0 About Invest stor or Relation ons s Unit (IRU) U) ABOUT THE - - PowerPoint PPT Presentation

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Published by Investor Relations Unit – Republic of Indonesia Contact: Wiwit Widyastuti K. (International Department - Bank Indonesia, Phone: +6221 2981 8279) Dalyono (Fiscal Policy Office – Ministry of Finance) Subhan Noor (Debt Management Office - Ministry of Finance, Phone: +6221 381 0175) E-mail: contactIRU-DL@bi.go.id ABOUT THE REPUBLIC OF INDONESIA INVESTOR RELATIONS UNIT The Republic of Indonesia Investor Relations Unit (IRU) has been established as the joint effort between the Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian economic policy and address concerns of investors, especially financial market investors. IRU is expected to serve as a single point of contact for the financial market participants. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is being administrated by the International Department of Bank Indonesia. However, investor relations activities involve a coordinated efforts which are supported by all relevant government agencies, i.e. Bank Indonesia, the Ministry of Finance, the Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of Industry, State Ministry of State Owned Enterprises, State Asset Management Company, and the Central Bureau of Statistics. IRU also holds an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices.

About Invest stor

• r Relation
• ns

s Unit (IRU) U)

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Table of Content

Executive Summary Preserved Macroeconomic Stability Improved International Perception and Rising Investment Prudent Fiscal Management Government Debt Performance

2

Wide Range of Policy Reforms to Boost Economic Growth

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Executive Summary

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Executive ve Summa mary ry

• The economy of Indonesia slowed in 2015 in line with weaker global growth. Domestic economic growth was projected at 4.8%

annually, down from the 5.0% (yoy) achieved in 2014. The slowdown was prompted by sluggish exports on the back of weaker global demand and lower commodity prices. In 2016, economic growth in Indonesia is projected in the range of 5.2-5.6% (yoy), bolstered by fiscal stimuli, primarily in the form of infrastructure projects, and tenacious consumption.

• The 2015 current account was expected improve from the previous year at around 2% of GDP

. Improvements in the non-oil and gas as well as oil and gas trade balances contributed to the smaller current account deficit as imports decreased significantly. This was in line with the considerably weak domestic demand and exports due to lower commodity prices and dwindling global demand.

• Depreciatory pressures on the exchange rate have escalated in 2015, triggered by uncertainties in the FFR hike and Yuan
• depreciation. Through to November 2015, the rupiah depreciated by an average of 11.05% to a level of Rp13,351 per USD. Rupiah

depreciation was precipitated by a number of externalities, including uncertainty surrounding the timing and magnitude of the FFR hike, concerns over fiscal negotiations in Greece and Yuan depreciation against a backdrop of economic moderation in China.

• Inflation in 2015 was projected below 3%. Low inflation was supported by volatile foods, deflation of administered prices and

controlled core inflation. In November 2015, Consumer Price Index (CPI) data recorded inflation of 0.21% (mtm), affecting all components. Consequently, CPI inflation from January-November 2015 was recorded at 2.37% (ytd) or 4.89% (yoy) on an annualised basis. Inflation in 2016 was predicted to remain within the target corridor of 4±1%.

• Financial system stability remained solid, underpinned by a resilient banking system and relatively stable financial markets.

Banking industry resilience endured, with credit, liquidity and market risks well mitigated. In October 2015, the Capital Adequacy Ratio (CAR) remained well above the 8% minimum threshold at 20.8%, while non-performing loans (NPL) were low and stable at 2.7% (gross) or 1.4% (net).

• The BI Board of Governors agreed on 17th December 2015 to hold the BI Rate at 7.50%, while maintaining the Deposit Facility

rate at 5.50% and the Lending Facility rate at 8.00%. Bank Indonesia believes that rooms for monetary easing are open, on the back of preserved macroeconomic stability, specifically end-2015 inflation that is projected to be below 3%, and current account deficit, projected at around 2% of GDP . However, with the lingering uncertainty in the global financial market, Bank Indonesia will remain vigilant in easing its monetary policy.

• On the fiscal front, Indonesia will continue its prudent fiscal management in 2015 with strong commitment to fiscal
• consolidation. Recent policy reforms represent an essential step and integral part of structural reforms to strengthen economic

fundamentals in Indonesia. The budget deficit for 2015 will be maintained below the threshold of 3.0% of GDP .

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5.7 5.5 6.3 6.0 4.6 6.1 6.5 6.0 5.6 5.0 4.7 4.7 4.7

• 1.0

2.0 3.0 4.0 5.0 6.0 7.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* Q1 2015 Q2 2015 Q3 2015

Executive ve Summa mary ry

GDP Growth Inflation Fiscal Balance Balance of Payments 5

* Preliminary Figures (%)

• 0.7%

1.1% 1.8% 2.2% 2.2% (3.0) (2.5) (2.0) (1.5) (1.0) (0.5)

• 2010

2011 2012 2013 2014

Fiscal Surplus / (Deficit) (% of GDP) (%)

billion USD billion USD Source: BPS, Bank Indonesia Source: Bank Indonesia Source: Bank Indonesia Source: BPS 20 40 60 80 100 120 140

• 15
• 10
• 5

5 10 15 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4* Q1* Q2** 2010 2011 2012 2013 2014 2015 Current Account Capital & Financial Account Overall Balance Reserve Assets

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6

Source: Ministry of Finance

Debt Composition Table of Debt to GDP Ratio Central Government Debt to GDP Ratio (% of GDP) Note: Using GDP at Current Market Prices [2010 Version] *) Preliminary Figures

Executive ve Summa mary ry

24.5% 23.1% 23.0% 24.9% 24.7%

0% 5% 10% 15% 20% 25% 30%

2010 2011 2012 2013 2014*

53.7% 54.9% 55.5% 53.2% 56.7% 56.0% 46.3% 45.1% 44.5% 46.8% 43.3% 44.0% 0% 20% 40% 60% 80% 100% 120%

2010 2011 2012 2013 2014 Nov-15

Domestic Debt Foreign Debt

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2015 Policy y Summa mary ry

Government’s coordinated policy tools to promote growth through macroeconomic management

 Capital injection to state-owned companies, as agents

• f

development in supporting national priorities.  Optimizes Governments securities issuance from domestic sources to fulfill Budget need and uses foreign debts as complimentary.  Determines debt instrument by taken into account of market need in regard to market development and portfolio management.  Issues Retail Bond for instrument diversification and financial inclusion.  Optimizes foreign and domestic loan instrument to fulfill Budget need on capital expenditure.  Conducts active portfolio management of Government securities in

• rder to promote market liquidity and stability.

 Strengthens the function of Investor Relations Unit. Quality of Spending Financing and Debt Management Policy State Revenues Optimization Monetary Policy Mix  Bold and pre-emptive policy through BI Policy Rate, responsively adjusting to current macroeconomic condition.  Exchange rate flexibility to facilitate external adjustments.  Financial market deepening and capital flows management.  Accommodative measures of macroprudential policy.  Policy coordination with the government and financial stability forum.  Central bank cooperations, including second line of defences. 7  Fuel subsidy savings of IDR 211.3 trillion.  Reallocation of savings towards basic infrastructure (food security, connectivity and maritime) and social welfare.  Infrastructure expenditure is higher than energy subsidy.  Food security spending larger than energy subsidy.  Additional allocation for village funds.  Cashless smart cards system for better targeted subsidy.  Capital injection to SOEs. Strategies:  Improving compliance rate.  Closing tax leakage (especially VAT Refund).  Expanding tax base (Mapping Tax Payer).

Manageable Fiscal Deficit

 Fiscal deficit to be maintained below 3% of GDP  Spacious fiscal room for maneuver to anticipate global uncertainty.

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Improved International Perception and Rising Investment

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Moody’s

Jan 2015 “Indonesia’s Baa3 government bond rating is supported by narrow fiscal deficits, low government debt ratios, the large size of the Indonesian economy and its healthy GDP growth prospects. The stable outlook on the rating is supported by our expectation of continued policy efforts to maintain the macro-economic balance in the face

• f lower prices for Indonesia’s commodity exports and possible global

financial volatility in 2015.” May 2015 “S&P outlook revision reflects S&P’s view of Indonesia's improved policy credibility stemming from initiatives to bolster monetary and financial sector management as well as economic performance. S&P expects these actions to improve Indonesia's growth prospects and external resilience. The ratings on Indonesia balance the country's low per capita income and developing policy and institutional settings against the improved credibility

• f its monetary policy, buoyant economic growth, and sound public

finances.”

Baa3 / Stable BB+ / Positive

Source: Moody’s, S&P, Fitch

Impro rovi ving g Intern rnation

• nal Percept

ption

• n:

: Acknowl

• wledg

dged d by Rati ting g Agencies

S&P Fitch

Investment grade Positive Outlook Negative Outlook Stable Outlook Positive Watch Investment grade Investment grade

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Mar-99 Dec-99 Sep-00 Jun-01 Mar-02 Dec-02 Aug-03 May-04 Feb-05 Nov-05 Aug-06 May-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Mar-13 Dec-13 Sep-14 Jun-15 B- B B+ BB- BB BB+ BBB- CCC+ CCC Mar-99 Dec-99 Sep-00 Jun-01 Mar-02 Dec-02 Aug-03 May-04 Feb-05 Nov-05 Aug-06 May-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Mar-13 Dec-13 Sep-14 Jun-15 B- B B+ BB- BB BB+ BBB- CCC+ CCC Mar-99 Dec-99 Sep-00 Jun-01 Mar-02 Dec-02 Aug-03 May-04 Feb-05 Nov-05 Aug-06 May-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Mar-13 Dec-13 Sep-14 Jun-15 B- B B+ BB- BB BB+ BBB- CCC+ CCC

Dec 2011 (affirmed Nov 2015) “The recent wave of reform initiatives by the government is likely to improve the business sentiment. The series of packages contain a number of measures with the potential in the longer run to significantly change the business environment, which can currently be characterised as difficult. The reform agenda may signal a structural change from a more nationalistic approach to economic policy of the recent past. Fitch expects annual real GDP growth to pick up to 5.3% in 2016 and 5.5% in 2017 from 4.8% in 2015..”

BBB- / Stable

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Inter ternatio tional inst stitutio tions s outl tloo

• ok shows

ws some opti timis mism m thou

• ugh

gh there is still downsi side de risk for Indon

• nesi

sia in 2015

10 `

IMF Staff 2015 Article IV Mission to Indonesia (December 2015) World Bank IEQ (December 2015)

“Medium-term prospects are favorable, supported by an inclusive growth-enhancing policy agenda that also places emphasis on stability”

• Economic growth has stabilized

and is projected to reach 4.7% this

• year. A moderate acceleration to

around 5% is forecast in 2016.

• Inflation has fallen sharply and is

projected to reach 3% at end-

• 2015. Next year, it is expected to

remain within the official band (3– 5%).

• CAD will narrow significantly in

2015, to an estimated 2% of GDP, and is projected to increase moderately in 2016 . Risk

• Downside risk are mainly from

external factors incl. more volatile global financial conditions, a deeper-than-expected slowdown in emerging market trading partners, and further declines in commodity prices.

• Domestic risks could arise from

slower-than-expected progress on implementation of key structural reforms, tax revenue and infrastructure spending. “The government is responding

and demonstrating intent to implement reforms. For example, it increased capital spending by an estimated 49.8% (yoy) in real terms in the third quarter.”

• GDP growth is expected to

bottom out at 4.7% in 2015, picking up to 5.3% in 2016.

• Increased public sector spending

has helped support growth, with the GDP growing at 4.7% yoy in the third quarter, the same pace as in Q1 and Q2 2015.

• The Dana Desa, or Village Fund,

is set to increase substantially next year, potentially contributing to public infrastructure spending Risk

• If revenue collection remains

weak in 2016, the ongoing public infrastructure spending momentum and its growth impulse may be at risk.

