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Loan Agreement (Comprehensive Reform Programme) Between the Republic of Vanuatu and the Asian Development Bank Approval Act 1998

Commencement: 16 July 1998

REPUBLIC OF VANUATU

LOAN AGREEMENT (COMPREHENSIVE REFORM PROGRAMME)
BETWEEN THE REPUBLIC OF VANUATU AND
THE ASIAN DEVELOPMENT BANK APPROVAL ACT
NO. 18 OF 1998

Arrangement of Sections

1. Approval
2. Commencement

-------------------------------------------

REPUBLIC OF VANUATU

Assent: 06/08/98
Commencement: 16/07/98

LOAN AGREEMENT (COMPREHENSIVE REFORM PROGRAMME)
BETWEEN THE REPUBLIC OF VANUATU AND
THE ASIAN DEVELOPMENT BANK APPROVAL ACT
NO. 18 OF 1998

An Act to provide for the approval of the Loan Agreement (Comprehensive Reform Programme) between the Republic of Vanuatu and the Asian Development Bank.

BE IT ENACTED by the President and Parliament as follows:

APPROVAL

1. (1) Notwithstanding any other enactment to the contrary (including section 54 of the Public Finance and Economic Management Act 1998) the Loan Agreement (Comprehensive Reform Programme) between the Republic of Vanuatu and the Asian Development Bank as approved by the Bank on the 16^th day of July, 1998, and set out in the schedule hereto is approved.
   

(2) The Agreement referred to in subsection (1) shall be binding on the Republic of Vanuatu in accordance with the terms thereof.

COMMENCEMENT

2. This Act shall be deemed to have come into force on the 16^th day of July, 1998.
   

________________________--

Appendix A

LOAN NUMBER ________ VAN(SF)

LOAN AGREEMENT
(Special Operations)

(Comprehensive Reform Program)

between

REPUBLIC OF VANUATU

and

ASIAN DEVELOPMENT BANK

DATED _________________________

PLA: VAN _________

LOAN AGREEMENT
(Special Operations)

LOAN AGREEMENT dated __________ between the REPUBLIC OF VANUATU (hereinafter called the Borrower) and the ASIAN DEVELOPMENT BANK (hereinafter called the Bank).

WHEREAS

(a) the Bank has received from the Borrower a development policy letter dated _______ (hereinafter called the Policy Letter), setting forth certain objectives, policies and actions, described in Schedule 1 to this Loan Agreement, designed to assist in the Borrower's comprehensive reform program (hereinafter called the Program);

(b) the Borrower has applied to the Bank for a loan from its Special Funds resources for the purposes of the Program;

(c) the Government of the Republic of Vanuatu (hereinafter called the Government) has applied to the Bank for technical assistance in connection with institutional support to central agencies for the comprehensive reform program, and by a technical assistance letter of even date herewith the Bank has agreed to provide a grant not exceeding the equivalent of $1,200,000; and

(d) the Bank has, on the basis inter alia of the foregoing, agreed to make a loan to the Borrower from the Bank's Special Funds resources upon the terms and conditions hereinafter set forth;

NOW THEREFORE the parties hereto agree as follows:

ARTICLE I
Loan Regulations; Definitions

Section 1.01 - All the provisions of the Special Operations Loan Regulations of the Bank, dated 7 December 1982, are hereby made applicable to this Loan Agreement with the same force and effect as if they were fully set forth herein, subject, however, to the following modifications thereof (said Special Operations Loan Regulations as so modified being hereinafter called the Loan Regulations).

(a) Section 2.01(9) is deleted and the following subparagraph is substituted therefore:

"9. The term 'Program' means the program for which the Bank has agreed to make the Loan, as described in the Loan Agreement and as the description thereof may be amended from time to time by agreement between the Bank and the Borrower."

(b) The term "Program" shall be substituted for the term "Project" wherever it appears in the Loan Regulations.

(c) Section 2.01(10) is deleted and the following subparagraph is substituted therefore:

"10. The term 'Program Executing Agency' means the entity or entities responsible for the carrying out of the Program as specified in the Loan Agreement."

(d) The term "Program Executing Agency" shall be substituted for the term "Project Executing Agency" wherever it appears in the Loan Regulations.

