Mexico- Second Bank Restructuring Facility Adjustment Loan (Loan No. 7060-ME) Releaseof the Third Tranche - Waiver of One Condition Tranche Release Document 1.TheUS$505.06 million Second Bank Restructuring Facility Adjustment Loan for Mexico was approved by the Board on June 21, 2001; the Loanand Guarantee Agreements were declared effective on February 22, 2002; the First Tranche of US$150 million was released in February 2002; and the Second Tranche of US$175 million was released in March 2003 with all tranche release criteria fully met. The closing date of this project is December 31, 2003. Conditions for the Third Tranche release are specified in Section 2.02 (e) of the Loan Agreement and detailed in the Implementation Letter dated December 12, 2001. 2. The remainder of this memorandum summarizes progress in implementing the Program, and reports on actions taken by the Government of Mexico to meet specific conditions for the release of the Third Tranche. Waiver for the condition of the Regulatory Reform Program, as contained in paragraph 25 is sought on the grounds set forth in paragraphs 26 and 27. Based on the assessment that: a) the National Banking and Securities Commission (CNBV) and the Ministry of Finance (SHCP) have approved other important new prudential rules that contribute to improving the health and stability of the financial sector; and b) the Asset Disposal Program and the Bank Resolution Program have been implemented on a consistent basiswith the implementation letter, exceeding the minimum requirements for compliance, this memorandum recommends that a waiver be granted withrespectto the pending conditions and the Third Tranche (US$175 million) be released. I. KEY OBJECTIVES OF THEGOVERNMENT'SBANKRESTRUCTURING PROGRAM 3. The objective of Loan No. 7060-ME is to support the Government of Mexico's second phase of its Bank Restructuring Program, which includes up front measures to improve the legal and regulatory framework for a safer operation of the Mexican financial sector, and the sale, merger or liquidation of the remaining insolvent banks under government control. 4. The first stage of the Program was completed under the First Bank Restructuring Facility Loan (Loan 7003-ME) approved in December 1999. This first stage involved: (i) the reform of the legal framework to improve incentives in the financial sector through the introduction of a limited deposit insurance coverage and a major revamping of bankruptcy and secured lending legislation to strengthen contract enforcement and creditor rights; (ii) the adoption of a comprehensive program of regulatory reforms to improve banks' capitalization, soundness and transparency; and (iii) the capitalization and resolution programs of three large insolvent banks 2 in Government hands since the 1994/1995 banking crisis (these included: the sale of Serfin, Mexico's third largest bank to a Spanish consortium (BSCH), concluded in May 2000; mergers of Promex/Bancomer; and the sale of a majority ownership of Inverlat to Bank of Nova Scotia; and (iv) the implementation of a program tosell assets from failed banks thathadbeen transferred to Institute for the Protection of Bank Assets (IPAB). 5. ThisLoan was designed to support the second phase of the United Mexican States' Bank Restructuring Program (the "Program") which includes: (i) legal and regulatory reforms to strengthen governance in the banking sector, extend the new capital and credit portfolio classification regulations to public banks, and provide an early warningsystem;and(ii) the resolution of the remaining banks under the purview of IPAB. Bank funds would help finance part of IPAB's debt-servicing needs arising from the implementation of its bank resolution program, complementing other sources of funds available to IPAB. II. PROGRESS OF THE SECOND PHASE OF THE GOVERNMENT'S BANK RESTRUCTURING PROGRAM 6.The MexicanGovernment has made major advances in the implementation of the second phase of the program. The major advances implemented prior to Board Presentation andin compliance with the First and Second Tranche Release of Loan7060-ME are summarized below.1 7. Regulatory Reform Program. The Congress approved a comprehensive financial reform package, including: a) Amendment to the Credit Institution Law; and b) Amendment to the Law to Regulate Financial Groups. Furthermore the CNBV continued the implementation of a program of regulatory reform intended to improve the health and stability of the financial system. The most relevant reforms approved included: a) new guidelines for internal controls and governance in commercial banking institutions, new rules for regulatory capital; b) portfolio classification and provisioning of development banks; c) amendment of the Credit Bureaus rules; and d) amendmentof the rules for risk &versification. 