April 2020 About ut Investor or Relati ation ons Unit it of the - - PowerPoint PPT Presentation

April 2020

Republic lic of Indone nesia ia

Maintain tainin ing Stabi ability lity and Suppor

• rtin

ting Growth wth, Mitigatin igating Covid id-19 Risk sk

1

About ut Investor

• r Relati

ation

• ns Unit

it of the Republic lic of Indone nesia ia

Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial market investors. As an important part

• f its communication

measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among others: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of State Owned Enterprises, Ministry of Energy and Mineral Resources and Financial Services Authority. IRU also convenes an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit – Republic of Indonesia Website: http://www.bi.go.id/en/iru/default.aspx Contact: Wiwit Widyastuti (International Department - Bank Indonesia, Phone: +6221 2981 8279) Putri Rizki Yulianti (Fiscal Policy Office - Ministry of Finance, Phone: +6221 345 0012) Subhan Noor (Directorate General of Budget Financing and Risk Management - Ministry of Finance, Phone: +62213510714) Phone: +62213510714) E-mail: contactIRU-DL@bi.go.id This Presentation Book also can be downloaded from: http://www.bi.go.id/en/iru/presentation/red/Default.aspx

2

What’s New in This Edition

S&P Affirm Sov

• vere

reign Credit t Rating Indonesi sia at BBB and Revise se Outlook

• k to

to Negati tive

…page 7

Authorities’ Concerted Efforts tow toward Covid-19 19

…page 11-18

Bank Indon

• nesia maintained BI 7-Day

Reve verse se Repo Rate te by by 25 bps to to 4.50% and low

• were

red Reserve Requ quire rement t by 200 bps

…page 67-68

Outlook k of Domesti stic c Economy

…page 112

Fiscal Policy Updates

…page 46-56

3

Overvie iew

1 2 3 4 5 6

Institut utiona

• nal and Gov
• ver

erna nanc nce e Effe fectiven enes ess: Accel eler erated ed Refor forms Agen enda da with Institut utiona

• nal Improvem

emen ent Econom

• mic Factor:

Strong and Stable e Growth h Prospec ects Remain n Intact External Factor: Improv

• ved

ed External Resilien ence Fiscal Perfor

• rmanc

nce e and Flexibility: Pruden ent Fiscal Policy to Combat the COVID-19 19 Pandem emic and Maintaini ning ng Econom

• mic

Sustaina nability Monet etary and Financial Factor: Credible e Mone netary Policy Track Recor

• rd

d and Favourabl ble Financial Sector Progres essive e Infrastruc uctur ure e Devel elop

• pmen

ent: Strong Commitmen ent on Accel eler eration

• n
• f
• f Infr

frastructure e Provision

• n

Institut itutio ional al and Government ment Effec ectiv tiven eness: ess: Ac Acceler elerat ated ed Refor

• rms

ms Agenda da with th Institut itutio ional al Impr mprovemen ement

Section tion 1

5

Improving ing Glob

• bal

al Percepti tion

• n

…with recent improvem emen ents on corru ruption

• n percep

eption

• n index and gov
• vern

ernance e indicator

• r

1. Source: World Economic Forum – The Global Competitiveness Report 2019; 2. Source: World Bank – Doing Business 2020 Report; 3. Source: World Bank – The Worldwide Governance Indicators 2019 Update; 4. Source: Transparency International – Corruption Perceptions Index 2019 Report

Worldwid ide Gover erna nanc nce e Indic icator

• rs3

Ease e of Doing Busin iness2 Glob

• bal

l Compet etit itive ivenes ess Index ex1 Corruption

• n Perception

ion Index ex4

Higher rank is better Higher score is better Higher rank is better (rankings at the time of annual report publication) Higher rank is better 41 36 45 50 20 30 40 50 60 70 80 90 Rank India Indonesia Philippines Bulgaria Colombia 91 72 73 73 20 40 60 80 100 120 140 160 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Indonesia India Philippines Bulgaria Colombia

52 28 59 51 43 46 15 30 45 60 2010 2011 2012 2013 2014 2015 2016 2017 2018 Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption 38 40 41 41 36 34 42 43 36 37 30 32 34 36 38 40 42 44 2012 2013 2014 2015 2016 2017 2018 2019 Indonesia India Philippines Bulgaria Colombia

6

Conti tinu nuous

• us Improvem

emen ent t of Investm tmen ent t Clim imat ate e

…another er leap on Indonesia’s Rank on Ease e of Doing g Busi siness ess (EODB)*

EoDB 2020 2020 Rank EoDB 2019 19 Rank Change in Rank EoDB 2020 2020 Points EoDB 2019 19 Points Change e in Points

Over erall 73 73 73 73 69.6 68.0 1.6 Starting ng a busines ess 140 134 134 6 81.2 81.2 0.0 Dealing ng with Construc uction