(e) Section 4.05 is deleted.

(f) Section 5.01(a) is deleted and the following sub-paragraph is substituted therefore:

(g) Section 5.02 is deleted.

(h) Section 5.03 is deleted and the following is substituted therefore:

"When the Borrower shall desire to withdraw any amount from the Loan Account, the Borrower shall deliver to the Bank an application in such form and containing such statements and agreements as the Bank shall reasonably request."

(i) Section 8.04 is deleted.

Section 1.02 - Wherever used in this Loan Agreement, unless the context otherwise requires, the several terms defined in the Loan Regulations have the respective meanings therein set forth, and the following additional terms have the following meanings:

(a) "CCCN" means the Customs Coordination Council Nomenclature established by the Convention on Nomenclature, Alphabetical Index to the Nomenclature and the Explanatory Notes (English Text), amending Supplement No. 15, Customs Coordination Council, Brussels, 2^nd Edition, June 1978;

(b) "Counterpart Funds" means the vatu proceeds generated from the proceeds of the Loan and deposited by the Borrower in the Special Account in accordance with paragraphs 1 and 2 of Schedule 5 to this Loan Agreement;

(c) "DSM" means the Borrower's Department of Strategic Management in the Ministry of the Prime Minister, or any successor thereto;

(d) "Eligible Items" means the goods imported under the Program, except those specifically excluded pursuant to Attachment 1 to Schedule 3 of this Loan Agreement, the foreign exchange costs of which are eligible for financing out of the proceeds of the Loan;

(e) "First Tranche" means the portion of the proceeds of the Loan in an amount not exceeding the equivalent of SDR 7, 488,500 to be initially withdrawn and utilized;

(f) "Incentive Subtranche (First Tranche)" means the portion of the proceeds of the Loan in an amount not exceeding the equivalent of SDR 3,744,250 to be withdrawn after the withdrawal of the First Tranche subject to the provisions of paragraph 5 of Schedule 3 to this Loan Agreement;

(g) "MFEM" means the Borrower's Ministry of Finance and Economic Management, or any successor thereto;

(h) "NBV" means the National Bank of Vanuatu, or any successor thereto;

(i) "Policy Matrix" means the program loan reform matrix attached to the Policy Letter;

(j) "Program Executive Agency" means for the purposes and within the meaning of the Loan Regulations, DSM, which is responsible for overall coordination and implementation of the Program;

(k) "PSC" means the Borrower's Public Service Commission, or any successor thereto;

(l) "Second Tranche" means the balance of the proceeds of the Loan remaining in the Loan Account after the utilization of the First Tranche and Incentive Subtranche (First Tranche), to be withdrawn subject to the provisions of paragraph 6 of Schedule 3 to this Loan Agreement'

(m) "Special Account" means the account to be established at the Reserve Bank of Vanuatu pursuant to paragraph 1 of Schedule 5 to this Loan Agreement; and

(n) "Vatu" or "Vt" means the currency of the Borrower.

ARTICLE II
The Loan

Section 2.01 - The Bank agrees to lend to the Borrower from the Bank's Special Funds resources an amount in various currencies equivalent to 14,977,000 Special Drawing Rights.

Section 2.02 - The Borrower shall pay to the Bank a service charge at the rate of one percent (1%) per annum on the amount of the Loan withdrawn from the Loan Account and outstanding from time to time.

Section 2.03 - The service charge and any other charge on the Loan shall be payable semiannually on 15 March and 15 September in each year.

Section 2.04 - (a) Subject to the provisions of paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Loan withdrawn from the Loan Account in accordance with the amortization schedule set forth in Schedule 2 to this Loan Agreement.

(b) If the Bank shall determine, after due consideration by its Board of Directors, that (i) the Borrower's gross national product per capita (per capita GNP) has exceeded $690 in constant 1985 dollars for five consecutive years and (ii) the Borrower has achieved the capacity to borrow from the Bank's ordinary capital resources, the Bank may, by notice to the Borrower, modify the terms of repayment of the Loan by increasing by 100 percent the amount of each maturity due thereafter until the principal amount of the Loan shall have been fully repaid. However, at the request of the Borrower, the Bank may, in lieu of so increasing any such maturity amounts, charge interest, at an annual rate to be agreed between the Borrower and the Bank, on the principal amount of the Loan withdrawn and outstanding from time to time in such a manner and to such extent as to yield the same grant element as would be obtained under the above-stated increase of maturity amounts.

