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Republic blic of Indones esia ia A Re Resi sili lien ent an and Pr Progr gres essive sive Ec Econom omy July 201 017 About ut Inves esto tor Relatio tions ns Unit of the Republic ublic of Indones I esia

  1. Equitable itable Economy Policy cy 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 Three Key Pillars and “Quick Win” Programs The Ministry of Environment and Forestry (KLHK) will distribute access to social forest management covering an area of  Social Forest stry 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  Transmigration land of 220,000 ha and 3,800 ha under the National Agrarian Operation Project (PRONA) is ready to be  Agraria ian Refo form m 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 Land nd and Transmi migratio tion 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 Land Legaliz izatio tion  Java, Riau, West Kalimantan, West Sumatra, North Sumatra, and Maluku Committed to housing development within urban areas that are well connected to the center of activity, economic  Affordable e Housing g resources and public transportation for the urban poor 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 Targeted eted por Oppor nity ty Focused on addressing issues related to the tax system, development of manufacturing and IT industries and retail sector  -tuni Devel elopme pment Improve the competitiveness of the retail sector and strengthen synergies between traditional and modern retail  of Key Secto tors ital Vocational and labor policies structured for capacity building of human resources, especially to align with industry needs Human Capita  and to support government priority programs Vocatio ional Trainin ing g 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 and Labour Markets ets Job matching program that will focus on strengthening vocational programs for industries  Vocational schemes in place for the automotive, tourism and transportation sectors  Source: Coordinating Ministry for Economic Affairs 8

  2. The he Economic ic Policy cy Pac ackag ages es “To improve national industry competitiveness, export and investment to generate significant economic growth” Harmo moni nizi zing ng Regulations ons Simp mpli lifyin ying Bureauc ucratic Proc ocess Ensuring Law Enfo forceabi bili lity Phase e VIII I (21 De Dec ’15) Phase e I (9 Sept ’15) Resolving land acquisition disputes, intensifying domestic Improving national industry competitiveness oil production, stimulating domestic parts and aviation industries Phase e II (29 Sept ’15) Easing permit requirement and simplifying export Phase e IX (27 Jan ’16) proceeds requirement Accelerating electricity generation, stabilizing meat prices and improving rural – urban logistics sector Phase e III (7 Oct t ’15) Boosting investment, spurring exports, and maintaining Phase e X (11 Feb ’16) people‘ s purchasing power Revising the Negative investment List and improving protection for SMEs Phase e IV (15 Oct t ’15) Phase e XI (29 29 Mar r ’16) Simplifying wage formula and expanding loans for small Stimulating national economy through facilitation to business SMEs and industries Phase e V (22 Oct t ’15) Phase e XII II (28 28 Apr ’16) Improving industry and investment climate through tax Improving Indonesia’s rank on Ease of Doing Business (EODB) incentives and deregulation on sharia banking Phase e XIII I (24 Aug ’1 6) Phase VI (5 Nov ’15) Low Cost Housing for Low-Income Communities Stimulating economic activities in border areas and facilitating strategic commodities availability Phase e XI XI V (10 Nov ’1 6) Roadmap for E-commerce Phase e VII (7 De Dec ’15) Stimulating business activities in labor-intensive Phase e XV (15 Jun ’1 7) industries nation-wide through incentives in the form of Development of Business and Competitiveness accelerating land certification process for individuals of National Logistics Service Providers Source: Coordinating Ministry for Economic Affairs 9

  3. 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 Policy cy Goals s and Benef efit its s Policy cy Target ets 0% 0% Import duty for 115 types of ship’s spare 1 parts and components Opportunities for national shipping to serve export and import transportation of around Strengthen the Institution 2 USD 600 00 millio lion/y n/year ear of the Indonesia National Single Window (INSW) 70-100 units of new worth USD 700 00 millio lion 3 ships Increase Competitivenes of Logistic Service Providers New employment opportunity of 4 2,000 000 sai ailors rs Provide Market Opportunities Improve the Regional Government’s role for Shipping Companies, 5 to 30% in development of Regional Logistics 30% Marine Insurance, and National System to control inflation and reduce Ship Maintenance Businesses post-harvest product damage up Source: Coordinating Ministry for Economic Affairs 10

  4. Thema ematic tic Policy cy Issues ues on D Der ereg egula ulatio tion Six policy issues es unde der Packag ages es I-XV: expans nsio ion of of improvem ement ent of improvem ement ent of widenin ening of of efficienc iency of of improvem ement ent of export indus ustr try logis istic tics sector society’s inves estmen ent touri rism sector compet etitiv itivene eness purchasin ing power er Next Phas ase of of Polic icy Packages es based on on Secto toral and Them ematic tic Issue ues Education and Logistics Agrarian reform Energy Vocational Training Industry, Manufacture, Invention, Innovation and Tourism, Fishery & Service Food Creative Economy sector Source: Coordinating Ministry for Economic Affairs 11

  5. Progres ess of t the he Economic ic Policy cy Pac ackag ages es* 233 33 I – XV I – XII Initially, there are 233 regulations which need to be TOTAL INITIA TIAL REGULATIONS TIONS deregulated 11 11 I – XV I – XII Based on the further assessment, 11 regulations has been REVOK OKED ED revoked from deregulation process REGULATIONS TIONS 222 22 I – XV I – XII Total regulation subject to be deregulated: 222 TOTAL REGULATIONS TIONS regulations 215 97% 97% SET As of July 3 rd , 2017, deregulation of 215 regulations are 96% 96% PRESIDENTIAL AL LEVE VEL 52 PRESI SIDE DENTI NTIAL finished (97%), comprising 50 regulations at Presidential 50 50 FINI 47 47 42 42 TOTAL NISHED SHED level and 165 regulations at Ministrial/Institutional level SELESAI MINIST STRIAL AL/I /INST NSTITUT TUTIO IONAL NAL LEVE VEL 97% 97% 170 165 FINI NISHED SHED TOTAL Unfinishe ished reg egula latio ions: Proposed Policy on Development 3% 3% 7 ON GOIN ING of Business and competitiveness of National Logistics DISCU SCUSSION SION Service Providers *as of July 5 th , 2017 Source: Coordinating Ministry for Economic Affairs 12

  6. Other her Progress ess on Economic ic Policy cy Pac ackag ages es Develo lopmen ment of Fair, Simplif ifie ied & & Spesial al Economic mic Zone ne (SEZ) Project ctable able Wage Sys System 14 Provinces have set 2016 Minimum Wage • Total value of facilities and incentives for System in accordance to the Government SEZs amounted IDR 33.8 trillion (as of Regulation (GR) No. 78/2015 (Kepulauan September 2016) Riau, Kalimantan Barat, Nusa Tenggara • 18 companies benefitted from the Barat, Sumatera Barat, Jambi, Aceh, simplification of fiscal incentive process Kalimantan Selatan, Banten, Gorontalo, with average processing time of 13.4 Nusa Tenggara Timur, Jawa Barat, Bali, days (previously 2 years) Sumatera Utara, and Bangka Belitung) Export-Orie rient nted Deregula ulatio ion on Busine ness Credit it (KURBE) RBE) Logis istics ics Sect ctor or • North Sulawesi has sucessfully exported State-owned train manufacturer PT Industri coconut product through SOEs’ joint Kereta Api (INKA) in Madiun, East Java, has program begun its first passenger train exports by • 30 Bonded Logistic Center has been shipping 15 train wagon to Bangladesh. launched to support various industries 13

  7. 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) Require iremen ent t for or utili lizi zing g 3-ho hour Inves estme tment t Lisen encin ing g Service vice: 1. Minimum investment of IDR 100 billion (USD 8 million) No requir irem ement ents for investm estment ent in and/or employing 1,000 local workers. infrastr struc uctu ture sector or 2. Application must be submitted directly by at least one candidate of the proposed company stakeholder BKPM Arriv rive at OSS at BKPM directly from the airport • Wait it at the lounge while documents are Obtain tain eight documents & letter of Consult with Director of Investment Service • land availability within three hours to processed by BKPM, in-house notary, ministries, Submit it the required documents & data • & other government institutions start the business 9 document ments obtaine ined 2 documen ments needed Certaint ainty to Certaint ainty to start a busines ess Import capital tal goods Inves esto tor iden entitiy titiy as the prospec ectiv ive shareh ehold lders ers • Investment license • APIP/Import identification • ID Card • Certificate of incorporation • NIK/Customs registration • And/or Deed of Establishment (Indonesian company) or • NPWP/Tax Registration Number Article of Association (Foreign company) • TDP/Company Registration Flowc wchart art of busines ess activities ities work rkflo low Certaint ainty to work rk Accurate land informatio ion • Containing workflow from raw material production to the • Letter of land availability • RPTKA/Employment plan finished products • IMTA/Working permit Until il March ch 2017, 313 projec jects ts* have ve utilized the “ 3 hou ours rs services ices ” Source: Investment Coordinating Board (BKPM) * Since January 2016, including 12 projects in EMR sector 14

  8. 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 9 Types es of licen ensing ing issue ued by ESDM3J M3J serv rvic ice Duratio ion for reguler uler No. Type of Licen ensing ing servic ice (work rk days) 1 Temporary Business License for 20 Electricity 2 Temporary Business License for 32 Oil/Fuel/LPG storage 3 Temporary Business License for 32/40 1 2 3 Storage of Processed Products/CNG 4 Temporary Business License for LNG 32 Director arrives at Waiting in priority Applicant receive Storage central OSS, then lounge, while the the requested 5 Temporary Business License for Oil 32 submit required documents licensing products Refinery documents* processed 6 Temporary Business License for 32 Processing Oil Residue Industry N ote *: ESDM3J service is given if the company has fulfilled the checklist of administrative & technical requirements as 7 Temporary Business License for 32 regulated on MEMR Ministrial Decree No.15 of 2016 Natural Gas Processing 8 Temporary Business License for 40 General Trade of Oil/Fuel Until March ch 2017, 12 projects cts have utilize zed 9 Temporary Business License for 40 the 3 3 hours service ices for EMR Sector General Trade of Processed Product Source: Investment Coordinating Board (BKPM) 15

  9. 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 Priority Investment Service No Requir uirement ments No minimum investments or workers is Direc ect Construct uction ion (KLIK IK) • required. Available for 32 32 sele lecte ted indus dustrial rial esta tate tes. • Investors can directly start their project construction before Construction permits can be obtained in • obtaining construction permits. This service is supported by parallel with construction process. 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 Start rt the constru tructio tion of your Survey ey a land within selected • • project. No other permits are OSS at national or regional industrial estates. required. level. Acquir ire the land for your • Apply ly for building construction permit • industry. & environmental permit, in parallel with construction process. Until il May 2017, 90 90 projects have utilized the “KLIK servi vices ces ” Source: Investment Coordinating Board (BKPM) 16

  10. 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 North h Suma matera st Stag 1 KLIK 1 st age (14 IE) (1 1 IE; 100 ha) 1 7 2 Medan Industrial Estate/KIM nd Stag (100 ha) KLIK 2 nd age (18 IE) 2 6 3 2 3 Banten 4 5 4 1 5 6 (3 3 IE IE; ; 3,150 3,150 ha) Central Java 4 Riau Island (3 3 IE IE; ; 840 840 ha) 1. Modern Cikande Industrial (5 IE; 556 ha) 4 2 Estate/MCIE (1,800 ha) 1. Kendal Industrial Park/KIP 2. Wilmar Integrated (700 ha) 1. Batamindo Industrial Riau West Java Industrial Park/WIIP (800 2. Bukit Semarang Baru/BSB Park (61.4 ha) (1 IE IE; ; 198 198.9 9 ha) (6 IE; 1,814 814.1 1 ha) ha) 2. Bintang Industrial (40 ha) IE Dumai (198.9 ha) 1. Artha Industrial Hill 3. Krakatau Industrial Estate Park II (20 ha) 3. Wijayakusuma Industrial (315.1 ha) Cilegon/KIEC (570 ha) 3. Kabil Integrated Estate/KIW (100 ha) 3 2. Greenland International Industrial Estate Industrial Center (142.5 ha) 3 DKI Jakarta ta (GIIC)/Deltamas (400 5 4. Bintan Inti Industrial West Java (2 IE; 129 129 ha) ha) Estate (229.6 ha) East Java (5 5 IE IE; ; 1.151 ha) 3. Jababeka Tahap III 5. West Point Maritim 1. Kawasan Berikat (1 1 IE; 1,761 ha) (45 ha) 1. Bekasi Fajar Industrial Industrial Park Nusantara/KBN KI Java Integrated Industrial 4. Kota Bukit Indah Ind. Estate/BFIE (300 ha) (102.5 ha) (118.6 ha) and Port Estate/JIIPE City (510 ha) 2. Delta Silicon 8 (158 ha) 2. Jakarta Industrial 5. Indotaisei Kota Bukit (1,761 ha) 3. Karawang Internasional Estate 5 Indah (300 ha) Industrial City/KIIC (293 Pulagadung/JIEP 6. Marunda Center (300 ha) Central Java (10.4 ha) 6 ha) 4. Suryacipta City of (1 1 IE IE; ; 285 285.7 7 ha ha) South Sulawes esi i Industry/SCI (300 ha) 6 7 (1 1 IE IE; ; 3,000 000 ha ha) IE Demak (285.7 ha) 5. GT Tech Park @ East Java Karawang (100 ha) Bantaeng Industrial Park/BIP East Kalima manta tan (2 IE; 341 341 ha) (3,000 ha) (1 1 KI KI;133 133.8 8 ha ha) 1. IE Maspion (151 ha) IE Kariangau (133.8 ha) 2. IE Tuban (190 ha) Source: Investment Coordinating Board (BKPM) 17

  11. Improving ving Investment stment Clima imate te …Bonded Logistic Center to Improve Indonesia’s Competitiveness Bonded Logistic Center To To da date, e, 30 30 Bond Bo nded ed Logis gistic tic Cent nter ha has been en laun unched hed to to suppo pport variou rious indus dustries ries. (Pusat Logistik Berikat/PLB) is a facility provided by Ministry of Finance as part of the implementation of the Smal all and 2 nd Economic Policy Package. Food & medium dium bev ever erag ages PLB facility aims to improve industry dustry industry dustry Oil il and Per erson onal al efficiency and reduce the cost of gas, ga s, and care/ transportation and logistics in home care mining ing Indonesia; support the growth of Synt nthe hetic tic industry dustry industry dustry the domestic industry, including textile tile Auto to- (chem hemic ical al small and medium motiv tive substan ances) es) industries; increase industry dustry industry. dustry. Textile tile investment; and to make (cot otto ton) Indonesia to become a logistics industry. dustry. hub in Asia Pacific. 18

