0 About ut Investo estor Re Relatio tions ns Unit of the - - PowerPoint PPT Presentation

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Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between 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 to address concerns of investors, especially financial market investors. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among

• thers: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry
• f State Owned Enterprises, Ministry of Energy and Mineral Resources and Financial Services Authority.

IRU also convenes 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. 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) Farid Arif Wibowo (Directorate General of Budget Financing and Risk Management - Ministry of Finance) E-mail: contactIRU-DL@bi.go.id

About ut Investo estor Re Relatio tions ns Unit of the Re Republ public ic

• f

I Indo donesi esia

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Ov Overview rview

1 2 3 4 5 6

Institutional and Governance Effectiveness: Accelerated Reforms Agenda with Institutional Improvement Economic Factor: Strong and Stable Growth Prospects Remain Intact External Factor: Improved External Resiliency Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Management Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector Progressive Infrastructure Development: Strong Commitment on Acceleration

• f Infrastructure Provision

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Institu ituti tion

• nal

al and Gove vern rnment ment Effe fectivene ctiveness: ss:

Ac Acce celerated ted Reform rms Ag Agenda with In Institutiona utional Im Improv

• vement

ment

1

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Positi tive ve Global bal Perception ception

52 25 46 40 38 15 25 35 45 55 2010 2011 2012 2013 2014 2015 Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption

1. Source: World Bank; 2. Source: Transparency International; 3. Source: World Economic Forum

World Governance Indicators1 Ease of Doing Business1 Global Competitiveness Index3 Corruption Perception Index2

Higher rank is better

Higher score is better 36 38* 35 45 20 25 30 35 40 45 50 55 2010 2011 2012 2013 2014 2015 Indonesia India Brazil Philippines Turkey * Both India and Brazil shared the same score (38) in 2015 Higher rank is better 41 39 81 57 55 30 45 60 75 90 2009 2010 2011 2012 2013 2014 2015 2016 Indonesia India Brazil Phillipines Turkey Higher rank is better 91 130 123 99 69 50 70 90 110 130 150 2008 2009 2010 2011 2012 2013 2014 2015 2016 Indonesia India Brazil Philippines Turkey * Both ‘Rule of Law’ and ‘Regulatory Quality’ shared the same score (40) in 2015

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Strong ng Impr provement vement in Eas ase

• f

D Doing ng Business iness Ra Rank*

EODB 2017 Rank EODB 2016 Rank Change in Rank EODB 2017 Points EODB 2016 Points Change in Points

Overall 91 106 15 61.52 58.51 3.01 Starting a business 151 167 16 76.43 67.51 8.92 Dealing with Construction Permit 116 113 3 65.73 65.26 0.47 Getting Electricity 49 61 12 80.92 77.60 3.32 Registering Property 118 123 5 55.72 53.24 2.48 Getting Credit 62 70 8 60.00 55.00 5.00 Protecting Minority Investors 70 69 1 56.67 56.67 Paying Taxes 104 115 11 69.25 64.47 4.78 Trading Across Borders 108 113 5 65.87 63.53 2.34 Enforcing Contracts 166 171 5 38.15 35.37 2.78 Resolving Insolvency 76 74 2 46.46 46.48 0.02

• Government efforts to boost business growth through deregulations and de-bureaucratization have been recognized by the improvement of EODB.
• Structural reforms will continue including in the budget and real sectors

Source: World Bank * Higher rank is better, EoDB 2017 is published in October 2016

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Indo donesia esia Re Remains ains the he Investment stment Dest stin inatio tion

• f

C Cho hoice ice

1. Source: Indonesia Investment Coordinating Board (BKPM); 2. Source: IMF World Economic Outlook, Database October 2016, * actual figures; 3. The Economist – Asia Business Outlook Survey 2016; 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (28th Annual Survey);

IDR tn

2016E Total Investment / GDP (%)

Indonesia Enjoys Large Investments Relative to Peers within the Region2 JBIC: Amongst ASEAN countries, Indonesia is the most preferred place for business investment (December 2016)4 The Economist: Indonesia among the top 3 destination for attracting investors in Asia (January 2016)3

18.9 22.9 23.6 24.8 27.1 28.3 29.0 30.1 32.2 32.7 37.2 48.0 58.2 69.3 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 Taiwan Hong Kong South… Singapore Australia Japan Thailand Vietnam Myanmar Malaysia Philippines Indonesia China India

% of surveyed who plan to increase investment in each country

159.4 58.1 101.3 2013 2014 2015 2016

Rising Direct Investments1

17.96 31.66 34.65 26.15 23.74 24.42 5 10 15 20 25 30 35 Brazil India* Indonesia Malaysia Philippines Thailand

2.5 3.1 3.5 4.8 6.8 7.2 10.1 10.6 19.3 25.9 29.4 32.7 35.8 42.0 47.6 5 10 15 20 25 30 35 40 45 50 Turkey Korea Russia Singapore Malaysia Brazil Myanmar Philippines USA Mexico Thailand Vietnam Indonesia China India

% of surveyed who consider each country has promising prospects

20 40 60 80 100 120 140 160 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FDI DDI TOTAL

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Natio ional nal Strategic tegic Dev evel elopme pment nt Plan an (Naw awa Cita ta)

Human Development

Education Health Housing Character

Priority Sector Development

Food Security Energy & Electrical Security Maritime & Marine Tourism & Industry Water Security, Basic Infrastructure & Connectivity

Equitable Development

Inter- Income Group Inter-Region: (1) Rural Area, (2) Periphery, (3) Outside Java, (4) Eastern Area.

Security & Order Politic & Democracy Governance

The 3 Dimensions on Economic Development Necessary Condition

Legal Certainty & Law Enforcement

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Improving ving Investment stment Clima imate te:

Introduce

• duce the

the 3-hour ur inves estment ment licensi nsing ng service ice to complem emen ent the One Stop Service vice (OSS) S)

BKPM

• Arrive at OSS at BKPM directly from the airport
• Consult with Director of Investment Service
• Submit the required documents & data

Requirement for utilizing 3-hour Investment Lisencing Service:

No requirements for investment in infrastructure sector

9 documents obtained

Wait at the lounge while documents are processed by BKPM, in-house notary, ministries, & other government institutions Obtain eight documents & letter of land availability within three hours to start the business

• RPTKA / Employment plan
• IMTA / Working permit
• Investment license
• Certificate of incorporation
• NPWP / Tax Registration Number
• TDP / Company Registration
• APIP / Import identification
• NIK / Customs registration
• Letter of land availability

Until December 2016, more than 250 companies have utilized the “3 hours services”

Certainty to start a business Certainty to Import capital goods Certainty to work Accurate land information

1. Minimum investment of IDR 100 billion (USD 8 million) and/or employing 1,000 local workers. 2. Application must be submitted directly by at least one candidate

• f the proposed company stakeholder

2 documents needed

• ID Card
• And/or Deed of Establishment (Indonesian company) or Article
• f Association (Foreign company)
• Containing workflow from raw material production to the

finished products

Investor identitiy as the prospective shareholders Flowchart of business activities workflow

Source: Investment Coordinating Board (BKPM)

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Improving ving Investment stment Clima imate te:

Introduce

• duce

the 3-hour ur inves estment ment licensi nsing ng service ice to complem emen ent the One Stop Service vice (OSS) S)

Direct Construction (KLIK)

No Requirements

• No minimum investments or workers is

required.

• Available for 14 selected industrial parks.
• Construction permits can be obtained in parallel

with construction process.

Investors can directly start their project construction before

• btaining construction permits. This service is supported by

both Central and Regional Governments which become the first step to synergize between central and local licensing

Obtain investment licence at OSS

at national or regional level.

• Survey a land within selected

industrial parks.

• Acquire the land for your industry.
• Start the construction of your project.

No other permits are required.

• Apply for building construction permit &

environmental permit, in parallel with construction process.

Priority Investment Service

Source: Investment Coordinating Board (BKPM)

Until December 2016, 82 projects have utilized the “KLIK services”

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Impr proving ving Invest stment ment Re Real aliza izatio tion (Q4-201 2016)

Source: Investment Coordinating Board (BKPM), compared to Q4-2015 period

Rp145.4 T Rp159.4 T Rp99.2 T Rp101.3 T Rp46.2 T Rp58.1 T 434,463

9.6% 15.6% 2.1% 25.8%

Q4-2015 Q4-2016 Q4-2015 Q4-2016 Q4-2015 Q4-2016 Q4-2015 Q4-2016

*

* person 375,982

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FDI FDI Realiza lization ion by Sectors

• rs (Q4

Q4-201 2016)

Source: Investment Coordinating Board (BKPM), compared to Q4-2015 period

Mining Chemical and Pharmaceutical Industry Rubber and Plastic Industry Metal, Machinery and Electronic Industry

US$745.9 mn US$862.5 mn US$259.3 mn US$1,074.3 mn US$1,075.3 mn US$494.1 mn

Food Industry

37.2%

US$48.5 mn

Construction

45.2% 11.4% 18.1% 90.4% 55.9% 38.1%

Investment Realization

Electricity, Gas and Water Supply Paper and Printing Industry

US$225.8 mn

20.0%

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The Economic

• nomic

Polic licy Pack ackages es

“To improve national industry competitiveness, export and investment to generate significant economic growth”

Phase III (7 Oct ’15) Financial services facilitation, export financing and elimination

• f business unnecessary burden

Phase IV (15 Oct ’15) Social safety net and betterment of people welfare Phase V (22 Oct ’15) Improving industry and investment climate through tax incentives and deregulation on sharia banking Harmonizing Regulations Simplifying Bureaucratic Process Ensuring Law Enforceability Phase VI (6 Nov ’15) Stimulating economic activities in border areas and facilitating strategic commodities availability Phase I (9 Sept ’15) Improving national industry competitiveness Phase II (29 Sept ’15) Easing permit requirement and simplifying export proceeds requirement Phase VII (7 Dec ’15) Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land certification process for individuals Phase VIII (21 Dec ’15) Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation industries Phase IX (27 Jan ’16) Accelerating electricity generation, stabilizing meat prices and improving rural –urban logistics sector Phase X (11 Feb ’16) Revising Negative investment List and improving protection for SMEs Phase XI (29 Mar ’16) Stimulating national economy through facilitation to SMEs and industries Phase XII (28 Apr’16) Improving Indonesia’s rank on Ease of Doing Business (EODB) Phase XIII (24 Aug ’16) Low Cost Housing for Low-Income Communities Phase XIV (10 Nov ’16) Roadmap for E-commerce

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Bo Boosting ting the Huge Potent entia ial

• f

E-co comm mmer erce ce in Indonesia donesia

2.2 2.6 7.5 8.6 12.1 19.6

5 10 15 20 25

Indonesia India Japan World South Korea China

27% 29% 38% 44% 50% 58%

0% 10% 20% 30% 40% 50% 60% 70%

Indonesia Philippines Vietnam Thailand Malaysia Singapore

• SMEs Loan Schemes
• Crowdfunding
• Grants
• Easing tax payment
• Incentive for local

start-up

• National payment

gateway

• Harmonizing

regulations

• Trainings
• Increasing internet

awareness

• Revitalizing PT.