8. BankRestructuringResolution and Program. IPAB's bank restructuring and resolution program is progressing satisfactorily. It has completed the restructuring and sale of all of the large banks under its control and is in the process of liquidating all the intervened banks. With the capitalization of BanCrecer, the IPAB entered into an "Eligible Cash Transaction" for the amount of US$10.5 billion, which exceeded the minimum of required for the release of the Loan 7060-ME'SSecond Tranche by US$7.5 billion. Regarding the seven banks intervened by the CNBV (Cremi, Union, Obrero, Oriente, Capital, Interestatal, and Pronorte), IPAB's Board approved a liquidation strategy and the SHCP revoked their banking licenses. Outside IPAB's program, but very important for the health of the financial sector, Bancomer, Mexico's second largest bank, has been sold to another Spanish bank conglomerate (BBVA) resulting in a majority injection of grade capital. 1 See Second Bank Restructuring Facility Loan (Loan7060-ME), Second Tranche Release Memorandumof the President dated March 24,2003 for details. 3 9. IPAB'sprogramforthedispositionofbankassets. IPAB has continued its program of actively disposing of the large amount of loans and other assets from failed banks, in compliance with the timetable set in IPAB's Law: 5 years for banks under operation and 3 years for banks under liquidation. III. ACTIONS TO TAKEN FULFILLTHIRD THE TRANCHE RELEASE CONDITIONS . 10. This section presents the actions taken to fulfillthe Third Tranche conditions as set out in the Loan Agreement, Section 2.02 (e) (a). In particular, it explains: (A) that the Guarantor, CNBV and IPAB have made satisfactory progress in carrying out the Program; (B) that the macroeconomic policy framework of the Guarantor is satisfactory, as measured on the basis of indicators agreed between the Guarantor and the Bank; and (C) that the actions described in Part B of Schedule 2 to the Loan Agreement have been taken in form and substance satisfactory to the Bank. The compliance with each of these conditions is discussed in the following paragraphs. A.SatisfactoryProgressincarryingouttheProgram LoanAgreement,ArticleII,Section 2.02 (e) (a) (A):Banktobesatisfied,basedon evidence satisfactory to the Bank, with the progress achievedby the Guarantor (i.e., the United Mexican States), IPAB and the CNBV in the carrying out of the Program 11.This condition has been met. A letter of Sector Development Policy, signed by the Secretary of Finance and Public Credit, dated May 31,2001,describes the Program supportedby Loan 7.060-ME and the Guarantor's commitment to support this Program. The Guarantor has complied with these commitments, which include: (i) the passage of key financial laws and amendments to existing laws; (ii) implementation of the program of regulatory reforms to strengthen the soundness and safety of the financial sector and extend to development banks the same regulatory framework as for private banks; and (iii) support for the completion of IPAB's bank capitalization and resolution program. B. Macroeconomic Framework Policy LoanAgreement,ArticleII,Section 2.02 (e)(a)(B):Banktobesatisfied,based on evidencesatisfactorytotheBank,thatthemacroeconomicpolicyframeworkis satisfactory,as measured on the basis of indicators agreed with the Bank 12. This condition has been met. As agreed in Annex E of the Implementation Letter, the Borrower, Nacional Financiera S. N. C. (NAFIN), has submitted to the Bank, as evidence of compliance with this condition, an implementation report on the evolution of the Mexican economy during the first half of 2003 confirming that the macroeconomic policy framework of the Guarantor has been implemented in accordance with, and measured on the basis of, the indicators detailed in the most recent quarterly report of the SHCP entitled "Informe sobre la Situacion Economica, las Finanzas Publicas y la Deuda Publica". 4 13. Economic activity in Mexico is starting to show signs of recovery after a protracted stagnation over the past few years. Output fell by 0.3 percent in 2001 in response to the sharp slowdown of the U.S. economy and has since shown a modest rebound. Real GDP increased by 0.9 percent in 2002 and 1.2 percent during the first halfof 2003. The weak economic growth performance has been attributed to a delayed U.S. recovery and a contraction of private investment in view of global economic uncertainties. Despite a disappointing growth performance, the Mexican economy has been able to weather the international economic downturn and emerging market turbulence over the past few years maintaining financial and price stability and access to capital markets. The twelve-month inflation reached 4.0 percent by September 2003, thereby it is most likely that the monetary authorities will attain the medium- term inflation target of 3 percent plus/minus 1 percent. Domestic interest rates came down significantly reaching historic lows throughout the yield curve on average during the third quarter of 2003, thereby creating adequate conditions for a domestic demand recovery. A floating exchange rate regime is being maintained and even though there have been some periods of a weakening peso/dollar rate recently, such depreciation of the exchange rate is not yet showing up in inflation or inflation expectations. 