DOM S LOAN NUMBER 2075 HO

Loan Agreement

(Second Industrial Credit Project)

between

REPUBLIC OF HONDURAS

and

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

Dated / , 1982

LOAN NUMBER 2075 HO

LOAN AGREEMENT

AGREEMENT, dated , 1982, between REPUBLICOF HONDURAS (hereinafter called the Borrower) and INTERNATIONALBANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called theBank).

WHEREAS (A) the Banco Central de Honduras (hereinaftercalled BanLo Central) byiesoluci6n 356-12/78, dated Decem-ber 28, 1978 has established the Fondo Nacional de DesarrolloIndustrial (hereinafter called FONDEI), a National IndustrialDevelopment Fund established to help meet the medium- and long-term financing requirements of the industrial and tourism sectorsof Honduras;

(B) by a loan agreement between the Borrower and theBank, dated March 8, 1979 (hereinafter called the Prior LoanAgreement) the Bank has made a loan to the Borrower for thepurpose of providing financial assistance for an industrial creditproject carried out by FONDEI;

(C) the Borrower has requested the Bank to assist in thefinancing of a second industrial credit project to be carried outby FONDEI;

(D) the Borrower intends to obtain from the United NationsDevelopment Programme (hereinafter called UNDP) a grant (herein-after called the UNDP Grant) in an amount of about $1,300,000equivalent to assist in financing part of Part II of the Projectdescribed in Section 3.01 (a) of this Agreement;

(E) by a Subsidiary Loan Agreement of even date herewithbetween the Borrower and Banco Central, the Borrower has under-taken to relend to Banco Central part of the proceeds of theLoan, on the condition that such proceeds will be part of theresources that FONDEI will lend to industrial enterprises inHonduras by means of participating intermediaries which meetFONDEI's technical and financial requirements; and

(F) the Bank is willing to make the Loan to the Borroweron the terms and conditions set forth in the Loan Agreement;

NOW THEREFORE the parties hereto hereby agree as follows:

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ARTICLE I

General Conditions; Definitigns

Section 1.01. The parties to this Agreement accept all theprovisions of the General Conditions Applicable to Loan andGuarantee Agreements of the Bank dated October 27, 1980, with thesame force and effect as if they were fully set forth herein,su5ject2, however, to the modifications thereof set forth inSchedule 2 to this Agreement (said General Conditions Applicableto Loan and Guarantee Agreements of the Bank, as so modified,being hereinafter called the General Conditions).

Section 1.02. Wherever used in this Agreement, unless thecontext otherwise requires, the several terms defined, in theGeneral Conditions and in the Preamble to this Agreement have therespective meanings therein set forth and the following adiLtionalterms have the following meanings:

(a) "CORDEFOR" means Corporaci6n Hondurefia de DesarrolloForestal of the Borrower, and such term includes any succ'ssorthereto.

(b) "CONA)I" means Corporaci6n Nacional de Inversionesof the Borrower, and such term includes any successor thereto.

(c) "CDI" means Centro de Desarrollo Industrial of theBorrower, and such term includes any successor thereto.

(d) "Participating Intermediary" means COHDEFOR, CONADI,CDI, or any commercial bank or financial institution in Honduraswhich meets FONDEI's technical and financial requirements underFONDEI's Statthient of Policies and Industrial Regulations andthe requirements of this Agreement, and which has signed aParticipation Agreement with FONDEI acceptable to the Bank.

(e) "FONDEI's Loan" means any loan made or proposed to bemade to a Participating Intermediary out of FONDEI's resources inaccordance with Section 3.04 (a) of this Agreement.

(f) "Participation Agreement" means the agreement to beentered into between FONDEI and each Participating Intermediaryas provided for in Section 3.04 (b) of this Agreement.

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(g) "Sub-loan" means a loan made or proposed to be made

under a Sub-load Contract by a Participating Intermediary partly

financed out of the proceeds of the Loan to an Investment Enter-prise f9r an Investment Project, and "free-limit sub-loan" means a

Sub-loafi, as so defined, which qualifies as a free-limit sub-loan

pursuant to the provisions of Section 2.02 (d) of this Agreement.

(h) "Sub-loan Contract" means a contract providing for a

Sub-loan.