  12. Impr proving ving Invest stment ment Clima imate te …revising the Negative Investment List Introduc uctio tion n of New w Foreig ign n Owne wnership ip Regula ulatio tion n for Strate tegic ic Secto ctors Sports Center, Pharmaceutical Raw Materials Cold storage ge Restaurants, , Bars Film P Processing Lab, Crumb Rubber Manufacturing After Before After Before After Before After Before 100% 100% 100% 100% 33% 85% 49% 51% Private Museum, Catering, g, apparel Toll Road Operator, Distribution, on, Wareho housing Key Reforms in Negative ive Foreig ign Manufacturing, g, Exhibitions ons & Telecom ommunication Testing Company Investment List Conve ventions ons Before After Before After Before After Revisio ion of "Partnership ip" category y to refer to partnership ip with Micro, Smal all and Mediu ium Enterpris ises 100% 67% 67% (MSME MEs) 95% 33% 51% Gran andfat ather Law: If a par artic icul ular ar sector is tightened in futur ure, existin ing Profession onal Training, , Golf Course Telecom ommunication Provide der foreig ign n investor does not need to Management, , Air Transport ort Support ort Servi vices, , Consultancy for Construction on 1 with Integrated d Servi vices comply with tighter stak ake Trave vel Bureau Before After Before After Before After Strengthen implementatio ion of negative investment law throug ugh active ive roles from min inistrie ies, agencie ies 67% 67% 67% 49% 55% 65% and regio ional al governments 1 For total project value of IDR10bn and above Source: Investment Coordinating Board (BKPM) 19

  13. Improving ving Investment stment Clima imate te …improving Indonesia’s Rank on Ease of Doing ng Busine ness (EODB)* EODB 2017 EODB 2016 Chan hange in EODB 2017 EODB 2016 Chan hange in Rank nk Rank nk Rank nk Point ints Point ints 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 0 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 * Higher rank is better, EoDB 2017 was published in October 2016 - 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 20

  14. Improving ving Investment stment Real aliza izatio tion (Q2-201 2017) 7) Risin ing Direct ct Inve vestme tments nts FDI Reali lizatio tion n by Secto ctors IDR tn 180 171 FDI DDI TOTAL 160 Non Metallic tallic 61 140 Mine neral l Indust ustry 120 US$62.7 US$ .7 mn mn 100 87.6% 87 6% 80 110 60 Food Indus ustry 40 Wood Indust ustry US$ US$705.3 .3 mn mn 20 US$ US$100.6 .6 mn 0 35.7% 6.8% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017 2013 2014 2015 2016 Trade & Repar paratio tion Textil xtile Indust ustry IDR170.9 170.9tn tn Invest stment nt US$437.1 US$ .1 mn mn Rp159.4 9.4 T US$76.1 US$ .1 mn IDR151.6 151.6tn tn 434,463 434 463 37 375,9 ,982 Reali liza zatio ion Rp145.4 5.4 T 102.7% 20 20.9% 9% * 12.7% 7% 9.6 9.6% 15.6 .6% Rubbe ber and Metal, tal, Machine chinery & & Plastic tic Indust ustry Ele lectroni nic c Ind ndust ustry Q2-201 016 Q2-201 017 US$137.3 US$ .3 mn mn Q1-201 016Q1-201 017 Q1-201 016 Q1-201 017 US$1131.2 US$ .2 mn mn * person * son 1.5% 26 26.6% 6% IDR61tn tn IDR109.9 109.9tn tn IDR99.4tn tn IDR52.2 52.2tn tn Mini ning ng US$ US$1006.3 .3 mn mn 40 40.8% 8% 10.6% 16.9% Q2-201 017 Q2-201 016 Q2-201 017 Q2-201 016 Source: Investment Coordinating Board (BKPM), compared to Q2-2016 period 21

  15. Sec ection tion 2 Eco conomi mic Fact ctor: r: Strong and Stable Gr Growth Prospec ects Rema main In Intact ct

  16. Conducive cive Environment ment Underpin rpinning ning Strong ng Growth th Fundam ament ental als 4th Most Tax base to be Budget reform as broad adened from Larges gest t Economy my Populous country y a a part of larger one reduc uce in South East in the World; ; economic ic reform dependency on Asia 64% in init itiat iative commodit itie ies productiv tive e age Larg rge e and d Consi nsiste tent nt Fuel subsid idie ies Stable able Budg dget t Reform orm signif ific ican antly y Econo nomy Manageable Growin ing g Middle e reduc uced and Prud udent debt Inflatio tion Rate Income me Class spendin ing redir irected man anag agement to more produc uctive allocat atio ion Reform rm-Or Orien iented ted Adminis inistr tratio ion Three main ain sources of finan ancin ing for From commodity-based to man anufa ufactur urin ing investment needs: Stat ate and regio ional al and servic vice sectors via infrast astruc ucture budget, Stat ate Owned Enterpris ises and PPP development New High h Contin inui uing from 2015 polic icy, infras astructur ure Econom nomic ic Infras rastruc ructu ture re From consum umptio ion-led d to investment nt-led d will be higher than fuel subsid idy growth via a stronger man anufac ufactur urin ing sector Structu ructure re Investmen ents and more investment init itia iative ives Infras astructur ure spend nding ing focused d on basic ic infras astructur ure projects Policie ies to main aintai ain pur urchasing asing power to stim imulat ate domestic ic economy in the mid idst Fiscal al and non-fis iscal al incentive ives to attrac act of weakenin ing mac acroeconomic ic condit itio ions infras astructur ure investment and promote PPP 23

  17. Indonesia’s Strong GDP Strong ng GDP Growth th 1 Favo vour urable ble GDP Growth th Compar pared to Peers 2 % % QoQ YoY 7,0 9,0 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 7,0 5,0 4,01 3,83 3,27 3,75 3,30 5,0 3,13 3,0 3,0 1,0 0,04 1,0 (0,17) (0,40) (1,77) (0,34) -1,0 -1,0 2012 2013 2014 2015 2016 2017* 2018* (1,70) (2,07) -3,0 -3,0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Brazil India Indonesia Malaysia -5,0 2014 2015 2016 2017 Philippines Singapore Thailand Turkey GDP Growth th Based on Expe xpend nditur itures (%, YoY YoY) 1 Growth th Prospe pect ct 2017 GDP growth 2014 14 2015 15 2016 16 2017 17 Instit itutio ions By expen pendit diture (%YoY) (% Q1 Q1 Q2 Q2 Q3 Q3 Q4 Tot. Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 2017 R-Budget Plan 5.2 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 HH. consumption Non profit HH. 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 Bank Indonesia 5.0-5.4 consumption Government 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 IMF 5.1 consumption Gross Fixed Cap. 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 World Bank 5.2 Formation 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 Exports ADB 5.1 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 Imports 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 Consensus Forecast (July 2017) 5.2 GDP 1. Source: Central Bureau of Statistics of Indonesia (BPS) 2. Source: World Economic Outlook Database - April 2017; * indicates estimated figure 24

  18. Strong ng an and Stable able GDP Perf rform rman ance ce Spatia tial l GDP Growth th Spatia tial l GDP Growth th Contribu ibutio tion Bali & Nusa Sumatera Kalimantan Tengga gara: a: 3. 3.0% 0% GDP Grow owth GDP Grow owth Maluku ku & Pap apua: a: 2.5% Bali & Nusa sa Sulaw awesi si Q1 2017: 2017: 4.1% Q1 2017:4.9% Tenggara Sulawesi: esi: 5.9% 9% GDP Grow owth Maluku ku & Papua GDP Grow owth Q1 2017: 2017:6. 6.9% Sumater era: 22.0% GDP Grow owth Q1 2017: 2.4% Kalimantan an: 8.3% Q1 2017: 4.2% Java GDP Grow owth Q1 2017: 2017: 5.7% Java: 58. 58.5% 5% Contribu ibutor tors to GDP Growth th by Secto ctor (%, YoY YoY) 2014 14 2015 15 2016 16 2017 17 By sectors 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 (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) Mining 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 Industrial processing 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 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 Information and communication 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 25

  19. Sec ection tion 3 Ext xternal rnal Fact ctor: r: Im Improved Ext xtern ernal al Resilie ienc nce

  20. A Nar arro rower er, , Stru ructur ctural ally ly-Str tronger nger Curr rrent nt Account nt Deficit ficit Strong g Balance e of Payme ments Imp mprovin ing g Current t Account Defic icit it 2012: 2012: 2013: 2013: 2014: 2014: 2015 2015: 2016* 201 6*: US$bn US$bn US$bn CA Defic icit CA Defic icit CA Defic icit CA Defic icit CA Defic icit (US$24.4bn) n) (US$29.1bn) n) (US$27.5bn) n) (US$17.5bn) n) (US$16.9bn) n) 20 160 8 121.8 121 4 5.7 10 120 0.8 7.9 0 4.5 (2.4) 0 80 -4 (7.5) (2.4) -8 (1. 1.4) -10 40 Current Account Capital & Financial Account -12 Overall Balance Reserve Assets (RHS) Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* -20 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* 2012 2013 2014 2015 2016* 2017** 2012 2013 2014 2015 2016* 2017** Goods Service Income Secondary Inc. Current Account Source: Bank Indonesia Source: Bank Indonesia 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 2012 2012: 2013: 2013 2014: 2014 2015: 2015: 2016: 201 : 2017: 2017: FX Reserves s as of June 2017: US$123.09bn n US$bn US$bn Defic icit Defic icit Defic icit Surplus Surplus Surplus (Equiv iv. to 8.5 month ths s of impo ports ts + servic icin ing of government t debt) t) Month (US$1.7 .79bn) n) (US$4.1 .10bn) n) (US$2.3 .37bn) n) US$7.59bn US$8.83b 3bn US$ US$7,63bn bn* 140 15 3,0 FX Reserves (LHS) Month of Import & Debt Service (RHS) 120 2,0 1,96 12 1,63 100 1,0 9 80 0,0 -0,33 60 6 -1,0 40 3 -2,0 OG Non-OG Total 20 -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 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 2012 2013 2014 2015 2016 2017 * Preliminary Figure ** Very Preliminary Figure Source: Bank Indonesia Source: BPS 27

  21. Exchang ange Rate In Li Line ne with Fundam ament entals als Stable ble Move veme ment nt of Rupia iah IDR/US$ 13.500 *data as of June 30 th , 2017 IDR/USD Monthly Average Quarterly Average Poin Point-to to-point oint, the the rupiah piah stre rengthened gthened 1.08 08% 13.450 (pt ptp) to to clos ose at at a le level vel of of Rp Rp13 13,328/USD USD. The 13.400 appreciation was bolstered by the ongoing FX 13345 13338 sales by corporations and a considerably large 13.350 13309 13321 13328 13361 13348 influx of foreign capital into the domestic 13.300 market, and also in line with the appreciation in 13304 13298 13.250 the regional currencies. 13.200 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 Rupia iah Exc xchang nge Rate Fared Relative latively ly Well ll Compar pared to Peers YTD 201 2017* vs 201 2016 June vs May 2017 -2,45 BRL 0,08 TRY -2,70 -16,85 -2,14 KRW -0,38 4,51 MYR -1,29 -5,57 PHP -0,12 -1,72 PHP -0,11 INR -4,88 0,00 -0,04 7,96 IDR EUR 0,17 -2,19 0,51 SGD 1,08 0,8 IDR -0,19 -0,27 MYR 0,92 5,39 KRW 0,55 CNY 1,60 1,13 5,61 -1,43 THB JPY 1,15 1,62 0,20 TRY 5,18 INR 1,30 Point to Point Average 2,14 0,33 THB Point to Point Average 1,37 -1,60 BRL 1,59 9,60 EUR 1,55 *data as of June 30 th , 2017 5,09 *data as of June 30 th , 2017 % % ZAR 0,33 ZAR 11,17 2,85 -20,0 -15,0 -10,0 -5,0 0,0 5,0 10,0 15,0 -3,5 -2,5 -1,5 -0,5 0,5 1,5 2,5 3,5 Source: Bank Indonesia 28

  22. Ampl ple Li Lines of D Defen efense se Against ainst Ext xter ernal nal Shocks cks Ampl ple Reserve ves Ample level of FX reserves to buffer against external shock  FX Reserv rve FX Reserves as of June 2017: US$123.09 billion  Swa wap p Arrang ngeme ment nt US$22.76 billion swap line with Japan currently in place  Japan teral Bilateral The size of the swap line was increased from US$12 bn in December 2013  South th Korea Renewed a 3 year KRW/IDR swap arrangement with the size of up to 10.7 tn KRW/IDR115 tn in March 2017  Australia alia Established a 3 year A$/IDR swap arrangement with the size of up to A$10 bn or IDR100 tn in Dec. 2015  Chia iang g Mai i Entitled to a maximum swap amount of US$ 22.76 bn under the ASEAN+3 (Japan, China, and Korea) FX  nal iona Initia tiative tive reserves pool created under the agreement Multila ltilatera terali liza zation tion Regio Came into effect in 2010 with a pool of US$120 bn  (CMIM IM) ) Doubled to US$240 bn effective July 2014 Agreem eemen ent  IMF Global al bal Globa Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem  Financ ncial ial Safety ty Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL)  Net - GSFN Source: Bank Indonesia 29

  23. Measu asures es to Man anag age Ext xter ernal nal Volatility tility Bond nd Stab abiliz ilization ion Framework ork Pre-em emptiv tive Measur ures es Implementing Crisis Management Protocol (CMP) Firs rst Line of Defense  Implementing Bond Stabilization Framework (BSF)  Buyback fund at DG of Budget Financing and Risk Management Enhancing coordination between government institutions  State’s Budget and continuous dialogue with market participants Investment fund at Public Service Agency (BLU) (min. level Aware) Specific policies in place to address crises enacted in  2017 budget law State e Owned ed Related SoE (min. level Aware) Swap facility arrangements based on international  Enterprises’s Budget get cooperation Socia ial l Securi rity y Orga ganiz izin ing g Agency BPJS (min. level Aware) (BPJS)’s Budget Crisis is Management nt Prot otoc ocol Second nd Line of Defense Indicators to determine crisis level of Government  Securities Market condition (normal, aware, alert, crisis) State General Treasury Account (Rekening KUN) (min. level Alert) Several market indicators that are monitored daily:  State’s Budget Accumulated cash surplus (SAL) (min. - Yield of benchmark series; Level Crisis) - Exchange rate; - Jakarta Composite Index; State e Owned ed - Foreign ownership in government securities Related SoE (min. level Alert) Enterprises’s Budget get Policies to address the crisis at every level :  ‐ Repurchase the government securities at secondary Socia ial l Securi rity market Orga ganiz izin ing g Agency BPJS (min. level Alert) ‐ Postpone or stop the issuance (BPJS)’s Budget Source: Ministry of Finance 30

