a letter of economic and social recovery policy, dated October 17, 2002, giving details of an emergency recovery program as more fully described in Schedule 2 to this Agreement (hereinafter referred to as the Program), and declaring the Borrower’s commitment to the execution of the Program; (B) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit 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 1.01. The “General Conditions Applicable to Development Credit Agreements” of the Association, dated January 1, 1985 (as amended through October 6, 1999), constitute an integral part of this Agreement: 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) “Deposit Account” means the account referred to in Section 2.02 (b) of this Agreement; and Page 3 - 2 - (b) “FMG” means Malagasy Franc, the Borrower’s currency. 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 Special Drawing Rights (SDR 38,000,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods required for the Project and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, prior to furnishing to the Association the first request for withdrawal from the Credit Account, open and maintain thereafter a deposit account in its Central Bank on terms and conditions satisfactory to the Association. All withdrawals from the Credit Account shall be deposited by the Association into the Deposit Account. Section 2.03. The Closing Date shall be December 31, 2003, 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 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 canceled; 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 Page 4 - 3 - 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 April 15 and October 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 April 15 and October 15, commencing April 15, 2013 and ending October 15, 2042. Each installment to and including the installment payable on October 15, 2022 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 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 them 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 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 period of a minimum of five 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 Page 5 - 4 - 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 Execution of the Project Section 3.01. The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate financial, technical, administrative and environmental practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement. ARTICLE IV Particular Covenants Section 4.01. (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. (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. Page 6 - 5 - (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. Section 4.02. 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 V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (l) of the General Conditions, the following additional event is specified, namely, that an extraordinary situation shall have arisen which shall make it improbable that the Program or a significant part thereof shall be carried out. ARTICLE VI Termination Section 6.01. 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. Page 7 - 6 - ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Economy, Finance and Budget B.P. 61 Antananarivo 101 Madagascar Cable address: Facsimile: MFB (261) 20 22 34530 Antananarivo 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) Page 8 - 7 - 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 MADAGASCAR By /s/ Zina Andrianarivelo Razafy Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Callisto Madavo Regional Vice President Africa Page 9 - 8 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Eligible imports 38,000,000 100% of foreign required for the expenditures Project as specified In the Annex to this Schedule 1 _________ TOTAL 38,000,000 ======== 2. For the purposes of this Schedule, the term “foreign expenditures” means expenditures in the currency of any country other than that of the Borrower for goods supplied from the territory of any country other than that 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 SDR 7,600,000, may be made on account of payments made for expenditures before that date but after July 15, 2002; (b) expenditures for goods procured under contracts costing less than $20,000 equivalent; (c) expenditures for goods supplied under a contract which any national or international financing institution or agency other than the Association shall have Page 10 - 9 - financed or agreed to finance or which the Association has financed or agreed to finance under another Credit; (d) except with the prior approval by the Association, expenditures in excess of an aggregate amount equivalent to fifty percent (50%) of the amount of the Credit for any class of eligible imports specified in the Annex to this Schedule; (e) expenditures for goods intended for a military or paramilitary purposes, luxury consumption and used goods; (f) 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; (g) expenditures: (i) 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 (ii) 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 (h) expenditures under a contract in respect of which the Association determines that corrupt or fraudulent practices were engaged in by representatives of the 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. 4. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures for goods under contracts costing less than $2,000,000 equivalent each, under such terms and conditions as the Association shall specify by notice to the Borrower. Page 11 - 10 - ANNEX TO SCHEDULE 1 Classes of Eligible Imports to be Financed Under the Credit 1. Construction materials such as cement and raw materials 2. Medical supplies and pharmaceuticals 3. Commodities such as petroleum, fuel products and metals 4. Agricultural fertilizers and inputs, other than pesticides 5. Transport machinery Page 12 - 11 - SCHEDULE 2 Description of the Project The objective of the Project is to contribute to a recovery program designed to achieve macroeconomic stability, rebuild physical assets, and restore economic and social activities, following the social and political crisis which pre vailed in the Borrower’s territory in the aftermath of disputed presidential elections in December 2001, through financing of a positive list of imports identified as necessary to the implementation of the program. The Project consists of the financing of emergency imports as specified in the Annex to Schedule 1 to this Agreement, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objective. * * * The Project is expected to be completed by July 31, 2003. Page 13 - 12 - SCHEDULE 3 Procurement Section I . Procurement of Goods Part A : General Goods shall be procured in accordance with the provisions of Section I of the “Guidelines for Procurement under IBRD Loans and IDA Credits” published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 (the Guidelines), and the following provisions of Section I of this Schedule. Part B: International Competitive Bidding 1. Except as otherwise provided in Part C of this Schedule, goods shall be procured under contracts awarded in accordance with the provisions of paragraphs 2.63 and 2.64 of the Guidelines and paragraph 5 of Appendix 1 thereto. 2. The following provision shall apply to goods to be procured under contracts awarded in accordance with the provisions of paragraph 1 of this Part B. Grouping of contracts To the extent practicable, contracts for goods shall be grouped in bid packages estimated to cost $100,000 equivalent or more each. Part C : Other Procurement Procedures 1. Commodities Commonly traded commodities may be procured through organized international commodity markets or other channels of competitive procurement acceptable to the Association, in accordance with the provisions of paragraph 2.65 of the Guidelines. 2. International Shopping Goods (other than commodities referred to under paragraph 1 of this Part) estimated to cost less than $100,000 equivalent per contract, may be procured under Page 14 - 13 - contracts awarded on the basis of international shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 3. Private Sector Goods imported by the private sector (other than commodities referred to under paragraph 1 of this Part) may be procured in accordance with established commercial practices satisfactory to the Association. Part D : Review by the Association of Procurement Decisions 1. Prior Review With respect to each contract for goods estimated to cost the equivalent of $2,000,000 or more, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 2. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply.