Page 1 CONFORMED COPY LOAN NUMBER 4125 IND Loan Agreement (Intensified Iodine Deficiency Control Project) between REPUBLIC OF INDONESIA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated January 15, 1997 LOAN NUMBER 4125 IND LOAN AGREEMENT AGREEMENT, dated January 15, 1997, between THE REPUBLIC OF INDONESIA (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Bank to assist in the financing of the Project; and WHEREAS (B) the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan 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 Loan and Guarantee Agreements for Single Currency Loans" of the Bank, dated May 30, 1995, with the modification of Section 6.03 set forth below (the General Conditions) constitute an integral part of this Agreement: "Section 6.03. Cancellation by the Bank. If (a) the right of the Borrower to make withdrawals from the Loan Account shall have been suspended with respect to any amount of the Loan for a continuous period of thirty days, or (b) at any Page 2 time, the Bank determines, after consultation with the Borrower, that an amount of the Loan will not be required to finance the Project's costs to be financed out of the proceeds of the Loan, or (c) at any time, the Bank deter- mines, with respect to any contract to be financed out of the proceeds of the Loan, that corrupt or fraudulent practices were engaged in by representatives of the Borrower or of a beneficiary of the Loan during the procurement or the execution of such contract, without the Borrower having taken timely and appropriate action satisfactory to the Bank to remedy the situation, and establishes the amount of expenditures in respect of such contract which would otherwise have been eligible for financing out of the proceeds of the Loan, or (d) at any time, the Bank determines that the procurement of any contract to be financed out of the proceeds of the Loan is inconsistent with the procedures set forth or referred to in the Loan Agreement and establishes the amount of expenditures in respect of such contract which would otherwise have been eligible for financing out of the proceeds of the Loan, or (e) after the Closing Date, an amount of the Loan shall remain unwithdrawn from the Loan Account, or (f) the Bank shall have received notice from the Guarantor pursuant to Section 6.07 with respect to an amount of the Loan, the Bank may, by notice to the Borrower and the Guarantor, terminate the right of the Borrower to make withdrawals with respect to such amount. Upon the giving of such notice, such amount of the Loan shall be canceled." Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "BAPPENAS" means the National Development Planning Agency of the Borrower and any successor thereto; (b) "FY" means the Borrower's fiscal year commencing April 1 and ending March 31; (c) "Iodine Deficiency Disorder Project Management Unit" means the unit to be established in accordance with paragraph 2 of Schedule 5 to this Agreement; (d) "Kabupaten" means a district within a province of the Borrower; (e) "Kecamatan" means a sub-district within a Kabupaten; (f) "National Iodine Deficiency Disorder Coordination Committee" means the committee to be established in accordance with paragraph 1 of Schedule 5 to this Agreement; (g) "P.T. Garam" means the state owned salt production and processing company, established by PP No. 12/1991; and (h) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, an amount equal to twenty eight million five hundred thousand dollars ($28,500,000). Section 2.02.(a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to Page 3 this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. (b) The Borrower may, for the purposes of the Project, open and maintain in dollars a special deposit account in Bank Indonesia or in a state commercial bank on terms and conditions satisfactory to the Bank, including, in the case of a state commercial bank, appropriate protection against set-off, seizure and attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 7 to this Agreement. Section 2.03. The Closing Date shall be June 30, 2002, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.05. The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time in accordance with the provisions of Schedule 3 to this Agreement. Section 2.06. Interest and other charges shall be payable in arrears on January 15 and July 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the provisions of Schedule 3 to this Agreement. ARTICLE III Execution of the Project Section 3.01. (a) 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 the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, health and industrial practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Borrower and the Bank shall otherwise agree, the Borrower shall carry out the Project in accordance with the Implementation Program set forth in Schedule 5 to this Agreement. Section 3.02. Except as the Bank shall otherwise agree, procure- ment of the goods and consultants' services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. Section 3.03. For the purposes of Section 9.08 of the General Conditions and without limitation thereto, the Borrower shall: (a) prepare, on the basis of guidelines acceptable to the Bank, and furnish to the Bank not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, a plan designed to ensure the continued achievement of the Project's objectives; and (b) afford the Bank a reasonable opportunity to exchange views with the Borrower on said plan. