OFFICIAUj

LOAN NUMBER 3971-AR

Loan Agreement

(Decentralization and Improvement of SecondaryEducation and Polymodal Education Development Project)

between

ARGENTINE REPUBLIC

and

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

Dated u -st '7 ,1996

LOAN AGREEMENT 3971-AR

AGREEMENT, dated A u 9 u 1 , 1996, between ARGENTINEREPUBLIC (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT (the Bank).

WHEREAS the Borrower, having satisfied itself as to the feasibility and priority ofthe Project described in Schedule 2 to this Agreement, has requested the Bank to assist inthe financing of the Project;

WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, toextend the Loan to the Borrower upon the terms and conditions set forth in this Agreement;

NOW THEREFORE the parties hereto hereby agree as follows:

ARTICLE I

General Conditions; Definitions

Section 1.01. The "General Conditions Applicable to Loan and GuaranteeAgreements" of the Bank, dated January 1, 1985, with the modifications set forth below(the General Conditions) constitute an integral part of this Agreement:

(a) The last sentence of Section 3.02 is deleted.

(b) The second sentence of Section 5.01 is modified to read:

"Except as the Bank and the Borrower shall otherwise agree, nowithdrawals shall be made: (a) on account of expenditures in the territoriesof any country which is not a member of the Bank or for goods produced,in, or services supplied from, such territories; or (b) for the purpose of anypayment to persons or entities, or for any import of goods, if such paymentor import, to the knowledge of the Bank, is prohibited by a decision of theUnited Nations Security Council taken under Chapter VII of the Charter ofthe United Nations."

(c) In Section 6.02, subparagraph (k) is relettered as subparagraph (1) and anew subparagraph (k) is added to read:

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"(k) An extraordinary situation shall have arisen under which any furtherwithdrawals under the Loan would be inconsistent with the provisions ofArticle III, Section 3 of the Bank's Articles of Agreement."

Section 1.02. Unless the context otherwise requires, the several terms defined in theGeneral Conditions have the respective meanings therein set forth and the followingadditional terms have the following meanings:

(a) "Action Plan" means any of the plans of actions of a Beneficiary,satisfactory to the Bank, required to implement the recommendations of the correspondingSector Management Productivity Study;

(b) "Beneficiary" means a Participating Entity, a Replacement ParticipatingEntity or a Third Group Province, which is carrying out a Subproject or a Third GroupSubproject, as the case may be;

(c) "NMCE" means Ministerio Nacional de Cultura y Educaci6n, theBorrower's Ministry of Culture and Education;

(d) "NPCU" means the existing unit, within NMCE, established to coordinatethe execution of the Decentralization and Improvement of Secondary Education Projectfinanced by Loan 3794-AR, under the Prior Loan Agreement;

(e) "Participating Entity" means any of the Provinces of Buenos Aires, Chaco,Corrientes, Entre Rios, Salta, Santa Cruz and Tucumin, or the Municipality of BuenosAires, provided it has not been replaced by a Replacement Participating Entity or a ThirdGroup Province, as set forth in Section 3.04 (b) of this Agreement;

(f) "PME" means any of the Ministries of Education of a Beneficiary;

(g) "Polymodal Education" means the last three years of high schooleducation, corresponding to grades 10 through 12;

(h) "PPCU" means any of the units referred to in paragraph 2 (b) of Schedule6 to this Agreement;

(i) "Prior Loan Agreement" means the Loan Agreement, dated March 24,1995, between the Borrower and the Bank for Loan 3794-AR, as amended;

(j) "Project Consultative Council" means the council referred to in Section3.06 of this Agreement;

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(k) "Project Implementation Targets" means the targets set forth in Annex A tothe letter of even date with this Agreement from the Borrower to the Bank;

(1) "Project Impact Indicators" means the impact indicators set forth in AnnexB to the letter of even date with this Agreement from the Borrower to the Bank;

(m) "Replacement Participating Entity" means any province of the Borrower,acceptable to the Bank, which is selected by the Borrower to replace any of theParticipating Entities referred to in (e) above, if any of the events referred to in Section 3.04(b) of this Agreement shall occur;

(n) "Sector Management Productivity Study" means any of the studies,furnished by the Borrower to the Bank, in respect of each Beneficiary which: (i) identifiesinefficiencies in the use of human and physical resources in the corresponding PME; (ii)recommends corrective actions for such inefficiencies; and (iii) proposes alternative designsto decentralize secondary education management and improve its internal efficiency;

(o) "Special Account" means the account referred to in Section 2.02 (b) of thisAgreement;

(p) "Subproject" means any of the projects to be carried out by a ParticipatingEntity or, if applicable, a Replacement Participating Entity, consisting of some or all of theactivities described in Part A of the Project;

(q) "Subloan" means a loan to be made under a Subsidiary Loan Agreement ora Third Group Subsidiary Loan Agreement;

(r) "Subsidiary Loan Agreement" means any of the agreements referred to inSection 3.04 (a) of this Agreement;

(s) "Third Group Province" means a province of the Borrower, other than aParticipating Entity, a Replacement Participating Entity or a Participating Province (as suchterm is defined in Section 1.02 (c) of the Prior Loan Agreement), which is eligible, in theopinion of the Bank, to enter into Third Group Subsidiary Loan Agreements;

(t) "Third Group Subproject" means any of the projects, consisting of some orall of the activities described in Part A of the Project, to be carried out by the Borrower onbehalf of a Third Group Province, if any of the events referred to in Section 3.04 (b) of thisAgreement shall occur; and

(u) "Third Group Subsidiary Loan Agreement" means any of the agreementsreferred to in Section 3.04 (b) of this Agreement.