14. In terms of fiscal policy, the government remains committed to further fiscal consolidation in order to assure medium-term fiscal sustainability and underpin market credibility. The government is largely meeting its increasing low annual deficit targets, based on the traditional definition of the deficit, through the implementation of budget adjustors that reduce spending in response to unexpected revenue shortfalls. The fiscal deficit stayed within its target in 2002 at 0.65 percent of GDP (not taking into account an extraordinary budget appropriation for the liquidation of Banrural, a highly inefficient rural development bank) and is within reach for 2003 at 0.5 percent of GDP largely as a result of a high oil windfall this year. The authorities already announced fiscal deficit target of a 0.3 percent of GDP for next year's budget. As a result of increasing credibility in the authorities'monetary and fiscal policy stance, the Mexican government has been able to refinance and redeem the remainder of its outstanding Brady bonds as well as to increase the average maturity and lengthen the yield curve of domestic public debt. C. Actions described in Part B of Schedule 2 to the Loan Agreement have been taken in form and substance satisfactoryto the Bank. LoanAgreement,Article II, Section 2.02 (e) (a) (C): Banktobesatisfied,basedon evidence satisfactory to the Bank, that the actions described in Part B of Schedule 2 oftheLoanAgreementhavebeentakeninformandsubstancesatisfactorytothe Bank: Schedule2, Part B Paragraph(1)of the Loan Agreement: That IPAB has issued "Eligible Notes" or entered into "Eligible Cash Transactions" in an aggregate amountequaltoatleast US$10.0 billion,insupportof"Eligible Bank Resolution Transactions, including in such amount Eligible Notes and Eligible CashTransactionsinexcessoftheamountreferredtoinPart A.1 of this Schedule" 5 15. As defined in the Loan Agreement, "Eligible Notes" means notes ("instrumentos de credito") issued by IPAB for partial financing of an "Eligible Bank Resolution Transaction". These notes must pay in cash at least the real component of the interest rate. "Eligible Cash Transactions" means a cash payment made by IPAB for the partial financing of an Eligible Bank Resolution Transaction, not requiring Eligible Notes. "Eligible Bank Resolution Transactions" means: (i) the sale or liquidation of any of the following banking institutions: BanCrecer and Atlantico; and (ii) the revocation of the banking license of each of the seven intervened banks: Capital, Cremi, Interestatal, Obrero, Oriente, Pronorte and Union, carried out in accordance with the eligibility criteria detailed in Attachment B.1,B.2 and B.3 of Annex B to the Implementation Letter. 16. This condition has been met. The Bank received evidence that IPAB entered into Eligible Cash Transactions that in an aggregate amount reached US$12.4billion, exceeding the minimum requirement of US$10 billion for the Third Tranche. These transactions included: a) Eligible Cash Transactions in the amount of US$4.9 billion (MX$49,857 million) to support the restructuring of Banco del Atlantico, S.A. (Atlantico) and its absorption by Banco Intercontinental (Bital); and b) US$7.5 billion of Eligible Cash Transactions made in excess of the minimum of required for the release of the Loan 7060-ME'SSecond Tranche (see paragraph 8 above). The restructuring of Atlantico and its absorption by Bital wascarried out in accordance with the eligibility criteria described in AttachmentB2 of the Implementation Letter. 17. In December 1997, Banco del Atlantico and a larger bank, Bital, signed a Letter of Intent for the restructuring and subsequent absorption of the former by the latter. The proposed restructuring was based on a valuation ratified by an investment bank at the request of the then owners of Atlantico. This international advisor determined in October 1997 a capital deficiency for Atlantico in the range of MX$5.1-6.7 billion, based on its balance sheetas of September 1997. In January 1998, Bital assumed the administration of Atlantico by virtue of a Services Contract (Contrato de Prestacion de Servicios Profesionales), and proceeded to quickly absorb it financially, administratively, and operationally. In March 1998, FOBABROA injected MX$6.5 billion into Atlantico to capitalize it and close the reserve gap, confirmed by the investment bank during the due diligence. In September 1998, Bital, already in full charge of Atlantico re- estimated further provisioning requirements and requested the international investment bank to conduct another valuation exercise, whichyielded an estimated need for capital of MX$3.4 billion. In May 2000, Bital requested from IPAB an additional sum of MX$12.9 billion of alleged non-existing assets and non-registered liabilities. The Letter of Intent allowed Bital to request additional funds from the Government if it found that there were missing assets or hidden liabilities. IPAB carried out an evaluation and auditing of Atlantico, after whichIPAB'sBoard concluded that it was less costly to finalize the operation with Bital thanto liquidate Atlantico. 