(c) If, anytime after a modification of the lending terms pursuant to the provisions of paragraph (b) above, the Bank shall, after due consideration by its Board of Directors, determine that the Borrower's economic condition has deteriorated significantly, the Bank may, at the request of the Borrower, restore the original lending terms with respect to the remaining amount of the Loan withdrawn and outstanding.

ARTICLE III
Use of Proceeds of the Loan

Section 3.01 - The Borrower shall cause the proceeds of the Loan to be applied to the financing of expenditures of the Program in accordance with the provisions of this Loan Agreement.

Section 3.02 - The proceeds of the Loan may be withdrawn from the Loan Account only for the purposes of financing foreign currency expenditures incurred for Eligible Items under the Program in accordance with the provisions of Schedule 3 to this Loan Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank.

Section 3.03 - Except as the Borrower and the Bank may otherwise agree, all Eligible Items to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 4 to this Loan Agreement. The Bank shall not finance a contract for goods which have not been procured in accordance with procedures agreed between the Borrower and the Bank or where the terms and conditions of the contract are not satisfactory to the Bank.

Section 3.04 - Withdrawals from the Loan Account shall be made only on account of expenditures relating to Eligible Items which (a) are produced in, and are supplied from, such member countries of the Bank as shall have been specified by the Bank from time to time as eligible sources fro procurement, and (b) meet such other eligibility requirements as shall have been specified by the Bank from time to time.

Section 3.05 - Except as the Bank may otherwise agree, no withdrawals shall be made from the Loan Account in respect of expenditures for Eligible Items incurred more than one hundred eighty (180) days prior to the Effective Date.

Section 3.06 - The closing date for withdrawals from the Loan Account for the purposes of Section 8.03 of the Loan Regulations shall be 31 December 2000 or such other date as may from time to time be agreed between the Borrower and the Bank.

ARTICLE IV
Particular Covenants

Section 4.01 - (a) The Borrower shall cause the Program to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, environmental and economic management practices.

(b) In the carrying out of the Program, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.

Section 4.02 - The Borrower shall make available, promptly as needed, the funds, facilities, services and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Program.

Section 4.03 - The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Program are conducted and coordinated in accordance with sound administrative policies and procedures.

Section 4.04 - (a) Except as the Bank may otherwise agree, the Borrower shall maintain, or cause to be maintained, records and documents adequate to identify the Eligible Items financed out of the proceeds of the Loan and to indicate the progress of the Program.

(b) The Borrower shall enable the Bank's representatives to inspect any relevant records and documents referred to in paragraph (a) of this Section.

Section 4.05 - (a) The Borrower shall furnish, or cause to be furnished to the Bank all such reports and information as the Bank shall reasonably request concerning (i) the Loan, and the expenditure of the proceeds and maintenance of the service thereof; (ii) the goods financed out of the proceeds of the Loan; (iii) the Counterpart Funds and the use thereof; (iv) the implementation of the Program, including the accomplishment of the targets and carrying out of the actions set out in the Policy Letter; (v) the financial and economic conditions in the territory of the Borrower and the international balance-of-payments position of the Borrower; and (vi) any other matters relating to the purposes of the Loan.

(b) Without limiting the generality of the foregoing, the Borrower shall furnish, or cause to be furnished, to the Bank quarterly reports on the implementation of the Program and on the accomplishment of the targets and carrying out of the actions set out in the Policy Letter. Such reports shall be submitted in such form and in such detail and within such a period as the Bank shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.

(c) Promptly after the closing date for withdrawals from the Loan Account, but in any event not later than three (3) months thereafter or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower shall prepare and furnish to the Bank a report, in such form and in such detail as the Bank shall reasonably request, on the execution of the Program, including its cost, the performance by the Borrower of its obligations under this Loan Agreement and the accomplishment of the purposes of the Loan.

