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December 16, 1987

Excellency,

I have the honour to confirm the following understanding recently reached between the representatives of the Government of Japan and of the Government of the Republic of the Philippines concerning Japanese loans to be extended with a view to promoting the economic development and stabilization efforts of the Republic of the Philippines:

I

1. A project loan in Japanese yen up to the amount of forty-eight billion and two hundred eight million yen (¥48,208,000,000) (hereinafter referred to as "the Project Loan") will be extended, in accordance with the relevant laws and regulations of Japan, to the Government of the Republic of the Philippines by the Overseas Economic Cooperation Fund (hereinafter referred to as "the Fund") to implement the projects listed in the Project List attached hereto (hereinafter referred to as "the Project List") according to the allocation for each project as specified in the Project List.

2. (1) The Project Loan will be made available by loan agreements to be concluded between the Government of the Republic of the Philippines and the Fund. The terms and conditions of the Project Loan as well as the procedures for its utilization will be governed by the said loan agreements which will contain, inter alia, the following principles:

(a) The repayment period will be twenty (20) years after the grace period of ten (10) years.

(b) The rate of interest will be three per cent (3.0%) per annum.

(c) The disbursement period will be three (3) years with regard to the projects mentioned in 12, 13, 14 and 15 of the Project List, five (5) years with regard to the projects mentioned in 7 and 8 of the Project List, six (6) years with regard to the projects mentioned in 1 and 5 of the Project List, seven (7) years with regard to the projects mentioned in 2, 3, 4, 6, 9, 10 and 11 of the Project List from the date of coming into force of the relevant loan agreement.

(2) Each of the loan agreements mentioned in sub-paragraph (1) above will be concluded after the Fund is satisfied of the feasibility of the projects to which such loan agreement relates.

3. (1) The Project Loan will be made available to cover payments to be made by the Philippine executing agencies to suppliers, contractors and/or consultants of eligible source countries under such contracts as may be entered into between them for purchases of products and/or services required for the implementation of the projects mentioned in paragraph 1, provided that such purchases are made in such eligible source countries for products produced in and/or services supplied from those countries.

(2) A part of the Project Loan may be used to cover eligible local currency requirements for the implementation of the projects enumerated in the List.

4. (1) The Government of the Republic of the Philippines will, upon request, furnish the Government of Japan with reports on the progress of the projects mentioned in paragraph 1.

(2) The two Governments will jointly review from time to time, on the basis of the reports mentioned in sub-paragraph (1) above, the progress of the implementation of the Project Loan and take, if necessary, appropriate measures to secure smooth and effective utilization of the Project Loan. The Fund will be invited to participate in such review.

5. Japanese nationals whose services may be required in the Republic of the Philippines in connection with the supply of products and/or services to be provided under the contracts referred to in paragraph 3 will be accorded such facilities as may be necessary for their entry into the Republic of the Philippines and stay therein for the performance of their work.

II

1. An engineering service package loan in Japanese yen up to the amount of two billion yen (¥2,000,000,000) (hereinafter referred to as "the Engineering Service Package Loan") will be extended to the Government of the Republic of the Philippines by the Fund in accordance with the relevant laws and regulations of Japan.

2. The Engineering Service Package Loan will be made available by a loan agreement to be concluded between the Government of the Republic of the Philippines and the Fund. The terms and conditions of the Engineering Service Package Loan as well as the procedures for its utilization will be governed by the said loan agreement which will contain, inter alia, the following principles:

(a) The repayment period will be twenty (20) years after the grace period of ten (10) years.

(b) The rate of interest will be three (3.0) per cent per annum.

(c) The disbursement period will be five (5) years from the date of coming into force of the loan agreement.

3. The Engineering Service Package Loan will be made available to cover payments to be made by the Philippine executing agencies to consultants of eligible source countries under such contracts as may be entered into between them for purchases of products and/or services required for the implementation of engineering services of such projects as will be specified in agreement between the authorities concerned of the two Governments from among those listed in the engineering service project list attached hereto provided that such purchases are made in such eligible source countries for products produced in and services supplied from those countries.

4. (1) The Government of the Republic of the Philippines will, upon request, furnish the Government of Japan with reports on the progress of the Engineering Service Package Loan.

(2) The two governments will jointly review from time to time, on the basis of the reports mentioned in sub-paragraph (1) above, the progress of the implementation of the Engineering Service Package Loan and take, if necessary, appropriate measures to secure smooth and effective utilization of the Engineering Service Package Loan. The Fund will be invited to participate in such review.

5. Japanese nationals whose services may be required in the Republic of the Philippines in connection with the supply of products and/or services to be provided under the contracts referred to in paragraph 3 will be accorded such facilities as may be necessary for their entry into the Republic of the Philippines and stay therein for the performance of their work.