(i) "Investment Enterprise" means an enterprise to which a

Participating Intermediary proposes to make or has made a Sub-loan.

(j) "Small Investment Enterprise" means an Investment

Enterprise whose fixed assets as of the date of the presentationto the Participating Intermediary of a proposed Investment Projectare less than $150,000 equivalent, excluding land and buildingsbut including the fixed assets to be financed under such proposed

Investment Project.

(k) "'Investment Project" means a specific induistrial devel-

opment project to be carried out by an Investment Enterprise,which complies with the requirements set forth in FONDEI's State-

ment of Policies and Industrial Regulations.

(1) "Lempira", "L" and "local currency" mean the currencyof the Borrower.

(m) "Foreign currency" means any currency other than the

currency of the Borrower.

(n) "'Subsidiary Loan Agreement" means the Agreement referred

to in Section 3.01 (b) of this Agreement to be entered into

between the Borrower and Banco Central, as such Agreement may be

amended from time to time.

(o) "Comitfi Ejecutivo" means 'the committee in charge of

managing FONDEI as provided for in Section 3.01 (c) (ii) of

this Agreement.

(p) "FONDEI's Statement of Policies and Industrial Regula-tions" means the policies and procedures for the operation of

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FONDEI, approved by Comite Ejecutivo, as amended to the Effec-tive Date, and such term includes the regulations in respect ofsuch Statement of Policies and Industrial Regulations.

(q) "Guarantee Fund" means the fund established by BancoCentral, under Resoluci6n No. 322-9/81, dated September 10,1981, for the promotion of the small scale industry in Honduras.

(r) "Appraisal Guidelines and Supervision Procedures" meansthe guidelines and procedures approved by Comitf Ejecutivo, asamended to the Effective Date, and to be used by FONDEI and Par-ticipating Intermediaries in the appraisal aiid supervision ofInvestment Projects.

(s) "FONDEI" includes the technical, financial and adminis-trative organization, resources, staff and facilities used or tobe used by Banco Central to operte FONDEI. Whenever reference inthis Agreement shall be made to action by FONDEI, it shall bedeemed to mean action by Banco Central by means of FONDEI.

(t) "Project Agreement" means the Project Agreement ofeven date herewith entered into between the Bank and BancoCentral.

ARTICLE II

The Loan

Section 2.01. The Bank agrees to lend to the Borrower, on theterms and conditions in the Loan Agreement set forth or referredto, an amount in various currencies equivalent to thirty milliondollars ($30,000,000).

Section 2.02. (a) The amount of the Loan may be withdrawn

from the Loan Account for amounts paid (or, if the Bank shallso agree for amounts to be paid) by FONDEI:

(i) on account of withdrawals made by a Small Invest-ment Enterprise under a Sub-loan to finance 75% ofexpenditures in respect of goods and services forthe Investment Project for which such withdrawalfrom the Loan Account is requested; or

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(ii) on account of withdrawals made by an InvestmentEnterprise, other than a Small Investment Enter-prise, under a Sub-loan to finance 100% of foreignexpenditures for imported goods and services or 70%of local expendituies for imported goods locallyprocuted, 50% of the ex-factory price of locallymanufactured goods, and 35% of expenditures forcivil works required for the Investment Project inrespect of which the withdrawal from the LoanAccount is requested; or

(iii) on account of withdrawals made for the pu6nses offinancing 100% of foreign expenditures do inrespect of the reasonable cost of consultaaVs andother services required for the carrying out of thetechnical assithce programs specified in Part IIof the Project described in Section 3.01 (a) ofthis Agreement.

(b) (i) no withdrawal shall be made from the Loan Accountin respect of any Sub-loan unless (1) the Sub-loan shall have beenapproved by the Bank; or (2) the Sub-loan shall be a free-limitsub-loan for which the Bank shall have authorized withdrawals fromthe Loan Account; (ii) no Participating Intermediary shall commit

more than the equivalent of $7,500,000 in Bank resources asSub-loans to Investment Enterprises; provided, however, that thislimitation shall not be applicable to Sub-loans made to SmallInvestment Enterprises; and (iii) no Participating Intermediaryshall present to the Bank for commitment from the proceeds of theLoan any request in an amount which if, when added to outstatiding

Sub-loans made to an Investment Enterprise under this Agreementor the Prior Loan Agreement, the aggregate shall exdeed theequivalent of one million, two hundred and fifty thousand dollars

($1,250,000).

