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June 04, 1999

Excellency,

I have the honour to refer to the recent discussions held between the representatives of the Government of Japan and of the Government of the Republic of the Philippines concerning Japanese economic cooperation to be extended with a view to strengthening friendly and cooperative relations between the two countries, and to propose on behalf of the Government of Japan the following arrangements:

1. For the purpose of contributing to promotion of the economic structural adjustment efforts by the Government of the Republic of the Philippines as well as mitigation of the economic difficulties, including indebtedness, of the Republic of the Philippines, the Government of Japan will extend to the Government of the Republic of the Philippines, in accordance with the relevant laws and regulations of Japan, a grant of two billion five hundred million yen (¥2,500,000,000) (hereinafter referred to as " the Grant").

2. (1) The Grant and its accrued interest will be used by the Government of the Republic of the Philippines properly and exclusively for the purchase of products enumerated in a list to be mutually agreed upon between the authorities concerned of the two Governments and services incidental to such products, provided that those products are produced in eligible source countries.

(2) The list mentioned in sub-paragraph (1) above will be subject to modifications which may be agreed upon between the authorities concerned of the two Governments.

(3) The scope of the eligible source countries mentioned in sub-paragraph (1) above will be agreed upon between the authorities concerned of the two Governments.

3. (1) The Government of the Republic of the Philippines will open a yen ordinary deposit account at a bank of Japan in the name of the Government of the Republic of the Philippines (hereinafter referred to as "the Account") after coming into force of the present arrangements and will notify in writing the Government of Japan of the completion of the procedure for opening the Account by June 24, 1999.

(2) The sole purpose of the Account is to receive the payment in Japanese yen by the Government of Japan referred to in paragraph 4 as well as to make payments necessary for the purchase of the products and services referred to in sub-paragraph (1) of paragraph 2, and such other payment as may be agreed upon between the authorities concerned of the two Governments.

4. The Government of Japan will execute the Grant by making payment in Japanese yen of the amount referred to in paragraph 1 to the Account during the period between the date of receipt of the written notification referred to in sub-paragraph (1) of paragraph 3 and March 31, 2000, unless the period is extended by mutual agreement between the authorities concerned of the two Governments.

5. (1) The Government of the Republic of the Philippines will take necessary measures;

(a) to use the Grant and its accrued interest within a period of twelve months after the date of the execution of the Grant and to refund the amount remaining in the Account after the period to the Government of Japan unless the period is extended by mutual agreement between the authorities concerned of the two Governments;

(b) to ensure that customs duties, internal taxes and other fiscal levies which may be imposed in the Republic of the Philippines with respect to the purchase of the products and services referred to in sub-paragraph (1) of paragraph 2 shall not be borne by the Grant;

(c) to ensure that the Grant and its accrued interest be used properly and effectively for promotion of the economic structural adjustment efforts as well as mitigation of the economic difficulties, including indebtedness, of the Republic of the Philippines; and

(d) to present to the Government of Japan a report prepared in a written form acceptable to the Government of Japan on the transactions on the Account together with copies of contracts, vouchers and other documents concerning the relevant transactions without delay when the Grant and its accrued interest are completely drawn in accordance with the provisions of sub-paragraph (2) of paragraph 3, or when the period for the use of the Grant and its accrued interest expires in accordance with the provisions of (a) above, or upon request by the Government of Japan.

(2) The products purchased under the Grant shall not be re-exported from the Republic of the Philippines.

6. (1) The Government of the Republic of the Philippines shall ensure that an amount equivalent to the yen disbursement paid with respect to the purchase of the products referred to in sub-paragraph (1) of paragraph 2 will be deposited in Philippine currency in an account to be opened in its name in the Bangko Sentral ng Pilipinas. The deposit shall be made within the period of three years from the date of coming into force of the present arrangements, unless otherwise agreed between the authorities concerned of the two Governments.

(2) The currency thus deposited shall be utilized for economic and social development purposes in the Republic of the Philippines.

(3) The authorities concerned of the two Governments will consult with each other about the utilization of the currency deposited.

7. Further procedural details for the implementation of the present arrangements will be agreed upon through consultation between the authorities concerned of the two Governments.

8. The two Governments will consult with each other in respect of any matter that may arise from or in connection with the present arrangements.

