REPOBLIKAN'I MADAGASIKARA Tanindrazana-Fahafahana Fandrosoana-Law No. 2003-048

authorizing the ratification of the Credit Agreement concluded on 7 November 2003 between the Republic of Madagascar and the African Development Fund (ADF) on
the Fourth Structural Adjustment Loan (SAL IV)

EXPLANATORY MEMORANDUM in order to proceed to financing the Fourth Structural Adjustment Loan (SAL IV), the Republic of Madagascar held November 7, 2003 a loan Agreement in the amount of TWENTY FIVE MILLION UNITS oF ACCOUNT (UC 25. 000.000), about TWO HUNDRED NINETEEN BILLION (219,000,000,000) MALAGASY FRANCS with the African Development Fund (ADF).

I- PROJECT OBJECTIVES The loan is intended to support the reforms required for the increased tax revenue, the establishment of good governance in the management of public finances and the fight against corruption.
The Fourth Structural Adjustment Loan (SAL IV) aims to redress public finances by supporting the flap "Medium and long-term development" of the Government's program.

II COMPONENTS OF PROJECT PART A: Improving revenue mobilization
contribution to strengthening the functioning of the Service des Grandes Entreprises.
Changing the legislative and regulatory framework to support these reforms and procedural systems.
Development of anti-corruption measures to ensure the integrity of the new agents trained.
Revision of incentive regime agents.
Integrated Computerization functions.
Training and Mentoring agents on task and monitoring of the implementation of new tax audit and collection procedures.
PART B: Strengthening of customs administration
Strengthening mentoring services by systematically disseminating written instructions by instituting monthly indicators and improving the inspection and internal audit: || | adoption of a program to fight against corruption; establishment of a central anti-corruption department in the Directorate General of Customs
; securing revenue, using ASYCUDA effectively in
improving the management of goods, expanding the control of the value and origin and professionalizing the fight against fraud;
Acceleration of customs clearance by introducing selectivity of controls and simplifying customs clearance procedures;
Development partnership with the pre-inspection focusing control value and the transfer of skills and technology.
PART C: Improving budget implementation:
production and adoption of a list of supporting documents to the commitment and authorization levels;
Ban the use of exceptional procedures (payment requisitions);
Limiting abusive creations crates of advances; strict regulation of special funds.
PART D: Strengthening the monitoring of co-financed projects:
managing projects partially funded or entirely on external resources by Projects Execution Units (PIU);
Monitoring the implementation of projects by the Ministries of Guardianship and the Ministry of Finance;
Monitoring the financial management of the entire portfolio of projects by the Ministry of Finance;
Building services of the Directorate of Public Debt; establishment of a monitoring / financial control structure to monitor
financial management of projects and maintenance budget accounts;
Equipment of Public Debt Department in logistics 2

adequate; agent training.
III -SOURCE LOAN: ADF IV FINANCIAL CONDITIONS

LOAN Amount: 25.000.000 UC, or about 219 billion MALAGASY FRANCS. Duration: 50 years, including a grace period of 10 years. Service fee: 0.75% per annum on the loan amount disbursed. Commitment fee: 0.50% on the undisbursed loan amount and
outstanding, starting to run 120 days after the signing of the Agreement.
Redemption: 1% of the principal each year from the 11th year to the 20th and 3% annually thereafter.
Under Article 82, paragraph VIII of the Constitution, "... .the ratification or approval of treaties ... involving the finances of the state ... must be authorized by the Act."
This is the purpose of this Act.

3 REPOBLIKAN'I MADAGASIKARA Tanindrazana-Fahafahana
Fandrosoana-Law No. 2003-048

Authorizing the ratification of the Credit Agreement concluded on 7 November 2003 between the Republic of Madagascar and the African Development Fund (ADF) on the
Fourth Structural Adjustment Loan (SAL IV)
L national Assembly and the Senate have adopted in their respective session dated 19 December 2003 and 22 December 2003, the Act which reads as follows:
Article - Is authorized the ratification of the concluded Credit Agreement 7 November 2003 between the Republic of Madagascar and the African Development Fund on the FOURTH STRUCTURAL ADJUSTMENT LOAN (SAP IV) in the amount of TWENTY FIVE MILLION ( 25,000,000) UC equivalent of TWO HUNDRED NINETEEN BILLION (219,000,000,000) MALAGASY FRANCS.
Art. 2 - This Act shall be published in the Official Journal of the Republic.
It shall be enforced as State law.
Antananarivo, December 22, 2003
THE PRESIDENT OF THE NATIONAL ASSEMBLY, THE PRESIDENT OF THE SENATE,
Lahiniriko Jean Rajemison Rakotomaharo 4