Asian Development Outlook (March 2015)

“Policy reform to improve the investment climate is expected to spur economic recovery this year and next”

• GDP growth is forecast to recover to

5.5% this year and 6.0% in 2016

• Inflation is projected to subside to

average 5.5% in 2015 and 4.0% in 2016

• Exports are expected to rise slightly

this year—by 1.2% in US dollar terms—before trending higher in 2016.

• The trade surplus is projected to rise

this year and the current account deficit to narrow gradually over the next 2 years. Inflows of direct and portfolio investment should keep the balance of payments in surplus. Risk

• Downside domestic risks to the
• utlook are shortfalls in government

revenue and slowing momentum on reform.

• External risks would be posed by

unexpected weakness in the growth

• f major trading partners and

disruption to capital flows to emerging markets triggered by the expected rise in US interest rates.

OECD Economic Forecast (June 2015)

“…activity is projected to pick up later in 2015 and strengthen further in 2016…”

• …as public spending gathers

pace, confidence recovers and the expansionary impact of the depreciation of the rupiah takes hold.

• Inflation is now moderating, in

large part because of the fall in energy prices.

• Official interest rates are

assumed to remain unchanged through 2015 and then fall slightly in 2016.

• The abolition of fuel subsidies

has provided the necessary fiscal space for increased public infrastructure investment. Risk

• The exchange rate may remain

fragile as the external imbalance persists

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Preserved Macroeconomic Stability

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The Econom

• my

y Slowed d in 2015, , Expected ted to Pick Up in 2016

12

• In line with weaker global growth, the economy of Indonesia

also slowed in 2015. Accordingly, domestic economic growth was projected at 4.8% annually, down from the 5.0% (yoy) achieved in 2014.

• The slowdown was prompted by sluggish exports on the

back of weaker global demand and lower commodity prices. Such conditions were more pronounced in regions reliant on natural resources. In line with the continuously weak export, limited investment growth was also recorded.

• Construction growth bucked the downward trend due to the

realisation of government infrastructure projects, while non- construction growth was limited. Notwithstanding, robust household and government consumption supported economic growth.

• In 2016, economic growth in Indonesia is projected in the

range of 5.2-5.6% (yoy), bolstered by fiscal stimuli, primarily in the form

• f

infrastructure projects, and tenacious consumption.

• Meanwhile, investment is expected to increase in line with

solid macroeconomic stability and the implementation of government policy packages designed to attract investment.

• In

addition, government measures to boost public purchasing power coupled with effective fiscal stimuli will play a key role in terms of catalysing economic growth in 2016.

Economic Growth - Expenditure Side S e c t o r 2013 2014 2014 2015 I II III IV I II III Household Consumption 5.4 5.4 5.1 5.1 5.0 5.1 5.0 5.0 5.0 NPI Serving Household Consumption Expenditure 8.2 23.7 22.8 5.6 (-0.2) 12.4 (-8.3) (-7.9) 6.4 Gross Fixed Capital Formation 5.3 4.7 3.7 3.9 4.3 4.1 4.4 3.7 4.6 Government Consumption 6.9 6.1 (-1.5) 1.3 2.8 2.0 2.7 2.1 6.6 Exports of Goods and Services 4.2 3.2 1.4 4.9 (-4.5) 1.0 (-1.0) (-0.1) (-0.7) Imports of Goods and Services 1.9 5.0 0.4 0.3 3.2 2.2 (-2.4) (-7.0) (-6.1) GDP 5.6 5.1 5.0 4.9 5.0 5.0 4.7 4.7 4.7 Economic Growth - Supply Side S e c t o r 2013 2014 2014 2015 I II III IV I II III Agriculture, Forestry, and Fisheries 4.2 5.3 5.0 3.6 2.8 4.2 4.0 6.8 3.2 Mining and Quarrying 1.7 (-2.0) 1.1 0.8 2.2 0.5 (-1.5) (-6.2) (-5.6) Manufacturing 4.5 4.5 4.8 5.0 4.2 4.6 4.0 4.3 4.3 Electricity and Gas 5.2 3.3 6.5 6.0 6.5 5.6 1.7 0.8 0.6 Water Supply, Waste Management and Recycling 4.1 3.6 3.2 2.8 2.7 3.0 2.9 6.0 7.6 Construction 6.1 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 Wholesale and Retail Trade; Automotives 4.7 6.1 5.1 4.8 3.5 4.8 4.0 1.8 1.5 Transportation and Warehousing 8.4 8.4 8.5 8.0 7.1 8.0 6.3 6.5 7.1 Provision of Accommodation and Food & Beverage 6.8 6.5 6.4 5.9 4.9 5.9 3.6 3.9 4.5 Information and Communication 10.4 9.8 10.5 9.8 10.0 10.0 10.1 9.8 10.8 Financial Services and Insurance 9.1 3.2 4.9 1.5 10.2 4.9 7.6 2.5 10.4 Real Estate 6.5 4.7 4.9 5.1 5.3 5.0 5.3 5.0 4.8 Business Services 7.9 10.3 10.0 9.3 9.7 9.8 7.4 7.6 7.6 Administration, Defence, and Social Security 2.4 2.9 (-2.5) 2.6 6.9 2.5 4.7 6.6 1.2 Education Services 8.2 5.2 5.4 7.3 7.1 6.3 5.8 12.2 8.3 Health Services and Social Activities 7.8 7.7 8.5 9.9 6.1 8.0 7.3 8.2 6.5 Other Services 6.4 8.4 9.5 9.5 8.4 8.9 8.0 8.1 8.2 GDP 5.6 5.1 5.0 4.9 5.0 5.0 4.7 4.7 4.7

Economic Growth

Source: BPS, Bank Indonesia

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Sign gns s of Growt wth Pick-Up Up: Invest stmen ment and Consu sumpt ption

• n Rebou
• und

Indication of an improvement is reflected in the increase of motorcycle and car sales Cement sales increase significantly

GFCF: Building (RHS)

Car Sales Motorcycle Sales

Cement Sales

Source: CEIC Gaikindo, Astra

• Non-building investment is expected remain limited due to

lower revenues from commodity exports and weak business sentiments.

• On

the

• ther

hand, building investment surged as government infrastructure projects realization improved in the second half of 2015. The increase in building investment is reflected in the rising cement sales.

• Government consumption in 2015 is expected to be higher

than the previous year driven by increased goods consumption.

• Robust household consumptions owed to the “smoothing

behaviour” of consumers as indicated by the increased use

• f savings and credit card.
• Strong household consumption is also reflected in the

improving trend of motor vehicle sales.

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(-10.0) (-5.0) 0.0 5.0 10.0 15.0

4.6 4.8 5.0 5.2 5.4 5.6

I II III IV I II III IV I II III 2013 2013 2014 2014 2015

GDP (LHS) Household Consumption (RHS) Govt Consumption (RHS) Investment Export (RHS) Import (RHS)

Spatial GDP Growth

Sumatera GDP Growth 2014: 4.7% 2015Q1: 3.5% 2015Q2: 2.9% 2015Q3: 3.0% Java GDP Growth 2014: 5.6% 2015Q1: 5.2% 2015Q2: 5.1% 2015Q3: 5.2% Kalimantan GDP Growth 2014: 3.2% 2015Q1: 1.1% 2015Q2: 1.5% 2015Q3: -0.41% Sulawesi GDP Growth 2014: 6.9% 2015Q1: 7.3% 2015Q2: 8.6% 2015Q3: 8.2% Maluku & Papua GDP Growth 2014: 4.3% 2015Q1: 3.7% 2015Q2: 10.2% 2015Q3: 2.28% Bali & Nusa Tenggara GDP Growth 2014: 5.9% 2015Q1: 8.9% 2015Q2: 8.9% 2015Q3: 11.8%

Spatial GDP Growth Contribution

Java: 58.3%

Main Contributors to GDP Growth Shifting from Commodity-based economy

• In 3rd Quarter 2015, Indonesia booked 4.73% GDP growth (yoy),

slight increase from 4.67% in 2nd Quarter 2015.

• Majority of the growth was driven from Java island, contributed

58.3% of Indonesia’s GDP growth and at 5.2% (yoy).

• Growth in Java is higher than resource-rich regions such as

Sumatra and Kalimantan, given its high industrialization and larger consumption base

• Indonesia

continues to drive growth in resource-based industrialization to shift from commodity-based economy 2015Q3 GDP Growth: 4.73%

Source: Bank Indonesia

Source: BPS

Sumatera: 22.4%

Source: BPS

Maluku & Papua: 2.2% Sulawesi: 6.1% Kalimantan: 8.0% Bali & Nusa Tenggara: 3.1%

6.6 5.0

• 6.1
• 0.7

4.6

(%) (%)

Stron

• ng and Stabl

ble GDP Perform

• rmance

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15

The largest economy in South-East Asia A large, culturally diverse, young and vibrant workforce Large consumer base with fast growing spending power Increase in infrastructure investment to improve overall efficiency



According to McKinsey, Indonesia is projected to be the 7th largest economy in the world by 2030



5.9% average real GDP growth over the period 2008-2013



Exports are 23.7% of GDP for the year of 2013, one of the lowest in Asia, creating low volatility in GDP



Foreign direct investment grew at an average rate of 21.1% from 2010-2013



4th most populous country in the world



66.6% of the population is of working age(1) and 68.5% were 39 years and younger as of 2012



Working population projected to grow at 0.7% compared to 0.5% CAGR for total population from 2012-2017



A high literacy rate of more than 90%



~7mn people are expected to join the middle class each year



Consumer expenditure has grown at a 12.3% CAGR from 2007-2012 and is expected to continue at a 9.1% rate from 2012-2017



Disposable incomes are projected to grow at 12.1% from 2012-2017



According to McKinsey, 135-170mn people will join the consuming class by 2030



Announced an expansion of fiscal spending on infrastructure by 19.2% CAGR from 2012 to 2014



Infrastructure investments are spread over Indonesia’s 6 economic corridors



Encompass various sectors such as seaports, roads, railways, airports, energy and many others



Government continues to align regional and national regulations to attract further private sector investors

(USD tn)

Nominal GDP – Strong Growth to Continue Middle Class Households Annual Budgeted Capital Spending

(IDR tn)

145.1 172.4 145.8 176.1 2012 2013 Realized 2014 Realized 2015 Budget

21,980 39,340 60,740

2007 2012 2017E

(‘000)

Demographic Dividend – Young Population 0.43 0.88 1.14 2007 2012 2017E

Male Female

The fundamental long term growth drivers for Indonesia remain strong – equipped with abundant natural resources, a young and technically trained workforce and a large consumer base with a fast growing spending power

Condu ducive Environ vironme ment Underpi rpinning g Growt

• wth

Funda damentals

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Globa

• bally

y Compe petitive ve and a Top Invest stme ment Desti tinatio tion

16

Source: Global Competitiveness Index 2015-2016, WEF

(1)

Countries with sovereign ratings in the Baa1-Baa3 category and population larger than 40 million

(2)

Rank among 134 countries

(3)

Rank among 140 countries

Indonesia’s stage of development is categorized as efficiency-driven with a strong and well balanced performance across all 12 pillars of competitiveness

Source: The Economist – Asia Economic Outlook Survey 2015, January 2015

Indonesia is in the Top 40 of the Global Competitiveness Index (“GCI”) JBIC: Amongst ASEAN countries, Indonesia is the most preferred place for business investment The Economist: Indonesia has taken over India in #2 Investment Destination in Asia since 2014

Source: Japan Bank for International Cooperation (“JBIC”) FY2014 Survey Report on Overseas Business Operations by Japanese Manufacturing Companies

(1)