(c) The amount of the Loan shall be allocated as follows:

(i) no less than the equivalent of $4,000,000 shallbe used for sublending to Small Investment Enter-prises;

(ii) the equivalent of $350,000, $700,000 and $250,000shall be used for the purpose of financing the

technical assistance programs referred to inparagraphs (i), (ii) and (iii) of Part II of the

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Project described in Section 3.01 (a) of thisAgreement, respectively; and

(iii) the foregoing allocation of the amount of the Loanshall be subject to review and revision by theBank, in consultation with the Borrower and BancoCentral, within 18 months from the date of thisAgreement.

(d) A free-limit sub-loan shall be a Sub-loan for an Invest-ment Project in an amount to be financed out of the proceedsof the Loan which shall not exceed the sum of $400,000 equivalent,when added to any other outstanding amounts financed or proposed-,to be financed out of the proceeds of the Loan for such Investment'Project.

(e) Except as the Bank shall otherwise,agree, no with-drawals shall be made on account of (i) payments made forexpenditures prior to the date of this Agreement, except thatwithdrawals, in an aggregate amount not to exceed the equivalentof $1,500,000 may be made on account of payment made for suchexpenditures before that date but after September 1, 1981; (ii)expenditures by an Investment Enterprise in respect of a Sub-loansubject to the Bank's approval, if such expenditures shall have"been made more than one hundred and eighty days prior to the dateon which the Bank shall have received in respect of such Sub-loanthe application and information required by Section 2.03 (a) ofthis Agreement or, in respect of a free-limit sub-loan, more thanone hundred and eighty days prior to the date on which the Bankshall have received in respect of such free-limit sub-loan therequest and informatio required by Section 2.03 (b) of thisAgreement; or (iii) expenditures made by CONADI for the purpose ofcarrying out the technical assistance program referred to in PartII (iii) of the Project described in Section 3.01 (a) of thisAgreement (hereinafter called the CONADI's Program), until: (A)the Bank has been furnished with a plan of action, satisfactory tothe Bank, for purposes of the carrying out of the CONADI's Pro-gram, taking into account the UNDP's study on CONADI's operationaland financial condition and its recommendations; and (B) anexecuting agency acceptable to the Bank has been appointed for thecarrying out of the CONADI's Program.

Section 2.03. (a) When presenting a Sub-loan (other than afree-limit sub-loan) to the Bank for approval, FONDEI shallfurnish to the Bank an application, in form satisfactory to the

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Bank, together with: (i) a description of the Investment Enter-prise and an appraisal of the Investment Project to be financedthereunder, including a description of the expenditures for suchInvestment Project proposed to be financed out of the proceeds ofthe Loan and, its financial and economic internal rates of return;(ii) the proposed terms and conditions of the Sub-loan includingits schedule of amortization and the procurement procedures to beused by the Investment Enterprise; and (iii) such other informa-tion as the Bank shall reasonably request.

(b) Each request by FONDEI for authorization to make with-drawals from the Loan Account in respect of a free-limit sub-loanshall contain: (i) a summary description of the InvestmentEnterprise and the Investment Project, including a description ofthe expenditures proposed to be financed out of the proceeds ofthe Loan and its financial and economic internal rates of return;(ii) the terms and conditions of the free-limit sub-loan, includ-ing the procedures for the procurement of goods and servicesto be used by the Investment Enterprise; and (iii) such otherinformation as the Bank shall reasonebly request; provided,however, that the economic internal rates of return shall be onlycalculated for those Investment Projects which have more than theequivalent of $250,000 financed by FONDEI.

(c) Except as the Bank shall otherwise agree, applicationsand requests made pursuant to the provisions of paragraphs (a) and

(b) of this Section shall be presented to the Bank on or beforeDecember 31, 1984.

Section 2.04. The Closing Date shall be June 30, 1986or such later date as the Bank shall establish. The Bank shallpromptly notify the Borrower and Banco Central of such laterdate.

Section 2.05. The Borrower shall pay to the Bank a commitment

charge at the rate of three-fourths of one per cent (3/4 of 1%)per annum on the principal amount of the Loan not withdrawn fromtime to time.

