[PPT] - A Re Resi sili lien ent an and Pr Progr gres essive sive PowerPoint Presentation

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July 201 017 Republic blic

f

Indones esia ia

A Re Resi sili lien ent an and Pr Progr gres essive sive Ec Econom

my

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1

About ut Inves esto tor Relatio tions ns Unit

f

the Republic ublic

f

I Indones esia

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 others: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of 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 Website: http://www.bi.go.id/en/iru/default.aspx Contact: Wiwit Widyastuti (International Department - Bank Indonesia, Phone: +6221 2981 8279) Adrianto (Fiscal Policy Office - Ministry of Finance, Phone: +6221 345 0012) I Gede Yuddy Hendranata (Directorate General of Budget Financing and Risk Management - Ministry of Finance, Phone: +62213510714) E-mail: contactIRU-DL@bi.go.id This Presentation Book also can be downloaded from: http://www.bi.go.id/en/iru/presentation/red/Default.aspx

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2

Overvie rview

1 2 3 4 5 6

Instit itutio utional nal and Governan ernance Effectiv ivene eness: Acceler lerated ted Reforms rms Agenda with Instit itutio utional nal Improvem ement ent Econo nomic ic Factor: Strong ng and Stable le Growth wth Prospec ects Remain in Intact Externa ernal l Facto tor: : Impro roved ed Externa ernal l Resilien lience Fiscal al Perfo rformanc ance and Flexibilit ibility: y: More re Fiscal al Stimulus lus with Prud udent nt Fiscal l Mana nage gement nt Moneta etary ry and Financ ncial ial Factor: : Credible ible Monet netar ary y Polic licy y Track k Record rd and Favour urable ble Financ ncial ial Sector Pro rogres gressiv ive e Infras rastr truc uctur ure Develo lopment ent: Strong ng Commitm itment ent on Acceleratio leration n

f Infras

rastr truc uctur ture e Pro rovis isio ion

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In Institutio utiona nal and Go Govern rnme ment nt Eff ffect ctiv ivenes eness: s: Ac Acce celerated ted Reform rms Ag Agenda with In Institutio utiona nal Im Improveme ment nt

Sec ection tion 1

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4

Positi tive ve Globa bal Perceptio ception

1. Source: World Bank – Doing Business 2017 Report; 2. Source: Transparency International – Corruption Perceptions Index 2016 Report; 3. Source: World Economic Forum –The Global Competitiveness Report 2016 – 2017 4. Source: World Bank

World ld Govern ernance Indic icato tors4 Ease of Doing ng Busin iness1 Global l Compe petitive titivene ness Index3 Corruptio uption n Perce cept ptio ion n Index2

Higher rank is better Higher score 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 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 37 40 35 41 25 30 35 40 45 50 55 2012 2013 2014 2015 2016 Indonesia India Brazil Philippines Turkey * Both India and Brazil shared the same score (40) in 2016 Higher rank is better Higher rank is better 52 25 47 46 38 40 15 25 35 45 55 2010 2011 2012 2013 2014 2015 Voice and Accountability Political Stability/Absence of Violence Regulatory Quality Government Effectiveness Control of Corruption Rule of Law

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5 Fitch JCRA

2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017

BBB BBB- / / Positive ive Baa3 a3 / Positiv ive BBB BBB- / Stable

Feb b 201 017, Baa3, Outlook Revis ised ed to Posit itive “We changed the outlook on Indonesia's sovereign rating to positive from stable to reflect emerging signs of a reduction in structural constraints, including its level of external vulnerability and the strength of its institutions.“ May 2017 17, BBB-, Ratin ing g Upgr graded ded “We raised the long-term sovereign credit to BBB- as the Indonesian authorities have taken effective expenditure and revenue measures to stabilize the public finances despite the terms of trade shock.” July y 201 2017, BBB-, Posit itiv ive e Ratin ing g Affir firmed ed “Indonesia's ratings balance a low government debt burden, favourable growth outlook and limited sovereign exposure to banking sector risks with weak - but strengthening - external finances compared with 'BBB' category peers and some lagging structural factors, including governance standards and a still difficult - but improving - business environment.”

BBB BBB- / / Positive ive

March 201 017, BBB-, Outlook Revis ised ed to Posit itiv ive e “JCR has changed the rating outlook from Stable to Positive, based

n the recent improvement on the investment climate promoted by a

series of Economic Policy Packages & the containment of private external debt brought by Bank Indonesia’s prudential regulations on external borrowing.”

BBB BBB- / Positive ive

April il 2017, 017, BBB-, Outlook Revis ised ed to Posit itiv ive e “Indonesia's macroeconomics stability has been maintained for several

years. Its external position is also improving,. fiscal deficits have been

reined in and government debt is low. In light of such factors, coupled with improved policy management, R&I has changed the rating outlook to Positive.’

BBB BBB- BB BB+ BB B+ BB-

Inves estm tment ent Grad ade Status tus From Rating ng Agen encies cies

Below low Inve vestme tment nt Grade

S&P R&I Moody’s

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6

Indones esia ia Remain ains the he Investment stment Desti stinatio tion

f

C Cho hoice ice

1. Source: The Economist – Asia Business Outlook Survey 2017 2. Source: IMF World Economic Outlook, Database April 2017 3. Source: United Nations Conference on Trade and Development (UNCTAD) – World Investment Report 2017 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (28th Annual Survey)

Tota tal Investm tment t / GD GDP (%)

Indo done nesia a Enjo joys Large Investm tments Relat lative to Peers within n the Region2 JBIC: C: Among ngst t ASEAN AN countr ntries, , Indo done nesia a is the most prefe ferred d plac ace for busine ness investme tment nt (Decemb mber 201 2016)4 The Econo nomi mist: : Indo done nesia a among ng the top 3 desti tinati nation n for attracti ting ng investo tors in Asia (Janua nuary 2017) 17)1

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

18 18,9 21,3 24,8 25,3 26,3 27,7 28,4 33,3 39,4 46,2 53,7 55,7 71,6 10 20 30 40 50 60 70 80 Taiwan Singapore Japan Hong Kong South Korea Australia Malaysia Myanmar Thailand Phillipines Vietnam Indonesia India China

UNCTAD: AD: Indonesia a is listed d as the top 5 prospecti tive ve investme tment nt desti tinati nation in the world ld (June ne 2017) 17)3

32,75 34,17 25,09 20,55 22,25 27,58 31,42 34,29 26,06 23,60 22,01 26,58 31,43 34,30 25,48 25,41 24,30 27,18 5 10 15 20 25 30 35 40 India Indonesia Malaysia Philippines Thailand Vietnam 2015 2016 2017* * 2017 estimation

3 4 4 4 5 6 7 7 7 9 11 11 20 36 40

10 20 30 40 50 Australia (13) Canada (18) Singapura (18) Vietnam (14) Spain (25) Philippines (9) Mexico (7) Germany (5) United Kingdom (4) Brazil (7) Thailand (14) Indonesia (8) India (3) China (2) United States (1)

% of executives responding (x) = 2016 ranking

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Natio iona nal Strategic tegic Dev evel elopmen pment Plan an (Nawa Cita ta)

Human Development

Educ ucation ion Healt alth Hous using ing Char aracte ter

Priority Sector Development

Food Securi rity ty Energy & Electr tric ical Securi rity ty Mari ritime time & Mari rine ne Touris urism & Indus ustry try

Water ter Security rity, Basic ic Infra rastru tructu ture re & Connect ectivity ivity

Equitable Development

Inte ter- Incom

me

Group

up

Inte ter-Reg Region: ion: (1) Rural al Area ea, (2) Perip ripher hery, y, (3) Outs tside ide Java, (4) Easte tern rn Area ea. .

Security & Order Politic & Democracy Governance

The 3 Dimensio ions

n

Econom

mic

ic Develop

pment

ment Necessary sary Condit ition

n

Legal Certainty & Law Enforcement

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Equitable itable Economy Policy cy

Source: Coordinating Ministry for Economic Affairs The Eco cono nomi mic c Equa ualiz lizatio tion n Polic icy announ unced in April il 2017 embo mbodies natio iona nal l eco cono nomi mic c transfo nsforma matio tion n to succ ccessfully ully ove verco come me the middle le income me trap p and achieve ve the status us of a develope loped countr ntry in the long ng-te term Land nd Social Forest stry

 The Ministry of Environment and Forestry (KLHK) will distribute access to social forest management covering an area of 211,522 ha for 48,911 families with total permits of 134  Initial focus will be on 11 villages with a total area of 15.576 ha for 9,411 households

Agraria ian Refo form m and Transmi migratio tion Land Legaliz izatio tion

 Transmigration land of 220,000 ha and 3,800 ha under the National Agrarian Operation Project (PRONA) is ready to be legalized from a total of 4.5 million ha, while 23,000 ha of displaced land and 707,000 ha of forest disposal are also ready to be redistributed from a total of 4.5 million ha  The Land Object of Agrarian Reform (TORA) will be expanded to several provinces, including Banten, West Java, Central Java, Riau, West Kalimantan, West Sumatra, North Sumatra, and Maluku

Affordable e Housing g for the Urban Poor

 Committed to housing development within urban areas that are well connected to the center of activity, economic resources and public transportation for the urban poor  Core housing policies, among others, include provision of land for affordable housing (land availability), implementation of Housing Scheme for MBR (social housing), and the Housing Financing Scheme

Three Key Pillars and “Quick Win” Programs Oppor por

tuni

nity ty

Targeted eted Devel elopme pment

f Key Secto

tors

 Focused on addressing issues related to the tax system, development of manufacturing and IT industries and retail sector  Improve the competitiveness of the retail sector and strengthen synergies between traditional and modern retail

Human Capita ital

Vocatio ional Trainin ing g and Labour Markets ets

 Vocational and labor policies structured for capacity building of human resources, especially to align with industry needs and to support government priority programs  Policy steps will be taken by the government to draft and improve on the road map for vocational education and training, through reclassification and prioritization of business fields and positions  Job matching program that will focus on strengthening vocational programs for industries  Vocational schemes in place for the automotive, tourism and transportation sectors

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The he Economic ic Policy cy Pac ackag ages es

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

Phase e III (7 Oct t ’15) Boosting investment, spurring exports, and maintaining people‘s purchasing power Phase e IV (15 Oct t ’15) Simplifying wage formula and expanding loans for small business Phase e V (22 Oct t ’15) Improving industry and investment climate through tax incentives and deregulation on sharia banking Harmo moni nizi zing ng Regulations

ns

Simp mpli lifyin ying Bureauc ucratic Proc

cess

Ensuring Law Enfo forceabi bili lity Phase VI (5 Nov ’15) Stimulating economic activities in border areas and facilitating strategic commodities availability Phase e I (9 Sept ’15) Improving national industry competitiveness Phase e II (29 Sept ’15) Easing permit requirement and simplifying export proceeds requirement Phase e VII (7 De Dec ’15) Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land certification process for individuals Phase e VIII I (21 De Dec ’15) Resolving land acquisition disputes, intensifying domestic

il production, stimulating domestic parts and aviation

industries Phase e IX (27 Jan ’16) Accelerating electricity generation, stabilizing meat prices and improving rural–urban logistics sector Phase e X (11 Feb ’16) Revising the Negative investment List and improving protection for SMEs Phase e XI (29 29 Mar r ’16) Stimulating national economy through facilitation to SMEs and industries Phase e XII II (28 28 Apr’16) Improving Indonesia’s rank on Ease of Doing Business (EODB) Phase e XIII I (24 Aug ’16) Low Cost Housing for Low-Income Communities Phase e XI XIV (10 Nov ’16) Roadmap for E-commerce

Source: Coordinating Ministry for Economic Affairs

Phase e XV (15 Jun ’17) Development of Business and Competitiveness

f National Logistics Service Providers

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Boosting ting the he Competitive petitivenes ness through ugh Lo Logisti stical al Efficienc ciency

..15th Econo nomy my Policy Packag age has been launche nched

Source: Coordinating Ministry for Economic Affairs

Policy cy Goals s and Benef efit its s

Strengthen the Institution

f the Indonesia National

Single Window (INSW) Provide Market Opportunities for Shipping Companies, Marine Insurance, and National Ship Maintenance Businesses Increase Competitivenes

f Logistic Service

Providers

Policy cy Target ets

1 2 3 4 5

Import duty for 115 types

f

ship’s spare parts and components 0%

0%

Opportunities for national shipping to serve export and import transportation

f

around

USD 600 00 millio lion/y n/year ear

70-100 units

f

new ships worth USD

700 00 millio lion

New employment

pportunity
f

2,000 000 sai ailors rs

Improve the Regional Government’s role in development

f

Regional Logistics System to control inflation and reduce post-harvest product damage up to 30%

30%

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11

Thema ematic tic Policy cy Issues ues

n

D Der ereg egula ulatio tion

Next Phas ase of

f Polic

icy Packages es based on

n Secto

toral and Them ematic tic Issue ues Six policy issues es unde der Packag ages es I-XV:

improvem ement ent

f

indus ustr try compet etitiv itivene eness improvem ement ent

f

society’s purchasin ing power er widenin ening of

f

inves estmen ent expans nsio ion of

f

export efficienc iency of

f

logis istic tics sector improvem ement ent

f

touri rism sector

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

Source: Coordinating Ministry for Economic Affairs

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Progres ess

f

t the he Economic ic Policy cy Pac ackag ages es*

Initially, there are 233 regulations which need to be deregulated As of July 3rd, 2017, deregulation of 215 regulations are finished (97%), comprising 50 regulations at Presidential level and 165 regulations at Ministrial/Institutional level Unfinishe ished reg egula latio ions: Proposed Policy on Development

f Business and competitiveness of National Logistics

Service Providers

I–XII

215

SET

97% 97% 11 11

REVOK OKED ED REGULATIONS TIONS

7

ON GOIN ING DISCU SCUSSION SION

3% 3%

170 TOTAL

165

MINIST STRIAL AL/I /INST NSTITUT TUTIO IONAL NAL LEVE VEL

97% 97%

47 47 42 42

SELESAI

PRESI SIDE DENTI NTIAL

52 TOTAL

50 50 FINI

NISHED SHED

PRESIDENTIAL AL LEVE VEL

96% 96% I–XV

FINI NISHED SHED

I–XII

233 33

TOTAL INITIA TIAL REGULATIONS TIONS

I–XV

I–XII

222 22

TOTAL REGULATIONS TIONS

I–XV

Based

n

the further assessment, 11 regulations has been revoked from deregulation process Total regulation subject to be deregulated: 222 regulations

Source: Coordinating Ministry for Economic Affairs *as of July 5th, 2017

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13

Other her Progress ess

n

Economic ic Policy cy Pac ackag ages es

14 Provinces have set 2016 Minimum Wage System in accordance to the Government Regulation (GR) No. 78/2015 (Kepulauan Riau, Kalimantan Barat, Nusa Tenggara Barat, Sumatera Barat, Jambi, Aceh, Kalimantan Selatan, Banten, Gorontalo, Nusa Tenggara Timur, Jawa Barat, Bali, Sumatera Utara, and Bangka Belitung)

Fair, Simplif ifie ied & & Project ctable able Wage Sys System

State-owned train manufacturer PT Industri Kereta Api (INKA) in Madiun, East Java, has begun its first passenger train exports by shipping 15 train wagon to Bangladesh.

Export-Orie rient nted Busine ness Credit it (KURBE) RBE) Develo lopmen ment

f

Spesial al Economic mic Zone ne (SEZ)

Total value of facilities and incentives for

SEZs amounted IDR 33.8 trillion (as of September 2016)

18

companies benefitted from the simplification of fiscal incentive process with average processing time of 13.4 days (previously 2 years)

North Sulawesi has sucessfully exported

coconut product through SOEs’ joint program

30 Bonded Logistic Center has been

launched to support various industries

Deregula ulatio ion

n

Logis istics ics Sect ctor

r

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14

Improving ving Investment stment Clima imate te

…implement 3-hour ur investme ment nt licensing sing service ice to compleme ment the One Stop Service vice (OSS) S)

BKPM

Arriv

rive at OSS at BKPM directly from the airport

Consult with Director of Investment Service
Submit

it the required documents & data Require iremen ent t for

r utili

lizi zing g 3-ho hour Inves estme tment t Lisen encin ing g Service vice:

No requir irem ement ents for investm estment ent in infrastr struc uctu ture sector

r

9 document ments

btaine

ined

Wait it at the lounge while documents are processed by BKPM, in-house notary, ministries, & other government institutions Obtain tain 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

Certaint ainty to start a busines ess Certaint ainty to Import capital tal goods Certaint ainty to work rk Accurate land informatio ion

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 of the proposed company stakeholder

2 documen ments needed

ID Card
And/or Deed of Establishment (Indonesian company) or

Article of Association (Foreign company)

Containing workflow from raw material production to the

finished products

Inves esto tor iden entitiy titiy as the prospec ectiv ive shareh ehold lders ers Flowc wchart art

f

busines ess activities ities work rkflo low

Source: Investment Coordinating Board (BKPM)

Until il March ch 2017, 313 projec jects ts* have ve utilized the “3 hou

urs

rs services ices”

* Since January 2016, including 12 projects in EMR sector

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15

Improving ving Investment stment Clima imate te

…implement 3-hour ur investmen ment licensing sing service ice for Energy and Mineral al Resour urce ces Secto tor

Director arrives at central OSS, then submit required documents* Waiting in priority lounge, while the documents processed

1 2 3

Applicant receive the requested licensing products Note *: ESDM3J service is given if the company has fulfilled

the checklist of administrative & technical requirements as regulated on MEMR Ministrial Decree No.15 of 2016

9 Types es

f

licen ensing ing issue ued by ESDM3J M3J serv rvic ice

No. Type

f

Licen ensing ing Duratio ion for reguler uler servic ice (work rk days) 1 Temporary Business License for Electricity 20 2 Temporary Business License for Oil/Fuel/LPG storage 32 3 Temporary Business License for Storage

f

Processed Products/CNG 32/40 4 Temporary Business License for LNG Storage 32 5 Temporary Business License for Oil Refinery 32 6 Temporary Business License for Processing Oil Residue Industry 32 7 Temporary Business License for Natural Gas Processing 32 8 Temporary Business License for General Trade

f

Oil/Fuel 40 9 Temporary Business License for General Trade

f Processed

Product 40

Source: Investment Coordinating Board (BKPM)

Until March ch 2017, 12 projects cts have utilize zed the 3 3 hours service ices for EMR Sector

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16

Improving ving Investment stment Clima imate te

…implement nt Direct ct Construc ructio ion Permit it to attract ct invest stment nt in Indust ustrial rial Estates

Direc ect Construct uction ion (KLIK IK)

No Requir uirement ments

No

minimum investments

r

workers is required.