18.IPAB provided the Bank with a briefing detailing the process for the restructuring and absorption of Atlantico by Bital. IPAB commissioned a special auditandvalueworkto approximate the value of Atlantico's assets on July 10, 2000. The results of the specialaudit were used to detail the terms and conditions of the restructuring of Atlantico and absorption by Bital. A complementary contract was signed onDecember7, 2001 between IPAB, Grupo Financiero Bital (GFBital), and Bital, with the presence of the CNBV.The complementary contract established that Atlantico's restructuring would involve the consolidation into a single instrument all payments made by IPAB ("Payment Obligation") to Atlantico and described the 6 actions required to finalize the restructuring and absorption of Atlantico by Bital. On October 1, 2002, IPAB paid in advance Atlantico the Payment Obligation in the amount of MX$49,857 million, completing the restructuring of Atlantico. The funds for the restructuring of Atlantico came from a credit from Bital in the amount of MX$47,357 million and IPAB's own resources in the amount of MX$2,500 million. Also on October 1, 2002, Atlantico transferred its assets and liabilities to Bital, concluding the absorption process. Thus, in this process, IPAB financed the Eligible Bank Resolution Transaction with Eligible Cash Transactions in the amount of MX$49,857 million regarding the absorption of Atlanticoby Bital. 19. The evidence provided by IPAB and CNBV confirmed that this transaction was completed in compliance with the criteria detailed in Attachment B2 of Annex B of the Implementation Letter. These criteria refer, inter alia, to: (a) the adjustments to be made to Atlantico's balance sheet prior to its absorption by Bital; (b) issue of "performing" notes by IPAB; and (c) the qualification of the absorbing bank. 20.The evidence received by the Bank in compliance with the item (a) above include the following documents: (i) Copy of the relevant parts of the contract signed between IPAB and Mancera, S.C. on June 10, 2000 with respect to the special audit of Atlantico for compliance with the Article 9thtransitory of the Ley de Proteccion al Ahorro Bancario to finalize the restructuring of Atlantico; (ii) Copy of the relevant parts of the Agreement IPAB/JG/E/01/21.1 adopted in the 21th Extraordinary Session of IPAB's Board on June 14, 2001 with respect to approving the restructuring of Atlantico using the results of the special audit commissioned on July 10,2000; and (iii) Copy of the contract entered into by Atlantico,Bital, GFBital, and IPAB of December 7, 2001 with the presence of the CNBV, which describes the terms and conditions of the restructuring of Atlantico and its absorption by Bital. The "whereas" numbered IX, and XI, and Article 1(i) and (ii) indicate that the adjustments made to Atlantico's balance sheet were in line with special audit commissioned by IPAB and the required loan loss provisions determined by the CNBV. 21. The evidence received by the Bank in compliance with the item (b) above include the following documents: (i) Copy of a communication of the SHCP of 03/27/2002, authorizing the transfer of Atlantico's liabilities and assets to Bital ; (ii) Copy of the contract entered into by Atlantico and IPAB, signed on October 1, 2002, which explains the payments made by IPAB to Atlantico; (iii) Copy of the simple credit contract between Bital and IPAB for MX$47,357 million, for the restructuring of Atlantico, signed on October 1,2002,which explains that such credit will carry an interest rate of Cetes-91 days + 100basis points and will be paid in full December 30, 2009. Thus, IPAB entered into an Eligible Cash Transaction for partial financing of the restructuring of Atlantico; and (iv) Copy of the contract entered into by Atlantico and Bital, signed on October 1,2002, which describes the terms and conditions of the restructuring of Atlantico and its 7 absorption by Bital. Such contract explains that IPAB paid in advance the sum of MX$49,857 million to Atlantico.. (v) Copy of a communication of IPAB of 10/1/2002, authorizing NAFIN to transfer MX$2,500 million to Atlantico, and thus resulting in the issuing of Eligible Cash Transactions for that amount. 