LOAN AGREEMENT BETWEEN THE REPUBLIC OF MADAGASCAR


AND FUND AFRICAN DEVELOPMENT
(READY FOURTH STRUCTURAL ADJUSTMENT - SAP IV ) ____________________________


this 5 LOAN AGREEMENT (hereinafter referred to as the "Agreement") is entered into between ___________________ REPUBLIC oF MADAGASCAR (hereinafter referred to as the "Borrower") and the AFRICAN DEVELOPMENT FUND (hereinafter the "Fund").
WHEREAS the Fund has received from the Borrower a query in which the Borrower described a program of objectives, policies and actions to rectify the public finance management and improve budget monitoring operations financed by the various donors of the Borrower funds (hereinafter referred to as the "Programme");
WHEREAS the Borrower declares to be resolved to execute said application program and the Fund to contribute to its financing, granting him a loan up to the amount stated below;
WHEREAS the Borrower intends to obtain additional assistance from other donors to help fund the program;
WHEREAS Programme Implementation Unit established within the Ministry of Economy, Finance and Budget will be the executing agency of the Programme;
WHEREAS the Fund has agreed to grant the said loan to the Borrower on the terms and conditions set forth below;
IN WITNESS WHEREOF, the parties hereto agree as follows: ARTICLE I

GENERAL CONDITIONS -
DEFINITIONS Section 1.01. Terms and conditions. The parties to this Agreement agree that all provisions of the General Conditions Applicable to Loan Agreements and Guarantee Agreements of the Fund dated 23 November 1989, as amended, (hereinafter the "General Conditions "), have the same scope and produce the same effect as if they were fully inserted in this Agreement.
Definitions Section 1.02. Unless the context otherwise requires, each time they are used in this Agreement, the several terms defined in the General Conditions have the meaning which has been indicated. 6


READY
ARTICLE II Section 2.01. Amount. The Fund agrees to the Borrower's regular resources and conditions set forth in this Agreement, a loan for a maximum amount of twenty five million units of account (UA 25 million) (the unit of account being defined in Article 1, paragraph 1 of the Agreement establishing the Fund).
Section 2.02. Object. The loan will finance the implementation of the Programme measures defined in Annex III of this Agreement.
Section 2.03. Assignment. The loan will be used for payments of imported goods and services in accordance with Annex II of this Agreement.

ARTICLE III REPAYMENT OF PRINCIPAL, SERVICE COMMISSION ENGAGEMENT

COMMISSION AND MATURITY Section 3.01. Repayment of principal. a) The Borrower shall repay the principal of the Loan after a grace period of ten (10) years from the date of signature of this Agreement for a period of forty (40) years, at a rate of one percent ( 1%) per year between eleventh and twentieth years of the period and three percent (3%) per annum thereafter.
B) The loan will be repaid by semi-annual and consecutive installments, the first of which will be made on March 1 or September 1, whichever of the two dates immediately following the end of the grace period.

Section 3.02. Service Commission. The Borrower shall pay a service charge of three fourths of one percent (0.75%) per annum on the amount disbursed and outstanding loan in accordance with the provisions of Section 3.02. General Conditions.
Section 3.03. Commitment. The Borrower shall pay a commitment fee of one half of one percent (0.50%) per annum on the amount of undisbursed loan over a period starting one hundred and twenty (120) days after the date of signature of the Agreement.
Section 3.04. Maturities. The loan principal, the service fee and the commitment fee provided for above shall be paid every six (6)

7 months, 1 March and 1 September each year.