III

1. A commodity loan in Japanese yen up to the amount of thirty billion yen (¥30,000,000,000) (hereinafter referred to as "the Commodity Loan") will be extended, in accordance with the relevant laws and regulations of Japan, to the Government of the Republic of the Philippines by the Fund.

2. The Commodity Loan will be made available by a loan agreement to be concluded between the Government of the Republic of the Philippines and the Fund. The terms and conditions of the Commodity Loan as well as the procedures for its utilization will be governed by the said loan agreement which will contain, inter alia, the following principles:

(a) The repayment period will be eighteen (18) years after the grace period of seven (7) years.

(b) The rate of interest will be three per cent (3.0%) per annum.

(c) The disbursement period will be two (2) years from the date of coming into force of the loan agreement.

3. (1) The Commodity Loan will be made available to cover payments to suppliers of eligible source countries by importers in the Republic of the Philippines under such contracts as have been or may be entered into between them for purchases of such products as will be enumerated in a list to be mutually agreed upon between the authorities concerned of the two Governments and for purchases of services incidental to the purchases of those products, provided that such purchases are made in such eligible source countries for products produced in and services supplied from those countries.

(2) The list mentioned in sub-paragraph (1) above may be modified by agreement between the authorities concerned of the two Governments.

4. (1) The Government of the Republic of the Philippines will take measures to have the equivalent in Philippine currency of the amount of yen disbursements of the Commodity Loan transferred by the Central Bank of the Philippines (hereinafter referred to as "the Central Bank") to the counterpart fund account opened in the name of the Government of the Republic of the Philippines in the Central Bank. The amount of Philippine currency thus transferred shall be used to cover local currency requirements of the development projects of the Republic of the Philippines implemented under loans in Japanese yen by the Fund, except where the authorities concerned of the two Governments agree that the said amount of Philippine currency may be used for other development projects of the Republic of the Philippines. The development projects for which the amount of Philippine currency mentioned above will be used will be those separately agreed upon between the authorities concerned of the two Governments.

(2) The Government of the Republic of the Philippines will, upon request, furnish the Government of Japan with reports on the use of the counterpart fund mentioned in sub-paragraph (1) above.

IV

1. The respective disbursement periods mentioned in sub-paragraph (l)(c), paragraph 2 of part I, sub-paragraph (c), paragraph 2 of part II and sub-paragraph (c), paragraph 2 of part III may be extended with the consent of the authorities Concerned of the two Governments.

2. The respective scopes of eligible source countries mentioned in sub-paragraph (1), paragraph 3 of part I and paragraph 3 of part II and sub-paragraph (1), paragraph 3 of part III will be agreed upon between the authorities concerned of the two Governments.

3. The Government of the Republic of the Philippines will ensure that products and/or services mentioned respectively in sub-paragraph (1), paragraph 3 of part I, paragraph 3 of part II and sub-paragraph (1), paragraph 3 of part III are procured in accordance with the guidelines for procurement of the Fund, which set forth, inter alia, the procedures of international tendering to be followed except where such procedures are inapplicable or inappropriate.

4. (1) The Government of the Republic of the Philippines will exempt the Fund from all fiscal levies or taxes imposed in the Republic of the Philippines on and/or in connection with the Project Loan, the Engineering Service Package Loan and the Commodity Loan as well as interest accruing therefrom.

(2) The Government of the Republic of the Philippines will, itself or through its executing agencies or instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors or consultants on and/or in connection with any income that may accrue from the supply of products and/or services to be provided under the Project Loan and the Engineering Service Package Loan.

5. (1) With regard to the shipping of products purchased under the Project Loan, the Engineering Service Package Loan and the Commodity Loan, the two Governments will promote mutual cooperation for the development of shipping, under the Treaty of Amity, Commerce and Navigation between Japan and the Republic of the Philippines signed at Manila on 10 May, 1979.

(2) With regard to the marine insurance of products purchased under the Project Loan, the Engineering Service Package Loan and the Commodity Loan, the two Governments will refrain, within the scope of the relevant laws and regulations of their respective countries, from imposing any restrictions that may hinder fair and free competition between the marine insurance companies of the two countries.

6. The Government of the Republic of the Philippines will take necessary measures to ensure that:

(a) the Project Loan, the Engineering Service Package Loan and the Commodity Loan be used properly and exclusively for purchases of products and/or services mentioned respectively in sub-paragraph (1), paragraph 3 of part I, paragraph 3 of part II and sub-paragraph (1), paragraph 3 of part III;

(b) the facilities constructed under the Project Loan be maintained and used properly and effectively for the purposes prescribed in this understanding.

7. The two Governments will consult with each other with respect to any matter that may arise from or in connection with this understanding.

I should be grateful if Your Excellency would confirm the foregoing understanding on behalf of the Government of the Republic of the Philippines.

I avail myself of this opportunity to renew to Your Excellency the assurance of my highest consideration.