Pos Indonesia

• Improving rural to

city logistics Expanding high fiber cable network

• Develop cyber

security system

• Awareness on

cyber crime Develop E-commerce Roadmap Total Active On-line Shopper/Total Population (%) E-commerce/Total Retail (%)

Online shopper and E-commerce contribution in Indonesia is still low, despite it’s huge potential Government’s Support to E-commerce Sector through 14th Economic Policy Package

Consumer Protection Communication Infrastructure Logistic Support HR Capacity Improvement Tax Relaxation Funding Support Cyber Security Operation Management

Source: Ministry of Finance

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Thema matic ic Polic licy Issues sues

• n

Deregula gulatio ion

Next Phase of Policy Packages based on Sectoral and Thematic Issues Six policy issues under Packages I-XIV:

improvement of industry competitiveness improvement of society’s purchasing power widening of investment expansion of export efficiency of logistics sector improvement of tourism sector

Education and Vocational Training Logistics Agrarian reform Energy Industry, Manufacture, Tourism, Fishery & Service sector Food Invention, Innovation and Creative Economy

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Progr

• gress

ss

• f

the Eco cono nomi mic Polic licy Pack ackag ages

Initially, there are 215 regulations which need to be deregulated As of January 23rd, 2017, deregulation of 203 regulations are finished (99%), comprising 49 regulations at Presidential level and 154 regulations at Ministrial/Institutional level Unfinished regulations: Proposed Policy on E-commerce Roadmap

I–XII

203

SET

99% 11

REVOKED REGULATIONS

1

ON GOING DISCUSSION

1%

154 TOTAL

154

MINISTRIAL/INSTITUTIONAL LEVEL 100%

47 42

SELESAI

PRESIDENTIAL

50 TOTAL

49 FINISHED

PRESIDENTIAL LEVEL

99% I–XIV

FINISHED

I–XII

215

TOTAL INITIAL REGULATIONS

I–XIV

I–XII

204

TOTAL REGULATIONS

I–XIV

Based on the further assessment, 11 regulations has been revoked from deregulation process Total regulation subject to be deregulated: 204 regulations

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Early rly Ou Outputs: puts: Posit sitive ive Infl fluence uence

• n

Inve vestment stment

1

Bonded Logistics Center (Pusat Logistik Berikat/ PLB) Total 28 BLC has been launched, including airplane maintenance industry and oil

6

Export Financing/KURBE Export of Train Wagon to Bangladesh

2

Investment Permit - 3 Hours Granted for more than 180 companies as of November 2016

3

Industrial Zones (IZ)

• The Province of Central Java proposed 3 IZ’s: Kendal,

Demak, and Ungaran

• Pharmaceutical IZ in Bitung (North Sulawesi) in 2017

5

Facilities and Incentives for SEZ Total value of Rp 33.8 T (as of September 2016)

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EoDB for SMEs Streamline/Simplify permits and procedures which shorten lead time and costs in 10 indicators

4

Wage Systems 14 Provinces have set 2016 Minimum Wage System in accordance to the Government Regulation (GR)

• No. 78/2015 (Kepri, Kalbar, NTB, Sumbar, Jambi, NAD,

Kalsel, Banten, Gorontalo, NTT, Jabar, Bali, Sumut, and Babel).

8

Simplification of Fiscal Incentive Process Used by 18 companies with average processing time

• f 13.4 days (previously 2 years)

9

SME’s Export Product Aggregator/Consolidator Launched with coconut export from North Sulawesi through SOEs’ Synergism Program

10

Revision to Negative List (PP No. 44/2016) Implemented since 24 June 2016 with participation of 527 companies with planned investment of USD 12.926 bn

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Eco conomic ic Factor ctor:

Strong and Stable Gr Growth Prospec ects Rema main In Intac act

2

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Conducive cive Environment ment Unde derpin rpinning ning Strong ng Growth th Funda damenta mentals ls

Largest Economy in South East Asia 4th Most Populous country in the World; 64% in productive age Manageable Inflation Rate Growing Middle Income Class From commodity-based to industrialized- natural resources-based economy via infrastructure development From consumption-led to investment-led growth via a stronger manufacturing sector and more investment initiatives Policies to maintain purchasing power to stimulate domestic economy in the midst of weakening macroeconomic conditions Budget reform as a part of larger economic reform initiative Tax base to be broadened from one reduce dependency

• n commodities

Fuel subsidies significantly reduced and spending redirected to more productive allocation Prudent debt management

Reform-Oriented Administration

Three main sources of financing for investment needs: State and regional budget, State Owned Enterprises and PPP Continuing from 2015 policy, infrastructure will be higher than fuel subsidy Fiscal and non-fiscal incentives to attract infrastructure investment and promote PPP Infrastructure spending focused on basic infrastructure projects

Large and Stable Economy Consistent Budget Reform New Economic Structure High Infrastructure Investments

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Indonesia’s Strong GDP

Growth Prospect GDP Growth Based on Expenditures1 Strong GDP Growth1

By expenditure 2014 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 HH. consumption 5.3 5.1 5.1 5.1 5.0 5.0 5.0 4.9 4.9 5.0 5.0 Non profit HH. consumption 23.2 22.4 5.8 (0.5) (8.1) (8.0) 6.6 8.3 6.4 6.7 6.7 Government consumption 6.1 (1.8) 1.2 0.9 2.9 2.6 7.1 7.3 2.9 6.3 (3.0) Investment 5.2 4.1 4.5 4.6 4.6 3.9 4.8 6.9 5.6 4.6 4.1 Exports 3.2 1.4 4.8 (4.6) (0.6) 0.0 (0.6) (6.4) (3.9) (2.7) (6.0) Imports 5.0 0.4 0.3 3.2 (2.2) (7.0) (5.9) (8.1) (4.2) (3.0) (3.9) GDP 5.1 5.0 5.0 5.0 4.7 4.7 4.7 5.0 4.9 5.2 5.0

%

Institutions 2016 GDP growth (%YoY) 2017 Budget 5.1 Bank Indonesia 5.0-5.4 IMF 5.1 World Bank 5.3 ADB 5.1 Consensus Forecast (January 2017) 5.2

• 5.0
• 3.0
• 1.0

1.0 3.0 5.0 7.0 9.0 2011 2012 2013 2014 2015 2016* 2017* 2018*

Brazil India Indonesia Malaysia Philippines Singapore Thailand

Favourable GDP Growth Compared to Peers2

1. Source: Central Bureau of Statistics of Indonesia (BPS) 2. Source: World Economic Outlook Database - October 2016; * indicates estimated figure

%

0.06 3.83 3.29

• 2.11
• 0.23

3.75 3.36

• 1.83
• 0.35

4.03 3.20 5.14 4.96 4.97 5.04 4.73 4.66 4.74 5.04 4.92 5.18 5.02

• 3
• 1

1 3 5 7 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2014 2015 2016

QoQ YoY

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Strong ng an and Stable able GDP Perf rform rmance ance

Shifting from Commodity-based Economy to Manufacturing and Service Sectors Contributors to GDP Growth by Sector Spatial GDP Growth



Manufacturing sector showed stable growth, supported by positive investment performance and provision of incentive



Logistic-related sector growth is driven by the development of infrastructure projects and the improvement

• n

logistic efficiency



Agriculture sector slowed due to unfavorable weather



Mining sector showed positive signal with the increase of oil and gas production

%

GDP growth by sectors (YoY) (%) 2014 2015 2016 Q1 Q2 Q3 Q4 Yearly Q1 Q2 Q3 Q4 Yearly Q1 Q2 Q3 Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 4.0 6.9 3.3 1.6 4.0 1.8 3.4 2.8 Mining (1.0) 1.1 1.2 1.5 0.7 (1.3) (5.2) (5.7) (7.9) (5.1) (0.8) (0.1) 0.1 Industrial processing 4.5 4.8 5.0 4.2 4.6 4.0 4.1 4.5 4.4 4.2 4.6 4.7 4.6 Construction 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 8.2 6.6 7.9 6.2 5.7 Big traders, wholesale, retail 6.1 5.0 5.2 4.5 5.2 4.1 1.7 1.4 2.8 2.5 4.0 4.0 3.7 Transportation and warehousing 7.0 7.6 7.7 7.2 7.4 5.8 5.9 7.3 7.7 6.7 7.9 6.9 8.2 Information and communication 9.8 10.5 9.8 10.3 10.1 10.1 9.7 10.7 9.7 10.1 8.1 9.9 9.2 Financial service and insurance 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.4 12.5 8.5 9.3 13.6 8.8 Other 5.4 4.7 5.9 6.5 5.7 5.1 6.5 5.0 5.9 5.6 6.0 5.4 4.3 GDP 5.1 5.0 5.0 5.0 5.0 4.7 4.7 4.7 5.0 4.8 4.9 5.2 5.0 Java: 58.4% Sumatera: 22.0% Maluku & Papua: 2.5% Sulawesi: 6.2% Kalimantan: 7.7% Bali & Nusa Tenggara: 3.2%

Spatial GDP Growth Contribution

Sumatera GDP Growth Q2 2016: 3.9% Java GDP Growth Q2 2016: 5.6% Kalimantan GDP Growth Q2 2016:2.1% Sulawesi GDP Growth Q2 2016:6.7% Maluku & Papua GDP Growth Q3 2016: 13.7% Bali & Nusa Tenggara GDP Growth Q3 2016: 5.0% Source: BPS

• 8
• 4

4 8 Manufacture Transportation & Warehousing Agriculture Mining Q3 2015 Q3 2016

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Extern ernal al Factor ctor:

Im Improv

• ved

Ext xternal ernal Resilie iency ncy

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• 3

6 9 12 15

• 20

40 60 80 100 120 140 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2012 2013 2014 2015 2016

A Nar arro rower er, , Stru ructura cturall lly-Str tronger nger Curr rrent nt Account nt Deficit ficit

Improving Current Account Deficit Strong Balance of Payments Supported by Substantial FX Reserves to Mitigate External Challenges Trade Balance Surplus Continues

Source: Bank Indonesia Source: Bank Indonesia US$bn US$bn

115.7 9.4 5.7 (4.5) 2011: CA Surplus US$1.7bn 2015: CA Deficit (US$17.8bn) 2012: CA Deficit (US$24.4bn) 2013: CA Deficit (US$29.1bn) 2014: CA Deficit (US$27.5bn)

US$bn

(7.9) (1.5) 3.9 1.0 (4.5)

Source: Bank Indonesia FX Reserves as of Dec 2016: US$116.4bn (Equiv. to 8.4 months of imports + servicing of government debt) Month US$bn FX Reserves (LHS) Month of Import & Debt Service (RHS)

2016**: CA Deficit (US$4.5bn)

Source: BPS

2015: Surplus US$7.52bn 2014: Deficit US$1.89bn

US$bn

2016: Surplus US$8.77bn

20 40 60 80 100 120 140 160

• 20
• 15
• 10
• 5

5 10 15 20 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* Q3* 2010 2011 2012 2013 2014 2015* 2016** Current Account Capital & Financial Account Overall Balance Reserve Assets (RHS)

• 15
• 10
• 5

5 10 15 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* Q3* 2011 2012 2013 2014 2015* 2016** Goods Services Income Secondary Inc. Current Acc.

• 2.5
• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 2.5 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 11 12 2014 2015 2016 Non-OG OG Total 1.45 0.99 (0.45)

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Exc xchan ange Ra Rate In Li Line ne with Funda damentals mentals

Stable Movement of Rupiah

Source: Bank Indonesia

YTD 2016* vs 2015

Source: Bank Indonesia

Rupiah Exchange Rate Relatively Well Compared to Peers

IDR/US$

After pressures following the result of the US election, the rupiah appreciated in December as capital flowed back

• nto

domestic financial markets. Point-to-point, the rupiah appreciated 0.59% (mtm) to close at a level of Rp13,473 per USD in line with a deluge

• f capital inflow, primarily to government debt

securities (SUN). In contrast, outflow from the domestic stock market decreased after the FFR hike, with a reversal noted at the end of December 2016 to record an inflow. Point-to- point, in 2016, the rupiah appreciated 2.32% (ytd) on the positive investor perception of the domestic economic outlook, which attracted non-resident capital.