Section 2.06. The Borrower shall pay interest at the rate

of eleven and three-fifths per cent (11-3/5%) per annum on theprincipal amount of the Loan withdrawn and outstanding from timeto time.

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Section 2.07. Interest and other charges shall be payablesemiannually on January 1 and July 1 in each year.

Section 2.08. (a) The Borrower shall repay the principalamount of the Loan in accordance with the amortization scheduleset forth in Schedule l to this Agreement.

(b) The amortiza,ion schedule applicable to each Sub-loanshall provide for a period opf grace of not more than three (3)years, and shall not extendWn4 fifteen (15) years from thedate of approval by the Bank of :;fch Sub-loan, or in the case of a

free-limit sub-loan, fr6m re date of the authorization by theBank to make withdrawals from the Loan Account in respect thereof.

Section 2.09. Banco Central is designated as representativeof the Borrower for purposes of taking any action required orpermitted to be taken under Section 2.02 of this Agreement andArticle V of the General Conditions.,

ARTICLE III

The Project;Other Covenants

Section 3.01. (a) The purpose of the Project is to assist

the Borrower in financing such productive facilities in Hondurasas will contribute to the economic and social development of thecountry. The Project consists of the fdilowing parts:

Part I: Financing specific investment projects through loans to

industrial enterprises in Honduras, in furtherance ofthe purposes set forth in FONDEI's Statement of Policies

and Industrial Regulations.

Part II: Consultants services and training programs as follows:

(i) to assist FONDEI in: (A) elaborating material on

the preparation, appraisal and supervision of

Investment Projects; (B) carrying out a trainingprogram for the staff of FONDEI and ParticipatingIntermediaries; (C) strengthening the financial

planning, information and control systems, loanadministration and operating and disbursement

procedures of FONDEI; (D) analyzing technical and

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marketing aspects related to the appraisal ofInvestment Projects; (E) carrying out market andsubsectoral studies related to the appraisal ofInvestment Projects; and (F) strengthening of theservices offered by the industrial department ofBanco Central, through its Laboratorio deAnlisis Qufmico;

(ii) to assist CDI in: (A), strengthening the finaicialplanning, information system, loan administrationand control and operating procedures of CDI;(B) designing and establishing a system to providetechnical assistance to Small Investment Enter-prises; (C) providing administrative, technical andmarketing assistance to approved subsectorsand to groups of Small Investment Enterprisesand artisans; and (D) carrying out a trainingprogram for the staff of CDI; and

(iii) to assist CONADI in the carrying out of a programto strengthen CONADI's financial and operationalcapabilities.

(b) The Borrower shall: (i) make part of the proceeds of theLoan available to Banco Central pursuant to a Subsidiary LoanAgreement containing terms and conditions satisfactory to the Bank,such proceeds to form part of FONDEI's resources and to be appliedexclusively to expenditures in respect of goods and services forthe Project; and (ii) not change, waive or terminate suchSubsidiary Loan Agreement or any provisions thereof without theBank's prior consent.

(c) The Borrower shall cause Banco Central to: (i) carry outParts I and II (i) of the Project by means of FONDEI, and toconduct the operations and affairs of FONDEI in accordance withsound financial standards and practices and in accordance with theSubsidiary Loan Agreement and FONDEI's Statement of Policies andIndustrial Regulations; (ii) maintain at all times a Comit6Elecutivo satisfactory to the Bank to be in charge of the overallresponsibility for revising FONDEI's Statement of Policiesand Industrial Regulations, approving FONDEI's budget and staffingplans, approving FONDEI's loans and overseeing FONDEI's activi-ties; and (iii) maintain a unit, with an adequate number ofqualified and experienced personnel, to administer FONDEI and tbcarry out its operations.

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(d) The Borrower and all its agencies shall take all actionwhich shall be necessary on their part to enable Banco Centralto perform all of its obligations under the Project Agreement, theSubsidiary Loan Agreement and the Participation Agreements andshallc not take any action which might interfere with suchperformance.