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ARTICLE II

The Loan

Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditionsset forth or referred to in this Agreement, various currencies that shall have an aggregatevalue equivalent to the amount of one hundred and fifteen million and five hundredthousand dollars ($115,500,000), being the sum of withdrawals of the proceeds of the Loan,with each withdrawal valued by the Bank as of the date of such withdrawal.

Section 2.02. (a) The amount of the Loan may be withdrawn from the LoanAccount in accordance with the provisions of Schedule 1 to this Agreement forexpenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonablecost of goods and services required for the Project described in Schedule 2 to thisAgreement and to be financed out of the proceeds of the Loan.

(b) The Borrower may, for the purposes of the Project, open and maintain indollars a special deposit account in a commercial bank on terms and conditions satisfactoryto the Bank, including appropriate protection against set-off, seizure or attachment.Deposits into, and payments out of, the Special Account shall be made in accordance withthe provisions of Schedule 5 to this Agreement.

Section 2.03. The Closing Date shall be June 30, 2001 or such later date as theBank shall establish. The Bank shall promptly notify the Borrower of such later date.

Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rateof three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loannot withdrawn from time to time.

Section 2.05. (a) The Borrower shall pay interest on the principal amount of theLoan withdrawn and outstanding from time to time, at a rate for each Interest Period equalto the Cost of Qualified Borrowings determined in respect of the preceding Semester, plusone-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of thisAgreement, the Borrower shall pay interest accrued on the principal amount outstandingduring the preceding Interest Period, calculated at the rate applicable during such InterestPeriod.

(b) As soon as practicable after the end of each Semester, the Bank shall notifythe Borrower of the Cost of Qualified Borrowings determined in respect of such Semester.

(c) For the purposes of this Section:

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(i) "Interest Period" means a six-month period ending on the dateimmediately preceding each date specified in Section 2.06 of thisAgreement, beginning with the Interest Period in which thisAgreement is signed.

(ii) "Cost of Qualified Borrowings" means the cost, as reasonablydetermined by the Bank and expressed as a percentage per annum,of the outstanding borrowings of the Bank drawn down after June30, 1982, excluding such borrowings or portions thereof as theBank has allocated to fund: (A) the Bank's investments; and (B)loans which may be made by the Bank after July 1, 1989 bearinginterest rates determined otherwise than as provided in paragraph(a) of this Section.

(iii) "Semester" means the first six months or the second six monthsofa calendar year.

(d) On such date as the Bank may specify by no less than six months' notice tothe Borrower, paragraphs (a), (b) and (c) (iii) of this Section shall be amended to read asfollows:

"(a) The Borrower shall pay interest on the principal amount of the Loanwithdrawn and outstanding from time to time, at a rate for each Quarter equal to theCost of Qualified Borrowings determined in respei of the preceding Quarter, plusone-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06of this Agreement, the Borrower shall pay interest accrued on the principal amountoutstanding during the preceding Interest Period, calculated at the rates applicableduring such Interest Period."

"(b) As soon as practicable after the end of each Quarter, the Bank shall notify theBorrower of the Cost of Qualified Borrowings determined in respect of suchQuarter."

"(c) (iii) 'Quarter' means a three-month period commencing on January 1, April 1,July 1 or October 1 in a calendar year."

Section 2.06. Interest and other charges shall be payable semiannually on May 15and November 15 in each year.

Section 2.07. The Borrower shall repay the principal amount of the Loan inaccordance with the amortization schedule set forth in Schedule 3 to this Agreement.

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Section 2.08. The Secretary of the Treasury of the Borrower's Ministry ofEconomy, Public Works and Services and any person designated by such Secretary aredesignated as representatives of the Borrower for the purpose of taking any action requiredor permitted to be taken under the provisions of Section 2.02 of this Agreement and ArticleV of the General Conditions.

ARTICLE M

Execution of the Project

Section 3.01. The Borrower declares its commitment to the objectives of theProject as set forth in Schedule 2 to this Agreement, and, to this end:

(a) shall, through the NMCE, carry out Part B of the Project, and, ifapplicable, the Third Group Subprojects on behalf of the Third Group Provinces, all withdue diligence and efficiency and in conformity with appropriate administrative, financial,environmental and educational practices, and shall provide, promptly as needed, the funds,facilities, services and other resources required therefor; and

(b) through the Subsidiary Loan Agreements, shall cause the ParticipatingEntities and, if applicable, the Replacement Participating Entities to carry out theirrespective Subprojects with due diligence and efficiency an in conformity with appropriateadministrative, financial, environmental and educational practices, shall take or cause to betaken all action, including the provision of funds, facilities, services and other resourcesnecessary or appropriate to enable the carrying out of the Subprojects, and shall not take orpermit to be taken any action which would prevent or interfere with the carrying out of theSubprojects.

Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods,works and consultants' services required for the Project and to be financed out of theproceeds of the Loan shall be governed by the provisins of Schedule 4 to this Agreement.

Section 3.03. The Bank and the Borrower hereby agree that the obligations set forthin Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating toinsurance, use of goods and services, plans and schedules, records and reports, maintenanceand land acquisition, respectively) shall be carried out by each Participating Entity orReplacement Participating Entity, if applicable, in respect of such Participating Entity's orReplacement Participating Entity's Subproject, as the case may be.

