qO FRCIAL UMENTS, LOAN NUMBER 8333-PA Loan Agreement (Third Programmatic Fiscal Management and Efficiency of Expenditures Development Policy Loan) between REPUBLIC OF PANAMA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated 4WAA 2 E, 201_4 LOAN AGREEMENT Agreement dated 1qNUAY. 2 , 201A entered into between REPUBLIC OF PANAMA ("Borrower") and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ("Bank") for the purpose of providing financing in support of the Program (as defined in the Appendix to this Agreement). The Bank has decided to provide this financing on the basis, inter alia, of: (a) the actions which the Borrower has already taken under the Program and which are described in Section I of Schedule 1 to this Agreement; and (b) the Borrower's maintenance of an adequate macroeconomic policy framework. The Borrower and the Bank therefore hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) constitute an integral part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II - LOAN 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, the amount of two hundred million Dollars (US$200,000,000), as such amount may be converted from time to time through a Currency Conversion in accordance with the provisions of Section 2.07 of this Agreement ("Loan"). 2.02. The Borrower may withdraw the proceeds of the Loan in support of the Program in accordance with Section II of Schedule 1 to this Agreement. 2.03. The Front-end Fee payable by the Borrower shall be equal to one quarter of one percent (0.25%), of the Loan amount. The Borrower shall pay the Front-end Fee not later than sixty days after the Effective Date. 2.04. The interest payable by the Borrower for each Interest Period shall be at a rate equal to the Reference Rate for the Loan Currency plus the Variable Spread; provided, that upon a Conversion of all or any portion of the principal amount of the Loan, the interest payable by the Borrower during the Conversion Period on such amount shall be determined in accordance with the relevant provisions of Article IV of the General Conditions. Notwithstanding the foregoing, if any amount of the Withdrawn Loan Balance remains unpaid when due and such non-payment continues for a period of thirty days, then the interest payable by the Borrower shall instead be calculated as provided in Section 3.02 (e) of the General Conditions. 2.05. The Payment Dates are February 15 and August 15 in each year. 2.06. The principal amount of the Loan shall be repaid in accordance with the amortization schedule set forth in Schedule 2 to this Agreement. 2.07. (a) The Borrower may at any time request any of the following Conversions of the terms of the Loan in order to facilitate prudent debt management: (i) a change of the Loan Currency of all or any portion of the principal amount of the Loan, withdrawn or unwithdrawn, to an Approved Currency; (ii) a change of the interest rate basis applicable to: (A) all or any portion of the principal amount of the Loan withdrawn and outstanding from a Variable Rate to a Fixed Rate, or vice versa; or (B) all or any portion of the principal amount of the Loan withdrawn and outstanding from a Variable Rate based on a Reference Rate and the Variable Spread to a Variable Rate based on a Fixed Reference Rate and the Variable Spread, or vice versa; or (C) all of the principal amount of the Loan withdrawn and outstanding from a Variable Rate based on a Variable Spread to a Variable Rate based on a Fixed Spread; and (iii) the setting of limits on the Variable Rate or the Reference Rate applicable to all or any portion of the principal amount of the Loan withdrawn and outstanding by the establishment of an Interest Rate Cap or Interest Rate Collar on the Variable Rate or the Reference Rate. (b) Any conversion requested pursuant to paragraph (a) of this Section that is accepted by the Bank shall be considered a "Conversion", as defined in the General Conditions, and shall be effected in accordance with the provisions of Article IV of the General Conditions and of the Conversion Guidelines. 