Dec 2016* vs Nov 2016

IDR/USD Monthly Average Quarterly Average * data as of 30 December 2016 * data as of 30 December 2016 Average Point-to-point Source: Bank Indonesia Average Point-to-point

2.32

• 3.74
• 2.55

0.57

• 5.43

21.68

• 2.61
• 4.28
• 16.95

13.77 0.66 0.25

• 2.51
• 2.92
• 4.15
• 4.23
• 4.55
• 5.75
• 9.91
• 13.10
• 25.00
• 15.00
• 5.00

5.00 15.00 25.00 IDR EUR KRW THB PHP BRL INR MYR TRY ZAR % 1.76 0.68 0.59 4.01

• 0.80

0.15

• 0.54
• 3.06
• 1.29
• 0.45
• 2.91
• 3.39

0.44

• 0.40
• 0.72
• 0.53
• 1.12
• 1.14
• 1.30
• 1.78
• 2.45
• 2.75
• 6.04
• 6.72
• 8.00
• 6.00
• 4.00
• 2.00

0.00 2.00 4.00 6.00 ZAR INR IDR BRL CNY PHP THB KRW EUR MYR TRY JPY %

* data as of 30 December 2016

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Ample le Li Lines of D Defe efense se Again ainst st Exter erna nal Shocks cks



Ample of level of FX reserves to buffer against external shock



FX Reserves as of December 2016: US$116.4 billion South Korea



Established a 3 year KRW/IDR swap arrangement with the size of up to 10.7 trillion KRW / IDR 115 trillion in March 2014 Australia



Established a 3 year A$/IDR swap arrangement with the size of up to A$10 billion or IDR 100 trillion in December 2015

Ample Reserves Swap Arrangement

Chiang Mai Initiative Multilateralization (CMIM) Agreement



Entitled to a maximum swap amount of US$ 22.76 billion under the ASEAN+3 (Japan, China, and Korea) FX reserves pool created under the agreement



Came into effect in 2010 with a pool of US$120 billion



Doubled to US$ 240 billion effective July 2014 Japan



US$ 22.76 billion swap line with Japan currently in place



The quantum of the swap line was increased from US$12 billion in December 2013 IMF Global Financial Safety Net - GSFN



Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem



Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL)

Bilateral Regional Global

FX Reserve

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Compre prehens ensive ive Stab abilizatio ilization n Fra ramewo ework rk Ensure res s Pro roac active ive Ri Risk Man anag agement ment of Finan ancial cial Sys ystem tem

Implementing Crisis Management Protocol Implementing Bond Stabilization Framework Enhancing coordination between government institutions and continuous dialogue with market participants Specific policies in place in the 2014 budget law to address crisis Swap facility arrangements based on international cooperation Chiang Mai Initiative Multilateralization

Specific articles in the 2014 State Budget Law that provide flexibility for Government to take quick mitigation action if necessary, with Parliament approval that has to be given within 24 hours

 The FKSSK, Consists of Minister of Finance, BI Governor, Head of Indonesian FSA and Head of Indonesian Deposit Insurance Corporation, manages the Nationwide Crisis Management Protocol (CMP) Framework as guidance and procedures for national crisis prevention and mitigation measures.  The nationwide CMP incorporates the Exchange Rate, Banking, Non-Bank Financial Institution, Capital Market, Government Bonds Market (SBN), and Fiscal CMPs.  Coordination Meeting is conducted regularly to discuss and assess the current level of Financial System Stability and current issues related to the financial system  In 2013, FKSSK has conducted two crisis simulations: Full Dress Simulation (ministerial level) and activation of pre-emptive instrument (CMIM) at technical  In April 2016, the Financial System Crisis Prevention and Mitigation Law (UU PPKSK) has been enacted. The law contains some key features, ie: Clear division of tasks and responsibilities between the Ministry of Finance, BI, OJK and LPS; Clarity of Systemically Important Banks (SIBs) definition based on international criteria; Application of the bail-in principle according to international best practices; and Resolution mechanism in which Lender

• f Last Resort (LoLR) still provided by central banks to address short-term liquidity difficulties.

 Several indicators are monitored daily: yield of benchmark series, exchange rate, Jakarta Composite Index and foreign ownership in government securities

Crisis Management Protocol

Related State Owned Enterprises (min. Aware Level) State Budget SOE Budget BPJS Budget Buyback fund at the DG of BFRM and Investment fund at PSA (min Aware Level) BPJS/Social Security Organizing Agency (min. Aware Level)

Bond Stabilization Framework

1 2 3 4 5 6 Fiscal buffers to prevent crises and mitigate risks First Line of Defence Related State Owned Enterprises (min. level Alert ) State Budget SOE Budget BPJS Budget State General Treasury Account/KUN (min. level Alert) and Accumulated Cash Surplus/SAL (min. Level Crisis) BPJS/Social Security Organizing Agency (min. Alert Level) Second Line of Defence

SLIDE 27

26

Strengthe engthened ned Pri rivate te Ext xter ernal nal Debt ebt Ri Risk Man anag agement ement

(US$bn)

Source: External Debt Statistics of Indonesia, January 2017

(%)

Source: Moody’s Statistical Handbook, November 2016

Despite Increasing Trend of External Debt… Debt Burden Indicator (External Debt / GDP) Remains Comparable to Peers

Regulation Key Points Phase 1 Jan 1,2015 – Dec 31,2015 Phase 2 Jan 1,2016 – Dec 31,2016 Phase 3 Jan 1, 2017 and beyond Object of Regulation Governs all Foreign Currency Debt Hedging Ratio < 3 months 20%* 25%** > 3 – 6 months 20%* 25%** Liquidity Ratio ( < 3 months) 50% 70% Credit Rating Not applicable Minimum rating of BB- Hedging transaction to meet hedge ratio not necessarily be done with a bank in Indonesia Must be done with a bank in Indonesia Sanction As of Q IV-2015 Applied

Prudent External Debt Management

External Debt / GDP (%)



Oct 2014, introduced prudential principles in managing external debt for the nonbank corporation to mitigate risk emerging from external debt activity. Corporations holding external debt required to fulfil:

• Minimum hedging ratio in order to mitigate currency risk
• Minimum forex liquidity ratio to mitigate liquidity risk
• Minimum credit rating to mitigate overleverage risk



Regulation update in Dec 2014 including among others: broadening the coverage of components of FX Assets and Liabilities, extension of credit rating’s status validity period

(US$bn) Total Ext. Debt: US$316bn Private Sector

• Ext. Debt:

US$162bn

23.3 27.3 34.7 33.0 29.5 50.4 23.4 26.5 33.3 36.0 37.5 55.4 21.4 25.8 36.4 34.7 39.3 55.5 0.0 10.0 20.0 30.0 40.0 50.0 60.0 India Philippines Thailand Indonesia Brazil Turkey 2016F 2015 2014

50 100 150 200 250 300 350 50 100 150 200 250 300 2005 2007 2009 2011 2013 2015* Feb 2016* Apr 2016* Jun 2016* Aug 2016* Okt 2016* Public (Govt. & BI) Private Total (RHS)

SLIDE 28

27

Man anag ageable eable External rnal Debt bt Profile le

... ...short

• rt

term non-bank bank corpor porate debt (non affil ilia iati tion

• n)

repr presen ents

• nly

9.9% %

• f

total priva vate te external ernal debt

Private Short-Term1 Private Non-Bank External Debt Position

Affiliation Non Affiliation

US$154.5 Bn

• r

48.9%

• f Total Ext.

Debt US$112.7 Bn

• r

69.4%

• f Private Ext.

Debt US$19.5 Bn

• r

12.1%

• f Private
• Ext. Deb

US$13.8bn

• r

8.6%

• f Private
• Ext. Debt

US$16.1 Bn

• r

9.9%

• f Private
• Ext. Debt

Public Long Term 1 Private Bank

US$29.9bn

• r

18.5%

• f Private
• Ext. Debt

US$316.0bn

US$161.5bn

• r

51.1%

• f total
• Ext. Debt

US$49.4bn

• r

30.6%

• f Private
• Ext. Debt

External Debt Position as of November 2016

1 Based on remaining maturity

Source: External Debt Statistics of Indonesia, January 2017

SLIDE 29

4

Fiscal Performance and Flexibility:

More Fiscal al Stimulus us with Pru rudent nt Fiscal Policy cy

SLIDE 30

29

Budget

• Better targeted subsidy
• Social welfare spending
• Strengthening regional involvement

through intergovernmental transfer Incentives

• Effort to maintain consumption

growth

• Deregulations to ease business

climate

• Increasing non taxable income

threshold

• Improving the easiness in doing

business

Mai ain Strate tegy gy to Spur Economic ic Growth th

.. ...inte ntegrated policy framework rk throug ugh integrated fiscal, al, real sector and monetary ary policy reform rm

Budget

• Focusing on more sustainable

revenue, esp. taxation

• More realistic revenue target

calculation

• Increasing more productive

spending, inc. infrastructure

• Budget efficiency on non-priority

spending

• More sustainable financing
• Maintaining fiscal rule of 3% deficit to

GDP Incentives

• Investment friendly policies
• Regulation to stimulate the trade of

high value added domestic products

Growth Friendly Fiscal Policy to Achieve Sustainable and Equitable Growth SHORT – MEDIUM Term Policies

By utilizing:

• Credible and realistic budget
• Incentives for strategic

sectors

• Support for stable

consumption

LONG Term Policies

Maintains macroeconomic and financial system stability, while keep

• ptimizing domestic

economic recovery amid uncertainties in the global financial market.