Available for 32

32 sele lecte ted indus dustrial rial esta tate tes.

Construction

permits can be

btained

in parallel with construction process.

Investors can directly start their project construction before

btaining construction permits. This service is supported by

both Cent Central al and and Regional gional Gov Gover ernme nment nts wh which ich become become the first step to to syner ergize gize betwe ween en central and local al licensi ensing ng

Obtain in investment licence at

OSS at national or regional level.

Survey

ey a land within selected

industrial estates.

Acquir

ire the land for your

industry.

Start

rt the constru tructio tion of your

project. No other permits are

required.

Apply

ly for building construction permit & environmental permit, in parallel with construction process.

Priority Investment Service Until il May 2017, 90 90 projects have utilized the “KLIK servi vices ces”

Source: Investment Coordinating Board (BKPM)

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17

Improving ving Investment stment Clima imate te

…Direct Construc ructio ion Permit it is expanded nded to 32 Indust ustrial rial Estates (IE) E) throug ughou hout Indone nesia ia

1

Banten (3 3 IE IE; ; 3,150 3,150 ha)

1. Modern Cikande Industrial

Estate/MCIE (1,800 ha)

2. Wilmar Integrated

Industrial Park/WIIP (800 ha)

3. Krakatau Industrial Estate

Cilegon/KIEC (570 ha) West Java (5 5 IE IE; ; 1.151 ha)

1. Bekasi Fajar Industrial

Estate/BFIE (300 ha)

2. Delta Silicon 8 (158 ha)
3. Karawang Internasional

Industrial City/KIIC (293 ha)

4. Suryacipta City of

Industry/SCI (300 ha)

5. GT Tech Park @

Karawang (100 ha) Central Java (3 3 IE IE; ; 840 840 ha)

1. Kendal Industrial Park/KIP

(700 ha)

2. Bukit Semarang Baru/BSB

(40 ha)

3. Wijayakusuma Industrial

Estate/KIW (100 ha)

East Java (1 1 IE; 1,761 ha)

KI Java Integrated Industrial and Port Estate/JIIPE (1,761 ha)

North h Suma matera (1 1 IE; 100 ha)

Medan Industrial Estate/KIM (100 ha)

South Sulawes esi i (1 1 IE IE; ; 3,000 000 ha ha)

Bantaeng Industrial Park/BIP (3,000 ha)

KLIK 1st

st Stag

age (14 IE) KLIK 2nd

nd Stag

age (18 IE)

1 2 3 4 5 6 3 5 6 7

1 2 3 4 5 6

East Java (2 IE; 341 341 ha) 1. IE Maspion (151 ha) 2. IE Tuban (190 ha) East Kalima manta tan (1 1 KI KI;133 133.8 8 ha ha) IE Kariangau (133.8 ha) Riau Island (5 IE; 556 ha)

1. Batamindo Industrial

Park (61.4 ha)

2. Bintang Industrial

Park II (20 ha)

3. Kabil Integrated

Industrial Estate (142.5 ha)

4. Bintan Inti Industrial

Estate (229.6 ha)

5. West Point Maritim

Industrial Park (102.5 ha) West Java (6 IE; 1,814 814.1 1 ha)

1. Artha Industrial Hill

(315.1 ha)

2. Greenland International

Industrial Center (GIIC)/Deltamas (400 ha)

3. Jababeka Tahap III

(45 ha)

4. Kota Bukit Indah Ind.

City (510 ha)

5. Indotaisei Kota Bukit

Indah (300 ha)

6. Marunda Center (300

ha) Central Java (1 1 IE IE; ; 285 285.7 7 ha ha) IE Demak (285.7 ha)

2

1

Riau (1 IE IE; ; 198 198.9 9 ha) IE Dumai (198.9 ha)

2

4

DKI Jakarta ta (2 IE; 129 129 ha)

1. Kawasan Berikat

Nusantara/KBN (118.6 ha)

2. Jakarta Industrial

Estate Pulagadung/JIEP (10.4 ha)

3 6 4 7 5

Source: Investment Coordinating Board (BKPM)

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18

(Pusat Logistik Berikat/PLB) is a facility provided by Ministry

f

Finance as part

f

the implementation

f

the 2nd Economic Policy Package. PLB facility aims to improve efficiency and reduce the cost of transportation and logistics in Indonesia; support the growth of the domestic industry, including small and medium industries; increase investment; and to make Indonesia to become a logistics hub in Asia Pacific.

To To da date, e, 30 30 Bo Bond nded ed Logis gistic tic Cent nter ha has been en laun unched hed to to suppo pport variou rious indus dustries ries.

Improving ving Investment stment Clima imate te

…Bonded Logistic Center to Improve Indonesia’s Competitiveness

Oil il and ga gas, s, and mining ing industry dustry Food & bev ever erag ages industry dustry Auto to- motiv tive industry dustry Per erson

nal

al care/ home care industry dustry Textile tile (cot

tto

ton) industry. dustry. Smal all and medium dium industry dustry Synt nthe hetic tic textile tile (chem hemic ical al substan ances) es) industry. dustry.

Bonded Logistic Center

SLIDE 20

19

Impr proving ving Invest stment ment Clima imate te

…revising the Negative Investment List

1 For total project value of IDR10bn and above

Before

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

Revisio ion of "Partnership ip" category y to refer to partnership ip with Micro, Smal all and Mediu ium Enterpris ises (MSME MEs) Gran andfat ather Law: If a par artic icul ular ar sector is tightened in futur ure, existin ing foreig ign n investor does not need to comply with tighter stak ake Key Reforms in Negative ive Foreig ign Investment List Strengthen implementatio ion of negative investment law throug ugh active ive roles from min inistrie ies, agencie ies and regio ional al governments

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

Distribution,

n, Wareho

housing Private Museum, Catering, g, apparel Manufacturing, g, Exhibitions

ns &

Conve ventions

ns

Toll Road Operator, Telecom

mmunication Testing Company

Consultancy for Construction

n1

Telecom

mmunication Provide

der with Integrated d Servi vices Profession

nal Training,

, Golf Course Management, , Air Transport

rt Support
rt Servi

vices, , Trave vel Bureau

After Before After Before After Before After Before After Before After Before After Before After Before After Before After 33% 49%

Introduc uctio tion n of New w Foreig ign n Owne wnership ip Regula ulatio tion n for Strate tegic ic Secto ctors Source: Investment Coordinating Board (BKPM)

SLIDE 21

20

Improving ving Investment stment Clima imate te

…improving Indonesia’s Rank

n

Ease

f

Doing ng Busine ness (EODB)*

EODB 2017 Rank nk EODB 2016 Rank nk Chan hange in Rank nk EODB 2017 Point ints EODB 2016 Point ints Chan hange in Point ints

Overall all 91 91 106 106 15 15 61.52 58.51 3.01 Start rting ing a busines ess 151 167 16 76.43 67.51 8.92 Dealing ing with Constr truc uctio ion Permit rmit 116 113 3 65.73 65.26 0.47 Getting ng Electr tric icity ity 49 49 61 12 80.92 77.60 3.32 Registering tering Property erty 118 123 5 55.72 53.24 2.48 Getting ng Credit it 62 62 70 8 60.00 55.00 5.00 Prote tecting ting Mino nority ity Inves esto tors 70 70 69 1 56.67 56.67 Paying ing Taxes 104 104 115 11 69.25 64.47 4.78 Trading Across Border ers 108 108 113 5 65.87 63.53 2.34 Enforcing ing Contrac acts ts 166 171 5 38.15 35.37 2.78 Resolv lving ing Insolv lven ency 76 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 was published in October 2016

SLIDE 22

21

Improving ving Investment stment Real aliza izatio tion (Q2-201 2017) 7)

IDR tn

2013 2014 2015

Risin ing Direct ct Inve vestme tments nts

2016

Mini ning ng Wood Indust ustry Rubbe ber and Plastic tic Indust ustry Metal, tal, Machine chinery & & Ele lectroni nic c Ind ndust ustry US$ US$100.6 .6 mn US$ US$62.7 .7 mn mn US$ US$137.3 .3 mn mn US$ US$1006.3 .3 mn mn US$ US$1131.2 .2 mn mn US$ US$705.3 .3 mn mn Food Indus ustry

35.7%

US$ US$437.1 .1 mn mn

102.7% 26 26.6% 6% 40 40.8% 8% 1.5% 6.8% 87 87.6% 6% Invest stment nt Reali liza zatio ion

Textil xtile Indust ustry US$ US$76.1 .1 mn

20 20.9% 9%

FDI Reali lizatio tion n by Secto ctors

Source: Investment Coordinating Board (BKPM), compared to Q2-2016 period

2017

Rp145.4 5.4 T Rp159.4 9.4 T IDR99.4tn tn IDR109.9 109.9tn tn IDR52.2 52.2tn tn 434 434,463 463

9.6 9.6% 15.6 .6%

10.6% 16.9%

Q1-201 016 Q1-201 017 Q2-201 016 Q2-201 017 Q1-201 016Q1-201 017 Q2-201 016 Q2-201 017

*

* * person son 37 375,9 ,982 IDR151.6 151.6tn tn IDR170.9 170.9tn tn

12.7% 7%

Q2-201 016 Q2-201 017

IDR61tn tn Trade & Repar paratio tion Non Metallic tallic Mine neral l Indust ustry 110 61 171

20 40 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FDI DDI TOTAL

SLIDE 23

Eco conomi mic Fact ctor: r: Strong and Stable Gr Growth Prospec ects Rema main In Intact ct

Sec ection tion 2

SLIDE 24

23

Conducive cive Environment ment Underpin rpinning ning Strong ng Growth th Fundam ament ental als

Larges gest t Economy my in South East Asia 4th Most Populous country y in the World; ; 64% in productiv tive e age Manageable Inflatio tion Rate Growin ing g Middle e Income me Class

From commodity-based to man anufa ufactur urin ing and servic vice sectors via infrast astruc ucture development From consum umptio ion-led d to investment nt-led d growth via a stronger man anufac ufactur urin ing sector and more investment init itia iative ives Policie ies to main aintai ain pur urchasing asing power to stim imulat ate domestic ic economy in the mid idst

f weakenin

ing mac acroeconomic ic condit itio ions Budget reform as a a part of larger economic ic reform init itiat iative Tax base to be broad adened from

ne reduc

uce dependency on commodit itie ies Fuel subsid idie ies signif ific ican antly y reduc uced and spendin ing redir irected to more produc uctive allocat atio ion Prud udent debt man anag agement

Reform rm-Or Orien iented ted Adminis inistr tratio ion

Three main ain sources of finan ancin ing for investment needs: Stat ate and regio ional al budget, Stat ate Owned Enterpris ises and PPP Contin inui uing from 2015 polic icy, infras astructur ure will be higher than fuel subsid idy Fiscal al and non-fis iscal al incentive ives to attrac act infras astructur ure investment and promote PPP Infras astructur ure spend nding ing focused d on basic ic infras astructur ure projects

Larg rge e and d Stable able Econo nomy Consi nsiste tent nt Budg dget t Reform

rm

New Econom nomic ic Structu ructure re High h Infras rastruc ructu ture re Investmen ents

SLIDE 25

24

Indonesia’s Strong GDP

Growth th Prospe pect ct GDP Growth th Based on Expe xpend nditur itures (%, YoY YoY)1 Strong ng GDP Growth th1

By expen pendit diture 2014 14 2015 15 2016 16 2017 17 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1

HH. consumption

5.2 5.2 5.1 5.1 5.1 5.0 5.0 5.0 4.9 5.0 5.0 5.1 5.0 5.0 5.0 4.9 Non profit HH. consumption 23.2 22.4 5.8 (0.5) 12.2 (8.1) (8.0) 6.6 8.3 (0.6) 6.4 6.7 6.6 6.7 6.6 8.0 Government consumption 6.1 (1.8) 1.2 0.9 1.2 2.9 2.6 7.1 7.1 5.3 3.4 6.2 (2.9) (4.0) (0.1) 2.7 Gross Fixed Cap. Formation 5.4 4.0 4.4 4.1 4.4 4.6 4.0 4.9 6.4 5.0 4.7 4.2 4.2 4.8 4.5 4.8 Exports 3.1 1.5 4.9 (4.4) 1.1 (0.7) (0.3) (0.9) (6.4) (2.1) (3.3) (2.2) (5.6) 4.2 (1.7) 8.0 Imports 5.1 0.4 0.2 3.0 2.1 (2.6) (7.4) (6.6) (8.7) (6.4) (5.1) (3.2) (3.7) 2.8 (2.3) 5.0 GDP 5.1 4.9 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0 %

Instit itutio ions 2017 GDP growth (% (%YoY) 2017 R-Budget Plan 5.2 Bank Indonesia 5.0-5.4 IMF 5.1 World Bank 5.2 ADB 5.1 Consensus Forecast (July 2017) 5.2

Favo vour urable ble GDP Growth th Compar pared to Peers2

1. Source: Central Bureau of Statistics of Indonesia (BPS) 2. Source: World Economic Outlook Database - April 2017; * indicates estimated figure % QoQ YoY

5,0
3,0
1,0

1,0 3,0 5,0 7,0 9,0 2012 2013 2014 2015 2016 2017* 2018* Brazil India Indonesia Malaysia Philippines Singapore Thailand Turkey 0,04 3,83 3,27 (2,07) (0,17) 3,75 3,30 (1,70) (0,40) 4,01 3,13 (1,77) (0,34) 5,12 4,94 4,93 5,05 4,82 4,74 4,77 5,17 4,92 5,18 5,01 4,94 5,01

3,0
1,0

1,0 3,0 5,0 7,0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2014 2015 2016 2017

SLIDE 26

25

Strong ng an and Stable able GDP Perf rform rman ance ce

Contribu ibutor tors to GDP Growth th by Secto ctor (%, YoY YoY) Spatia tial l GDP Growth th

By sectors 2014 14 2015 15 2016 16 2017 17 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 3.8 6.5 2.9 1.6 3.8 1.5 3.4 3.0 5.3 3.3 7.1 Mining (1.2) 0.7 0.7 1.5 0.4 0.6 (3.6) (4.4) (6.0) (3.4) 1.2 1.2 0.3 1.6 1.1 (0.5) Industrial processing 4.5 4.9 5.0 4.2 4.6 4.1 4.2 4.6 4.4 4.3 4.7 4.6 4.5 3.4 4.3 4.2 Construction 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 7.1 6.4 6.8 5.1 5.0 4.2 5.2 6.3 Big traders, wholesale, retail 6.1 5.1 5.2 4.4 5.2 3.8 1.6 1.4 3.7 2.6 4.1 4.1 3.6 3.9 3.9 4.8 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 8.3 7.9 7.7 7.6 Information and communication 9.9 10.7 9.8 10.1 10.1 9.7 9.3 10.6 9.2 9.7 7.6 9.3 9.0 9.6 8.9 9.1 Financial service and insurance 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.4 12.8 8.6 9.3 13.6 9.0 4.2 8.9 5.7 Other Services 8.4 9.5 9.5 8.4 8.9 8.0 8.1 8.1 8.2 8.1 7.9 7.9 7.7 7.7 7.8 8.0 GDP 5.1 4.9 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0

Java: 58. 58.5% 5% Sumater era: 22.0% Maluku ku & Pap apua: a: 2.5% Sulawesi: esi: 5.9% 9% Kalimantan an: 8.3% Bali & Nusa Tengga gara: a: 3. 3.0% 0%

Spatia tial l GDP Growth th Contribu ibutio tion

Sumatera GDP Grow

wth

Q1 2017: 2017: 4.1% Java GDP Grow

wth

Q1 2017: 2017: 5.7% Kalimantan GDP Grow

wth

Q1 2017:4.9% Sulaw awesi si GDP Grow

wth

Q1 2017: 2017:6. 6.9% Maluku ku & Papua GDP Grow

wth

Q1 2017: 4.2% Bali & Nusa sa Tenggara GDP Grow

wth

Q1 2017: 2.4%

SLIDE 27

Ext xternal rnal Fact ctor: r: Im Improved Ext xtern ernal al Resilie ienc nce

Sec ection tion 3

SLIDE 28

27

0,33

1,96 1,63

3,0
2,0
1,0

0,0 1,0 2,0 3,0 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 2012 2013 2014 2015 2016 2017

