Public Disclosure Authorized

CONFORMED COPY

LOAN NUMBER 7666-ID

Public Disclosure Authorized

Loan Agreement
(Additional Financing for the National Program
for Community Empowerment in Rural Areas Project)

between
Public Disclosure Authorized

REPUBLIC OF INDONESIA

and

INTERNATIONAL BANK FOR RECONSTRUCTION

AND DEVELOPMENT
Public Disclosure Authorized

Dated May 1, 2009

 LOAN AGREEMENT

Agreement dated May 1, 2009, between REPUBLIC OF INDONESIA

(“Borrower”) and INTERNATIONAL BANK FOR RECONSTRUCTION AND
DEVELOPMENT (“Bank”).

This Agreement: (i) sets out the terms and conditions related to the Additional
Financing for the National Program for Community Empowerment in Rural Areas
Project to provide additional financing to existing Project Kabupatens and Project
Kecamatans and to extend the Project to additional Kabupatens and Kecamatans; and
(ii) incorporates by reference the relevant provisions of the Financing Agreement
between the Borrower and the International Development Association, dated June
6, 2008, for the Project (Credit No. 4385) (as amended through the date of this
Agreement) (herein referred to as the “Original Financing Agreement”) and the Loan
Agreement, dated June 6, 2008, between the Borrower and the Bank for the Project
(Loan No. 7505-ID) (as amended through the date of this Agreement) (herein referred to
as the “Original Loan Agreement”).

The Borrower and the Bank hereby agree as follows:

ARTICLE I — IBRD GENERAL CONDITIONS; DEFINITIONS

1.01. The International Bank for Reconstruction and Development General Conditions
for Loans, dated July 1, 2005 (as amended through February 12, 2008) (“IBRD
General Conditions”) constitute an integral part of this Agreement.

1.02. Unless the context requires otherwise, the capitalized terms used in this
Agreement have the meanings ascribed to them in the IBRD General Conditions,
or in the Appendix to this Agreement.

ARTICLE II — LOAN

2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or
referred to in this Agreement, the amount of three hundred million United States
Dollars (US$300,000,000), as such amount may be converted from time to time
through a Currency Conversion in accordance with the provisions of Section 2.07
of this Agreement (“Loan”), to assist in financing the project described in
Schedule 1 to this Agreement (“Project”).

2.02. The Borrower may withdraw the proceeds of the Loan in accordance with
Section IV of Schedule 2 to this Agreement.
 2

2.03. The Front-end Fee payable by the Borrower shall be equal to one quarter of one
percent (0.25%) of the Loan amount. The Borrower shall pay the Front-end Fee
not later than sixty (60) days after the Effective Date.
2.04. The interest payable by the Borrower for each Interest Period shall be at a rate
equal to LIBOR for the Loan Currency plus the Fixed Spread; provided, that
upon a Conversion of all or any portion of the principal amount of the Loan, the
interest payable by the Borrower during the Conversion Period on such amount
shall be determined in accordance with the relevant provisions of Article IV of
the IBRD General Conditions. Notwithstanding the foregoing, if any amount of
the Withdrawn Loan Balance remains unpaid when due and such non-payment
continues for a period of thirty (30) days, then the interest payable by the
Borrower shall instead be calculated as provided in Section 3.02(d) of the IBRD
General Conditions.

2.05. The Payment Dates are April 15 and October 15 in each year.

2.06. The principal amount of the Loan shall be repaid in accordance with the
provisions of Schedule 3 to this Agreement.

2.07. (a) The Borrower may at any time request any of the following Conversions
of the terms of the Loan in order to facilitate prudent debt management:
(i) a change of the Loan Currency of all or any portion of the principal
amount of the Loan, withdrawn or unwithdrawn, to an Approved
Currency; (ii) a change of the interest rate basis applicable to all or any
portion of the principal amount of the Loan withdrawn and outstanding
from a Variable Rate to a Fixed Rate, or vice versa; and (iii) the setting
of limits on the Variable Rate applicable to all or any portion of the
principal amount of the Loan withdrawn and outstanding by the
establishment of an Interest Rate Cap or Interest Rate Collar on the
Variable Rate.

(b) Any conversion requested pursuant to paragraph (a) of this Section that
is accepted by the Bank shall be considered a “Conversion”, as defined
in the IBRD General Conditions, and shall be effected in accordance
with the provisions of Article IV of the IBRD General Conditions and of
the Conversion Guidelines.