Section 3.04. (a) The Borrower shall enter into an agreement with eachParticipating Entity and, subject to paragraph (b) of this Section, each ReplacementParticipating Entity (the Subsidiary Loan Agreement), whereby the Borrower shall relend to

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such Participating Entity or, if applicable, Replacement Participating Entity, the proceeds ofthe Loan allocated to finance the Subproject to be carried out by such Participating Entity orReplacement Participating Entity, as the case may be, such Subsidiary Loan Agreement tohave, except as the Bank shall otherwise agree, terms and conditions satisfactory to theBank, including those set forth or referred to in Section I of Schedule 6 to this Agreement.

(b) If: (i) a Participating Entity shall not enter into a Subsidiary LoanAgreement within eight months from the Effective Date; (ii) a Participating Entity shallenter into a Subsidiary Loan Agreement providing, with the agreement of the Bank, for aSubloan in an amount lower than the corresponding amount set forth in paragraph 1 ofSection I of Schedule 6 to this Agreement; or (iii) after 30 months from the date of thesigning of the Subsidiary Loan Agreement, an amount equivalent to more than 80% of theSubloan amount shall remain unwithdrawn by the Participating Entity, the Borrower maypropose to the Bank a reallocation of the corresponding amount of the Loan that wouldhave been used to finance: (A) the Subloan under the Subsidiary Loan Agreement referredto in (i) above; (B) the remaining portion of the Subloan referred to in (ii) above; or (C) theunwithdrawn amount of the Subloan referred to in (iii) above, as the case may be, either forpurposes of financing Third Group Subprojects or Subprojects, acceptable to the Bank, tobe carried out by Replacement Participating Entities. If approved by the Bank, theBorrower shall enter into a Subsidiary Loan Agreement with each ReplacementParticipating Entity or into an agreement with each Third Group Province (the Third GroupSubsidiary Loan Agreement) whereby the Borrower shall relend to such Third GroupProvince the proceeds of the Loan reallocated to finance the corresponding Third GroupSubproject, such Third Group Subsidiary Loan Agreement to have terms and conditionssatisfactory to the Bank, including, except as the Bank shall otherwise agree, those set forthor referred to in Section II of Schedule 6 to this Agreement.

(c) The Borrower shall exercise its rights and comply with its obligationsunder the Subsidiary Loan Agreements and, if applicable, the Third Group Subsidiary LoanAgreements in such manner as to protect the interests of the Borrower and the Bank and toaccomplish the purposes of the Loan, and except as the Bank shall otherwise agree, theBorrower shall not assign, amend, abrogate or fail to enforce any of such agreements or anyprovision thereof.

Section 3.05. The Borrower shall, during the execution of the Project:

(a) cause the NPCU to be maintained with staff, responsibilities and functionssatisfactory to the Bank, and to be responsible for the overall coordination of the executionof the Project; and

(b) provide, promptly as needed, the funds, facilities, services and otherresources required by the NPCU to carry out its functions and responsibilities in a timelymanner.

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Section 3.06. The Borrower shall, during the execution of the Project, maintain aconsultative council (the Project Consultative Council) composed by the Borrower'sMinister of Culture and Education, the NMCE's Secretary of Educational Programming andEvaluation and the Ministers of Education of the Beneficiaries for the purposes ofproviding policy and strategy guidance with respect to the Project, monitoring thecompliance with the Project Implementation Targets and, if applicable, the implementationtargets referred to in paragraphs 3 (b) (v) and 3 (c) of Schedule 1 to this Agreement, andresolving any implementation or organization problems that may threaten the efficientexecution of the Project.

Section 3.07. Without limitation to the provisions of Section 9.07 of the GeneralConditions, the Borrower, through the NPCU, shall, not later than May 31 of each yearduring Project execution, furnish to the Bank a report of such scope and in such detail as theBank shall reasonably request: (a) on the progress in the Project execution during theimmediately preceding calendar year; (b) containing an analysis of the compliance with theProject Implementation Targets and the Project Impact Indicators (and, if applicable, theimplementation targets and impact indicators referred to in paragraphs 3 (b) (v) and 3 (c) ofSchedule 1 to this Agreement) during such year; and (c) containing an action plan for theexecution of the Project during the year of presentation of such report.

Section 3.08. Without limitation to the provisions of Section 9.01 (a) of the GeneralConditions, the Bp.-ower, jointly with the Beneficiaries, shall:

(a) during the month of June in each year during Project execution, undertakea review with the Bank of: (i) the progress in the execution of the Project during the nextpreceding year; (ii) the proposed work plan and budget for the Project during the year ofsuch review; and (iii) the adjustments to be made to the Project implementation scheduleduring the year.of such review; and

(b) during the thirtieth month after the Effective Date, undertake a review withthe Bank of the progress in the execution of the Project and the attainment of its objectives,with special emphasis on the compliance with the Project Implementation Targets and theProject Impact Indicators (and, if applicable, the implementation targets and impactindicators referred to in paragraphs 3 (b) (v) and 3 (c) of Schedule 1 to this Agreement). Aspart of such review, the Bank may require that the Borrower prepare an action plan,satisfactory to the Bank, to make adjustments in Project implementation. In the event thatthe Bank requires the preparation of such action plan, the Borrower shall furnish it to theBank not later than 90 days after the conclusion of such review, and shall carry out, orcause to be carried out, such action plan in accordance with the terms thereof.