  24. Streng engthened hened Pri rivate te Exter erna nal Deb ebt Risk Man anag agem ement ent Priva vate te Exte xterna nal l Debt bt is Stabili bilizin ing and Trend ndin ing Down Debt bt Burden n Indic icator tor (Exte xterna nal l Debt bt / GDP) Rema main ins Compar parable ble to Peers (US$bn) (US$bn) Total Ext. Debt: Exter ernal Debt bt / GDP P (%) 300 US$334bn 400 47,1 Turkey 350 46,1 250 300 Priva ivate Sector 34 Brazil 200 Ext. Debt: 37,4 250 US$165b 5bn 34,1 150 200 Indonesia 36,1 150 100 36,4 Thailand 33,3 100 50 50 24,6 Philippines 26,5 0 0 26 2013 2015 Feb Apr Jun Aug Oct Dec Feb Apr India 2016 2015 26,2 2016* 2016* 2016* 2016* 2016* 2016* 2017* 2017* (%) 0 5 10 15 20 25 30 35 40 45 50 Public (Govt. & BI) Private Total (RHS) Source: External Debt Statistics of Indonesia, July 2017 Source: Moody’s Statistical Handbook, May 2017 Encouragin ing Corpo porate tes Compli liance on Hed edgin ing Ratio io Phase 1 Phase 2 Phase 3 Regulat atio ion Key Points Jan 1,2015 – Jan 1,2016 – Jan 1, 2017 Dec 31,2015 Dec 31,2016 and beyond Q1-201 017 (Total = 2,418 18) Q1-201 017 (Total = 2,418 18) Object of Regulat atio ion Governs all Foreign Currency Debt Hedgin ing Ratio io < 3 mont onths > 3 – 6 mont onths hs < 3 months 20%* 25%** > 3 – 6 months 20%* 25%** 2,257 248 Liqui quidit ity y Ratio io ( < 3 months) 50% 70% 2,170 (93.3%) 161 (10.3 %) (89.7%) (6.7 %) Credit Ratin ing Not applicable Minimum rating of BB- Must be done Hedgin ing tran ansac actio ion to meet not necessarily be done with a with a bank in hedge ratio bank in Indonesia Indonesia Comply Not Comply Comply Not Comply Sanction As of Q IV-2015 Applied Source: Bank Indonesia * Provisional Figures 31

  25. Man anag ageable eable External rnal Debt bt Profile le ... ...short ort term non-bank bank corpor porate debt (non affil ilia iati tion on) repr presen ents only 8.9% % of total priva vate te external ernal debt Public ic Long Term 1 Priv ivate te Bank Af Affil iliat iation US$168.4bn US$118.8bn US$19.9bn or or or 50.5% 71.9% 12.0% US$11.9b 1.9bn of Total Ext. of Private Ext. of Private or or Debt Debt Ext. Debt 7.2% 7.2 Exter ernal Debt of Private ate Positio tion Ext. . Debt t US$165.2 .2bn bn US$46.4bn bn US$26.5bn or or or 49.5 9.5% US$333.6bn bn 28.1% 16.1% of total of Private of Private Ext. Debt Ext. Debt Ext. Debt Priv ivate te Non-Bank US$14. 4.7bn 7bn Short-Term Term 1 or or 8.9% 8. Priv ivate te of Private ate Ext. . Debt t External Debt Position as of May 2017 1 Based on remaining maturity Non Af Affil iliat iation Source: External Debt Statistics of Indonesia, July 2017 32

  26. Sec ection tion 4 Fisca cal Perf rforma rmanc nce and Flexib xibilit ility: More Fiscal cal Stimu mulus us with Pru rudent nt Fisca cal Policy cy

  27. Integr egrated ted Reform rm to Provide Higher gher Qual ality ity of 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 Fiscal al Synergy Sy gy in reform rm to boost the more sustainab nable le and inclu lusiv ive Mone netary ary & Real al Secto tor growth wth • Inflation management Finan ancial ial • Policy to maintain • Monetary policy to ensure Secto tor consumption and improve macroeconomic and investment climate financial system stability • Economic policy packages • Macro-prudential policies Source: Ministry of Finance 34

  28. Long Lo Term rm Strategie tegies to Achiev ieve Susta tainable inable Growth th … stimul uli to maintain ain purchas chasing ing power The e Virtu tuous ous Cycle le of Purc rchas hasing ing Power er Stimu imuli li Increa ease non-taxabl ble income e limit it Ease of land d  Consumptio ion is still the larges est contr ntrib ibuto utor to Indonesia’s Fuel pric ice e and certifica fication elec ectric icit ity GDP and lice censin ing g adjustmen ent for street eet vendo dors  Private consumption has been a key factor driving Indonesia’s economic growth in recent years 2 months Rural  The government has designed stimulus program to addit ditio ion of transfer fer for rice ce subsidy idy produ ductive e mainta tain in and enhanc nce purchas asing ing powe wer for households Maint ntaining ining progra gram spen endin ding Purchasing chasing u  The government has increased non-taxa taxable ble incom ome level Power wer and adjus usted ed wage polic icy to ensure that the lowest income bracket has the greatest support Stabi bilized ed Boostin ing g pric ice e for housin ing g meat devel elopm pment  Funds are targeted at not only ly to improve basic vill llage produ ducts infras astr truc uctur ture but also to crea eate jobs through labor intensive projects as well as other job creation programs Elimin ination n of luxury Predi edicta ctabl ble e goods tax for consumer er labo bour goods wages ges 35

  29. Long Lo 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 Busines ess and Infras astr truc uctur ure Incen entiv tives es Other Incen entiv tives es Permi mit t & Income me tax relief ief Incen entiv tives for Simp mplif ific icati tion of Accel eler eratin ting Water One ma map licen ensing ing for labor footwea ear and imp mport licen ensin sing g for infrast structure ma manageme ment polic icy simp mplfi ficatio tion intensive sive apparel el industr tries ies drugs and raw food devel elopme pment and industr tries ies regulati tion Dwellin ing g time me Oil refin iner ery Avia iatio tion Downstrea eam Debt To Relaxa xatio tion of Tax incen entiv tives es Expansio sion of secto tor optimiz mizatio tion devel elopme pment industr tries ies equit ity y ratio entry visa for REITS EITS cover erage ge and incen entiv tives polic icies ies interest est subsidy for MSME Integr egrated ted CPO CPO Support t for Village ge-city ity Accel eler eratio tion Spec ecia ial Tax incen entiv tives es Relaxa xatio tion of logis istic tics s zones fund export-orien iented ted logis istic tics of power economi mic on proper perty ty negative tive foreign ign industr tries ies imp mproveme vement infrastructure zones inves estmen tment list 36

  30. Build lding ing a Credib ible le an and Real alist istic ic Budget et …providing more certainty to all stakeholders Macroeconomic Assum umptio ion for 2017 R- Budget Cre Credib dible le and re reali listic tic budget with 2016 outlook numbers • used as the basis for the 2017 State Budget 2016 16 2017 17 Indic icator Q1 2017 realization has been on track with the budget, • Realiz ization¹ n¹ Budget dget June e Real. R-Budge Budget 4 relative to Q1 2016 Economic ic growt wth (%, yoy ) 5.1 5.01 2 5.2 5.02 Tax revenue in 2016 grew 3.6%, which includes IDR • Inflatio ion (%, yoy ) 4.0 4.37 4.3 3.02 103.1 trn from the tax amnesty program, which has 3-Mo Month Treasury y Bill (SPN PN) (%) 5.7 5.3 5.1 5.2 further increased to IDR 134.8 trn as of Q1 2017 Exchang nge Rate (Aver erage ge, IDR IDR/US USD, Avg. g. YTD) 13,307 13,300 13,331 13,400 Budget prioritizes efficiency in terms of operational • spending, without compromising capital spending ICP (USD/ba barrel) 40 45 48.9 50.0 Exemplifies discipline in maintaining budget deficit at Oil il Productio ction n (thousand nd barrel el/da day) 815 784.2 3 815.0 829 • reasonable levels Gas Produ ductio ction n (thousand nd barrel el oil equiv ivalent/da day) 1,150 1,094 3 1,150 1,180 2016 16 2017 17 Descrip iptio ion (IDR Trillion) n) Audit dited ed ∆ R-Budge Budget to % Realiz izatio ion n Budg dget et R-Bu Budg dget 1H Realiz ization ion Realiz ization Budget dget 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 0 (15. 5.9) 9) 718. 8.0 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 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 0 1,315. 315.5 5 1,367. 367.0 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% % Source: Ministry of Finance 1. Audited 3. Data as of May 2017 2. Q1 GDP Growth 4. Approved by Budget Committee of Parliament 37

  31. 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 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 • order to be more credible R-Budg udget 2017: Optimization of post tax amnesty program and tax treaty, tax audit, as well • as law enforcement are expected to support tax collection Target 1,472.7 72.7 Budg dget et 2017: 1,49 498. 8.9 IDR 26,2 trillion lower than 2017 budget 14,6 ,6 2016: IDR 1.241,8 1,8 T 16,0 1,28 285. 5.0 2015: 5: ↓ IDR 29,9 T (-2,4%) 1,24 240. 0.5 2014: 4: IDR 41,8 ,8 1,146 46.8 .8 3,6 T ↑ IDR 5,8 T (16,2%) 8,2 IDR 189,1 ,1 T 6,8 ↓ IDR 2,1 T (-1,1%) Tax Collection Growth (yoy, %) Comparison between 2017 R-Budget with 2017 Budget Source: Ministry of Finance 38

  32. Indonesia’s Tax Amnesty Program – A Succes ess Story ry With more than 965,000 taxpayers rs particip cipating ing in the program Tax Amne nesty ty Resul ult (as of the end nd of March ch 31 st st , 2017) Repatriation Preliminary 3% Evidence Payment SMEs 1% 2% Tax Arrears Companies ​Offshore 147,1 Payment 12% 1,7 Declaration 14% 85,59 21% 18,8 594,99 1,036 Individual SMEs 18% 861,81 3.323,36 ​Onshore 3,698 114,2 Declaration Individuals 76% Redemption 68% Money 85% Reven enue Compo posit ition n of Partic icipa ipants Asset Declared IDR 134. 4.8t 8tn n (~1. 1.1% 1% GDP) P) Based ed on Asset et Declared ed IDR 4,881tn (~39.4% of GDP) Redemptio mption n Money ney Assets ts Decla clared 39,3 1,10 % of GDP % of GDP 0,62 0,58 8,3 0,20 5,2 0,17 0,15 3,9 3,6 0,12 2,1 0,04 0,04 0,3 Germany Belgium Italy Chile Indonesia India South Spain Australia India Spain Chile Indonesia Italy South Australia (2004) (2004) (2009) (2015) (2016) (1997) Africa (2012) (2014) (1997) (2012) (2015) (2016) (2009) Africa (2014) (2003) (2003) Source: Ministry of Finance 39

  33. Compr prehen ehensiv ive Tax Reform rm to Improv ove and Susta tain in Revenue enue Collection ection Focused sed on 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 Expe xpecte cted Tax Reve venu nue / GDP Increase (%) Ongoi ngoing ng Comprehensi nsive ve Tax x Reform m on 4 Pillar lars 15 11,5 11,4 11,2 11,3 10,8 10,7 IT Support 10,4 Regulation 10 Improvement of IT and • General Provision and Tax • communication system Procedures 5 Increased accessibility of • VAT Law • public data for individual Income Tax Law • data management Stamp Duty Law • Enhancement of data • 0 management 2011 2012 2013 2014 2015 2016 2017 Budget Compl plia ianc nce Rate te in Submi bmitt ttin ing Annu nual l Tax x Repor port 40 64% Human Business 62.3% 60.4% Resources Process 59.2% 30 59% 20 56.2% Improvement of the human Stronger law enforcement • • resources and Authorization to gather 3 rd 54% • 10 party data (banking) organizational capacity and capabilities Implementation of • 0 49% Establishment of tax reform Automatic Exchange of • 2013 2014 2015 2016 task force team Information Registered Taxpayers Discipline in terms of Plan- Simplification of tax • • Registered Taxpayers – Tax Report Required registration Do-Check-Action to monitor Submitted Tax Report tax collection Compliance Rate = Submitted Tax Report/Registered Taxpayers-Tax Report Required Source: Ministry of Finance 40

  34. 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 KALIM IMAN ANTAN AN SULAW AWESI ESI PAPUA A & MALUKU Reven enue 86.0 Reven enue 19.7 Reven enue 18.4 a. Tax 32.0 a. Tax 16.6 a. Tax 10.7 b. Custom & Excise 1.1 b. Custom & Excise 0.6 b. Custom & Excise 1.7 c. Non Tax Revenue 52.9 c. Non Tax Revenue 2.5 c. Non Tax Revenue 6.0 Expen enditu iture 93.9 Expen enditu iture 104.5 Expen enditu iture 89.6 a. Transfer to Region 73.7 a. Transfer to Region 73.3 a. Transfer to Region 71.7 b. Ministerial b. Ministerial Spending 31.2 20.3 b. Ministerial Spending 17.9 Spending Nett tt (84.8) Nett tt (71.3) Nett tt (7.9) SUMATERA TERA JAVA BALI I & NUSRA Reven enue 1.143.2 Reven enue 15.5 Reven enue 141.1 a. Tax 884.9 a. Tax 11.7 a. Tax 66.9 b. Custom & Excise 161.6 b. Custom & Excise 1.5 b. Custom & Excise 6.8 c. Non Tax Revenue 96.6 c. Non Tax Revenue 2.3 c. Non Tax Revenue 70.4 Expen enditu iture 302.8 Expen enditu iture 56.4 Expen enditu iture 232.3 a. Transfer to Region 201.8 a. Transfer to Region 39.5 a. Transfer to Region 176.1 b. Ministerial b. Ministerial Spending 17.0 b. Ministerial 101 56.2 Spending Spending Nett tt (40.9) Nett tt 840.4 Nett tt (88.2) 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 Source: Ministry of Finance 4. Figure in IDR trillion 41

  35. Mainta tainin ining Producti ctive ve and Eff ffect ctive ive Spendin ing Polici cies es Continue nue the efficien iency cy of operational ional expense nse and incr crease ease the priori rity expend ndit itur ures es 2017 R-Budget get Minist sterial erial Spendin ing Non Minist sterial rial Spendin ing 798.6 T 798 568.4 T 568 ↑ IDR 35.0 T from 2017 Budget ↑ IDR 17.4 from 2017 Budget Oper eratio tional al % Inter eres est Payment nt Preparation for Regional 219.2 .2 T Expense nse Election and 2019 General Efficien iency Election ↓ Rp2,0 T from 2017 Budget ↓ 16.0 0 T Land Certification Energy Subsid idy 89.9T Addit ditiona ional UN Mission to Center Africa Priority iority ↑ Rp12,5 T from 2017 Budget Spend nding ing Asian Games 2018 ↑ 48.2 T Non Energy gy Subsid idy Development program 79.0T of agriculture and horticulture ↓ Rp3.7 T from 2017 Budget 42