ARTICLE III — PROJECT

3.01. The Borrower declares its commitment to the objectives of the Project. To this
end, the Borrower shall carry out the Project, through MOHA, in accordance
with the provisions of Article V of the IBRD General Conditions.
 3

3.02. Without limitation upon the provisions of Section 3.01 of this Agreement and
subject to Section 3.03 of this Agreement, and except as the Borrower and the
Bank shall otherwise agree, Sections 3.01 and 3.02 of the Original Financing
Agreement, and Schedules 1 and 2 (other than Section IV of Schedule 2) and the
Annexes and the Appendix thereto, are incorporated in this Agreement with the
following modifications in such Sections, Schedules, Annexes and Appendix,
unless the context otherwise requires:

(a) references to the “Financing Agreement” shall be construed as references

to “Loan Agreement”;

(b) references to the “Association” shall be construed as references to the

“Bank”;

(c) references to “Credit” or “Financing” shall be construed as references to

the “Loan”;

(d) references to the “Recipient” shall be construed as references to the

“Borrower”;

(e) references to provisions of the IDA General Conditions shall be

construed as references to the corresponding provisions of the IBRD
General Conditions;

(f) Schedule 2 to the Original Financing Agreement is modified for the

purposes of the Loan as set out in Schedule 2 to this Agreement; and

(g) the Appendix to the Original Financing Agreement is modified for the
purposes of the Loan as set out in the Appendix to this Agreement.

3.03. So long as any part of the Credit provided for under the Original Financing
Agreement shall remain outstanding, and unless the Borrower has been notified
otherwise by the Bank:

(a) all actions taken, including approvals given by the Association, pursuant
to any of the Sections of, and Schedules to, the Original Financing
Agreement enumerated in Section 3.02 of this Agreement shall be
deemed to have been taken or given in the name and on behalf of both
the Association and the Bank; and

(b) all information or documentation furnished by the Recipient to the

Association pursuant to the provisions of any of such Sections of the
Original Financing Agreement or Schedules thereto shall be deemed to
have been furnished to both the Association and Bank.
 4

ARTICLE IV — EFFECTIVENESS; TERMINATION

4.01. The Additional Conditions of Effectiveness consist of the following:

(a) Amendment No. 1 to the Original Financing Agreement and Amendment
No. 1 to the Original Loan Agreement, in form and substance satisfactory to the
Bank and the Borrower, shall have been become effective; and (b) revisions to
the Project Manual, acceptable to the Borrower and the Bank, to reflect the
Additional Financing, shall have been adopted by the Borrower.

4.02. The Effectiveness Deadline is the date ninety (90) days after the date of this
Agreement.

ARTICLE V — REPRESENTATIVE; ADDRESSES

5.01. The Borrower’s Representative is the Minister of Finance of the Borrower.

5.02. The Borrower’s Address is:

Ministry of Finance
c/o Directorate General of Debt Management
Jalan Lapangan Banteng Timur 2-4
Jakarta 10710
Indonesia

Cable address: Telex: Facsimile:

FINMINISTRY 45799 DJMLN-IA (21) 381 2859

Jakarta 44319 DEPKEU-IA

5.03. The Bank’s Address is:

International Bank for Reconstruction and Development

1818 H Street, N.W.
Washington, D.C. 20433
United States of America

Cable address: Telex: Facsimile:

INTBAFRAD 248423(MCI) or 1-202-477-6391

Washington, D.C. 64145(MCI)
 5

AGREED at Jakarta, Republic of Indonesia, as of the day and year first above
written.

REPUBLIC OF INDONESIA

By: /s/ Rahmat Waluyanto

Authorized Representative

INTERNATIONAL BANK FOR

RECONSTRUCTION AND DEVELOPMENT

By: /s/ William Wallace

Authorized Representative
 6

SCHEDULE 1

Project Description

The objective of the Project is to contribute to the realization of the PNPM’s

overall development goals, namely, to reduce poverty and improve local-level
governance in rural areas of Indonesia through the provision of investment resources to
support productive proposals developed by communities, using a participatory planning
process.

The Project consists of the Project described in Schedule 1 to the Original

Financing Agreement, which will be extended to include approximately 1,507 additional
Project Kecamatans and will provide additional financing to approximately 2,864
existing Project Kecamatans.
 7

SCHEDULE 2

Project Execution

Section I. Implementation Arrangements

The implementation arrangements described in Section I of Schedule 2 to the Original

Financing Agreement constitute an integral part of this Agreement and are incorporated
by reference herein.

Section II. Project Monitoring, Reporting and Evaluation

The Project monitoring, reporting and evaluation arrangements described in Section II of

Schedule 2 to the Original Financing Agreement constitute an integral part of this
Agreement and are incorporated by reference herein.