• n Pe

Permits 110 112 2 66.8 66.6 0.2 Getting ng Electricity 33 33 33 33 87.3 86.4 0.9 Register ering ng Proper erty 106 100 6 60.0 61.7 1.7 Getting Credit 48 48 44 44 4 70.0 70.0 0.0 Protec ecting ng Minor

• rity Inv

nves estor

• rs

37 37 51 51 14 70.0 63.3 6.7 Paying ng Taxes 81 81 112 31 75.8 68.0 7.8 Trading ng Acros

• ss Border

ers 116 116 67.5 67.3 0.2 Enfo forcing ng Contracts 139 139 146 7 49.1 47.2 1.9 Resol

• lving Insol
• lven

ency 38 38 36 36 2 68.1 67.9 0.2

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

Source: World Bank * Higher rank is better, EoDB 2020 was published in October 2019

7

BBB / Stab able Baa2 a2 / Stab able BBB / Negat ative ve

Feb 2020, Rating Affirmed at Baa2/Stable “The affirmation of the ratings is underpinned by a number of credit strengths – including Indonesia’s robust and stable growth rates and a low government debt burden, preserved by consistent fiscal discipline and emphasis on macroeconomic stability – as well as persistent credit challenges.” April 2020, Rating Affirmed at BBB, Outlook Revised from Stable to Negative “The affirmation reflects Indonesia’s stable institutional settings, strong growth prospects, and historically prudent fiscal policy settings. The negative outlook reflects S&P expectation that Indonesia faces additional fiscal and external risks related to the COVID-19 pandemic in the next 24 months .” January 2020, Rating Affirmed at BBB/Stable Indonesia's rating balances a favourable medium-term growth outlook and a small government debt burden compared with 'BBB’ category peers against challenges that include a strong dependence on external financing, low government revenue, and lagging structural indicators such as governance indicators and GDP per capita.

BBB+ BBB+ / Stab able

January 2020, Rating Upgraded at BBB+/S /Stable “The ratings mainly reflect the country’s solid domestic consumption-led economic growth, restrained budget deficit and public debt, and resilience to external shocks supported by flexible exchange rate and credible monetary policies and accumulation of foreign exchange reserves. Since its previous rating review, JCR has been paying particular attention to the continuing reform initiatives pushed by the administration of President Joko Widodo and the content and progress of the economic policy taken by his second administration which took office in October

• 2019. Among the reform agenda, infrastructure development has continued to progress faster than JCR had

expected.”.

Indon

• nes

esia ia Has Been n Rated d as Investmen tment t Grad ade e Countr ntry since e 2017

BBB+ / Stab able

March 2020, Rating Upgraded at BBB+/Stable “Indonesia's President Joko Widodo is firmly implementing policies to strengthen economic growth potential, on the back of a political foundation solidified in his second term. Supported by such policy efforts, the economy is expected to continue stable growth over the medium term. Keeping fiscal deficits in check, the government maintains its debt ratio at a low level. Foreign reserves are ample relative to short-term external debts. The country's economic resilience to external shocks is retained under a policy stance that emphasizes macroeconomic stability and fiscal discipline.”

8

Concer erted ed Effor

• rts

ts to Mitig tigat ate e Covid-19 Risk

Genera eral Measu sure res

Establishment of a COVID-19 Task Force to Accelerate Coronavirus Disease 2019 (COVID-19) Handling Extension of the emergency status for COVID-19 until 29th May 2020 Permission for civil servants to work from home, while maintaining the continuity of public services Closing and limiting the mobility of Indonesian citizens abroad and foreigners to enter Indonesian territory with strict immigration and health protocols..

5 3 2 1

Evacuation of Indonesian citizens from affected countries and strict quarantine processes with complete medical facilities.

6

Promoting massive prevention of the spread of Covid-19; application of health protocols in public areas, public transportation, and offices; calls for carrying out social distancing and the prohibition of carrying out activities that involve large crowds.

4

Conducting Rapid Test in 17 provinces with positive patients

• f Covid-19.

7

Decentralized tests by increasing the number of Covid-19 test laboratories throughout Indonesia. Providing Designated Hospitals, including additional designated hospital in Galang Island. Utilization of four (4) of ten (10) Wisma Atlet Kemayoran Towers (former Athletes Hotel) as emergency hospital. Establishment of Contingency Plans in the regions level.

12 10 9 8

Preparation of drugs that have been used for Covid-19 patients in China according to doctor's prescription. The drug has been distributed to designated facilities and its stock is continuously being augmented with domestic pharmaceutical production..

13

Preparation of 606 health workers and 192 non-health workers in Wisma Atlet Kemayoran and recruitment of 328 medical volunteers and 2590 non-medical personnel in the field of logistics and operations.

11

Speed up the procurement and distribution of personal protective equipment for designated hospitals and the provision of incentives for medical personnel.