OG Non-OG Total

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 1 3 5 2012 2013 2014 2015 2016 2017

FX Reserves (LHS) Month of Import & Debt Service (RHS)

Month

A Nar arro rower er, , Stru ructur ctural ally ly-Str tronger nger Curr rrent nt Account nt Deficit ficit

Imp mprovin ing g Current t Account Defic icit it Strong g Balance e of Payme ments Supported ted by Substantia tial FX Reser erves es to Mitiga igate te Exter ernal Challen enges ges Trade e Balance e Surplus Continues es

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

2015 2015: CA Defic icit (US$17.5bn) n) 2012: 2012: CA Defic icit (US$24.4bn) n) 2013: 2013: CA Defic icit (US$29.1bn) n) 2014: 2014: CA Defic icit (US$27.5bn) n) US$bn (7.5) (1. 1.4) 5.7 0.8 (2.4)

Source: Bank Indonesia FX Reserves s as of June 2017: US$123.09bn n (Equiv

iv. to 8.5 month

ths s of impo ports ts + servic icin ing of government t debt) t) US$bn

201 2016* 6*: CA Defic icit (US$16.9bn) n)

Source: BPS * Preliminary Figure ** Very Preliminary Figure 40 80 120 160

20
10

10 20 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* 2012 2013 2014 2015 2016* 2017** Current Account Capital & Financial Account Overall Balance Reserve Assets (RHS)

12
8
4

4 8 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* 2012 2013 2014 2015 2016* 2017** Goods Service Income Secondary Inc. Current Account 121 121.8 7.9 4.5 (2.4) US$bn 2015: 2015: Surplus US$7.59bn 2012 2012: Defic icit (US$1.7 .79bn) n) 2013 2013: Defic icit (US$4.1 .10bn) n) 2014 2014: Defic icit (US$2.3 .37bn) n) 201 2016: : Surplus US$8.83b 3bn 2017: 2017: Surplus US$ US$7,63bn bn*

SLIDE 29

28

2,85 1,55 1,37 1,30 1,15 1,13 0,92 0,8 0,17 0,00

0,12
0,38
2,70

0,33 1,59 0,33 0,20

1,43

0,55

0,27

0,51

0,04
0,11
1,29
2,14
2,45
3,5
2,5
1,5
0,5

0,5 1,5 2,5 3,5 ZAR EUR THB TRY JPY CNY MYR SGD IDR INR PHP KRW BRL Point to Point Average

Exchang ange Rate In Li Line ne with Fundam ament entals als

Stable ble Move veme ment nt of Rupia iah Poin Point-to to-point

int,

the the rupiah piah stre rengthened gthened 1.08 08% (pt ptp) to to clos

se at

at a le level vel of

f Rp

Rp13 13,328/USD

USD. The

appreciation was bolstered by the ongoing FX sales by corporations and a considerably large influx

f

foreign capital into the domestic market, and also in line with the appreciation in the regional currencies. Rupia iah Exc xchang nge Rate Fared Relative latively ly Well ll Compar pared to Peers

Source: Bank Indonesia

IDR/US$

*data as of June 30th, 2017

YTD 201 2017* vs 201 2016 June vs May 2017

*data as of June 30th, 2017 *data as of June 30th, 2017

% %

11,17 9,60 2,14 1,62 1,60

0,19
2,19
4,88
5,57
16,85

5,09

1,60

5,18 5,61 5,39 1,08 7,96

1,72

4,51 0,08

20,0
15,0
10,0
5,0

0,0 5,0 10,0 15,0 ZAR BRL INR THB KRW IDR EUR PHP MYR TRY Point to Point Average

13328 13361 13338 13345 13304 13321 13298 13348 13309 13.200 13.250 13.300 13.350 13.400 13.450 13.500 3-Jan 11-Jan 19-Jan 27-Jan 4-Feb 12-Feb 20-Feb 28-Feb 8-Mar 16-Mar 24-Mar 1-Apr 9-Apr 17-Apr 25-Apr 3-May 11-May 19-May 27-May 4-Jun 12-Jun 20-Jun IDR/USD Monthly Average Quarterly Average

SLIDE 30

29

Ampl ple Li Lines of D Defen efense se Against ainst Ext xter ernal nal Shocks cks



Ample level of FX reserves to buffer against external shock



FX Reserves as of June 2017: US$123.09 billion

South th Korea



Renewed a 3 year KRW/IDR swap arrangement with the size of up to 10.7 tn KRW/IDR115 tn in March 2017

Australia alia



Established a 3 year A$/IDR swap arrangement with the size of up to A$10 bn or IDR100 tn in Dec. 2015

Chia iang g Mai i Initia tiative tive Multila ltilatera terali liza zation tion (CMIM IM) ) Agreem eemen ent



Entitled to a maximum swap amount of US$ 22.76 bn 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 bn



Doubled to US$240 bn effective July 2014

Japan



US$22.76 billion swap line with Japan currently in place



The size of the swap line was increased from US$12 bn in December 2013

IMF Global al Financ ncial ial Safety ty 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 teral Regio iona nal Globa bal FX Reserv rve

Ampl ple Reserve ves Swa wap p Arrang ngeme ment nt

Source: Bank Indonesia

SLIDE 31

30

Measu asures es to Man anag age Ext xter ernal nal Volatility tility

Pre-em emptiv tive Measur ures es

Implementing Crisis Management Protocol (CMP)
Implementing Bond Stabilization Framework (BSF)
Enhancing coordination between government institutions

and continuous dialogue with market participants

Specific policies in place to address crises enacted in

2017 budget law

Swap facility arrangements based on international

cooperation

Crisis is Management nt Prot

toc
col
Indicators to determine crisis level of Government

Securities Market condition (normal, aware, alert, crisis)

Several market indicators that are monitored daily:
Yield of benchmark series;
Exchange rate;
Jakarta Composite Index;
Foreign ownership in government securities
Policies to address the crisis at every level :

‐ Repurchase the government securities at secondary market ‐ Postpone or stop the issuance

Firs rst Line

f

Defense

State’s Budget Buyback fund at DG of Budget Financing and Risk Management Investment fund at Public Service Agency (BLU) (min. level Aware) State e Owned ed Enterprises’s Budget get Related SoE (min. level Aware) Socia ial l Securi rity y Orga ganiz izin ing g Agency (BPJS)’s Budget BPJS (min. level Aware)

Second nd Line

f

Defense

State’s Budget State General Treasury Account (Rekening KUN) (min. level Alert) Accumulated cash surplus (SAL) (min. Level Crisis) State e Owned ed Enterprises’s Budget get Related SoE (min. level Alert) Socia ial l Securi rity Orga ganiz izin ing g Agency (BPJS)’s Budget BPJS (min. level Alert)

Bond nd Stab abiliz ilization ion Framework

rk

Source: Ministry of Finance

SLIDE 32

31

Comply Not Comply 2,257 (93.3%) 161 (6.7%) Comply Not Comply 2,170 (89.7%) 248 (10.3%)

50 100 150 200 250 300 350 400 50 100 150 200 250 300 2013 2015 Feb 2016* Apr 2016* Jun 2016* Aug 2016* Oct 2016* Dec 2016* Feb 2017* Apr 2017* Public (Govt. & BI) Private Total (RHS)

Streng engthened hened Pri rivate te Exter erna nal Deb ebt Risk Man anag agem ement ent

(US$bn)

Source: External Debt Statistics of Indonesia, July 2017 Source: Moody’s Statistical Handbook, May 2017

Regulat atio ion 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 Regulat atio ion Governs all Foreign Currency Debt Hedgin ing Ratio io < 3 months 20%* 25%** > 3 – 6 months 20%* 25%** Liqui quidit ity y Ratio io ( < 3 months) 50% 70% Credit Ratin ing Not applicable Minimum rating of BB- Hedgin ing tran ansac actio ion 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

Exter ernal Debt bt / GDP P (%)

(US$bn)

Debt bt Burden n Indic icator tor (Exte xterna nal l Debt bt / GDP) Rema main ins Compar parable ble to Peers Priva vate te Exte xterna nal l Debt bt is Stabili bilizin ing and Trend ndin ing Down Encouragin ing Corpo porate tes Compli liance on Hed edgin ing Ratio io

(%)

> 3 – 6 mont

nths

hs < 3 mont

nths

Total Ext. Debt: US$334bn Priva ivate Sector

Ext. Debt:

US$165b 5bn

Source: Bank Indonesia * Provisional Figures

26,2 26,5 33,3 36,1 37,4 46,1 26 24,6 36,4 34,1 34 47,1

5 10 15 20 25 30 35 40 45 50 India Philippines Thailand Indonesia Brazil Turkey 2016 2015 Q1-201 017 (Total = 2,418 18) Q1-201 017 (Total = 2,418 18)

SLIDE 33

32

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

8.9% %

f

total priva vate te external ernal debt

Priv ivate te Short-Term Term1 Priv ivate te Non-Bank Exter ernal Debt Positio tion

Af Affil iliat iation Non Af Affil iliat iation

US$118.8bn

r

71.9%

f Private Ext.

Debt US$19.9bn

r

12.0%

f Private
Ext. Debt

US$11.9b 1.9bn

r
r

7.2 7.2%

f Private

ate Ext. . Debt t US$14. 4.7bn 7bn

r
r

8. 8.9%

f Private

ate Ext. . Debt t

Public ic Long Term 1 Priv ivate te Bank

US$26.5bn

r

16.1%

f Private
Ext. Debt

US$165.2 .2bn bn

r

49.5 9.5%

f total
Ext. Debt

US$46.4bn bn

r

28.1%

f Private
Ext. Debt

External Debt Position as of May 2017

1 Based on remaining maturity

Source: External Debt Statistics of Indonesia, July 2017

US$333.6bn bn

US$168.4bn

r

50.5%

f Total Ext.

Debt

SLIDE 34

Fisca cal Perf rforma rmanc nce and Flexib xibilit ility: More Fiscal cal Stimu mulus us with Pru rudent nt Fisca cal Policy cy

Sec ection tion 4

SLIDE 35

34

Integr egrated ted Reform rm to Provide Higher gher Qual ality ity

f Economic

mic Growth th

.. ...syne nergy between authorit ritie ies to drive econo nomy my navigating ing the chall lleng nges

Productive

and realistic budget

Credible

budget execution

Policy

to maintain consumption and improve investment climate

Economic

policy packages

Inflation

management

Monetary

policy to ensure macroeconomic and financial system stability

Macro-prudential

policies Fiscal al Real al Secto tor Mone netary ary & Finan ancial ial Secto tor

Sy Synergy gy in reform rm to boost the more sustainab nable le and inclu lusiv ive growth wth

Source: Ministry of Finance

SLIDE 36

35

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

…stimul uli to maintain ain purchas chasing ing power

 Consumptio

ion is still the larges est contr ntrib ibuto utor 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 mainta tain in and enhanc nce purchas asing ing powe wer for households

 The

government has increased non-taxa taxable ble incom

me

level and adjus usted ed wage polic icy to ensure that the lowest income bracket has the greatest support

 Funds

are targeted at not

nly

ly to improve basic vill llage infras astr truc uctur ture but also to crea eate jobs through labor intensive projects as well as

ther

job creation programs

u Fuel pric ice e and elec ectric icit ity adjustmen ent Predi edicta ctabl ble e labo bour wages ges Boostin ing g housin ing g devel elopm pment Elimin ination n of luxury goods tax for consumer er goods 2 months addit ditio ion of rice ce subsidy idy progra gram Rural transfer fer for produ ductive e spen endin ding Ease of land d certifica fication and lice censin ing g for street eet vendo dors

Maint ntaining ining Purchasing chasing Power wer

Increa ease non-taxabl ble income e limit it Stabi bilized ed pric ice e for meat produ ducts

The e Virtu tuous

us Cycle

le of Purc rchas hasing ing Power er Stimu imuli li

SLIDE 37

36

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

…stimul uli to promote te invest stment nts

Licen ensing ing Incent ntiv ives Tax Incen entiv tives es Other Incen entiv tives es Busines ess and Infras astr truc uctur ure Incen entiv tives es

Tax incen entiv tives es

n proper

perty ty Spec ecia ial economi mic zones Relaxa xatio tion of negative tive foreign ign inves estmen tment list Integr egrated ted logis istic tics s zones CPO CPO fund Support t for export-orien iented ted industr tries ies Village ge-city ity logis istic tics imp mproveme vement Accel eler eratio tion

f power

infrastructure Income me tax relief ief for labor intensive sive industr tries ies Permi mit t & licen ensing ing simp mplfi ficatio tion One ma map polic icy Incen entiv tives for footwea ear and apparel el industr tries ies Simp mplif ific icati tion of imp mport licen ensin sing g for drugs and raw food Accel eler eratin ting infrast structure devel elopme pment Water ma manageme ment and regulati tion Tax incen entiv tives es for REITS EITS Relaxa xatio tion of entry visa polic icies ies Expansio sion of cover erage ge and interest est subsidy for MSME Dwellin ing g time me

ptimiz

mizatio tion Oil refin iner ery devel elopme pment Avia iatio tion secto tor incen entiv tives Downstrea eam industr tries ies Debt To equit ity y ratio

SLIDE 38

37

Build lding ing a Credib ible le an and Real alist istic ic Budget et

…providing more certainty to all stakeholders

Indic icator 2016 16 2017 17 Realiz ization¹ n¹ Budget dget June e Real. R-Budge Budget4 Economic ic growt wth (%, yoy) 5.02 5.1 5.012 5.2 Inflatio ion (%, yoy) 3.02 4.0 4.37 4.3 3-Mo Month Treasury y Bill (SPN PN) (%) 5.7 5.3 5.1 5.2 Exchang nge Rate (Aver erage ge, IDR IDR/US USD, Avg.

g. YTD)

13,307 13,300 13,331 13,400 ICP (USD/ba barrel) 40 45 48.9 50.0 Oil il Productio ction n (thousand nd barrel el/da day) 829 815 784.23 815.0 Gas Produ ductio ction n (thousand nd barrel el oil equiv ivalent/da day) 1,180 1,150 1,0943 1,150

3. Data as of May 2017
4. Approved by Budget Committee of Parliament

Macroeconomic Assum umptio ion for 2017 R- Budget

Source: Ministry of Finance 1. Audited 2. Q1 GDP Growth

Cre

Credib dible le and re reali listic tic budget with 2016 outlook numbers used as the basis for the 2017 State Budget

Q1 2017 realization has been on track with the budget,

relative to Q1 2016

Tax

revenue in 2016 grew 3.6%, which includes IDR 103.1 trn from the tax amnesty program, which has further increased to IDR 134.8 trn as of Q1 2017

Budget

prioritizes efficiency in terms

f
perational

spending, without compromising capital spending

Exemplifies

discipline in maintaining budget deficit at reasonable levels

Descrip iptio ion (IDR Trillion) n) 2016 16 2017 17 Audit dited ed Realiz ization Budg dget et R-Bu Budg dget ∆ R-Budge Budget to Budget dget 1H Realiz ization ion % Realiz izatio ion n to Budget dget A. A. Reven enues es and Grants 1,555. 555.9 9 1,750. 750.3 3 1,736. 736.1 1 (14. 4.2) 2) 718. 8.2 2 41.0 .0% %

I. Domes

estic Reven enue 1,546. 546.9 9 1,748. 748.9 9 1,733. 733.0 (15. 5.9) 9) 718. 8.0 41.0 .0% %

1. Tax Revenue

1,284.9 1,498.9 1,472.7 (26.2) 571.9 38.2%

2. Non Tax Revenue

262.0 250.0 260.2 10.2 146.1 58.4%

II. Grants

9.0 1.4 4 3.1 1 1.7 7 0.2 2 15.5 .5% % B.