• Strengthen policy coordination

with the Government

• Inflation control to keep within the target range
• Structural reforms to support sustainable economic growth

SLIDE 31

30

Lo Long Term rm Strategie tegies to Achiev ieve Susta tainable inable Growth th

…stimul uli to maintain ain purchas chasing ing power

The Virtuous Cycle of Purchasing Power Stimuli

 Consumption is still the largest contributor to Indonesia’s GDP  Private consumption has been a key factor driving Indonesia’s

economic growth in recent years

 The government has designed stimulus program to maintain and

enhance purchasing power for households

 The government has increased non-taxable income level and

adjusted wage policy to ensure that the lowest income bracket has the greatest support

 Funds are targeted at not only to improve basic village

infrastructure but also to create jobs through labor intensive projects as well as other job creation programs

u

Fuel price and electricity adjustment Predictable labour wages Boosting housing development Elimination of luxury goods tax for consumer goods 2 months addition of rice subsidy program Rural transfer for productive spending Ease of land certification and licensing for street vendors

Maintaining Purchasing Power

Increase non-taxable income limit Stabilized price for meat products

SLIDE 32

31

Lo Long Term rm Strategie tegies to Achiev ieve Susta tainable inable Growth th

…stimul uli to promote te invest stment nts

Licensing Incentives Tax Incentives Other Incentives Business and Infrastructure Incentives

Tax incentives

• n property

Special economic zones Relaxation of negative foreign investment list Integrated logistics zones CPO fund Support for export-oriented industries Village-city logistics improvement Acceleration

• f power

infrastructure Income tax relief for labor intensive industries Permit & licensing simplfication One map policy Incentives for footwear and apparel industries Simplification of import licensing for drugs and raw food Accelerating infrastructure development Water management and regulation Tax incentives for REITS Relaxation of entry visa policies Expansion of coverage and interest subsidy for MSME Dwelling time

• ptimization

Oil refinery development Aviation sector incentives Downstream industries Debt To equity ratio

SLIDE 33

32

‘The Big Bang” Policy

• n

Relaxation

• f

Foreign Investment

…promo moti ting ng competi titio ion and growth th from investm tment nts

Introduction of New Foreign Ownership Regulation for Strategic Sectors

1 For total project value of IDR10bn and above

Before

Cold storage Restaurants, Bars Pharmaceutical Raw Materials Manufacturing Sports Center, Film Processing Lab, Crumb Rubber

49%

Revision of "Partnership" category to refer to partnership with Micro, Small and Medium Enterprises (MSMEs) Grandfather Law: If a particular sector is tightened in future, existing foreign investor does not need to comply with tighter stake Key Reforms in Negative Foreign Investment List Strengthen implementation of negative investment law through active roles from ministries, agencies and regional governments

100% 49% 100% 51% 100% 85% 100% 95% 100% 33% 67% 51% 67% 51% 67% 55% 67% 65% 67%

Distribution, Warehousing Private Museum, Catering, apparel Manufacturing, Exhibitions & Conventions Toll Road Operator, Telecommunication Testing Company Consultancy for Construction1 Telecommunication Provider with Integrated Services Professional Training, Golf Course Management, Air Transport Support Services, Travel Bureau

After Before After Before After Before After Before After Before After Before After Before After Before After Before After

SLIDE 34

33

2017 Mac acroeco economic

• mic

Assump umption tions an and Budget et Posture

Indicator 2016 2017 R-budget Real. Budget Economic growth (%, yoy) 5.2 5.0* 5.1 Inflation (%, yoy) 4.0 3.02 4.0 3-Month T-Bills (%) 5.5 5.7 5.3 Exchange Rate (Rp/US$) 13,500 13,307 13,300 ICP (US$/barrel) 40 40 45 Oil Lifting (thousand barrel/day) 820 829 815 Gas Lifting (thousand barrel

• il equivalent/day)

1,150 1,184 1,150

• Macroeconomic assumption was calculated conservatively, measuring the recent external economic development, domestic potentials, and

how the government policy would impact the economy.

• To achieve the target, government will ensure the consistency in supporting investment growth through policy packages, supportive policies

from other institutions (e.g. regional government), and better budget role as growth stimulus.

• Budget as the instrument to support growth momentum but still keeping its credibility

Source: Ministry of FInance

2017 Macroeconomic Assumption 2017 Budget

Description (IDR tn) 2016 2017 Growth (%) R-Budget Unaudited Realization Budget To R-Budget To Outlook

A.

REVENUE 1,786.2 1,551.3 1,737.6

• 2.0

10.6

I.

Domestic Revenue 1,784.2 1,546.0 1,737.6

• 2.0

10.6

• 1. Tax Revenue

1,539.2 1,283.6 1,495.9

• 2.6

13.5

• 2. Non Tax Revenue

245.1 262.4 240.4 2.0

• 4.1

II.

Grant 2.0 5.8 1.4

• 30.0
• 30.0

B.

GOVERNMENT SPENDING 2,082.9 1,859.5 2,070.5

• 0.1

9.6

I.

Central Government 1,306.7 1,148.6 1,310.4 0,7 10.1

• 1. Ministerial Spending

767.8 677.6 758.4

• 0.5

13.6

• 2. Non Ministerial Spending

538.9 471.0 552.1 2.4 5.5

II.

Intergovernmental Transfer 776.3 710.9 760.1

• 1.5

8.8

• 1. Regional Transfer

729.3 664.2 700.0

• 3.3

6.9

• 2. Rural Transfer

47.0 46.7 60.0 27.7 35.7

C.

PRIMARY BALANCE (105.5) (124.9) (111.4) 3.3

• 13.8

D.

BUDGET SURPLUS/(DEFICIT) (296.7) (307.7) (332.8) 11.3 4.6 % deficit to GDP (2.35) (2.46) (2.41) 2.6

• 3.6

E.

FINANCING 296.7 330.3 332.8 11.3 4.6

I.

Debt Financing 371.6 n/a 389 3.5

• 0.8

II.

Investment Financing (94.0) n/a (49.1)

• 49.5
• 48.1

III.

Other Financing 19.3 n/a 0.3

• 136.6
• 136.1

SLIDE 35

34

Tax ax Amnes esty as as Policy cy Breakth akthrough ugh

...expected to be strong ngly affect cting ing the econo nomy traject ctory ry in both short rt and long run

Expanding Tax Base through more Reliable, Integrated and Comprehensive Database Increasing More Sustainable Tax Collection in Both Short and Long Term Tax Policy Reform Tax Administration Reform

• Establishment of Semi Autonomous Revenue

Agency

• More effective and better targeted law

enforcement

• Improvement of IT and communication

system

• Enhancement of data management
• Amendment of General Provision of Taxation

Law

• Amendment of VAT Law
• Amendment of Income Tax Law
• Amendment of Stamp Duty Law

Tax Amnesty as the Milestone of Tax Reform More Reforms are Coming

Accelerating Economic Growth through Asset Repatriation, via several transmissions:

Increase domestic liquidity Improve the stability of IDR currency Create lower interest rate Support investment growth Short Term: Collection from Amnesty Fee Long Term : Better Tax Collection based on Better Tax Database

SLIDE 36

35

15.8% 22.7% 7.1% 54.4% Badan Non UMKM OP UMKM Badan UMKM OP Non UMKM

Tax ax Amnes esty Progres ess (as as

• f

D Dece ecember mber 31st

st,

2016) 6)

3,143.1 1,012.6 140.5 Onshore Declaration Offshore Declaration Repatriation 103.2 0.7 5.5 Redemption Money Preliminary Evidence Payment Tax Arrears Payment

109,5 4,296.3 616,358

Revenue

(in IDR tn)

Declared Asset

(in IDR tn)

Participants

(Number of taxpayers)

Non SME Corp. SME Indiv. SME Corp. Non SME Indiv.

Country IDR tn %

Singapore 750.98 69.21 Virgin Islands 78.00 7,19 Cayman Islands 56.43 5.20 Hong Kong 52.19 4.81 Australia 40.18 3.70

Country IDR tn %

Singapore 83.61 64.77 Cayman Islands 16,51 12,79 Hong Kong 16.18 12,53 China 3,64 2,82 Virgin Islands 2,55 1,98 Top 5 Offshore Declaration by Country Origin Top 5 Repatriation by Country Origin

Source: Ministry of FInance

SLIDE 37

36

Commitment mitment to Contin tinue ue Productive tive Spend nding ing

...budg budget alloca catio ion for educa catio ion, n, infras astruct tructur ure, and health lth signif ificant icantly ly increas asing ng

Energy

• 64.6%

Education +27.3% Infrastructure +114.3% Health +82.9%

The efficiency ambience is maintained in 2017 budget, especially for less priority spending Preserving the infrastructure acceleration Social welfare spending to improve equality and maintain consumption growth Better and better subsidy scheme

Source: Ministry of Finance

SLIDE 38

37

Budget et for Pri riori rity ty Program am

...20 perce cent nt for educa cati tion and 5 perce cent nt for healt lth

Bidikmisi

50 100 150 200 250 300 350 400 450 2009 2010 2011 2012 2013 2014 2015 2016 2017 APBN

IDR tn 2.7 2.8 3.0 2.7 2.8 3.3 3.8 5.0 5.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 50 100 150 200 2009 2010 2011 2012 2013 2014 2015 2016 2017 APBN APBNP % of APBNP IDR tn % Basic and complete immunization for 92% of 0-11 months old infants Immunization 94.4 million people Health Insurance Subsidy (PBI) Stunting prevention to 29.6%

• f children below 2 years old

Stunting Prevention 700 regencies Community Health Centre (Puskesmas) 6.7 million people Family Plan Program (KB)

Budget for Education Program Budget for Health Program

360.5 thousands college students 19.5 million students Indonesia Smart Card (KIP) 101,100 teachers 10,200 lecturers Certification School Rehabilitation 41,128 rooms 8.5 million students School Operational Assistance (BOS) 107 Colleges/Universities Operational Assistance for Colleges

SLIDE 39

38

Infras astr tructur cture Budget et Continues inues to Increa ease se

* Budget for infrastructure in the 2017 State Budget increases by Rp40.8 T than proposed, mainly comes from transfer to regions (DAU & DBH) 8.1 8.3 8.8 9.8 10.2 8.7 14.2 15.2 18.6 2 4 6 8 10 12 14 16 18 20 50 100 150 200 250 300 350 400 450 2009 2010 2011 2012 2013 2014 2015 2016 2017 % IDR tn Anggaran Infrastruktur % thd Belanja Negara (RHS)

815 km Roads 9,399 m Bridges 550 km Railways 13 airports Airports 55 locations Seaports Terminal 3 locations

As regulated in the Minister of Finance Regulation PMK 48/2016 on Transfer to the Regions and Village Funds management, in 2017 minimum 15% of non-earmarked Revenue Sharing and General Allocation Fund have to be used for infrastructure development  (the level has increased to become 25% in the 2017 State Budget).

Infrastructure budget % of total state expenditure (RHS) Infrastructure Budget Allocation* 2017 Target

Source: Ministry of Finance

SLIDE 40

39

Subsidy sidy Policy in 201 017 Aims ms to be Better tter Tar argete eted an and Improved ved Mechan chanism ism

137.8 94.4 77.3 74.3 83.4 82.7 65% 53% 48% 35% 47% 52% 0% 10% 20% 30% 40% 50% 60% 70% 20 40 60 80 100 120 140 160 2015 2016 2017 Energy Subsidy Non Energy Subsidy Portion of Ener. Subs Portion of Non Ener. Subs

IDR Tn  Fuel and 3kg LPG subsidies  Rp32.3 T:

• Close distribution (by name and by address)
• Implemented gradually
• Recipients are 26 million poor households and 2.3

million micro business  Electricity subsidy  Rp45,0 T:

• Recipients are 19.1 million customers of R-1/450 VA

and 4.05 million customers of R-1/900 VA

• For non poor customers of 900VA, the tariff will be

gradually adjusted by three times every two months.

• Food

subsidy will be given to 14.3 million households

• Gradual conversion of rice for the poors (Rastra) to

become non-cash/voucher food assistance

• program. Pilot project in 44 cities.
• Fertilizer and seeds subsidies program are directed

to support the improvement

• f

agriculture productivity

• Provision of IDR 27.94 tn of fertilizer subsidy
• Seeds subsidy provision for rice and soybean.
• Support MSME through KUR (interest subsidy)

Share of Energy Subsidy Share of Non-Energy Subsidy

Energy Subsidy Non-Energy Subsidy

Source: Ministry of Finance

SLIDE 41

40

Increasing easing the he Effectiveness ctiveness an and Efficie ciency cy

• f

Tran ansfer fer to Regio gions & Villag lage Fund

IDR503.6 tn

(General Transfer

Fund)

IDR173.4 tn

(Special Transfer Fund)

IDR7.5 tn

(Incentive Fund)

IDR20.3 tn

(Special Autonomy & Daerah Istimewa Yogyakarta)

IDR60.0 tn

(Village Fund)

Minimum 25% (Rp125.9 tn) of General Transfer Fund has to be used for public service facility development acceleration Physical Special Transfer Fund allocation is based on regions’ proposal and national priorities, especially for underdeveloped regions, border areas, and transmigration. Incentive Fund allocation is increased to reward regions with good fiscal management and basic public service performances.