  36. 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 tion 1 Infrastru tructu cture Deve velopme lopment nt Achie chieveme ment nt in 2016 IDR tn 2015: 88. 88.2% % of budget 2016: 84. 84.9% % of budget 400 Roa oad Devel elopm pmen ent t (km) 317.2 Target: 3,149.6 290.3 267.0 Realization: 2,528.7 300 256.2 200 Airpo rport Target: 15 (up to 2019) 100 Realization: 3 0 Budget Realization Budget Realization Brid idge ge (km) Target: 12.9 Ministerial Spending Non Ministerial Spending Regional Transfer Financing Realization: 10.6 Food Secu curity ity Realiz izatio tion ilway 2 (km) IDR tn Railw Target: 114.9 200 2015: 87. 87.5% % of budget 2016: 84. 84.3% % of budget Achievement: 114.9 150 125.9 117.9 110.3 99.3 Dam 100 Target: 37 Achievement: 37 50 0 Irr rriga igatio ion (km) Budget Realization Budget Realization Target: 4,889 Achievement: 1,025 Ministerial Spending Non Ministerial Spending Regional Transfer Financing Source: Ministry of Finance 1. Not including LRT South Sumatra and Jabodetabek 2. Land issues are in progress 43

  37. 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 Healt lth Expend nditur ure Educ ucatio tion n Expe xpend nditur iture IDR tn IDR tn 2016: 88.6% of budget 600 120 104.1 2016: 88.9% % of budget 2015 15: 95.5% 5% of budg dget 2015: 88.1% % of budget 92.3 500 100 416.6 408.5 390.2 74.8 370.5 400 80 67.0 300 60 200 40 100 20 0 0 Budget Realization Budget Realization Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing Ministerial Spending Non Ministerial Spending Regional Transfer Financing Vaccin ine avail ilabil ilit ity in Immunizat izatio ion for infan ants Unive versit ity y scholar arship ips for School Operat ational Commun unit ity Health Centre between 0 0 – 11 months underprivil ileged students (Bid idik ikmis isi) Assis istan ance (BOS OS) (Puskesmas as) Realizat ization: 4 million infants Realizat ization: 324 thousand college Realizat ization: 8.0 million Realizat ization: 81.5% Target 4 million infants students students Target: : 332 thousand college Target 80.0% Target: 8.2 million students students Health Insur uran ance Subsid idy Malar aria a Erad adicat ation (PBI) Realizat ization: 247 cities Indonesia ia Smar art Card (KIP) School Rehabil ilit itatio ion Realizat ization: 91.1 million Target 245 cities Realizat ization: 20.7 million people Realiza ization: n: 28,400 rooms students Target 92.4 million people Target: 30,300 rooms Target: 19.5 million students Accredited Regional al Hospit ital al Realizat ization: 201 hospit ital als Target 190 hospitals Source: Ministry of Finance 44

  38. Better tter Tar argeting eting of 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 Budg udget t for Educ ucatio tion n Program Budg udget t for Healt lth Program IDR tn IDR IDR tn % 450 416.1 200 6,0 Budget % of R-Budget 5,0 5,0 400 5,0 350 150 3,8 300 4,0 3,3 3,0 250 2,8 2,8 2,7 2,7 100 3,0 200 2,0 150 50 100 1,0 50 0 0,0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 Budget Budget Health th Insurance Indones esia ia Sma mart Card Bidik ikmi misi si Immu mmunizatio ion Stuntin ing Prevent entio ion Certific tificatio tion Subsidy (PBI) (KIP) Scholarship ship 101,100 teachers 360.5 thousands 19.5 million students Basic & complete Stunting prevention to 10,200 lecturers college students 94.4 million people immunization for 92% of 29.6% of children below 2 0-11 months old infants years old School Operatio tional School Oper eratio tional Assista tance Commu mmunity Health th Fami mily Plan Program m (KB) Assista tance e (BOS OS) Rehabil bilita itatio tion for College eges Centre e (Puskesma esmas) 41,128 rooms 8.5 million students 107 700 regencies 6.7 million people Colleges/Universities 45

  39. Impr proved ved Budg dget Allo loca cation tion Between tween Central al & & Local al Governm rnment ent …promoting better alloca cation of budget spending ing to local al governm rnment nt Trans nsfer er to Regio ions/Villa Village ge Funds & Minis nister erial ial Spending ing 2017 Transfe fer r to Regions ons and Villag lage Funds ds (R-Budg Budget) Special ial Autonomy y & Villag age Fun und (IDR60.0 tn tn) D.I Yogyak akar arta - DIY (IDR20.2 tn tn) 2013 2014 14 2015 15 2016 16 2017 2017 IDRtn Audit ited Audit ited Audit ited Audit ited Budget R-Bud udget Gradually increasing Improving efficiency and Villag age Fun und allocation effectiveness of Special ial Transfer to Average allocation of Autonomy & DIY Fund. 513.3 573.7 602.4 663.6 704.9 697.7 Region IDR800.5 million per village Village Fund - - 20.8 46.7 60.0 58,2 Incentive ive Fund (IDR7.5 tn tn) Total al 0.98% 98% 7.85% 85% Intergove vernmental al 513.3 573.7 623.2 710.3 764.9 755.9 Incentive ive Fund allocation Tran ansfer has been increased (317 regions were awarded an 2.65% 65% Minis isterial al incentive ranging 582.9 577.2 732.1 677.6 677 763.6 769.2 Spending between IDR 7.5bn and IDR 65. 3bn) 22.67% .67% 65.85% .85% Special ial Trans ansfer Fund nd Implementation of policy to allo locate spendin ing to regio ions ns • (IDR184.6 tn tn) Special ial Tran ansfer Minim nimum um 25% of general al transfe fer fund has to be used for • Fund allocation is public service infrastructure based on each General al Tran ansfer Fund (IDR494.0 tn tn) regions’ proposal and national Minimum of 25% (IDR125.9 tn) priorities earmarked for public service facility development acceleration. It provides revenue sharing fund to promote equal opportunity for natural resource producers & high tax earners Source: Ministry of Finance 46

  40. Policy cy of 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 2017 Infrastr 2017 tructu ture e Budget get Allocatio tion (IDR R billio ion) and Infrastru tructu cture Budget Alloc locatio tion 2016 realiz izatio tion IDR tn % Infrastructure budget Anggaran Infrastruktur 18,6 500 20 Java Ja Maluk uku u & Papua ua % of total state expenditure (RHS) % thd Belanja Negara (RHS) 15,2 400 14,2 15 2016 : 3,749.1 2016 : 3,229.4 2017 : 3.686.3 2017 : 3,257.8 10,2 300 9,8 8,8 8,7 8,3 10 8,1 2016 : 461,1 200 2016 : 1,680.2 2017 : 1,147.5 2017 : 1,941.7 5 100 168,5 154,1 256,1 317,1 387,3 114.2 145.5 76 86 Sulaw lawesi Kalima limanta ntan 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2016 : 2,694.4 2016 : 2,889.9 In 2017, min inimum um 25% of general al tran ansfer fund has to be used for public service infrastructure 2017 : 4,117.1 2017 : 3,641.6 2017 Constr truc uctio tion n Target 2016 : 606.2 2016 : 597.9 2017 : 1,042.6 Roa oad Devel elopm pmen ent Railw ilways 2017 : 634.5 Target: 815 km Target: 550 km Suma mate tera Bali li & Nusa Teng nggara Airpo rport Seapor port Target: 55 locations Target: 13 2016 : 661.3 2016 : 3,895.4 2017 : 1,207.3 2017 : 3,545.7 Brid idge ge Bus statio tion Target: 9,399 m Target: 3 locations 2016 : 101.1 2016 : 1,044.8 2017 : 308.2 2017 : 1,320.4 Source: Ministry of Finance 47

  41. Finan ancing cing Policy cy 201 017: : Gener neral al Objective jective & Policy P cy To manage To meet financing debt-to- needs at optimum GDP ratio cost and tolerable risk To optimize To support market the use of General al domestic external issuance currency optimize mix of development and loans To Policy cy To enhance public accountability as To part of transparent conduct Government debt active management debt portfolio Source: Ministry of Finance 48

  42. Budget et Finan ancing cing Breakdo akdown wn in 201 2017 Redemptio tion IDR350.9tn tn Breakdo akdown wn of budget et financ ncin ing IDR tn tn USD bn bn (eq. USD 26.3bn) bn) Governm ernmen ent debt bt (net) 384.7 28.9 Governm ernmen ent securi rities ies (net) 400.0 30.0 Debt (Gross) Domestic tic loans ns (net) 1.5 0.1 IDR735.6tn tn (eq. USD 55.2bn) bn) Foreig eign loans ns (net) -1.3 -16.8 Non-De Debt bt Budget et Financ ncing ng Financ ncing ng IDR54.5tn tn IDR330.2tn tn (eq. USD (eq. USD 4.1bn) bn) 24.8bn) bn) USD/IDR: 13,323 as of 31 May 2017 Note: Subject to change in market conditions and other factors Source: Ministry of Finance 49

  43. 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 Budget et Domestic tic Bonds Instrumen ments ts Indic icativ tive Target et Indic icativ tive Target et Weekl kly Auctio ction: n: (IDR R trn) (USD bn bn) * Conve ventio ntiona nal l secu curitie ities 24 x Islam lamic ic secu curitie ities 24 x Governmen ment t Securiti ities es (Net) et) 399.99 30.03 Non-Auc uctio tion: n: Governmen ment t Securiti ities es (Gross) s) 684.83 51.42 Retai tail l bond nds Comp mpositio tion Priva vate te Place ceme ment nt Based on request Dome mestic ic 79% 79% Gov over ernmen ent t Issuance e Targ rgets ets Intern ernati tional l Bonds ds Auction 93% • Issuance of international Sukuk Non-Auction 7% bonds as a complement to 29% avoid crowding out the Internatio tional Bond 21% 21% domestic market; • Consists of USD, YEN or * USD/IDR: 13,323 as of 31 May 2017 EURO global bonds; International bond issuance • Debt can be maximized up to Securities Fro ront Loa oadin ding g Issuance e For r Budge dget t Financin ing 25% from gross target, 71% depends on financing need • Pre-funding to optimize cost ahead of potential Fed rate hike Average Tenor Maturity (ATM) for Government Securities: • Anticipate developments in global environment • Government Securities target for 1 st semester 2017 is 57.4 % from 6-8 years gross issuance target • Government Securities target in Rupiah for 1 st semester 2017 is 42.7% from gross issuancce target Source: Ministry of Finance 50

  44. 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 Rema marka kable ble Debt bt Reduc uctio tion n Initia itiative tive Ove ver the Past t 10 Years US US$ bn Gover ernment Debt bt / GDP P (%) Chang nge in Debt bt to GDP P Ratio io (200 007 – 201 017) ) (%) 300 28,1 30 28,3 27,4 Philippines -27,07 24,9 24,7 Turkey -21,94 250 25 23 54,65 Indonesia -12,88 54,37 India -8,43 200 54,74 20 54,47 Argentina -2,75 63,76 56,61 150 15 Thailand 16,18 Brazil 27,32 220,98 206,95 100 10 Malaysia 40,31 174,7 155,24 140,76 136,27 Mexico 52,33 50 5 Vietnam 55,08 South Africa 93,46 0 0 Russia 113,56 2012 2013 2014 2015 2016* May 2017 -40,00 10,00 60,00 110,00 Securities (LHS) Loans (LHS) Gross Debt/GDP (%) (RHS) Source: IMF World Economic Outlook Database, April 2017 Source: Ministry of Finance Weig ighte ted Ave verage Debt bt Matur urity ity of ~8.9 Years** (As As of June ne 2017) Well ll Dive versif ifie ied Across Different nt Currenc ncie ies % of Yearly y Issuance ce Years 2% 1% 1% 2% 3% 3% 10,0 3% 4% 4% 3% 3% 9,7 3% 9,7 8% 7% 9% 9,8 12% 7% 9,6 14% 9,4 9,5 29% 30% 31% 29% 24% 29% 9,3 9,0 8,9 9,0 8,8 59% 57% 58% 56% 56% 53% 8,5 8,3 8,0 2012 2013 2014 2015 2016 Jun-17 2012 2013 2014 2015 2016 Jun-17 IDR USD JPY EUR Others*** Source: Ministry of Finance Source: Ministry of Finance *Based on 2016 realization, ** Using GDP assumption in 2016 R-Budget, ***SDR, AUD, and other 51

  45. 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 Exch change Rate te Risks ks Declin clinin ing Inte terest t Rate te Risks ks % % 23,2 25 46,7 50 22,5 44,4 44,5 43,4 21,0 20,7 41,8 40,8 19,3 20 17,8 40 16,2 16,0 14,8 13,7 15 30 12,3 11,2 10 20 12,2 11,7 11,7 11,0 10,7 10,2 5 10 0 0 2012 2013 2014 2015 2016* Jun-17 2012 2013 2014 2015 2016* Jun-17 Variable Rate Ratio¹ Refixing Rate² FX Debt to GDP Ratio** FX Debt to Total Debt Ratio Debt bt Matur urity ity Profile ile Upco comi ming ng Matur uritie ities (Ne Next 5 Years) IDR tn tn % 50,0 300 IDR-Denominated Other Currencies 39,1 110 110 36,5 250 40,0 135 135 34,7 33,9 33,4 32,4 88 88 123 123 200 30,0 112 112 23,5 128 128 23,0 88 88 21,8 21,5 21,4 20,1 150 103 103 71 71 18 18 20,0 44 44 116 116 21 21 201 201 189 189 100 12 12 5 9,1 168 168 8,6 8,4 7,7 7,2 140 140 46 46 6,6 17 17 10,0 126 126 124 124 116 116 16 16 107 107 50 101 101 100 100 100 100 98 98 97 97 28 28 28 28 31 31 90 90 23 23 21 21 20 20 1 66 66 29 29 53 53 52 52 45 45 27 27 1 39 39 29 29 26 26 28 28 22 22 22 22 23 23 20 20 0,0 15 15 0 2 5 7 0 2046- 2012 2013 2014 2015 2016* Jun-17 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2055 In < 1 year In < 3 year In < 5 year 1 Variable Rate Ratio is defined as ratio between debt instruments with variable rate divided by total debt instruments (variable + fixed rates) 2 Refixing Rate ratio is defined as ratio between debt instruments with variable rate + debt instruments with fixed rate maturing in 1 year divided by total debt instruments (variable + fixed rates) *Preliminary Figures **Using GDP assumption in 2017 Budget. Source: Ministry of Finance 52