Section 4.06 - (a) It is the mutual intention of the Borrower and the Bank that no other external debt owned a creditor other than the Bank shall have any priority over the Loan by way of a lien on the assets of the Borrower. To that end, the Borrower undertakes (i) that, except as the Bank may otherwise agree, if any lien shall be created on any assets of the Borrower as security for any external debt, such lien will ipso facto equally and ratably secure the payment of the principal of, and service charge and any other charge on, the Loan; and (ii) that the Borrower, in creating or permitting the creation of any such lien, shall make express provision to that effect.

(b) The provisions of paragraph (a) of this Section shall not apply to (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; or (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after is date.

(c) The term "assets of the Borrower" as used in paragraph (a) of this Section includes assets of any administrative subdivision or any agency of the Borrower and assets of any agency of any political subdivision, including the Reserve Bank of Vanuatu and any other institution performing the functions of a central bank for the Borrower.

ARTICLE V
Effectiveness

Section 5.01 - A date ninety (90) days after the date of this Loan Agreement is specified for the effectiveness of the Loan Agreement for the purposes of Section 9.04 of the Loan Regulations.

ARTICLE VI
Miscellaneous

Section 6.01 - The Minister of Finance and Economic Management of the Borrower is designated as representative of the Borrower for the purposes of Section 11.02 of the Loan Regulations.

Section 6.02 - The following addresses are specified for the purposes of Section 11.01 of the Loan Regulations:

For the Borrower

Ministry of Finance and Economic Management
Private Mail Bag 058
Port Vila, Vanuatu

Facsimile Number: (678) 27937

For the Bank

Asian Development Bank
PO Box 789
0980 Manila, Philippines

Facsimile Numbers: (632) 636-2444, (632) 636-2445

IN WITNESS WHEREOF the parties hereto, acting through their representatives thereunto duly authorized, have caused this Loan Agreement to be signed in their respective names and to be delivered at the principal office of the Bank, as of the day and year first above written.

REPUBLIC OF VANUATU

By _____________________________

Authorized Representative

ASIAN DEVELOPMENT BANK

By ______________________________

_________________________________________

SCHEDULE 1

Description of the Program

1. The principal objective of the Program is to assist the Borrower in the implementation of the Program. The scope of the Program includes measures in respect of (i) strengthening institutions involved with good governance and public sector, and (ii) structural adjustments in the economy, with a view to promoting private sector-led sustainable growth. The Program is described in more detail in the Policy Letter and the Policy Matrix. The Program is expected to be implemented during the period from July 1997 to December 2000.
   

2. In support of the Program:

(a) the proceeds of the Loan shall be used to finance the foreign exchange costs of Eligible Items; and

(b) the Counterpart Funds shall be used to finance the local currency costs relating to the implementation of certain programs and other activities consistent with the objectives of the Program.

3. The proceeds of the Loan are expected to be utilized by 31 December 2000.

SCHEDULE 2

Amortization Schedule
For
(Comprehensive Reform Program)

Date Payment Due Payment of Principal

(expressed in Special Drawing Rights)*

15 September 2008 149,800
15 March 2009 149,800
15 September 2009 149,800
15 March 2010 149,800
15 September 2010 149,800
15 March 2011 149,800
15 September 2011 149,800
15 March 2012 149,800
15 September 2012 149,800
15 March 2013 149,800
15 September 2013 149,800
15 March 2014 149,800
15 September 2014 149,800
15 March 2015 149,800
15 September 2015 149,800
15 March 2016 149,800
15 September 2016 149,800
15 March 2017 149,800
15 September 2017 149,800
15 March 2018 149,800
15 September 2018 299,500
15 March 2019 299,500
15 September 2019 299,500
15 March 2020 299,500
15 September 2020 299,500
15 March 2021 299,500
15 September 2021 299,500
15 March 2022 299,500
15 September 2022 299,500
15 March 2023 299,500
15 September 2023 299,500
15 March 2024 299,500
15 September 2024 299,500
15 March 2025 299,500
15 September 2025 299,500
15 March 2026 299,500
15 September 2026 299,500
15 March 2027 299,500
15 September 2027 299,500
15 March 2028 299,500
15 September 2028 299,500
15 March 2029 299,500
15 September 2029 299,500
15 March 2030 299,500
15 September 2030 299,500
15 March 2031 299,500
15 September 2031 299,500
15 March 2032 299,500
15 September 2032 299,500
15 March 2033 299,500
15 September 2033 299,500
15 March 2034 299,500
15 September 2034 299,500
15 March 2035 299,500
15 September 2035 299,500
15 March 2036 299,500
15 September 2036 299,500
15 March 2037 299,500
15 September 2037 299,500
15 March 2038 300,500
--------------
Total SDR 14,977,000
=========

_________________

*The figures in this column represent SDR equivalents determined as of the respective dates of withdrawal. The arrangements for payment of each maturity are subject to the provisions of Sections 3.04 and 4.03 of the Loan Regulations.