• There are 317 regions being rewarded with incentive fund.
• The lowest incentive is Rp7,5 billion.
• The highest incentive is Rp65,3 billion.

Improving efficiency and effectiveness of Special Autonomy & DIY Fund.

• Special Autonomy Fund Papua Rp5.6 T.
• Special Autonomy Fund West Papua Rp2.4 T.
• Special Autonomy Fund Aceh Rp8.0 T.
• DTI Papua & West Papua Rp3.5 T.

Gradually increases Village Fund.

• Average allocation for each village Rp800.5 million.
• Lowest village fund allocationRp726.7 million.
• Highest village fund allocation Rp2.8 billion.

*The budget for this allocation is higher than the budget for line ministries

2017 Transfer to Regions and Village Funds*

SLIDE 42

41

Preser serving ing Fiscal al Sustainability tainability Throu

• ugh

gh the he Compl pliance iance with th Fiscal cal Rule an and Productive tive Finan ancing cing

• 2.35
• 2.5
• 2.41
• 3
• 10
• 9
• 8
• 7
• 6
• 5
• 4
• 3
• 2
• 1

2010 2011 2012 2013 2014 2015 2016 2017 Brazil India Malaysia Indonesia

Constitutional Threshold Indonesia Financing Plan 2017 2014 2015 2016 2017 Audited Audited R-Budget Budget Government securities 255,7 380,9 371,6 384,7 Investment Financing (8,9) (59,7) (94,0) (47,5) Lending 2,5 1,5 0,5 (6,4) Liability Guarantee 1,0

• (0,7)

(0,9) Other Financing 0,5 0,3 19,3 0,3 Indonesia’s Fiscal Deficit (% of GDP) Prudent and Cautious Expansive Fiscal Deficit

Source: Ministry of Finance

• Managing fiscal deficit below 3%
• Indonesia has implemented budget deficit regime for years but

never exceeded the constitutional threshold

• Financial inclusion and market deepening
• Debt issuance to finance productive activity
• Selective external loan (to finance infrastructure and energy

sector)

• Loan as an alternative instrument for financing
• Active

Debt Management and Assets and Liabilities Management

• Government sharia debt securities (SUKUK) as project-based

financing for infrastructure projects, such as double track railway from Martapura-Baturaja (South Kalimantan), Purwokerto-Kroya (Central Java) and Madiun-Jombang (East Java), and other road and bridge financing across the nation

SLIDE 43

42

Man anag agem ement ent

• f

C Conting tingent ent Li Liab abilities ilities

Government Guarantee Program and Portfolios 2008 - Present

• Central Government Guarantees are carefully provided to meet

various item of infrastructure programs

• Until Sept 2016, total guarantee committed are USD16,24 bn

(eq. IDR211,1 tn) for 6th programs, and outstanding/exposure were USD5,59 bn (eq. IDR72,6 tn)

SLIDE 44

43

Finan ancing cing Policy cy 201 017

Debt Financing Debt Financing Program 2017

International Bonds Issuance (USD, JPY or EURO) Type of Instrument T-bills Fixed Rate Islamic Fixed Rate Project Based Sukuk Etc.. Issuance of International Bonds as complementary to diversify investor base and provide benchmark for corporate issuance, consists of USD, YEN or EURO global bonds; Maximum issuance international bond 30% from target gross.

6 Debt Policy in 2017

Selective external loan (infrastructure and energy sector) Loan as an alternative instrument for financing Active debt management and Asset Liabilities Management (ALM) Manageable Debt- to-GDP ratio Financial inclusion & market deepening Debt issuance for productive activity

Source: Ministry of Finance

SLIDE 45

44

Budg dget et Finan ancing cing Break akdo down wn in 2016

Debt (Gross) IDR729.03tn

Redemption IDR315.63tn Budget Financing IDR344.39tn Non-Debt Financing IDR69.01tn

Breakdown of Budget Financing IDR tn US$ bn Government Debt (net) 407.79 30.35 Government Securities (net) 407.89 30.36 Issuance 654.36 48.70 Redemption & Cash Management (243.47) (18.12) Debt Portfolio Management (3.00) (0.22) Domestic Loans (net) 3.25 0.24 Withdrawal 3.58 0.27 Redemption (0.33) (0.02) Foreign Loans (net) (3.35) (0.25) Withdrawal 71.02 5.29 Redemption (74.37) (5.54)

Source: Ministry of Finance. USD/IDR: 13,436 (as of Dec. 30th. 2016)

SLIDE 46

45

Budg dget et Finan ancing cing Break akdo down wn in 201 2017

Debt (Gross) IDR735.6tn

Redemption IDR350.9tn Budget Financing IDR330.2tn Non-Debt Financing IDR54.5tn

Breakdown of Budget Financing IDR tn US$ bn Government Debt (net) 384.69 28.36 Government Securities (net) 399.99 29.49 Issuance 684.84 50.49 Redemption & Cash Management (281.84) (20.78) Debt Portfolio Management (3.00) (0.22) Domestic Loans (net) 1.49 0.11 Withdrawal 2.50 0.19 Redemption (1.01) (0.07) Foreign Loans (net) (16.79) (1.24) Withdrawal 48.29 3.56 Redemption (65.08) (4.80)

Source: Ministry of Finance

SLIDE 47

46

Gover ernment ment Securities urities – Finan ancing cing Plan an for 201 017

Instruments 2017 Budget Indicative Target (IDR bn)

Government Securities (Net) 399.993 Redemption 162.842 Cash Management 119.000 Buyback 3,000 Government Securities (Gross) 684.835 Composition Domestic 83% Auction 93% Non-Auction 7% International Bond 17%

Government Issuance Targets International Bonds

• Issuance of international bonds as

a complement to avoid crowding

• ut the domestic market
• International bond issuance can be

maximized up to 25% from gross target, depends on financing need

Source: Ministry of Finance

Domestic Bonds

Weekly Auction: Conventional securities 24 x Islamic securities 24 x Non-Auction: Retail bonds Private Placement Based on request

Front Loading Issuance For Budget Financing

• Pre-funding to optimize cost ahead of potential Fed rate hike
• Anticipate developments in global environment
• Government Securities target for 1st semester 2017 is 59.3% from

gross issuance target

• Government Securities target in Rupiah for 1st semester 2017 is

45.7% from gross issuancce target from gross issuance target

Debt Securities 71% Sukuk 29%

SLIDE 48

47

Discipl sciplined ined an and Soph phist istica icated ted Debt ebt Port rtfolio lio Man anag ageme ement nt

Stable Debt to GDP Ratio Over the Years Weighted Average Debt Maturity of ~9.02 Years (As of Dec. 2016)**

US$ bn

Remarkable Debt Reduction Initiative Over the Past 10 Years

Change in Debt to GDP Ratio (2006 – 2016) (%) Source: IMF World Economic Outlook Database, October 2016

Well Diversified Across Different Currencies

% of Yearly Issuance Government Debt / GDP (%) Source: Ministry of Finance Source: Ministry of Finance Source: Ministry of Finance

(1)

Years 131 141 136 155 175 209 69 64 58 54 55 56 23.1% 23.0% 24.9% 24.7% 27.4% 27.7% 0.0 5.0 10.0 15.0 20.0 25.0 30.0 50 100 150 200 250 300 2011 2012 2013 2014 2015 2016* Securities (LHS) Loans (LHS) Govt Debt / GDP (%) (RHS) * Revised Budget 2016 Figure, ** Using GDP assumption in 2016 R-Budget, ***SDR, AUD, and other

• 35.3
• 31.9
• 29.0
• 11.2

2.8 11.0 11.4 18.9 29.9 32.9 34.6 40.8 64.9 70.1 117.0

• 60.0

0.0 60.0 120.0 180.0 240.0 300.0 Philippines Turkey Indonesia India Germany Poland Thailand Brazil Italy Colombia Japan Malaysia South Africa United States United Kingdom Chile Australia

55% 56% 53% 57% 56% 58% 22% 24% 29% 29% 31% 29% 17% 14% 12% 9% 8% 8% 3% 3% 3% 3% 3% 4% 3% 3% 3% 2% 2% 2% 0% 20% 40% 60% 80% 100% 2011 2012 2013 2014 2015 Nov-16 IDR USD JPY EUR Others*** 9.32 9.70 9.60 9.73 9.40 9.02 8.0 8.3 8.5 8.8 9.0 9.3 9.5 9.8 10.0 2011 2012 2013 2014 2015 Dec-16**

SLIDE 49

48

Well ll Bal alan anced ced Maturi rity ty Profile le With th Strong ng Resilie silience nce Again ainst st Exter ernal al Shocks cks

Declining Interest Rate Risks Debt Maturity Profile

%

Declining Exchange Rate Risks

%

Upcoming Maturities (Next 5 Years)

% IDR tn

Source: Ministry of Finance 18.8 16.2 16.0 14.8 13.7 12.3 25.9 22.5 23.2 21.0 20.7 17.8 5 10 15 20 25 30 2011 2012 2013 2014 2015 Dec-2016* Variable Rate Ratio¹ Refixing Rate² 10.4 10.2 11.7 10.7 12.2 11.5 45.1 44.4 46.7 43.4 44.5 41.8 10 20 30 40 50 2011 2012 2013 2014 2015 Dec-2016* FX Debt to GDP Ratio* FX Debt to Total Debt Ratio 8.2 7.2 8.6 7.7 8.4 6.6 22.7 21.5 21.8 20.1 21.4 23.0 34.6 32.4 33.4 33.9 34.7 36.5 0.0 10.0 20.0 30.0 40.0 2011 2012 2013 2014 2015 Dec-2016* In < 1 year In < 3 year In < 5 year

1 Variable Rate Ratio is defined as ratio between debt instruments with variable rate divided by total debt instruments (variable + fixed rates) 2 Refixing Rate ratio is defined as ratio between debt instruments with variable rate + debt instruments with fixed rate maturing in 1 year divided by total debt instruments (variable + fixed rates)

*Using GDP assumption in 2016 R-Budget.

137 159 169 100 134 93 93 168 45 126 68 53 100 29 117 48 52 97 5 66 22 22 7 15 26 23 20 25 91 109 133 110 124 104 103 87 114 88 27 44 20 19 17 16 15 11 29 4 23 28 1 1 1 31 21 28 28 19

50 100 150 200 250 300 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 IDR-Denominated Other Currencies

SLIDE 50

49

2011 2012 2013 2014 2015 Jun-16 Dec-16 Loan Government Securities

Profile le

• f

Total al Centr ntral al Gover ernment ment Debt ebt

Increasing Foreign Ownership of Government Securities at Longer Tenors

(%)

Holders of Government IDR Bonds – Composition December 2016

USD bn 209.41 199.48 204.51 194.55 224.60 265.57

(%)

255.14

Government Debt Outstanding

%

74.13 68.82 70.04 75.73 65.66 77.99 78.86 25.87 34.34 31.18 29.96 24.27 22.01 21.14

11.87 7.84 5.2 4.65 3.23 2.69 3.5 24.97 19.32 18.29 18.96 13.1 13.73 23.1 63.16 72.84 76.5 76.39 83.66 83.57 73.4 30.80 32.98 32.54 38.13 38.21 39.10 37.55 20 40 60 80 100 2011 2012 2013 2014 2015 Jun-16 Dec-16 0-1 1-5 >5 Foreign Ownership to Total 30.80 32.98 32.54 38.13 38.12 38.48 39.10 39.16 37.5 32.58 30.49 33.76 30.83 37.85 32.89 38.94 39.77 39.9 36.63 36.53 33.70 31.04 23.95 28.63 21.95 21.07 22.5 20 40 60 80 100 2011 2012 2013 2014 2015 Mar-16 Jun-16 Sep-16 Dec-16 Foreign Holder Domestic Non Banks Domestic Banks

SLIDE 51

50

Owner ersh ship ip of IDR R Tra rada dable ble Cen entr tral al Governm rnment t Securities urities

1) Non Resident consists of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company and Pension Fund. 2) Others such as Securities Company, Corporation, and Foundation. *) Including the Government Securities used in monetary operation with Bank Indonesia. **) net, excluding Government Securities used in monetary operation with Banks.