  46. Profile le of Total al Centr ntral al Gover ernment ment Deb ebt Governm nment nt Debt bt Outs tstan tandin ing Foreig eign Own wnership p of Govern ernment Secu ecuritie ities at Longer Tenors USD bn (%) (%) 199,48 204,51 194,55 209,41 278,29 100 214,88 229,40 255,14 258,03 265,98 100 300 63,2 76,5 76,4 83,7 83,6 76,1 72,1 72,8 73,4 76,8 90 250 80 80 70 65,66 200 68,82 70,04 74,13 60 75,81 76,16 77,99 60 78,86 79,33 80,38 39,5 38,1 38,2 50 150 38,2 39,1 37,8 30,8 32,5 37,5 33,0 40 40 100 30 25,0 20 20 19,3 34,34 50 22,5 31,18 29,96 23,1 18,3 18,9 18,6 19,8 25,87 24,19 23,84 10 22,01 21,14 20,67 19,62 13,1 13,7 11,9 7,8 5,4 5,2 4,6 5,2 3,2 2,7 3,5 3,4 0 0 0 2011 2012 2013 2014 2014 2015 Jun-16 Des-16 Jan-17 Jun-17 2011 2012 2013 2014 2015 Jun-16 Des-16 Jan-17 Mar-17 Jun-17 Loan (LHS) Government Securities (LHS) Total (RHS) 0-1 1-5 >5 Foreign Ownership to Total Hold lders of Governm nment nt IDR Bond nds – Compositio tion n June ne 2017 2017 100 20,4 21,95 23,95 22,5 27,27 26,22 26 26 28,03 31,04 29,81 33,70 36,53 80 36,63 60 40,1 38,9 37,9 39,9 35,5 35,0 34,6 34,9 31,3 34,5 30,8 (%) 33,8 30,5 32,6 40 20 38,1 38,2 38,9 39,1 38,2 39,0 39,1 39,5 37,5 37,8 37,5 33,0 30,8 32,5 0 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 Source: Ministry of Finance 53

  47. Owner ersh ship ip of IDR Tra radab able le Cen entr tral al Governm rnment ent Securit urities ies (IDR DR tn) 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 41.63 3.44% 148.91 10.19% 150.13 9.12% 134.25 7.57% 175.89 9.01% Indones esia ia** **) Bank Indonesia (gross) 149.07 9.05% 157.88 8.90% 180.28 9.23% GS used for Monetary -1.05 -0.06% 23.63 1.33% 4.39 0.22% Operation 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 103.42 8.55% 110.32 7.55% 118.53 7.20% 120.84 6.81% 131.94 6.76% Banks Pension Fund 43.30 3.58% 49.83 3.41% 3.93% 4.92% 89.11 4.56% 64.67 87.28 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% 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. Source: Ministry of Finance 54

  48. Gover ernment ment Securit urities ies Real aliza izatio tion (IDR mn mn) Budget get Realiza lizatio tion % Realiza lizatio tion to Budget get 2017 (a.o .o. Jun. . 22, , 2017) Budget get 2017 399,992,586 586 253,339,039 63.3 .34% Gov over ernmen ent t Securi rities ies Net Gov over 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% 684,834,850 850 395,093,356 57.6 .69% Issuance e Need d for or 2017* Gov over ernmen ent t Debt t Securiti ities es (GDS) DS) 273,214,088 213,173,000 IDR Denom omin inated ted GDS DS 107,130,000 -Coupon GDS 105,650,000 -Conventional T-Bills -Private Placement 393,000 - -Retail Bonds 60,041,088 Inter ernatio tional l Bonds ds -USD GMTN 47,197,500 - -Euro GMTN 12,117,580 -Samurai Bonds -Domestic Foreign Denominated Bonds 726,008 Gov over ernmen ent t Isla lamic ic Debt t Securi rities ies 121,879,267 Dom omes estic tic Gov over 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 14,037,310 - Retail Sukuk 2,000,000 - Private Placement Glo lobal l Suku kuk 39,969,000 *Adjusted with issuance related to cash management realization Source: Ministry of Finance 55

  49. Positi tive ve Response nse of 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 omin inated ted Bonds ds Sam amura rai Bon onds ds Tenure re 10 yr 30 yr 5 yr 10yr 7 yr 12 yr 3 yr 5 yr December 8 th , 2015 March 29 th , 2016 June 14 th , 2016 June 21 st , 2016 Pric icin ing g Date te US$ 1.25 Nom omin inal US$ 2.25 bn US$0.75 bn US$1.75 bn EUR 1.5 bn EUR 1.5 bn JPY62 bn JPY38 bn bn Cou oupo 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 omin ing Bid Bid US$8.1 .1 bn bn US$8.6 .6 bn bn EUR 8.4 .4 bn bn JPY100 bn bn Increasing Incoming Bids in 2016’s Government Securities Issuance IDR 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 of government securities issuance in 2016 was 1.99 times (2015 was 2.08 times). Incoming Bid 2016 Awarded Bid 2016 Bid to Cover Ratio 2016 (RHS) Source: Ministry of Finance 56

  50. Sec ection tion 5 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

  51. Ban ank Indones esia ia Policy cy Mix: Ju July ly 201 017 th and th July The e BI Board ard of Gov over ernors ors agr gree eed on 19 19 th d 20 th ly 201 2017 to hold ld the e BI 7-days days Repo o 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% Deposit and credit Continues to growth are expected to Monitors closely Continues to stabilise Rupiah increase, to reach the various global risks, strenghten exchange rates range of 9-11% and 10- Predicts 2017 domestic especially coming from coordination with in line with the 12%. The potential Holds the BI the US, including the economic growth in the the central currency’s growth, however, are still 7-day Repo 5.0-5.4% range, supported planned FFR hike, the government and fundamental shadowed by a number Rate at Fed’s plan to unwind by stronger export regional value, while of risks, namely 4.75% performance and its large balance administrations, to maintaining domestic demand investment sheet, and keep inflation within market recovery prospects and uncertainties in the it’s target corridor mechanisms developments in the fiscal policy. banking consolidation. 58

  52. Ban ank Indones esia ia Policy cy Mix Mix: : 2015-20 2017 16 Jun 20 2016 16 • Cut BI Rate 25 bps to 6.5%, DF & LF Rate at 4.5% & 7.0% 14 Jan 2016 14 • Cut BI Rate 25 respectively bps to 7.25%, DF • Relaxed the loan-to-value ratio 19 19 Aug Aug 2016 20 Oct 2016 18 Mar 2016 18 26 Jun 2015 26 19 Jan – 20 20 July (LTV) and financing-to-value & LF Rate at • Held BI 7- Cut BI 7-day RR-LDR Cut BI Rate 2017 20 • ratio (FTV) on housing 5.25% & 7.75% day RR Rate RR Rate to RR-LFR 25 bps to Held BI 7-day RR loans/financing 4.75%, DF and • BI lower its and DF Rate Accomodate 6.75%, DF & Rate at 4.75%, • monetary • Relaxed partially prepaid at 5.25% LF Rate to LF Rate at banks SMEs DF Rate at 4.00% operation rates loans/financing and 4.5% 4.00% and 4.75% & loan in RR and LF Rate at even further, • Raised the floor on the Reserve • Cut LF Rate 5.50% calculation 7.25% 5.5 % Requirement - Loan to Funding ranging from to 6.00%. Ratio (RR-LFR) from 78% to 25bps to 45bps (O/N to 1Y) 80%, with the ceiling maintained at 92%. The change was effective on Aug. 2016 21 April 2016 16 21 Jul 2016 21 18 18 Feb 2016 • Held BI Rate at • Held BI Rate at 6.5%, & • Cut BI Rate 25 6.75%, and maintained BI 7-day RR Rate, bps to 7%, DF maintained DF & LF DF & LF Rate at 5.25%, 4.5% 18 18 Jun 2015 & LF Rate at Rate at 4.75% & & 7.00% respectively. 17 Nov – 17 17 Nov 2015 22 Sep 2016 • Increase the 5% & 7.5% 7.25% respectively. • BI continued to conduct 15 Dec 2016 Lowering IDR Cut BI 7-day Loan-to-Value • BI lower the • Reformulated policy financial market deepening by Held BI 7-day Primary RR by RR Rate to (LTV) ratio rupiah rate from BI Rate introducing new investment & RR Rate at 50bps from 5.0%, DF and • Reduce down denominated into the 7 day hedging products in the 4.75%, DF 8.0% to 7.5%. LF Rate to payments for primary reserve (Reverse) Repo Rate financial market, strengthened Rate at 4.00% Effective since 4.25% and automotive requirement by to improve the monetary management and LF Rate 1 Dec 2015 5.75%. loans 1%, from 7.5% effectiveness of strategies, & encouraged the at 5.5 % to 6.5%, monetary policy real sector to make optimal effective from transmission. The use of repatriation funds to Mar. 16th 2016 change was effective support the implementation of on Aug. 19th 2016 the 2016 Tax Amnesty Law 59

  53. Stab able le Monetary tary Environment ment Despite spite Chal alleng lenges es Inflatio lation n Continu tinues Und nder Controll lled Streng ngth thene ned Monet netary Polic icy Frame mewo work (%) CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) (%) 19 August ust 2016 19 8,0 The New 7,5 Monetary LF Rate: 7.00 7,0 Operation ion 14 BI Rate: 6.50 Framewo work 6,5 10,64 6,0 LF Rate: 5.50 9 5,5 BI 7Day RR Rate: 5,0 4.75 4,37 DF Rate: 4.50 4,5 4 DF Rate: 4.00 3,13 4,0 2,17 3,5 -1 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 7 9 11 1 3 5 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 Mei-17 Jul-17 2011 2012 2013 2014 2015 2016 2017 LF Rate BI Rate BI-7Day RR Rate DF Rate Rupia iah Exc xchang nge Rate Rema main ins Compar parable ble to Peers Credit Growth th Suppo pporte ted by Macropr prud udentia ntial Polic icy 17 * vs. 2016 YTD 2017 16 (YoY) Total Growth Working Capital loans Consumption Loans Investment Loans 40% 0,08 TRY -16,85 35% 4,51 MYR -5,57 30% -1,72 PHP -4,88 7,96 25% EUR -2,19 1,08 IDR 20% -0,19 5,39 KRW 15% 1,60 8,3% 5,61 THB 9,4% 1,62 10% 8,5% 5,18 INR Point to Point Average 2,14 5% 8,7% -1,60 BRL 9,60 0% *data as of June 30 th , 2017 5,09 ZAR 11,17 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 % -20,0 -15,0 -10,0 -5,0 0,0 5,0 10,0 15,0 2013 2014 2015 2016 2017 Source: Bank Indonesia 60

  54. 6 Meas asur ures es to Control ol Inflatio tion in 2017 On On Janu January ary 25 25 th th , 2017, the Gov Governm ernment nt and nd Bank ank Ind Indones nesia ag agree eed on on 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 of 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. 1 2 3 Dampen enin ing the Introduci cing Maint intainin ining vola latile le food (VF) F) second-round effect ct of Administe istered ed Price infla latio tion at 4-5% 5% by: Sequen enci cing Administe istered ed Price adjust stmen ents Including the planned conversion of several direct subsidies to cash transfers Example: (fertilizer, rice for the poor and 3kg LPG) Controlling transportation fares Strengthening Utilising fiscal Developing a infrastructure for food instruments and commodity flow data logistics in local incentives to extend 3 kg system, specifically areas, particularly the local government’s for food commodity warehousing for role in price stability 4 5 6 storage Stren engt gthe henin ing the Estab ablishin lishing the Stren engt gthe henin ing Encouraging diverse food Accelerating Strengthening Improving Bank Indonesia esia Natio ional Infla latio ion central al and local consumption in the connectivity interregional planting policy cy mix to Control Team governmen ment community, especially of infrastructure cooperation patterns maintain in fresh chillies and alliums, development coordin inatio ion Through Presidential Decree by fostering product to strengthen the National macroecono conomic mic Inflation Task Force (TPI) Through Eighth National innovation in the stability lity and Regional Inflation Task TPID Coordination Meeting processed foods industry Forces (TPID) in July 2017 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. Source: Bank Indonesia 61

  55. Improving ving the Effect ectivene iveness ss of Moneta tary ry Polic icy Tran ansm smissio ission Bank Indones esia ia has institu tuted ted a Reformula ulatio tion of Monet netar ary Polic licy Operatio tions Framew ework rk which consis ists ts of 3 pillar lars; (1) implementa ntatio ion of BI 7day Revers rse Repo Rate; (2) implement lementatio tion of reserv rve requir uirement nt averaging ing; and (3) contin tinue ue to implem lement ent money ey marke ket deepenin ening progr gram. Reformula rmulatio ion of Moneta etary ry Polic licy Operatio iona nal Framew ework rk Implem emen enta tatio tion of Implem emen enta tatio tion of Implem emen enta tatio tion of Reserv rve Money ey Mark rket et BI 7 Day Revers erse Requir iremen ent (RR) Deepening ning Progr gram am Repo Rate Averag aging ing Enhancement of Enhancement of monetary Enhancement of banking instruments policy signal liquidity management and transactions Source: Bank Indonesia 62

  56. Enhan anceme cement nt of Monetary tary Oper eratio tions ns Fram amew ework ork ...posit sitive ve resul ults ts thus far nd week Domes mestic tic Mone ney Marke ket t Yiel ield Curve ve (2 nd k of July 2017) Mone netary ary operation ion term rm stru ructu ture is being ing refer erred ed by mone ney mark rket rate tes Domestic ic mone ney mark rket yield ld curv rve tend nd to conv nver erge 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 PREVIOUS IOUS JIBOR BOR Can be traded among contributor banks for 10 • minutes. Up to the amount of Rp10 billion. • Up to 1-month tenor. • CURR RREN ENT JIBOR BOR (as per June 1 st , 2016) Can be traded among contributor banks for 20 • minutes. Up to a total of Rp20 billion. • Up to 3-month tenor. • Source: Bank Indonesia 63

  57. Introducing ucing Reser erve ve Requ quir irem ement ent (RR) Averaging aging Previo evious usly ly, RR ratio io is set at 6.5% (fixed) ed) of the TPF (Thir ird Part rty Fund) and to be maintain tain on daily ly basis. From 1 July 2017, the fulfilme ilment nt method of RR has been adjus usted ed to daily ily RR of 5% of TPF and averag age RR of 1.5% of TPF within in a fixed ed perio iod The Purpo rpose se of RR Averaging 2 3 1 $ To functio tion as To provid ide space To provid ide flexibilit ibility an inter eres est rate buffer er for liquid idit ity placem ement nt in liquid uidit ity management ent in order er to reduc uce in order er to boost in order er to increa ease inter eres est rate vola latilit tility financ ncial ial marke ket deepenin ening bank efficiency iency in the money ey marke ket Source: Bank Indonesia 64