Section 3.02. The Borrower shall, through Banco Central,enter into contractual arrangements with CDI and CONADI, respec-tively, satisfactory to the Bank, to ensure that:

(a) CDI and CONADI are provided by the Borrower, throughBanco Central, promptly as needed, with sufficient funds to carryout the technical assistance programs referred to-in paragraphs(ii) and (iii) of Part II of the Project, respectively;

-(b) CDI employs the qualified staff required to assistSmall Investment Enterprises in preparing and carrying outInvestment Projects;

(c) CDI establishes appropriate mechanisms and proceduresto provide technical assistance to Small Investment Enterprisesin the preparation and carrying out of Investment Projects; and

(d) CDI charges a fee of not more than two per cent (2%) ofthe total amount of each Sub-loan for the technical assistancerendered under it.

Section 3.03. The Borrower shall cause FONDEI and CONADIto employ such consultants as shall be required for the carryingout of the technical assistance program included under Part II(i) and (iii) of the Project, the qualifications, experience andterms and conditions of employment of such consultants to besatisfactory to the Bank and their selection to be-made in accor-dance with principles and procedures described in the "Guidelinesfor the Use of Consultants by World Bank Borrowers and by theWorld Bank as Executing Agency" published by the Bank in August1981.

Section 3.04. (a) The Borrower shall cause Banco Centralto make, out of FONDEI resources, FONDEI Loans to ParticipatingIntermediaries in accordance with the provisions of this Agree-ment, the Project Agreement, the Subsidiary Loan Agreement,FONDEI's Statement of Policies and Industrial Regulations, and

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Participation Agreements between FONDEI and the ParticipatingIntermediaries.

(b) The Borrower shall cause Banco Central to enter intoa Participation Agreement satisfactory to the Bank with eachParticipating Intermediary, such Participating Agreement togovern the terms and conditions of lending by the ParticipatingIntermediary to Investment Enterprises and to contain, interalia, procedures related to the withdrawal and repayment of FONDEILoans, the appraisal and supervision of Investment Projects andthe procurement of goods and services for Investment Projects.

Section 3.05. For the purposes of capitalizing FONDEI,the Borrower shall cause Banco Central to make available toFONDEI, not 1ater than December 31, 1983, capital contributionsin an amount equivalent to not less than $2,500,000.

Section 3.06. The Borrower shall ensure that CONADI does notmake any loans or investments cnd does not guarantee any debtuntil the plan referred to in Section 2.02 (e) (iii) (A) of thisAgreement has been furnished to, and accepted by, the Bank.

Section 3.07. The Borrower shall provide CDI, promptly asneeded, with the funds necessary for the timely and efficientcarrying out by CDI of its operations under Part I of the Projectdescribed in Section 3.01 (a) of this Agreement and of its tech-nical assistance operations.

Section 3.08. Before taking any action concerning incentivesfor the promotion of exports, the Borrower shall give the Bankall reasonable opportunity for exchanging views on the proposedincentives.

ARTICLE IV

Financial and Other Covenants

Section 4.01. (a) It is the policy of the Bank, in makingloans to, or with the guarantee of, its members not to seek, innormal circumstances, special security from the member concernedbut to ensure that no other external debt shall have priority overits loans in the allocation, realization or distribution offoreign exchange held under the control or for the benefit of suchmember. To that end, if any lien shall be created on any public

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assets (as hereinafter defined), as security for any external

debt, which will or might result in a priority for the benefit ofthe creditor of such external debt in the allocation, realizationor distribution of foreign exchange, such lien shall, unless theBank shall otherwise agree, ipso facto and at no cost to the Bank,

equally and ratably secure the principal of, and interest andother charges on, the Loan, and the Borrower, in creating or

permitting the creation of such lien, shall make express provisionto that effect; provided, however, that, if for any constitutionalor other legal reason such provision cannot be made with respectto any lien created on assets of any of its political or adminis-trative subdivisions, the Borrower shall promptly and at no costto the Bank secure the principal of, and interest and othercharges on, the Loan by an equivalent lien on other public assetssatisfactory to the Bank.

(b) The foregoing undertaking shall not apply to: (i) anylien created on property, at the time of purchase thereof, solely

as security for payment of the purchase price of such property;and (ii) any lien arising in the ordinary course of bankingtransactions and securing a debt maturing not more than one yearafter its date.

(c) As used in this Section, the term "public assets" meansassets of the Borrower, of any political or administrative sub-division thereof and of any entity owned or controlled by, or

operating for the account or benefit of, the Borrower or any suchsubdivision, including gold and other foreign exchange assets heldby any institution performing the functions of a central bank orexchange stabilization fund, or similar functions, for theBorrower.