SCHEDULE 3

Withdrawal of Loan Proceeds

1. Except as the Bank may otherwise agree, the following provisions of this Schedule shall apply to the withdrawal of Loan proceeds from the Loan account.
   
2. (a) Withdrawals from the Loan Account shall be made fro the financing of the foreign exchange cost of Eligible Items.
   

(b) No withdrawals from the Loan Account shall be made in respect of (i) any local expenditures; or (ii) any foreign exchange expenditures which have been financed by credits from official international or bilateral aid agencies or any other loans made by the Bank.

3. (a) The applications for withdrawal from the Loan Account shall be submitted to the Bank by MFEM and shall be in a form satisfactory to the Bank.
   

(b) Such withdrawal applications shall be accompanied by a certificate of the Borrower confirming that (i) in case the proceeds of the Loan will finance imports already made, the value of Eligible Imports in the period concerned exceeded the amount of the requested withdrawal, or (ii) in case the proceeds of the Loan will finance goods to be imported, the value of Eligible Imports in the immediately preceding one year period was equal to or greater than the amount of the requested withdrawal plus all other amounts expected to be withdrawn from the Loan Account during the succeeding one year period.

(c) For the purpose of this paragraph, the term "Eligible Imports" means the total imports of the Borrower during a particular period minus the following imports during the same period:

(i) imports from countries which are not members of the Bank;

(ii) imports of ineligible items specified in Attachment 1 to this Schedule; and

(iii) import financed from credits from official international or bilateral aid agencies or any other loans made by the Bank.

(d) The Borrower shall allow experts appointed by the Bank to verify the value of Eligible Imports during any period in respect of which the Borrower has certified the value of Eligible Imports with its withdrawal application.
Schedule 3

4. (a) Prior to submitting the first application to the Bank for withdrawal from the Loan Account, the Borrower shall open an account (the Deposit Account) at the Reserve Bank of Vanuatu, into which all withdrawals from the Loan Account shall be deposited. The Deposit Account shall be established in accordance with arrangements satisfactory to the Bank.
   

(b) Separate accounts and records in respect of the Deposit Account shall be maintained in accordance with consistently maintained sound accounting principles. Upon the Bank's request, the Borrower shall have the Deposit Account audited by independent auditors, whose qualifications, experience and terms of reference are acceptable to the Bank, in accordance with appropriate auditing standards. Promptly after their preparation but in any event not later than six (6) months after the date of the Bank's request, certified copies of such audited accounts and records shall be furnished to the Bank, all in the English language.

5. Notwithstanding any other provisions of this Loan Agreement or the Loan Regulations and except as the Bank may otherwise agree, no withdrawals shall be made form the Incentive Subtranche (First Tranche) unless the Bank shall be satisfied, after consultation with the Borrower in the carrying out of the Program; and, in particular, (ii) the Borrower has fulfilled the conditions for the release of the Incentive Subtranche (First Tranche) specified in Attachment 2 to this Schedule.
   
6. Notwithstanding any other provisions of this Loan Agreement or the Loan Regulations and except as the Bank may otherwise agree, no withdrawals shall be made from the Second Tranche unless the Bank shall be satisfied, after consultation with the Borrower, that (i) sufficient progress has been achieved and maintained by the Borrower in the carrying out of the Program; and, in particular, (ii) the Borrower has fulfilled the conditions for the release of the Second Tranche specified in Attachment 3 to this Schedule.
   