B. Expen

pendi diture 1,864. 864.3 3 2,080. 080.5 5 2,133. 133.3 3 52.8 .8 893. 3.3 3 42.9 .9% %

I. Central Gover

ernm nmen ent Expe pendi diture 1,154. 154.0 1,315. 315.5 5 1,367. 367.0 51.5 .5 498. 8.6 6 37.9 .9% %

1. Ministerial Spending

684.2 763.6 773.1 9.5 263.9 34.6%

2. Non Ministerial Spending

469.8 552.0 593.9 41.9 234.6 42.5%

II. Transfe

fer to Regio egion and Village ge Fund 710. 0.3 3 764. 4.9 9 766. 6.3 3 1.4 4 394. 4.8 8 51.6 .6%

1. Regional Transfer

663.6 704.9 706.3 1.4 360.4 51.1%

2. Village Fund

46.7 60.0 60.0

34.4

7.3% C. C. Prim imary y Balance ce (125 25.6) .6) (109 09.0) .0) (178 78.0) .0) (69. 9.0) 0) (68. 8.2) 2) 62.6 .6% %

D. Surpl

plus (Defici eficit) (308 08.3) .3) (330 30.2) .2) (397 97.2) .2) (67. 7.0) 0) (175 75.1) .1) 53.0 .0% % % of GDP (2.4 .49) 9) (2.4 .41) 1) (2.9 .92) 2) (0.5 .51) 1) (1.2 .29) 9)

E. Financi

cing ng 334. 4.9 9 330. 0.2 2 397. 7.2 2 67.0 .0 209. 9.4 4 63.4 .4% %

SLIDE 39

38

A More Real alis istic tic 2017 Tax ax Revenue nue Tar arget et

…taxation policies are directed at expanding the tax base and increase compliance

Source: Ministry of Finance

Target

1,472.7 72.7

IDR 26,2 trillion lower than 2017 budget

R-Budg udget 2017:

2014: 4:

1,146 46.8 .8

2015: 5:

1,24 240. 0.5

2016:

1,28 285. 5.0

Budg dget et 2017:

1,49 498. 8.9

8,2 3,6 6,8 16,0

IDR 41,8 ,8 T IDR 1.241,8 1,8 T IDR 189,1 ,1 T

↑ IDR 5,8 T (16,2%) ↓ IDR 2,1 T (-1,1%)

Tax Collection Growth (yoy, %) Comparison between 2017 R-Budget with 2017 Budget

Tax Revenue nue (in IDR Trilli llion) n)

Tax

collection in 1H2017 has been higher by 9.6% than 1H2016

Tax

collection growth target has been adjusted from 16.0% to 14.6% in

rder

to be more credible

Optimization
f

post tax amnesty program and tax treaty, tax audit, as well as law enforcement are expected to support tax collection

14,6 ,6

↓ IDR 29,9 T (-2,4%)

SLIDE 40

39

Indonesia’s Tax Amnesty Program – A Succes ess Story ry

With more than 965,000 taxpayers rs particip cipating ing in the program

Source: Ministry of Finance

Tax Amne nesty ty Resul ult (as of the end nd of March ch 31st

st, 2017)

Redemptio mption n Money ney Assets ts Decla clared

114,2 18,8

1,7 Preliminary Evidence Payment 1% Redemption Money 85% Tax Arrears Payment 14%

Reven enue IDR 134. 4.8t 8tn n (~1. 1.1% 1% GDP) P)

3.323,36 861,81 594,99 85,59 Individuals 68% Individual SMEs 18% Companies 12% SMEs 2%

Compo posit ition n of Partic icipa ipants Based ed on Asset et Declared ed

0,04 0,15 0,20 0,62 1,10 0,58 0,17 0,12 0,04 Germany (2004) Belgium (2004) Italy (2009) Chile (2015) Indonesia (2016) India (1997) South Africa (2003) Spain (2012) Australia (2014) % of GDP 2,1 3,9 8,3 39,3 5,2 3,6 0,3

India (1997) Spain (2012) Chile (2015) Indonesia (2016) Italy (2009) South Africa (2003) Australia (2014)

% of GDP 3,698 1,036 147,1

Onshore Declaration 76% Offshore Declaration 21%

Repatriation 3%

Asset Declared IDR 4,881tn (~39.4% of GDP)

SLIDE 41

40

Compr prehen ehensiv ive Tax Reform rm to Improv

ve

and Susta tain in Revenue enue Collection ection

Focused sed

n

expanding ing taxpayer database, base, improving ing busine ness proce cesses, ses, revisi sing ng regula ulatio ions ns and streng ngthe henin ning support system

56.2% 59.2% 60.4% 62.3% 49% 54% 59% 64% 10 20 30 40 2013 2014 2015 2016 Registered Taxpayers Registered Taxpayers – Tax Report Required Submitted Tax Report Compliance Rate = Submitted Tax Report/Registered Taxpayers-Tax Report Required

Expe xpecte cted Tax Reve venu nue / GDP Increase (%) Ongoi ngoing ng Comprehensi nsive ve Tax x Reform m on 4 Pillar lars Compl plia ianc nce Rate te in Submi bmitt ttin ing Annu nual l Tax x Repor port

Source: Ministry of Finance

Human Resources Business Process

Improvement of the human

resources and

rganizational capacity and

capabilities

Establishment of tax reform

task force team

Discipline in terms of Plan-

Do-Check-Action to monitor tax collection

Stronger law enforcement
Authorization to gather 3rd

party data (banking)

Implementation of

Automatic Exchange of Information

Simplification of tax

registration

Regulation

General Provision and Tax

Procedures

VAT Law
Income Tax Law
Stamp Duty Law

IT Support

Improvement of IT and

communication system

Increased accessibility of

public data for individual data management

Enhancement of data

management

11,2 11,4 11,3 10,8 10,7 10,4 11,5 5 10 15 2011 2012 2013 2014 2015 2016 2017 Budget

SLIDE 42

41

Regio gional al Reven enue ue and Exp xpenditure nditure Pro rofile le

…effective expendit iture ure policy as a tool to promote equalit lity across Indone nesi sia

SUMATERA TERA Reven enue 141.1

a. Tax

66.9

b. Custom & Excise

6.8

c. Non Tax Revenue

70.4 Expen enditu iture 232.3

a. Transfer to Region

176.1

b. Ministerial

Spending 56.2 Nett tt (88.2) JAVA Reven enue 1.143.2

a. Tax

884.9

b. Custom & Excise

161.6

c. Non Tax Revenue

96.6 Expen enditu iture 302.8

a. Transfer to Region

201.8

b. Ministerial

Spending 101 Nett tt 840.4 BALI I & NUSRA Reven enue 15.5

a. Tax

11.7

b. Custom & Excise

1.5

c. Non Tax Revenue

2.3 Expen enditu iture 56.4

a. Transfer to Region

39.5

b. Ministerial Spending

17.0 Nett tt (40.9) KALIM IMAN ANTAN AN Reven enue 86.0

a. Tax

32.0

b. Custom & Excise

1.1

c. Non Tax Revenue

52.9 Expen enditu iture 93.9

a. Transfer to Region

73.7

b. Ministerial

Spending 20.3 Nett tt (7.9) SULAW AWESI ESI Reven enue 19.7

a. Tax

16.6

b. Custom & Excise

0.6

c. Non Tax Revenue

2.5 Expen enditu iture 104.5

a. Transfer to Region

73.3

b. Ministerial Spending

31.2 Nett tt (84.8) PAPUA A & MALUKU Reven enue 18.4

a. Tax

10.7

b. Custom & Excise

1.7

c. Non Tax Revenue

6.0 Expen enditu iture 89.6

a. Transfer to Region

71.7

b. Ministerial Spending

17.9 Nett tt (71.3) Notes es: 1. Average data 2014 - 2016 2. Revenue  amount collected from certain region for central government budget 3. Expenditure  amount spent for certain region from central government budget 4. Figure in IDR trillion Source: Ministry of Finance

SLIDE 43

42

Mainta tainin ining Producti ctive ve and Eff ffect ctive ive Spendin ing Polici cies es

Continue nue the efficien iency cy

f
perational

ional expense nse and incr crease ease the priori rity expend ndit itur ures es

Minist sterial erial Spendin ing

798 798.6 T

↑ IDR 35.0 T from 2017 Budget Oper eratio tional al Expense nse Efficien iency

↓ 16.0 T

Addit ditiona ional Priority iority Spend nding ing

↑ 48.2 T

UN Mission to Center Africa Preparation for Regional Election and 2019 General Election Land Certification Asian Games 2018 Development program

f

agriculture and horticulture

Non Minist sterial rial Spendin ing

568 568.4 T

↑ IDR 17.4 from 2017 Budget

%

Inter eres est Payment nt

219.2 .2 T

↓ Rp2,0 T from 2017 Budget Energy Subsid idy

89.9T

↑ Rp12,5 T from 2017 Budget Non Energy gy Subsid idy

79.0T

↓ Rp3.7 T from 2017 Budget

2017 R-Budget get

SLIDE 44

43

2016 Budget et Real aliza izati tion Did Not Impede pede Pri riori rity ty Projects cts

Althoug ugh deficit cit was capped at manag ageable able level, l, infras astruc ructur ture develo lopment nt continue inued to accele lerate

Infrastru tructu cture Realiz lizatio tion1 Infrastru tructu cture Deve velopme lopment nt Achie chieveme ment nt in 2016 Food Secu curity ity Realiz izatio tion

100 200 300 400 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing

290.3 256.2 317.2 267.0

2015: 88. 88.2% % of budget 2016: 84. 84.9% % of budget

IDR tn 50 100 150 200 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing

2015: 87. 87.5% % of budget 2016: 84. 84.3% % of budget

IDR tn

125.9 110.3 117.9 99.3

Roa

ad Devel

elopm pmen ent t (km) Target: 3,149.6 Realization: 2,528.7 Airpo rport Target: 15 (up to 2019) Realization: 3 Brid idge ge (km) Target: 12.9 Realization: 10.6 Railw ilway2 (km) Target: 114.9 Achievement: 114.9 Dam Target: 37 Achievement: 37 Irr rriga igatio ion (km) Target: 4,889 Achievement: 1,025

Source: Ministry of Finance 1. Not including LRT South Sumatra and Jabodetabek 2. Land issues are in progress

SLIDE 45

44

Educatio tion an and Heal alth th Spend nding ing Well ll Delive livered ed in 2016

Invest stment nt to improve ve social al welfar are in the longer term

Educ ucatio tion n Expe xpend nditur iture Healt lth Expend nditur ure

Immunizat izatio ion for infan ants between 0 0 – 11 months Realizat ization: 4 million infants Target 4 million infants Unive versit ity y scholar arship ips for underprivil ileged students (Bid idik ikmis isi) Realizat ization: 324 thousand college students Target: : 332 thousand college students Health Insur uran ance Subsid idy (PBI) Realizat ization: 91.1 million people Target 92.4 million people School Operat ational Assis istan ance (BOS OS) Realizat ization: 8.0 million students Target: 8.2 million students Vaccin ine avail ilabil ilit ity in Commun unit ity Health Centre (Puskesmas as) Realizat ization: 81.5% Target 80.0% School Rehabil ilit itatio ion Realiza ization: n: 28,400 rooms Target: 30,300 rooms Malar aria a Erad adicat ation Realizat ization: 247 cities Target 245 cities Indonesia ia Smar art Card (KIP) Realizat ization: 20.7 million students Target: 19.5 million students Accredited Regional al Hospit ital al Realizat ization: 201 hospit ital als Target 190 hospitals

100 200 300 400 500 600 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing 20 40 60 80 100 120 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing

2016: 88.9% % of budget 408.5 390.2 416.6 370.5 2015: 88.1% % of budget 2016: 88.6% of budget

IDR tn

74.8 67.0 104.1 92.3 2015 15: 95.5% 5% of budg dget

IDR tn

Source: Ministry of Finance

SLIDE 46

45

Better tter Tar argeting eting

f

Subsid bsidy Policy cy in 2017

...more budget alloca cated to non energy subsid idy and priori rity program ams to improve ve basic ic service ices

Bidik ikmi misi si Scholarship ship

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

IDR IDR tn

416.1

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 Budget Budget % of R-Budget IDR tn % Basic & complete immunization for 92% of 0-11 months old infants Immu mmunizatio ion 94.4 million people Health th Insurance Subsidy (PBI) Stunting prevention to 29.6% of children below 2 years old Stuntin ing Prevent entio ion 700 regencies Commu mmunity Health th Centre e (Puskesma esmas) 6.7 million people Fami mily Plan Program m (KB)

Budg udget t for Educ ucatio tion n Program Budg udget t for Healt lth Program

360.5 thousands college students 19.5 million students Indones esia ia Sma mart Card (KIP) 101,100 teachers 10,200 lecturers Certific tificatio tion School Rehabil bilita itatio tion 41,128 rooms 8.5 million students School Operatio tional Assista tance e (BOS OS) 107 Colleges/Universities Oper eratio tional Assista tance for College eges

SLIDE 47

46

Impr proved ved Budg dget Allo loca cation tion Between tween Central al & & Local al Governm rnment ent

…promoting better alloca cation

f

budget spending ing to local al governm rnment nt

65.85% .85% 22.67% .67% 0.98% 98% 2.65% 65% 7.85% 85%

Gradually increasing Villag age Fun und allocation Average allocation of IDR800.5 million per village Villag age Fun und (IDR60.0 tn tn) Improving efficiency and effectiveness of Special ial Autonomy & DIY Fund. Special ial Autonomy y & D.I Yogyak akar arta - DIY (IDR20.2 tn tn) Incentive ive Fund (IDR7.5 tn tn) Minimum of 25% (IDR125.9 tn) earmarked for public service facility development acceleration. It provides revenue sharing fund to promote equal opportunity for natural resource producers & high tax earners General al Tran ansfer Fund (IDR494.0 tn tn) Special ial Tran ansfer Fund allocation is based on each regions’ proposal and national priorities Special ial Trans ansfer Fund nd (IDR184.6 tn tn) Incentive ive Fund allocation has been increased (317 regions were awarded an incentive ranging between IDR 7.5bn and IDR 65. 3bn)

Implementation
f

policy to allo locate spendin ing to regio ions ns

Minim

nimum um 25%

f

general al transfe fer fund has to be used for public service infrastructure 2017 Transfe fer r to Regions

ns and Villag

lage Funds ds (R-Budg Budget) Trans nsfer er to Regio ions/Villa Village ge Funds & Minis nister erial ial Spending ing

IDRtn 2013 Audit ited 2014 14 Audit ited 2015 15 Audit ited 2016 16 Audit ited 2017 Budget 2017 R-Bud udget Transfer to Region 513.3 573.7 602.4 663.6 704.9 697.7 Village Fund

20.8

46.7 60.0 58,2 Total al Intergove vernmental al Tran ansfer 513.3 573.7 623.2 710.3 764.9 755.9 Minis isterial al Spending 582.9 577.2 732.1 677 677.6 763.6 769.2 Source: Ministry of Finance

SLIDE 48

47

Policy cy

f

Infras astr tructur ucture Spe pending ding an and Tran ansfer fer to Re Regio ions ns

…developing the nation throug ugh targeted spending ng

In 2017, min inimum um 25% of general al tran ansfer fund has to be used for public service infrastructure

Kalima limanta ntan

2016 : 2,889.9 2017 : 3,641.6 2016 : 597.9 2017 : 634.5 2016 : 2,694.4 2017 : 4,117.1 2016 : 606.2 2017 : 1,042.6 2016 : 3,749.1 2017 : 3.686.3 2016 : 1,680.2 2017 : 1,941.7

Suma mate tera

2016 : 3,895.4 2017 : 3,545.7 2016 : 1,044.8 2017 : 1,320.4 2016 : 3,229.4 2017 : 3,257.8 2016 : 461,1 2017 : 1,147.5 2016 : 661.3 2017 : 1,207.3 2016 : 101.1 2017 : 308.2

Ja Java

76 86 114.2 145.5 168,5 154,1 256,1 317,1 387,3 8,1 8,3 8,8 9,8 10,2 8,7 14,2 15,2 18,6 5 10 15 20 100 200 300 400 500 2009 2010 2011 2012 2013 2014 2015 2016 2017 % IDR tn Anggaran Infrastruktur % thd Belanja Negara (RHS)

Infrastructure budget % of total state expenditure (RHS) Maluk uku u & Papua ua Sulaw lawesi Bali li & Nusa Teng nggara Infrastru tructu cture Budget Alloc locatio tion

2017 2017 Infrastr tructu ture e Budget get Allocatio tion (IDR R billio ion) and 2016 realiz izatio tion

2017 Constr truc uctio tion n Target Roa

ad Devel

elopm pmen ent Target: 815 km Airpo rport Target: 13 Brid idge ge Target: 9,399 m Railw ilways Target: 550 km Seapor port Target: 55 locations Bus statio tion Target: 3 locations

Source: Ministry of Finance

SLIDE 49

48

Finan ancing cing Policy cy 201 017: : Gener neral al Objective jective & P Policy cy

To conduct active debt portfolio To manage debt-to- GDP ratio To optimize the use of external and domestic loans To

ptimize

currency mix of issuance

General al Policy cy

To support market development To enhance public accountability as part

f

transparent Government debt management To meet financing needs at

ptimum

cost and tolerable risk

Source: Ministry of Finance

SLIDE 50

49

Budget et Finan ancing cing Breakdo akdown wn in 201 2017

Debt (Gross) IDR735.6tn tn (eq. USD 55.2bn) bn) Redemptio tion IDR350.9tn tn (eq. USD 26.3bn) bn) Budget et Financ ncing ng IDR330.2tn tn (eq. USD 24.8bn) bn) Non-De Debt bt Financ ncing ng IDR54.5tn tn (eq. USD 4.1bn) bn)

USD/IDR: 13,323 as of 31 May 2017 Note: Subject to change in market conditions and other factors

Breakdo akdown wn

f

budget et financ ncin ing IDR tn tn USD bn bn Governm ernmen ent debt bt (net) 384.7 28.9 Governm ernmen ent securi rities ies (net) 400.0 30.0 Domestic tic loans ns (net) 1.5 0.1 Foreig eign loans ns (net)

16.8
1.3

Source: Ministry of Finance

SLIDE 51

50

Gover ernment ment Securit urities: ies: Indica cati tive ve Finan ancing cing Plan an for 2017

…prudent and sustainab inable le fiscal al manag agement nt

Gov

ver

ernmen ent t Issuance e Targ rgets ets Intern ernati tional l Bonds ds

Issuance
f

international bonds as a complement to avoid crowding

ut

the domestic market;

Consists
f

USD, YEN

r

EURO global bonds;

International bond issuance

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

Domestic tic Bonds

Weekl kly Auctio ction: n: Conve ventio ntiona nal l secu curitie ities 24 x Islam lamic ic secu curitie ities 24 x Non-Auc uctio tion: n: Retai tail l bond nds Priva vate te Place ceme ment nt Based on request Fro ront Loa

adin

ding g Issuance e For r Budge dget t Financin ing

Pre-funding to optimize cost ahead of potential Fed rate hike
Anticipate developments in global environment
Government Securities target for 1st semester 2017 is 57.4 % from

gross issuance target

Government Securities target in Rupiah for 1st semester 2017 is

42.7% from gross issuancce target

Debt Securities 71%

Sukuk 29% Average Tenor Maturity (ATM) for Government Securities: 6-8 years

Comp mpositio tion Dome mestic ic 79% 79% Auction 93% Non-Auction 7% Internatio tional Bond 21% 21%