2.08. Without limitation upon the provisions of Section 5.08 of the General Conditions (renumbered as such pursuant to paragraph 3 of Section II of the Appendix to this Agreement and relating to Cooperation and Consultation), the Borrower shall promptly furnish to the Bank such information relating to the provisions of this Article II as the Bank may, from time to time, reasonably request. ARTICLE III - PROGRAM 3.01. The Borrower declares its commitment to the Program and its implementation. To this end, and further to Section 5.08 of the General Conditions: (a) the Borrower and the Bank shall from time to time, at the request of either party, exchange views on the Borrower's macroeconomic policy framework and the progress achieved in carrying out the Program; (b) prior to each such exchange of views, the Borrower shall furnish to the Bank for its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Bank shall reasonably request; and (c) without limitation upon the provisions of paragraphs (a) and (b) of this Section, the Borrower shall promptly inform the Bank of any situation that would have the effect of materially reversing the objectives of the Program or any action taken under the Program including any action specified in Section I of Schedule 1 to this Agreement. -2- ARTICLE IV - REMEDIES OF THE BANK 4.01. The Additional Events of Suspension consist of the following, namely that a situation has arisen which shall make it improbable that the Program, or a significant part of it, will be carried out. ARTICLE V - EFFECTIVENESS; TERMINATION 5.01. The Additional Condition of Effectiveness consists of the following, namely that the Bank is satisfied with the progress achieved by the Borrower in carrying out the Program and with the adequacy of the Borrower's macroeconomic policy framework. 5.02. Without prejudice to the provisions of the General Conditions, the Effectiveness Deadline is the date ninety (90) days after the date of this Agreement, but in no case later than the eighteen (18) months after the Bank's approval of the Loan which expire on June 30, 2015. ARTICLE VI- REPRESENTATIVE; ADDRESSES 6.01. The Borrower's Representative is its Minister of Economy and Finance. 6.02. The Borrower's Address is: Ministerio de Economia y Finanzas Direcci6n de Cr6dito Pdblico Via Espafia, Calle 52 Edificio OGAWA, 4to Piso Panama, Repfiblica de PanamA Facsimile: (507) 507-7200 6.03. The Bank's Address is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: INTBAFRAD 248423(MCI) or 1-202-477-6391 Washington, D.C. 64145(MCI) -3- AGREED at I,46 iA (SI'N, 74a C OF ?-Ac- as of the day and year first above written. REPUBLIC OF PAN By _ . Authorized Representative Name: IZAN5,~ 'b. e LjHA 67. Title: PAirj:5TC- 01- ebj C"q FD TNArNC- INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By / , Authorized Representative Name: L.Lpw,ILL4 %& reNirO Title: L2LA N Tit 7Ay -4- SCHEDULE1 Program Actions; Availability of Loan Proceeds Section I. Actions under the Program The actions taken by the Borrower under the Program include the following: 1. Mobilizing Domestic Tax Revenue The Borrower, through ANIP, has taken steps to increase tax compliance by carrying out 10 audits of Large Taxpayers using advanced audit techniques; as evidenced by the corresponding audit reports provided by the Borrower to the Bank in September 2013. 2. Increasing Tax Transparency The Borrower has adopted a "Custody Regime" for bearer shares for purposes of facilitating the identification of the ownership of said type of shares; as evidenced by Law No. 47 dated August 6, 2013 (published in the Borrower's Official Gazette on August 6 and 13, 2013). 3. Improving the Institutional Arrangement for Debt Management The Borrower, through MEF, has adopted a plan for domestic debt market development, including: (a) the adoption of a policy and issuance of regulations for the promotion and functioning of the primary dealers program, as evidenced by the Ministerial Decree 001- 2013 of February 20, 2013 and Executive Decree No. 768 of June 19, 2013, duly published in the Borrower's Official Gazette on March 6, 2013 and June 20, 2013, respectively; (b) the modification of the contracts with international credit rating agencies to have domestic sovereign bonds rated; and (c) the selection of a worldwide known financial information platform to conduct domestic government bond auctions on this platform. 4. Expanding Social Transfer Programs and Improving Institutional Capacity for Targeting The Borrower has undertaken the following actions to expand and improve the targeting of social transfer programs: (a) The Borrower, through MIDES, has adopted a policy and issued regulations for the better targeting of beneficiaries of the 100 a los 70 program including provisions: (i) to verify compliance with beneficiaries co-responsibilities and processes for entry to, and exit from, said program; (ii) to incorporate beneficiaries in the Registro Unico de Beneficiarios; and (iii) to formally incorporate the Secretaria Ejecutiva del Programa 100 a los 70 under MIDES; as evidenced by Executive Decree No. 11, dated February 15, 2013, published in the Borrower's Official Gazette on February 18, 2013. -5- (b) The