Section 3.09. For the purposes of Section 9.08 of the General Conditions andwithout limitation thereto, the Borrower shall:

(a) prepare, on the basis of guidelines acceptable to the Bank, and furnish tothe Bank not later than six months after the Closing Date or such later date as may beagreed for this purpose between the Borrower and the Bank, a plan for the future operationof the Project; and

(b) afford the Bank a reasonable opportunity to exchange views with theBorrower on said plan.

ARTICLE IV

Financial Covenants

Section 4.01. (a) The Borrower shall maintain records and separate accountsadequate to reflect in accordance with sound accounting practices the operations, resourcesand expenditures of NMCE in respect of Part B of the Project, and, if applicable, the ThirdGroup Subprojects.

(b) The Borrower shall:

(i) have the records and accounts referred to in paragraph (a) of thisSection including those for the Special Account for each fiscalyear audited, in accordmce with appropriate auditing principlesconsistently applied, by independent auditors acceptable to theBank;

(ii) furnish to the Bank as soon as available, but in any case not laterthan six months after the end of each such year, the report of suchaudit by said auditors, of such scope and in such detail as the Bankshall have reasonably requested; and

(iii) furnish to the Bank such other information concerning said recordsand accounts and the audit thereof as the Bank shall from time totime reasonably request.

(c) For all expenditures with respect to which withdrawals from the LoanAccount were made on the basis of statements of expenditure, the Borrower shall:

(i) maintain or cause to be maintained, in accordance withparagraph (a) of this Section, records and separate accountsreflecting such expenditures;

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(ii) retain, until at least one year after the Bank has received the audit

report for the fiscal year in which the last withdrawal from the

Loan Account was made, all records (contracts, orders, invoices,

bills, receipts and other documents) evidencing such expenditures;

(iii) enable the Bank!s representatives to examine such records; and

(iv) ensure that such records and accounts are included in the annual

audit referred to in paragraph (b) of this Section and that the report

of such audit contains a separate opinion by said auditors as to

whether the statements of expenditure submitted during such fiscal

year, together with the procedures and internal controls involved

in their preparation, can be relied upon to support the related

withdrawals.

Section 4.02. (a) The Borrower shall cause each Participating Entity and, if

applicable, each Replacement Participating Entity to maintain records and separate accounts

adequate to reflect in accordance with sound accounting practices the operations, resources

and expenditures of such Participating Entity and, if applicable, such Replacement

Participating Entity, in respect of their Subproject.

(b) The Borrower shall cause each Participating Entity and, if applicable, each

Replacement Participating Entity to:

(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 six months after the end of each such year, 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 such

records and accounts and the audit thereof as the Bank shal from

time to time reasonably request.

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ARTICLE V

Remedies of the Bank

Section 5.01. Pursuant to Section 6.02 (1) of the General Conditions, the followingadditional events are specified:

(a) Any of the Beneficiaries shall have failed to perform any of its obligationsunder a Subsidiary Loan Agreement or a Third Group Subsidiary Loan Agreement, as thecase may be.

(b) As a result of events which have occurred after the date of this Agreement,an extraordinary situation shall have arisen which shall make it improbable that aBeneficiary will be able to perform its obligations under a Subsidiary Loan Agreement or aThird Group Subsidiary Loan Agreement, as the case may be.

It is understood that, if any of the events referred to in paragraphs (a) or (b) aboveshall occur, the Bank may limit the suspension of the right of the Borrower to makewithdrawals from the Loan Account for expenditures incurred by the Beneficiary inquestion.

Section 5.02. Pursuant to Section 7.01 (h) of the General Conditions, the followingadditional event is specified, namely, that any event specified in paragraph(a) of Section5.01 of this Agreement shall occur and shall continue for a period of 60 days after noticethereof shall have been given by the Bank to the Borrower.

ARTICLE VI

Effective Date; Termination

Section 6.01. The following events are specified as additional conditions to theeffectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of theGeneral Conditions:

(a) at least one Subsidiary Loan Agreement between the Borrower and aParticipating Entity has become effective;

(b) the PPCU in the Participating Entity referred to in paragraph (a) above hasbeen established;

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(c) all action, satisfactory to the Bank, has been taken by the ParticipatingEntity referred to in paragraph (a) above in order to permit the procurement of goods,works and consultants' services to be financed under the Loan to be undertaken inaccordance with the provisions set forth or referred to in this Agreement;

(d) the Action Plan of the Participating Entity referred to in paragraph (a)above has been furnished to the Bank; and

(e) the Project Consultative Council has been established by a Resolution ofthe Borrower's Minister of Culture and Education.

Section 6.02. The date NojowA/ ex 5 , 1996 is hereby specified for thepurposes of Section 12.04 of the General Conditions.

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ARTICLE VII

Representative of the Borrower; Addresses

Section 7.01. The Minister of Economy and Public Works and Services of theBorrower is designated as representative of the Borrower for the purposes of Section 11.03of the General Conditions.

Section 7.02. The following addresses are specified for the purposes of Section11.01 of the General Conditions:

For the Borrower:

Ministerio de Economia y Obrasy Servicios PiTblicos

Hip6lito Yrigoyen 250Buenos Aires, Argentina

Telex:

(390) 21-952

For the Bank:

International Bank forReconstruction and Development1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex:

INTBAFRAD 248423 (MCI) orWashington, D.C. 64145 (MCI)

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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.

