Page 1 CONFORMED COPY LOAN NUMBER 3526 IND (Financial Sector Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANK INDONESIA Dated January 21, 1993 LOAN NUMBER 3526 IND BI PROJECT AGREEMENT AGREEMENT, dated January 21, 1993, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and BANK INDONESIA (BI). WHEREAS (A) by the Loan Agreement of even date herewith between the Republic of Indonesia (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to three hundred seven million dollars ($307,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that BI agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a financial agreement to be entered into between the Borrower and BI part of the proceeds of the Loan will be made available to BI on the terms and conditions set forth in the BI Financial Agreement; and WHEREAS BI, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: Page 2 ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) BI declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out Part A of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, central banking, technical, economic and managerial practices, with qualified and experienced management staff in adequate numbers and qualifications, and in accordance with its Governing Law and the Banking Legislation, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for such Part of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section, and except as the Bank and BI shall otherwise agree, BI shall carry out Part A of the Project in accordance with the Implementation Program set forth in the Schedule to this Agreement. Section 2.02. Except as the Bank shall otherwise agree, in the procurement of consultants' services required for Part A of the Project and to be financed out of the proceeds of the Loan, BI shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by The World Bank as Executing Agency" published by the Bank in August 1981. Section 2.03. BI shall duly perform all its obligations under the BI Financial Agreement. Except as the Bank shall otherwise agree, BI shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the BI Financial Agreement or any provision thereof. Section 2.04. BI shall carry out the obligations set forth in Sections 9.05, 9.06 and 9.07 of the General Conditions (relating to use of goods and services, plans and schedules, and records and reports, respectively) in respect of Part A of the Project. Section 2.05. (a) BI shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under the BI Financial Agreement and other matters relating to the purposes of the Loan. (b) BI shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by BI of its obligations under this Agreement and under the BI Financial Agreement, including the carrying out by each Participating Bank of its Plan of Actions and Financing Plans, and compliance by such Participating Bank with BI's Prudential Banking Regulations, and in particular with those Regulations relating to loan loss provisioning and minimum capital adequacy. Section 2.06. BI shall take all such actions as shall be necessary to: Page 3 (a) supervise the financial performance of each Participating Bank and its compliance with BI's Prudential Banking Regulations, and in particular with those Regulations relating to loan loss provisioning and minimum capital adequacy; (b) supervise the implementation by each Participating Bank of its Plan of Actions, and shall require that each Participating Bank carry out all measures necessary to comply with its Plan of Actions; and (c) on March 31, 1993, March 31, 1994 and December 31, 1994, take all such actions as shall be necessary to allow each Participating Bank to comply with its obligations under Section 2.02 (b) (i) of the Participating Banks Project Agreement relating to the inclusion as Tier II Capital of the eligible amounts withdrawn and outstanding of its Liquidity Credits on such dates. Section 2.07. On each Supervision Date, BI shall furnish to the Borrower and the Bank supervision reports of such scope and in such detail as the Bank shall have reasonably requested on: (a) the compliance by each Participating Bank with its Plan of Actions and BI's Prudential Banking Regulations, and in particular with those Regulations relating to loan loss provisioning and minimum capital adequacy; and (b) the status of the Financing Plans of each Participating Bank. Section 2.08. By April 1, 1994, BI shall issue a Prudential Banking Regulation, satisfactory to the Bank, providing that: (a) all banks established and operating in Indonesia shall apply internationally accepted guidelines, satisfactory to the Bank, in respect of the methodology to be used for computing loan loss provisioning in calculating their Capital Adequacy; and (b) the Participating Banks shall achieve a minimum 8% Capital Adequacy by not later than December 31, 1994, and all other banks, by not later than March 31, 1996. ARTICLE III Financial Covenants Section 3.01. (a) BI shall maintain records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of Part A of the Project. (b) BI shall: (i) have the records and accounts referred to in paragraph (a) of this Section for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than nine months after the end of each such year, a certified copy of the report of such audit by said auditors of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and audit thereof, as the Bank shall from time to time reasonably request. ARTICLE IV Effective Date; Termination; Cancellation and Suspension Page 4 Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 4.02. This Agreement and all obligations of the Bank and of BI thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify BI thereof. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 5.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable: Telex: INTBAFRAD 197688 (TRT), Washington, D. C. 248423 (RCA), 64145 (WUI) or 82987 (FTCC) For BI: Bank Indonesia Jl. M.H. Thamrin No. 2 Jakarta Pusat, Indonesia Cable: Telex: DELEGASI 44164 BITMR IA Jakarta, Indonesia Section 5.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of BI or by BI on behalf of the Borrower under the Loan Agreement, may be taken or executed by its Managing Director or by such other person or persons as BI shall designate in writing, and BI shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 5.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United Page 5 States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Gautam Kaji Regional Vice President East Asia and Pacific BANK INDONESIA By /s/ Abdul Rachman Ramly Authorized Representative SCHEDULE Implementation Program 1. Until the completion of the Project, BI shall retain the services of at least one credit expert with qualifications and experience satisfactory to the Bank. 2. BI shall implement the technical assistance activities under Part A of the Project in accordance with a time-table satisfactory to the Bank. 3. By March 31, 1993, BI shall prepare and furnish to the Bank, for its approval, a proposed program for carrying out the training activities under Part A of Project, and thereafter, implement such training program in a manner satisfactory to the Bank.