Total number of companies that responded was 499

No.(1) Country 2008(2) 2015(3) Institutions Infrastructure Macro-economic Environtment Health and primary education Higher education and training Goods market efficiency Labor market efficiency Financial market development Technological readiness Market size Business sophistication Innovation Score Score Score Score Score Score Score Score Score Score Score Score 1 Spain 29 33 3.9 5.9 4.0 6.2 5.1 4.3 4.0 3.8 5.6 5.4 4.5 3.7 2 Thailand 34 32 3.7 4.6 5.7 5.8 4.6 4.7 4.2 4.4 4.2 5.2 4.4 3.4 3 Indonesia 55 37 4.1 4.2 5.5 5.6 4.5 4.4 3.7 4.2 3.5 5.7 4.3 3.9 4 Turkey 63 51 3.8 4.4 4.7 5.7 4.6 4.5 3.5 3.9 4.1 5.4 4.1 3.4 5 Italy 49 43 3.4 5.4 4.1 6.3 4.8 4.3 3.5 3.2 4.9 5.6 4.8 3.9 6 South Africa 45 49 4.4 4.1 4.5 4.2 4.1 4.6 3.8 5.0 4.6 4.9 4.4 3.7 7 Mexico 60 57 3.3 4.2 4.9 5.7 4.0 4.2 3.8 4.2 3.8 5.7 4.2 3.4 8 Brazil 64 75 3.2 3.9 4.0 5.1 3.8 3.7 3.7 4.0 4.4 5.8 4.1 3.2 9 Philippines 71 47 3.8 3.4 5.7 5.5 4.5 4.2 4.1 4.2 3.9 4.9 4.3 3.5

18.3 24.3 29.6 30.3 31.3 32.2 33.3 36.2 41.2 41.3 42.1 57.9 59.9 71 10 20 30 40 50 60 70 80 Taiwan Japan Myanmar South Korea Hong Kong Australia Philippines Thailand Singapore Vietnam Malaysia India Indonesia China % of surveyed who plan to invest in each country

Rank 2013 2014 Country / Region

• No. of Companies(1)

Percentage Share (%) 2 1 India 229 45.9 1 2 Indonesia 228 45.7 4 3 China 218 43.7 3 4 Thailand 176 35.3 5 5 Vietnam 155 31.1 7 6 Mexico 101 20.2 6 7 Brazil 83 16.6 10 8 USA 66 13.2 9 9 Russia 60 12.0 8 10 Myanmar 55 11.0

SLIDE 18

Stron

• ng Invest

stment Underpi rpinned by Competiti titiveness ss and Stabi bility

Investment Realization Progress Q3-2015

• Investment Realization in Quarter III 2015 is Rp140.3 T, increases around 3.8% from Quarter II 2015 (Rp 135.1 T) or increases around 17.0% from

Quarter III 2014 (Rp 119.9 T). The value of investment is based on investment realization report from DDI and FDI companies (Oil and Gas, Banking, Non-Bank Financial Institution, Insurance, Leasing and Home Industry are excluded).

• Investment realization in January – September 2015 is Rp400.0 T, increases around 16.7% from that in January – September 2014 (Rp 342.7 T).
• Foreign Direct Investment realization in Quarter III 2015 based on sectors (five leading sectors) are: Electricity, Gas, and Water Supply (US$ 1064.94

million); Mining (US$ 907.74 million); Real Estates, Industrial Estates, and Office Building (US$ 820.08 million); Metal, Machinery, and Electronic Industry (US$ 723.92 million); and Chemical and Pharmaceutical Industry (US$ 578.24 million).

Source: BKPM

Source: BKPM *) 2015 Investment Target, BKPM’s Strategic Planning 2015-2019 **) Achievements January-September 2015 towards 2015 target

FDI by Sectors (Millions USD) 17

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 1,646 1,094 1,053 872 1,136 1,046 908 590 611 507 619 644 286 573 778 1,287 482 593 534 201 421 515 21 133 37 105 186 511 468 999 345 486 413 578 399 460 684 929 765 610 724 606 422 574 460 582 373 526 685 560 559 505 395 777 710 564 442 129 1,065 161 189 296 221 297 174 214 1,436 1,154 197 283 2,160 374 496 711 762 1,442 896 1,070 1,187

Mining Other Primary Sector Food Industry Paper and Printing Industry Chemical and Pharmaceutical Industry Metal, Machinery, and Electronic Industry Transport Equip. and Other Transport Industry Other Secondary Sector Electricity, Gas, and Water Supply Trade and Reparation Transportation, Warehouse, and Telecommunication Other Tertiary Sector

QI- 2014 QII- 2014 QIII- 2014 Jan- Sep 2014 QI- 2015 QII- 2015 QIII- 2015 Jan- Sep 2015 Target 2015* Achiev ement ** DDI 34.6 38.2 41.6 114.4 42.5 42.9 47.8 133.2 175.8 75.8% FDI 72.0 78.0 78.3 228.3 82.1 92.2 92.5 266.8 343.7 77.6% TOTAL 106.6 116.2 119.9 342.7 124.6 135.1 140.3 400.0 519.5 77.0% 0.0 100.0 200.0 300.0 400.0 500.0 600.0

Trillion Rp

SLIDE 19

18

Java is Still the Main Investm stment Destinati ation

• n

Realized Foreign Direct Investment (Jan – Sep 2015) Realized Domestic Direct Investment (Jan – Sep 2015)

Source: BKPM Source: BKPM

DDI and FDI by Economic Corridor Q3-2015 (Million USD)

Source: BKPM

Based on Economic Corridor, in January – September 2015 period the highest realization of DDI and FDI is located in Java Corridor. The further ranks of realization of the DDI is in Sumatera, Kalimantan, Sulawesi, Bali and Nusa Tenggara, also Maluku and Papua Corridor. The further ranks of realization of the FDI is also in Kalimantan, Sumatera, Sulawesi, Bali and Nusa Tenggara, as well as Maluku and Papua Corridor.

2,825 11,441 1,005 3,898 985 1,184 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Sumatera Java Bali & Nusa Tenggara Kalimantan Sulawesi Maluku & Papua USD Million 30,555 76,344 1,492 16,235 7,559 1,104 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Sumatera Java Bali & Nusa Tenggara Kalimantan Sulawesi Maluku & Papua Rp Billion

SLIDE 20

4.89 4.77 4.84 5.61

5 10 15 20 Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov 2011 2012 2013 2014 2015 CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy)

Inflation

• n Remains Under

r Control

• l

Disaggregation of Inflation

Source: BPS, Bank Indonesia

• Consumer Price Index (CPI) of November 2015 shows inflation of 0.21% (mtm), with all components contribute to this month’s
• inflation. Therefore, CPI inflation from January to 2015 (year to date/ytd) is recorded 2.37% (ytd), reaching 4.89% (yoy).
• Inflation of volatile food is recorded 0.35% (mtm) or 4.84% (yoy). Such inflation primarily comes from rice, purebred chicken

meat and purebred chicken eggs. Meanwhile, this month’s core inflation is recorded lower than usual, namely 0.16% (mtm) or 4.77% (yoy). On the other hand, inflation of administered prices is recorded 0.20% (mtm) or 5.61% (yoy), primarily attributable to cigarettes, airfare and toll road tariff.

• Based on the development of inflation until November 2015 and supported by strengthened policy coordination on the central

and regional levels to control inflation, Bank Indonesia is confident that price stability for 2015 is well attained as inflation stays at the lower limit of the target 4±1%.

Consensus Forecast on Inflation

Source: Consensus Forecast

19

CPI Nov-2015 mtm : 0.21% yoy : 4.89% ytd : 2.37%

(%) 6.5 7.1 7.1 4.9 5.1 4.8 4.8 4.7 5.0 5.0 6.5 7.1 7.1 4.7 4.5 4.3 4.4 4.8 5.6 5.5 1 2 3 4 5 6 7 8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2015 2016 2017 CF Sep 2015 CF Dec 2015 (%)

SLIDE 21

Improvement t in Trade de Balance Contrib tributes s to Smaller r Curr rrent Accou

• unt Deficit
• Improvements in the non-oil and gas as well as oil and gas trade balances

contributed to the smaller current account deficit as imports decreased significantly.

• This was in line with the considerably weak domestic demand and exports

due to lower commodity prices and dwindling global demand.

• From January to November 2015, non-oil trade balance recorded a surplus
• f 13.28 billion US dollars, higher than the surplus occurring in the same

period last year which amounted to 10.10 billion US dollars.

• Meanwhile, oil and gas trade balance recorded a smaller deficit, from 12.66

billion US dollars in the same period a year earlier to just 5.47 billion US dollars in 2015.

• Cumulatively, up to November 2015, the trade balance recorded a surplus of

7.81 billion US dollars, which is significantly better than the previous year’s deficit of 2.56 billion US dollars for the same period.

Trade Balance November 2015 20

International Reserves

• Indonesia’s official reserve assets position as of end November 2015 stood at

US$100.2 billion, decreased slightly from the reserve position at the end of October 2015 which was registered at US$100.7 billion.

• The development was contributed by foreign exchange receipts, including

from oil and gas revenues and the withdrawal of government borrowing, which are sufficient to cover the use of foreign exchange for Government foreign debt payments and to stabilize Rupiah exchange in accordance with its fundamentals.

• With these developments, official reserve assets at the end of November

2015 can adequately cover 7.1 months of imports or 6.9 months of imports and servicing of Government external debt repayment, well above the international standards of reserves adequacy at 3 months of imports.

Billion USD

Source: BPS, Bank Indonesia Source: Bank Indonesia

2011 2012 2013 2014 2015

Non Oil & Gas Oil & Gas Total

SLIDE 22

Continued Pressure on Emerging Market’s Currency

Movement of Rupiah

• Through to November 2015, the rupiah depreciated by an average of 11.05%

to a level of Rp13,351/USD. Rupiah depreciation was precipitated by a number of external factors including uncertainty of the FFR hike, concerns

• ver fiscal negotiations in Greece and Yuan depreciation. On the home front,

factors included stronger demand for foreign currency for debt repayments and seasonal dividend payments as well as concerns over domestic economic moderation.

• Nevertheless, the rupiah appreciated in October and November 2015 and

became more stable as positive sentiments abound, particularly regarding EMs growth and domestic economic outlook as the Government introduced a series of policy packages and Bank Indonesia unveiled a set of measures to stabilize the currency.

• Rupiah volatility in 2015 is lower than the average volatility of currencies in

the region.

21

Source: Bank Indonesia

Source: Bank Indonesia IDR/USD *data as of 15 Dec 2015

Source: Bank Indonesia

• 4.64
• 4.61
• 1.66
• 1.46
• 1.31
• 0.74
• 0.32

0.79 1.69 2.88

• 4.07
• 3.92
• 2.10
• 0.76

0.97

• 1.50
• 0.66
• 1.07

0.08

• 0.30
• 6.00
• 4.00
• 2.00

0.00 2.00 4.00

EUR ZAR INR PHP MYR KRW THB IDR TRY BRL point-to-point Average

Nov 2015 vs Oct 2015

%

* data as of 30 Nov 2015

• 5.3
• 5.4
• 5.8
• 8.3
• 10.5
• 14.9
• 17.9
• 19.6
• 20.1
• 31.3
• 2.1
• 4.5
• 6.6
• 4.7
• 11.1
• 19.4
• 15.5
• 13.7
• 19.1
• 28.2
• 35.0
• 30.0
• 25.0
• 20.0
• 15.0
• 10.0
• 5.0

0.0

PHP INR KRW THB IDR EUR MYR ZAR TRY BRL

Average Point to Point

%

* data as of 30 Nov 2015

YTD 2015* vs 2014

SLIDE 23

Monetary y Policy y Stance

BI Rate

Source: Bank Indonesia

• The BI Board of Governors agreed on 17th December 2015 to hold the BI Rate at 7.50%, while maintaining the Deposit Facility

rate at 5.50% and the Lending Facility rate at 8.00%.

• Bank Indonesia believes that rooms for monetary easing are open, on the back of preserved macroeconomic stability,

specifically end-2015 inflation that is projected to be below 3%, and current account deficit, projected at around 2% of GDP .

• In the short term, Bank Indonesia will monitor global financial market development post-Federal Funds Rate (FFR) hike as well

as conditions of the domestic economy.

• Additionally, Bank Indonesia will strengthen coordination with the Government to control inflation, stimulate growth and

accelerate structural reforms, thereby buoying economic growth while maintaining macroeconomic and financial system stability.