(IDR tn)

SLIDE 52

51

Gover ernment ment Securities urities Re Real aliza izatio tion

• Issuance Government Securities Conversion

572,581 572,581

• Matured Government Securities Conversion

572,581 360,814 Nett Issuance Government Securities Conversion 211,767

(IDR mn, as of end of December 2016; budget deficit: 2.46%)

*Including the issuance of Government Securities Conversion

Revised Budget 2016 Widening Budget Deficit 2.7%

Realization (a.o. Dec. 30 2016)* % Realization to Budget 2016

Government Securities Net 364,866,887 407,885,535 407,885,535 100.00% Government Securities Maturing in 2016 and Buyback 246,535,735 243,972,550 243,972,550 100.00% Issuance Need for 2016 611,402,622 651,858,085 651,853,809 100.00% Government Debt Securities (GDS) 471,955,157 Domestic GDS 362,916,437

• Coupon GDS

251,370,000

• Conventional T-Bills

56,040,000

• Private Placement*

31,895,977

• Retail Bonds

23,610,460 International Bonds 109,038,720

• USD GMTN

48,643,000

• Euro GMTN

44,975,610

• Samurai Bonds

12,760,910

• Domestic GDS

2,659,200 Government Islamic Debt Securities 179,898,652 Domestic Government Islamic Debt Securities 146,491,152

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

Sukuk) 108,356,030

• Retail Sukuk

34,085,122

• Private Placement

4,050,000 Global Sukuk 33,407,500

SLIDE 53

52

Positi tive ve Re Respo ponse nse

• f

Gover ernment nment Secur curiti ities es Issu suance ance in 2016

Global Conventional Bond Global Sukuk Euro-Denominated Bonds Samurai Bonds Tenure 10 yr 30 yr 5 yr 10yr 5 yr 12 yr 3 yr 5 yr Pricing Date December 8th, 2015 March 29th, 2016 June 14th, 2016 June 21st, 2016 Nominal US$ 2.25 bn US$ 1.25 bn US$0.75 bn US$1.75 bn EUR 1.5 bn EUR 1.5 bn JPY62 bn JPY38 bn Coupon Rate 4.75% 5.95% 3.40% 4.55% 2.625% 3.750% 0.83% 1.16% Yield 4.80% 6.00% 3.40% 4.55% 2.772% 3.906% 0.83% 1.16% Incoming Bid US$8.1 bn US$8.6 bn EUR 8.4 bn JPY100 bn

• The average incoming bids in 2016 was

IDR18.81tn/auction, higher than 2015 (IDR14.05tn/auction);

• The average awarded bids in 2016 was

IDR9.44tn/auction, higher than 2015 (IDR6.75tn/auction);

• Bid to cover ratio of government securities

issuance in 2016 was 1.99 times (2015 was 2.08 times).

4.72

• 0.50

1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

• 20,000

40,000 60,000 80,000 100,000 120,000 Incoming Bid 2016 Awarded Bid 2016 Bid to Cover Ratio 2016 (RHS)

Increasing Incoming Bids in 2016’s Government Securities Issuance

IDR bn

SLIDE 54

5

Monetary and Financial Factor:

Cr Credible Monetary ary Policy cy Track ck Reco cord an and Favour urab able le Financ ancial ial Sect ctor

• r

SLIDE 55

54

Ban ank Indo donesia esia Policy cy Mix: : 2016-201 017

18 March 2016

• Cut BI Rate 25 bps

to 6.75%

• Cut DF & LF Rate

at 4.75% & 7.25% respectively 18 February 2016

• Cut BI Rate 25 bps to

7%

• Cut DF & LF Rate at

5% & 7.5% resp.

• BI lowered the rupiah

denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from 16th March 2016 16 June 2016

• Cut BI Rate 25 bps to 6.5%
• Cut DF & LF Rate at 4.5% &

7.0% respectively

• Relaxed the loan-to-value

ratio (LTV) and financing-to- value ratio (FTV) on housing loans/financing

• Relaxed partially prepaid

loans/financing

• Raised the floor on the

Reserve Requirement - Loan to Funding Ratio (RR- LFR) from 78% to 80%, with the ceiling maintained at 92%. The change was effective on August 2016. 21 April 2016

• Held BI Rate at 6.75%,

and maintained DF & LF Rate at 4.75% & 7.25% respectively.

• Reformulated policy

rate from BI Rate into the 7 day (Reverse) Repo Rate to improve the effectiveness of monetary policy

• transmission. The

change was effective on August 19th 2016 19 August 2016

• Held BI 7-day RR

Rate and DF Rate at 5.25% and 4.5%

• Cut LF Rate to

6.00%. 21 July 2016

• Held BI Rate at 6.5%, &

maintained BI 7-day RR Rate, DF & LF Rate at 5.25%, 4.5% & 7.00% respectively.

• BI continued to conduct financial

market deepening by introducing new investment & hedging products in the financial market, strengthened monetary management strategies, & encouraged the real sector to make optimal use of repatriation funds to support the implementation of the 2016 Tax Amnesty Law 19 May 2016

• Held BI Rate at

6.75%, and maintained DF & LF Rate at 4.75% & 7.25% respectively 20 October 2016

• Lowered BI 7-day

RR Rate to 4.75%

• Lowered DF and LF

Rate to 4.00% and 5.50% 22 September 2016

• Lowered BI 7-day

RR Rate to 5.0%

• Lowered DF and LF

Rate to 4.25% and 5.75% 17 November 2016 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 %. 15 December 2016 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 %. 19 January 2017 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 %.

SLIDE 56

55

Ban ank Indo donesia esia Policy cy Mix: x: Jan anuar ary 2017

The BI Board of Governors agreed on 19 January 2017 to hold the BI 7-days Repo Rate at 4.75%, as well as the Deposit Facility at 4.00% and Lending Facility at 5.50% Holds the BI 7- day Repo Rate at 4.75% Projects credit growth in the 10-12% range and deposit growth at around 9-11% in 2017 in line with increased economic activity and the looser monetary and macroprudential policy stance adopted. Remains vigilant towards global risks, such as the impact of US fiscal and international trade policy, Federal Funds Rate (FFR) hikes that could raise the cost

• f borrowing, economic and

financial rebalancing in China, as well as geopolitical risks. Continues to strengthen coordination with the Government to control inflation, primarily in the form of administered prices adjustments along with government’s structural reform policies in energy subsidies, as well as risks

• f volatile food inflation.

Remains vigilant of risks from the global financial uncertainty, however, while continuing to stabilise the rupiah in line with the currency’s fundamental value and maintaining market mechanisms. Predicts the economic recovery should continue, driven by exports and investment as financing increases from bank loans and nonbank financing as well as stable household consumption.

SLIDE 57

56

Enhan anceme cement nt

• f

Monetary tary Oper eratio tions ns Fram amew ework

• rk

...posit itive ve resul ults ts thus far

Source: LHBU, HARTIS, Bloomberg

Domestic Money Market Yield Curve (Dec. 30th, 2015) Domestic Money Market Yield Curve (May 26th, 2016) Monetary operation term structure is being referred by money market rates… Domestic money market yield curve tend to converge Domestic Money Market Yield Curve (Dec. 28th, 2016) Domestic Money Market Yield Curve (Jan. 13rd, 2017)

SLIDE 58

57

Enhan anceme cement nt

• f

Monetary tary Oper eratio tions ns Fram amew ework

• rk

...posit itive ve resul ults ts thus far

...JIBOR has been strengthened as a market reference

• Can be traded among contributor

banks for 10 minutes.

• Up to the amount of Rp10 billion.
• Up to 1-month tenor.

PREVIOUS JIBOR

• Can be traded among banks

contributor for 20 minutes.

• Up to a total of Rp20 billion.
• Up to 3-month tenor.

CURRENT JIBOR

as per June 1, 2016 STRENGTHENED THE ROLE OF JIBOR AS REFERENCE RATE by regulatory enhancement.

1

ACCELERATED MARKET REPO TRANSACTIONS by promoting GMRA

2

REDUCED SEGMENTATION AND IMPROVE THE CAPACITY OF MARKET TRANSACTIONS by encouraging banks to open more access to counterparties

3

SLIDE 59

58

Stabl able Monetary tary Environment ment Despite spite Chal alleng lenges es

Rupiah Exchange Rate Remains Comparable to Peers

YTD 2016* vs. 2015

Downward Trend of Inflation Ensured Price Stability

3.07 0.21

(%)

3.02 5.92 * data as of 30 December 2016 Average Point-to-point

• 1

4 9 14 19 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2011 2012 2013 2014 2015 2016 CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy)

2.32

• 3.74
• 2.55

0.57

• 5.43

21.68

• 2.61
• 4.28
• 16.95

13.77 0.66 0.25

• 2.51
• 2.92
• 4.15
• 4.23
• 4.55
• 5.75
• 9.91
• 13.10
• 25.00
• 20.00
• 15.00
• 10.00
• 5.00

0.00 5.00 10.00 15.00 20.00 25.00 IDR EUR KRW THB PHP BRL INR MYR TRY ZAR %

Strengthened Monetary Policy Framework

Source: Bank Indonesia

(%)

LF Rate: 7.00 LF Rate: 5.50 BI Rate: 6.50 BI 7Day RR Rate: 4.75 DF Rate: 4.50 DF Rate: 4.00

19 August 2016

The New Monetary Operation Framework

3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 LF Rate BI Rate BI-7Day RR Rate DF Rate

Credit Growth Supported by Macroprudential Policy

0% 5% 10% 15% 20% 25% 30% 35% 40% 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2013 2014 2015 2016 Total Growth Working Capital loans Investment Loans Consumption Loans 11.8% 8.5% 7.4% 7.3%

SLIDE 60

59

Finan ancia cial Inter ermediaries mediaries Develo velopment pment

The has been an improvement in the growths of bank loan & multifinance financing, in line with the improving growth in 2016. The domestic capital market is directed to play an increasingly important role as a source of long-term financing. The utilization of capital markets by Indonesian corporations increases significantly in 2016.

Source: OJK

The growth of financing distributed by multifinance companies also continues to improve… Gross premium revenue in the domestic insurance industry also demonstrates a positive development in 2016 Capital raising through rights issues and corporate bond issuance in the capital market is spikes significantly The growth of banking loans improving slightly in 2016

IDR tn IDR tn IDR tn IDR tn

SLIDE 61

60

Finan ancia cial Institutio titutions ns Re Remain ain Ro Robust st an and Le Less ss Vulner erable able

Source: OJK

Banking sector’s capital adequacy ratio (CAR) is maintained high Risk-based capital (RBC) of the insurance industry also remains high, well above the minimum threshold Gearing ratio of multifinance companies is well below the maximum requirement, providing ample room for future growth Profitability of the banking sector is relatively stable

Financial performance of domestic financial institutions generally remains robust. Capital adequacy is well above the minimum

• requirements. Profitability and leverage are maintained at a sufficient level. Further, gearing (debt-to-equity) ratio of multifinance

companies provides ample room for future growth.

