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                                                   CONFORMED COPY
                                             LOAN NUMBER 3068-1 YU
                     (Seventh Railway Project)
                              between
             SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA
                                and
               INTERNATIONAL BANK FOR RECONSTRUCTION
                          AND DEVELOPMENT
                      Dated November 13, 1990
                                             LOAN NUMBER 3068-1 YU
                        GUARANTEE AGREEMENT
      AGREEMENT, dated November 13, 1990, between SOCIALIST FEDERAL
REPUBLIC OF YUGOSLAVIA (the Guarantor) and INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT (the Bank).
      WHEREAS (A) the Guarantor, Railway Economy Ljubljana (the
Borrower) and the Community of Yugoslav Railways (CYR), having been
satisfied as to the feasibility and priority of the Project
described in Schedule 2 to the Loan Agreement, have requested the
Bank to assist in the financing of the Project;
      (B)   by the Loan Agreement of even date herewith among the
Bank, the Borrower and CYR, the Bank has agreed to extend to the
Borrower a loan in various currencies equivalent to thirty-one
million nine hundred thousand dollars ($31,900,000), on the terms
and conditions set forth in the Loan Agreement, but only on condi-
tion that the Guarantor agree to guarantee the obligations of the
Borrower in respect of such loan and to undertake such other obli-
gations as provided in this Agreement; and
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      WHEREAS the Guarantor, in consideration of the Bank's entering
into the Loan Agreement with the Borrower, has agreed so to
guarantee such obligations of the Borrower and to undertake such
other obligations as provided 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 Loan and
Guarantee Agreements" of the Bank, dated January 1, 1985, with the
last sentence of Section 3.02 deleted (the General Conditions)
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, and Section 1.02 of, the Loan Agreement have the respective
meanings therein set forth.
                            ARTICLE II
                             Guarantee
      Section 2.01. The Guarantor declares its commitment to the
objectives of the Project as set forth in Schedule 2 to the Loan
Agreement, and, to this end, without limitation or restriction upon
any of its other obligations under the Guarantee Agreement, hereby
unconditionally guarantees, as primary obligor and not as surety
merely, the due and punctual payment of the principal of, and
interest and other charges on, the Loan, and the premium, if any, on
the prepayment of the Loan, all as set forth in the Loan Agreement.
                            ARTICLE III
                          Other Covenants
      Section 3.01. The Guarantor shall: (a) take or cause to be
taken all action necessary on its part to enable the Borrower and
CYR to perform their respective obligations under the Loan Agree-
ment, including without limitation, all action necessary to enable
the Borrower to adjust the structure or levels of its tariffs in
order to comply with its obligations under Sections 5.02 and 5.03 of
the Loan Agreement; and (b) not take or permit to be taken any
action which would prevent or interfere with the performance by the
Borrower or CYR of any of its respective obligations under the Loan
Agreement.
                            ARTICLE IV
            Representative of the Guarantor; Addresses
      Section 4.01. The Federal Secretary of Finance of the Guar-
antor is designated as representative of the Guarantor for the
purposes of Section 11.03 of the General Conditions.
     Section 4.02. The following addresses are specified for the
purposes of Section 11.01 of the General Conditions:
      For the Guarantor:
            Savezni Sekretarijat Za Finansije
            Omladinskih Brigada 1
            11070 Belgrade
            Yugoslavia
            Cable address:                Telex:
                  SAVEZNI SEKRETARIJAT        11062 SIV YU
                     ZA FINANSIJE
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                  Belgrade
      For the Bank:
            International Bank for
              Reconstruction and Development
            1818 H Street, N.W.
            Washington, D.C. 20433
            United States of America
            Cable address:                Telex:
                 INTBAFRAD                   197688 (TRT),
                 Washington, D.C.            248423 (RCA),
                                              64145 (WUI) or
                                              83987 (FTCC)
      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.
                  SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA
                  By /s/ D. Mujezinovic
                                         Authorized Representative
                  INTERNATIONAL BANK FOR
                    RECONSTRUCTION AND DEVELOPMENT
                  By /s/ E. F. Lari
                                    Acting Regional Vice President
                              Europe, Middle East and North Africa