22

SLIDE 24

88.6

83 84 85 86 87 88 89 90 91 92 93

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 2013 2014 2015

20.8 5 10 15 20 25 0.0 1.0 2.0 3.0 4.0 5.0

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 2013 2014 2015

Capital Adequacy Ratio (CAR) (RHS) Gross Non-Performing Loan (NPL) 0% 5% 10% 15% 20% 25% 30% 35% 40%

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 2013 2014 2015

Total Growth Working Capital loans Investment Loans Consumption Loans

Solid d Financial System m Stabi bility

• Financial system stability remained solid, underpinned by a resilient

banking system and relatively stable financial markets. Banking industry resilience endured, with credit, liquidity and market risks well mitigated.

• In October 2015, the Capital Adequacy Ratio (CAR) remained well above

the 8% minimum threshold at 20.8%, while non-performing loans (NPL) were low and stable at 2.7% (gross) or 1.4% (net).

• In terms of the intermediation function, credit growth was recorded at

10.4% (yoy), lower than that posted in the same period last year, along with the economic slowdown. Deposit growth was recorded at 9.0% (yoy) in October 2015.

• Looking forward, credit growth is predicted to increase in the range of 12-

14% in 2016 in line with an increase in economic activity and the looser macroprudential policy stance adopted by Bank Indonesia, accompanied by the reduction to the primary reserve requirement.

CAR Comfortably High, NPL Favorably Low Slowdown in Loan Growth Loan-to-Deposit Ratio Well Maintained Within the Target Range 23

(YoY)

9.1 10.2 10.4 12.6

Source: Bank Indonesia

Loan-to-Deposit Ratio (%)

Source: Bank Indonesia Source: Bank Indonesia

2.7%

(%) (%)

SLIDE 25

Prudent Fiscal Management

24

SLIDE 26

25

Fiscal Stimulus Budget Optimization Long Run Policies Budget Reforms New Challenges Structural Challenges Global Volatility Sustainable and Equitable Economic Growth Support Navigation Through Global Uncertainties Revenue Optimization Quality of Spending Sustainable Financing Maintain Purchasing Power Fiscal Incentives for Business Sector Other Policies Short Run Policies

Coordi dinated d Short Run and Long g Run Policies

25

SLIDE 27

26

Three Key Pillars s to a Sustainabl ble and Equitabl ble Growth

Objective: Creating a sustainable and equitable economic growth for Indonesia

Pillar I Revenue Optimization Pillar II Quality of Spending Pillar III Sustainable Financing

I.

Shift from commodity- based revenues

• II. Broaden tax coverage
• III. Improve tax compliance

and prevent leakages

• IV. Strengthen Taxation

institution

I.

Higher spending productivity

• II. Enhanced subsidy

scheme

• III. Empowerment of local

governments

I.

Secure budget financing

• II. Effective utilization of

domestic and international funding sources

• III. Financing schemes to

support infrastructure development program

Initiatives:

• Reinventing Policy
• e-Invoice
• Compliance Risk

Management

• Tax Amnesty
• Tax Administrative Reform
• Regulatory Reform
• Adjustment of non-taxable

income threshold

• Development of Semi-

Autonomous Tax Office Initiatives:

• Improve Government

procurement regulation.

• Continue Fuel Subsidy

Reform (re-allocate energy subsidy to productive spending) and maintain targeted subsidy scheme.

• Budgetary allocations for:
• Infrastructure Projects
• Social Welfare, and
• Cashless smart cards
• Village fund

Initiatives:

• Maintain manageable budget

deficit;

• Improve bilateral and

multilateral financing sources, including BSA and DDOs

• Increase financing

instruments.

• Increase capital injection to

SOEs to include SOEs in infrastructure development

Source: Ministry of Finance

26

SLIDE 28

Reduction

• n of Poverty

y Throu

• ugh

gh Condi dition

• nal Cash

Transf sfers

• The government will distribute “Family Welfare Card”, “Indonesia Smart Card” and “Indonesia Health Card” to 15.5 million poor families which are 25% of

the population with the lowest socio-economic status

• For the first stage, Family Welfare Card and non-cash assistance through the Financial Services Digital, Indonesia Smart Card and Indonesia Healthy Card

will be distributed to 1 million of the 15.5 million families living in 19 districts / cities in 10 provinces across Indonesia

Program Indonesia Sehat

(Healthy Indonesia Program) – Free health insurance and medical benefits Organizers : Social Security Agency (BPJS) Service Coverage : Up to village level health units (“Posyandu”) Beneficiaries : Disadvantaged communities who have had “BPJS PBI card” plus groups with social welfare issues (PMKS) Benefits : Treatment and prevention

Program Indonesia Pintar

(Indonesian Smart Program) – Education subsidies for the poor and families near the poverty threshold Beneficiaries : Less capable students, PMKS school-age children, street children, child labor in Indonesia Distribution

• f Funds

: Savings / savings in a post

• ffice or a designated bank may

be withdrawn or to be kept Benefits :

 SD / MI amounting to

IDR225,000 / student / semester

 SMP / MTs of IDR375.000 /

student / semester

 SMA / SMK IDR500,000 /

student / semester

Program Keluarga Sejahtera

(Family Welfare Program) Bi-monthly credits for eligible families to offset increasing costs of living Beneficiaries : Underprivileged families throughout Indonesia. Extended to include

• rphanage, nursing

homes, and other social institutions Distribution of Funds : Savings / savings in a post

• ffice or a designated bank

may be withdrawn or be kept Benefits : IDR200,000 / family / month

Current administration has a renewed focus on reducing poverty – this will be achieved via conditional cash transfers

SLIDE 29

28

Allocation of Energy Subsidy Spending to Education, Infrastructure and Regional Development for Sustainable Economic Growth

408.5 424.8 290.3 313.5 664.6 782.2 137.8 121.0

100 200 300 400 500 600 700 800 900

2011 2012 2013 2014 2015 2016P

Education Infrastructure Regional Energy

IDR Tn

2015 Budget Energy Subsidy Spending: IDR 137.8 Tn Infrastructure Spending: IDR 290.3 Tn 2016 Proposed Budget Energy Subsidy Spending: IDR 121.0 Tn Infrastructure Spending: IDR 313.5 Tn

Source: Ministry of Finance

Central Government Expenditure: Continue budget efficiency framework Subsidy Policies

• Fuel Subsidy Policy: Continue “Fixed Subsidy” scheme to

Diesel and “Price Subsidy” for Kerosene and 3 kg LPG

• Electricity Subsidy Policy: Switch to direct subsidy scheme

given to small households (450 VA and part of 900 VA)

• Food Subsidy: Rice for targeted household (15.5 million

households)

• Subsidy for Fertilizer: Production price close to economic price

targeted volume of 9.55 million ton, with retail price to be adjusted to close price gap

• Interest Subsidy for SME credit: For selected sectors such as

agriculture, fishery, manufacturing and trade and including for migrant worker Regional Transfer Policy

• Formulate Transfer Fund nomenclature
• Enhance Special Transfer Fund (DTK)
• Optimize the implementation of reward and punishment to

regional Government Village Fund Policy

• Significantly Increase allocation compared to 2015
• To support growth equality and empowerment in village area

2016 Budget Key Policies Energy

• 47.6%

Education +27.5% Infrastructure +76.2% Health +75.4% 2016 Budget Allocation Plan Compared to 2015 Revised Budget

Budget Re-Al Alloc

• cation
• n to Sust

stainabl ble Econom

• mic Growt
• wth

28

SLIDE 30

29

Assumptions:

Period 2014 2015 2016 Proposed Budget Realized Revised Budget Latest Realization Growth (%) 5.0 5.7 4.71 5.3 Inflation (%) 8.4 5.0 YoY 6.832 4.7 YTD 2.242 Exchange Rate (USD/IDR, Average) 11,878 12,500 EOP 13,5343 13,900 YTD 13,3033 3-month-SPN (Treasury Bills) 5.8 6.2 5.92 5.5 Indonesia Crude Price (ICP) (USD / bbl) 97.0 60.0 52.22 50.0 Oil Lifting (thousand bbl / day) 793.5 825 756.64 830 Gas Lifting (thousand bbl / day oil equivalent) 1,224 1,221 1,1754 1,155

2015 Budget Key Focus 2016 Budget Key Focus

• Quality of Spending
• Fuel subsidy savings of IDR 211.3 Tn
• Re-allocation of savings to basic

infrastructure (food security, connectivity and maritime) and social welfare

• Additional allocation for village funds
• Capital injection to SOEs
• Revenue Optimization
• Improving tax compliance rate, closing

tax leakage and expanding tax base

• Financing Policy
• Lower fiscal deficit from 2.2% to 1.9%
• General Revenue and Expenditure Policies
• Continue Tax Extensification and Intensification program and improve tax compliance
• Drive priority program to improve growth quality such as the 20% allocation for education, maintain 5% health

allocation and increase regional and village fund allocation

• Subsidy Policies – More Targeted Program
• Targeted subsidy scheme and direct subsidy to small households
• Food & fertilizers subsidy and expand financing program for SMEs
• Continue to drive key development projects:
• Develop infrastructure for Food Security and Connectivity
• Improve the service and sustainability of national health, labor insurance program and sustainable social

protection program

• Financing Policies: Fiscal deficit at 2.1% and Debt/GDP at 26%

Notes: 1. As of 2nd Quarter 2015, 2. As of September 2015, 3. Up to 16 October 2015, 4. Average Dec 2014 – Aug 2015

Key Macroe

• econ
• nom
• mic Assu

sumpt ption

• ns

Source: Ministry of Finance, Bappenas

SLIDE 31

30

• The realization of income, expenditure, and financing in Semester II is expected to increase, an improvement from semester I;
• The financing gap will be covered with sources of financing that is considered safe, has low risk, and low cost

Items (IDR tn) 2014 2015 2016 Revised Budget 1st Semester Realization % of Revised Budget Revised Budget 1st Semester Projection % of Revised Budget 2nd Semester Prognosis % of Revised Budget Outlook Budget

• A. State revenue and grants

1635.4 712.7 43.6% 1,761.6 697.4 39.6% 952.3 54.1% 1649.8 1822.5

• I. Domestic revenue

1633.1 711.7 43.6% 1,758.3 697.2 39.7% 949.2 54.0% 1646.4

1820.5 1.Tax revenue 1246.1 537.5 43.3% 1,489.3 555.2 37.3% 811.8 54.5% 1367.0 1546.7 2.Non tax revenue 386.9 172.2 44.5% 269.1 142.0 52.8% 137.4 51.1% 279.4 273.8

• II. Grants

2.3 1.0 42.8% 3.3 0.2 5.8% 3.1 94.2% 3.3 2.0

• B. State expenditure

1876.9 759.9 40.5% 1,984.1 773.9 39.0% 1135.9 57.3% 1909.8 2095.7

• I. Central gov. expenditure

1280.4 468.7 36.6% 1,319.5 436.1 33.1% 809.4 61.3% 1245.5 1325.6

• 1. Ministries/Agencies Spending

602.3 178.9 29.7% 795.5 208.5 26.2% 521.6 65.6% 730.1 784.1

• 2. Non-Ministries/Agencies Spending

678.1 289.8 42.7% 524.1 227.6 43.4% 287.9 54.9% 515.5

541.4

• II. Transfer to region

596.5 291.2 48.8% 664.6 337.7 50.8% 326.5 49.1% 664.2 770.2

• C. Primary balance(1)
• 106.0

17.9

• 16.8%
• 66.8
• 2.2

3.3%

• 100.4

150.4%

• 102.6
• 88.2
• D. Overall balance (A - B)
• 241.5
• 47.2

19.6%

• 222.5
• 76.4

34.4%

• 183.6

82.5%

• 260.0
• 273.2

% deficit to GDP

• 2.4
• 0.5
• 1.9
• 0.7
• 1.6
• 2.2
• 2.15
• E. Financing

241.5 138.8 57.5% 222.5 194.0 87.2% 66.0 29.7% 260.0 273.2

• I. Domestic financing

254.9 162.2 63.6% 242.5 215.6 88.9% 28.1 11.6% 243.7 272.8

• II. Foreign financing
• 13.4
• 23.4

174.0%

• 20.0
• 21.6

10.8% 37.9

• 189.4%

163.0 0.4 Excess/Shortage Financing 0.0 91.6 0.0% 0.0 117.6

• 117.6
• Budget deficit expected to remain within safe and manageable threshold

30

Projectio tion of Revise sed d Budget t 2015 Realizatio tion and 2016’s Budget

SLIDE 32

31 31

Strategi gic Policy y of 2016 Budget in Summa mary

Controlled expansion at 2.15% GDP Deficit

1

Efficient bureucratic system for Holiday Allowance (THR) and 13th Salaty

2

5% Healthcare Budget

3

Significant infrastructure budget

4

Subsidy to the right recipient

6

Support the healthcare social security program

7

Fasten efforts to reduce income gap (expansion of PKH)

8

Support Fiscal Desentralization (Village Fund & Reallocation of DK/TP)

9

1 Million home program

10

20% Education Budget

5

SLIDE 33

32 32

General policies to achieve taxation target includes:

• a. Optimize tax revenue by maintaining conducive investment

climate;

• b. Maintain national economic stability and protect purchasing

power;

• c. Improve national competitiveness and industry value-add; and
• d. Control consumption of excisable goods.

