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May 08, 1990

1.1 This MEMORANDUM OF UNDERSTANDING expresses the understanding of the Government of the Philippines (GOF) 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 development 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

. . encourage the growth of trade and commercial links between the Philippines and Australia.

1.4 The peso funds generated under the SIP will be used to assist certain mutually agreed categories of health, education and/or social services programs, included in the General Appropriations Act (GAA) of the GOP. The peso funds generated under the SIP may also be used to assist in the implementation of Australia-Philippines jointly funded development projects.

2. AUTHORITIES

2.1 The Executing Authorities for the SIP will be:

(a) For the GOP:

The Department of Finance (DOF)

(b) For the GOA:

The Australian International Development Assistance Bureau CAIDAB) of the Department of Foreign Affairs and Trade.

2.2 A SIP executive officer will be appointed and will be responsible to the DOF 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 Counsellor (Development Assistance), Australian Embassy, Manila.

2.3 There will be a coordinating committee for the SIP chaired by the DOF and including representatives from the National Economic and Development Authority (NEDA), Department of Foreign Affairs (DFA), DOF, Department of Trade and Industry (DTI), Department of Budget and Management (DEM), Central Bank of the Philippines (CBP), Coordinating Council for Philippine Assistance Program (CCPAP) and AIDAB. The Committee will meet biannually and at such other times as the Chairman deems necessary.

3. DURATION

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 1994 unless another date is agreed upon between the GOA and GOP through an exchange of letters.

4. RESPONSIBILITIES

4.1 The GOF 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; and

(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; and

(b) effecting payments broadly in accordance with the mechanism described in general terms in paragraphs 8 and 9 below.

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

The contribution of the GOA will be identified in an annual exchange of notes. In 1989-90 the GOA contribution will be up to the peso equivalent of four million Australian dollars ($A4.0 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 SIP 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. Peso funds generated under the SIP may also be used to support agreed GOP contributions to activities undertaken under the Australian development assistance program to the Philippines. The benefiting agencies will be the Department of Health, the Department of Social Welfare and Development, the Department of education, Culture and Sports and/or GOP executing authorities for activities funded under the Australian development assistance program to the Philippines.

7.2 Whilst preference is to be given to the use of these funds for specific programs or projects conducted by the Departments 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 Departments may also be funded under the SIP. The Department of Budget and Management (DBM) will provide certification:

(a) that the regular budgetary items described under paragraph 7.1 above do not include salaries or wages : and

(b) that these items are not funded by any grant or other foreign assistance.

8. COMMERCIAL TRANSACTIONS AND PAYMENT MECHANISMS

8.1 The Philippine entities identified as the importers and the Australian entities identified as exporters under the SIP will be responsible for negotiating, entering into and financing contracts under normal commercial arrangements with the addition of the provisions of paragraph 8.2 below.

8.2 The relevant commercial contracts and associated trade and financing documentation will, in addition to the normal provisions and unless otherwise agreed by the executing authorities, provide for:

(a) the payment by the GOA to the accepting bank of the Australian exporter the Australian value of the contract; and

(b) the concurrent payment of pesos by the establishing banks of the participating Philippine importers into the Australian Government Sector Input Program (AGSIP) account at the Central Bank of the Philippines.

8.3 Peso commodity proceeds which have been paid in the first instance by participating Philippine importers banks into the designated GOA bank account referred to under paragraph 8.2 (b) above will be reconciled by the GOA representatives in the Philippines with advice from Australia regarding relevant commodity shipments to verify the identity of transactions and their equivalence with Australian dollar payments to the exporting entities in Australia.

9. RELEASE MECHANISM

9.1 At the beginning of the GOP fiscal year or as soon as the budget is approved by Congress the GOP will provide the GOA with written advice on the program project activities (PPAs) consistent with objectives of the SIP, including the amounts provided under each PPA, for which funds are required for transmission through appropriately designated accounts in the Treasurer of the GOP pursuant to paragraph 9.3 below.

9.2 The GOA will verify that this advice accords with the terms and objects of the SIP and will inform the GOP when funds have been released to the designated accounts in the Treasurer of the GOP.

9.3 Pesos will be released from the AGSIP account referred to in paragraph 8.2 (b) above into either:

(a) the regular demand account of the Treasurer of the Philippines for support of humanitarian and development activities in the health, welfare and education sectors; or

(b) a Special Project Account of the Treasurer of the Philippines for support of agreed GOP contributions to activities under the Australian development assistance program to the Philippines.

10. MONITORING AND REPORTING

10.1 Following release of peso funds by the GOA to the accounts of the Treasurer of the GOP, designated in paragraph 9.3 above, the GOP will provide the GOA with the notice of cash allocations issued to the GOP budget-funded agencies ultimately receiving the funds.

10.2 The GOP agency ultimately receiving and expending these funds will report to the GOA on their utilisation strictly in accordance with Department of Budget and Management (DBM) reporting requirements. These reports are to be certified by departmental auditors from the Commission on Audit (COA) as being verified and found correct.

10.3 The reports described in paragraph 10.2 above will be furnished quarterly, and are to be provided not later than four (4) calendar months after the end of the quarter in which the funds were drawn down.

10.4 In considering any further releases of pesos, the GOA will take into account the current status of such utilisation reports. In the event that utilisation reports are not presented in accordance with this MOU further release of peso proceeds, will be subject to consultations between the Australian Embassy, Manila and the DOF.

11. AMENDMENTS

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

SIGNED in two originals at Manila, this __08__ day of _May_ 1990.