Section III. Procurement

The procurement arrangements described in Section III of Schedule 2 to the Original

Financing Agreement, as amended by Amendment No. 1 to the Original Financing
Agreement, constitute an integral part of this Agreement and are incorporated by
reference herein.

Section IV. Withdrawal of Loan Proceeds

A. General

1. The Borrower may withdraw the proceeds of the Loan in accordance with the
provisions of Article II of the IBRD General Conditions, this Section, and such
additional instructions as the Bank shall specify by notice to the Borrower
(including the “World Bank Disbursement Guidelines for Projects” dated May
2006, as revised from time to time by the Bank and as made applicable to this
Agreement pursuant to such instructions), to finance Eligible Expenditures as set
forth in the table in paragraph 2 below.

2. The following table specifies the categories of Eligible Expenditures that may be
financed out of the proceeds of the Loan (“Category”), the allocation of the
amounts of the Loan to each Category, and the percentage of expenditures to be
financed for Eligible Expenditures in each Category.
 8

Amount of the Loan Percentage of Expenditures to be

Allocated Financed
Category (expressed in USD) (inclusive of Taxes)

(1) Block Grants 214,595,000 100% of Block Grant amount disbursed

(2) Facilitation support 60,565,000 100%

(3) Goods, Consultants’ 23,915,000 100%

services, training and
workshops

(4) Incremental 925,000 100%

Operating costs

TOTAL AMOUNT 300,000,000

B. Withdrawal Conditions; Withdrawal Period

1. Notwithstanding the provisions of Part A of this Section, no withdrawal shall be

made:

(a) from the Loan Account until the Bank has received payment in full of the
Front-end Fee; or

(b) for payments made prior to the date of this Agreement; or

(c) under Category (1) until the cumulative amount of least US$100,000,000
of the advance of the proceeds of the Original Credit and the Original
Loan in the “Designated Account” has been utilized and documented in a
manner satisfactory to the Bank. For the purposes of this sub-paragraph
(c), the term “Designated Account” means the account referred to in the
letter, from the Bank to the Borrower, dated June 6, 2008, setting out
additional instructions on disbursement for the Original Financing
Agreement and the Original Loan Agreement.

2. The Closing Date is December 31, 2011.

 9

SCHEDULE 3

Amortization Schedule

1. The following table sets forth the Principal Payment Dates of the Loan and the
percentage of the total principal amount of the Loan payable on each Principal
Payment Date (“Installment Share”). If the proceeds of the Loan have been fully
withdrawn as of the first Principal Payment Date, the principal amount of the
Loan repayable by the Borrower on each Principal Payment Date shall be
determined by the Bank by multiplying: (a) Withdrawn Loan Balance as of the
first Principal Payment Date; by (b) the Installment Share for each Principal
Payment Date, such repayable amount to be adjusted, as necessary, to deduct any
amounts referred to in paragraph 4 of this Schedule, to which a Currency
Conversion applies.

Principal Payment Date Installment Share

(Expressed as a Percentage)

April 15, 2018 2.17

October 15, 2018 2.22
April 15, 2019 2.28
October 15, 2019 2.34
April 15, 2020 2.40
October 15, 2020 2.46
April 15, 2021 2.52
October 15, 2021 2.58
April 15, 2022 2.64
October 15, 2022 2.71
April 15, 2023 2.78
October 15, 2023 2.85
April 15, 2024 2.92
October 15, 2024 2.99
April 15, 2025 3.07
October 15, 2025 3.14
April 15, 2026 3.22
October 15, 2026 3.30
April 15, 2027 3.38
October 15, 2027 3.47
April 15, 2028 3.56
October 15, 2028 3.65
April 15, 2029 3.74
October 15, 2029 3.83
April 15, 2030 3.93
 10

October 15, 2030 4.02

April 15, 2031 4.12
October 15, 2031 4.23
April 15, 2032 4.33
October 15, 2032 4.44
April 15, 2033 4.71

2. If the proceeds of the Loan have not been fully withdrawn as of the first Principal
Payment Date, the principal amount of the Loan repayable by the Borrower on
each Principal Payment Date shall be determined as follows:

(a) To the extent that any proceeds of the Loan have been withdrawn as of
the first Principal Payment Date, the Borrower shall repay the
Withdrawn Loan Balance as of such date in accordance with paragraph 1
of this Schedule.

(b) Any amount withdrawn after the first Principal Payment Date shall be
repaid on each Principal Payment Date falling after the date of such
withdrawal in amounts determined by the Bank by multiplying the
amount of each such withdrawal by a fraction, the numerator of which is
the original Installment Share specified in the table in paragraph 1 of this
Schedule for said Principal Payment Date (“Original Installment Share”)
and the denominator of which is the sum of all remaining Original
Installment Shares for Principal Payment Dates falling on or after such
date, such amounts repayable to be adjusted, as necessary, to deduct any
amounts referred to in paragraph 4 of this Schedule, to which a Currency
Conversion applies.