  58. 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. 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 The growth th of bankin king loans ns was 8.71% % (yoy) in May 2017 Financing YoY Growth (rhs) Bank Loans YoY Growth (rhs) 5000 25% 450 35% 4000 20% 350 IDR tn IDR tn 25% 3000 15% 250 8.71% 15% 2000 10% 9.24% 150 1000 5% 5% 50 0 0% -50 -5% 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Capita ital l raisin ing throug ugh rights ts issue ues & & corpo porate te bond nd issua uanc nce in H1 Gross premi mium um reve venu nue in the domes mestic tic insur uranc nce indust ustry is also - 2017 increased from the same me perio iod last t year countin ntinuo uousl usly growing… IPO Equity 400 140 116.2 350 Rights Issue 120 300 Corporate Bonds & Sukuk 100 84.7 IDR tn 250 IDR mn 80 67.1 200 53.8 147 60 150 40 100 12.1 20 4.1 50 0 0 2012 2013 2014 2015 2016 Jan-Jun 2017 2012 2013 2014 2015 2016 Jan-May17 Source: Financial Service Authority (OJK) 65

  59. Finan ancial cial Institutio titutions ns Remain ain Robust st an and Le Less ss Vulner erable able 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. Risk-based ed capita tal (RBC) C) of the insurance e industr try also rema mains high gh, Banking sector’s capital adequacy ratio (CAR) was maintained at a high level. well above the mi minimu mum m thres esho hold (120%) As of May 2017 2017, CAR & Tier 1 Capita tal was 22. 22.86 86% % & & 20.08% % respec pectiv tively % CAR Tier-1 Capital 700% 281% 300% 25,0 22.86 650% 270% 20.08 20,0 600% 240% 15,0 550% 503% 210% 500% 10,0 180% 450% RBC - Life Insurance RBC - General Insurance (rhs) 5,0 400% 150% 0,0 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 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Gearin ing g ratio of mu multifin inance comp mpanies es was 3.03 time mes (well below the maximu ma 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 % Net Interest Margin Return on Assets 4 6 5.36 5 3.03 3 4 3 2.46 2 2 1 0 1 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Source: Financial Service Authority (OJK) 66

  60. 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 Inves estmen tment t adequacy ratio in the insurance e industr try y is ma maintained ed maintained ma ed at a h high gh level vel. above 100% Liquid Assets to Non-Core Deposits (lhs) % % % Life Insurance General Insurance 110 26 140 Liquid Assets to Deposit (rhs) 125.10 130 100 22 18.58 120 90 18 88.85 110 116.80 80 14 100 70 10 90 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 60 6 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 As of May 2017 2017, the gross & net NPL PL ratios of the banking g sector NPF ratio in the e mu multifi finance industr try was 3. 3.45 45% % as of May 2017 2017, , were e 3.07% & & 1.33% % respec pectiv tivel ely, ma maintained ed below the thresho eshold ma maintained ed well below the 5% thresho eshold % 4% NPL Net NPL Gross 3.45% 4 3.07 3% 3 2% 2 1.33 1 1% 0 0% 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Source: Financial Service Authority (OJK) 67

  61. 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 The movement of mutual funds’ net asset value (NAV) is in line maxim imum limit it (20%) %) with th that t of marke ket t index, but with th much ch lowe wer volatil tility ity IDR tn % NAV of Mutual Funds (lhs) IDX Stock Composite Index (rhs) 5 400 6.000 380 5.800 4 360 5.600 340 5.400 3 2.12 320 5.200 2 300 5.000 280 4.800 1 260 4.600 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 0 2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Multif tifin inanc nce companies’ exposures to foreign debt have generally been The inve vestme tment nt value lue of insur urers & pens nsio ion n fund nds rema main ined in an mitig igate ted throug ugh hedgin ing measur ures increasing ng trend nd IDR tn IDR tn IDR tn Domestic Debt Foreign Debt 162 900 300 Investment of Insurers Investment of Pension Funds (rhs) 160 850 868 250 800 140 244 750 120 200 700 100 650 150 80 600 85 550 100 60 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Source: Financial Service Authority (OJK) 68

  62. 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. Both th the stock ck & bond nd marke kets ts are in a streng ngth theni ning trend nd in The IDX Stock ck Composite ite Index x continu tinues to streng ngth then n and is amo mong ng July ly 2017 2017, with th a low w leve evel l of volatil tility ity the best-pe performi ming ng indic ices in the region n (as of July ly 14 th th , 2017, ytd) WORLD 11,24 230 6.200 THAI 2,26 Comp Bond Index Comp Stock Index (rhs) KOREA 19,16 220 INDO 10,10 5.700 HKN 19,95 SIN 210 14,12 PHIL 15,28 5.200 CHIN 3,83 200 MAL 6,90 JPN 5,26 4.700 EURO 190 5,24 AS 9,49 RUS -12,18 180 4.200 BRAZ 8,65 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 TURK 34,60 % -20 -10 0 10 20 30 40 In line ne with th the stabil biliz izin ing IDR and improvin ving dome mestic tic prospe pects cts, the Despite pite FFR R hike ke, the equi uity ty and gove vernm nment nt debt bt marke kets ts still ill gove vernm nment nt bond nd yiel ields continu tinued to declin cline attract ct nonresident nt inflows lows IDR tn Yield (%) 5-yr Yield 10-yr Yield 20-yr Yield 120 Gov't Debt Securities Equity 10 100 80 9 60 40 20 8 -9 0 -20 7 -5 -40 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 6 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 Source: Bloomberg, IBPA, Indonesia Stock Exchange, Ministry of Finance 69

  63. 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 & stru ructu turin ring Stren engt gthen enin ing finan ancial ial sector ector financ ancial ial sector tor base sed on superv ervis ision ion inte tern rnatio tional al sta tand ndar ards ds  Assessment on the soundness of financial institutions  Risk-based supervision for all financial sectors  Liquidity coverage ratio for banks  Regulations on domestic systemically-important banks  Regulations on risk management for financial and capital surcharge institutions  Enhancement of crisis management protocol and  Minimum capital requirement for banks interagency coordination  Enhancement of GCG for financial institutions and publicly-listed companies Financ ncia ial cong nglo lomerate tes account ount for 66.96% % of the total assets of financial sector… Improv ovin ing the inte tegr grate ted regu gula latio tion & supervision framework… Others  Such improvement has become even more important 33,04% due to the dominance of financial conglomerates in the domestic financial sector.  OJK has issued regulations on GCG, risk management, and minimum capital requirements for financial conglomerates. These will be followed by regulations on Financial liquidity management, capital management, and Conglomerates intragroup transaction exposures. 66,96% Source: Financial Service Authority (OJK), March 2017 70

  64. 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 Financia ial l Marke rket t Deepen epenin ing g Prog ogram First t Priori ority ty: Marke rket t Devel velopm opmen ent Coo oordin dinatio ion Conti tinuo nuous us Basis 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) Corporate • • Enriching money market instruments, encourage banks to raise long term funding, and acts as an alternative Bonds investment for investors Government • Monitoring, match Bank nk Indonesia a Regul ulati ation n (PBI BI) ) on Commercial al Paper • Bonds making, and Alternative sources of financing for non-bank corporations, as well as an investment outlet for investors Medium term • solution: notes FX Market Repo • Other • Develo lopment t roadmap dmap of Indo done nesia a CCP in OTC Derivati vative ves Hedging • • instruments To support FX market development and reduce market segmentation. Infrastructure • Establ ablish Local al Currenc ncy Settle lement nt Frame mework • (ETP, etc) 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 Supp ppor ortin ting g Regu gula lation tions Streng ngth thening ng JISDOR Money y Broker Certi tifi ficati ation n of Deale aler and d Code de of Conduc nduct Increase the governance of money broker Obligation on certification for dealers • • Strengthening the credibility of JISDOR • Revitalize role of money broker in financial Obligation to honor code of conduct • • Extend the usage of JISDOR • Dealers’ training for certification market • Inter er-agenc gency Coo ooper peratio tion On April 2016, the Minister of Finance, the Governor of Bank Indonesia, and the Chairman of the Board of Commissioners of 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. Source: Bank Indonesia 71

  65. Progres ess on G Gene eneral al Mar arket et Repo Agreement eement (GMRA) A) January ary 2016 March ch 2017 Signin ing 4 Banks nks 74 74 Banks ks Transaction saction 4 Banks ks 47 Banks ks Daily Volume IDR 0.0 IDR 1.0 – 4.6 tn tn Source: Bank Indonesia 72

  66. Contin tinuou ous Program am on 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 orpo pora ratio tions Enhan hancin ing the supply ly-side ide (inclu ludin ding g financia ial l instit titution tions) demons onstr trates es an incre reasing trend IDR tn IPO Equity 140  Simplification of public-offering requirements & 116.2 Rights Issue 120 procedures Corporate Bonds & Sukuk 100  Development of financial market products (mutual 84.7 funds, private equity funds, REITs, ABS) 80 67.1 53.8  Development of municipal bonds 60  Cross-border offering (harmonizing regulations with 40 ASEAN Disclosure Standards established by ACMF) 12.1 20 4.1 0 2012 2013 2014 2015 2016 Jan-Jun 2017 Enhan hancin ing the deman and-side ide  Expansion of the domestic investor base (conducting investor education programs) Stren engt gthen enin ing mark rket infras astructu ructure  Expansion of mutual fund distribution channels, including the marketing methods of securities companies  Expansion of Single Investor Identification (SID) coverage  Development of electronic trading platform (ETP) in the debt market  Development of integrated investment management Stren engt gthen enin ing govern rnance nce system  Enhancement of the clearing and settlement process  Development of market players’ capacity  Enhancement of capital market data warehouse  Enhancement of GCG for publicly-listed companies  Development of repo regulations and infrastructure Source: Financial Service Authority (OJK), July 2017 73

  67. Mac acropru rudentia dential Policy cy Mix to Support rt Growth th 1 Effective from August 24 th , 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. 2 Effective from August 29 th , 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 oss NPL for property loan/financing below 5%. The rationale is to stimulate domestic demand in order to drive domestic economic growth momentum while maintaining compliance to prudential principles. Hou ousing g Loans and Financin ing g Hou ousing g Financin ing g Based ed on MMQ Q and d IMBT T Contr tracts ts Based ed on Mura rabaha hah h and d Istis ishn hna Cont ontra racts ts Lendin ing/F g/Financin ing Facil ility ity Lendin ing/F g/Financin ing Facil ility ity Proper erty ty Proper erty ty type e (m 2 ) type (m 2 ) First Second Third First Second Third House House >70 m 2 90% 85% 80% >70 m 2 85% 80% 75% 22 - 70 m 2 - 90% 85% 22 - 70 m 2 - 85% 80% <21 m 2 - - - <21 m 2 - - - Apartment Apartment >70 m 2 90% 85% 80% >70 m 2 85% 80% 75% 22 - 70 m 2 90% 85% 80% 22 - 70 m 2 90% 85% 80% <21 m 2 - 85% 80% <21 m 2 - 85% 80% Home Shop/Office - 85% 80% Home Shop/Office - 85% 80% Source: Bank Indonesia 74

  68. 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 of infras astr tructu ture & Capacit pacity building ilding of finan ancia ial priorit ority econo nomic ic sec ecto tors rs instit titut ution ions  Strengthening the capital of financial institutions to  Enhancement of NBFI ownership in government increase their financing capacity bonds  Expansion of the business lines of multifinance  Private equity funds for infrastructure financing companies  Asset-backed securities specifically designed for  Capital requirements for rural banks based on their secondary mortgage financing operational zones  Insurance for farmers and fishermen Dev evelop lopmen ent of finan ancial ial Dev evelop lopmen ent of Islam lamic ic finan ancial ial products ducts & serv rvic ices es secto tor  Expansion of the distribution channels for financial  Strengthening the capital of Islamic financial products & services institutions  Development of sustainable finance regulations  Spin-off of the Islamic business units of commercial  Utilization of KYC information from third parties banks  Facilitating access to capital market as a source of  Development of Islamic financial product regulations funding (e.g. simplification of public offering ( sukuk , mutual funds, asset-backed securities) procedures)  Continuous education & socialization on Islamic  Capital market deepening initiatives financial products & services Source: Financial Service Authority (OJK) 75

  69. BI’s Roles in Supporting Distribution of Non -Cash Cash Socia ial As Assis istan tance ce (NC NCSA) A) BI supports ports govern rnment nt ’s progr gram am of 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 ough the electr tronic nic payme ment nt syst stem em. In the futur ure, electr ectron onic ic mechan hanism ism disb sburs rsem ement nt will be also applied ied to LPG subsidy. idy. NCSA SA Prog ograms Pilot ot Project oject Family ly Hope Progr gram am Smart rt Indones esia ia (Progr gram am Keluar arga ga Progr gram am (Progr gram am Harapan an -PKH KH) Indones nesia ia Pintar tar-PIP IP) Gradu adual Implem lemen entatio tion 2016-2020 9876543210 XXYYZZ 12345678 Full Implem lemen entatio tion Non Cash Food Assistanc nce LPG Subsid idy Inter erconnecte cted & inter eroper erable le payment system em 76

  70. Progr ogress ss of NCSA Progr ograms ams Family ily Hope Prog ogram am Pros osper perou ous Rice (Prog ogram Keluar luarga Harap apan an - (Ber eras as Sejahte jahtera / Ras astr tra) PKH) H) The Family Hope Program (PKH) is a program that • Rastra is a poverty alleviation and social • provides cash to very poor households. Rp 2 protection program that is managed by the million /year will be granted for each household central government. It provides subsidized rice to (hh). PKH will be granted every February, May, low-income households. Rp 110 thousand/month August, and November In December 2016, Non-Cash PKH was granted to will be granted for each hh as Non-Cash Rastra. • 23% of total target of household. For 2017, Non-Cash Rastra was targeted for 1.6 • In 2017, PKH is targeted for 6 million hh (50% or • million hh (9% of total target 15.5 million hh) in 45 3 million distributed on non-cash basis and the cities and 6 regencies. Non-cash Rastra can be remaining in cash basis. However, in the 2 nd used in certain stores: Toko Sembako, E-warong, semester of 2017 all PKH will be distributed on and Rumah Pangan Kita. non-cash basis. As of February 2017, Non-Cash Rastra was • granted to 881 thousand hh. PKH Target et Non- Non- Cash Cash Non-Cash Rastra will be expanded Cash • 50% 100% 50% to 10 million families in 200 regencies in 2018. 2 nd Semester of 2017 January 2017 • As of June 2017, Non-Cash PKH was granted to 2.65 million hh (88,33% of 3 million hh). 77