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be Page 4 maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of the Project of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section, including those for the Special Account, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year, the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the pro- cedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE V 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 of the Borrower is designated as 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: Page 5 For the Borrower: Ministry of Finance c/o Directorate General of Budget Jalan Lapangan Banteng Timur 2-4 P. O. Box 1139 Jakarta 10710 Indonesia Cable address: Telex: FINMINISTRY 45799 DJMLN-IA Jakarta 44319 DEPKEU-IA For the Bank: International Bank for Reconstruction and Development 1818 H Street, NW Washington, DC 20433 United States of America Cable address: Telex: INTBAFRAD 248423 (MCI) Washington, DC 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 INDONESIA By /s/ Arifin M. Siregar, Ambassador Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Marianne Haug Acting Regional Vice President East Asia and Pacific SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollars) to be Financed (1) Equipment 700,000 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 65% of local expenditures for other items procured locally Page 6 (2) Information, 2,600,000 70% education and communication, and instructional materials (3) Monitoring, 9,800,000 100% surveys and research (4) Training: (a) Overseas 1,700,000 100% training and fellowships (b) Local training, 3,500,000 70% fellowships and workshops (5) Project 1,700,000 70% administration (6) Operating costs: 100% (a) incurred in FY 1,100,000 1996/97 and FY 1997/98 (b) incurred in FY 600,000 1998/99 and FY 1999/2000 (c) incurred in FY 300,000 2000/01 and thereafter (7) Services under 3,700,000 100% Part C.4 of the Project (8) Consultants' 1,600,000 80% services (9) Unallocated 1,200,000 __________ 28,500,000 TOTAL ========== 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower; (c) the term "Monitoring, surveys and research" means expenditures on account of monitoring, research and survey activities under the Project incurred by staff of the Ministries involved in the implemen- tation of the Project for travel, per diem, honoraria, and supplies, but excluding salaries, and for related technical assistance expendi- tures; (d) the term "Project administration" means expenditures on account of the Project incurred by the Iodine Deficiency Disorder Project Management Unit for travel, per diem, honoraria, supplies, maintenance, and office accommodations, but excluding salaries; and Page 7 (e) the term "Operating costs" means expenditures incurred by Central, Provincial, Kabupaten and Kecamatan iodine monitoring staff, including honoraria, travel, and per diem. 3. Notwithstanding the provisions of paragraph 1 above, no with- drawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. 4. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure for expenditures under contracts for: (a) goods costing less than $200,000 equivalent; (b) monitoring, surveys and research, (c) training, (d) Project admini- stration and Operating costs, and (e) the employment of consulting firms costing less than $100,000 equivalent, and individual con- sultants costing less than $50,000 equivalent; all under such terms and conditions as the Bank shall specify by notice to the Borrower. SCHEDULE 2 Description of the Project The objective of the Project is to assist the Borrower in lowering the prevalence of iodine deficiency in Indonesia through (i) monitoring the extent of iodine deficiency in the community, (ii) increasing the supply and the quality of iodized salt, (iii) increasing the con- sumption of iodized salt; (iv) targeting the distribution of iodized oil capsules, and (v) improving the coordination of activities among the ministries and agencies of the Borrower and the private sector related to iodine deficiency. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: PART A: Monitoring the Iodine Status of the Community 1. Carrying out of surveys and mapping at the Kabupaten and Kecamatan levels of the prevalence of iodine deficiency among school children and a sub-sample of pregnant women. 2. Carrying out of operational research to determine factors affecting iodine status in areas where iodine deficiency disorder persists, including provision of technical assistance. PART B: Increasing Consumption of Iodized Salt 1. Carrying out of campaigns, including mass media campaigns, to increase the consumption of iodized salt by households. 2. Carrying out of information, education and communication campaigns in areas requiring annual iodized oil capsules distribution. 3. Carrying out of operations research relating to consumer preference and dissemination of information in remote and less urbanized areas. PART C: Increasing the Supply of Iodized Salt 1. Monitoring of the Iodine Content of Salt: (a) Monitoring of the iodine content of salt through: (i) routine monitoring through random tests of all brands of salt at processing plants, including provision of technical advice to producers and processors; (ii) routine monitoring at the retail level through sampling by brand; and (iii) community-based qualitative monitoring, particularly through test-ing of samples brought to school by students. Page 8 (b) Upgrading and maintenance of the database of salt processors, including company and brand profile. (c) Establishment of an electronic database for monitoring activities, and production of monthly reports on salt production and iodization. 2. Improvement of Salt Iodization (a) Carrying out of intensified monitoring of iodine levels in salt at processing plants and monitoring of compliance with regulations relating to salt iodization. (b) Provision of technical assistance to the salt industry for improvement of salt iodization at processing plants. 