Page 1 CONFORMED COPY LOAN NUMBER 3229 HU (Integrated Agricultural Export Project) between REPUBLIC OF HUNGARY and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated June 29, 1990 LOAN NUMBER 3229 HU GUARANTEE AGREEMENT AGREEMENT, dated June 29, 1990, between REPUBLIC OF HUNGARY (the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Guarantor and National Bank of Hungary (the Borrower), having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to the Loan Agreement, have requested the Bank to assist in the financing of the Project; (B) by the Loan Agreement of even date herewith between the Bank and the Borrower, the Bank has agreed to extend to the Borrower a loan in various currencies equivalent to one hundred million dollars ($100,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the Borrower in respect of such loan as provided in this Agreement; and WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed so to Page 2 guarantee such obligations of the Borrower; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications set forth in the Loan Agreement (the General Conditions), constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions, in the Preamble to this Agreement and in the Preamble to and Section 1.02 of the Loan Agreement have the respective meanings therein set forth. ARTICLE II Guarantee; Provision of Funds Section 2.01. Without limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, and the punctual performance of all the other obligations of the Borrower, all as set forth in the Loan Agreement. Section 2.02. Without limitation or restriction upon the provisions of Section 2.01 of this Agreement, the Guarantor specifically undertakes, whenever there is reasonable cause to believe that the funds available to the Borrower will be inadequate to meet the estimated expenditures required for the carrying out of Part A of the Project, to make arrangements, satisfactory to the Bank, promptly to provide the Borrower or cause the Borrower to be provided with such funds as are needed to meet such expenditures. ARTICLE III Other Covenants Section 3.01. The Guarantor shall: (a) take all measures necessary to liquidate each large scale farm which is participating in the Guarantor's 1987-1990 debt reduction program and subsequent programs and has failed to meet the financial targets specified in such debt reduction program and has been determined to be insolvent; and (b) by April 30 of each year, review with the Bank the progress achieved under such debt reduction program, which review shall include, inter alia, the number of large scale farms which failed to meet the financial targets specified in such program, the farms selected for liquidation, and the progress achieved under such program for the rehabilitation of low efficiency farms. Section 3.02. The Guarantor shall: (a) maintain and monitor its program for the reduction of investment, production and export subsidies to the agricultural sector within and consistent with the overall subsidy reduction program; (b) by December 31, 1990, reduce all agricultural subsidies by at least one third of the agricultural subsidies in effect during the 1989 calendar year calculated in current prices; and (c) before the end of each calendar year beginning in 1990, review with the Bank: (i) the progress achieved in meeting the subsidy reduction target specified in such program for the Page 3 agricultural sector; and (ii) the new target to be achieved during the next calendar year and thereafter consider the Bank's comments on such new target in preparing the final proposal for such calendar year. Section 3.03. The Guarantor shall: (a) review its income support program for farms on poor quality land of the Guarantor as such land is defined in Decree No. 150/1989 (XII 28) of the Council of Ministers of the Guarantor on Various Forms of Taxes and Subsidies of Agricultural Activities; and (b) by December 31, 1991, revise such income support program in such a manner, inter alia, that income support does not determine or influence the specific crops or livestock to be produced at the farm level. Section 3.04. The Guarantor shall: (a) review the results of the implementation of its program of investment tax credits for the agricultural sector; and (b) based on the results of such review, by December 31, 1992, submit to the legislature draft legislation providing for the revision of investment tax credits in such a manner that such investment tax credits do not determine or influence the specific crops or livestock to be produced at the farm level. Section 3.05. The Guarantor shall, by December 31, 1991, adopt a plan of action: (a) for the gradual reduction of the licenses on the imports of agricultural products; and (b) for the use of tariffs on the imports of agricultural products in accordance with the General Agreement on Tariffs and Trade (GATT) negotiations to protect domestic agricultural producers from the effects of below market pricing by foreign competitors. Section 3.06. The Guarantor shall, by December 31, 1991, adopt regulations which require all farms to include on their balance sheets for accounting purposes land as an asset with notional value. Section 3.07. The Guarantor shall, by June 30, 1991, submit draft legislation to the legislature providing for: (a) the possibility of and conditions for the assignment of ownership rights in the net assets (other than agricultural land) of the cooperatives to the members of such cooperatives; and (b) the definition of ownership rights in agricultural land. Section 3.08. In order to make possible the use of agricultural land as collateral for commercial bank credits, the Guarantor shall, by June 30, 1991, take all measures necessary to make agricultural land mortgageable for commercial bank loans. ARTICLE IV Representatives of the Guarantor; Addresses Section 4.01. The First Deputy President or General Manager of the Borrower is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Conditions. Section 4.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Guarantor: National Bank of Hungary Department for International Development Institutions H - 1850 Budapest Szabadsag ter 8-9 Republic of Hungary Cable address: Telex: Page 4 BANKO 227267 SMAFU-H, Budapest 225755 BANKO-H or 227028 BANKO-H For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 197688 (TRT), Washington, D.C. 248423 (RCA), 64145 (WUI) or 82987 (FTCC) 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 States of America, as of the day and year first above written. REPUBLIC OF HUNGARY By /s/ Endre Mandy Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Eugenio F. Lari Acting Regional Vice President Europe, Middle East and North Africa