Source: Ministry of Finance

Instrumen ments ts Budget et Indic icativ tive Target et (IDR R trn) Indic icativ tive Target et (USD bn bn)* Governmen ment t Securiti ities es (Net) et) 399.99 30.03 Governmen ment t Securiti ities es (Gross) s) 684.83 51.42

* USD/IDR: 13,323 as of 31 May 2017

SLIDE 52

51

Sound Governm rnment ent Deb ebt Port rtfolio lio Man anag agem ement ent

Portfolio io managemen ment charact acteriz rized by stable le debt/G /GDP DP ratio and well-div iversi rsified fied debt

Stable ble Debt bt to GDP Ratio Ove ver the Years Weig ighte ted Ave verage Debt bt Matur urity ity of ~8.9 Years** (As As of June ne 2017)

US US$ bn

Rema marka kable ble Debt bt Reduc uctio tion n Initia itiative tive Ove ver the Past t 10 Years

Chang nge in Debt bt to GDP P Ratio io (200 007 – 201 017) ) (%) Source: IMF World Economic Outlook Database, April 2017

Well ll Dive versif ifie ied Across Different nt Currenc ncie ies

% of Yearly y Issuance ce Gover ernment Debt bt / GDP P (%) Source: Ministry of Finance Source: Ministry of Finance Source: Ministry of Finance *Based on 2016 realization, ** Using GDP assumption in 2016 R-Budget, ***SDR, AUD, and other 140,76 136,27 155,24 174,7 206,95 220,98 63,76 56,61 54,47 54,74 54,37 54,65 23 24,9 24,7 27,4 28,3 28,1 5 10 15 20 25 30 50 100 150 200 250 300 2012 2013 2014 2015 2016* May 2017 Securities (LHS) Loans (LHS) Gross Debt/GDP (%) (RHS) 9,7 9,6 9,7 9,4 9,0 8,9 8,0 8,3 8,5 8,8 9,0 9,3 9,5 9,8 10,0 2012 2013 2014 2015 2016 Jun-17 Years 56% 53% 57% 56% 58% 59% 24% 29% 29% 31% 30% 29% 14% 12% 9% 8% 7% 7% 3% 3% 3% 3% 4% 4% 3% 3% 2% 2% 1% 1% 2012 2013 2014 2015 2016 Jun-17 IDR USD JPY EUR Others***

113,56 93,46 55,08 52,33 40,31 27,32 16,18

2,75
8,43
12,88
21,94
27,07
40,00

10,00 60,00 110,00 Russia South Africa Vietnam Mexico Malaysia Brazil Thailand Argentina India Indonesia Turkey Philippines

SLIDE 53

52

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

Declin clinin ing Inte terest t Rate te Risks ks Debt bt Matur urity ity Profile ile Declin clinin ing Exch change Rate te Risks ks Upco comi ming ng Matur uritie ities (Ne Next 5 Years)

IDR tn tn

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)

*Preliminary Figures **Using GDP assumption in 2017 Budget.

Source: Ministry of Finance

16,2 16,0 14,8 13,7 12,3 11,2 22,5 23,2 21,0 20,7 17,8 19,3 5 10 15 20 25 2012 2013 2014 2015 2016* Jun-17 Variable Rate Ratio¹ Refixing Rate²

%

10,2 11,7 10,7 12,2 11,7 11,0 44,4 46,7 43,4 44,5 41,8 40,8 10 20 30 40 50 2012 2013 2014 2015 2016* Jun-17 FX Debt to GDP Ratio** FX Debt to Total Debt Ratio

%

101 101 201 201 189 189 116 116 140 140 107 107 98 98 168 168 45 45 126 126 100 100 53 53 100 100 29 29 124 124 66 66 52 52 97 97 5 90 90 22 22 22 22 7 15 15 26 26 23 23 20 20 28 28 44 44 110 110 135 135 112 112 123 123 128 128 103 103 88 88 116 116 88 88 71 71 46 46 21 21 20 20 18 18 17 17 16 16 12 12 29 29 5 23 23 28 28 2 1 1 31 31 21 21 28 28 27 27 39 39

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 2046- 2055 7,2 8,6 7,7 8,4 6,6 9,1 21,5 21,8 20,1 21,4 23,0 23,5 32,4 33,4 33,9 34,7 36,5 39,1 0,0 10,0 20,0 30,0 40,0 50,0 2012 2013 2014 2015 2016* Jun-17 In < 1 year In < 3 year In < 5 year

%

SLIDE 54

53

Profile le

f

Total al Centr ntral al Gover ernment ment Deb ebt

Foreig eign Own wnership p of Govern ernment Secu ecuritie ities at Longer Tenors Hold lders of Governm nment nt IDR Bond nds – Compositio tion n June ne 2017 2017 Governm nment nt Debt bt Outs tstan tandin ing

(%) (%)

Source: Ministry of Finance

34,34 31,18 29,96 25,87 24,19 23,84 22,01 21,14 20,67 19,62 65,66 68,82 70,04 74,13 75,81 76,16 77,99 78,86 79,33 80,38 199,48 204,51 194,55 209,41 214,88 229,40 255,14 258,03 265,98 278,29 50 100 150 200 250 300 10 20 30 40 50 60 70 80 90 100 2011 2012 2013 2014 2014 2015 Jun-16 Des-16 Jan-17 Jun-17 Loan (LHS) Government Securities (LHS) Total (RHS)

(%) USD bn 11,9 7,8 5,2 4,6 3,2 2,7 3,5 3,4 5,2 5,4 25,0 19,3 18,3 18,9 13,1 13,7 23,1 19,8 18,6 22,5 63,2 72,8 76,5 76,4 83,7 83,6 73,4 76,8 76,1 72,1 30,8 33,0 32,5 38,1 38,2 39,1 37,5 37,8 38,2 39,5 20 40 60 80 100 2011 2012 2013 2014 2015 Jun-16 Des-16 Jan-17 Mar-17 Jun-17 0-1 1-5 >5 Foreign Ownership to Total

30,8 33,0 32,5 38,1 38,2 38,9 39,1 37,5 37,8 37,5 38,2 39,0 39,1 39,5 32,6 30,5 33,8 30,8 37,9 31,3 38,9 39,9 34,9 34,5 35,5 35,0 34,6 40,1 36,63 36,53 33,70 31,04 23,95 29,81 21,95 22,5 27,27 28,03 26,22 26 26 20,4

20 40 60 80 100 2011 2012 2013 2014 2015 Jan-16 Jun-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Foreign Holder Domestic Non Banks Domestic Banks

SLIDE 55

54

Owner ersh ship ip of IDR Tra radab able le Cen entr tral al Governm rnment ent Securit urities ies

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 DR tn)

Source: Ministry of Finance

Descriptio iption Dec-14 14 Dec-15 15 Jun-16 16 Dec-16 16 Jun-17 17 Banks* 375.55 31.04% 350.07 23.95% 361.54 21.95% 399.46 22.53% 399.19 20.45% Govt Institu itutio tions s (Bank Indones esia ia** **) 41.63 3.44% 148.91 10.19% 150.13 9.12% 134.25 7.57% 175.89 9.01% Bank Indonesia (gross) 149.07 9.05% 157.88 8.90% 180.28 9.23% GS used for Monetary Operation

1.05
0.06%

23.63 1.33% 4.39 0.22% Non-Banks 792.78 65.52% 962.86 65.87% 1135.18 68.93% 1239.57 69.90% 1377.15 70.54% Mutual Funds 45.79 3.78% 61.60 4.21% 76.44 4.64% 85.66 4.83% 91.56 4.69% Insurance Company 150.60 12.45% 171.62 11.74% 214.47 13.02% 238.24 13.43% 254.21 13.02% Foreig ign Holder ers 461.35 38.13% 558.52 38.21% 643.99 39.10% 665.81 37.55% 770.55 39.47% Foreign Govt's&Central Banks 103.42 8.55% 110.32 7.55% 118.53 7.20% 120.84 6.81% 131.94 6.76% Pension Fund 43.30 3.58% 49.83 3.41% 64.67 3.93% 87.28 4.92% 89.11 4.56% Individual 30.41 2.51% 42.53 2.91% 48.90 2.97% 57.75 3.26% 60.49 3.10% Others 60.51 5.00% 78.50 5.37% 86.72 5.27% 104.84 5.91% 111.23 5.70% Total 1,209.96 100% 100% 1,461.85 100% 100% 1,646.85 100% 100% 1,773.28 100% 100% 1,952.23 100.00%

SLIDE 56

55

Gover ernment ment Securit urities ies Real aliza izatio tion

(IDR mn mn)

Source: Ministry of Finance

Budget get 2017 Budget get Realiza lizatio tion (a.o .o. Jun. . 22, , 2017) % Realiza lizatio tion to Budget get 2017 Gov

ver

ernmen ent t Securi rities ies Net 399,992,586 586 253,339,039 63.3 .34% Gov

ver

ernmen ent t Securi rities ies Matu turin ing g in 2017 and d Buyback 284,842,264 264 141,754,317 49.7 .77% Issuance e Need d for

r 2017*

684,834,850 850 395,093,356 57.6 .69% Gov

ver

ernmen ent t Debt t Securiti ities es (GDS) DS) 273,214,088 IDR Denom

min

inated ted GDS DS 213,173,000

Coupon GDS

107,130,000

Conventional T-Bills

105,650,000

Private Placement

393,000

Retail Bonds
Inter

ernatio tional l Bonds ds 60,041,088

USD GMTN

47,197,500

Euro GMTN
Samurai Bonds

12,117,580

Domestic Foreign Denominated Bonds

726,008 Gov

ver

ernmen ent t Isla lamic ic Debt t Securi rities ies 121,879,267 Dom

mes

estic tic Gov

ver

ernmen ent Isla lamic ic Debt Securiti ities es 81,910,267

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

65,872,957

Retail Sukuk

14,037,310

Private Placement

2,000,000 Glo lobal l Suku kuk 39,969,000

*Adjusted with issuance related to cash management realization

SLIDE 57

56

Positi tive ve Response nse

f

Gover ernme nment nt Secu curi riti ties es Issu suan ance ce in 2016

Globa lobal l Conven venti tional l Bond Globa lobal l Sukuk kuk Euro ro-Den enom

min

inated ted Bonds ds Sam amura rai Bon

nds

ds Tenure re 10 yr 30 yr 5 yr 10yr 7 yr 12 yr 3 yr 5 yr Pric icin ing g Date te December 8th, 2015 March 29th, 2016 June 14th, 2016 June 21st , 2016 Nom

min

inal 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 Cou

upo

pon Rate te 4.75% 5.95% 3.40% 4.55% 2.625% 3.750% 0.83% 1.16% Yiel eld 4.80% 6.00% 3.40% 4.55% 2.772% 3.906% 0.83% 1.16% Incom

min

ing Bid Bid US$8.1 .1 bn bn US$8.6 .6 bn bn EUR 8.4 .4 bn bn JPY100 bn 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

f

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

IDR bn bn Increasing Incoming Bids in 2016’s Government Securities Issuance

Incoming Bid 2016 Bid to Cover Ratio 2016 (RHS) Awarded Bid 2016

Source: Ministry of Finance

SLIDE 58

Monetar ary and Finan anci cial al Fact ctor: r: Cr Credible Monetary ary Policy cy Track ck Reco cord and Favour urab able le Financ ncial ial Sect ctor

Sec ection tion 5

SLIDE 59

58

Ban ank Indones esia ia Policy cy Mix: Ju July ly 201 017

Holds the BI 7-day Repo Rate at 4.75% Deposit and credit growth are expected to increase, to reach the range of 9-11% and 10- 12%. The potential growth, however, are still shadowed by a number

f risks, namely

domestic demand recovery prospects and developments in the banking consolidation. Continues to strenghten coordination with the central government and regional administrations, to keep inflation within it’s target corridor Continues to stabilise Rupiah exchange rates in line with the currency’s fundamental value, while maintaining market mechanisms Predicts 2017 domestic economic growth in the 5.0-5.4% range, supported by stronger export performance and investment

The e BI Board ard of Gov

ver

ernors

rs agr

gree eed on 19 19th

th and

d 20th

th July

ly 201 2017 to hold ld the e BI 7-days days Repo

Rate

te at at 4.75 75%, as well l as the e Depos posit it Facility lity at 4.00 00% % and d Lendin ding Facility ility at 5.50 50%

Monitors closely various global risks, especially coming from the US, including the planned FFR hike, the Fed’s plan to unwind its large balance sheet, and uncertainties in the fiscal policy.

SLIDE 60

59

Ban ank Indones esia ia Policy cy Mix Mix: : 2015-20 2017

14 14 Jan 2016

Cut BI Rate 25

bps to 7.25%, DF & LF Rate at 5.25% & 7.75%

BI lower its

monetary

peration rates

even further, ranging from 25bps to 45bps (O/N to 1Y) 19 Jan – 20 20 July 20 2017 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 % 20 Oct 2016 Cut BI 7-day RR Rate to 4.75%, DF and LF Rate to 4.00% and 5.50% 19 19 Aug Aug 2016

Held BI 7-

day RR Rate and DF Rate at 5.25% and 4.5%

Cut LF Rate

to 6.00%. 16 Jun 20 2016 16

Cut BI Rate 25 bps to 6.5%, 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 Aug. 2016 18 18 Mar 2016 Cut BI Rate 25 bps to 6.75%, DF & LF Rate at 4.75% & 7.25% 17 Nov – 15 Dec 2016 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 % 22 Sep 2016 Cut BI 7-day RR Rate to 5.0%, DF and LF Rate to 4.25% and 5.75%. 21 21 Jul 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 21 April 2016 16

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

n Aug. 19th 2016

18 18 Feb 2016

Cut BI Rate 25

bps to 7%, DF & LF Rate at 5% & 7.5%

BI lower the

rupiah denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from

Mar. 16th 2016

17 17 Nov 2015 Lowering IDR Primary RR by 50bps from 8.0% to 7.5%. Effective since 1 Dec 2015 26 26 Jun 2015

RR-LDR

RR-LFR

Accomodate

banks SMEs loan in RR calculation 18 18 Jun 2015

Increase the

Loan-to-Value (LTV) ratio

Reduce down

payments for automotive loans

SLIDE 61

60

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 Mar-17 Mei-17 Jul-17 LF Rate BI Rate BI-7Day RR Rate DF Rate

11,17 9,60 2,14 1,62 1,60

0,19
2,19
4,88
5,57
16,85

5,09

1,60

5,18 5,61 5,39 1,08 7,96

1,72

4,51 0,08

20,0
15,0
10,0
5,0

0,0 5,0 10,0 15,0 ZAR BRL INR THB KRW IDR EUR PHP MYR TRY Point to Point Average

Stab able le Monetary tary Environment ment Despite spite Chal alleng lenges es

Rupia iah Exc xchang nge Rate Rema main ins Compar parable ble to Peers

YTD 2017 17* vs. 2016 16

Inflatio lation n Continu tinues Und nder Controll lled Streng ngth thene ned Monet netary Polic icy Frame mewo work

Source: Bank Indonesia

Credit Growth th Suppo pporte ted by Macropr prud udentia ntial Polic icy

(%)

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 ust 2016

The New Monetary Operation ion Framewo work (YoY) 4,37 3,13 2,17 10,64

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 1 3 5 2011 2012 2013 2014 2015 2016 2017 (%) CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) *data as of June 30th, 2017

%

8,7% 8,5% 9,4% 8,3%

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 1 3 5 2013 2014 2015 2016 2017

Total Growth Working Capital loans Consumption Loans Investment Loans

SLIDE 62

61

6 Meas asur ures es to Control

l

Inflatio tion in 2017

On On Janu January ary 25 25th

th, 2017, the Gov

Governm ernment nt and nd Bank ank Ind Indones nesia ag agree eed on

n six

ix str trate tegic gic mea easur ures to to contr ntrol infla inflatio tion in in 2017 with within th the tar target et corri ridor of

f 4±1% (as we

well ll as as in in 2018 at at 3.5±1%), wh while ile al also settin tting the infla nflatio tion tar target ets for 2019-2021 at at 3.5±1%, 3±1% and and 3±1% respec ectiv tively ly. Those mea easur ures ar are nee needed ed to to add addres ess sever everal al oner nerous us domesti tic and and ex external ternal chall alleng enges th that dem emand and vigi igila lanc nce and and ea earl rly mitiga mitigatio tions. The external challenges mainly stem from rising international commodity prices, while the domestic challenges stem from ongoing energy reform through adjustments of electricity tariffs for 900VA subscribers as well as fuel prices as the global oil prices continues to

rise. The current aforementioned reform is warranted to ensure equitable development and to create more healthy fiscal space.