3. (a) Amounts of the Loan withdrawn within two (2) calendar months prior to
any Principal Payment Date shall, for the purposes solely of calculating
the principal amounts payable on any Principal Payment Date, be treated
as withdrawn and outstanding on the second Principal Payment Date
following the date of withdrawal and shall be repayable on each
Principal Payment Date commencing with the second Principal Payment
Date following the date of withdrawal.

(b) Notwithstanding the provisions of sub-paragraph (a) of this paragraph, if

at any time the Bank adopts a due date billing system under which
invoices are issued on or after the respective Principal Payment Date, the
provisions of such sub-paragraph shall no longer apply to any
withdrawals made after the adoption of such billing system.
 11

4. Notwithstanding the provisions of paragraphs 1 and 2 of this Schedule, upon a

Currency Conversion of all or any portion of the Withdrawn Loan Balance to an
Approved Currency, the amount so converted in the Approved Currency that is
repayable on any Principal Payment Date occurring during the Conversion
Period, shall be determined by the Bank by multiplying such amount in its
currency of denomination immediately prior to the Conversion by either: (i) the
exchange rate that reflects the amounts of principal in the Approved Currency
payable by the Bank under the Currency Hedge Transaction relating to the
Conversion; or (ii) if the Bank so determines in accordance with the Conversion
Guidelines, the exchange rate component of the Screen Rate.

5. If the Withdrawn Loan Balance is denominated in more than one Loan Currency,
the provisions of this Schedule shall apply separately to the amount denominated
in each Loan Currency, so as to produce a separate amortization schedule for
each such amount.
 12

APPENDIX

Section I. Application of Appendix to the Original Financing Agreement.

The Appendix to the Original Financing Agreement constitutes an

integral part of this Agreement, with the modifications set out in Section
II to this Appendix.

Section II. Definitions Applicable to this Agreement

1. “Amendment No. 1 to the Original Financing Agreement means the amendment,

of even date herewith, between the Borrower and the International Development
Association amending the Original Financing Agreement.

2. “Amendment No. 1 to the Original Loan Agreement”, means the amendment, of

even date herewith, between the Borrower and the Bank amending the Original
Loan Agreement.

3. “Category” means a category set forth in the table in Section IV of Schedule 2 to

this Agreement.

4. “Loan” means the loan provided for in this Agreement

5. “Loan Agreement” means this Agreement.

6. “Original Credit” means the credit in the amount of one hundred nineteen million
five hundred thousand Special Drawing Rights (SDR119,500,000) made
available to the Borrower pursuant to the Original Financing Agreement.

7. “Original Financing Agreement” means the agreement (Credit No. 4385), dated
June 6, 2008, herewith between the Borrower and the International Development
Association for the Project, as such agreement has been and may be amended
from time to time.

8. “Original Loan” means the loan in the amount of forty one million one hundred
ninety thousand Dollars ($41,190,000) (Loan No. 7505) made available to the
Borrower pursuant to the Original Loan Agreement.

9. “Original Loan Agreement” means the agreement (Loan No. 7505), dated June 6,
2008, between the Borrower and the International Bank for Reconstruction and
Development for the Project, as such agreement has been and may be amended
from time to time.
 13

Section III. Modifications to the IBRD General Conditions

The modifications to the IBRD General Conditions are as follows:

1. Paragraph (l) of Section 7.02 is modified to read as follows:

“Section 7.02. Suspension by the Bank

... (l) Ineligibility. The Bank or the Association has declared the Borrower
(other than the Member Country) or the Project Implementing Entity ineligible to
receive proceeds of any financing made by the Bank or the Association or
otherwise to participate in the preparation or implementation of any project
financed in whole or in part by the Bank or the Association, as a result of a
determination by the Bank or the Association that the Borrower or the Project
Implementing Entity has engaged in fraudulent, corrupt, coercive or collusive
practices in connection with the use of the proceeds of any financing made by the
Bank or the Association.”

2. The following terms and definitions set forth in the Appendix are modified or
deleted as follows, and the following new terms and definitions are added in
alphabetical order to the Appendix as follows, with the terms being renumbered
accordingly:

(a) The definition of the term “Conversion Date” is modified to read

as follows:

“‘Conversion Date’ means, in respect of a Conversion, the Execution

Date (as herein defined) or such other date as requested by the Borrower
and accepted by the Bank, on which the Conversion enters into effect,
and as further specified in the Conversion Guidelines.”