% % % %

SLIDE 62

61

Ade dequa quate te Li Liquidity uidity, Man anag ageable eable Cred edit it Ri Risks ks

Source: OJK

Banks are found to possess adequate liquid assets to anticipate depositors’ withdrawal. Insurance industry also demonstrates an enhanced level of investment adequacy ratio. The non-performing loan/financing (NPF/NPL) ratio is also maintained below the threshold.

The ratio of liquid assets to deposits in the banking sector is well maintained at a high level The NPL ratio is maintained well below the 5% threshold NPF ratio in the multifinance industry is also maintained below the 5% threshold Investment adequacy ratio in the insurance industry is maintained above 100%

% % % %

SLIDE 63

62

Man anag ageable eable Mar arket et Ri Risk Amidst dst Fluctu tuatio tions ns

Source: OJK

Being exposed to fluctuations in the securities market and IDR exchange rate, financial institutions demonstrated resilience in dealing with such risks. Net open position of the banking sector remains low, while the investment value of domestic institutional investors (mutual funds, insurers, and pension funds) continues to expand. Multifinance companies’ exposures to the exchange risks have generally been mitigated through hedging measures.

Net open position in the banking sector is kept far below the maximum requirement (20%) The investment value of insurers continues to grow, while of pension funds only slightly decreases Multifinance companies’ exposures to foreign debt have generally been mitigated through hedging measures The movement of mutual funds’ net asset value (NAV) is in line with the market index, but with much lower volatility

IDR tn IDR tn IDR tn IDR tn IDR tn %

SLIDE 64

63

Cap apital ital Mar arket et Demo monstr nstrate te Strengthening engthening Trend nd

Amidst uncertainties in the global economy and financial market, the domestic capital markets continued to demonstrate a strengthening

• trend. This strengthening trend was accompanied by significant nonresident inflows, especially in the government debt market.

Source: Bloomberg, IBPA, Indonesia Stock Exchange, Ministry of Finance

Both the stock & bond index are strengthened in 2016, supported by the improving domestic economic prospect The domestic bond market again attracts nonresident inflow The IDX Composite Index demonstrated a positive growth and listed among the best-performing indices (ytd) in the region

IDR tn

The government bond yield continued to decline

SLIDE 65

64

Mac acropr prudential dential Policy cy Mix to Supp pport rt Growth th

Effective from August 29th, 2016, Bank Indonesia relaxed the Loan to Value Ratio (LTV) and Financing to Value Ratio (FTV) on housing loans at 85-90% for the first mortgage lending facility, 80-85% for the second mortgage lending facility, and 75-80% for the third mortgage lending facility.

Housing Loans and Financing Based on Murabahah and Istishna Contracts

Property type (m2) Lending/Financing Facility First Second Third House >70 m2 85% 80% 75% 22 - 70 m2

• 85%

80% <21 m2

• Apartment

>70 m2 85% 80% 75% 22 - 70 m2 90% 85% 80% <21 m2

• 85%

80% Home Shop/Office

• 85%

80%

Housing Financing Based on MMQ and IMBT Contracts

Property type (m2) Lending/Financing Facility First Second Third House >70 m2 90% 85% 80% 22 - 70 m2

• 90%

85% <21 m2

• Apartment

>70 m2 90% 85% 80% 22 - 70 m2 90% 85% 80% <21 m2

• 85%

80% Home Shop/Office

• 85%

80% The relaxation is only applicable to banks with nett NPL for total loan below 5% and gross NPL for property loan/financing below 5%. The rationale is to stimulate domestic demand in order to drive domestic economic growth momentum while maintaining compliance to prudential principles.

SLIDE 66

65

A A Compr preh ehens ensive ive Finan ancial cial Dee eepen pening ing Program am

...s ...str

trateg egy to tackle challenges in deepening Indonesia’s financial markets

Source: Bank Indonesia

Financial Market Deepening Program

First Priority: Continuous Basis Market Development Coordination Monitoring, match making, and solution:

• Repo
• Hedging

Money Market

• Bank Indonesia Regulation (PBI) on Money Market

Encourage well-functioning money market (deep and efficient, risk mitigation, and market integrity),

• Bank Indonesia Regulation (PBI) on Negotiable Certificate of Deposit (NCD)

Enriching money market instruments, encourage banks to raise long term funding, and acts as an alternative investment for investors

• Bank Indonesia Regulation (PBI) on Commercial Paper

Alternative sources of financing for non-bank corporations, as well as an investment outlet for investors FX Market

• Swap Link Deposit

a combination of foreign currency deposits with FX Swap against the rupiah.

• Dual Currency Deposit

a combination of assets (deposits) and derivatives (FX Options).

• Corporate Bonds
• Government

Bonds

• Other instruments

Supporting Regulations

Market Code of Conduct Certification of Dealer Strengthening JIBOR

• More comprehensive code of conduct
• The use of technology and public security
• Obligation on certification for dealers
• Dealers’ training for certification
• Extension of window time
• Increase in IDR nominal
• Lengthening tenor of up to 3 months

Inter-agency Cooperation

Signing of MoU on April 8th, 2016, between MoF, BI, and OJK on Coordination in the Context of Financial Markets Development and Deepening to Support National Development Financing The Signing of this MoU is driven by the need for:

• Sufficient development financing,
• Financial markets deepening, and
• Good coordination among related institutions

SLIDE 67

66

Strong nger er Funda damen mentals tals Fac acing ng the he Headw adwinds inds

• 197
• 35

5.62

1998 2008 Sep 16 82.4 12.1 6.8 1998 2008 Sep-15 30.0 3.8 2.8 1998 2008 Aug-15 17.4 50.2 1998 2008 Sep-15

Inflation Rate (%) IDR Movement (%) Non-Performing Loan/NPL (%) Government Debt/GDP Foreign Reserves (USD bn)

100.0% 1998 27.4% 2008 17.9% Q3-2016 8.6x 1998 3.1x 2008 2.8x Q3-2016 116.8% 1998 33.2% 2008 35.8% Q3-2016

More Liquid Market (%) External Debt (Public & Private) to FX Reserve Ratio External Debt/GDP

Inflation controlled within the target range Strengthening IDR with appreciation in 2016 NPL level is below the maximum threshold of 5% Continue to decline and allocated to productive sectors Significantly higher than 1998 & 2008, ample to cover 8.4 months of import and external debt repayment Significantly lower than 1998 crisis Slightly higher than 2008, but significantly lower than 1998

Dec 16

116.4

Dec 16

3.02 (yoy)

Nov 16

3.2

62 10.5 5.7 1998 2008 Jul-15

Overnight interbank money market rate is relatively lower

Dec 16

4.20 0.66 (ytd)

Dec 16

SLIDE 68

67

Outlo look

• k
• f

Dome mesti stic Economy Remain ains Robust st

...d ...domes mestic ic econom nomic ic growt wth is predict icted ed to be higher her in 20 2017

2017 Economic Outlook

 Economic recovery is expected to continue, driven by exports and investments as financing increases from bank loans

and non-bank financing. Meanwhile, household consumption is predicted to remain stable.

 Inflation is predicted to be within the 2017 inflation target of 4±1%, with the current account deficit projected below 3% of

GDP

 Credit is projected to grow 10-12% in line with increased economic activity and the looser monetary and macroprudential

policy stance adopted

2016

Economic Growth

4.9-5.3%

Inflation

4.0±1%

CAD (% GDP)

<2%

Credit Growth

7-9% 2017 5.0-5.4% 4.0±1% <3% 10-12%

SLIDE 69

6

Progressive Infrastructure Development:

Stron

• ng

Co Comm mmitme ment

• n
• n

Ac Acce celeratio tion

• f

In Infr frastruc ructur ture Provisio ion

SLIDE 70

69

The he Governm rnment ent has as Enac acte ted Var arious us Reform rms to Accel eler erate te Infrast astru ructur cture Provisio ion

• Investing in Indonesian

infrastructure has been regarded as risky

• Uncertain returns on

investment

• Did not have any fiscal

mechanisms to support the infrastructure investment Lack of leadership to implement the changes needed Indonesia regulatory corpus has been characterized by some ambiguities and conflicting regulations

Fiscal Reforms Institutional Reforms Regulatory Reforms

Indonesia now has fiscal supports:

• Viability Gap Fund (VGF)
• Availability Payment
• Land revolving fund
• Risk-sharing scheme

Revised regulations on:

• PPP, Availability Payment
• Direct Lending
• Land Acquisition
• Other deleregulations as

listed in the Economic Policy Packages Institutional strengthening covers establishment and empowerment

• f:
• KPPIP
• Empowerment of PT SMI &

IIGF

• PPP

Supported by improving awareness of Indonesia infrastructure issues, convergent reforms are bulding a better business environment for tomorrow’s investment

Before After

Source: KPPIP

SLIDE 71

70

Reforms Along the Project’s Life Cycle

...to enco cour urag age and accele elerate te infrast astruc ructur ure projec ect using ng PPP scheme me

Government of Indonesia

Project Development Facility (PDF) Viability Funding Gap (VGF) Guarantee Fund Tax Facilities Availability Payment Land Acquisition

Preparation Bidding Process Construction

Project development facility contributing to assist GCA on PPP project preparation (PDF&TA) Managing entity: KPPIP, PT SMI PT IIF, and Ministry of Finance A facility with contribution to construction cost to increase project financial viability Managing Entitiy: Ministry of Finance based

• n GCA

proposal Govt. Commitment: 49% max. Per project cost Guaranteeing

• Govt. contractual
• bligations

under infrastructure concession agreements and Mof Regulation No 130/PMK. 08/2016 re: Govt guarantee for electricity project acceleration Managing entity: IIGF and MoF Govt’s comitment: US$ 450 mn MoF Reg. No. 159/PMK. 010/2015 re: tax holiday for pioneer sector, such as base metal, oil refinery, basic petrochemical, machinery, renewable energy, & telco equipment

• industries. Sector

will be further expanded Managing entitiy: Ministry of Finance A scheme in which concessionaires receive sum of money periodically from government after the completion

• f an asset. Ministry
• f Finance

Regulation on Availability Payment has been ratified Managing entity: Ministry of Finance A facility to support land acquisition for infrastructure projects particularly projects that involve private sector Managing enitiy: Ministry of Finance, Ministry of Agrarian and Land Spatial/BPN and BLU-LMAN Govt commitment: US$ 12 mn (2016) Source: KPPIP

SLIDE 72

71

Effort rts to Accel elerate te Infras astructu tructure Provisio sion

Improvement on PPP Regulation

• By taking into account the growth of PPP project potential, the Government of Indonesia has revised the Presidential Regulation No. 67 of 2005
• n PPP and its amendments by issuing the new Presidential Regulation No. 38 of 2015 on PPP on 20 March 2015.
• This new Presidential Regulation addresses the constraints which contributes to delays in PPP implementation, such as: PPP for the social

infrastructure; a low quality of pre-feasibility studies; gaps of quality in assets that were partly constructed by the Government; unattractive investment return scheme; and weak Ministries/Institutions commitment for PPP projects. The Ministry of National Development Planning has issued the Ministerial Regulation No. 4 of 2015 on the implementation Procedures for a Public-Private Partnership in Infrastructure Provision. This Ministerial Regulation is a derivative regulation to supplement the Presidential Regulation No. 38 of 2015 on PPP.

Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

SLIDE 73

72

Effort rts to Accel elerate te Infras astructu tructure Provisio sion (contin inued ued)

Regulation improvement to accelerate land procurement process

• The Government of Indonesia issued Law No. 2 of 2012 on Land Acquisition for Public Interest, with a purpose to provide certainty about the land

acquisition duration for the Government Contracting Agencies and the Investors. The Law sets an estimated 583 days maximum time to complete the land acquisition process.

• For its implementation, the Law No. 2 of 2012 was supported by the Presidential

Regulation No. 71 of 2012 on Land Acquisition Implementation for Developing Public Facilities, which has been revised into the Presidential Regulation No. 30 of 2015. The Amendment to the Regulation allows a Business Entity to allocate funding for a land acquisition which can be reimbursed by the Government following the completion of land acquisition process. With this Regulation, the land acquisition process is expected not to be delayed by the unallocated budget or the delay on the budget disbursement.

Land Procurement Process as Stipulated in Law No. 2 of 2012 Source: KPPIP

Law No. 2/2012 was successfully applied in:

• 1. Palembang – Indralaya section of the Trans

Sumatera Toll Road Project

• 2. Java North Line Double Track Rail Project

SLIDE 74

73

Sign gnificant ificant Progress ess

• n

K Key Infrast astru ruct cture Proje jects cts

Roads Dams Housing

Trans-Sumatra Highway Merah Putih Bridge, Ambon Jatigede Dam (Operational) Raja Ampat Housing Project, Papua

Transportation

Jakarta MRT Project2 Terminal 3 Ultimate Soekarno-Hatta2 New Tanjung Priok Port Project2 Komodo Airport, NTT Matahora Airport, Southeast Sulawesi Tual Airport, Maluku Juwata Airport, Tarakan

1 Source: KPPIP 2 Not funded from National Budget

Progress of National Strategic Project (as of December 2016)1 41% 44% 11%

2% 6% 5 projects are cancelled* 16 projects are completed 100 projects are under construction 14 projects are during transaction 91 projects are in preparation *Bendungan Loea, Bendungan Segalamider, Bendungan Bonehulu, Bendungan Long Sempajong, Jalan Tol Sunter-Rawa Buaya-Batu Ceper.

SLIDE 75

74

30 Pri riori rity ty Proje jects cts Within thin the Pipe peline line

Source: KPPIP

1. Balikpapan-Samarinda Toll Road 2. Manado-Bitung Toll Road 3. Panimbang-Serang Toll Road 4. Trans-Sumatera Toll Road (8 Sections) 5. SHIA Express Railway 6. MRT Jakarta South-North Line 7. Makassar-Parepare Railway 8. Kuala Tanjung International Port Hub 9. Bitung International Port Hub 10. Karangkates IV & V (2x250MW) Hydro-Electric Plant 11. Kesamben (37MW) Hydro-Electric Plant 12. Lodoyo (10MW) Hydro-Electric Plant 13. Inland Waterways Cikarang-Bekasi-Laut (CBL) 14. Light Rail Transit (LRT) South Sumatera 15. Integrated LRT Jakarta-Depok-Bogor-Bekasi 16. National Capital Integrated Coastal Development (NCICD) Phase A 17. Jakarta Sewerage System 18. West Semarang Water Supply 19. High Voltage Direct Current (HVDC) 20. Sumatera 500 kV Transmission Line 21. Central-West Java 500 kV Transmission Line 22. Batang, Central Java Powerplant 23. Indramayu Powerplant 24. Mine to Mouth Powerplant Sumatera Selatan 8-10 25. Bontang Refinery 26. Revitalization of the Existing Refineries (Balikpapan, Cilacap, Balongan, Dumai, Plaju) 27. New Port Development in West Java (North Part) 28. Tuban Refinery 29. Palapa Ring Broadband 30. East Kalimantan Railway Construction Transaction Preparation Reassessed 8 5 9 18 17 13 23 25 26 27 28 30 16 10 1 3 2 4 6 7 4 4 4 4 4 4 4 15 14 20 21 22 29 29 29 29 29 29 29 29 29 29 11 12 19 24

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75

Energy gy Secto ctor: r: the he Progress ess

• f

35.000 000 MW Program am

No Phase MW % 1 Planning 5,824 16.31 2 Procurement 10,560 29.57 3 Power-purchase Agreement 8,678 24.30 4 Construction 9,941 27.84 5 Commercial Operation Date 706 1.98 17 Dec ‘14

Cabinet Meeting “There’s electricity crisis in Indonesia, requires construction

• f large capacity plant "

Jan ‘15

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

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

• f Purchasing Electrical Power and benchmark

prices for Electrical Power through the Direct Selection and Appointment.

16 Mar ‘15 4 May ‘15 Dec ‘16

Cabinet Meeting Progress of 35,000 MW Launching 35.000 MW by the President in Goa Beach Sanden DIY The progress so far:

Source: KPPIP

Sulawesi PLN: 2,000 MW Private: 1,470 MW Transmission: 5,275 ckt.km Substation: 4,390 MVA Maluku PLN: 260 MW Private: 12 MW Transmission: 653 ckt.km Substation: 620 MVA Papua PLN : 220 MW Private: 0 MW Transmission: 364 ckt.km Substation: 460 MVA Kalimantan PLN: 900 MW Private: 1,735 MW Transmission: 5,604 ckt.km Substation: 3,500 MVA Nusa Tenggara PLN: 670 MW Private: 0 MW Transmission: 2,347 ckt.km Substation: 1,410 MVA Sumatera PLN: 1,100 MW Private: 8,990 MW Transmission: 18,729 ckt.km Substation: 35,521 MVA Jawa & Bali PLN: 5,000 MW Private: 13,697 MW Transmission: 9,185 ckt.km Substation: 66,265 MVA

35,000 MW Program Distribution

Source: PLN

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76

Existing Iron Ore Refinery Facility

No. Company Product Ore Input Capacity (ton) Concentrate Input Capacity (ton) Investment (USD mn) Progress Completion Date 1 PT DPS Steel 1.100.000 220.000 40 100% 2011 2 PT MJIS Sponge iron, slab, billet 3.300.000 660.000 150 100% 2013 No. Company Product Ore Input Capacity (ton) Concentrate Input Capacity (ton) Investment (USD mn) Progress Completion Date 1 PT SILO Sponge iron 6.300.000 4.939.200 170 92% 2017 2 PT SBP Pig iron 240.000 50.000 120 35% 2017 3 PT MIS Pig iron 1.200.000 900.000 73 54% 2018 4 PT MMP Pig iron 6.300.000 5.400.000 86.570 83% 2018 5 PT RS Sponge iron 3.000.000 600.000 4.394 5% 2018 6 PT QEP Sponge iron 2.000.000 400.000 8.417 8% 2018 7 PT JMI Pig Iron 3.000.000 600.000 73 6% 2019

Completed but not operating

No. Company Product Input Capacity (ton) Investment (US$ mn) Progress Completion Date 1 PT Indonesia Chemical Alumina Chemical Grade Alumina 1,000,000 0,49 100% 2013 2 PT Well Harvest Winning Smelter Grade Alumina 1,000,000 1,1 Phase 1 : 100% Phase 2 : 0% 2016 (Phase 1) 2017 (Phase 2)

Upcoming Iron Ore Refinery Facility Existing Alumina and Bauxite Refinery Facility Completed and operating

Investm estment nt in Iron Ore, e, Alumin mina an and Bau auxite xite Smel elter er

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77

Investm estment nt in Nickel ckel Smel elter er

SLIDE 79

78

Infrast astru ructur cture Finan ancing cing

78

Source: Bappenas

129.75 SOE

Private 208.72 78.98 Financing Needs Gov’t Budget Financing Gap 355.27 146.55 (billion USD)* 41,25% 58,75% 22,23% 36,52% 100%

Infrastructure Financing Need 2015-2019 General criteria for financing schemes

• Government Budget is used for basic infrastructure projects, mainly

for projects that are economically feasible but financially not.

• SOE scheme is used for projects managed under SOEs (electricity,

toll roads, oil, etc.) to leverage public funding channeled through capital injections (PMN) and empower SOEs

• PPP scheme is mainly targeted for projects that are both

economically and financially feasible. The government can provide financial facilites to support PPP & SOE schemes

*) USD1=IDR13500 (APBNP 2016)

PPP scheme and facilities provided to PPP Projects

• The government may appoint certain SOEs to assign specific

infrastructure projects

• To support the infrastructure provision through the SOEs, the

government provide a number of financial facilities, such as:

• Capital Injection (PMN)
• Lending
• Credit Guarantees
• Guarantees for SOE Direct Lending
• Business Viability Guarantees

Financial Facilities Provided to Infrastructure SOEs

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79

Finan ancing cing the he Accel eleratio tion

• f

I Infrast astructu ructure Develo velopme pment

• Acceleration of public infrastructure development is partly translated into programs to increase private participation and SOEs involvement

in the development of public infrastructure.

• Ministry of Finance provide a number of financial facilities to attract more private participation as well as to increase the capacity of SOEs

in developing public infrastructure.

Guarantees Amount of Guarantees (IDR mn) Outstanding Exposures (IDR mn) Number of Guarantees Fast Track Project 1 87,871.54 50,821.29 36 PDAM 328.30 181.32 11 PPP 42,176.00 6,608.98 1 FTP 2 66,982.93 16,538.24 10 SOE Direct Lending 14,498.00 1,581.60 2 Sumatra Toll Roads 1,721.34

• 2

Total 213,578.10 75,731.42 62

Financial Facilities for PPP Projects Financial Facilities for Non-PPP Projects

• Project Development Facility (PDF)
• Viability Gap Fund (VGF)
• Government Guarantees (provided directly by MoF or

through IIIGF)

• Availability Payment scheme
• Government guarantees to SOEs’ loans from IFIs for

the Development Infrastructure Projects

• Government guarantees to SOEs’ loans for the

development of Sumatra Toll Roads

• Business Viability Guarantee Letter for PT. PLN power

projects

• Credit guarantees for Regional Water Companies

So far, the government has provided a number of guarantees to PPP and non-PPP projects as well as developed close monitoring to maintain the fiscal sustainability. The issued guarantees are currently as follows:

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80

Progress ess

• n

P PPP-Scheme Schemed Infrast astru ructur cture Proje jects ts

With a new PPP unit already established in the Ministry of Finance and some financial facilities are already in place, PPP projects started to show some real progresses. There are 3 projects already reached financial close in 2016 and

• ne more to come in November
• 2016. Another project will reach

financial close in March 2017 Other projects are on the final stage of progress (PPP and guarantee contracts have been signed). Some significant numbers are on the final RFP while

• thers are still on the

preliminary stage.

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Progress ess

• f

S SOE Proje jects: cts: Fac acility lity for Non-PPP PP Proje jects cts

The government issued government guarantees to loans of PT. Hutama Karya in the development of Sumatra Toll Road, which comprise as follow: Progress of projects benefiting from guarantees on SOE direct lending: Projects benefiting from guarantees on SOE loans: Other guarantees that have been provided to SOE projects:

No. Project Name Project Cost (USD) Lender SOE Status 1 Sumatera Power Transmission and Distribusion 600 mn ADB

• PT. PLN

Guarantee is effective 2 Sumatera Power Distribution 500 mn World Bank

• Pt. PLN

Guarantee is issued but still inneffctive 3 The Enhancement of Electricity Grid 330 mn IDB

• PT. PLN

Proposal has been submitted