  71. Strong nger er Fundam amen entals tals Fac acing ng the he Headw adwind inds Inflatio lation n Rate te (%) %) Foreig ign n Reserve ves (USD bn) IDR Move veme ment nt (%) Significa cantly ly higher er than 1998 98 & 2008, 08, ample to cover er Inflation controll lled ed within the target et range IDR still l apprecia ciated ed in H1 - 2017 17 8.6 months of import and external 8. al debt repay payment 1998 -197 197 1998 82,4 1998 17,4 2008 -35 35 2008 2008 12,1 50,2 Sep-15 4.37 (yoy) Sep 16 1.1 (ytd) 5,62 Sep-15 123.09 12 09 June 17 6,8 June 17 June 17 More Liqui uid Marke ket (%) %) Non-Pe Performi ming ng Loan/NPL PL (% (%) Over ernigh ght interbank nk money market rate NPL lev evel el is belo low the maximum thres eshold d of 5% is rela latively ly lower er 62 62 1998 30,0 2008 3,8 10,5 5,7 4.39 May 17 Agu-15 3. 3.07 07 2,8 1998 2008 Jul-15 June 17 Exte xterna nal l Debt t (Pub ubli lic c & Exte xterna nal l Debt/GD t/GDP Governm nment nt Debt bt/G /GDP Priva vate te) to FX Reserve ve Ratio io Sligh ghtly ly high gher er than 2008, 08, but Consisten ently ly well-maintained ned below 30% Significa cantly ly lower er than 1998 98 crisi sis significa cantly ly lower er than 1998 98 3.1x 8.6x 27.4% 100.0% 116.8% 2.7x 33.2% 28.1% 2008 08 34.1% 1998 98 2008 08 1998 98 1998 98 2008 08 Q1 Q1-201 2017 May 2017 1 Q1 Q1-201 201 7 1 2017 year end position of debt/GDP ratio is projected based on GDP assumptions in APBN (Budget 2017) 78

  72. Outlo look ok of 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 omic 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. Econom nomic ic Growth Infl flation ion CAD AD (% (% of of GDP) Credit it Growth 2016 16 5.02 02% 3.02 02% 1.8% 8% 7.9% 9% (Rea ealiz izat ation) ion) 2017 17 5.0-5.4 5.4% <2.5% .5% 10 10-12% 4.0 ± 1% 2017 Econom omic ic Opport ortun unitie ities & & Challe halleng nges Globa bal Domestic tic Opport rtun unit ities ies • Improving global economic growth • Continous economic recovery process • Acceleration of world trade volume Challen lenges • Further FFR hikes • Ongoing consolidation in the corporate and banking • Fed’s plan to shed its large balance sheet sectors • Uncertainties in the US fiscal policy Source : Bank Indonesia 79

  73. Sec ection tion 6 Prog ogress ssiv ive In Infr fras astruc ructu ture De Develop opment ment: Strong Co Comm mmitme ment on Acce Ac celeratio tion of In Infr frastruc ructur ture Provisio ion

  74. 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 Regula ulatory ry Reforms rms Fiscal al Reforms rms Instit itut utio ional nal Reforms rms Viabilit ility Gap Fundin ing (VGF) KPPIP IP Direc ect Lending ing Issuance of MoF Reg. No. 223/2012. KPPIP is actively involved in accelerating Issuance of Presidential Reg. No. To increase project financial feasibility by delivery of priority infrastructure projects 82/2015. contributing up to 49% of Allow guarantee for direct lending to SOE PT. Sarana na Mult lti Infras astr trukt uktur ur the construction cost to accelerate financial close process for infrastructure projects Merging between PT. SMI and Gov’t Availabilit lability Paymen ent Investment Center (PIP) to become an Land Acquisit itio ion infrastructure funding company Issuance of regulatory framework for annuity payment scheme by the Issuance of Presidential Reg. No. Indo done nesia ia Infrastruc tructur ture Guarante tee Fund Government (MoF Reg. No. 190/2015 for 148/2015. (IIGF) Central Gov’r and MoHA Reg. No. 96/2016 To stipulate land acquisition acceleration for Regional Gov’t.) during the concession based on Law No. 2/2012 IIGF has the potential to provide project period after the project operational by guarantee for non-PPP projects private sector in order to make the project Econo nomy Packag kages es bankable PPP Unit Conduct deregulation for issues hindering Provide facilities to help GCA on preparing infrastructure delivery and develop a task Land Revolv lving ing Fund PPP project (PDF/TA) force under CMEA to ensure the effectiveness of economic packages Issuance of MoF Reg. No. 220/2010. A BLU LMAN implementation revolving-fund sourced from State Budget, The State Asset Management Agency is to accelerate land acquisition mandated to provide land fund for National Risk-sharing ring Guideline delines Strategic Projects to ensure timely land acquisition process IIGF has issues risk allocation and mitigation guidelines for PPP project Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 81

  75. 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 of Indone nesia sia Project oject Viab abil ilit ity Guar uarant ntee Availab ailabil ilit ity Land nd Dev evelop lopmen ent Fundin ding Tax Facilitie lities Fund Payme ment Acquis uisition ition Facility lity (PDF) PDF) Gap (VGF) F) Preparation Bidding Process Construction A facility with Guaranteeing A scheme in which contribution to Govt. concessionaires MoF Reg. No. contractual construction receive sum of A facility to support 159/PMK. obligations cost to money periodically land acquisition for 010/2015 re: tax under increase infrastructure Project from central or holiday for pioneer infrastructure development project regional projects particularly sector, such as concession financial projects that involve facility contributing government after base metal, oil agreements and to assist GCA on viability the completion of private sector refinery, basic Mof Regulation PPP project an asset. petrochemical, No 130/PMK. Managing Managing enitiy: preparation MoF Regulation, 08/2016 re: machinery, (PDF&TA) Entitiy: and MoHA Ministry of Finance, Govt guarantee renewable energy, Ministry of Ministry of Agrarian Regulation on for electricity & telco equipment Managing entity: Finance based Availability and Land project industries. Sector KPPIP, PT SMI PT on GCA Payment has been Spatial/BPN and acceleration will be further proposal BLU-LMAN IIF, and Ministry of ratified. expanded Managing entity: Finance IIGF and MoF Gov ’ t. Gov ’ t. commitment: Managing entity: Managing entitiy: commitment: Ministry of Finance US$ 12 mn (2016) Govt’s Ministry of Finance 49% max. Per & Ministry of comitment: project cost US$ 450 mn Home Affairs Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 82

  76. 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  Law No No. 2/2012 was was succes essfull lly applied plied in in: Regulation No. 71 of 2012 on Land Acquisition Implementation for Developing Public Facilities, which has been revised into the Presidential Regulation No. 30 1. 1. Pa Pale lembang – In Indr dralaya sect ection ion of of the the Tr Trans of 2015. The Amendment to the Regulation allows a Business Entity to allocate Sumater era Toll ll Roa oad Project oject funding for a land acquisition which can be reimbursed by the Government 2. 2. Java va Nor orth th Line Dou ouble le Track Rail il Project oject 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 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 83

  77. Effort rts to Accel eler erate te Infras astru tructu cture Provisio sion …the establishment of I ndone nesia ia Asset Manag agemen ment Agency ncy (LMAN) AN) th, 2016, Ind On Dec On ecem ember er 12 12 th, 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 of sta tate asset ets. LM LMAN should uld plan lan for funding funding and nd utiliza utilizatio tion of of 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 Legal al Basis 1. Property Management 2. Land Funding for 1. Government Regulation National Strategic Project No.27/2014 on the Management of State/Region Property 2. Finance Minister Regulation Portfolio io Assets No.219/PMK/2015 on the Governance and Organization of 1. Asset of ex-Pertamina: LNG Badak State Asset Management Bontang, LNG Arun, and 3. Finance Minister Regulation Tarogong Land No.1319/KMK.05/2015 on the 2. Asset of ex-Indonesian Bank Appointment of Indonesia Asset Restructuring Agency (BPPN) Management Agency as Government Agency to Implement Other portfolio: Asset of ex-Asset Financial Management of Public Management Company (PPA) and ex- Service Agency Contractor Cooperation Contract (KKKS) Source: Ministry of Finance 84

  78. Und nder President sidentia ial Reg. . No.3/2 3/2016 j.o j.o. . the Presid sidential ential Reg. . No. o.58 58/20 /2017, 245 45 proj ojects cts and nd 2 prog ogram ams are listed ted as PSN Projects 27 Projects Projects Projects 61 24 13 US$13.0 Bn US$43.4 Bn US$49.0 Bn US$34.2 Bn 93 93 1 2 Programs Projects National 10 10 12 12 Projects Proyek Projects US$100 Bn US$81.9 Bn 15 Projects US$0.8 Bn PSN includ udes es 15 s sectors ors at projec ect level el and 2 sectors ors at program am level el ject Proje WATER & INDUSTRI-AL IRRIGA- TECH- OIL FISHERY ROAD SEAPORT AIRPORT HOUSING HOUSING IRIGASI SMELTER SEA DIKE RAILWAY DAM SANITA- ZONE NOLOGY TION REFINERY 74 74 30 30 54 54 7 7 4 12 12 1 1 23 23 10 10 8 3 3 TION 6 9 Projects Projects Projects Projects Projects Project Projects Projects Projects Project Projects Projects Projects Projects Project s gram am Electricity 1 Airplane 1 Progr Small- PROGRAM Medium PROGRAM Exchange rate: US$ 1 = IDR 13,000 85

  79. PSN may ay receive ive pri rivil vileg eges es as stipula pulated ted in the Presid sident entia ial Reg. . No. o. 3/20 2016 j.o j.o. . the Presid sidential ential Reg. . No. o. 58/2 /2017 Acceleration of Non- Determination of National State Budget Strategic Projects Projects Settlement of Permit & Non- 12 01 01 Legal Issues permit Completion 02 11 Accelerate Goods and Spatial Planning Service Procurement 03 10 10 09 04 Problems and Land clearing Hindrance Completion acceleration 08 05 07 06 Local Content SOE’s Assignment Utilization Projects Monitoring Government Additional Facilities via KPPIP IT System Guarantee Provision Existing Facilities 86

  80. Progres ess on 245 45 Natio ional al Strate tegic gic Projects ts The Estimate ated Inves estment ent Cost of National nal Strateg tegic ic Pro roje jects LOCATION IONS 1. Sumater tera 61 61 4. Bali & 15 15 State Nusa Tengga gara Notes: Budget et 2. Java 93 93 • The investment cost was (IDR5 R525 tn tn) tn tn calculated for 245 NSP. 6. Maluku uku & Papua ua 13 13 3. Kalimantan ntan 97 4,197 24 24 • Excluding cost of 16 NSP with unknown investment cost. SOE 7. National nal 12 12 4. Sulawe wesi 27 27 (IDR1 R1,258 tn tn) IDR SECTORS RS Priv ivate te (IDR2,414 tn tn) Com Communi Natio tional l Econo onomic ic Roa oad Irr rriga igatio ion -cation tion Bord rder ers Zones es Pro rogres gress of Natio ional al Strateg tegic ic Pro roje jects (as of June 201 2017) 74 74 4 3 30 30 7 2% Hou ousin Water er Sea Fisherie ies/ 5 projects are completed Ener ergy gy Airpo rport g Supp pply ly dike Marit itim ime 40% 130 projects are under construction 1 3 12 12 1 9 8 1 53% 12 projects are during transaction Aircra rcraft t Seapor por Smel elte te Railw ilway Dams Power er indu dustr tr 100 projects are in preparation t r y 5% 1 Including one electricity program under construction category (39% of electricity program has reached 10 10 23 23 54 54 6 1 1 construction per April 2017) Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 87

  81. Progres ess on 3 30 Pri riori rity ty Projects cts From the Nationa ional Strateg egic ic Proje jects, ts, the Gov over ernm nmen ent has selecte lected a list of 30 Priority iority Proje ject to be the focus us of of infrastr tructu ture deliv livery ry in the begin ginning ing of 2016. 6. 4 8 9 4 29 29 1 29 29 2 4 4 30 30 26 26 29 29 20 20 29 29 29 29 25 25 29 29 29 29 24 24 4 4 14 14 29 29 29 29 29 29 5 7 16 16 4 17 13 13 4 17 27 27 6 Constructio tion 23 23 21 21 3 22 22 15 15 18 18 28 28 Transactio tion 12 12 10 10 Prepa paratio tion 11 11 19 19 Reassess essed ed 1. Balikpapan-Samarinda Toll Road 2. Manado-Bitung Toll Road 21. Central-West Java 500 kV Transmission Line 3. Panimbang-Serang Toll Road 22. Batang, Central Java Powerplant 4. Trans-Sumatera Toll Road (8 Sections) 23. Indramayu Powerplant 5. SHIA Express Railway 13. Inland Waterways Cikarang-Bekasi-Laut (CBL) 24. Mine to Mouth Powerplant South Sumatera 8-10 6. MRT Jakarta South-North Line 14. Light Rail Transit (LRT) South Sumatera 25. Bontang Refinery 7. Makassar-Parepare Railway 15. Integrated LRT Jakarta-Depok-Bogor-Bekasi 26. Revitalization of the Existing Refineries 8. Kuala Tanjung International Port Hub 16. National Capital Integrated Coastal Development (Balikpapan, Cilacap, Balongan, Dumai, Plaju) 9. Bitung International Port Hub (NCICD) Phase A 27. New Port Development in West Java (North Part) 10. Karangkates IV & V (2x250MW) 17. Jakarta Sewerage System 28. Tuban Refinery Hydro-Electric Plant 18. West Semarang Water Supply System 29. Palapa Ring Broadband 11. Kesamben (37MW) Hydro-Electric Plant 19. High Voltage Direct Current (HVDC) 30. East Kalimantan Railway 12. Lodoyo (10MW) Hydro-Electric Plant 20. Sumatera 500 kV Transmission Line Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 88

  82. Progres ess on 3 30 Pri riori rity ty Projects cts Prog ogres ess of 30 Prio iori rity Project ojects (as of July ly 2017) Recen ent t Miles esto tones es Bitu tung ng Inte terna nationa ional Port rt Hub 10% 17% Consultant team of OBC PHI Bitung has been established, 13 projects are in construction PT Mott MacDonald Indonesia, PT Deloitte Konsultan Indonesia, dan PT Hanafiah Ponggawa & Partners 3 projects are in transaction 9 projects are in preparation Cilac lacap ap Refine inery ry Rev evitaliza italizatio tion 30% 43% KA-ANDAL assessment process is completed after 5 projects are reassessed 1 fulfilling administrative pre-requirements including letter from Spatial Planning Director General, Seaport Transport Director General and project’s inclusion in National Port Master Plan. Fundin ding g Schem eme e of 30 Prio iority ity Project ojects Wes est Semar aran ang Wate ter Supply ly PPP has been agreed as the financing scheme by the main State stakeholders Budget et (IDR2 R255 tn tn) Jak akart arta MRT (Sou outh th-Nort North Line ne) Governor regulation No. 53/2017 regarding the assignment SOE to PT. MRT Jakarta was published. (IDR3 R325 tn tn) Priv ivate te (IDR7 R770 tn tn) 1 5 projects reassessed include HVDC; Mine Mouth South Sumatera 8,9,10 Plant; Karangkates IV & V, Kesamben and Lodoyo Plants. Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 89