14

9

Governmen nment t Measure ures to Mitigat igate e Covid-19 Risk

Fiscal and Non Fiscal Stimuli

Brought forward the launch of the Pre-Employment Card in Bali, North Sulawesi and the Riau Islands Increased disbursements of the Noncash Food Assistance Program (BPNT) from Rp150,000 to Rp200,000 for a six- month period commencing March 2020 Provided incentives for domestic and international travellers Discounted the price of aviation fuel at airports located around nine travel destinations for March-May 2020

6 4 2 1

Reduced the air passenger service fee (PSF) by 20% for March-May 2020

5

Subsidised or provided grants totalling Rp3.3 trillion to local governments affected by lower tax revenues food service activities

7

Provided a stimulus package for housing in the form of an Rp800 billion subsidy as well as a subsidy on down payments totalling Rp700 billion

3

Non-Fisca scal Stimuli

Relaxation of Income Tax (PPh Article 21) Relaxation of Income Tax on Imports (PPh Article 22) Relaxation of Value Added Tax (VAT) Restitution

4 2 1

Relaxation of Income Tax (PPh Article 25)

3

Reduce and simplify restrictions on export activities to maintain export performance and competitiveness

1

Reduce and simplify restrictions on import activities to ensure the availability of raw materials

2

Fiscal Stimuli Phase 2 Fiscal Stimuli Phase 1

10

Bank Indonesia’s Measur ures es to Mitigat igate e Covid-19 Risk

To maintain Monet etary and Financial Mark rket et Stabi bility

Strengthening the intensity of triple intervention policy to maintain rupiah exchange rate stability in line with the currency's fundamental value and market mechanisms Reducing the foreign currency reserve requirement ratio for conventional commercial banks from 8% to 4%, effective 16th March 2020. Reducing the rupiah reserve requirement ratio by 50bps for banks engaged in export-import financing activity in coordination with the Government. Expanding the types of underlying transactions available to foreign investors as hedging alternatives against rupiah holdings in Indonesia.

4 3 2

Measu sure res s Launched ed on March ch 2, 2020 Measu sure res s Launched on March ch 18-19, 19, 2020

1

Source: Bank Indonesia

Global investors may utilise global and domestic custodian banks for investment activity in Indonesia.

5

Strengthening the intensity of triple intervention policy to maintain rupiah exchange rate stability in line with the currency's fundamental value and market mechanisms. Extending the SBN repo tenor to 12 months and providing daily auctions to loosen rupiah liquidity in the banking industry. Increasing the frequency of FX swap auctions for 1, 3, 6 and 12- month tenors from three times per week to daily auctions in

• rder to ensure adequate liquidity.

Expediting the enforcement of domestic vostro rupiah accounts for foreign investors as underlying transactions for Domestic NDF, thus increasing hedging alternatives against rupiah holdings.

5 3 2 1

Expanding the incentive of a 50bps looser daily rupiah reserve requirement beyond banks that are engaged in export-import financing to include the financing of MSMEs and other priority sectors.

6

Strengthening foreign currency term deposit instruments in order to enhance foreign currency liquidity management in the domestic market.

4

Strengthening payment system policy to support COVID-19 mitigation efforts .

7

11

Governm rnmen ent t Measure ures to Miti tigat gate Covid id-19 Risk

Upda dates es on Stimuli 1 and 2

No StimuliPolicy Update

STIMULI 1 1 Front-loading of Government Spending Accelerating the process of disbursing Capital Expenditure, accelerating the appointment of treasury officials, accelerating the implementation of tenders, etc. Accelerating disbursement of social assistance spending. Transfer to Regional and Village Funds. 2 Expansion of Staple Food Cards to increase the benefits (IDR 150 thousand / month → IDR 200 thousand / month) Has been carried out by the Ministry of Social Affairs as of March 2020. 3 Expansion of the target for housing interest subsidies with an additional house volume

• f around 175 thousand housing units
• Currently in the process of drafting the implementing regulations The revision of DIPA is

still in the process based on the proposal of the Ministry of Public Works and Public Works

• The contract with the Implementing Bank is planned for April 2020

STIMULI 2 1 Relaxation of Income Tax Article 21 Income Tax Borne by the Government (DTP), exemption of Article 22 Income Tax Import, Reduction of Income Tax Article 25, VAT refunds are accelerated 2 Simplification and Acceleration of the Exim Process Simplification and reduction of export and import restrictions (manufacturing, food and medical support), acceleration of the export-import process for reputable traders, and export-import services through the National Logistic Ecosystem.

Source: Coordinating Ministry for Economic Affairs

12

Econom nomic ic Po Polic licies ies Taken en in Respon

• nse

e to Covid-19 Pandem demic ic

as of Apri ril 2020

Source: Coordinating Ministry for Economic Affairs

• Government’s policy related to COVID-19 pandemic comprises of four safety nets.
• Lates

test Update 22 22/4: Expansion of business classification coverage for Fiscal Incentives.