22.The evidence received by the Bank in compliance with the item (c) above include the following documents: (i) Copy of the contract entered into by Atlantico,Bital, GFBital, and IPAB of December 7, 2001 with the approval of the CNBV, which describes the terms and conditions of the restructuring of Atlantico and its absorption by Bital. Article 5 approved by the CNBV explains that GFBital will strengthen the financial structure of Bital prior to the absorption of Atlantico. In this regard, a Capitalization Plan, whichwillbe approved by the CNBV, will be required. (ii) Copy of a communication of Bital to the CNBV dated February 26, 2003, which indicates that as of December 31, 2002 Bital was in compliance with the Capitalization Plan approved by the CNBV on December 7, 2001 and its extensions of February 12,2002 and August 27,2002. Schedule 2, Part B Paragraph (2)of the Loan Agreement: That the Intervened BankResolutionProgramhasbeenimplementedonaconsistentbasis,in accordance with its terms 23. This condition has been met. The Bank has received evidence that the Intervened Bank Resolution Program has been implemented on a consistent basis in accordance with its terms. The remaining steps of the Intervened Banks Resolution Program involved the approval by IPAB's Board of the procedural guidelines for the resolution of the following intervened banks: Sureste, Industrial, and Anahuac. During August to December 2002, the SHCP revoked the banking license of these intervened banks. A strategy for the resolution of these banks was approved by IPAB's Board on November 6, 2002 (for Anahuac), on February 3, 2003 (for Industrial), and on March 20,2003 (for Sureste). 24. The evidence of compliance with Part (b) of the Intervened Bank Resolution Program include the following documents: (i) Copy of the Official Gazette (Diario Oficial de la Federacidn) of 08/05/2002 announcing the revocation of the banking license of Banco Anahuac, S.A.; (ii) Copy of the Official Gazette (Diario Oficial de la Federacidn) of 08/26/2002 announcing the revocation of the banking license of Banco Industrial, S.A.; (iii) Copy of the Official Gazette (Diario Oficial de la Federacidn) of 12/02/2002 announcing the revocation of the banking license of Banco del Sureste, S.A.; (iv) Copy of the relevant parts of the Agreement IPAB/JG/03/45.5 adopted in the 45th Ordinary Session of IPAB's Board on March 20, 2003 with respect to the procedural guidelines for the resolution of Banco del Sureste, S.A.; 8 Copy of the relevant parts of the Agreement IPAB/JG/03/44.9 adopted in the 44th Ordinary Session of IPAB's Board on February 03, 2003 with respect to the procedural guidelines for the resolution of Banco Industrial, S.A.;and Copy of the relevant parts of the Agreement IPAB/JG/02/42.13 adopted in the 42nd Ordinary Session of IPAB's Board on November 6,2002 with respect to the procedural guidelines for the resolution of Banco Anahuac, S.A.. Schedule2, Part B Paragraph (3) of the Loan Agreement: That the Regulatory ReformProgramhasbeenimplementedonaconsistentbasis,inaccordance with its terms 25.The "Regulatory Reform Program'' means the issuance or amendment of existing prudential regulations by the CNBV or the SHCP, as the case may be, intended to improve the health and stability of the financial system. Of the actions required for tranche disbursement described in Annex A of the Implementation Letter, the following two actions needed to be approved for the Third Tranche: a) amendment to the rules applicable to external audit reports; and b) introduction of new rules to regulate the risk of banking operations through the internet. 26. This condition has not been met and a waiver is proposed. On October 20, 2003 NAFIN requested a waiver for this condition on the basis that the adjustment program objective on strengthening the legal and regulatory reforms has been achieved with the issuance,and amendment of the many important prudential regulations by the CNBV and SHCP since Board approval. In addition to the major regulatory reforms detailed in paragraph 7, the CNBV has issued other important new regulatory rules that contribute to strengthening the governance in the banking sector, justifying a waiver of compliance with the Third Tranche requirements. In particular, the United Mexican States has presented the following evidence for the issuance of new regulatory norms: New rules for additional provisioning for financial institutions. On August 2001, the CNBV issued new norms for the creation of additional provisioning for loan portfolio, contributing to the soundness of the banking system. Rules applicable to financialoperations made by managers and employees of financial institutions. On April 9, 2003, the CNBV issued a new norm to prevent the possible conflict of interest and unduly use of confidential information in the operations made by managers and employees of financial institutions. This norm also contributes to strengthening the governance in the banking sector by preventing possible conflict of interest. General rulesfor the financial information provided by financial institutions. On June 24, 2003, a new regulatory norm was issued to homogenize the financial information disclosed by financial intermediaries. This norm requires that such information be distributed periodically to the public through the Internet. As such, this norm contributesto the overall objective of the Regulatory Reform Program of strengtheningthe governancein the banking sectorby disclosing financial information periodically to the general public. 