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1. GENERAL

1.1

This MEMORANDUM OF UNDERSTANDING expresses the understanding of the Government of the Republic of the Philippines (GOP) and the Government of Australia (GOA) concerning the respective responsibilities of the two Governments in regard to the provision by Australia of specific budget support aid to the Philippines by means of a Sector Inputs Program (SIP).

1.2

Under the SIP the GOA will assist the GOP with the budget funding of specified humanitarian and developmental programs. The funds for these purposes will be generated from the supply from Australia; through normal commercial channels, of essential inputs for use in key industries or developmental programs in the Philippines.

1.3

The main objects of the SIP are to:

..

contribute to GOP budget resources in the health, education and/or social services sectors;

..

contribute to growth in the Philippine economy by providing essential imported inputs;

..

assist in relieving balance of payments pressures in the Philippines; and

..

provide a means for increasing rapidly the level of Australia's official development assistance to the Philippines.

1.4

The peso funds generated under the SIP will be used to assist in the maintenance at, if possible, the 1986 planned levels of appropriation amounts and subsequent funds releases under the budget of the GOP in respect of certain mutually agreed categories of health, education and/or social services programs.

2. AUTHORITIES

2.1

The Executing Authorities for the SIP will be:

(a)

For the GOP:

The Ministry of Finance (MOF)

(b)

For the GOA:

The Australian Development Assistance Bureau (ADAB) of the Department of Foreign Affairs

2.2

A SIP executive officer will be appointed and will be responsible to the MOF for the effective implementation of the program, including liaison with the Australian executing authority. The contact for the Australian executing authority in the Philippines will be the First Secretary (Development Assistance), Australian Embassy, Manila.

2.3

There will be a coordinating committee for the SIP chaired by the MOF and including representatives from the National Economic and Development Authority (NEDA), Ministry of Foreign Affairs (MFA), MOF, Ministry of Trade and Industry (MTI), Office of the Budget and Management (OBM), Central Bank of the Philippines (CBP) and ADAB. The Committee will meet quarterly and at such other times as the Chairman deems necessary.

3. DURATION

3.1

The MEMORANDUM OF UNDERSTANDING will take effect from the date of its signature. The Program and all undertakings stated herein will cease on 30 June 1987 or on such other date as may subsequently be agreed upon between the two Governments.

4. RESPONSIBILITIES

4.1

The (GOP) will be responsible for -

(a)

the establishment of administrative machinery within the Philippines for facilitating the implementation of the SIP in the Philippines.

(b)

identifying commodity requirements under the SIP and determining the entities within the Philippines which are to receive the specified commodities in .the Philippines.

(c)

providing the GOA with all the information required on the relevant administrative actions and commercial transactions to enable the GOA to maintain the SIP.

4.2

The (GOA) will be responsible for -

(a)

examining the proposed commercial transactions to determine their eligibility for inclusion in the SIP and advising the GOP accordingly.

(b)

effecting payments broadly in accordance with the mechanism described in general terms in the annexure to this MEMORANDUM OF UNDERSTANDING.

4.3

The Philippine entities identified as the importers under the SIP will be responsible for negotiating and entering into normal commercial contracts with Australian exporters.

The establishment of such contracts and their financing, including special provisions relating to the SIP, will be the direct responsibility of the contracting parties under commercial arrangements in consultation with the two Governments.

5. CONTRIBUTION

5.1

The contribution of the GOA will be up to the peso equivalent of eight million Australian dollars ($A8.0 million).

6.

IDENTIFICATION OF COMMODITY TRANSACTIONS

6.1

Commodities supplied under the SIP should:

..be sourced from Australia;

..be competitive on world markets;

..be essential production or development inputs in the Philippines;

..be additional to, rather than replacing, current Australian exports to the Philippines;

..not disadvantage existing trade between the Philippines and Australia or cut across existing commercial relationships;

..be capable of being purchased, delivered and utilised quickly; and

..not disrupt local markets or reduce employment in the Philippines.

6.2

Commodities for inclusion in the Program may include, for example, basic foodstuffs, raw materials for industry, requirements for agricultural development and expansion, requirements for mineral industry development, equipment for infrastructure development, and equipment and materials for health care.

6.3

Those commodity transactions which may be financed through the SIP will be determined through consultation between the Executing Authorities for the Program at the time that commodity transactions between Australian exporters and Philippine importers are being arranged.

7.

IDENTIFICATION OF BUDGET ITEMS

7.1

Peso proceeds from the sale of commodities under the SIP will be used for the support of humanitarian and developmental activities particularly in the Health, Welfare and/or Education sectors included in the 1986 GOP budget. In the event that the peso proceeds are not utilised in 1986, these shall be available for the 1987 GOP budget. The benefitting agencies will be the Ministry of Health, the Ministry of Social Services and Development, and/or the Ministry of Education, Culture and Sports.

7.2

Whilst preference is to be given to the use of these funds for specific programs or projects conducted by the Ministries identified in the preceding paragraph which accord with the objects of the SIP, administration, operating and maintenance expenditures other than salaries and wages of Government employees by the above Ministries may also be funded under the SIP.

8.

MONITORING AND REPORTING

8.1

Following release of peso funds by the GOA to an appropriately designated special accounts of the Treasury of the GOP, the GOP will provide the GOA with details of the relevant allotment advices and cash disbursement ceilings issued to the GOP budget-funded agency ultimately receiving the funds.

8.2

The GOP agency ultimately receiving and expending these funds will report on their utilisation strictly in accordance with OBM reporting requirements. These reports, certified by the OBM as being authentic reports as submitted by the implementing agencies, will be provided to the GOA.

8.3

Utilisation reports detailing the funds drawn down by the GOP agency against its cash disbursement ceiling will be furnished quarterly. Such reports are to be provided as soon as practicable and not later than four (4) calendar months after the end of the quarter in which the funds were drawn down.

8.4

In considering any further releases of pesos, the GOA will take into account the current status of such utilisation reports. In the event that the GOA considers that there may be grounds for withholding the release of pesos, consultations will immediately be entered into with the GOP for the purpose of resolving the difficulties.

8.5

In due course, but not later than one year after the end of the budget year in which the funds have been utilised, the GOP will provide the GOA with duly certified audited reports on the programs funded by the SIP.

9.

AMENDMENTS

9.1

Amendments to this Memorandum of Understanding may be made at any time by an exchange of letters between the parties.

THE GOVERNMENT OF THE

FOR THE GOVERNEMNT OF

REPUBLIC OF THE PHILIPPINES

AUSTRALIA