Borrower, through MIDES, has developed a "Registro Unico de Beneficiarios" for the following social protection programs: Red de Oportunidades, 100 a los 70, and Evaluaci6n Social to improve targeting and harmonize information among said programs. (c) The Borrower has taken steps to establish a monitoring and evaluation system for the Beca Universal program by including individual based questions on scholarship benefits into the Encuesta de Propdsitos Mdtiples; as evidenced by the "Encuesta de Prop6sitos Miltiples- Marzo 2013 ". (d) The Borrower has created the "Programa Angel Guardi6n", a social assistance program for people with severe disabilities who are in extreme poverty and in vulnerable dependent condition; as evidenced by Law 39 dated June 14th, 2012 and published in the Borrower's Official Gazette on June 18, 2012. Section II. Availability of Loan Proceeds A. General. The Borrower may withdraw the proceeds of the Loan in accordance with the provisions of this Section and such additional instructions as the Bank may specify by notice to the Borrower. B. Allocation of Loan Amounts. The Loan is allocated in a single withdrawal tranche, from which the Borrower may make withdrawals of the Loan proceeds. The allocation of the amounts of the Loan to this end is set out in the table below: Allocations Amount of the Loan Allocated (expressed in US Dollars) (1)Single Withdrawal Tranche 200,000,000 TOTAL AMOUNT 200,000,000 C. Payment of Front-end Fee. No withdrawal shall be made from the Loan Account until the Bank has received payment in full of the Front-end Fee. D. Withdrawal Tranche Release Conditions. No withdrawal shall be made of the Single Withdrawal Tranche unless the Bank is satisfied: (a) with the Program being carried out by the Borrower; and (b) with the adequacy of the Borrower's macroeconomic policy framework. E. Deposits of Loan Amounts. Except as the Bank may otherwise agree: 1. all withdrawals from the Loan Account shall be deposited by the Bank into an account designated by the Borrower and acceptable to the Bank; and 2. the Borrower shall ensure that upon each deposit of an amount of the Loan into this account, an equivalent amount is accounted for in the Borrower's budget management system, in a manner acceptable to the Bank. -6- F. Excluded Expenditures. The Borrower undertakes that the proceeds of the Loan shall not be used to finance Excluded Expenditures. If the Bank determines at any time that an amount of the Loan was used to make a payment for an Excluded Expenditure, the Borrower shall, promptly upon notice from the Bank, refund an amount equal to the amount of such payment to the Bank. Amounts refunded to the Bank upon such request shall be cancelled. G. Closing Date. The Closing Date is January 30, 2015. -7- SCHEDULE 2 Amortization Schedule 1. The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date ("Installment Share"). If the proceeds of the Loan have been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined by the Bank by multiplying: (a) Withdrawn Loan Balance as of the first Principal Payment Date; by (b) the Installment Share for each Principal Payment Date, such repayable amount to be adjusted, as necessary, to deduct any amounts referred to in paragraph 4 of this Schedule, to which a Currency Conversion applies. Principal Payment Date Installment Share ________________________________(Expressed_as_a_Percentage) On each February 15d' and August 15(' Beginning February 15, 2016 through February 15, 2033 2.78% On August 15, 2033 2.7% 2. If the proceeds of the Loan have not been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined as follows: (a) To the extent that any proceeds of the Loan have been withdrawn as of the first Principal Payment Date, the Borrower shall repay the Withdrawn Loan Balance as of such date in accordance with paragraph 1 of this Schedule. (b) Any amount withdrawn after the first Principal Payment Date shall be repaid on each Principal Payment Date falling after the date of such withdrawal in amounts determined by the Bank by multiplying the amount of each such withdrawal by a fraction, the numerator of which is the original Installment Share specified in the table in paragraph 1 of this Schedule for said Principal Payment Date ("Original Installment Share") and the denominator of which is the sum of all remaining Original Installment Shares for Principal Payment Dates falling on or after such date, such amounts repayable to be adjusted, as necessary, to deduct any amounts referred to in paragraph 4 of this Schedule, to which a Currency Conversion applies. 