ARGENTINE REPUBLIC

By Isl F~~ evn&(\'&e-zAuthorized Representative

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

By ' (:: Ob'vicY-T4 NoawLvv1A-VA

Al c Aq Regional Vice PresidentLatin America and the Caribbean

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SCHEDULE 1

Withdrawal of the Proceeds of the Loan

1. The table below sets forth the Categories of items to be financed out of theproceeds of the Loan, the allocation of the amounts of the Loan to each Category and thepercentage of expenditures for items so to be financed in each Category:

Amount of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(1) Civil works 30,000,000 65%

(2) Goods 30,000,000 80%

(3) Consultant's 26,000,000 90%services

(4) Grants for school- 4,000,000 100%based institutionalinnovations projectsunder Part A.2 (e)of the Project andscholarships

(5) Incremental recurrent 5,000,000 50%expenditures

(6) Project implementation 6,800,000 90%costs

(7) Unallocated 13,700,000

TOTAL 115,500,000

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2. For the purposes of this Schedule:

(a) the term "incremental recurrent expenditures" means expendituresincurred, as a result of the execution of the Project, for salaries, building and equipmentmaintenance costs, insurance, rentals, utilities costs, publications and office materials; and

(b) the term "Project implementation costs" means expenditures requiredduring Project execution for travel and per diems for training and Project coordination andmonitoring activities, office materials, office rentals, publications, bidding and other similarexpenditures related to the execution of the Project.

3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall bemade in respect of:

(a) payments made for expenditures prior to the date of this Agreement,except that withdrawals, in an aggregate amount not to exceed the equivalent of $5,000,000,may be made on account of payments made for expenditures before that date but after July15, 1995;

(b) expenditures by any Participating Entity or, if applicable, anyReplacement Participating Entity, except the Participating Entity or Entities, referred to in

Section 6.01 (a) of this Agreement, unless the Bank shall have received evidencesatisfactory to the Bank that: (i) the Subsidiary Loan Agreement between the Borrower andsuch Participating Entity or Replacement Participating Entity has become effective; (ii) thePPCU in such Participating Entity or Replacement Participating Entity has been established;(iii) all action, satisfactory to the Bank, has been taken by such Participating Entity orReplacement Participating Entity, in order to permit the procurement of goods, works andconsultants' services to be financed under the Loan to be undertaken in accordance with the

provisions set forth or referred to in this Agreement; (iv) the Action Plan for suchParticipating Entity or Replacement Participating Entity has been prepared; and (v) in thecase of a Replacement Participating Entity, implementation targets for the Subproject ofsuch Replacement Participating Entity and indicators of impact of the Subproject on thesecondary education system of such Replacement Participating Entity have been approvedby the Bank; and

(c) expenditures under a Third Group Subproject, unless the Bank shall havereceived evidence satisfactory to the Bank that: (i) the corresponding Third GroupSubsidiary Loan Agreement between the Borrower and the Third Group Province hasbecome effective; (ii) a plan, acceptable to the Bank, to improve the efficiency of theeducation sector of such Third Group Province has been prepared; and (iii) implementationtargets for such Third Group Subproject and indicators of impact of the Third Group

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Subproject on the secondary education system of such Third Group Province have beenapproved by the Bank.

4. The Bank may require withdrawals from the Loan Account to be made on the basisof statements of expenditure for expenditures under:

(a) contracts for vehicles, informatics goods and communications equipmentcosting less than $100,000 equivalent each;

(b) contracts for other goods costing $250,000 equivalent or less each (otherthan the first contract to be awarded under each Subproject or Third Group Subproject, ineach of the first three years of execution of the Project, pursuant to Part C.2 of Section I ofSchedule 4 to this Agreement);

(c) contracts for works costing $1,000,000 equivalent or less each (other thanthe first contract costing $1,000,000 equivalent or less to be awarded under each Subprojector Third Group Subproject, in each of the first three years of execution of the Project,pursuant to Part C.2 of Section I of Schedule 4 to this Agreement);

(d) contracts for consulting firms' services costing less than $50,000equivalent each;

(e) contracts for individual consultants' services costing less than $20,000equivalent each; and

(f) Categories (5) and (6) of the table in paragraph 1 hereof, all under suchterms and conditions as the Bank shall specify by notice to the Borrower.

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SCHEDULE 2

Description of the Project

The objectives of the Project are to: (a) strengthen institutional capacity in thePMEs under a decentralized framework; (b) increase the quality and efficiency ofsecondary education in the Beneficiaries; and (c) increase and improve physical capacity ofthe Beneficiaries' school facilities to serve the secondary school-aged population moreeffectively.

The Project consists of the following parts, subject to such modifications thereof asthe Borrower and the Bank may agree upon from time to time to achieve such objectives:

Part A:

1. Institutional strengthening activities in the Beneficiaries consisting of:

(a) improvement of the educational administration in the PMEs pursiant to thecorresponding Action Plan (in the case of a Participating Entity or a ReplacementParticipating Entity) or the corresponding plan referred to in paragraph 3 (c) (ii) ofSchedule 1 to this Agreement (in the case of a Third Group Province), through: (i)strengthening of their capacity in the strategic planning and monitoring of the secondaryeducation school system; (ii) modernization of key central units, in particular thoseresponsible for planning, budgeting and monitoring, and decentralization of someadministrative units; and (iii) establishment of the regulatory framework under which thenew decentralized structures will function;

(b) development of a management information system, integrating modulesfor education statistics, financial information, physical inventory, human resourcesmanagement, and educational research;

(c) development of an education quality evaluation system in coordinationwith the Sistema Nacional de Evaluaci6n de la Calidad de la Educaci6n.