• The economic safety net and national economic recovery measures, along with other economic stimulus that focus on maintaining purchasing power and ensuring

business continuity (minimizing layoffs), will minimize the spill-over effect of the COVID-19 pandemic hence limiti ting the impact to to the banki king system em.

Health th Safety ty Net Social Safety ety Net Econom

• mic

c Safety ty Net

Nationa nal Econom

• mic Recov
• ver

ery Measur ures es

Budget et Support

• rt: Rp75

5 T Budget et Support rt: Rp110 T Budget et Support

• rt: Rp70,

0,1 1 T Budget et Support

• rt: Rp150

50 T

• BPJS contribution subsidies
• Medical Personnel Incentives
• Death Compensation for

Health Workers

• Purchase of Medical

Equipment (PPE, ventilators, masks, etc.)

• Referral Hospitals
• Program Keluarga Harapan
• Staple Products
• Pre-employment Card
• Labor Intensive Program
• Electricity tariff discount for

450 VA and 900 VA

• Housing Incentives for MBR
• Religious Holiday Bonus
• Price Stabilization/Market

Operations

• Ministry/Agency Budget

Adjustment

• Government Regulation in Lieu of

Law No. 1 Tahun 2020

• Local Currency Settlement (LCS)
• Recovery Bond
• Fiscal Incentives (Elimination
• f Income Taxes & Imported

Goods Taxes, Corporate Tax Reduction and the Acceleration of VAT Restitution

• Non-Fiscal Incentives

(Simplification and Acceleration of the Exim Process)

• Relaxation of Community

Credit (KUR)

• Bank Indonesia Policy
• OJK and Capital Market

Policies Rp405, 05,1 1 trillion

• n

(USD24. 24.6 6 billion

• n)

Total Budget et Alloc

• cation
• n

13

Governm rnmen ent t Measure ures to Miti tigat gate Covid id-19 Risk

Provision of Economic Stimulus for the Real Sector Safety Net

Source: Coordinating Ministry for Economic Affairs

Social Safety ty Net Real Sector tor Safety ty Net

Financial Sector Safe fety Net IMPACT CTED GROUPS PS COVID-19 IMPACT CT POLICY CY MAIN POLICI CIES

*

: Expans nsion

• n of the Policy

cy in the 2nd Stimulus

1

*

: Expans nsion

• n of Fisca

cal Incenti ntives in PMK-23/2020

• Fatal threats, health problems
• Job Loss, Decreased Income
• Declining purchasing power, bad credit

INDIVIDUAL/ HOUSEHO HOLD

• Decreased activities, business

difficulties

• Lack of sales, business closures
• Bad Credit, unable to pay obligations

MSMEs

• Declining Demand, Shrinking sales
• Reduced production, employee layoffs
• Loss / Bankruptcy / Closing, Bad Credit

CORPO PORATIONS

• Raw material supply disruption,

production decline

• Declining demand, business closure,

layoffs

• Cash-Flow Difficulties, Credit

Restructuring

REAL SECTOR

• Liquidity issues, Decreasing solvency
• Pressure on the money market, capital

markets, exchange rates

• Threats to financial sector stability

FINAN ANCI CIAL AL SECTOR

Allowance / Postponement / Withholding Tax (Article 21/22/25 Income Tax, VAT) Loan Allowance / Delay Payment, Credit Restructuring Relaxation of Rules and Licensing, Ease of Doing Business and Investment Process and Service Acceleration, Administrative Reduction and Costs Special Credit Facilitation for Increasing Working Capital and Maintaining Business

** * * *

2 3 4 5

14

Econom nomic ic Stim imulu ulus Program grams for r MSMEs Es and Cooperat erativ ives es

Source: Coordinating Ministry for Economic Affairs

1. 1. Inter eres est subsidy dy and recap guarant ntee ee relief programs (KUR, PMN, Pegadaian)

• Inclusive part of the Econom
• mic Safe

fety Net (Rp

• Rp. 70.1 T – Cluster III)
• Inter

eres est subsidy and installmen ent paymen ent following the KUR scheme

• Facilitating Fintech to become chanel

elling ng agent nt to access KUR and PIP

• The fiscal impact for the Payment of Interest Subsidies and Principal Delays :
• KUR = Rp

Rp 6.1 T (19.5 million Customers);

• PNM = Rp

Rp 2.8 T (6.5 million Customers);

• Pegadaian = Rp

Rp 5.3 T (10 million Customers). 2. 2. The Saving ng and Loan Cooper eratives es (KSP) P) is facilitated through LPDB, where the amount and total is taken from the budget et realloc

• cation
• n

and refo focus ussing ng of the Ministry of Cooperatives and SMEs. 3. Financing for rural banks, PNM, Pe Pegada daian (pawnshop hops) is accessed through the Financial Safe fety Net that is being prepared (draft of Cluster IV GR is under process) 4. Exemption of MSME income e tax (to 0%) for a period

• d of 6 mont

nths hs: Tariff decrease in MSME's Final Income Tax from 0.5%  0% (fiscal impact: Rp. 2.4 T) 5. 5. The use of Warun rung (stalls) for food distribution is coordinated by Ministry of Social Affairs and OJK through the Laku ku Pandai program.