Section 4.02. The Borrower shall cause Banco Central to

ensure that FONDEI maintains procedures and records adequate torecord the progress of the Project and of each Investment Project(including its cost and the benefits derived from it) and toreflect in accordance with consistently maintained sound account-ing practices the operations and financial condition of FONDEI.

Section 4.03. The Bank and the Borrower shall from time totime, at the request of either party, exchange views through theirrepresentatives with regard to the administration, operations andfinancial condition of FONDEI, and the Borrower shall furnish tothe Bank all such information as the Bank shall reasonably request

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concerning the administration, operatiots and f-iancial conditionof FONDEI.

Section 4.04. The Borrower shall enable the Bank's repre-sentatives to inspect the records referred to in Section 4.02of this Agreement and any relevant documents.

ARTICLE V

Remedies of the Bank

Section 5.01. For the purposes of Section 6.02 of the GeneralConditions the following additional events are specified pursuantto paragraph (k) thereof:

(a) a change shall have been made in the Subsidiary LoanAgreement or in the Resolution that established FONDEI which wouldmaterially and adversely affect the operations or the financialcondition of FONDEI;

(b) a change shall have been made in FONDEI's Statementof Policies and Industrial Regulations or in the regulations forthe operation of the Guarantee Fund;

(c) a change shall have been made in the ParticipationAgreement entered into by FONDEI and any Participating Inter-mediary without the Bank's consent; provided, however, thatthe remedies provided for in Section 6.02 of the General Condi-tions shall only apply to an amount of the Loan which corres-ponds to the total of FONDEI Loans made to such ParticipatingIntermediary;

(d) the Borrower or any other authority having jurisdictionshall have taken any action for the dissolution or disestablish-ment of FONDEI, or for the suspension of the operations of FONDEI;and

(e) (i) Subject to subparagraph (ii) of this paragraphthe right of the Borrower to withdraw the proceeds of the UNDPGrant shall have been suspended, cancelled or terminated in wholeor in part, pursuant to the terms of the agreements providingtherefor.

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(ii) Subparagraph (i) of this paragraph shall not apply ift(A) such suspension, cancellation or termination is not caused bythe failure of the Borrower to perform any of its obligations

under such agreement; and (B) adequate funds for the Project areavailable to the Borrower from other resources on terms and

conditions consistent with the obligations of the Borrower underthis Agreement.

Section 5.02. For the purposes of Section 7.01 of the General

Conditions the following additional event is specified pursuant

to paragraph (d) thereof, namely, that any event specified in

paragraph (a), (b), (c) or (d) of Section 5.01 of this Agreementshall occur.

ARTICLE VI

Effective Date; Termination

Section 6.01. The following events are specified as addi-

tional conditions to the effectiveness of the Loan Agreementwithin the meaning of Section 12.01 (c) of the General Conditions:

(a) that revised Appraisal Guidelines and Supervision

Procedures, satisfactory to the Bank, have been approved by

the Comitg Ejecutivo;

(b) that revised FONDEI's Statement of Policies and

Industrial Regulations, satisfactory to the Bank, have beenapproved by the ComitS Ejecutivo, and that the Resoluci6n of

the Comitg Ejecutivo which approved such Regulations, dated

March 22, 1979, has been amended accordingly in a manner satis-factory to the Bank; and

(c) that FONDEI has entered into Participation Agreements

with at least three Participating Intermediaries.

Section 6.02. The following are specified as additionalmatters, within the meaning of Section 12.02 (c) of the GeneralConditions, to be included in the opinion or opinions to be

furnished to the Bank:

(a) that the Project Agreement has been duly authorized orratified by, and executed and delivered on behalf of, Banco

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Central and constitutes a legally binding obligation of BancoCentral in accordance with its terms; and

(b) that the Subsidiary Loan Agreement has been dulyauthorized or ratified by, and executed and delivered on behalfof, the parties thereto and constitutes a legally binding obliga-tion of the Borrower and Banco Central.

Section 6.03. The date/A1f4 t f//.2, is hereby specifiedfor the purposes of Section 2.04 of'the General Conditions.