9 27. Although the CNBV initiated the process.to comply withthe two actions detailed in paragraph 25, itis still pending to finish the consultation process required by the current procedures to issue new regulations inMexico. These procedures entail consultations with financial intermediaries and association of financial intermediaries as well as a detailed review by the Federal Commission of Regulatory Reform (COFEMER) of the impact on the Mexican society of the proposed prudential regulation rules. The CNBVexpects to issue new rules on risk management, which will include a section on the risk of Internet banking, bythe end of December 2003 and the rules for external auditors in the first quarter of 2004. There are reasonable expectations that the two pending conditions of the Regulatory Reform Program will be implemented in thenear future, and a waiver is therefore proposed. Schedule 2, Part B Paragraph (4) oftheLoanAgreement:ThatIPAB'sAsset DisposalProgramhasbeenimplementedonaconsistentbasis,inaccordance with its terms. 28. This condition hasbeen met. During loan negotiations, IPAB submitted to the Bank an action program for the sale, auction, administration and recovery of credits and other assets from failed banking institutions under IPAB's purview, to be undertaken during 2001 (Annex C, Attachment C1 of the Implementation Letter). This plan focuses on the disposal of packages of credits and other assets for each quarter of 2001. As indicated in the Implementation Letter, compliance with this condition would be acceptable if the plan had been implemented within a margin of 20% of the planned actions. 29. The Bank and IPAB have exchanged views on IPAB's progress in implementing its Asset Disposal Program. IPAB has conducted most of the operations todispose of the commercial and mortgage loans planned for these periods, selling credit portfolio of MX$8.9 billion, recovering about 7% of their value. The Bankand IPAB have discussed implementation of the program during 2002 and the first quarter of 2003. During 2002, IPAB sold four packages of credit portfolio with a capital value of MX$4.4 billion, resulting in a recuperation of 13.9% of their value. During the first quarter of 2003, IPAB sold a credit package of low recovery from Bancrecer with a capital value of MX$4.5 billion for about MX$11.4 million. Furthermore, IPAB recovered MX$13.8 billion and MX$1.6 billion in 2002 and in the first quarter of 2003, respectively, from selling real estate and other assets as wellas from administrators under supervision. Thus, IPAB continues to actively dispose of loan portfolio and other assets of failed banks. Schedule1,Part B Paragraph (5) oftheLoanAgreement:ThatBudgetary transfers have been made in a timely fashion so as to allow IPAB to discharge its responsibility under the Program. 30. This condition has been met. The 2003 Budget Law included anallocation of MX$23.8 billion, which were disbursed in five installments during year 2003. These resources, combined with resources from the sale of IPAB's assets should cover at least the real component of the interest rate on IPAB's debt. 10 31. According to Annex D of the Implementation Letter, prior to Loan 7060-ME Third Tranche release, the SHCP has either: (i) transferred to IPAB all of the approved budgetary allocation (if the disbursement is within calendar year 2001), or (ii) the Federal Budget for 2002 has approved an allocation to IPAB, which combined with other sources of income, will allow IPAB to cover at least the real component of the interest rate on IPAB's debt (if disbursement is in calendar year 2002). The SHCPhas presented to the Bank copy of three letters from the SHCP to IPAB informing it of the date and amount of the budgetary transfers. These letters show that the SHCP has already transferred to IPAB MX$23.8billion, equivalent to 100%of the approved budgetary allocation to IPAB. The letters are the following: letter dated January 23, 2003, informing IPAB of the transfer of MX$5.4 billion; letter dated April 14, 2003, informing IPAB of the transfer of MX$4.2 billion; letter dated May 20, 2003, informing IPAB of the transfer of MX$2.3 billion; letter dated July 16, 2003, informing IPAB of the transfer of MX$6.0 billion; and letter dated August 19,2003, informing IPAB of the transfer of MX$5.9 billion. 32. These budgetary transfers, combined with resources from the sale of IPAB's assets have covered at least the real component of the interest rate on IPAB's debt, resulting in a net reduction of IPAB's net outstanding debt. IPAB has presented to the Bank copy 0f aletter from IPAB to SHCP dated October 23, 2003 showing that IPAB's net outstanding debt has decreased in real terms between December 31,2002and September 30,2003by one percent.