TAX CUSTOMS & DUTIES INTENSIFIED EFFORTS TO EXPAND TAX REVENUES

Breakdown

2015 2016

Revised Budget Budget

• 1. Tax Revenue

1,489,255.5 1,546,664.6

• a. Domestic Tax Revenue

1,439,998.6 1,506,577.5 1) Income Tax 679,370.1 757,230.1

• Non-Oil & Gas Income Tax

629,835.3 715,788.6

• Oil & Gas Income Tax

49,534.8 41,441.5 2) VAT 576,469.2 571,732.7 3) Land & Building Tax 26,689.9 19,408.0 4) Duties 145,739.9 146,439.9 5) Other Taxes 11,729.5 11,766.8

• b. Tax from International Trade

49,256.9 40,087.1 1) Import Duty 37,203.9 37,203.9 2) Export Duty 12,053.0 2,883.2

2016 T ax Revenue Stra rategy gy

• Optimize examination

Efforts i.e. focus on primary sectors in each regional

• ffice, transfer pricing and

fraud

• Extend and Intensify

services to Tax Payers i.e. data matching,

• ptimize IT system, e-tax

invoice, regulation Reform

• Year 2016 as the Year of

Law Enforcement i.e. through active tax billing, examination and investigation

• Improving audit

performance Revise target of audit

• bject.
• Boost supervision,

action and investigation efforts

• Increase operations to

monitor distribution of excisable goods

SLIDE 34

33 33

• Government Expenditure consistently grow at 12% on average
• From 2015-2016 Regional Transfer and Village Funds (15.8%

yoy) grew significantly faster than Central Government Spending (0.46% yoy) Ministries/Agencies Budget (Billion Rupiah)

• Min. of Public Works and

Housing 104,1

• Min. of Defence

99,5 National Police 73

• Min. of Health

63,5

• Min. of Religious Affairs

57,1

• Min. of Basic Education

49,2

• Min. of Transportation

48,5

• Min. of Higher Education

and Research 40,6

• Min. of Finance

39,3

• Min. of Agriculture

31,5 Other Ministries 177,9 Total 784,1

Top 10 Ministries/Agencies with the Highest Budget Allocation

Govern rnme ment Expendi diture 2016

Regional Transfer Central Government Spending

Revised Budget 2015 Budget 2016

SLIDE 35

34

• Increase the allocation to the Regional Transfer and the

Village Fund budget to closely match with Ministries and Agencies spending

• Improve the quality of budgeting and Regional Revenue

Sharing Fund (Dana Bagi Hasil-DBH) distribution

• Reformulation of General Allocation Fund (Dana Alokasi

Umum-DAU) in order to improve the distribution of financial capability among regions (as equalization grant)

• Reformulation and strengthening Special Allocation Fund

(Dana Alokasi Khusus-DAK) to support the implementation and achievement of national priorities

• Reformulation of Regional Incentive Fund (Dana Insentif

Daerah-DID) to provide a greater appreciation for the area that performs well in financial management, economy and welfare areas

• Improving the management quality for Special Autonomy

Fund and Special Fund for Yogyakarta as a Special Region

• Improve the allocation of up to 6% in accordance Road

Map Village Fund from 2015 to 2019, to in compliance with mandate from Government fullfil the mandate in Law No.6/2014 on Villages

34

Transf sfer r to Region

• n and Village

ge Fund d Policy

Description 2015 2016 Revised Budget Budget

• A. Transfer to Region

643,8 723,2

• 1. Balancing Fund

521,8 700,4

• a. General Transfer Fund

463 491,5 1) Profit Sharing Fund 110,1 106,1 2) General Allocation Fund 352,9 385,4

• b. Special Transfer Fund

58,8 208,9 1) Physical Purpose Allocation Fund n/a 85,5 2) Non-physical Purpose Allocation Fund n/a 123,5

• 2. Region Intensive Fund

n/a 5

• 3. Special Autonomy Region and DIY Fund

17,6 17,8

• 4. Other Transfer Fund

104,4 n/a B. Village Fund 20,8 47 TOTAL 664,6 770,2

(IDR Trillion)

SLIDE 36

35

• Improve the quality of state investment plan to

increase SOEs’ value-add as agents of development in infrastructure, food sufficiency and maritime;

• Maintain Government debt ratio at a

sustainable level;

• Open access to development and investment

funding to the general public through Retail Bond Issuance;

• Optimize Public Services Agency (BLU) funds to

finance development projects, including expanding MSMEs’ access, affordable housing and education;

• Prioritize Private Public Program (PPP) to

support infrastructure development;

• Extend loans to fasten infrastructure

development projects; and

• Support programs to increase access to

education and housing for low income population.

Description 2015 2016 Revised Budget Budget I. Domestic Financing 242,5 272,8 1. Domestic Banking 4,8 5,5 2. Domestic Non-Banking 237,7 267,3

• II. Foreign Banking
• 20,0

0,4 1. Foreign Outstanding Loan (Gross) 48,6 75,1

• a. Program Loan

7,5 36,8

• b. Project-Based Loan

41,1 38,3 2. Standby Loan Agreement (SLA) 4,5

• 5,9

3. Foreign Debt Principal Repayment 64,2

• 68,8

TOTAL 222,5 273,2

Financing g Policy 2016

SLIDE 37

Investment Climate Improvement:

One Stop Service (OSS) by BKPM

Conducted by electronically integrated system on investment information and licensing. Implementation

• f OSS in BKPM comes with online tracking system.

National Single Window for Investment (NSWi) or the Electronic Invesment Licensing Service System (SPIPISE) was created to facilitate further OSS services. NSWi as an electronic basis for investment so that investors can

• btain a variety of online licensing and non-licensing

service.

Land Acquisition Bill

Provide certainty in Land Procuring for Public Infrastructure

• Project. The law sets a finite deadline to resolve all legal issues

in the event of objections to any land acquisition for infrastructure projects.

Special Economic Zone Fiscal Incentive

• Companies entitled for tax holiday or tax allowance
• Exemption for import duties, VAT and excise

Revision of investment negative list

In the effort to increase investment in Indonesia and to execute the ASEAN Economic Community (AEC), the Government of Indonesia had done amendments to the provision list of business fields closed and open with certain requirements in the field of investment (Investment Negative List /DNI)

Revision of Investment negative list One Stop Services (OSS) center as an integrated services to provide quick, simple, transparent, integrated license services Land acquisition bill and revision of government regulation on procurement Special Economic Zone Fiscal Incentive …Direct investment needs to be further improved to help finance the current account deficit

Invest stmen ment is Still Showing g a a Positive Developme

• pment

SLIDE 38

Genera ral Stra rate tegy gy for Debt Financing g 2016

37

DEBT POLICY IN 2016 BUDGET

• 1. Manageable

Debt-to-GDP ratio

• 2. Financial

inclusion & market deepening

• 3. Debt

issuance for productive activity

• 4. Selective

external loan (infrastructure and energy sector)

• 5. Loan as an

alternative instrument for financing

• 6. Active debt

management and ALM

SLIDE 39

Govern rnme ment t Budget t FY 2016

38

In trillion IDR, where applicable

Description 2016 Budget

• A. Total Revenue

1,822.5

• I. Domestic Revenue

1,820.5

• 1. Taxation

1,546.7

• 2. Non-Taxation

273.8

• II. Grant

2.0

• B. Government Spending

2,095.7

• I. Central Government Spending

1,325.6

• 1. Ministerial Spending

784.1

• 2. Non-Ministerial Spending

541.4

• II. Fund Transfer and Village Fund

770.2

• C. Primary Balance

(88.2)

• D. Deficit

(273.2) Deficit to GDP (2.1%)

• E. Financing

273.2 I. Domestic 272.8

• a. Domestic Banks

5.5

• b. Domestic Non-Banks

267.3

• 1. Government Securities (net)

327.2

• 2. Capital Injection

(48.4) II. Foreign 0.4 Surplus (Deficit) Funding

SLIDE 40

Govern rnme ment Securi rities s Financing g (Gross)

• ss) 2015

39

Domestic Bonds International Bonds Issuance (USD, EUR, JPY-denominated)

Weekly Auction: Conventional securities: 23 x Islamic securities: 23 x Non-Auction: Retail bonds: SR (Q1), SBR (Q2), Sukuk Tabungan (Q3), and ORI (Q4) Private Placement Based on request

• Issuance of International Bonds as complement to avoid crowding
• ut in domestic market and provide benchmark for corporate

issuance, consists of USD, YEN or EURO global bonds.

• Maximum issuance international bond 30% from target gross.

Issuance targets for GDS, Sukuk and ATM target

• Government Debt Securities (SUN): 76 %;
• Sukuk: 24%
• ATM for Goverrnment Securities (SBN) by auction: 10-12 year.

Instruments Indicative Target (IDR tn) Preliminary Budget Government Securities (Net) 327,224 Redemption 187,202 Cash Management 15,000 Buyback 3,000 Government Securities (Gross) 532,426 Composition Domestic 76%

• Auction

66%

• Non-Auction

10% International Bond 24%

SLIDE 41

Improved Government Debt Position

40

SLIDE 42

41 Global Financial Crisis

Eurozone sovereign debt crisis

Yield of Benchmark Series

[In Percentage]

As of Nov 30, 2015

Seconda dary Market Perform

• rmance of Centra

ral Govern rnme ment Bonds

SLIDE 43

*Adjusted by changes in Cash Management & Debt Switch

Govern rnme ment Securi rities s Realization

• n

39

*(Million IDR) Budget 2015* Revised Budget 2015*

Realization (a.o.Nov 27, 2015)* % Realization to Revised Budget 2015

Government Securities Net 277.049.800 345.545.531 343.665.677 99,46% Government Securities Maturing in 2015 and Buyback 153.612.324 154.017.324 149.697.065 97,19% Issuance Need 2015* 430.662.124 499.562.855 493.362.741 98,76% Government Debt Securities (GDS) 375.401.563 Domestic GDS 288.832.874

• Coupon GDS

195.010.000

• Conventional T-Bills

50.300.000

• Private Placement

16.084.119

• Retail Bonds

27.438.755 International Bonds 86.568.689

• USD GMTN

50.372.939

• Euro GMTN

18.473.050

• Samurai Bonds

11.054.200

• Domestic GDS

6.668.500 Government Islamic Debt Securities 117.961.178 Domestic Government Islamic Debt Securities 91.539.178

• IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based

Sukuk) 59.990.000

• Retail Sukuk

21.965.035

• Private Placement

9.584.143 Global Sukuk 26.422.000

* Based on projection of deficit 2,78%

SLIDE 44

43 Source: Ministry of Finance [USD billion]

Outst standi ding of T

• tal Central Govern

rnme ment Debt

62,25 66,69 65,02 68,65 68,51 63,76 58,28 54,18 53,23 51,98 53,90

85,26 82,78 104,20 118,39 130,97 140,75 136,27 155,23 160,5 162,9 168,3

• 50

100 150 200 250

2007 2008 2009 2010 2011 2012 2013 2014 March-15 Jun-15 Nop-15

Loan Government Securities

[in percentage]