3. Strengthening the Rules-Based Approach to Iodization Carrying out of a review of existing regulations relating to salt and iodized salt, including research on appropriate controls for the product and minimum standards for salt and iodized salt in Indonesia. 4. Improvement of the Quality of Salt Produced by Farmers and Share- Farmers (a) Provision of assistance to salt farmers and share-farmers in the adoption of improved techniques and pond design for the production of higher quality salt, including extension activities. (b) Establishment of demonstration and pilot salt ponds and dissemination of related information to facilitate adoption of new production technology and management techniques. 5. Operations Research Carrying out of research on effective production techniques for high quality salt from limited pond areas and improvement of storage conditions to reduce the decline of iodine levels in salt, including provision of technical assistance. PART D: Targeted Distribution of Iodized Oil Capsules Provision of iodized oil capsules to Kecamatans where iodine deficiency is highly endemic and where the availability of iodized salt is limited. PART E: Inter-Ministerial Policy and Program Coordination for the Control of Iodine Deficiency 1. Strengthening of the Iodine Deficiency Disorder Coordination Committees at the national and provincial levels to ensure improve- ment in the iodine status of the community, including provision of technical assistance. 2. Carrying out of reviews of the monitoring results related to the iodine status of the community, iodine levels in salt, and epidemiological information, and review of the implications of the monitoring results in the control of iodine deficiency. * * * The Project is expected to be completed by December 31, 2001. SCHEDULE 3 Interest and Principal Repayment Provisions A. General Definitions For purposes of this Schedule, the following terms have the following meanings: Page 9 (a) "Disbursed Amount" means, in respect of each Interest Period, the aggregate principal amount of the Loan withdrawn from the Loan Account in such Interest Period. (b) "Interest Period" means the initial period from and including the date of this Agreement to, but excluding, the first Interest Payment Date occurring thereafter, and after the initial period, each period from and including an Interest Payment date to, but excluding, the next following Interest Payment Date. (c) "Interest Payment Date" means any date specified in Section 2.06 of this Agreement. (d) "Rate Fixing Date" means, for each Disbursed Amount, the first day of the Interest Period next following the Interest Period in which such Disbursed Amount is withdrawn. B. Interest 1. The principal amount of the Loan shall be divided into Disbursed Amounts. Interest shall accrue on each Disbursed Amount outstanding from time to time at a rate based on a floating rate index prior to its Rate Fixing Date and at a fixed rate from its Rate Fixing Date, as described in paragraph 2 of this Part B. 2. (a) From the date of withdrawal of each amount of each Disbursed Amount withdrawn and outstanding, to but not including the Rate Fixing Date for such Disbursed Amount, interest on each such amount shall accrue, at a rate equal to the applicable: (i) LIBOR Base Rate; plus (ii) LIBOR Total Spread. (b) From the Rate Fixing Date for each Disbursed Amount until final repayment thereof, interest on such Disbursed Amount shall accrue, at a rate equal to the applicable: (i) Fixed Base Rate; plus (ii) Fixed Total Spread. 3. For purposes of paragraph 2 of this Part B, the following terms have the following meanings: (a) "LIBOR Base Rate" means, for the Interest Period in which a Disbursed Amount is withdrawn, the London interbank offered rate for six-month deposits in dollars for value the first day of such Interest Period (or, in the case of the initial Interest Period, for value the day occurring on the Interest Payment Date preceding the first day of such Interest Period), as reasonably determined by the Bank and expressed as a percentage per annum. (b) "LIBOR Total Spread" means, for the Interest Period in which each Disbursed Amount is withdrawn: (i) one half of one percent (1/2 of 1%); (ii) minus (or plus) the weighted average margin, for such Interest Period, below (or above) the London interbank offered rates, or other reference rates, for six-month deposits, in respect of the Bank's outstanding borrow- ings or portions thereof allocated by the Bank to fund single currency loans or portions thereof made by it that include such Disbursed Amount for such Interest Period; as reasonably determined by the Bank and expressed as a percentage per annum. (c) "Fixed Base Rate" means, for each Disbursed Amount, the Page 10 equivalent of the London interbank offered rate for six-month deposits in dollars for value on the Rate Fixing Date for such Disbursed Amount, expressed as a single fixed interest rate based on the fixed interest rates corresponding to the repayment installments of such Disbursed Amount, as reasonably determined by the Bank and expressed as a percentage per annum. (d) "Fixed Total Spread" means, for each Disbursed Amount: (i) one-half of one percent (1/2 of 1%); (ii) minus (or plus) the cost margin, applicable on the Rate Fixing Date for such Disbursed Amount, below (or above) the London interbank offered rates, or other reference rates, for six-month deposits, in respect of the Bank's outstanding borrowings or portions thereof allocated to fund single currency loans or portions thereof made by it that include such Disbursed Amount; plus (iii) the Bank's risk spread applicable on the Rate Fixing Date for such Disbursed Amount; as reasonably determined by the Bank and expressed as a percentage per annum. 