15

Econo nomic ic Stimu muli i for the Manu nufacturi uring ng Industry y Sect ctor

• r (Stimu

imuli i 2)

Tax Incentives: Article 21 Income Tax, Article 22 Import Income Tax, Article 25 Income Tax, VAT

Source: Coordinating Ministry for Economic Affairs

PMK-23 23

Finance Ministerial Regulation 23 23/PM PMK.03 03/2020 on March 21, 2020 concerning Tax Incen entives fo for Taxpayer ers Affec fected ed by by Corona Virus Outbr brea eak, effective on April 1, 2020 Po Policy Related ed Sector Impact 1. Article 21 Income Tax will be Borne e by by the Gov

• ver

ernm nmen ent for 6 months for workers with a gross income of not more than 200 million rupiah

• Specific manufacturing sectors (440 KLU)
• KITE Taxpayers
• KITE IKM Taxpayers

Provide additional income for workers in the manufacturing sector to maintain purchasing power. 2. 2. Exemption

• n from Income Tax Article 22

Import for 6 months

• Specific manufacturing sector (102 KLU)
• KITE Taxpayers
• KITE IKM Taxpayers

The stimulus for the industry is to maintain the pace of imports. 3. 3. Reduc uction

• n of Income Tax Article 25 by

30% for 6 months

• Specific manufacturing sector (102 KLU)
• KITE Taxpayers
• KITE IKM Taxpayers

Domestic economic stability can be maintained and exports are expected to increase. 4. VAT refunds are acceler erated ed for 6 months for:

• Exporters (without restrictions)
• Non-Exporters (maximum refund value of

5 billion)

• Specific manufacturing sector (102 KLU)
• KITE Taxpayers
• KITE IKM Taxpayers

Through the accelerated refunds, Taxpayers can optimize cash management.

16

Proposed ed Expans nsion ion of Fiscal al Incen enti tives es for the Real Sector

• r

Expansion of PMK-23: Addition of Sectors Other than Manufacturing Industries in PMK-23/2020

Source: Coordinating Ministry for Economic Affairs

No KBLI Categ egory

• ry

Number of proposed KBLI 1 Agriculture, Forestry, and Fisheries 100 2 Mining and excavation 17 3 Processing Industry 127 4 Procurement of electricity, gas, steam / hot water, and cold air 3 5 Water Management, Waste Water Management, Waste Management and Recycling, and Remediation Activities 1 6 Construction 60 7 Wholesale and retail trade; Car and Motorcycle Repair and Maintenance 193 8 Transportation and Warehousing 85 9 Provision of Accommodation and Provision of Food and Beverages 27 10 Information and communication 36 11 Financial and Insurance Activities 3 12 Real Estate 3 13 Professional, Scientific and Technical Activities 22 14 Rental and Leasing Activities without Option Rights, Employment, Travel Agencies and Other Business Supports 19 15 Education 5 16 Health and Social Activities 5 17 Arts, Entertainment and Recreation 52 18 Other Services 3 Total 761 761 19 19 Compani nies es at Bond nded ed Zone V

Addition of “Companies es at Bonded ed Zone” in PMK-23.

NOTE: Total number of KBLI in PMK-23: 440 KBLI Number of additional proposal: 761 KBLI (including proposed 118 KBLI for incentives expansion Total combined KBLI: 1.083 83 KBLI

17

Governm rnmen ent t Measure ures to Miti tigat gate Covid id-19 Risk

Government Regulation In Lieu of Law No.1 2020

Source: Coordinating Ministry for Economic Affairs

Regul ulates es two topics: (1) Nationa

• nal Budget

et (APBN) PBN) and (2) Financial Sector Po Policy

National Budget t (APBN)

1. Relaxation Deficit exceeds 3%, but starting in 2023 it returns to the maximum level of 3%. 2. Relaxation is related to the allocation/reallocation of expenditure between institutions, between functions, and between programs and mandatory spending. 3. Relaxation of allocation / reallocation of Regional Government Expenditures. 4. Lending to LPS. 5. Issuance of SUN and SBSN can be purchased by BI, BUMN, corporate investors and / or retail investors. 6. Use of alternative budget sources for example SAL, education endowment funds, and funds managed by the Public Service Agency. 7. Taxation Policy: a) Decrease in Corporate Income Tax Rates gradually to 20% starting in 2022; b) Taxation Incentives in the Capital Market for public ownership <40%; c) Taxation of Electronic Transactions; d) Extension of tax administration time; e) Customs facilities in the context of COVID-19.