ARTICLE IV CONDITIONS PRIOR TO THE ENTRY INTO FORCE AND

DISBURSEMENTS Section 4.01. Prerequisites for entry into force. The entry into force of this Agreement is subject to the fulfillment by the Borrower of the conditions set out in Section 5.01 of the General Conditions.
Section 4.02. Conditions precedent to disbursement of the first tranche. Furthermore the entry into force of this Agreement, the disbursement of the first tranche of eighteen million units of account (UA 18 million) is also subject to the fulfillment by the Borrower of the following conditions:
- provide the Fund with evidence of the opening: (i) a special account with the Central Bank of Madagascar, to receive the loan resources (the "Special account") and (ii) two ordinary accounts in a bank each intended to receive resources for each of the two supports;
- Provide the Fund with evidence of the signing of a contract with a firm acceptable to the Fund for the implementation of measures to strengthen the Directorate of Taxation of Large Companies (CCED);
- Provide the Fund with evidence of the creation of a committee to monitor the implementation of the customs and tax administrations building action plan;
- Make an order for the establishment of a list of supporting documents to be used in the control of public expenditure;
- Take a text on restriction of the use of exceptional procedures (requisitions for payment);
- Take a text setting out the terms of use of imprest with setting a payment limit; and
- provide the Fund with evidence of strict regulation of special funds.

8 Section 4.03. Conditions precedent to disbursement of the second tranche. The second tranche of seven million Units of Account (UA 7 million) will be disbursed only if the program implementation and the use of the first tranche of the loan by the Borrower are considered satisfactory by the Fund, d on the one hand, and if, secondly, the Borrower satisfies the following conditions:
- making progress satisfactory to the Fund in the effective implementation of the strengthening of customs and tax administrations of action plan ; and;
- Conduct deemed satisfactory progress by the Fund in budget execution.

DISBURSEMENTS ARTICLE V -
CLOSING DATE Section 5.01. Disbursements. The Fund, in accordance with the provisions of this Agreement and the General Conditions, and subject to the provisions of Annex I of the Agreement, undertake disbursements to cover or cover expenditure on import of eligible goods and services.
Section 5.02. Closing Date. The December 31, 2005 or such later date that has been agreed between the Borrower and the Fund is fixed for the purposes of Section 9.01 paragraph a (iv) the General Conditions.
Section 5.03. Allocation of disbursements. a) The Borrower shall use the amounts disbursed for the purposes assigned to each disbursed amount.
B) Pursuant to Section 6.01 paragraph (b) of the General Conditions, expenditure on the Programme, carried out during the six (6) months preceding the signing of this Agreement will be financed from the loan resources maximum of thirty percent (30%) of the total loan amount or a maximum amount of seven million five hundred thousand units of account (UA 7.5 million). ARTICLE VI


PROCUREMENT OF GOODS AND SERVICES Section 6.01. Use of loan resources. The Borrower agrees that the proceeds of the Loan shall be used only for the acquisition in the territories of the participating Member States or States, goods produced there

9 or services from (the terms "participating State" and "Member State" as defined in Article 3, paragraph 1, of the Agreement establishing the Fund).

Section 6.02. Procurement of goods and works. The procurement of goods and works will be as stated below, under the Rules of Procedure for the procurement of goods and works adopted by the Fund on 15 July 1996, as revised November 10, 1999:
Markets for licensed imports by the private sector or the commercial type of parastatals will be awarded according to the commercial practices permitted in Madagascar and acceptable to the Fund, and
markets for imports of equal or greater value in two million units of account (UA 2,000,000) made by the public sector will be through international competitive bidding while markets for imports valued at less than two million units of account (2000000 UC) will be passed as accepted business practices in Madagascar and acceptable to the Fund.
Section 6.03. Acquisition services. The acquisition of services will be as stated below, under the Rules of Procedure for the Use of Consultants adopted by the Fund on 15 July 1996, as revised November 10, 1999:
services related to the strengthening of monitoring of co-financed projects will be acquired through consultation on the basis of a shortlist;
and services related to improving revenue mobilization will be procured through direct negotiation.
Section 6.04. The Fund's resources will finance the purchase of eligible goods and services, with the exception of those listed in the negative list in Annex II of this Agreement. Goods and Services covered imports of goods and services whose origin is exclusively limited to the member countries of the Bank Group.