(d) training of staff as required for the implementation of the activities under(a), (b) and (c) above; and

(e) , in the case of the Province of Buenos Aires, carrying out of threediagnostic studies, including action plans for the implementation of the recommendationsthereof, on: (i) management of the secondary education subsystem and its adaptation to themultimodal curricular model; (ii) education planning; and (iii) structures and functions ofthe education supervision system.

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2. Activities to increase the quality of public secondary education in the Participating

Entities, consisting of:

(a) acquisition and utilization of education resources such as textbooks,

libraries, basic science laboratories, learning modules in basic areas such as biology,

physics and multimedia information, teacher guides, maps, charts, dictionaries, and

multimedia equipment such as televisions and videorecorders and cassettes;

(b) provision, under the coordination of the Red Federal de Formaci6n

Docente Continua, of training to: (i) teachers to upgrade their skills in basic subject

disciplines, and in the use of education materials and new technologies such as computers,

and to prepare them for the curriculum changes already underway; and (ii) school principals

and supervisors in the areas of school management and pedagogical monitoring and

supervision;

(c) planning and development of Polymodal Education curriculum;

(d) design and implementation of school-based institutional development

projects, especially with respect to organizational and pedagogical changes;

(e) provision of incentives to school-based institutional innovations projects;

and

(f) in the case of the Province of Buenos Aires, carrying out of diagnostic

studies, including action plans for the implementation of the recommendations thereof, on:

(i) Polymodal Education curriculum development; (ii) improvement of the internal and

external efficiency of secondary education; and (iii) education innovations linked with the

labor market.

3. Construction, expansion and rehabilitation of Beneficiaries' secondary education

schools.

Part B:

Strengthening of the capacity of the NPCU to coordinate and monitor Project

execution, and to provide technical assistance to the Beneficiaries.

The Project is expected to be completed by December 31, 2000.

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SCHEDULE 3

Amortization Schedule

Payment of PrincipalDate Payment Due (expressed in dollars)*

On each May 15 and September 15

beginning May 15, 2001through November 15, 2010 5,775,000

* The figures in this column represent dollar equivalents determined as of therespective dates of withdrawal. See General Conditions, Sections 3.04 and 4.03.

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Premiums on Prepayment

Pursuant to Section 3.04 (b) of the General Conditions, the premium payable on the

principal amount of any maturity of the Loan to be prepaid shall be the percentage specified

for the applicable time of prepayment below:

Time of PrepaymentPremium

The interest rate (expressedas a percentage per annum)applicable to the Loan onthe day of prepaymentmultiplied by:

Not more than three yearsbefore maturity 0.20

More than three years butnot more than six yearsbefore maturity 0.40

More than six years butnot more than 11 yearsbefore maturity 0.73

More than 11 years but notmore than 13 yearsbefore maturity 0.87

More than 13 years beforematurity 1.00

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SCHEDULE 4

Procurement and Consultants' Services

Section I. Procurement of Goods and Works

Part A: General

Goods and works shall be procured in accordance with the provisions ofSection I of the "Guidelines for Procurement under IBRD Loans and IDA Credits"published by the Bank in January 1995 (the Guidelines) and the following provisions of thisSection, as applicable.

Part B: International Competitive Bidding

1. Except as otherwise provided in Part C of this Section, goods and works shallbe procured under contracts awarded in accordance with the provisions of Section II of theGuidelines and paragraph 5 of Appendix 1 thereto.

2. The following provisions shall apply to goods to be procured under contractsawarded in accordance with the provisions of paragraph 1 of this Part B:

(a) Two-stage bidding procedure

The bidding procedure for textbooks shall be carried out in two stages inaccordance with the provisions of paragraph 2.6 of the Guidelines.

(b) Preference for domestically manufactured goods

The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2thereto shall apply to goods manufactured in the territory of the Borrower.

Part C: Other Procurement Procedures

1. Limited International Bidding

Vehicles, informatics goods (computers, peripheral equipment and computersoftware) and communications equipment (fax and photocopying machines) estimated tocost $100,000 equivalent or more per contract, and $7,500,000 equivalent or less in theaggregate, may be procured under contracts awarded in accordance with the provisions ofparagraph 3.2 of the Guidelines.

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2. National Competitive Bidding

(a) Goods (other than those referred to in paragraph 1 of this Part C) and

works estimated to cost $250,000 and $5,000,000 equivalent or less per contract,

respectively, and $17,200,000 and $40,300,000 equivalent or less in the aggregate,

respectively, may be procured under contracts awarded in accordance with the provisions of

paragraphs 3.3 and 3.4 of the Guidelines.

(b) Procurement of goods and works under this Part C.2 shall be undertaken

on the basis of standard bidding documents approved by the Bank.

3. National Shopping

Goods estimated to cost less than $100,000 equivalent per contract, and

$8,800,000 equivalent or less in the aggregate, may be procured under contracts awarded

on the basis of national shopping procedures in accordance with the provisions of

paragraphs 3.5 and 3.6 of the Guidelines.