I have further the honour to propose that this Note and Your Excellency's Note in reply confirming on behalf of the Government of the Republic of the Philippines the foregoing arrangements shall be regarded as constituting an agreement between the two Governments, which will enter into force on the date of Your Excellency's reply.

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

(Sgd.) HIROYUKI YUSHITA
Ambassador Extraordinary
and Plenipotentiary of Japan
to the Republic of
the Philippines

His Excellency
Mr. ROMEO A. ARGUELLES
Ambassador Extraordinary
and Plenipotentiary of
the Republic of the Philippines
to Japan

Agreed Minutes on Procedural Details

With reference to paragraphs 2 and 7 of the Exchange of Notes between the Government of Japan (hereinafter referred to as "the Donor") and the Government of the Republic of the Philippines (hereinafter referred to as "the Recipient"), dated June 4, 1999 (hereinafter referred to as "the Exchange of Notes"), concerning the Japanese economic cooperation to be extended for the purpose of contributing to promotion of the economic structural adjustment efforts by the Recipient as well as mitigation of the economic difficulties, including indebtedness, of the Republic of the Philippines (hereinafter referred to as "the Grant"), the representatives of the Donor and of the Recipient wish to record the following procedural details, as agreed upon between the authorities concerned of the two Governments:

1. List of Eligible Products

The products referred to in sub-paragraph (1) of paragraph 2 of the Exchange of Notes shall be those enumerated in Appendix I.

2. Eligible Source Countries

The eligible source countries referred to in sub-paragraph (3) of paragraph 2 of the Exchange of Notes shall be as follows:

all countries and areas except the Republic of the Philippines.

3.Procurement

(1) The Grant and its accrued interest shall be used for the purchase of the products and the services referred to in sub-paragraph (1) of paragraph 2 of the Exchange of Notes with due attention to economy, efficiency and non-discrimination among the eligible source countries.

(2) In order to ensure compliance with such requirements, it is required that the Recipient employs an independent and competent agent for procurement.

The Recipient shall, therefore, conclude an employment contract, within fourteen days after the date of coming into force of the Exchange of Notes, with the Crown Agents for Oversea Governments and Administrations (hereinafter referred to as "the Agent") to act on behalf of the Recipient in accordance with the Scope of the Agent's Services as set forth in Appendix II.

(3) The said employment contract shall become effective upon the approval of the Donor in a written form.

(4) The Recipient shall take necessary measures to expedite utilization of the Grant and its accrued interest, including exemption of the existing import procedures, in case where these are duplicated with the Agent's services set forth in Appendix II.

4. The Committee

(1) Within ten days after the date of coming into force of the Exchange of Notes, the Recipient and the Donor shall appoint their representatives who will be members of a consultative committee (hereinafter referred to as "the Committee"), the role of which shall be to discuss any matter that may arise from or in connection with the Exchange of Notes- Immediately after the conclusion of the employment contract referred to in sub-paragraph (2) of paragraph 3 above, the Agent shall appoint its representative who will participate in the Committee meetings as adviser.

(2) The Committee shall be chaired by the representative of the Recipient. Representatives of other organizations than the Agent may, when necessary, be invited to participate in the Committee meetings to provide advisory services.

(3) The terms of reference of the Committee shall be as set forth in Appendix V.

(4) The first meeting of the Committee shall be held immediately after the approval of the Donor of the employment contract referred to in sub-paragraph (3) of paragraph 3 above. Further meetings will be held upon request of either the Recipient or the Donor. The Agent may advise the Recipient and the Donor on the necessity to call a meeting of the Committee.

5. Disbursement Procedure

Disbursement procedure relating to the procurement of products and incidental services including the Agent's fees under the Grant and its accrued interest shall be as follows:

(1) The Recipient (or its designated authority) and the bank of Japan referred to in sub-paragraph (1) of paragraph 3 of the Exchange of Notes (hereinafter referred to as "the Bank") shall conclude an arrangement regarding transfer of funds.