Maint intainin ining vola latile le food (VF) F) infla latio tion at 4-5% 5% by:

1 2 3 4 5 6

Strengthening infrastructure for food logistics in local areas, particularly warehousing for storage Developing a commodity flow data system, specifically for food commodity Utilising fiscal instruments and incentives to extend the local government’s role in price stability

Dampen enin ing the second-round effect ct

f

Administe istered ed Price adjust stmen ents Introduci cing Administe istered ed Price Sequen enci cing Estab ablishin lishing the Natio ional Infla latio ion Control Team Stren engt gthe henin ing central al and local governmen ment coordin inatio ion

Through Eighth National TPID Coordination Meeting in July 2017

Stren engt gthe henin ing the Bank Indonesia esia policy cy mix to maintain in macroecono conomic mic stability lity

Through Presidential Decree to strengthen the National Inflation Task Force (TPI) and Regional Inflation Task Forces (TPID)

Strengthening interregional cooperation Encouraging diverse food consumption in the community, especially of fresh chillies and alliums, by fostering product innovation in the processed foods industry Accelerating connectivity infrastructure development Improving planting patterns

Example: Controlling transportation fares Including the planned conversion of several direct subsidies to cash transfers (fertilizer, rice for the poor and 3kg LPG) 3kg

Source: Bank Indonesia

SLIDE 63

62

Improving ving the Effect ectivene iveness ss

f

Moneta tary ry Polic icy Tran ansm smissio ission

Bank Indones esia ia has institu tuted ted a Reformula ulatio tion

f

Monet netar ary Polic licy Operatio tions Framew ework rk which consis ists ts

f

3 pillar lars; (1) implementa ntatio ion

f

BI 7day Revers rse Repo Rate; (2) implement lementatio tion

f

reserv rve requir uirement nt averaging ing; and (3) contin tinue ue to implem lement ent money ey marke ket deepenin ening progr gram. Enhancement

f

monetary policy signal Enhancement

f

banking liquidity management Implem emen enta tatio tion

f

BI 7 Day Revers erse Repo Rate Implem emen enta tatio tion

f

Reserv rve Requir iremen ent (RR) Averag aging ing Reformula rmulatio ion

f

Moneta etary ry Polic licy Operatio iona nal Framew ework rk

Source: Bank Indonesia

Enhancement

f

instruments and transactions Implem emen enta tatio tion

f

Money ey Mark rket et Deepening ning Progr gram am

SLIDE 64

63

Enhan anceme cement nt

f

Monetary tary Oper eratio tions ns Fram amew ework

rk

...posit sitive ve resul ults ts thus far

Can be traded among contributor banks for 10

minutes.

Up to the amount of Rp10 billion.
Up to 1-month tenor.
Can be traded among contributor banks for 20

minutes.

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

CURR RREN ENT JIBOR BOR (as per June 1st, 2016) PREVIOUS IOUS JIBOR BOR

O/N 1W 1W 2W 2W 3W 3W 1M 1M 3M 3M 6M 6M 12M 12M JIBO BOR IBMM Repo po FX Swap MO MO IBMM: Interbank Money Market MO: Monetary Operation

Domes mestic tic Mone ney Marke ket t Yiel ield Curve ve (2nd

nd week

k of July 2017)

Source: Bank Indonesia

Domestic ic mone ney mark rket yield ld curv rve tend nd to conv nver erge Mone netary ary

peration

ion term rm stru ructu ture is being ing refer erred ed by mone ney mark rket rate tes

SLIDE 65

64

Introducing ucing Reser erve ve Requ quir irem ement ent (RR) Averaging aging

The Purpo rpose se

f

RR Averaging

Previo evious usly ly, RR ratio io is set at 6.5% (fixed) ed)

f

the TPF (Thir ird Part rty Fund) and to be maintain tain

n

daily ly basis. From 1 July 2017, the fulfilme ilment nt method

f

RR has been adjus usted ed to daily ily RR

f

5%

f

TPF and averag age RR

f

1.5%

f

TPF within in a fixed ed perio iod

1 2 3

To provid ide flexibilit ibility in liquid uidit ity management ent in

rder

er to increa ease bank efficiency iency To functio tion as an inter eres est rate buffer er in

rder

er to reduc uce inter eres est rate vola latilit tility in the money ey marke ket

$

To provid ide space for liquid idit ity placem ement nt in

rder

er to boost financ ncial ial marke ket deepenin ening

Source: Bank Indonesia

SLIDE 66

65

Finan ancial cial Inter ermedia mediatio tion Improves ves in Ear arly 2017

The growth of banking loans has improved from the previous year and is expected to further expand by 9-12% this year. In the domestic capital markets, capital raising by corporations (particularly right issues and corporate bond issuance) remained strong.

Source: Financial Service Authority (OJK)

The growth th of financ ncin ing dis istrib tributed uted by multif tifin inanc nce compan panie ies in in May 2017 was still ill in an increasin ing trend nd Gross premi mium um reve venu nue in the domes mestic tic insur uranc nce indust ustry is also countin ntinuo uousl usly growing… Capita ital l raisin ing throug ugh rights ts issue ues & & corpo porate te bond nd issua uanc nce in H1

2017 increased from the same

me perio iod last t year The growth th of bankin king loans ns was 8.71% % (yoy) in May 2017

IDR tn IDR tn IDR mn IDR tn 8.71% 0% 5% 10% 15% 20% 25% 1000 2000 3000 4000 5000 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Bank Loans YoY Growth (rhs) 9.24%

5%

5% 15% 25% 35%

50

50 150 250 350 450 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Financing YoY Growth (rhs) 12.1 4.1 67.1 53.8 116.2 84.7 20 40 60 80 100 120 140 2012 2013 2014 2015 2016 Jan-Jun 2017 IPO Equity Rights Issue Corporate Bonds & Sukuk 147 50 100 150 200 250 300 350 400 2012 2013 2014 2015 2016 Jan-May17

SLIDE 67

66

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

Banking sector’s capital adequacy ratio (CAR) was maintained at a high level. As of May 2017 2017, CAR & Tier 1 Capita tal was 22. 22.86 86% % & & 20.08% % respec pectiv tively Risk-based ed capita tal (RBC) C) of the insurance e industr try also rema mains high gh, well above the mi minimu mum m thres esho hold (120%) Gearin ing g ratio of mu multifin inance comp mpanies es was 3.03 time mes (well below the ma maximu mum m requir ireme ement t of 10 time mes), ), provid idin ing g amp mple room m for future e growth th Profita itabil ility ty of the e banking g secto tor is relativ tivel ely stable

Domestic financial institutions exhibit generally robust condition. Capital adequacy is maintained 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.

Source: Financial Service Authority (OJK) 22.86 20.08 0,0 5,0 10,0 15,0 20,0 25,0 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 % CAR Tier-1 Capital 503% 281% 150% 180% 210% 240% 270% 300% 400% 450% 500% 550% 600% 650% 700% May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 RBC - Life Insurance RBC - General Insurance (rhs) 5.36 2.46 1 2 3 4 5 6 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 % Net Interest Margin Return on Assets 3.03 1 2 3 4 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17

SLIDE 68

67

Adequa quate te Li Liquidit uidity, y, Man anag ageable eable Cred edit it Risks ks

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

The ratio of liquid id assets s to deposits sits in the banking g secto tor was well ma maintained ed at a h high gh level vel. As of May 2017 2017, the gross & net NPL PL ratios of the banking g sector were e 3.07% & & 1.33% % respec pectiv tivel ely, ma maintained ed below the thresho eshold NPF ratio in the e mu multifi finance industr try was 3. 3.45 45% % as of May 2017 2017, , ma maintained ed well below the 5% thresho eshold Inves estmen tment t adequacy ratio in the insurance e industr try y is ma maintained ed above 100%

Source: Financial Service Authority (OJK) 88.85 18.58 6 10 14 18 22 26 60 70 80 90 100 110 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 % % Liquid Assets to Non-Core Deposits (lhs) Liquid Assets to Deposit (rhs) 116.80 125.10 90 100 110 120 130 140 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 % Life Insurance General Insurance 1.33 3.07 1 2 3 4 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 % NPL Net NPL Gross 3.45% 0% 1% 2% 3% 4% 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17

SLIDE 69

68

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

Being exposed to market fluctuations, financial institutions demonstrated resiliency 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 increase. Net open n positio ition n in the bankin king secto ctor was kept pt far below low the maxim imum limit it (20%) %) The inve vestme tment nt value lue of insur urers & pens nsio ion n fund nds rema main ined in an increasing ng trend nd Multif tifin inanc nce companies’ exposures to foreign debt have generally been mitig igate ted throug ugh hedgin ing measur ures The movement of mutual funds’ net asset value (NAV) is in line with th that t of marke ket t index, but with th much ch lowe wer volatil tility ity

Source: Financial Service Authority (OJK) 2.12 1 2 3 4 5 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 % 4.600 4.800 5.000 5.200 5.400 5.600 5.800 6.000 260 280 300 320 340 360 380 400 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 IDR tn NAV of Mutual Funds (lhs) IDX Stock Composite Index (rhs) 868 244 100 150 200 250 300 550 600 650 700 750 800 850 900 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 IDR tn IDR tn Investment of Insurers Investment of Pension Funds (rhs) 162 85 60 80 100 120 140 160 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 IDR tn Domestic Debt Foreign Debt

SLIDE 70

69

Cap apital ital Mar arket et Demo monstr nstrate te Streng ength thening ening Trend nd

In the middle of unfavorable global environment, the domestic capital markets continues its strengthening trend. The volatility of the markets is relatively low.

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

Both th the stock ck & bond nd marke kets ts are in a streng ngth theni ning trend nd in July ly 2017 2017, with th a low w leve evel l of volatil tility ity Despite pite FFR R hike ke, the equi uity ty and gove vernm nment nt debt bt marke kets ts still ill attract ct nonresident nt inflows lows The IDX Stock ck Composite ite Index x continu tinues to streng ngth then n and is amo mong ng the best-pe performi ming ng indic ices in the region n (as of July ly 14th

th, 2017, ytd)

In line ne with th the stabil biliz izin ing IDR and improvin ving dome mestic tic prospe pects cts, the gove vernm nment nt bond nd yiel ields continu tinued to declin cline

34,60 8,65

12,18

9,49 5,24 5,26 6,90 3,83 15,28 14,12 19,95 10,10 19,16 2,26 11,24

20
10

10 20 30 40 TURK BRAZ RUS AS EURO JPN MAL CHIN PHIL SIN HKN INDO KOREA THAI WORLD

%

4.200 4.700 5.200 5.700 6.200 180 190 200 210 220 230 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Comp Bond Index Comp Stock Index (rhs)

9
5
40
20

20 40 60 80 100 120 2015 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 IDR tn Gov't Debt Securities Equity 6 7 8 9 10 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Yield (%) 5-yr Yield 10-yr Yield 20-yr Yield

SLIDE 71

70

Mai aintain taining ing Finan ancial cial Sys yste tem Stability ability

…maintaining resili ilienc nce in confr front nting ing possible le shocks and enhancin ancing financi ncial al system stabilit ity

Stren engt gthen enin ing finan ancial ial sector ector superv ervis ision ion

Assessment
n

the soundness

f

financial institutions

Liquidity

coverage ratio for banks

Regulations
n

risk management for financial institutions

Minimum

capital requirement for banks

Enhancement
f

GCG for financial institutions and publicly-listed companies

Stren engt gthen enin ing & stru ructu turin ring financ ancial ial sector tor base sed

n

inte tern rnatio tional al sta tand ndar ards ds

Risk-based

supervision for all financial sectors

Regulations
n

domestic systemically-important banks and capital surcharge

Enhancement
f

crisis management protocol and interagency coordination Financ ncia ial cong nglo lomerate tes account

unt

for 66.96% %

f

the total assets

f

financial sector…

Improv

vin

ing the inte tegr grate ted regu gula latio tion & supervision framework…

Such

improvement has become even more important due to the dominance

f

financial conglomerates in the domestic financial sector.

OJK

has issued regulations

n

GCG, risk management, and minimum capital requirements for financial

conglomerates. These

will be followed by regulations

n

liquidity management, capital management, and intragroup transaction exposures.

Source: Financial Service Authority (OJK), March 2017

Financial Conglomerates 66,96% Others 33,04%

SLIDE 72

71

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

... ...strateg tegy to tackle challenges in deepening Indonesia’s financial markets

Source: Bank Indonesia

Financia ial l Marke rket t Deepen epenin ing g Prog

gram

First t Priori

rity

ty: Conti tinuo nuous us Basis

Marke rket t Devel velopm

pmen

ent Coo

ordin

dinatio ion

Monitoring, match making, and solution:

Repo
Hedging

Money y Market Encourage well-functioning money market (deep and efficient, risk mitigation, and market integrity), through:

Bank

nk Indonesia a Regul ulati ation n (PBI BI) ) on Negotiable able Certi tifi ficate ate of Deposit t (NCD) Enriching money market instruments, encourage banks to raise long term funding, and acts as an alternative investment for investors

Bank

nk Indonesia a Regul ulati ation n (PBI BI) ) on Commercial al Paper Alternative sources of financing for non-bank corporations, as well as an investment outlet for investors FX Market

Develo

lopment t roadmap dmap of Indo done nesia a CCP in OTC Derivati vative ves To support FX market development and reduce market segmentation.

Establ

ablish Local al Currenc ncy Settle lement nt Frame mework Reducing dependency on USD payment for international trade.

Encoura

urage produc duct t developme ment nt to increas ase hedging ng Supply ly in domesti tic market To provide hedging instrument alternative for corporations to manage their risk exposure

Corporate

Bonds

Government

Bonds

Medium term

notes

Other

instruments

Infrastructure

(ETP, etc)

Supp ppor

rtin

ting g Regu gula lation tions

Money y Broker Certi tifi ficati ation n of Deale aler and d Code de of Conduc nduct Streng ngth thening ng JISDOR

Increase the governance of money broker
Revitalize role of money broker in financial

market

Obligation on certification for dealers
Obligation to honor code of conduct
Dealers’ training for certification
Strengthening the credibility of JISDOR
Extend the usage of JISDOR

Inter er-agenc gency Coo

oper

peratio tion On April 2016, the Minister of Finance, the Governor of Bank Indonesia, and the Chairman of the Board of Commissioners

f the Financial Services Authority have launched a Coordination Forum for the Development Financing through Financial

Market (FK-PPPK). The three authorities have agreed to formulate “The National Strategy to Develop Indonesian Financial Market Towards 2025” which is expected to be concluded by the end of 2017/early 2018.

SLIDE 73

72

Progres ess

n

G Gene eneral al Mar arket et Repo Agreement eement (GMRA) A)

4 Banks nks 74 74 Banks ks 4 Banks ks 47 Banks ks IDR 0.0 IDR 1.0 – 4.6 tn tn Signin ing Transaction saction Daily Volume January ary 2016 March ch 2017

Source: Bank Indonesia

SLIDE 74

73

Contin tinuou

us

Program am

n

Cap apital ital Mar arket et Dee eepen pening ing

…continuously strengthened, including through capital market deepening initiative ives

The utiliza ilizatio tion of capit pital l marke rkets ts by domes estic tic cor

rpo

pora ratio tions (inclu ludin ding g financia ial l instit titution tions) demons

nstr

trates es an incre reasing trend

Stren engt gthen enin ing mark rket infras astructu ructure

Expansion
f

Single Investor Identification (SID) coverage

Development
f

electronic trading platform (ETP) in the debt market

Development
f

integrated investment management system

Enhancement
f

the clearing and settlement process

Enhancement
f

capital market data warehouse

Enhan hancin ing the supply ly-side ide

Simplification
f

public-offering requirements & procedures

Development
f

financial market products (mutual funds, private equity funds, REITs, ABS)

Development
f

municipal bonds

Cross-border
ffering

(harmonizing regulations with ASEAN Disclosure Standards established by ACMF)

Enhan hancin ing the deman and-side ide

Expansion
f

the domestic investor base (conducting investor education programs)

Expansion
f

mutual fund distribution channels, including the marketing methods

f

securities companies

Stren engt gthen enin ing govern rnance nce

Development
f

market players’ capacity

Enhancement
f

GCG for publicly-listed companies

Development
f

repo regulations and infrastructure

Source: Financial Service Authority (OJK), July 2017

12.1 4.1 67.1 53.8 116.2 84.7 20 40 60 80 100 120 140 2012 2013 2014 2015 2016 Jan-Jun 2017 IDR tn IPO Equity Rights Issue Corporate Bonds & Sukuk

SLIDE 75

74

Mac acropru rudentia dential Policy cy Mix to Support rt Growth th

Effective from August 29th, 2016, Bank Indonesia relaxed the Loan to Value Ratio (L (LTV TV) and Financing to Value Ratio (FT (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. The relaxation is only applicable to banks with nett tt NPL for total loan below 5% and gr gros

ss

NPL for property loan/financing below 5%. Hou

using

g Loans and Financin ing g Based ed on Mura rabaha hah h and d Istis ishn hna Cont

ntra

racts ts

Proper erty ty type (m2) Lendin ing/F g/Financin ing Facil ility ity 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%

Hou

using

g Financin ing g Based ed on MMQ Q and d IMBT T Contr tracts ts

Proper erty ty type e (m2) Lendin ing/F g/Financin ing Facil ility ity 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 rationale is to stimulate domestic demand in order to drive domestic economic growth momentum while maintaining compliance to prudential principles.

Source: Bank Indonesia

1 2

Effective from August 24th, 2016, Bank Indonesia raised the lower limit of the primary reserve requirement’s loan financing ratio (GWM – LFR) from 78% to 80% with the upper limit unchanged at 92%, in order to support credit growth.