ARTICLE VII

Representative of the Borrower; Addresses

Section 7.01. Except as provided in Section 2.09 of thisAgreement, the Secretario de Estado en el Despacho de Hacienda 7Cr6dito PGblico of the Borrower i, designated as representa-tive of the Borrower for the purp6ses of Section 11.03 of theGeneral Conditions.

Section 7.02. The following addresses are specified forthe purposes of Section 11.01 of the General Conditions:

For the Borrower:

Secretarlia de Estado en el Despachode Hacienda y Credito Piblico

Tegucigalpa, D.C.Honduras

Cable address:

HACIENDATegucigalpa, Honduras

With copies to:

Banco Central de HondurasTegucigalpa, D.C.Honduras

Cable address: Telex:

BANTRAL 1121-HTBANTRALTegucigalpa

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For the Bank:

International Bank forReconstruction and Development

1818 H Street, N.W.

Washington, D.C. 20433United States of America

Cable address: Telex:

INTBAFRAD 440098 (ITT)

Washington, D.C. 24423 (RCA) or89658 (WUI)

IN WITNESS WHEREOF the parties hereto, acting through their

representatives thereunto duly authorized, have caused this

Agreement to be signed in their respective names in the District

of Columbia, United States of America, as of the day and year

first above written.

REPUBLIC OF HONDURAS

ByAuthorized Representative

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

ByRegional Vice President

Lati America and the Caribbean

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SCHEDULE 1

Amortization Schedule

Payment of PrincipalDate Payment Due (expressed in dollars)*

On each January I and July 1

a2 ginning July 1, 1987through January 1, 2002 1,9o,ooo

* To the eltent that any portion of the Loan is repayable ina currency other than dollars (see General Conditions,Section 4.02), the figures in this column represent dollarequivalents determined as for purposes of withdrawal.

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Premiums on Prepayment

The following percentages are specified as the premiumspayable on repayment in advance of maturity of any portion ofthe principal amount of the Loan pursuant to Section 3.05 (b)of the General Conditions or to Section 2.08 of the LoanAgreement:

Time of Prepayment Premium

Not more than three years 1.75%before maturity

More than three years but not 3.50%more than six years beforematurity

More than six years but not 6.40%more than eleven yearsbefore maturity

More than eleven years but not 9.30%more than sixteen yearsbefore maturity

More than sixteen years but not 10.45%more than eighteen yearsbefore maturity

More than eighteen years 11.60%before maturity

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SCHEDULE 2

Modifications of the General Conditions

For the purposes of the Loan Agreement, the provisions ofthe General Conditions are modified as follows:

(1) The following subparagraph (d) is added to Section~3.05:

"(d) The Bank and the Borrower may from time to timeagree upon arrangements for prepayment of the Loan andthe application of such prepayment in addition to, or insubstitution for, those set forth in paragraph (b) ofSection 3.05."

(2) The words "and Investment Projects" are added afterthe words "the Project" at the end of Section 5.03.

(3) Section 6.03 is deleted and replaced by the followingnew Section:

"Section 6.03. Cancellation by the Bank. If (a) theright of the Borrower to make withdrawals from the LoanAccount shall have been suspended with respect to any amountof the Loan for a continuous period of thirty days, or (b) bythe date specified in paragraph (c) of S6ction 2.03 of theLoan Agreement no applications or requests permitted underparagraph (a) or paragraph (b) of such Section shall havebeen received by the Bank in respect of any portion ofthe Loan, or having been so received, shall have been denied,or (c) after the Closing Date an amount of the Loan shallremain unwithdrawn from the Loan Account, or (d) the Bankshall have received notice from the Borrower pursuant toSection 6.07 with respect to an amount of the Loan, the Bankmay by notice to the Borrower terminate the right of theBorrower to submit such applications or requests or to makewithdrawals from the Loan Account, as the case may be, withrespect to such amount or portion of the Loan. Upon thegiving of such notice such amount or portion of the Loanshall be cancelled."

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT,

CERTIFICATE

I hereby certify that the foregoing is a truecopy of the original in the archives of the Interna-tional Bank for Reconstruction and Develop-

In witness whereof I have signed this Certifi-cate and affixed the Seal of the Bank thereuntothis day of lA 198 .

FOR SECRETARY