(2) Requests for the transfer of funds for the procurement of products and incidental services including the Agent's fees shall be made to the Bank by the Agent. The said requests shall be accompanied by a pro forma invoice approved by the Recipient, authorization by the Recipient for the transfer of such funds, a Certificate of Eligible Procurement prepared by the Agent as per Appendix III and a copy of the approval of the Donor of the employment contract referred to in sub-paragraph (3) of paragraph 3 above. When the amount of funds requested to be transferred is more than the remaining amount in the account referred to in sub-paragraph (1) of paragraph 3 of the Exchange of Notes (hereinafter referred to as "the Account"), only the remaining amount shall be transferred.

(3) The said funds shall be transferred by the Bank from the Account to the account with the Agent in the name of the Recipient.

(4) The Agent shall make payment to suppliers from the said account with the Agent in accordance with the terms of the contracts with them.

(5) Reimbursement procedure

When the remaining amount in the Account is less than 3% of the Grant and its accrued interest, the Recipient may-ask the Agent to transfer funds for the reimbursement of the payments which have already been made by the Recipient for the procurement of the products listed in Appendix I, provided that such payments have been made on or after the date of coming into force of the Exchange of Notes.

The Bank shall, upon the presentation of a Certificate of Eligible Procurement for the Remaining Amount as per Appendix IV certified by the Recipient and by the Agent, transfer the remaining amount to the account with the Agent in the name of the Recipient. The Agent shall transfer the said amount to the Recipient.

(6) With respect to (a) of sub-paragraph (1) of paragraph 5 of the Exchange of Notes disbursements from the Account shall be made within a twelve months period after the date of the execution of the Grant, and no further disbursement shall be made thereafter, unless otherwise agreed between the authorities concerned of the two Governments.

6. Refund of the Remaining Amount

With respect to (a) of sub-paragraph (1) of paragraph 5 of the Exchange of Notes, when the Donor finds, upon the receipt of the termination report referred to in (d) of sub-paragraph (1) of paragraph 5, that the use of the Grant and its accrued interest is incomplete, it will notify the Recipient of the procedures for refunding of the remaining amount of the Grant and its accrued interest. The Recipient will refund the said remaining amount to the Donor without delay through such procedures as notified above.

7. Philippine Currency Deposit

(1) With respect to sub-paragraph (1) of paragraph 6 of the Exchange of Notes, the Agent will compute the amount required to be deposited in Philippine currency by the Recipient. The said amount shall be equivalent to the F.O.B. price of the products purchased under the Grant, and shall be calculated based on the average exchange rate of June 1999 which the I.M.F. is notified of.

(2) The Recipient shall ensure that the Agent will receive monthly statements of the account referred to in sub-paragraph (1) of paragraph 6 of the Exchange of Notes.

(3) Unless otherwise agreed upon between the two Governments, the Agent shall, for a period of five years from the date of coming into force of the Exchange of Notes, make monthly reports for the Committee members concerning the amount required to be deposited and the amount actually deposited in Philippine currency.

(4) The Recipient shall directly inform the Donor of the situation of the Philippine currency deposit upon request by the Donor.

(5) With respect to sub-paragraph (3) of paragraph 6 of the Exchange of Notes, the Recipient will make "the Utilization Programme" of the deposited fund which shall include the names of specific projects, their details and the amount of money to be allocated. "The Utilization Programme" shall be presented to the Donor for consultation.

Record of Discussions

In connection with the Exchange of Notes dated June 4, 1999, concerning Japanese economic cooperation to be extended with a view to strengthening friendly and cooperative relations between Japan and the Republic of the Philippines (hereinafter referred to as "the Exchange of Notes"), the representatives of the Japanese Delegation and of the Philippine Delegation wish to record the following:

1. With regard to paragraph 2 of the Exchange of Notes, the representative of the Japanese Delegation stated as follows: the Government of Japan understands that the Government of the Republic of the Philippines will take necessary measures to prevent any offer, gift or payment, consideration or benefit which would be construed as a corrupt practice in the Republic of the Philippines from being made as an inducement or reward related to the award of the contracts that the agent referred to in sub-paragraph (2) of paragraph 3 of the Agreed Minutes on Procedural Details of the Exchange of Notes will enter into with a view to purchasing the products and services referred to in paragraph 2 of the Exchange of Notes.

2. The representative of the Philippine Delegation stated that his Delegation has no objection to the statement by the representative of the Japanese Delegation referred to above.