Year 2007 2008 2009 2010 2011 2012 2013 2014 March-15 Jun-15 Nop-15 Loan 42% 45% 38% 37% 34% 31% 30% 26% 25% 24% 24% Government Securities 58% 55% 62% 63% 66% 69% 70% 74% 75% 76% 76% Total Central Government Debt 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

SLIDE 45

T

• tal Debt Maturi

rity y Profile as of End of Octobe ber, 201 2015

44 Maturity Profile of Central Government by Currencies (in trillion IDR) Maturity Profile of Central Government by Instruments (in trillion IDR)

Source: Ministry of Finance

SLIDE 46

45

Holders of Tradable Gov’t Domestic Debt Securities Foreign Ownership of Gov’t Domestic Debt Securities by Tenor

Source: Ministry of Finance

More Balance Ownership In Terms Of Holders And Tenors

Holders s of Tradabl ble Central Govern rnme ment Securi rities

36,63% 36,53% 33,70% 31,04% 27,21% 28,91% 28,79% 32,58% 30,49% 33,76% 30,83% 33,16% 33,99% 33,06% 30,80% 32,98% 32,54% 38,13% 39,63% 37,10% 38,15%

Dec-11 Dec-12 Dec-13 Dec-14 Jun-15 Oct-15 Nov-15

Foreign Holders Domestic Non-Banks Domestic Banks

SLIDE 47

46 Source: Ministry of Finance

Profile of Centra ral Govern rnme ment Debt Securi rities

GOVERNMENT DEBT SECURITIES (GDS) Dec-12 Dec-13 Dec-14 Nov-15

• 1. Domestic Tradable GDS

IDR 757.231 IDR 908.078 IDR 1.099.257 IDR 1.279.750

• a. Zero Coupon

IDR 24.083 IDR 34.050 IDR 39.950 IDR 42.050

• 1. Government Treasury Bills

IDR 22.820 IDR 34.050 IDR 39.950 IDR 42.050

• 2. Zero Coupon Bond

IDR 1.263 IDR - IDR - IDR -

• b. Government Domestic Bonds

IDR 733.148 IDR 874.028 IDR 1.059.307 IDR 1.237.700

• 1. Fixed Rate *) +)

IDR 610.393 IDR 751.273 IDR 945.964 IDR 1.140.956

• 2. Variable Rate *)

IDR 122.755 IDR 122.755 IDR 113.344 IDR 96.743

• 2. Promissory Notes to Bank Indonesia **) ***)

IDR 240.144 IDR 234.870 IDR 229.054 IDR 223.864

• 3. SPNNT

IDR - IDR 12.148 4 Retail Saving Bonds IDR 2.391 IDR 2.391 5 Total GDS (1+2+3+4) IDR 997.376 IDR 1.142.948 IDR 1.330.702 IDR 1.518.152

• 5. Total Government International Bonds *)

USD 22.950 USD 27.140 USD 29.190 USD 32.690 155.000 ¥ 155.000 ¥ 155.000 ¥ 255.000 ¥ 1.000 € 2.250 €

• 6. TOTAL GOV'T DEBT SECURITIES (3+(4*Exchange Rate Assumption))

IDR 997.376 IDR 1.142.948 IDR 1.361.994 IDR 2.032.270 GOVERNMENT ISLAMIC DEBT SECURITIES (GIDS)

• a. Domestic Tradable GIDS

IDR 63.035 IDR 87.174 IDR 110.704 IDR 158.183

• a. Fixed Rate *)++)

IDR 62.840 IDR 78.541 IDR 99.969 IDR 148.668

• b. Zero Coupon

IDR 195 IDR 8.633 IDR 10.735 IDR 9.515

• b. Domestic Non Tradable GIDS

IDR 35.783 IDR 31.533 IDR 33.197 IDR 41.781

• c. Government International Islamic Bonds
• 1. Fixed Rate *)

USD 2.650 USD 4.150 USD 5.000 USD 7.000

• 7. TOTAL GOV'T DEBT SECURITIES (6+(8*Exchange Rate Assumption))

IDR 88.660 IDR 137.758 IDR 172.904 IDR 296.844

• 8. TOTAL GOVERNMENT SECURITIES

IDR 1.121.819 IDR 1.312.239 IDR 1.568.095 IDR 2.329.114 Notes:

• Nominal in billion rupiah (domestic bonds), million USD & million JPY (international bonds)
• *) Tradable
• **) Non-Tradable
• +) Including ORI (IDR Billion))

IDR 34.153 IDR 43.882 IDR 54.098 IDR 54.098

• ++) Including Sukuk Ritel/SR (IDR Billion)

IDR 28.989 IDR 35.924 IDR 47.906 IDR 69.871

• Exchange Rate Assumption (IDR/USD1)

IDR 9.670 IDR 12.189 IDR 12.440 IDR 13.840

• Exchange Rate Assumption (IDR/JPY1)

IDR 111,97 IDR 116,17 IDR 104,25 IDR 112,74

• Exchange Rate Assumption (IDR/EUR1)

IDR 15.133 IDR 14.640

SLIDE 48

47 Debt Switch Program Buyback Program

[in billion IDR]

Debt Switch & Cash Buyback Progra ram

Source: Ministry of Finance

SLIDE 49

Maturi rity ty Profile of Trada dabl ble Central tral Govern rnme ment t Securi ritie ties s

as of the end of Novembe ber, 2015

48

Source: Ministry of Finance

[IDR Tn] 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 Total 2,72 185, 115, 162, 160, 111, 138, 124, 105, 208, 125, 56,0 47,7 53,1 99,1 29,1 41,8 47,0 52,5 97,5 27,8 23,0 44,1 50,9 8,36 16,7 23,7 54,3 43,0 43,9 27,6 SBSN 1,72 51,7 30,2 48,8 35,2 17,2 16,5 31,8 15,5 38,1 46,9 2,35 2,59 2,86 7,01 5,65 3,83 4,22 4,65 5,13 5,66 10,3 6,88 7,58 8,36 9,22 10,1 11,2 12,3

• PBS
• 19,6
• 13,5

1,0 14,4

• 1,2
• 3,8
• 10,1
• 7,5
• 9,9
• RIEUR
• 14,6
• 18,3
• RIJPY
• 2,5

3,9 9,3

• 6,8
• 6,2
• IB
• 12,5

28,2 26,3 27,7 27,7 34,6 27,7 34,6 27,7 27,7

• 22,1
• 20,8

27,7

• 31,1

20,8 27,7 27,7 ORI

• 20,2

21,2 27,4

• VR
• 17,7

13,1 17,9 22,7 25,3

• FR
• 22,4

22,6 26,3 70,1 17,9 73,1 56,6 55,4 143, 26,0 53,7 41,4 50,3 92,1 23,5 38,0 42,8 47,9 92,4

• 12,7

6,4 15,7

• 13,6

12,0

• 16,3
• 20

40 60 80 100 120 140 160 180 200

SLIDE 50

Daily Transa saction

• n & Offsh

shor

• re Ownersh

ship

49

Average Daily Transaction Govt’ Bonds Net Buyer (Seller) Non Resident

Source: Ministry of Finance

[IDR Tn]

as of the end of Octo tober er, , 2015

Average daily trading [IDR Tn] 3,55 2,98 4,39 5,88 5,73 5,31 7,91 10,91 11,11 9,18 6,39 9,37 12,33 8,21 10,90 8,89 7,52 9,07

0,41 0,15 0,22 0,16 0,38 0,41 0,76 1,14 0,81 0,77 0,62 0,50 0,53 0,83 0,77 0,72 0,52 0,68

0,27 0,30 0,34 1,54 3,45 6,70 8,80 7,45 7,19 4,84 4,65 3,39 6,48 10,94 12,57 12,87 17,69 15,61

• 5,00

10,00 15,00 20,00 25,00 30,00 2008 2009 2010 2011 2012 2013 2014 Jan'15 Feb'15 Mar'15 Apr'15 Mei'15 Jun'15 Jul'15 Agust'15 Sep'15 Okt'15 Nop'15 Triliun

OUTRIGHT REPO BANK REPO BI

2,68 8,44 (0,88) 17,97 4,22 (19,98) 2,81 (1,76) 10,13 23,98 6,08 (0,37) 4,82 16,49 15,77 16,10 20,15 6,43 14,67 15,95 13,17 12,49 21,34 (19,84) 39,48 6,84 (3,59) 4,10 6,31 23,04 (3,90) (7,96) (2,30) 5,39 8,38

• 0,08
• 0,06
• 0,04
• 0,02

0,02 0,04 0,06 0,08 0,1 (30,00) (20,00) (10,00) 0,00 10,00 20,00 30,00 40,00 50,00

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15

Capital Inflows [LHS] capital inflows over foreign [RHS]

SLIDE 51

50

Source: Ministry of Finance

(in trillion Rp)

Ownersh ship p of IDR Trada dabl ble Central tral Govern rnment Securi rities

` Banks 217,27 33,88% 265,03 36,63% 299,66 36,73% 335,43 33,70% 375,55 31,04% 372,66 29,95% 369,11 27,21% 413,99 28,79% Govt Institutions (Bank Indonesia*) 17,42 2,72% 7,84 1,08% 3,07 0,37% 44,44 4,47% 41,63 3,44% 38,37 3,08% 80,58 5,94% 67,09 4,67% Non-Banks 406,53 63,40% 450,75 62,29% 517,53 63,09% 615,38 61,83% 792,78 65,52% 833,42 66,97% 906,74 66,85% 956,85 66,54% Mutual Funds 51,16 7,98% 47,22 6,53% 43,19 5,27% 42,50 4,27% 45,79 3,78% 47,16 3,79% 56,28 4,15% 59,47 4,14% Insurance Company 79,30 12,37% 93,09 12,86% 83,42 10,17% 129,55 13,02% 150,60 12,45% 149,95 12,05% 161,81 11,93% 170,86 11,88% Foreign Holders 195,76 30,53% 222,86 30,80% 270,52 32,98% 323,83 32,54% 461,35 38,13% 500,83 40,25% 537,53 39,63% 548,52 38,15% Foreign Govt's&Central Banks** 50,06 6,10% 78,39 7,88% 103,42 8,55% 104,66 8,41% 102,34 7,54% 109,49 7,61% Pension Fund 36,75 5,73% 34,39 4,75% 56,46 6,88% 39,47 3,97% 43,30 3,58% 43,00 3,46% 46,32 3,42% 48,69 3,39% Securities Company 0,13 0,02% 0,14 0,02% 0,30 0,04% 0,88 0,09% 0,81 0,07% 0,65 0,05% 0,74 0,05% 0,15 0,01% Individual 32,48 3,26% 30,41 2,51% 28,35 2,28% 32,23 2,38% 52,40 3,64% Others 43,43 6,77% 53,05 7,33% 63,64 7,76% 46,68 4,69% 60,51 5,00% 63,49 5,10% 71,82 5,29% 76,76 5,34% Total 641,21 100% 723,61 100% 820,27 100% 995,25 100% 1.209,96 100% 1.244,45 100% 1.356,43 100% 1.437,93 100% 1) Including ownership of SBSN (government sukuk). 2) Foreign are consisted of Private Banking, Fund/Asset Management, Securities, Insurance, Pension Fund. 3) Others are consisted of Corporation, Individual, Foundation. *) Since February 8th, 2008, repo transaction of Government Securities to Bank Indonesia was included. **) Since November 21, 2014, foreign government(s) was included to the same category as foreign central bank(s). Dec-13 Dec-12 Dec-10 Dec-11 Dec-14 Jan-15 Jun-15 Nov-15