3. (a) Amounts of the Loan withdrawn within two calendar months prior to any Principal Payment Date shall, for the purposes solely of calculating the principal amounts payable on any Principal Payment Date, be treated as withdrawn and outstanding on the second Principal Payment Date following the date of withdrawal and shall be repayable on each Principal Payment Date commencing with the second Principal Payment Date following the date of withdrawal. -8- (b) Notwithstanding the provisions of sub-paragraph (a) of this paragraph, if at any time the Bank adopts a due date billing system under which invoices are issued on or after the respective Principal Payment Date, the provisions of such sub- paragraph shall no longer apply to any withdrawals made after the adoption of such billing system. 4. Notwithstanding the provisions of paragraphs 1 and 2 of this Schedule, upon a Currency Conversion of all or any portion of the Withdrawn Loan Balance to an Approved Currency, the amount so converted in the Approved Currency that is repayable on any Principal Payment Date occurring during the Conversion Period, shall be determined by the Bank by multiplying such amount in its currency of denomination immediately prior to the Conversion by either: (a) the exchange rate that reflects the amounts of principal in the Approved Currency payable by the Bank under the Currency Hedge Transaction relating to the Conversion; or (b) if the Bank so determines in accordance with the Conversion Guidelines, the exchange rate component of the Screen Rate. 5. If the Withdrawn Loan Balance is denominated in more than one Loan Currency, the provisions of this Schedule shall apply separately to the amount denominated in each Loan Currency, so as to produce a separate amortization schedule for each such amount. -9- APPENDIX Section I. Definitions 1. "ANIP" means the Autoridad Nacional de Ingresos Pliblicos, the Borrower's National Public Revenue Authority created by Law 24 of April 8, 2013 (duly published in the Borrower's Official Gazette on April 9, 2013) as a legal entity with administrative and financial autonomy. 2. "Custody Regime" means the regime established by Law 47 of August 6, 2013 (duly published in the Borrower's Official Gazette on August 6 and 13, 2013) through which bearer shares issued after the entry into force of said law shall be delivered to a custodian together with an affidavit from the owner of the shares including specific identification information, which documentation and information shall be available to the appropriate Borrower's authority upon request. 3. "Encuesta de Propdsitos Midtiples-Marzo 2013" the multiple purpose household survey carried out by the Borrower's Instituto Nacional de Estadistica y Censo, which aims to, inter alia, improve the monitoring and evaluation of the social protection programs mentioned in Section 1.4 (b) of Schedule 1 to this Agreement. 4. "Excluded Expenditure" means any expenditure: (a) for goods or services supplied under a contract which any national or international financing institution or agency other than the Bank or the Association has financed or agreed to finance, or which the Bank or the Association has financed or agreed to finance under another loan, credit, or grant; (b) for goods included in the following groups or sub-groups of the Standard International Trade Classification, Revision 3 (SITC, Rev.3), published by the United Nations in Statistical Papers, Series M, No. 34/Rev.3 (1986) (the SITC), or any successor groups or subgroups under future revisions to the SITC, as designated by the Bank by notice to the Borrower: Group Sub-group Description of Item 112 Alcoholic beverages 121 Tobacco, un-manufactured, tobacco refuse 122 Tobacco, manufactured (whether or not containing tobacco substitutes) 525 Radioactive and associated materials 667 Pearls, precious and semiprecious stones, unworked or worked 718 718.7 Nuclear reactors, and parts thereof; fuel elements (cartridges), non-irradiated, -10- for nuclear reactors 728 728.43 Tobacco processing machinery 897 897.3 Jewelry of gold, silver or platinum group metals (except watches and watch cases) and goldsmiths' or silversmiths' wares (including set gems) 971 Gold, non-monetary (excluding gold ores and concentrates) (c) for goods intended for a military or paramilitary purpose or for luxury consumption; (d) for environmentally hazardous goods, the manufacture, use or import of which is prohibited under the laws of the Borrower or international agreements to which the Borrower is a party; (e) on account of any payment prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations; and (f) with respect to which the Bank determines that corrupt, fraudulent, collusive or coercive practices were engaged in by representatives of the Borrower or other recipient of the Loan proceeds, without the Borrower (or other such recipient) having taken timely and appropriate action satisfactory to the Bank to address such practices when they occur. 