4. Procurement of Small Works

Works estimated to cost $300,000 equivalent or less per contract, and

$12,900,000 equivalent or less in the aggregate, may be procured under lumpsum, fixed

price contracts awarded on the basis of quotations obtained from three qualified domestic

contractors in response to a written invitation. The invitation shall include a detailed

description of the works, including basic specifications, the required completion date, a

basic form of agreement acceptable to the Bank, and relevant drawings, where applicable.

The award shall be made to the contractor who offers the lowest price quotation for the

required work, and who has the experience and resources to successfully complete the

contract.

Part D: Review by the Bank of Procurement Decisions

1. Procurement Planning

Prior to the issuance of any invitations to bid for contracts, the proposed

procurement plan for the Project shall be furnished to the Bank for its review and approval,

in accordance with the provisions of paragraph 1 of Appendix I to the Guidelines.

Procurement of all goods and works shall be undertaken in accordance with such

procurement plan as shall have been approved by the Bank, and with the provisions of said

paragraph 1.

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2. Prior Review

With respect to: (a) each contract to be awarded pursuant to the provisions ofPart B or Part C.1 hereof; (b) each contract for works estimated to cost more than$1,000,000 equivalent; and (c) the first contract for works costing $1,000,000 or less andthe first contract for goods to be awarded under each Subproject and each Third GroupSubproject, in each of the first three years of execution of the Project, pursuant to theprovisions of Part C.2 hereof, the procedures set forth in paragraphs 2 and 3 of Appendix 1to the Guidelines shall apply.

3. Post Review

With respect to each contract not governed by paragraph 2 of this Part D, the

procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply.

Section II. Employment of Consultants

1. Consultants' services shall be procured under contracts awarded in accordancewith the provisions of the "Guidelines for the Use of Consultants by World Bank Borrowersand by the World Bank as Executing Agency" published by the Bank in August 1981 (theConsultant Guidelines). For complex, time-based assignments, such contracts shall bebased on the standard form of contract for consultants' services issued by the Bank, withsuch modifications thereto as shall have been agreed by the Bank. Where no relevantstandard contract documents have been issued by the Bank, other standard forms acceptableto the Bank shall be used.

2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions ofthe Consultant Guidelines requiring prior Bank review or approval of budgets, short lists,selection procedures, letters of invitation, proposals, evaluation reports and contracts shallnot apply to: (a) contracts for the employment of consulting firms estimated to cost less than$50,000 equivalent each; or (b) contracts for the employment of individual consultantsestimated to cost less than $20,000 equivalent each. However, said exceptions to priorBank review shall not apply to: (a) the terms of reference for such contracts, (b) single-source selection of consulting firms; (c) assignments of a critical nature, as reasonablydetermined by the Bank; (d) amendments to contracts for the employment of consultingfirms raising the contract value to $50,000 equivalent or above; or (e) amendments tocontracts for the employment of individual consultants raising the contract value to $20,000

equivalent or above.

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SCHEDULE 5

Special Account

1. For the purposes of this Schedule:

(a) the term "eligible Categories" means Categories (1) through (6) set forth inthe table in paragraph 1 of Schedule 1 to this Agreement;

(b) the term "eligible expenditures" means expenditures in respect of thereasonable cost of goods and services required for the Project and to be financed out of theproceeds of the Loan allocated from time to time to the eligible Categories in accordancewith the provisions of Schedule 1 to this Agreement; and

(c) the term "Authorized Allocation" means an amount equivalent to$10,000,000 to be withdrawn from the Loan Account and deposited in the Special Accountpursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Bank shallotherwise agree, the Authorized Allocation shall be limited to an amount equivalent to$5,000,000 until the aggregate amount of withdrawals from the Loan Account plus the totalamount of all outstanding special commitments entered into by the Bank pursuant toSection 5.02 of the General Conditions shall be equal to or exceed the equivalent of$20,000,000.

2. Payments out of the Special Account shall be made exclusively for eligibleexpenditures in accordance with the provisions of this Schedule.

3. After the Bank has received evidence satisfactory to it that the Special Accounthas been duly opened, withdrawals of the Authorized Allocation and subsequentwithdrawals to replenish the Special Account shall be made as follows:

(a) For withdrawals of the Authorized Allocation, the Borrower shall furnishto the Bank a request or requests for deposit into the Special Account of an amount oramounts determined by the Bank to be required to pay for eligible expenditures during thefour months following the date of each such request, which amount shall not exceed theaggregate amount of the Authorized Allocation. On the basis of such request or requests,the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit inthe Special Account such amounto r amounts as the Borrower shall have requested.

(b) (i) For replenishment of the Special Account, the Borrower shallfurnish to the Bank requests for deposits into the Special Accountat such intervals as the Bank shall specify.

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(ii) Prior to or at the time of each such request, the Borrower shallfurnish to the Bank the documents and other evidence requiredpursuant to paragraph 4 of this Schedule for the payment orpayments in respect of which replenishment is requested. On thebasis of each such request, the Bank shall, on behalf of theBorrower, withdraw from the Loan Account and deposit into theSpecial Account such amount as the Borrower shall haverequested and as shall have been shown by said documents andother evidence to have been paid out of the Special Account foreligible expenditures.

All such deposits shall be withdrawn by the Bank from the Loan Account under therespective eligible Categories, and in the respective equivalent amounts, as shall have beenjustified by said documents and other evidence.