SLIDE 76

75

Finan ancial cial Secto ctor: r: Foste teri ring ng Dome mestic stic Growth th

…boosting domestic econo nomic ic activit itie ies and supporting ing the national nal economic mic develo lopmen ment

Fundin ding

f

infras astr tructu ture & priorit

rity

econo nomic ic sec ecto tors rs

Enhancement
f

NBFI

wnership

in government bonds

Private

equity funds for infrastructure financing

Asset-backed

securities specifically designed for secondary mortgage financing

Insurance

for farmers and fishermen

Capacit pacity building ilding

f

finan ancia ial instit titut ution ions

Strengthening

the capital

f

financial institutions to increase their financing capacity

Expansion
f

the business lines

f

multifinance companies

Capital

requirements for rural banks based

n

their

perational

zones

Dev evelop lopmen ent

f

finan ancial ial products ducts & serv rvic ices es

Expansion
f

the distribution channels for financial products & services

Development
f

sustainable finance regulations

Utilization
f

KYC information from third parties

Facilitating

access to capital market as a source

f

funding (e.g. simplification

f

public

ffering

procedures)

Capital

market deepening initiatives

Dev evelop lopmen ent

f

Islam lamic ic finan ancial ial secto tor

Strengthening

the capital

f

Islamic financial institutions

Spin-off
f

the Islamic business units

f

commercial banks

Development
f

Islamic financial product regulations (sukuk, mutual funds, asset-backed securities)

Continuous

education & socialization

n

Islamic financial products & services

Source: Financial Service Authority (OJK)

SLIDE 77

76

BI’s Roles in Supporting Distribution

f

Non-Cash Cash Socia ial As Assis istan tance ce (NC NCSA) A)

BI supports ports govern rnment nt’s progr gram am

f shif

iftin ting social ial assist istan ance to tar arget eted ed non cash social ial assis ista tance nce disb sburs rsem emen ent throug

ugh

the electr tronic nic payme ment nt syst stem

em. In

the futur ure, electr ectron

nic

ic mechan hanism ism disb sburs rsem ement nt will be also applied ied to LPG subsidy. idy. NCSA SA Prog

grams

Family ly Hope Progr gram am (Progr gram am Keluar arga ga Harapan an

PKH

KH) Smart rt Indones esia ia Progr gram am (Progr gram am Indones nesia ia Pintar tar-PIP IP) Non Cash Food Assistanc nce

2016-2020

Pilot

t

Project

ject

Gradu adual Implem lemen entatio tion

Inter erconnecte cted & inter eroper erable le payment system em

LPG Subsid idy

Full Implem lemen entatio tion

XXYYZZ 12345678

9876543210

SLIDE 78

77

Progr

gress

ss

f

NCSA Progr

grams

ams

Family ily Hope Prog

gram

am (Prog

gram

Keluar luarga Harap apan an

PKH)

H) Pros

sper

perou

us

Rice (Ber eras as Sejahte jahtera / Ras astr tra)

The Family Hope Program (PKH) is a program that

provides cash to very poor households. Rp 2 million /year will be granted for each household (hh). PKH will be granted every February, May, August, and November

In 2017, PKH is targeted for 6 million hh (50% or

3 million distributed on non-cash basis and the remaining in cash basis. However, in the 2nd semester of 2017 all PKH will be distributed on non-cash basis.

As of June 2017, Non-Cash PKH was granted to

2.65 million hh (88,33% of 3 million hh).

Rastra is a poverty alleviation and social

protection program that is managed by the central government. It provides subsidized rice to low-income households. Rp 110 thousand/month will be granted for each hh as Non-Cash Rastra.

For 2017, Non-Cash Rastra was targeted for 1.6

million hh (9% of total target 15.5 million hh) in 45 cities and 6 regencies. Non-cash Rastra can be used in certain stores: Toko Sembako, E-warong, and Rumah Pangan Kita.

As of February 2017, Non-Cash Rastra was

granted to 881 thousand hh.

Non-Cash Rastra will be expanded

to 10 million families in 200 regencies in 2018.

Cash 50% Non- Cash 50%

January 2017

Non- Cash 100%

2nd Semester of 2017

PKH Target et

In December 2016, Non-Cash PKH was granted to

23% of total target of household.

SLIDE 79

78

Strong nger er Fundam amen entals tals Fac acing ng the he Headw adwind inds

197

197

35

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 Agu-15 17,4 50,2 1998 2008 Sep-15

Inflatio lation n Rate te (%) %) IDR Move veme ment nt (%) Non-Pe Performi ming ng Loan/NPL PL (% (%) Governm nment nt Debt bt/G /GDP Foreig ign n Reserve ves (USD bn)

100.0% 1998 98 27.4% 2008 08 28.1% May 20171 8.6x 1998 98 3.1x 2008 08 2.7x Q1 Q1-201 2017 116.8% 1998 98 33.2% 2008 08 34.1% Q1 Q1-201 2017

More Liqui uid Marke ket (%) %) Exte xterna nal l Debt t (Pub ubli lic c & Priva vate te) to FX Reserve ve Ratio io Exte xterna nal l Debt/GD t/GDP

Inflation controll lled ed within the target et range IDR still l apprecia ciated ed in H1 - 2017 17 NPL lev evel el is belo low the maximum thres eshold d of 5% Consisten ently ly well-maintained ned below 30% Significa cantly ly higher er than 1998 98 & 2008, 08, ample to cover er 8. 8.6 months of import and external al debt repay payment Significa cantly ly lower er than 1998 98 crisi sis Sligh ghtly ly high gher er than 2008, 08, but significa cantly ly lower er than 1998 98

June 17

12 123.09 09

June 17

4.37 (yoy)

May 17

3. 3.07 07

62 62 10,5 5,7 1998 2008 Jul-15

Over ernigh ght interbank nk money market rate is rela latively ly lower er

June 17

4.39 1.1 (ytd)

June 17

1 2017 year end position of debt/GDP ratio is projected based on

GDP assumptions in APBN (Budget 2017)

SLIDE 80

79

Outlo look

k
f

Dome mesti stic Economy Remain ains Robust st

...d ...domes mestic ic econo nomic ic growt wth is predict icted to be highe her in 2017

2017 Econom

mic

ic Outlo tlook

 Economy to grow in the range of 5.0-5.4% (yoy) in 2017, supported by stronger export performance and investment.  Inflation is predicted to be within the 2017 inflation target of 4±1%, with the current account deficit projected below 2.5% of GDP  Credit is expected to grow 10-12% in line with expectations of expected economic gains and ongoing impact of previous monetary and

macroprudential policy easing.

2016 16 (Rea ealiz izat ation) ion)

Econom nomic ic Growth

5.02 02%

Infl flation ion

3.02 02%

CAD AD (% (% of

f GDP)

1.8% 8%

Credit it Growth

7.9% 9% 2017 17 5.0-5.4 5.4% 4.0±1% <2.5% .5% 10 10-12%

Globa bal Domestic tic Opport rtun unit ities ies

Improving

global economic growth

Acceleration
f

world trade volume

Continous economic

recovery process Challen lenges

Further

FFR hikes

Fed’s

plan to shed its large balance sheet

Uncertainties in

the US fiscal policy

Ongoing

consolidation in the corporate and banking sectors

2017 Econom

mic

ic Opport

rtun

unitie ities & & Challe halleng nges

Source : Bank Indonesia

SLIDE 81

Prog

gress

ssiv ive In Infr fras astruc ructu ture De Develop

pment

ment: Strong Co Comm mmitme ment

n

Ac Acce celeratio tion

f

In Infr frastruc ructur ture Provisio ion

Sec ection tion 6

SLIDE 82

81

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

Fiscal al Reforms rms Instit itut utio ional nal Reforms rms Regula ulatory ry Reforms rms

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

Viabilit ility Gap Fundin ing (VGF) KPPIP IP Direc ect Lending ing Issuance

f

MoF Reg. No. 223/2012. To increase project financial feasibility by contributing up to 49%

f

the construction cost Availabilit lability Paymen ent Land Revolv lving ing Fund Risk-sharing ring Guideline delines Issuance

f

regulatory framework for annuity payment scheme by the Government (MoF Reg. No. 190/2015 for Central Gov’r and MoHA Reg. No. 96/2016 for Regional Gov’t.) during the concession period after the project

perational

by private sector in

rder

to make the project bankable Issuance

f

MoF Reg. No. 220/2010. A revolving-fund sourced from State Budget, to accelerate land acquisition IIGF has issues risk allocation and mitigation guidelines for PPP project KPPIP is actively involved in accelerating delivery

f

priority infrastructure projects

PT. Sarana

na Mult lti Infras astr trukt uktur ur Merging between

PT. SMI

and Gov’t Investment Center (PIP) to become an infrastructure funding company Indo done nesia ia Infrastruc tructur ture Guarante tee Fund (IIGF) IIGF has the potential to provide project guarantee for non-PPP projects PPP Unit Provide facilities to help GCA

n

preparing PPP project (PDF/TA) BLU LMAN The State Asset Management Agency is mandated to provide land fund for National Strategic Projects to ensure timely land acquisition process Issuance

f

Presidential

Reg. No.

82/2015. Allow guarantee for direct lending to SOE to accelerate financial close process for infrastructure projects Land Acquisit itio ion Issuance

f

Presidential

Reg. No.

148/2015. To stipulate land acquisition acceleration based

n

Law

No. 2/2012

Econo nomy Packag kages es Conduct deregulation for issues hindering infrastructure delivery and develop a task force under CMEA to ensure the effectiveness

f

economic packages implementation

SLIDE 83

82

Reforms Along the Project’s Life Cycle

...to enco cour urag age and accele lerate te infras astruc ructur ure project ct using ng PPP scheme me Governm rnment nt

f

Indone nesia sia

Project

ject

Dev evelop lopmen ent Facility lity (PDF) PDF) Viab abil ilit ity Fundin ding Gap (VGF) F) Guar uarant ntee Fund Tax Facilitie lities Availab ailabil ilit ity Payme ment Land nd Acquis uisition ition 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 Gov’t. 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 central or regional government after the completion of an asset. MoF Regulation, and MoHA Regulation on Availability Payment has been ratified. Managing entity: Ministry of Finance & Ministry of Home Affairs 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 Gov’t. commitment: US$ 12 mn (2016) Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

SLIDE 84

83

Effort rts to Accel eler erate te Infras astru tructu cture Provisio sion

Regu gula latio ion improvem ement ent to to accel elerate land procu curemen ment proce cess ss

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

f 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 Procurem rement t Proces ess s as Stipula lated ted in Law No. 2 of 2012

Law No

No. 2/2012 was

was succes essfull lly applied plied in in: 1. 1. Pa Pale lembang – In Indr dralaya sect ection ion of

f the

the Tr Trans Sumater era Toll ll Roa

ad Project
ject

2. 2. Java va Nor

rth

th Line Dou

uble

le Track Rail il Project

ject

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

SLIDE 85

84

Effort rts to Accel eler erate te Infras astru tructu cture Provisio sion

…the establishment

f

Indone nesia ia Asset Manag agemen ment Agency ncy (LMAN) AN)

Source: Ministry of Finance

On On Dec ecem ember er 12 12th,

th, 2016, Ind

Indone nesia ia Asset Manag nagem ement Agency ency (Le Lembag baga Mana anaje jemen Aset Neg egar ara/ a/LM LMAN) has bee been launc launched ed to to optimiz timize th the use of

f sta

tate asset

ets. LM

LMAN should uld plan lan for funding funding and nd utiliza utilizatio tion of

f la

land nd bank banks as as we well ll as as pay compen ensatio tion for land acquis isitio ition to to support rt the government’s infras astr truc uctur ure develo lopment ent progr gram am

Mandate

1. Government Regulation No.27/2014

n

the Management

f

State/Region Property 2. Finance Minister Regulation No.219/PMK/2015

n

the Governance and Organization

f

State Asset Management 3. Finance Minister Regulation No.1319/KMK.05/2015

n

the Appointment

f

Indonesia Asset Management Agency as Government Agency to Implement Financial Management

f

Public Service Agency

Legal al Basis

1. Property

Management

2. Land

Funding for National Strategic Project

1. Asset
f

ex-Pertamina: LNG Badak Bontang, LNG Arun, and Tarogong Land

2. Asset
f

ex-Indonesian Bank Restructuring Agency (BPPN) Other portfolio: Asset

f

ex-Asset Management Company (PPA) and ex- Contractor Cooperation Contract (KKKS)

Portfolio io Assets

SLIDE 86

85

Und nder President sidentia ial Reg. . No.3/2 3/2016 j.o j.o. . the Presid sidential ential Reg. . No.

.58

58/20 /2017, 245 45 proj

jects

cts and nd 2 prog

gram

ams are listed ted as PSN

PSN includ udes es 15 s sectors

rs

at projec ect level el and 2 sectors

rs

at program am level el

7

IRIGASI

Proje ject

Electricity 1 PROGRAM Small- Medium Airplane 1 PROGRAM

74 74 12 12 6 4 7 54 54 9 3 3 30 30 8 10 10 23 23

61 24 27 13 15

Projects Proyek

93 93 10 10 1 12 12 2

Projects Programs

US$49.0 Bn US$43.4 Bn US$13.0 Bn US$34.2 Bn US$100 Bn US$0.8 Bn US$81.9 Bn

Projects Projects Projects Project s Projects Projects Projects Projects Projects Projects Projects Projects Projects ROAD RAILWAY SEAPORT AIRPORT INDUSTRI-AL ZONE HOUSING HOUSING WATER & SANITA- TION IRRIGA- TION DAM TECH- NOLOGY OIL REFINERY SMELTER National

Projects Projects Projects Projects Projects Projects

1

Project FISHERY

Exchange rate: US$ 1 = IDR 13,000

1

Project SEA DIKE

Progr gram am

SLIDE 87

86

PSN may ay receive ive pri rivil vileg eges es as stipula pulated ted in the Presid sident entia ial Reg. . No.

. 3/20

2016 j.o j.o. . the Presid sidential ential Reg. . No.

. 58/2

/2017

01 01 02 03

Determination of National Strategic Projects

04 05 06 07 08 09 10 10 11 12

Permit & Non- permit Completion Spatial Planning Land clearing acceleration Local Content Utilization Government Guarantee Provision Projects Monitoring via KPPIP IT System SOE’s Assignment Problems and Hindrance Completion Accelerate Goods and Service Procurement Settlement of Legal Issues Acceleration of Non- State Budget Projects

Additional Facilities Existing Facilities

SLIDE 88

87

Progres ess

n

245 45 Natio ional al Strate tegic gic Projects ts

SECTORS RS LOCATION IONS

1. Sumater

tera 61 61

2. Java

93 93

3. Kalimantan

ntan 24 24

4. Bali

& Nusa Tengga gara 15 15

4. Sulawe

wesi 27 27

6. Maluku

uku & Papua ua 13 13

7. National

nal 12 12 2% 53% 5% 40% 5 projects are completed 130 projects are under construction1 12 projects are during transaction 100 projects are in preparation

Roa

ad

Com Communi

cation

tion Natio tional l Bord rder ers Econo

nomic

ic Zones es Irr rriga igatio ion

74 74 4 3 30 30 7

Hou

usin

g Ener ergy gy

Fisherie ies/ Marit itim ime

Water er Supp pply ly Airpo rport Sea dike

3 12 12 1 9 8 1

Seapor por t Railw ilway Dams Smel elte te r Power er Aircra rcraft t indu dustr tr y

10 10 23 23 54 54 6 1 1 Pro rogres gress of Natio ional al Strateg tegic ic Pro roje jects (as of June 201 2017) The Estimate ated Inves estment ent Cost of National nal Strateg tegic ic Pro roje jects

Priv ivate te (IDR2,414 tn tn) SOE (IDR1 R1,258 tn tn) State Budget et (IDR5 R525 tn tn)

IDR 4,197 97 tn tn

Notes:

The investment cost was

calculated for 245 NSP.

Excluding cost of 16 NSP with

unknown investment cost. Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

1Including one electricity program under construction

category (39% of electricity program has reached construction per April 2017)

SLIDE 89

88

Progres ess

n

3 30 Pri riori rity ty Projects cts

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 System 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 South Sumatera 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 Transactio tion Prepa paratio tion Reassess essed ed

8

5

9

18 18 17 17 13 13 23 23

25 25 26 26

27 27 28 28

30 30

16 16 10 10

1

3

2 4

6

7 4 4 4 4 4

4 4 15 15

14 14 20 20

21 21 22 22

29 29 29 29 29 29 29 29 29 29 29 29 29 29 29 29 29 29 29 29

11 11 12 12 19 19

24 24

Constructio tion

From the Nationa ional Strateg egic ic Proje jects, ts, the Gov

ver

ernm nmen ent has selecte lected a list

f

30 Priority iority Proje ject to be the focus us

f
f

infrastr tructu ture deliv livery ry in the begin ginning ing

f

2016. 6.

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

SLIDE 90

89

Progres ess

n

3 30 Pri riori rity ty Projects cts

Recen ent t Miles esto tones es Prog

gres

ess of 30 Prio iori rity Project

jects (as of July

ly 2017) Fundin ding g Schem eme e of 30 Prio iority ity Project

jects

13 projects are in construction 3 projects are in transaction 9 projects are in preparation 5 projects are reassessed

1

Priv ivate te (IDR7 R770 tn tn) SOE (IDR3 R325 tn tn) State Budget et (IDR2 R255 tn tn)

Consultant team

f

OBC PHI Bitung has been established, PT Mott MacDonald Indonesia, PT Deloitte Konsultan Indonesia, dan PT Hanafiah Ponggawa & Partners KA-ANDAL assessment process is completed after fulfilling administrative pre-requirements including letter from Spatial Planning Director General, Seaport Transport Director General and project’s inclusion in National Port Master Plan. PPP has been agreed as the financing scheme by the main stakeholders Governor regulation

No. 53/2017

regarding the assignment to

PT. MRT

Jakarta was published.