Attachment 1 to Schedule 3
(Page 1)

List of Ineligible Items

No withdrawals shall be made from the Loan Account in respect of the following:

(a) expenditures for goods included in the following CCCN chapters or headings:

Chapter Heading Description of Items

22 22.03 - 22.10 alcoholic beverages

24 24.01 tobacco, unmanufactured;

tobacco refuse

24 24.02 tobacco, manufactured (whether or not

containing tobacco substitutes)

28 28.50 – 28.52 radioactive and associated materials

71 71.01 – 71.04 pearls, precious and semiprecious stones,

unworked or worked

71 71.05 – 71.06 jewellery of gold, silver or platinum group

metals

71.09 – 71.06 (except watches and watch cases) and

goldsmiths' or silversmiths' wares (including set gems)

71 71.07 – 71.08 gold, nonmonetary (excluding gold ores and

concentrates);

84 84.59 nuclear reactors and parts thereof, fuel

elements (cartridges), nonirradiated for nuclear reactors

(b) expenditures for goods intended for a military or paramilitary purpose or for luxury consumption; or

(c) expenditures for pesticides categorized as extremely hazardous or highly hazardous in Class la and 1b, respectively, of the World Health Organization's Classification of Pesticides by Hazard and Guidelines to Classification.

Attachment 2 to Schedule 3
(Page 1)

Conditions for Release of the Incentive Subtranche (First Tranche)

Vanuatu National Provident Fund

1. The Borrower shall appoint directors for the Board of Directors of the Vanuatu National Provident Fund, all of whom shall be professionally qualified.
   

Value Added Tax Law

2. The Borrower shall enact and implement a value added tax law to widen its tax base and increase revenues.
   

Development Committee of Officials

3. The Borrower shall establish a Development Committee of Officials, consisting of all Director Generals of the Borrower's ministries and to be chaired by the Director General of the Ministry of the Prime Minister, to coordinate policy making and provision of technical advice to the Council of Ministers of the Borrower. Such Development Committee of Officials shall have commenced its work.
   

Asset Management Unit

4. The Borrower shall enact legislation for and establish an independent Asset Management Unit to improve the collection rate of outstanding loans made from public resources. Such Asset Management Unit shall have commenced operations.
   

Staffing of NBV

5. The Borrower shall appoint a general manager, operations manager, human resources manager and a senior credit office to NBV, all of whom shall be adequately qualified and externally recruited.
   

Public Service Downsizing

6. The Borrower shall reduce by between 10% and 15%, the total number of employees in the public service.
   

Attachment 3 to Schedule 3
(Page 1)

Conditions for Release of the Second Tranche

Expenditure Review Committee

1. The Borrower shall establish an Expenditure Review Committee, and allocate adequate staff and budgetary resources, to scrutinize public expenditures. Such Expenditure Review Committee shall have commenced operations.
   

Management Improvement Plan

2. The Borrower shall cause PSC and DSM to jointly develop and implement a management improvement plan for all agencies of the Borrower to ensure effective implementation of key management systems in the public sector.
   

Remuneration Tribunal

3. The Borrower shall enact legislation for and establish a Remuneration Tribunal, with adequate staff and budgetary resources, to determine the levels of salaries and allowances to be paid to public sector staff.
   

Master Plan for National Infrastructure Development

4. The Borrower shall develop a master plan for national infrastructure development.

Restructuring of NBV

5. The Borrower shall merge the Development Bank of Vanuatu (DBV) into NBV, after non-performing loans of DBV have been transferred to the Asset Management Unit, to create, to create a single bank offering commercial banking services.
   

Health and Education Sectors

6. The Borrower shall conduct and complete a comprehensive review of the existing health and education policies and services, and cause the Ministry of Health and the Ministry of Education to develop five-year action plans, for approval of the Council of Ministers, to enhance social indicators in these sectors.
   

Decentralization Commission

7. The Borrower shall establish a Decentralization Commission, and allocate adequate staff and budgetary resources, to development policies and implementation strategy for decentralized governance.
   

SCHEDULE 4

Procurement

1. Except as the Bank may otherwise agree, the procedures referred to in the following paragraphs of this Schedule shall apply in the procurement of Eligible Items to be financed out of the proceeds of the Loan.
   
2. (a) Except as provided in paragraph 2(b) below, each contract for Eligible Items shall be awarded on the basis of either the purchaser's normal commercial procurement practices, in the case of procurement by the private sector, or the Borrower's prescribed procurement procedures, in the case of procurement by the public sector.
   