SLIDE 52

Wide Range of Policy Reforms to Boost Economic Growth

51

SLIDE 53

52

ECONOMIC POLICY PACKAGE 9 SEPTEMBER 2015

To propel the real sector in order to provide the foundation for economic growth

Encourage the competitiveness

• f national

industry

through deregulation and de- bureaucratization as well as law enforcement and business certainty

Accelerate the national strategic projects

through simplification of permits, land provision, accelerate the flow

• f goods and services, as well as

break down barriers

Boost investment in the property sector

encourage housing projects, particularly for low-income earners

• Amended 89 out of 134 regulations
• Drafting 2 Presidential Decree, 2

Presidential Instruction, 63 Minister Regulation and 5 other regulations

Economi

• mic Policy

y Package

SLIDE 54

53

Short t Run Policy Package I, II, and III

…to navigate uncertain global environment and to stimulate domestic economic growth Stimulus Package I: 9 Sep 2015

Cut Red Tapes Accelerate Strategic National Projects Boost Low Income Housing

• Rewriting 89 out of 154 regulations
• Deregulation policies such as relaxing visa

requirements, gas price adjustment for certain industries and enhancing cooperative function

• Simplification to obtain business licenses and

implementation of e-services

• Simplifying spatial license & land accommodation
• Accelerating goods & service procurement for the

government

• Discretion in legal issue barriers
• Strengthen the role of regional heads to accelerate

national strategic project completion

• Promoting housing construction for low income

citizens

• Expanding opportunity for investments in property

sector

Stimulus Package II: 29 Sep 2015

Simpler Permit Requirements Tax Incentives Integrated Logistics Facilities

• Ease bureaucracy for investments via 3-hour permit

issuance program

• Faster process for tax allowance and holiday for

qualified investments to 25 days and 45 days, respectively

• Streamline permit requirements in forestry sector

from 14 to 9

• Elimination of VAT for transport industries (train,

shipping and air transport inc. spare parts)

• Reducing tax rate on deposits from export
• proceeds. 1-month deposit tax 10%, 3-month 7.5%, 6-

month 2.5% and more than 6-month 0%

• Facility incentive on integrated logistic center
• Two facilities slated to be operational by end of 2015;

Cikarang (Manufacturing) and Merak (Fuels)

53 Source: Coordinating Ministry of Economic Affairs

SLIDE 55

54

Short t Run Policy Package I, II, and III

…to navigate uncertain global environment and to stimulate domestic economic growth

54

Source: Coordinating Ministry of Economic Affairs

Stimulus Package III: 7 Oct 2015

Lower Fuel and Electricity Prices

• Lower retail fuel costs (jet fuel, LPG and retail fuel)
• Decrease gas price for factories and qualified

industries

• Lower industrial electricity prices
• 3-hour turnaround for land availability
• Faster approval time for building, leasehold, use

right and land permits Land Permit Simplification for Investment Activities Broadening of Small Business Credit Recipients

• Expanding criteria for allowed recipients to include

salaried workers

Stimulus Package IV: 15 Oct 2015

Fair, Simplified and Projectable Wage System

• Setting Provincial Minimum Wage regulation
• Formula for setting minimum wage to ensure

simplified, stable and projectable yearly wage adjustments

• Government provides subsidy on small business

credit to stimulate credit growth in banking sector and affordability to applicants

• Expanding criteria for small business credit to

include:

• Micro, Small and Medium enterprises in productive

sectors (farming, fishery, manufacturing, creative business, trading and services)

• Overseas Indonesian workers with occupation in

formal sectors

• Family members of salaried workers
• Ex-Overseas Indonesian workers
• Overseas Indonesian workers with terminated

contract Ease and Affordability of Small Business Credit

SLIDE 56

55

Short t Run Policy Package I, II, and III

…to navigate uncertain global environment and to stimulate domestic economic growth

55

Source: Coordinating Ministry of Economic Affairs

Lower Asset Revaluation Tax

• Revaluation tax originally set at 10%
• Under new incentive, tax rates are cut according to

periods, detailed below:

• Revaluation period until 31 Dec 2015: tax rate at 3%
• Revaluation period until 30 Jun 2016: tax rate at 4%
• Revaluation period until 31 Dec 2016: tax rate at 6%
• Eliminating double taxation system for Real Estate

Investment Trusts (REITs)

• Encourage Indonesian property and infrastructure

companies to issue REITs in Indonesia Eliminating Double Taxation for REITs Propel Rural Economies through Development in Special Economic Zones (SEZs)

• Tax holiday (reduce income tax) and tax allowance (reduce

net income and accelerate depreciation.

• No charges on value-added tax and luxury goods tax
• Import duty tariff require Certificate of Origin
• Foreigners allowed to have property
• Reduce tax on development and amusement in tourist areas
• Establish wage boards and specialized tripartite agencies
• Grant 30 days visitor visa which are extendable for 5 times
• SEZ administrator able to provide land services
• SEZ administrator able to issue principles and business

permits

• Accelerating licensing process a max. of 3 hours
• Drafting government regulations (RPP) on water resources

utilization

• Drafting RPP on water supply systems (SPAM)
• Ensure that private entities do not dominate the whole SPAM

subsystem

• Private water supplier to meet their needs on its own.

Sustainable and Equitable Water Supply to the Community Simplifying Import Licensing for Pharmaceutical Raw Materials

• Simplifying the licensing process to only 5.7 hours
• Target 100% paperless

Stimulus Package VI: 5 Nov 2015 Stimulus Package V: 23 Oct 2015

SLIDE 57

56

Short t Run Policy Package I, II, and III

…to navigate uncertain global environment and to stimulate domestic economic growth

56

Source: Coordinating Ministry of Economic Affairs

Stimulus Package VII: 4 Dec 2015

Acceleration of Land Certification Process

• Increasing numbers of certified surveyor, especially

from non-civil servant.

• Speed up the time needed to land registration

announcement, from 60-30 days to 14 days

• Shifting land registration process to electronic system
• Giving communal rights for indigeneous peoples and

people who lives in plantation/forest area

• Releasing Government Regulation (PP) which

facilitate income tax (PPh) for the labor works in labor intensive industry for 2 years

• Giving tax facilities for various footwear industries

throughout provinces in Indonesia Tax Incentive for Labor Intensive Industry

Stimulus Package VIII: 21 Dec 2015

One Map Policy

• All government office will use only thematic map in

1:50.000 scale in order to accelerate the settlement of land using problem and to solve the country’s borderline problem

• New refinery will be constructed in Tuban and

Bontang, to support the existing refinery in Cilacap, Balikpapan, Balongan and Dumai. Refinery Construction Incentive for Aircraft Maintenance Companies

• 0% of import duty will be applied for 21 tariff post

regarding aircraft sparepart and maintenance components

SLIDE 58

57

Short Run Policy Package Progress ss*

Package Total Deregulation Target In Study Process Implemented Remarks

I 154 12 112 78 has been signed, 34 not yet II 15

• 15

N/A III 8 7 1 N/A IV 10 2 8 N/A V 5 2 8 N/A VI 5

• 5

N/A VII N/A N/A N/A N/A

* as of 4 December 2015

Source: Coordinating Ministry of Economic Affairs

SLIDE 59

58 58

Stimulus to Enhance Household Purchasing Power

• Increase non-taxable income threshold to IDR 36.0 million (~USD 2,570) from IDR 24.3 million (~USD 1,671)
• Increase distribution of rice for low income household by two months, to 14 months
• Faster turnaround for drawdown and realization of village fund budget
• Provision of official guidance on realization of village fund on labor intensive sectors and projects
• Slated to provide IDR 4-5 Tn (~USD 286 – 357 million) in additional income and provides additional 800 thousand – 1

million workforce across Indonesia

Source: Ministry of Finance

Stimulus to Increase Incentive for Businesses

• Revision of Tax Allowance and Tax Holiday policies
• Levy of luxury tax (for houses, vehicles, airplanes and firearms) to provide

competitive advantage on domestic industries

• Support small business through interest rate subsidies in small business credit

(KUR). lowered to 12%, less than general SMEs credit rate

• Implementation of 4:1 Debt-Equity ratio for tax purposes to encourage capital

inflow and improvements in capital structure

• Construction of integrated logistic centers, in Cikarang (Manufacturing) and Merak

(Fuels)

• Higher threshold for property luxury tax to IDR 10 billion (~USD 714 thousand) for

apartments and IDR 20 billion (~USD 1.4 million) for landed houses

• Support export financing for domestic industries through Indonesia Exim

Bank via government capital allocation and National Interest Account

• Lower tax on asset revaluation. 3% tax before Dec 31st
• Remove double taxation for Real estate investment trusts (REITs)
• Lower tax on dollar deposit interest, especially for exporters
• Elimination of VAT levy on certain transportation industries (trains, river shipping

and airplanes, including spare parts)

Implemented

• Taxation Administrative and Regulatory Reform,

including amendment of Income Tax Law, VAT Law, General Tax Administration Law and regulation regarding Tax Amnesty

• Develop more Special Industrial Zones outside

Java with special incentives (tax allowance, tax holiday and elimination of customs fee)

• Support economic activities in Special Economic

Zones via longer tax holiday up to 25 years

• Revision on Ease of Import for Export

Destination (KITE) regulations by providing free import fee facilities and more efficient administration process

On Pipeline

Minist stry of Finance Policy Package ge

…comprehensive approach across sectors

SLIDE 60

59

Strengthening coordination amongst the National and Regional Inflation Control Teams to accelerate implementation of the national and regional inflation control

• roadmap. There are currently

more than 430 regional inflation control teams throughout Indonesia, each having a regional inflation roadmap. Strengthening Regional Economic and Financial cooperation between Bank Indonesia and the Government.

01

Strengthening inflation control and stimulating the real sector from the supply side.

02

Maintaining rupiah exchange rate stabilisation.

03

Strengthening liquidity management Rupiah, through Open Market Operations (OMO), in order to divert the daily liquidity to longer tenors

Changing the auction mechanism of Reverse Repo (RR) SBN from variable rate tender into fixed rate tender, adjust the pricing of RR SBN, and extend the tenor by issuing RR SBN 3 months Changing the auction mechanism of Certificates of Deposit of Bank Indonesia (SDBI) from variable rate tender into fixed rate tender, adjust the pricing of SDBI, and issue SDBI with 6 months tenor Reissue Bank Indonesia Certificates (SBI) tenor of 9 months and 12 months with a fixed rate tender auction mechanism as well as pricing adjustment Preserving foreign exchange market confidence by controlling currency volatility Maintaining market confidence in tradeable government securities (SBN) through purchases on the secondary market, while monitoring its impact on SBN availability in terms of inflow and money market liquidity.

Monetary y Policy y Package ge: : Septembe mber r I I

9th

th Septe

temb mber er 2015

SLIDE 61

60

04

Strengthening foreign exchange supply and demand management

Adjust the frequency of the auctions of Foreign Exchange (FX) swap from 2 times/week to 1 time/week Change the Foreign Currency Term Deposit (TD) auction mechanism from variable rate tender into fixed rate tender, pricing adjustment, and extend the tenor of up to 3 months; Lower the purchase limit of foreign currency by verifying the underlying documents from US$ 100,000 to US$ 25,000 per customer per month and requires the use of Tax Identification Number (NPWP)

05

Deepening the money market

Providing swap hedging facilities to shore up investment infrastructure and simultaneously strengthen foreign exchange reserve assets. Refining money market regulations covering all components of market development, including the instruments, players and infrastructure. Expediting the bank foreign debt approval process while adhering to prudential principles

Monetary y Policy y Package ge: : Septembe mber r I (continued) d)

9th

th Septe

temb mber er 2015

SLIDE 62

61

Maintaining Rupiah Exchange Rate Stability

The presence

• f

Bank Indonesia in the domestic foreign exchange market to stabilise the rupiah exchange rate was strengthened through intervention in the forward market. In addition to intervention in the spot market, Bank Indonesia also intervenes in the forward market to help balance supply and

• demand. Maintaining balance in the forward market is important to

alleviate pressures in the spot market.