15 projects reassessed include HVDC; Mine Mouth South Sumatera 8,9,10 Plant;

Karangkates IV & V, Kesamben and Lodoyo Plants.

Bitu tung ng Inte terna nationa ional Port rt Hub Cilac lacap ap Refine inery ry Rev evitaliza italizatio tion Wes est Semar aran ang Wate ter Supply ly Jak akart arta MRT (Sou

uth

th-Nort North Line ne)

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

10% 43% 30% 17%

SLIDE 91

90

Energy gy Secto ctor: r: the he Progres ess

f

35.000 000 MW Program am

No No Phase MW MW % 1 Operating 758 2 2 Construction 14,593 41 3 Signed Power-purchase Agreement 8,150 23 4 Procurement 5,355 15 5 Planning 6,970 19 17 Dec ‘14

Cabinet t Meeting ing “There’s electricity crisis in Indonesia, requires construction

f large capacity plant "

Jan ‘15

Aver erage ge economi mic growth th of 6.7% % requir ires es 7,000 MW / year or 35,000 MW / 5 years (Kepmen ESDM No. 0074/2015 on RUPTL 2015-2024)

Jan ‘15

Debottl tlen enec eckin ing g through gh regulatio tion:

1. Regulation No.1/2015 concerning electricity

supply cooperation & 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 & Appointment.

16 Mar ‘15 4 May ‘15 June‘17

Cabinet t Meeting ing Progress of 35,000 MW Launchi hing g 35.000 MW by the President in Goa Beach Sanden DIY The progres ess so far:

Source: KPPIP

Sulawesi si 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 Kalim imanta tan 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 Sumate tera 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 Prog

gram Distrib

tributio tion

Source: PLN

SLIDE 92

91

Accel eler eratio tion

f

35.00 000 MW Program am

Gov

ver

ernm nmen ent PT PLN

EPC C Power erpla plant t and d Transmis issio ion PLN Subsidia idiary (Joint

int Ventu

ture) e) Indepen ependen ent Power er Prod

ducer

er

Stren ength gthen Equity ty 2B 2B 1

Gov

ver

ernmen ent t Supp ppor

rt

t (outs tside ide Guara rantee) tee)

Provision of Primary Energy
Provision of Renewable Energy
Simplicity of Permits and non-Licensing
Spatial Planning
Land acquisition
Resolution on Legal Matters

Local l Con

nten

tent t Obligation on the usage of local content through an open book system, price guideline, reverse engineering or other methods to maximise the local content.

2A 2A

Assign ignmen ent SJKU* U* Minis istry try of Finance

Strength then PLN‘s Balanc nce Sheet

*)SJKU=Surat Jaminan Kelayakan Usaha/ Business Viability Guarantee Letter The Gov

ver

ernmen ent t has issued ed Pres esiden identia tial l Regu gula latio ion No.

. 4/2016 on Electr

tric icity ity Infrastru tructu ture e Accel eler eratio tion to accel eler erate te power er proj roject ects Prov

vis

isio ion of Electri tricity ity Refin inancin ing Hedgin ging Financia ial l Asset et Optim imiz izatio ion Direct Lending Direct Lending Bond issuance by PT PLN Company Tax Holiday PT PLN’s divident allocation Loan from independent lenders Asset Revaluation Other types

f funding

Equity Injection by the Government

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

SLIDE 93

92

Sign gnificant ificant Progres ess

n

I Infras astr tructu ucture Projects cts

Databas ase Project information such as map, track, existing study and latest project status. An integr grated ted IT system with monitoring capacity for stakeholders, so that they can have real time data ta. Platform rm data

utlook

that is efficient and functional using a user-friendly framework. Record decisions related to projects and synchronize ize the implementation schedule that can be utilized by stakeholders.

KPPIP developed an integrated IT System for monitoring

f

national strategic and priority projects, providing database on projects’ latest status which can be effectively utilized for monitoring and decision-making purposes. Impr prov

vin

ing g Monitor itorin ing g System tem on Infrastru tructu ture e Project

jects1

Roads

Trans-Sumatr tra Toll Road Merah h Putih ih Bridge idge, Ambon

Dams

Jatig igede de Dam (Opera ratio tional)

Transp nsportatio tion

Jakarta ta MRT Project2

Drinki nking ng Wate ter Proce cessin ing

Umbulan Drinkin king Water Provi visio sion System, East t Java

1 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 2 Not funded from National Budget

Terminal 3 Ultima imate te Soeka karno-Hatta tta2 New Tanjung Priok k Port t Project2 Nop Go Golia iat t Dekai, i, Papua

SLIDE 94

93

Inves estm tment ent in Iron Ore, e, Alumin mina an and Bau auxite ite Smel elter er

Exis istin ting g Iron

n Ore

e Refin iner ery Facility ility

No. Compan any Produc uct Ore Input ut Capac acit ity (ton) Con

ncentrate

e Input ut Capac acit ity (ton) Investment (USD mn) Progress Completio ion Date 1 PT DPS Sponge iron 1.100.000 220.000 40 100% 2012 2 PT MJIS Sponge iron, slab, billet 3.300.000 660.000 150 100% 2013 3 PT SBP Cold Bricket Iron 240.000 65.800 120 100% 2017 No. Compan any Produc uct Ore Input ut Capac acit ity (ton) Con

ncentrate

e Input ut Capac acit ity (ton) Investment (USD mn) Progress Completio ion Date 1 PT SILO Sponge iron 8.000.000 6.300.000 170 61% 2021 2 PT RS Sponge iron 3.200.000 264.000 6,9 0% 2020

Completed but not operating

No. Compan any Produc duct Input ut Capac acit ity y (ton) n) Investment (US$ mn) Progress Completio ion n Date 1 PT Indonesia Chemical Alumina Chemical Grade Alumina 851.725 0,49 100% 2013 2 PT Well Harvest Winning Smelter Grade Alumina 3.000.000 (Phasa 1) 6.000.000 (Phase 2) 1,1 Phase 1 : 100% Phase 2 : 0% 2016 (Phase 1) 2017 (Phase 2)

Upcom

min

ing g Iro ron Ore e Refin iner ery Facility ility Existin isting g Alumin mina and d Bau auxit xite e Refin inery ery Facilit ility Completed and operating

Source: Ministry of Energy and Mineral Resources, July 2017

SLIDE 95

94

Inves estm tment ent in Nickel ckel Smel elter er

Source: Ministry of Energy and Mineral Resources, July 2017

SLIDE 96

95

Finan ancing cing Nee eeds an and Sche hemes mes

95

Source: Ministry of Finance

145. 5.9

SOE SOE

Private vate 234. 4.8 88.8 .8 Financ ancing ng Needs ds Gov’t t Budg dget Financ ancing ng Gap Gap 399. 9.6 6 164.8 4.8 *(USD D bn bn) ) 41,3 ,3% 58,7% ,7% 22,2 ,2% 36,5 ,5% 100% 0%

Government Budget is used for basic infrastructure projects,

mainly for projects that are economically feasible but financially are 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 may provide financial support to make certain projects

financially feasible.

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

Infrastru tructu ture Financin ing g Need d 2015-2019 2019 Gen ener eral l criter iteria ia for

r financin

ing g schem emes es Financia ial l Facilities ilities Prov

vided

ided to SOEs Infrastr tructu ture e Proj

ject

ects PPP schem eme e and d facilities ilities pro rovided vided to PPP Pro roject ects

SLIDE 97

96

Man anag agem ement ent

f

C Conting tingent ent Li Liab abilities ilities

Credit edit Guarantee tee PPP PPP Guarantee tee Busin ines ess Viability ility Guarantee tee  Power er (Elect ectri ricity) ity) – Full credit guarantee for PLN’s default on its payment obligation (FTP 1 10,000 MW, 35GW)  Water er – 70% guarantee of PDAM’s principal payment obligation  Infrastru tructu ture - Full credit guarantee on SOE’s default (for lending from international financial institution) & guarantee for PT SMI (local infrastructure financing)  Toll ll roa

ad – Full credit guarantee on Hutama

Karya’s payment obligation (Sumatra Toll Road Development)  Power er (Electricity) – Guarantee on the viability of PLN to fulfill Purchase Contract Electricity & guarantee against political risk  Infrastru tructu ture – Guarantee on the obligation

f Government related entities in accordance

to the Agreement

No No. Central al Government Guar arantee for Infrastruct uctur ure Programs Guar aran antee Docum uments Commit itted Guar aran antee Amoun unt (USD bn bn)1 Exposur ure/ Outstanding (USD bn bn)1 1 Coal Power Plant 10,000MW Fast Track Program (FTP 1) 36 6,98 3,47 2 Clean Water Supply Program 10 0,02 0,01 3 Direct Lending from International Financial Institution to SOEs 2 1,10 0,23 4 Sumatra Toll Road Development 3 0,20 0,07 5 Renewable energy, Coals & Gas Power Plant 10,000 MW (FTP 2) 12 11,91 1,47 6 Public-Private Partnerships (PPP) 5 5,81 0,83 Total al 68 68 26,03 03 6,08 As % of GDP 2.8% 0.7%

For the period 2017 – 2020, the e Maximu mum m Guarantee ee Limi mit t is set at 6% of GDP GDP In compliance with the guarantee limit, with projected 2020 GDP of IDR 18,000tn (eq. USD 1,349bn), the capacity for guarantee issuance during 2017-2020 is IDR 1,083tn (eq. USD 81bn) – cumulative

1. USD/IDR: 13,360 as of 14 Mar 2017

Gov

ver

ernmen ent t Guarantee tee Prog

gram and Por
rtfo

tfolio lios 2008 - Pres esen ent Guarantee tee Prog

gram Based

ed on Guara rantee tee Cla lassif ific icatio tion

SLIDE 98

97

Gover ernment ment Finan ancia cial Fac acilities ilities for PPP Proje jects cts

Financ ncial ial Facilit ilities ies to Attrac act More Priv ivate te Part rtic icip ipatio tion

Those financial facilities were instrumental in supporting the execution of PPP projects, indicated by the signing of financial close

f the following PPP projects:

Viabilit ility Gap Fund (VGF) Proje ject Develo lopment ent Facilit ility (PDF) Governm ernmen ent Guarante ntees es (dir irec ectly ly by MoF or through gh IIGF) Financ ncing ing from PT

PT. SMI

and

PT. IIF

Availabilit lability Paymen ent Schemes es More Fundin ing Schemes es are

n

the Pipelines lines

Project Financing funded by the priv ivate te secto tor through the granting of concessions for an

perating asset owned by the

Government/SOE (based on the policy of the Government) to the private sector to be

perated & managed.

Project Financing funded by any source of funds other than Government’s budget, e.g. long term management funds (insurance, repatriated funds from tax amnesty, pension funds, etc.), private equity investors and infrastructure funds. Supported & facilitated by National Development Planning Ministry/Bappenas.

Asset is owned by public sector
Operating asset, not greenfield project
Records positive cash flow for the last

several years

Predicted revenue
Asset is owned by private sector
Greenfield / brownfield / operating projects

Sche heme me Character teristic istics Sche heme me Character teristic istics

LCS (Limited ited Concessio ion Scheme) e) PINA (Non-Gov Governm ernment nt Budget et Infras astr truc uctur ure Financ ncing) ing)

SLIDE 99

98

Progress ess

f

P PPP Infrast astru ructur cture Proje jects ts

No No Projec ect Name me Projec ect Cost (IDR R tn tn) Financia ial Facil ilities ities Status 1 Central Java Power Plant 40 Guarantee (MoF & IIGF) FC on June 6th, 2016; Construction 30%; COD Target: May 2020 2 Palapa Ring – West Package 1.28 PDF, IIGF Guarantee & AP FC on August 11th, 2016; COD target: February 2018 3 Palapa Ring – Central Package 1.38 PDF, IIGF Guarantee & AP FC on September 29th, 2016; COD target: March 2018 4 Palapa Ring – East Package 5.13 PDF, IIGF Guarantee & AP FC on March 29th, 2017; COD target: September 2018 5 Umbulan Water 2.1 PDF, VGF & IIGF Guarantee FC on August 30th, 2016; COD target: July 2019

Succes essful ful Proje jects ts Reaching ing Finan ancial ial Close in 2016 and 2017

No No Projec ect Name me Projec ect Cost (IDR R tn tn) Financia ial Facil ilities ities Status 1 Batang–Semarang Toll Road 11 IIGF Guarantee PPP & guarantee contracts signed on April 27th, 2016 2 Manado–Bitung Toll Road 5.1 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 3 Samarinda–Balikpapan Toll Road 9.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 4 Pandaan–Malang Toll Road 5.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 5 Serpong–Balaraja Toll Road 6.0

PPP contracts signed on June 8th, 2016

6 Jakarta–Cikampek Elevated Toll Road 14.8 Co guarantee (MoF & IIGF) PPP & guarantee contracts both signed on December 5th, 2016 and February 22nd, 2017 7 Krian–Legundi-Krian Toll Road 9.0 Co guarantee (MoF & IIGF) PPP & guarantee contracts both signed on December 5th, 2016 and February 22nd, 2017 8 Serang–Panimbang Toll Road 5.3 Co guarantee (MoF & IIGF) PPP & guarantee contracts signed on February 22nd, 2017 9 Cileunyi–Sumedang-Dawuan Toll Road 8.2 Co guarantee (MoF & IIGF) PPP & guarantee contracts signed on February 22nd, 2017

Signed PPP PP Proje

jects

in 2016 and 2017

Source: Ministry of Finance, as of July 2017

SLIDE 100

99

New Guar aran antee tee Sche hemes mes for Non-PPP PP Projects cts

The Government had issued Pres esid identi ential al Re Regula ulatio tion No No 82 82/2015 and Minis inistr try of

f Fina

inanc nce Re Regu gula latio tion No No 189/2015 to provide guarantee for SOE Direct Lending from IFIs for the Development of Infrastructure Projects. Guarant antee ee

n

SOE Direc ect Lending ing from Interna rnatio tional nal Financ ancial ial Institut tutio ions ns (IFIs Is) Guarant antee ee for Regio ional al Infrastr tructur ture Financ ncin ing Provis isio ion State finan ance soundnes ness Fiscal al sustainabiliy nabiliy Best practic tice

f

fiscal al risk managem ement ent The

bjective
f

this guarantee is to provid ide credit edit enhanc ncem emen ent in terms

f

low inter erest rate and long tenor finan ancing ing, with 3 main prin incip iples les:

The Government had issued Min inis istry try

f
f

Fin inance Regu egulati tion

n

No No 174 174 of

f 2016

2016 to provide guarantee to PT SMI

n

the assignment

f

regional infrastructure financing provision, by loan to local governments that is transferred from PIP to PT SMI, and new loan channeled by PT SMI to the local government. Based

n

Gov Govern rnmen ent Regu egulation tion No No. 95 95/2015 2015 and Min inis istry try

f
f

Fin inance Reg egulation tion No No. 232 232/2015 2015, Minister of Finance assigns PT SMI (Sarana Multi Infrastruktur) to carry

ut functions in providing loan to

local government, as previously carried

ut

by PIP (Government Investment Center). The objective is to give give sti timulus to to the the accel eleration ion

f
f

lo local in infrastr tructure re dev devel elop

pmen

ent through the ease of access to infrastructure financing and to boost local economic growth, as well as to provide alternative financing schemes in

rder

to meet local infrastructure development needs and to reduce reliance

n

state/local budget.

SLIDE 101

100

Progress

f

SOE’s Projects

Prog

gres

ess of Pro roject ects Benef efiti iting g fro rom Guarantees tees on SOE Loa

ans

No No Sectio ions Length th (Km) Proje ject Cost (IDR bn bn) Status us (as

f

Mar arch 10 10th

th,

2017) 1 Medan-Binjai 17 2.74 Construction progress: 54.18% Land Acquisition: 89.91% 2 Palembang-Indralaya 22 3.30 Construction progress: 52.68% Land Acquisition: 97.68% 3 Bakauheni-Terbanggibesar 140 16.79 Construction progress: 23.88% Land Acquisition: 78.14% 4 Pekanbaru-Dumai 131 16.21 Construction progress: 41.02% Preparation for DED 5 Terbanggibesar-Pematangpanggang 100 11.86 Preparation 6 Pematangpanggang-Kayuagung 85 10.08 Preparation 7 Kisaran-Tebingtinggi 60 6.99 Survey and Planning 8 Palembang-Tanjungapiapi 90 14.29 Survey and Planning The Government issued government guarantees to loans of PT. Hutama Karya in the development of Trans-Sumatera Toll Road, as comprise as follow:

SLIDE 102

101

Progress

f

SOE’s Projects

Prog

gres

ess of Pro roject ects Benef efiti iting g fro rom Guarantees tees on SOE Dire rect t Lendin ding

No No Proje ject Name Proje ject Cost (IDR mn mn) Lender er SOE Status us 1 Sumatera Power Transmission and Distribution 600 ADB

PT. PLN

Guarantee is effective 2 Sumatera Power Distribution 500 World Bank

PT. PLN

Guarantee is effective 3 The Enhancement

f

Electricity Grid 330 IDB

PT. PLN

Preparation

f

guarantee issuance (recommendation to the Minister

f

Minister for Approval)

Other er Guarantees tees That at Hav ave e Been Provided

vided to SOE Projec
jects

ts

No No Progr gram am Guarant antee ee Commit ited ed (IDR bn bn) SOE Number

f

Guarant antee ees 1 Fast Track Program 1 6.98

PT. PLN

36 2 Fast Track Program 2 11.91

PT. PLN

12 3 Clean Water Supply Program 0.02 PDAM 10