10 ARTICLE VII

MISCELLANEOUS Section 7.01. Authorized Representative. The Minister of Economy, Finance and Budget or any person in writing designate will be the authorized representative of the Borrower for the purposes of Section 14.03 of the General Conditions.
Section 7.02. Date of the Agreement. This Agreement shall be regarded in all circumstances as concluded at the date shown on the front page.
Section 7.03. Addresses. The following addresses are specified for purposes of Section 14.01 of the General Conditions.
For the Borrower: Mailing address:
Ministry of Economy, Finance and Budget BP 129 Antananarivo REPUBLIC OF MADAGASCAR Cable address: Telex: 22489 MINFIN Phone: (261) 20 22 646 81/20 22 646 82 Fax: (261) 20 22 345 30
for the Fund: postal address:
African development Fund 01 NP 1387 Abidjan 01 REPUBLIC oF IVORY COAST Phone: (225) 20 20 44 44 Fax: (225) 20 20 40 99
 iN WITNESS WHEREOF, the Fund and the Borrower, acting through their respective authorized representatives, have signed this Agreement in two copies in French.

11 FOR THE REPUBLIC OF MADAGASCAR

______________________________________ FOR AFRICAN DEVELOPMENT FUND

_________________________________ ANNEX I SPECIAL ACCOUNT

For the purposes of this Annex: | || expression "Eligible expenditures" means expenditures to adjust the cost of goods and services required for program implementation, in accordance with Annex II of the Agreement;
The term "Authorized Allocation" means a maximum amount equivalent to eighteen million units of account (UA 18 million) in respect of the first tranche, and seven million units of account (7000000 UC) in respect of the second tranche which shall be deposited in the Special Account in accordance with paragraph 3 of this Schedule;
Unless the Fund shall otherwise agree, payments made to the Special Account shall be used exclusively to finance Eligible Expenditures.
After the Fund has received documentary evidence to his satisfaction that the Special Account has been duly opened, the disbursement of Authorized Allocation will be done as follows:
The authorized allocation corresponding to the first tranche of ten eight million units of account (UA 18,000,000) shall be deposited in the Special account as soon as the Borrower has fulfilled the preconditions the first tranche of disbursement; The second tranche of seven million Units of Account (UA 7 million) will be disbursed after satisfactory evaluation of the Fund program execution and the fulfillment by the Borrower of associated conditions.
For payment he has made to the Special Account, the Borrower 12


Will provide the Fund with all documents and things that the Fund may reasonably request, stating that the payment was made in respect of Eligible Expenditures.
If the Fund determines at any time that the payment of the Special Account (i) was made for an expenditure or unauthorized allocation under the provisions of this Annex, or (ii) No ' was not justified by the evidence provided in accordance with paragraph 3 of this Schedule, the Borrower shall, upon notification of the Fund will reimburse an amount equal to such payment or the portion thereof that payment was not authorized or justified. The Fund does not make any further payment or deposit into the Special Account until the Borrower has not performed such repayment.
If the Fund determines at any time that any balance of the Special Account is not necessary to make further payments for Eligible Expenditures, the Borrower shall, upon notification of the Fund to reimburse said balance of the Special Account.

ANNEX II WITHDRAWAL OF LOAN FUND
No withdrawals can be made to:
expenses relating to the following supplies:
military items and paramilitary forces; products and luxury goods; industrial waste of all kinds;
and expenditure on property belonging to groups or subgroups of the Standard International Trade Classification ( "SITC") are excluded from eligible imports are: alcoholic beverages; raw or unmanufactured tobacco, tobacco waste; manufactured tobacco (even containing tobacco substitutes); radioactive materials and related products; fine or cultured pearls, precious and semi-precious stones, unworked or worked; Nuclear reactors and their parts and components, non-irradiated fuel elements (nuclear reactor cartridges); gold jewelry, silver or platinum group metals (except watches and watch boxes) and gold and silver items (including gems crimped

13); gold and non-monetary (excluding gold ores and concentrates). ANNEX III


PROGRAM DESCRIPTION The program includes four (4) components:
Improving revenue mobilization Strengthened customs administration Improved control of public spending Strengthening project monitoring cofinanced.
14