(b) Each supply contract for Eligible Items which are commonly traded commodities shall be awarded on the basis of procedures appropriate to the trade and acceptable to the Bank.

SCHEDULE 5

Program Implementation and Other Matters

Counterpart Funds

1. (a) Immediately after the Effective Date, the Borrower shall establish, in a manner satisfactory to the Bank, a Special Account for the specific purpose of depositing and utilizing the Counterpart Funds.
   

(b) Whenever the Borrower withdraws proceeds of the Loan from the Loan Account, the Borrower shall promptly deposit in the Special Account the Vatu amounts equivalent to the amount of the proceeds so withdrawn.

(c) Except as the Borrower and the Bank may otherwise agree, the Counterpart Funds shall be utilized not later than 31 December 2000 to meet the expenditures to be incurred pursuant to paragraph 2 below.

(d) Separate accounts and records in respect of the Special Account shall be maintained in accordance with consistently maintained sound accounting principles and shall be audited annually by independent auditors, whose qualifications, terms of reference and experience are acceptable to the Bank, in accordance with sound auditing standards. Certified copies of such audited accounts and records shall be furnished to the Bank promptly after their preparation but in any event not later than six (6) months after the close of the fiscal year to which they relate or not later than six (6) months after the date of the closing of the Loan Account, as the case may be.

2. The Borrower shall ensure that the Counterpart Funds shall be used to finance(i) public sector rightsizing and restructuring, including financial and human resource development support for persons retrenched from the public sector under a managed transition service program; (ii) restructuring and rehabilitation of public financial institutions; and (iii) fiscal stabilization, in amounts to be agreed upon with the Bank.
   

Program Implementation

3. The Borrower shall (i) ensure that the polices adopted and actions taken as described in the Policy Letter prior to the date of this Loan Agreement continue in effect for the duration of the Program period, and (ii) promptly carry out the other policies and actions included in the Program as specified in the Policy Letter, including the Policy Matrix attached to the Policy Letter, and ensure that such policies and actions continue in effect for the duration of the Program period.
   
4. Except the Borrower and the Bank may otherwise agree, the Program Executing Agency shall bear overall responsibility for implementation of the Program. The Program Executing Agency shall consult with concerned agencies to ensure that the reforms under the Program are undertaken in line with the agreed schedule.
   
5. The Borrower shall establish a Comprehensive Reform Program Task Force, to be chaired by the minister responsible for the Program's implementation and comprising representatives of the Government, political parties, traditional chiefs, private sector, non-government organizations, community groups and trade unions, to monitor Program implementation and report to a national summit. The chair-minister shall report directly to the Prime Minister and provide the Council of Ministers with regular progress reports on the Program. A national summit, involving broad representation of the national, shall meet to review and assess the progress of, and provide feedback on, the implementation of the Program.
   

Policy Dialogue

6. The Borrower shall keep the Bank informed of, and the Borrower and the Bank shall from time to time exchange views on, the progress made in carrying out the Program.
   
7. The Borrower shall continue policy dialogue with the Bank on problems and constraints encountered during implementation of the Program and on desirable changes to overcome or mitigate such problems and constraints.
   
8. The Borrower shall keep the Bank informed of policy discussions concerning the Program undertaken with other international and bilateral agencies as the Bank may reasonably request, and shall provide the Bank with the opportunity to comment on any resulting policy proposals.
   

Monitoring and Evaluation

9. (a) The Borrower, the Bank and the representatives of the other major donors for the Program shall formally meet at least once in every six months to review Program implementation.
   

(b) Before 30 June 1999 or such other date as the Borrower and the Bank may agree, a joint review shall be carried out concerning the Borrower's progress in implementing the policy reforms set out in the Policy Letter, including, in particular, the fulfilment of the conditions listed in Attachment 3 to Schedule 3 to this Loan Agreement. To facilitate this review, the Program Executing Agency shall provide the Bank with relevant information, in addition to the reports and information referred to in Section 4.05 of this Loan Agreement, in such detail as the Bank may reasonably request. This review shall form the basis for discussions between the Borrower and the Bank on (i) further measures that may be considered necessary or desirable to promote the continue reforms; and (ii) release of the Second Tranche.

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