Financial Sector tor Policy

1. Improved Coordination among KSSK members 2. Provide the necessary authority to 4 institutions to prevent a crisis (forward looking) in the KSSK forum for example to issue instruments, BI buys SUN on the primary market, lending to LPS and OJK may request a merger or consolidation of Financial Services Institutions. 3. Foreign exchange management (LLD) management for residents 4. Increase public confidence without causing moral hazard.

18

Governm rnmen ent t Measure ures to Miti tigat gate Covid id-19 Risk

Budget Refocusing Policy

Source: Coordinating Ministry for Economic Affairs

I. I. Presiden ential Reg egul ulation

• n (Per

Perpres es) ) No 7/2020 on Taskf kfor

• rce

e to Mana nage e COVID-19 Outbrea eak → Rene newed ed throug

• ugh Pres

esiden dential Reg egul ulation

• n

(Per Perpres es) ) No No 9/2020 1. Answer to the President → Director (Chair: Coordinating Minister for Economic Affairs) and Implementer (Chair: Head of Indonesian National Board for Disaster Management), focusing on accelerating the mitigation of COVID-19 through synergy between ministries and government 2. Funding comes from the state budget, regional budget, and other legal sources II. II. Presiden ential Instruction

• n (Inpres

es) ) No 4/2020 concerni ning ng Refocusing of Activities, Reallocation of Ministry/Ag Agen ency Budg dget, and d Procurem emen ent of Goods

• ds and Services

es in the e Framewor

• rk

k of Mitigating ng COVID-19 Outbreak k and Mini nist stry of Financ nce Circul ular (SE) No 6/2020 on

• n Refocu
• cusi

sing ng Activity and d Reallocation n of Ministry/Agen ency Budg dget et in the e Framewor

• rk of Mitigating

ng COVID-19 Outbrea eak k 1. Minister / Head of Institution prioritizes the use of budget allocations for the acceleration of mitigating COVID-19 outbreak in accordance with COVID-19 Handling Protocol 2. Done through a budget revision mechanism (done quickly, simply and accountably) III. III. Po Policy to suppor

• rt effor
• rts to adjus

ust region

• nal alloc
• cation
• ns and relax trans

nsfers fo for handl ndling Covid-19 19 1. Minister of Finance Regulation (PMK)19/2020 concerning Distribution and Use of DBH, DAU, and DID TA 2020 in the context of COVID- 19 Countermeasures; 2. Minister of Finance Decree (KMK) 6/2020 concerning Distribution of Physical DAK on Health and BOK in the framework of Prevention and/or Handling of COVID-19 3. Permendagri 20/2020 on acceleration of COVID-19 Mitigation in the Scope of Regional Government

19

3.2 3.5 3.7 3.7 4.5 10.1 10.1 11.6 11.9 23.0 25.2 32.9 36.4 44.6 47.8 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Australia Germany Singapore Korea Taiwan Malaysia Myanmar Mexico Philippines US Indonesia Thailand Vietnam China India 31.31 34.47 23.61 26.94 24.99 26.57 31.27 34.52 22.48 27.21 24.95 26.34 31.78 34.55 23.14 29.56 25.31 26.26 5 10 15 20 25 30 35 40 India Indonesia Malaysia Philippines Thailand Vietnam 2018 2019e 2020e

50 100 150 200 250 300 Billion USD 2018 2017 22.5 25.2 26.3 31.9 32.1 34.2 36.4 36.4 38.5 39.2 39.8 48.1 48.7 58.3 10 20 30 40 50 60 70 Myanmar Taiwan South Korea Philippines Hong Kong Malaysia Australia Japan Thailand Singapore Vietnam Indonesia India China

Indon

• nes

esia ia Remains ins the Investme tment nt Desti tinati nation n of Choic ice

1. Source: The Economist – Asia Business Outlook Survey 2019 2. Source: IMF World Economic Outlook, Database October 2019 3. Source: United Nations Conference on Trade and Development (UNCTAD) – World Investment Report 2019 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (30th Annual Survey)

Total Inve vestment / GDP (%)

Indonesia sia Enjoys s Large Investm stments ts Rela lativ tive to Peers s within thin the Regio ion2 JBIC: Among ASEAN AN countr trie ies, s, Indo donesia sia is one of the most st preferred d place for busin siness ss investm stment t (Decembe ber 2019)4 The Economist: ist: Indonesia sia rounds ds out the top five of Asia ian economie ies s that t can look forwa ward to increased d investm stment t spending

• ding. (January 2019)1

UNCTA TAD: Indo donesia sia is liste sted d in the top 20 host t econo nomie ies s base sed d on FDI inflo lows, s, 2017 and d 2018 (June 2019)3

20

Mediu ium-Ter erm National tional Develop lopmen ent t Plan n (RPJMN) MN) 2020 2020-2024

President’s Vision: "The Establishment of an Advanced Sovereign, Independent and Personality Based

• n Mutual Coop
• pera

eration"

• n".