4. For each payment made by the Borrower out of the Special Account, theBorrower shall, at such time as the Bank shall reasonably request, furnish to the Bank suchdocuments and other evidence showing that such payment was made exclusively foreligible expenditures.

5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shallnot be required to make further deposits into the Special Account:

(a) if, at any time, the Bank shall have determined that all further withdravalsshould be made by the Borrower directly from the Loan Account in accordance with theprovisions of Ar.cle V of the General Conditions and paragraph (a) of Section 2.02 of thisAgreement;

(b) if the Borrower shall have failed to furnish to the Bank, within the periodof time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports requiredto be furnished to the Bank pursuant to said Section in respect of the audit of the recordsand accounts for the Special Account;

(c) if, at any time, the Bank shall have notified the Borrower of its intention tosuspend in whole or in part the right of the Borrower to make withdrawals from the LoanAccount pursuant to the provisions of Section 6.02 of the General Conditions; or

(d) once the total unwithdrawn amount of the Loan allocated to the eligibleCategories, less the amount of any outstanding special commitment entered into by theBank pursuant to Section 5.02 of the General Conditions with respect to the Project, shallequal the equivalent of twice the amount of the Authorized Allocation.

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Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of

the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall

specify by notice to the Borrower. Such further withdrawals shall be made only after and to

the extent that the Bank shall have been satisfied that all such amounts remaining on depositin the Special Account as of the date of such notice will be utilized in making payments for

eligible expenditures.

6. (a) If the Bank shall have determined at any time that any payment out of the

Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to

paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank,the Borrower shall, promptly upon notice from the Bank: (A) provide such additionalevidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank

shall so request, refund to the Bank) an amount equal to the amount of such payment or the

portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further

deposit by the Bank into the Special Account shall be made until the Borrower has provided

such evidence or made such deposit or refund, as the case may be.

(b) If the Bank shall have determined at any time that any amount outstandingin the Special Account will not be required to cover further payments for eligible

expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank

such outstanding amount.

(c) The Borrower may, upon notice to the Bank, refund to the Bank all or anyportion of the funds on deposit in the Special Account.

(d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this

Schedule shall be credited to the Loan Account for subsequent withdrawal or forcancellation in accordance with the relevant provisions of this Agreement, including theGeneral Conditions.

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SCHEDULE 6

Subsidiary Loan Agreementsand Third Group Subsidiary Loan Agreements

Section I - Subsidiary Loan Agreements

The Subsidiary Loan Agreements shall include the following terms andconditions:

1. Subloans shall be made under the same terms and conditions of the Loan withrespect to repayment period, interest rate, commitment charge and currency provisions, and,subject to the provisions of Section 3.04 (b) of this Agreement, the respective amounts ofthe Subloans to the Participating Entities, shall be as follows:

Province of Buenos Aires: $4,900,000Province of Chaco: $14,000,000Province of Corrientes: $13,800,000Province of Entre Rios: $13,600,000Municipality of Buenos Aires: $36,400,000Province of Salta: $13,200,000Province of Santa Cruz: $7,300,000Province of Tucuman: $10,000,000

2. The Participating Entity and, if applicable, the Replacement Participating Entityshall:

(a) comply with the provisions of Sections 3.01 (b), 3.02, 3.03 and 4.02 of theLoan Agreement in respect of its Subproject;

(b) during the execution of its Subproject, maintain a unit, within PME, incharge of the coordination of the execution of the Subproject (the PPCU), with staff,responsibilities, budget and functions satisfactory to the Borrower and the Bank;

(c) substantially comply, on a progressive basis acceptable to the Bank, withthe Project Impact Indicators in respect of such Participating Entity, or, in the case of aReplacement Participating Entity, with the impact indicators referred to in paragraph 3 (b)(v) of Schedule 1 to this Agreement;

(d) substantially achieve, in a manner acceptable to the Bank, the componentsof the Project Implementation Targets applicable to such Participating Entity, or, in the

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case of a Replacement Participating Entity, the implementation targets referred to in

paragraph 3 (b) (v) of Schedule 1 to this Agreement;

(e) provide all the assistance required by the Borrower for the purposes of

compliance with Sections 3.07 and 3.09 of the Loan Agreement; and

(f) participate, jointly with the Borower, in the reviews referred to in Section3.08 of the Loan Agreement.

3. Each Participating Entity or Replacement Participating Entity shAll make

available, promptly as needed in each year during the execution of its Subproject, thecounterpart funds required for the efficient execution of its Subproject.

Section II - Third Group Subsidiary Loan Agreements

The Third Group Subsidiary Loan Agreements shall include the following

terms and conditions:

1. Subloans shall be made under the same terms and conditions of the Loan with

respect to repayment period, interest rate, commitment charge and currency provisions.

2. The Third Group Province shall take all action on its part necessary to enable

the Borrower to carry out, on behalf of the Third Group Province, the Third GroupSubproject.

3. The Third Group Province shall substantially comply, on a progressive basis

acceptable to the Bank, with the impact indicators referred to in paragraph 3 (c) of Schedule1 to this Agreement.

4. The Borrower shall substantially achieve, in a manner acceptable to the Bank,the implementation targets referred to in paragraph 3 (c) of Schedule 1 to this Agreement.

INTERNATIONAL BANKFOR RECONSTRUCTION AND DEVELOPMENT

CERTIFICATE

I hereby certify that the foregoing is a true copy of

the original in the archives of the International Bank

for Reconstruction and Development.

FOR SECR TARY