4. The Bank shall notify the Borrower of LIBOR Base Rate, LIBOR Total Spread, Fixed Base Rate and Fixed Total Spread applicable to each Disbursed Amount, promptly upon the determination thereof. 5. Whenever, in light of changes in market practice affecting the determination of the interest rates referred to in this Schedule, the Bank determines that it is in the interest of its borrowers as a whole and of the Bank to apply a basis for determining the interest rates applicable to the Loan other than as provided in this Schedule, the Bank may modify the basis for determining the interest rates applicable to amounts of the Loan not yet withdrawn upon not less than six (6) months' notice to the Borrower of the new basis. The new basis shall become effective on the expiry of the notice period unless the Borrower notifies the Bank during said period of its objection thereto, in which case said modification shall not apply to the Loan. C. Repayment 1. Subject to the provisions of paragraph 2 of this Part C, the Borrower shall repay each Disbursed Amount of the Loan in semi- annual installments payable on each January 15 and July 15, the first such installment to be payable on the seventh (7th) Interest Payment Date following the Rate Fixing Date for such Disbursed Amount and the last such installment to be payable on the eighteenth (18th) Interest Payment Date following the Rate Fixing Date for such Disbursed Amount. Each installment shall be one-twelfth (1/12) of such Disbursed Amount. 2. Notwithstanding the provisions of paragraph 1 of this Part C, if any installment of principal of each Disbursed Amount would, pursuant to the provisions of said paragraph 1, be payable after January 15, 2012, the Borrower shall also pay on said date the aggregate amount of all such installments. 3. After each Disbursed Amount shall have been withdrawn, the Bank shall promptly notify the Borrower of the amortization schedule for such Disbursed Amount. SCHEDULE 4 Procurement and Consultants' Services Section I. Procurement of Goods Part A: General Page 11 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 (the Guidelines) and the following pro- visions of this Section, as applicable. Part B: Procurement Procedures 1. National Competitive Bidding Except as provided in paragraph 2 below, goods shall be procured under contracts awarded in accordance with the provisions of para- graphs 3.3 and 3.4 of the Guidelines. 2 National Shopping Goods estimated to cost less than $25,000 equivalent per contract, up to an aggregate amount not to exceed $300,000 equivalent, may be procured under contracts awarded on the basis of national shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. Part C: Review by the Bank of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to prequalify for bidding or to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Bank for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods shall be undertaken in accordance with such procurement plan as shall have been approved by the Bank, and with the provisions of said paragraph 1. 2. Prior Review With respect to each contract for goods estimated to cost the equivalent of $200,000 or more, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 3. 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. Section II. Employment of Consultants 1. Consultants' services shall be procured under contracts awarded in accordance with the provisions of the "Guidelines for the Use of Consultants by World Bank Borrowers and by The World Bank as Executing Agency" published by the Bank in August 1981 (the Consultant Guide- lines). For complex, time-based assignments, such contracts shall be based on the standard form of contract for consultants' services issued by the Bank, with such modifications thereto as shall have been agreed by the Bank. Where no relevant standard contract documents have been issued by the Bank, other standard forms acceptable to the Bank shall be used. 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Bank review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts, shall not apply to (a) contracts for the employment of consulting firms estimated to cost less than $100,000 equivalent each or (b) contracts for the employment of individual consultants estimated to cost less than $50,000 equivalent each. However, said exceptions to prior Bank review shall not apply to (a) the terms of reference for such contracts, (b) single-source selection of consulting firms, (c) assignments of a critical nature, as reasonably determined by the Bank, (d) amendments to contracts for the employment of consult- Page 12 ing firms raising the contract value to $100,000 equivalent or above, or (e) amendments to contracts for the employment of individual consultants raising the contract value to $50,000 equivalent or above. SCHEDULE 5 Implementation Program 1. The Borrower shall, not later than January 31, 1997, establish and thereafter maintain, under terms of reference acceptable to the Bank, a National Iodine Deficiency Disorder Coordination Committee, responsible for coordinating the implementation of programs to control iodine deficiency, such Committee to be chaired by BAPPENAS. 2. The Borrower shall, not later than January 31, 1997, establish and thereafter maintain until completion of the Project, an Iodine Deficiency Disorder Project Management Unit, with terms of reference acceptable to the Bank, and with competent staff in adequate numbers. 