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October 31, 1989

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. (1) A project loan in Japanese yen up to the amount of seventy-four billion nine hundred and sixty-three million yen (¥74,963,000,000) (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 enumerated 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) The Project Loan for the projects mentioned in 1, 2, 6, 8 and 10 of the Project List will be extended under the Financial Recycling Scheme.

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 two and seven-tenths per cent (2.7%) per annum.

(c) The disbursement period will be three (3) years with regard to the project mentioned in 6 of the Project List, five (5) years with regard to the projects mentioned in 1, 7 and 9 of the Project List, six (6) years with regard to the projects mentioned in 2, 3, 8, 11 and 12 of the Project List, seven (7) years with regard to the project mentioned in 4 of the Project List, eight (8) years with regard to the projects mentioned in 5 and 10 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 enumerated in the Project List, provided that such purchases are made is such eligible source countries for products produced in and/or 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 projects enumerated in the Project List.

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. A financial sector loan in Japanese yen up to the amount of forty billion yen (¥40,000,000,000) (hereinafter referred to as "the Financial Sector Loan") will be extended under the Financial Recycling Scheme, in accordance with the relevant laws and regulations of Japan, to the Government of the Republic of the Philippines by the Fund.

2. The Financial Sector 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 Financial Sector 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 two and seven-tenths per cent (2.7%) 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 Financial Sector 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.

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 Financial Sector 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 related to the financial sector, except where the authorities concerned of the two Governments agree that the said amount of Philippine currency may be used for 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.

III

1. The respective disbursement periods mentioned in sub-paragraph (1) (c), paragraph 2 of part I and sub-paragraph (c), paragraph 2 of part II 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 sub-paragraph (1), paragraph 3 of part II 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 and sub-paragraph (1), paragraph 3 of part II 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 and the Financial Sector 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

5. (1) With regard to the shipping of products purchased under the Project Loan and the Financial Sector 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 and the Financial Sector 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 and the Financial Sector Loan be used properly and exclusively for purchases of products and/or services mentioned respectively in sub-paragraph (1), paragraph 3 of part I and sub-paragraph (1), paragraph 3 of part II;

(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.

(Sgd.)  TSUNEO TANAKA
  Ambassador Extraordinary and Plenipotentiary
  of Japan to the Republic of the Philippines

PROJECT LIST 

RECORD OF DISCUSSIONS

In connection with the Exchange of Notes dated 31 October 1989, concerning Japanese loans to be extended with a view to promoting the economic development and stabilization efforts of 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 with respect to the project loan mentioned in part I of the Exchange of Notes (hereinafter referred to as "the Project Loan") and the financial sector loan mentioned in part II of the Exchange of Notes (hereinafter referred to as "the Financial Sector Loan").

1. The representative of the Japanese Delegation stated that the products which contain components originating from countries other than the eligible source countries will be eligible for the financing under the Project Loan and the Financial Sector Loan, if they meet the following:

(1) The total cost of components imported into the country of production from countries other than the eligible source countries will be less than fifty (50) percent of the price per unit of such products.

(2) For the purposes of (1) above:

(a) "The total cost of components" means the price C.I.F. of the imported components plus import duties levied thereon in the country of production; and

(b) "Price per unit of such products" means;

(i) in the case of the Project Loan and the Financial Sector Loan, where the country of production is not the Republic of the Philippines, the price F.O.B. of such products, and

(ii) in the case of the Project Loan, where the country of production is the Republic of the Philippines, the price ex-factory of such products.

The representative of the Philippine Delegation stated that the Philippine side had no objection to the above-mentioned statement.

2. With reference to sub-paragraph (1), paragraph 3 of part I and sub-paragraph (1), paragraph 3 of part II of the Exchange of Notes, it was the shared view of the two Delegations that suppliers and contractors of eligible source countries mean nationals of eligible source countries or juridical persons incorporated and registered in the mentioned countries, and which have their appropriate facilities for producing or providing the goods and services in those countries, and actually conduct their business there, and that the consultants of eligible source countries mean nationals of the eligible source countries or juridical persons controlled by the nationals of the mentioned countries.

3. The representative of the Japanese Delegation stated that the Philippine side should give such due consideration to the importation of the products required for the implementation of the projects under the Project Loan as it has given in the course of the implementation of the projects under the successive Japanese loans for projects.

The representative of the Philippine Delegation stated that the Philippine side had no objection to the above-mentioned statement.

4. With reference to sub-paragraph (2), paragraph 3 of part I of the Exchange of Notes concerning the financing of eligible local currency requirements for the implementation of the projects mentioned in the said sub-paragraph of the Exchange of Notes, the representative of the Japanese Delegation stated that:

(1) Such requirement of local currency as general administrative expenses, interest during construction, taxes and duties, expenses concerning office, remuneration to employees of, the executing agencies and housing, not directly related to the implementation of the projects, as well as purchase of land properties, compensation and the like, however, will not be considered as eligible for financing under the Project Loan.

(2) The procurement of products and/or services will be made in accordance with the procedures of competitive tendering except where such procedures are inapplicable, or inappropriate.

The representative of the Philippine Delegation stated that the Philippine side had no objection to the above-mentioned statement.

5. With reference to sub-paragraph (1), paragraph 3 of part II of the Exchange of Notes, it was the shared view of the two Delegations that the Financial Sector Loan will be used, in accordance with the loan agreement mentioned in paragraph 2 of part II, to cover payments already made since January 1, 1989, or to be made for purchases of products mentioned in the list attached to the Note Verbale No. 895311 of the Department of Foreign Affairs of the Republic of the Philippines dated 31 October 1989, and for the purchases of services incidental to the purchases of those products.

6. With regard to the Financial Sector Loan mentioned in part II of the Exchange of Notes, the representative of the Japanese Delegation stated that the Financial Sector Loan could be characterized as the parallel co-financing with the Financial Sector Adjustment Loan extended by the World Bank.

                 

(Sgd.) RAUL S. MANGLAPUS	(Sgd.) TSUNEO TANAKA
Secretary of Foreign Affairs   of the   Republic of the Philippines	Ambassador Extraordinary and Plenipotentiary   of Japan to the Republic of the Philippines