Strengthening Rupiah Liquidity Management

Bank Indonesia reinforced rupiah liquidity management by releasing three-month Bank Indonesia Certificates of Deposit (SDBI) along with two-week reverse repo tradable government securities (SBN). The release of such open market operation instruments will absorb liquidity, prompting a shift towards longer tenor instruments, which should reduce the risk of excessive use of rupiah liquidity that could intensify pressures on the rupiah exchange rate.

Strengthening Foreign Exchange Supply and Demand Management

• Policy to manage supply and demand on the forward market was strengthened. The policy aims to encourage forward selling transactions
• f foreign currencies/rupiah and clarify underlying forward buys of foreign currencies/rupiah by raising the forward selling threshold that

requires an underlying document from US$1 million to US$5 million per transaction per customer and broaden the scope of underlying assets for forward sells to include domestic and offshore foreign currency term deposits.

• Foreign currency Bank Indonesia securities (SBBI) were also issued to back financial market deepening efforts, especially on the foreign

exchange market.

• The holding period of Bank Indonesia Certificates (SBI) was reduced from 1 month to 1 week in order to attract foreign capital inflows.
• Incentive was provided in the form of a reduction in the interest tax paid on term deposits for exporters depositing their FX earnings at

banks in Indonesia or converting the proceeds into rupiah as requested by the government. The policy is expected to keep FX earnings in the country for longer.

• BI ensured greater transparency and information availability when using FX by strengthening the FX flow report (LLD). In this case, LLD

participants are obliged to report their use of FX through supplementary supporting documentation for transactions of a certain value. The regulation is pursuant to Act No. 24 of 1999 concerning the Flow FX and the Exchange Rate System, where Bank Indonesia is authorised to request information and data regarding the flow of FX from residents.

Monetary y Policy y Package ge: : Septembe mber r II II

30 30th

th Septe

temb mber er 2015

SLIDE 63

62 62

As part of national efforts to reverse the recent economic slowdown, OJK has issued a series of financial sector policies. Such measures are directed to, among others, to maintain the level of household/private consumption and to support the Government’s infrastructure development.

• Banking sector: measure are focused on increasing bank

loans to MSMEs and housing financing – Adjustment of risk weighting for certain types of loans – Relaxation of requirements for debt restructuring

• Capital

market sector: Measures are focused

• n

supporting financing for housing and infrastructure, as well as developing SMEs through financing from the capital market – Development & expansion

• f

investment products – Development of municipal bonds – Unlocking opportunities for SMEs to go public

• NBFI sector: Measures are focused on fostering the

growth of multifinance companies and microfinance institutions – Relaxation of regulations on NPF in multifinance companies – Development of microfinance institutions – Establishment of a rating agency for MSMEs

• Relaxation of regulations on business

trust

• Preparation
• f

agricultural insurance scheme

• Revitalization
• f

venture capital, especially to finance start-up businesses

• Establishment
• f

financing industry consortium, especially to provide financing for creative industry, export-

• riented businesses, and MSMEs
• Empowerment of the Indonesia Export

Financing Agency (LPEI)

• Implementation of one-project concept

in assessing quality of loans

July 2015 October 2015

• Encourage individual foreign

currency account

• pening

for foreign residents – Opening an account up to $50,000

• nly

need to present a passport – Opening an account with

• ver than $50,000 will be

subject to simple customer due diligence process

• passport

and

• ther

supporting documents

September 2015

Financial Sector

• r Policy

y Package ges s to Boost Growt

• wth

Source: Financial Service Authority (OJK)

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63

Yuan devaluation Package I Package II Package III

Rupiah Curr (Rp/1US$)

Source: Bloomberg

Composite Index BEI

Source: Bloomberg

Market Participants began to welcome the Indonesian economic recovery efforts in addition to dynamic external conditions

Market’s Positive Signal to Policy Package

63

SLIDE 65

64

PPP Unit under Ministry of Finance will facilitate project development of PPP projects, by providing facilities such as Project Development Facilities (PDF), technical assistance, arrangement of guarantee with IIGF, and infrastructure funding with PT SMI and PT IIF. PPP Unit will also help capacity development for PPP and promotion of PPP projects Minister has approved the establishment of PPP unit, and the funding arrangement with donor and regulatory framework are under progress. KPPIP (The Committee for Accelerated Infrastructure Delivery) is a central government body that will coordinate the delivery of the government’s priority infrastructure projects, which consists of key government ministries related to infrastructure delivery, such as the CMEA, MoF, BAPPENAS and the BPN. KPPIP has established 22 priority projects for 2015 to be implemented. Establishment of PT SMI (Sarana Multi Infrastruktur), PT IIF (Indonesia Infrastructure Finance) to provide long-term financing Reform of National Land Agency (BPN), including establishment of special deputy for land acquisition acceleration and dedicated team for priority infrastructure projects, development of SOPs for every BPN activities etc.

To ensure sound implementation, some institutional reforms and new institutions have been established.

National Land Agency (BPN) Reforms Establishment of PPP unit under MOF Increased Fiscal Contribution by GoI through PT SMI, PT IIF, and IIGF Establishment of KPPIP

The government is also in the process of establishing more institutions to further accelerate infrastructure delivery

INSTITUTIONAL REFORMS

Initiatives s to accelera rate infra rast stru ructure developme pment throu

• ugh

gh reform

• rms

s (1/2) )

SLIDE 66

65

• The best example of a successful

implementation of the law is the city of Bojonegoro, where the civil society was socialized early to the law and where the land appraisal and compensation amount were attractive.

• Outcome: the overall land

acquisition process for the Java North Line Double Track Rail project took less than 2 years.

Neutral decision making regarding community rejection BPN as central agency in implementation of land acquisition More detailed regulation on implementation of land acquisition

One of the major reforms is the New Land Law No.2/2012:

Law No. 2 /2012 regarding Land Acquisition for Public Interest Presidential Regulation (PR) no 38/2015 regarding PPP Presidential Regulation (PR) no 39/2014 regarding the New Negative List of Investment The new law will ease land acquisition bottlenecks and disputes for infrastructure projects such as road, railway, station, port, airport, etc. The law regulates procedures of land acquisition, funding for land acquisition land appraisal, amount and types of compensations, objections and dispute settlements. The new President Reg. No. 30/2015 stipulates the role of private investors in contributing to land acquisition process. Government has revised the original regulation on PPP (Presidential Regulation no 67/2005) three times to accommodate more concerns regarding PPP development in Indonesia. For example, the revision accommodates foreign companies/investors in procurement of PPP projects, criteria and compensation for unsolicited project proposal, the need for fiscal support from Ministry of Finance. Government has revised the previous Negative list of investment to encourage more foreign businesses to take part in infrastructure development. For example, in transport sector, foreign ownership of seaport facility increased from 49% to 95% during PPP concession period. The government also allows 100% foreign

• wnership of power plant >10MW during PPP concession period (previously 95%).

Better Land Appraisal Team Appointment Less bureaucratic land right revocation process

Successful case of the implementation of the New Law

New Law no 2 / 2012

REGULATORY REFORMS

Minister of Energy & Mineral Resources Reg. No. 3/2015 regarding Procedure for Power Purchase This regulation allows for power purchase from mine mouth coal power plant, coal power plants, gas/micro gas power plants, and hydro power plants can be done with direct selection and direct appointment with the purpose to accelerate procurement process.

Initiatives s to accelera rate infra rast stru ructure developme pment throu

• ugh

gh reform

• rms

s (2/2) )

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66

• 8. SHIA Express

Railway (Rp 24T)

• 9. West Semarang

Water Supply (Rp 765 M) 10.Balikpapan – Samarinda Toll Road (Rp 11,4T)

• 11. Manado – Bitung

Toll Road (Rp 4,3T)

OBC Develop ment Ready for PPP Tender Permit and Land Acquisition Financial Close* Construc tion**

• 1. New oil refinery (Rp 75 -

140T)

• 2. Jakarta Sewerage System

Zona 1 (Rp 7T)

• 3. Airport Revitalization

(brownfield)

• 4. Kuala Tanjung Int. Hub.

Seaport (Rp 30T)

• 5. Bitung Int. Hub. Seaport

(Rp 34T)

• 6. Panimbang – Serang Toll

Road

• 7. Upgrading existing

refineries (Cilacap, Dumai, Plaju, Balongan, Balikpapan)

• 12. HVDC (Rp 20T)
• 13. Indramayu Power Plant

(Rp 20T)

• 14. Sumatera Transmission

(Rp 35T)

• 15. MRT Jakarta South -

North (Rp 25T)

• 16. Sumsel 9, 10 Power

Plants

• 17. Central and West Java

500 kV Transmission Line

• 19. 4 sections of Trans

Sumatera toll road (Rp 30T) 20.Makassar – Pare Pare Railway (Rp 6,4T) 21.Water to Energy – Development of Hydro Power Plants Karangkates IV&V, Kesamben, and Lodoyo 22.NCICD Phase A (Rp 20T)

• 18. Sumsel 8 (One

package with Sumsel 8, 9, 10 with total investment value of Rp 54T)

• 19. Batang Power

Plant/Central Java Power Plant (Rp 40T), Target: October 2015

22 Priori

• rity

ty Projects ts With thin the Pipeline

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67

No. PROGRESS (%) Progress Status Total Mining Permit (July 2015) Total No.

• f

Smelter

1. 6 – 10 Environmental Impact Analysis (AMDAL) 12 9 2. 11 - 30 Ground Breaking and Initial Construction Plant 18 15 3. 31-50 Mid-Plant Construction Phase 18 13 4. 51-80 Final Phase of Construction 9 9 5. 81-100 On Commissioning / Production Phase 28 25 Total 85 71

• 1. Processing & refinery facility plan based on progress
• 2. Processing & refinery facility plan based on

commodities

No. Commodities Total Mining Permit Total No. of Facilities 1. Nickel 42 35 2. Bauxite 11 6 3. Iron 8 8 4. Mangan 3 3 5. Zircon 13 11 6. Lead and Zinc 4 4 7. Kaolin and Zeolite 4 4 Total 85 71

Note: Total Mining Permit cooperating with smelter companies may change

Mining Sector

• r:

: Progress ss of Process ssing g and Refinery Facility ty (1/3)

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68

Nickel Smelter (Operational)

Company Name: Indoferro (Cilegon-Banten)

Iron Smelter (Operational)

Company Name : Delta Prima Steel (Tanah Laut-South Kalimantan)

Steel Smelter (Operational)

Company Name : Krakatau Posco (Cilegon- Banten) Company Name : Indotama Ferro Alloy (Purwakarta-West Java)

Mangan Smelter (Operational)

Mining Sector

• r:

: Progress ss of Process ssing g and Refinery Facility ty (2/3)

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69

Nickel Refining Facility (NPI) Still On Progress

Company Name: Bintang Delapan Group (Morowali-Central Sulawesi)

Mining Sector

• r:

: Progress ss of Process ssing g and Refinery Facility y (3/3)

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70

Cabinet Meeting Progress of 35,000 MW Debottlenecking through regulation:

• 1. Regulation No.1/2015 concerning

electricity supply cooperation and joint utilization of the electrical network among license holders.

• 2. Regulation No.3/2015, concerning

Procedures of Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection and Appointment. Cabinet Meeting “There’s electricity crisis in Indonesia, requires construction of large capacity plant "

17 Dec ‘14 16 Mar ‘15 4 May ‘15 Jan ‘15

Launching 35.000 MW by the President in Goa Beach Sanden DIY. Average economic growth of 6.7 requires 7,000 MW / year or 35,000 MW / 5 years (Kepmen ESDM No. 0074/2015 on RUPTL 2015-2024)

Jan ‘15

Energy gy Sector

• r:

: 35,000 ,000 MW Progra ram has been launched