3. In carrying out Part C.3 of the Project, the Borrower shall: (a) carry out the review in accordance with terms of reference acceptable to the Bank; (b) not later than June 30, 1998, furnish to the Bank for comments the results of the review; and (c) thereafter, taking into account the results of the review and the comments of the Bank thereon, update the relevant regulations to specify minimum standards for salt and iodized salt. 4. In carrying out Part D of the Project, the Borrower shall: (a) ensure that, until completion of the Project, procurement of iodized oil capsules is undertaken only as required for the carrying out of Part D of the Project; and (b) commencing December 31, 1997, carry out annual reviews, based on available information, to determine whether a reduction in the use of iodized oil capsules should be undertaken in the years following the said reviews. 5. In carrying out Part E.2 of the Project, the Borrower shall cause independent reviews to be carried out of the extent of the iodine deficiency in the population and of the effectiveness of the iodine deficiency disorder control program, such reviews to be carried out every eighteen months commencing not later than October 31, 1998. 6. The Borrower shall take all measures necessary to ensure that, until completion of the Project, no floor price for salt and iodized salt shall be established by the Borrower, and no buffer stock of salt shall be established by the Borrower. 7. The Borrower shall take all measures necessary to ensure that, not later than June 30, 1998, any salt produced and any salt processed by P. T. Garam for human consumption contains the amount of iodine required by the Borrower's relevant national standards. 8. The Borrower shall, not later than December 31, 1998, take all measures necessary to remove the internal non-tariff barriers to the trade in iodized salt and salt for human consumption. 9. The Borrower shall: (a) cause technical audits of Project implementation to be carried out, in a manner acceptable to the Bank, in each Fiscal Year during implementation of the Project; and (b) furnish to the Bank for comments as soon as available but not later than six months after the end of each such year, a copy of Page 13 such audit. 10. The Borrower shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with the indicators set forth in Schedule 6 to this Agreement, the carrying out of the Project and the achievement of the objectives thereof; (b) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, on or about July 31, 1999, a report inte- grating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section, on the progress achieved in the carrying out of the Project during the period preced- ing the date of said report and setting out the measures recommended to ensure the efficient carrying out of the Project and the achieve- ment of the objectives thereof during the period following such date; and (c) review with the Bank, by October 31, 1999, or such later date as the Bank shall request, the report referred to in paragraph (b) of this Section, and, thereafter, take all measures required to ensure the efficient completion of the Project and the achievement of the objectives thereof, based on the conclusions and recommendations of the said report and the Bank views on the matter. SCHEDULE 6 Project Performance Indicators 1. Lowering the prevalence of iodine deficiency Indicator: Goiter prevalence. Target: each of the provinces with highly endemic iodine deficiency to have a reduction of prevalence by 50% by Project closing date. 2. Monitoring the iodine status of the community Indicator: Classification of districts and sub-districts by iodine deficiency disorder status using survey results. Target: Not less than seven provinces by June 30, 1997. An additional six provinces by December 31, 1997. The remaining provinces by December 31, 1998. 3. Increasing consumption and supply of iodized salt Indicator: Proportion of salt samples at household level with adequate levels of iodine. Target: 80% by March 31, 1999. 4. Targeted distribution of iodized oil capsules Indicator: Proportion of capsules distributed which are correctly targeted. Target: 60% by December 31, 1998. 5. Improving inter-ministerial policy and program coordination Indicator: Mechanism established and meeting regularly and effectively. Target: December 31, 1997. SCHEDULE 7 Special Account Page 14 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) through (8) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $2,000,000 to be withdrawn from the Loan Account and deposited into the unless Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that the Bank shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $1,000,000 until the aggregate amount of withdrawals from the Loan Account plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of $4,000,000. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for deposit into the Special Account of an amount or amounts which do not exceed the aggre- gate amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Bank requests for deposits into the Special Account at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all Page 15 further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; (b) if the Borrower shall have failed to furnish to the Bank, within the period of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports required to be furnished to the Bank pursuant to said Section in respect of the audit of the records and accounts for the Special Account; (c) if, at any time, the Bank shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Loan Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) once the total unwithdrawn amount of the Loan allocated to the eligible Categories, minus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwith- drawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. Page 16