  83. Energy gy Secto ctor: r: the he Progres ess of 35.000 000 MW Program am Debottl tlen enec eckin ing g through gh regulatio tion: Aver erage ge economi mic growth th of 6.7% % 1. Regulation No.1/2015 concerning electricity requir ires es 7,000 MW / year or Launchi hing g 35.000 MW supply cooperation & joint utilization of the 35,000 MW / 5 years by the President in Cabinet t Meeting ing electrical network among license holders. Goa Beach Sanden (Kepmen ESDM No. 0074/2015 on Progress of DIY 2. Regulation No.3/2015, concerning RUPTL 2015-2024) 35,000 MW Procedures of Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection & Appointment. Jan ‘15 17 Dec ‘14 Jan ‘15 16 Mar ‘15 4 May ‘15 Cabinet t Meeting ing June‘1 7 The progres ess so far: “There’s electricity crisis in Indonesia, requires construction of large capacity plant " 35,000 MW Prog ogram Distrib tributio tion No No Phase MW MW % Sulawesi si Kalim imanta tan PLN: 2,000 MW PLN: 900 MW Papua 1 Operating 758 2 Private: 1,470 MW Private: 1,735 MW PLN : 220 MW Transmission: 5,275 ckt.km Transmission: 5,604 ckt.km Private: 0 MW 2 Construction 14,593 41 Substation: 4,390 MVA Substation: 3,500 MVA Transmission: 364 ckt.km Substation: 460 MVA 3 Signed Power-purchase Agreement 8,150 23 Sumate tera PLN: 1,100 MW 4 Procurement 5,355 15 Private: 8,990 MW Transmission: 18,729 ckt.km 5 Planning 6,970 19 Substation: 35,521 MVA Maluku Nusa Tenggara PLN: 260 MW Jawa & Bali Source: KPPIP PLN: 670 MW Private: 12 MW PLN: 5,000 MW Private: 0 MW Transmission: 653 ckt.km Private: 13,697 MW Transmission: 2,347 ckt.km Substation: 620 MVA Transmission: 9,185 ckt.km Substation: 1,410 MVA Substation: 66,265 MVA Source: PLN 90

  84. Accel eler eratio tion of 35.00 000 MW Program am The Gov over ernmen ent t has issued ed Pres esiden identia tial l Regu gula latio ion No. o. 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 Local l Con onten tent t Gov over ernmen ent t Supp ppor ort t (outs tside ide Guara rantee) tee) Provision of Primary Energy Obligation on the usage of local content • Gov over ernm nmen ent Provision of Renewable Energy through an open book system, price • guideline, reverse engineering or other Simplicity of Permits and non-Licensing • methods to maximise the local content. Spatial Planning • Land acquisition • Assign ignmen ent Resolution on Legal Matters • PT PLN Prov ovis isio ion of Electri tricity ity 1 2A 2A 2B 2B SJKU* U* EPC C Power erpla plant t PLN Subsidia idiary Indepen ependen ent Minis istry try of and d Transmis issio ion (Joint oint Ventu ture) e) Power er Prod oducer er Finance Stren ength gthen Equity ty Strength then PLN ‘s Balanc nce Sheet PT PLN ’s divident Loan from Equity Injection by allocation independent lenders the Government Refin inancin ing Hedgin ging Bond issuance Asset Direct Company *)SJKU= Surat Jaminan by PT PLN Revaluation Lending Tax Holiday Financia ial l Asset et Optim imiz izatio ion Kelayakan Usaha / Direct Other types Business Viability of funding Lending Guarantee Letter Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 91

  85. Sign gnificant ificant Progres ess on Infras I astr tructu ucture Projects cts Roads Impr prov ovin ing g Monitor itorin ing g System tem on Infrastru tructu ture e Project ojects 1 KPPIP developed an integrated IT System for monitoring of national strategic and priority projects, providing database on projects’ latest status which can be effectively utilized for monitoring and decision-making purposes. Databas ase Platform rm data outlook Trans-Sumatr tra Toll Road Merah h Putih ih Bridge idge, Ambon Project information that is efficient and Dams Drinki nking ng Wate ter Proce cessin ing such as map, track, functional using a existing study and user-friendly latest project status. framework. Umbulan Drinkin king Water Provi visio sion System, East t Java Jatig igede de Dam (Opera ratio tional) Transp nsportatio tion An integr grated ted IT Record decisions related system with to projects and Jakarta ta MRT Project 2 Terminal 3 Ultima imate te Soeka karno-Hatta tta 2 monitoring capacity synchronize ize the for stakeholders, so implementation schedule that they can have that can be utilized by real time data ta. stakeholders. 1 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 2 Not funded from National Budget Nop Go Golia iat t Dekai, i, Papua 92 New Tanjung Priok k Port t Project 2

  86. Inves estm tment ent in Iron Ore, e, Alumin mina an and Bau auxite ite Smel elter er Exis istin ting g Iron on Ore e Refin iner ery Facility ility Ore Input ut Con oncentrate e Input ut Capac acit ity Investment No. Compan any Produc uct Progress Completio ion Date Capac acit ity (ton) (ton) (USD mn) 1 PT DPS Sponge iron 1.100.000 220.000 40 100% 2012 Sponge iron, 2 PT MJIS 3.300.000 660.000 150 100% 2013 slab, billet 3 PT SBP Cold Bricket Iron 240.000 65.800 120 100% 2017 Upcom omin ing g Iro ron Ore e Refin iner ery Facility ility Ore Input ut Con oncentrate e Input ut Investment No. Compan any Produc uct Progress Completio ion Date Capac acit ity (ton) Capac acit ity (ton) (USD mn) 1 PT SILO Sponge iron 8.000.000 6.300.000 170 61% 2021 Sponge iron 0% 2020 2 PT RS 3.200.000 264.000 6,9 Existin isting g Alumin mina and d Bau auxit xite e Refin inery ery Facilit ility Investment No. Compan any Produc duct Input ut Capac acit ity y (ton) n) Progress Completio ion n Date (US$ mn) PT Indonesia Chemical 1 Chemical Grade Alumina 851.725 0,49 100% 2013 Alumina 3.000.000 (Phasa 1) Phase 1 : 100% 2016 (Phase 1) 2 PT Well Harvest Winning Smelter Grade Alumina 1,1 6.000.000 (Phase 2) Phase 2 : 0% 2017 (Phase 2) Completed and operating Completed but not operating Source: Ministry of Energy and Mineral Resources, July 2017 93

  87. Inves estm tment ent in Nickel ckel Smel elter er Source: Ministry of Energy and Mineral Resources, July 2017 94

  88. Finan ancing cing Nee eeds an and Sche hemes mes Gen ener eral l criter iteria ia for or financin ing g schem emes es Infrastru tructu ture Financin ing g Need d 2015-2019 2019 Government Budget is used for basic infrastructure projects, • *(USD D bn bn) ) mainly for projects that are economically feasible but 399. 9.6 6 164.8 4.8 financially are not. SOE scheme is used for projects managed under SOEs • (electricity, toll roads, oil, etc.) to leverage public funding 41,3 ,3% channeled through capital injections (PMN) and empower SOEs 234. 4.8 88.8 .8 PPP scheme is mainly targeted for projects that are both • 100% 0% economically and financially feasible. 145. 5.9 22,2 ,2% • The government may provide financial support to make certain projects 58,7% ,7% financially feasible. 36,5 ,5% PPP schem eme e and d facilities ilities pro rovided vided to PPP Pro roject ects Financ ancing ng Gov ’ t t Financ ancing ng SOE SOE Private vate Needs ds Budg dget Gap Gap Source: Ministry of Finance Financia ial l Facilities ilities Prov ovided ided to SOEs Infrastr tructu ture e Proj oject ects • 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 • 95 95

  89. Man anag agem ement ent of C Conting tingent ent Li Liab abilities ilities Guarantee tee Prog ogram Based ed on Guara rantee tee Cla lassif ific icatio tion Gov over ernmen ent t Guarantee tee Prog ogram and Por ortfo tfolio lios 2008 - Pres esen ent Commit itted Exposur ure/  Power Central al Government Guar arantee Guar aran antee Guar aran antee er (Elect ectri ricity) ity) – Full credit guarantee for No. No Outstanding for Infrastruct uctur ure Programs Docum uments Amoun unt PLN’s default on its payment obligation (FTP (USD bn bn) 1 (USD bn bn) 1 1 10,000 MW, 35GW)  Water er – 70% guarantee of PDAM’s principal Coal Power Plant 10,000MW Fast 1 36 6,98 3,47 payment obligation Track Program (FTP 1) Credit edit  Infrastru tructu ture - Full credit guarantee on Guarantee tee SOE’s default (for lending from international 2 Clean Water Supply Program 10 0,02 0,01 financial institution) & guarantee for PT SMI (local infrastructure financing) Direct Lending from International  Toll 3 2 1,10 0,23 ll roa oad – Full credit guarantee on Hutama Financial Institution to SOEs Karya’s payment obligation (Sumatra Toll Road Development) 4 Sumatra Toll Road Development 3 0,20 0,07 Renewable energy, Coals & Gas 5 12 11,91 1,47  Power Busin ines ess Power Plant 10,000 MW (FTP 2) er (Electricity) – Guarantee on the Viability ility viability of PLN to fulfill Purchase Contract 6 Public-Private Partnerships (PPP) 5 5,81 0,83 Guarantee tee Electricity & guarantee against political risk Total al 68 68 26,03 03 6,08  Infrastru tructu ture – Guarantee on the obligation PPP PPP of Government related entities in accordance As % of GDP 2.8% 0.7% Guarantee tee to the Agreement 1. USD/IDR: 13,360 as of 14 Mar 2017 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 96

  90. 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 More Fundin ing Schemes es are on the Pipelines lines Project Financing funded by the priv ivate te secto tor through the granting of concessions for an operating asset owned by the Proje ject Develo lopment ent Viabilit ility Gap Fund Government/SOE (based on the policy of the LCS (VGF) Facilit ility (PDF) Government) to the private sector to be (Limited ited operated & managed. Concessio ion Scheme) e) Sche heme me Character teristic istics Asset is owned by public sector • Operating asset, not greenfield project • Governm ernmen ent Guarante ntees es Records positive cash flow for the last • (dir irec ectly ly by MoF or through gh IIGF) several years Predicted revenue • Project Financing funded by any source of funds other than Government’s budget, e.g. long term management funds (insurance, PINA Availabilit lability Paymen ent Financ ncing ing from repatriated funds from tax amnesty, pension (Non-Gov Governm ernment nt Schemes es PT PT. SMI and PT. IIF funds, etc.), private equity investors and Budget et infrastructure funds. Supported & facilitated by Infras astr truc uctur ure National Development Planning Financ ncing) ing) Ministry/Bappenas. Those financial facilities were instrumental in supporting the execution of Sche heme me Character teristic istics PPP projects, indicated by the signing of financial close of the following PPP projects: Asset is owned by private sector • Greenfield / brownfield / operating projects • 97

  91. Progress ess of P PPP Infrast astru ructur cture Proje jects ts Succes essful ful Proje jects ts Reaching ing Finan ancial ial Close in 2016 and 2017 Projec ect Cost No No Projec ect Name me Financia ial Facil ilities ities Status (IDR R tn tn) 1 Central Java Power Plant 40 Guarantee (MoF & IIGF) FC on June 6 th , 2016; Construction 30%; COD Target: May 2020 2 Palapa Ring – West Package 1.28 PDF, IIGF Guarantee & AP FC on August 11 th , 2016; COD target: February 2018 3 Palapa Ring – Central Package 1.38 PDF, IIGF Guarantee & AP FC on September 29 th , 2016; COD target: March 2018 4 Palapa Ring – East Package 5.13 PDF, IIGF Guarantee & AP FC on March 29 th , 2017; COD target: September 2018 5 Umbulan Water 2.1 PDF, VGF & IIGF Guarantee FC on August 30 th , 2016; COD target: July 2019 Signed PPP PP Proje ojects in 2016 and 2017 Projec ect Cost No No Projec ect Name me Financia ial Facil ilities ities Status (IDR R tn tn) 1 Batang – Semarang Toll Road 11 IIGF Guarantee PPP & guarantee contracts signed on April 27 th , 2016 2 Manado – Bitung Toll Road 5.1 IIGF Guarantee PPP & guarantee contracts signed on June 8 th , 2016 3 Samarinda – Balikpapan Toll Road 9.9 IIGF Guarantee PPP & guarantee contracts signed on June 8 th , 2016 4 Pandaan – Malang Toll Road 5.9 IIGF Guarantee PPP & guarantee contracts signed on June 8 th , 2016 5 Serpong – Balaraja Toll Road 6.0 - PPP contracts signed on June 8 th , 2016 6 Jakarta – Cikampek Elevated Toll Road 14.8 Co guarantee (MoF & IIGF) PPP & guarantee contracts both signed on December 5 th , 2016 and February 22 nd , 2017 7 Krian – Legundi-Krian Toll Road 9.0 Co guarantee (MoF & IIGF) PPP & guarantee contracts both signed on December 5 th , 2016 and February 22 nd , 2017 8 Serang – Panimbang Toll Road 5.3 Co guarantee (MoF & IIGF) PPP & guarantee contracts signed on February 22 nd , 2017 9 Cileunyi – Sumedang-Dawuan Toll 8.2 Co guarantee (MoF & IIGF) PPP & guarantee contracts signed on February 22 nd , 2017 Road Source: Ministry of Finance, as of July 2017 98

  92. New Guar aran antee tee Sche hemes mes for Non-PPP PP Projects cts Guarant antee ee on SOE Direc ect Lending ing from Interna rnatio tional nal Financ ancial ial Institut tutio ions ns (IFIs Is) The Government had issued Pres esid identi ential al Re Regula ulatio tion No No 82 82/2015 and Minis inistr try of of 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. The objective of this guarantee is to provid ide credit edit enhanc ncem emen ent in terms of low inter erest rate and long tenor finan ancing ing, with 3 main prin incip iples les: Best practic tice of fiscal al risk State finan ance soundnes ness Fiscal al sustainabiliy nabiliy managem ement ent Guarant antee ee for Regio ional al Infrastr tructur ture Financ ncin ing Provis isio ion The objective is to give give sti timulus to to the the accel eleration ion of of local lo The Government had issued Based on Gov Govern rnmen ent Regu egulation tion in infrastr tructure re dev devel elop opmen ent through Min inis istry try of of Fin inance Regu egulati tion on No No No. No 95/2015 95 2015 and Min inis istry try of of the ease of access to infrastructure 174 174 of of 2016 2016 to provide guarantee Fin inance Reg egulation tion No No. 232 232/2015 2015, to PT SMI on the assignment of financing and to boost local Minister of Finance assigns PT SMI regional infrastructure financing economic growth, as well as to ( Sarana Multi Infrastruktur ) to carry provision, by loan to local provide alternative financing out functions in providing loan to governments that is transferred schemes in order to meet local local government, as previously from PIP to PT SMI, and new loan infrastructure development needs carried out by PIP (Government channeled by PT SMI to the local Investment Center). and to reduce reliance on government. state/local budget. 99

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