March 17, 1997

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 a Japanese loan to be extended with a view to promoting the economic stabilization and development efforts of the Republic of the Philippines:

1. (1) A loan in Japanese yen up to the amount of one hundred and twenty-four billion two hundred and eighty million yen (楼124,280,000,000) (hereinafter referred to as "the Loan") will be extended, in accordance with the relevant laws and regulations of Japan, to the Government of the Republic of the Philippines and Government Owned and Controlled Corporations of the Republic of the Philippines (hereinafter referred to as "the Borrowers") by the Overseas Economic Cooperation Fund (hereinafter referred to as "the Fund") to implement the projects enumerated in the List attached hereto (hereinafter referred to as "the List") according to the allocation for each project as specified in the List.

(2) The Loan will be extended in line with sub-paragraph (2) of paragraph 2 of the "Funds for Development" Initiative announced by the Government of Japan on June 25, 1993.

2. (1) The Loan will be made available by loan agreements to be concluded between the Borrowers and the Fund. The terms and conditions of the 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) (i) The rate of interest will be two and seven-tenths per cent (2.7%) per annum with regard to the projects 1, 3 to 8 and 14 of the List and two and five-tenths per cent (2.5%) per annum with regard to the environmental projects 9 to 13 of the List.

(ii) Notwithstanding sub-paragraph (b) (i) above, where a part of the loan is made available to cover payments to consultants, then the rate of interest on the said part will be two and three-tenths per cent (2.3%) per annum with regard to the projects 1 to 8 and 14 of the List and two and one-tenth per cent (2.1%) per annum with regard to the environmental projects 9 to 13 of the List.

(c) The disbursement period will be three (3) years with regard to the project 2 of the List, four (4) years with regard to the project 1 of the List, five (5) years with regard to the projects 6 and 12 of the List, six (6) years with regard to the projects 7 and 13 of the List, seven (7) years with regard to the projects 4, 5, 8, and 11 of the List, eight (8) years with regard to the project 10 of the List and nine (9) years with regard to the projects 3, 9 and 14 of the 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, including environmental consideration, of the project to which such loan agreement relates.

(3) The disbursement periods mentioned in sub-paragraph (1) (c) above may be extended with the consent of the authorities concerned of the two Governments.

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

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

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

4. The repayment of principal of the Loan extended to the Government Owned and Controlled Corporations as well as the payment of interest thereon, shall be guaranteed by the Government of the Republic of the Philippines.

5. The Government of the Republic of the Philippines will ensure that products and/or services mentioned in sub-paragraph (1) of paragraph 3 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.

6. 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 sub-paragraph (1) of 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.

7. (1) The Government of the Republic of the Philippines will exempt the Fund from all fiscal levies and taxes imposed in the Republic of the Philippines on and/or in connection with the 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 and taxes imposed in the Republic of the Philippines, 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 Loan.

8. With regard to the shipping and marine insurance of products purchased under the Loan, the Government of the Republic of the Philippines will refrain from imposing any restrictions that may hinder fair and free competition between the shipping and marine insurance companies of the two countries.

9. (1) The Government of the Republic of the Philippines will, upon request, furnish the Government of Japan and the Fund with reports on the progress of the implementation of the projects enumerated in the List.

(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 Loan and take, if necessary, appropriate measures to secure smooth and effective utilization of the Loan. The Fund will be invited to participate in such review.

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

(a) the Loan be used properly and exclusively for purchases of products and/or services mentioned in sub-paragraph (1) of paragraph 3; and

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

11. 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.) YUKIHIKO IKEDA
Minister for Foreign Affair of Japan

His Excellency

MR. DOMINGO L. SIAZON, JR.

Secretary of Foreign Affairs
of the Republic of the Philippines