5. "General Conditions" means the "International Bank for Reconstruction and Development General Conditions for Loans", dated March 12, 2012 with the modifications set forth in Section II of this Appendix. 6. "Large Taxpayers" means any individual or legal entity subject to taxation in Panama that has met the criteria established by the Borrower to be classified as "Large Taxpayer" which criteria, includes a set of economic variables. 7. "MEF" means Ministerio de Economia y Finanzas, the Borrower's Ministry of Economy and Finance. 8. "MIDES" means Ministerio de Desarrollo Social, the Borrower's Ministry of Social Development. 9. "Program" means the program of actions, objectives and policies designed to promote growth and achieve sustainable reductions in poverty and set forth or referred to in the letter dated November 6, 2013, from the Borrower to the Bank declaring the Borrower's commitment to the execution of the Program, and requesting assistance from the Bank in support of the Program during its execution. -11- 10. "Registro Unico de Beneficiarios" means the Borrower's Single Registry ofBeneficiaries, a new web platform that consolidates data obtained from different social protection programs, such as the programs mentioned in Section 1.4 (b) of Schedule 1 to this Agreement with the objective of establishing a one-stop source of information for better targeting of beneficiaries under said programs. 11. "Single Withdrawal Tranche" means the amount of the Loan allocated to the category entitled "Single Withdrawal Tranche" in the table set forth in Part B of Section II of Schedule 1 to this Agreement. Section II. Modifications to the General Conditions The modifications to the General Conditions are as follows: 1. The last sentence of paragraph (a) of Section 2.03 (relating to Applications for Withdrawal) is deleted in its entirety. 2. Sections 2.04 (Designated Accounts) and 2.05 (Eligible Expenditures) are deleted in their entirety, and the remaining Sections in Article II are renumbered accordingly. 3. Sections 5.01 (Project Execution Generally), and 5.09 (Financial Management; Financial Statements; Audits) are deleted in their entirety, and the remaining Sections in Article V are renumbered accordingly. 4. Paragraph (a) of Section 5.05 (renumbered as such pursuant to paragraph 3 above and relating to Use of Goods, Works and Services) is deleted in its entirety. 5. Paragraph (c) of Section 5.06 (renumbered as such pursuant to paragraph 3 above) is modified to read as follows: "Section 5.06. Plans; Documents; Records ... (c) The Borrower shall retain all records (contracts, orders, invoices, bills, receipts and other documents) evidencing expenditures under the Loan until two years after the Closing Date. The Borrower shall enable the Bank's representatives to examine such records." 6. Paragraph (c) of Section 5.07 (renumbered as such pursuant to paragraph 3 above) is modified to read as follows: Section 5.07. Program Monitoring and Evaluation ... (c) The Borrower shall prepare, or cause to be prepared, and furnish to the Bank not later than six months after the Closing Date, a report of such scope and in such detail as the Bank shall reasonably request, on the execution of the Program, the performance by the Loan Parties and the Bank of their respective obligations under the Legal Agreements and the accomplishment of the purposes of the Loan. -12- 7. The following terms and definitions set forth in the Appendix are modified or deleted as follows, and the following new terms and definitions are added in alphabetical order to the Appendix as follows, with the terms being renumbered accordingly: (a) The definition of the term "Eligible Expenditure" is modified to read as follows: "'Eligible Expenditure' means any use to which the Loan is put in support of the Program, other than to finance expenditures excluded pursuant to the Loan Agreement." (b) The term "Financial Statements" and its definition are deleted in their entirety. (c) The term "Project" is modified to read "Program" and its definition is modified to read as follows (and all references to "Project" throughout these General Conditions are deemed to be references to "Program"): "'Program' means the program referred to in the Loan Agreement in support of which the Loan is made." -13-