Source: Coordinating Ministry for Economic Affairs

1

Improving the Qual ality of the Indonesian an Labour Force

2

Achievi ving Productive, , Independent and Comp mpetitive Economi mic Structure

3

Attaining Equitable and Prosperous Na National Devel velopme ment

4

Achieving Sustai ainab able Envi vironme mental Clima mate

5

Devel veloping Cultural al Progress Reflecting the Nat ation's Personal ality

6

Deve velopinga a Dignified and Trustworthy Legal SystemFree from Co Corruption

7

Protection of All Nations and Provision of Security to All Citize zens

8

Attai aining Good, , Effective, , and Reliable Governance

9

Achievi ving Synergy of Gover vernme mental al Frame mework with the Regional Gove vernment Strengthening Economi mic Resilience to Achieve ve Superior Economi mic Growth Developing More Remo mote Regions to to Reduce e Economi mic Gap aps and Improve Equality Imp mproveme ment of Qual ality and Comp mpetitiveness of the Lab abourForce Engag aging in Mental al Revo volution and Culture Devel velopme ment Strengthening Infras astructure to Support Economic Devel velopme ment and Improve ve Basic Servi vices Conservation of Environment, Supporting Climat mate Chan ange, and Enhan ancing Disaster Resilience Enhan ancing Political al, Legal, Defense and Stab ability and Tran ansformi ming Public Servi vices

1

HR HR Develop lopment ent

2

Infrastruc ucture Develop lopment ent

3

Regula ulation ion Simp mplif ific ication

• n

5

Economic ic Tran ansformation

• n

4

Simpli lific icatio ionof Bureauc ucracy

President‘s Missi sion

• ns

Top p 5 Presidential tial Prioriti ties 7 7 RPJMN MN Developm

• pment Agenda

21

Simplify lifying ing Regulations lations throu

• ugh

gh Omnib ibus us Laws

Omnibu bus s Laws s Gro roup a Dive verse rse Range ge of Issu sues es into

• Legi

gisl slation,

• n, Aimed

ed at Crea eating g Jobs s and Empoweri ering g SMEs. s.

Source: Coordinating Ministry for Economic Affairs

Financial Sector1 T axes

Investment

Labour

Omnibus Law Priori

• rity Sectors
• rs

1) Simplification of Licensing 2) Investment Requirements 3) Employment 4) Ease, Empowerment and Protection of MSMEs 5) Ease of Doing Business 6) Research and Innovation Support 7) Government Administration 8) Imposition of Sanctions 9) Land Acquisition 10) Government Investment and Projects 11) Economic Zone

11 Clusters of Omn mnibus Law Cipta Lapangan anKerja (Job Creat ation) 6 Pillars of Omn mnibus Law Perpaj ajak akan (Taxa xation) 1) Investment Funding 2) Territorial System 3) Personal Taxpayer 4) Taxpayer Compliance 5) Equity of Business 6) Taxation Facility  Following the inauguration of his second presidential term in October 2019, President Joko Widodo announced his administration’s plans to continue regulatory reform by focusing on initiatives such as developing a dynamic and qualified workforce, promoting industry cooperation through technology, further enhancing infrastructure development and economic reform as well as simplifyingregulationsand bureaucracy.  To achieve such ends, President Widodo’s Government subsequently prepared three bills of omnibus laws, namely an omnibus bill on job creation, an omnibus bill on development and strengtheningthe financial sectorand an omnibusbill on tax provision.  Omnibuslaws refer to laws that groupdiverseand unrelatedissues which are drawn into a bill which is accepted in a single vote by a legislature.

22

The Econ

• nom
• mic

ic Po Polic licy Packages ages

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

Phase e III (7 Oct t ’15) Financial services facilitation, export financing and elimination of business unnecessary burden Phase e IV (15 Oct t ’15) Social safety net and betterment of people welfare Phase e V (22 Oct t ’15) Improving industry and investment climate through tax incentives and deregulation on sharia banking

Harm rmonizing g Regulat ations Simplifying g Bure reau aucrat ratic Process Ensuring g Law Enforceability

Phase e VI (5 Nov ’15) Stimulating economic activities in border areas and facilitating strategic commodities availability Phase e I (9 Sept ’15) Improving national industry competitiveness Phase e II (29 Sept ’15) Easing permit requirement and simplifying export proceeds requirement Phase e VII (7 De Dec ’15) Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land certification process for individuals Phase e VIII (21 De Dec ’15) Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation industries Phase e IX (27 7 Jan ’16) Accelerating electricity generation, stabilizing meat prices and improving rural–urban logistics sector Phase e X (11 Feb ’16) Revising the Negative investment List and improving protection for SMEs Phase e XI (29 Mar ’16) Stimulating national economy through facilitation to SMEs and industries Phase e XII II (28 28 Apr’16) Improving Indonesia’s rank on Ease of Doing Business (EODB) Phase e XIII (24 Aug ’16) Low Cost Housing for Low-Income Communities Phase e XI XIV (10 Nov ’16) Roadmap for E-commerce

Source: Coordinating Ministry for Economic Affairs

Phase e XV (15 Jun ’17) Improving logistics In addition

• n to the 16 Policy

y Packa kages es, on Augus ust 31, 2017 the Gover ernm nment ent has issued ued a Presidenti ential Regul ulation

• n No.91/

91/2017 2017 for enhanc ncing ng busines ness licens ense e service e stand ndard Phase e XVI (1 (16 Nov ’18) Improving the competitiveness and domestic economy

23

Improving ing the Competit etitiv iven enes ess and Domes esti tic Econ

• nom
• my

The e 16th

th Econom

• nomic Policy

y Package ge has been launched hed

Source: Coordinating Ministry for Economic Affairs

TAX HOLIDA DAY EXPANSI SION

Background

• und

In order to further increase investment value in Indonesia, there is a need for expansion of sector and standard classification of Indonesian Business Fields (KBLI) that are given tax holiday, complemented with a process simplification to receive the tax holiday according to the Online Single Submission (OSS). Objec ectives es and benefi efits 1) Increasing investment and strengthening the industrial sectors from the downstream to the upstream through the expansion of the business sector, KBLI’s pioneer industries, and Special Economic Zones (SEZ) that can receive tax holiday facilities 2) Increasing the process of convenience of filing process and tax holiday facilities provision

EXPORT PROCEEDS DS (DHE) SCHEME

• me

• sit Inter

• me

24

Other er Progr gres ess on Econom nomic ic Po Polic icy Packages kages

29 Provinces have set 2016 Minimum Wage System in accordance to the Government Regulation (GR) No. 78/2015

Fa Fair, Simpl plifi fied ed & & Pro roject ectabl ble e Wage e Syst stem em

• The Provinces of Central Java proposed 3

IZ’s: Kendal, Demak, and Ungaran

• Pharmaceutical IZ in Bitung (North Sulawesi)

in 2017

Indu dust strial Zone Deve evelopment ent of Spesi esial Econ

• nom
• mic Zone

e (SEZ)

Investment commitments in SEZ up to 2017 reach 41 T, with 3 hour licenses already applied in 4 SEZ’s Administrators in 2017 52 Bonded Logistic Center has been launched to support various industries

Deregul egulation

• n on

Logistics cs Sector

25

Investm tmen ent t Incentiv ntives es to Boost Industr try Sector

• r

BUSINESS NESS EXPANSI SION

• Tax allowa
• wance
• Exemp

emption ion or relief ief of impor

• rt duty on capital good
• ds,

, machin iner ery or equip uipmen ment for production purposes that can not be produced domestically;

• Exem

emption ion or reli lief ef of impor

• rt duty on raw mater

eria ials ls or auxil ilia iary mater erial l for production purposes for a certain period of time and certain conditions;

• Exem

emption ion or suspen ension ion of VAT on the e import of capit ital l good

• ds or

machiner inery or equip uipment ent for production purposes that have not been produced domestically for a certain period of time;

• Accelerate dep

eprec ecia iatio ion or amor

• rtiz

ization ion (part of tax allowance); and

• Prop
• per

erty tax reli lief ef, especially for certain business sectors in certain regions;

• Combine with Online Single Submission (OSS)

Tax holi liday of corporate income tax in a certain amount and time

PIONEER INDUSTR TRIES SPECIAL ECONOMI MIC ZONE

• No coll

llection ion of VAT and Luxury Good

• ds Sales

les Tax (PPnBM), ),

• Custom
• ms tax exemp

emption, ion,

• Tax Allow

lowance e and Tax Holi liday,

• Suspen

ension ion of Impor

• rt Duty,
• 0% Impor
• rt Duty for goods produced using local components of a certain

level

INDUSTR TRIAL ZONE FREE TRADE ZONES S AND PORTS MICRO, SMALL, MEDIUM M ENTERPRISE SES (MSMES) E-COMME MERCE

• VAT exemp

emption ion on import or delivery of capital goods,

• Impor
• rt Duty exem

emption

• n on machineries/goods/materials,
• Tax Allow

lowance e and Tax Holi liday Exemp emption ion of:

• Impor
• rt Duty
• VAT
• Luxury Good
• ds Sales

es Tax (PPnBM)

• Custom
• ms duty

Decrea easing ing MSMEs Es Tax from 1% to 0.5% of gross revenue

• Sales from customs areas for non

non-small l entrepreneurs through the market place will be subject to 0.5% incom

• me

e tax and 1% VAT

• Sales from customs areas for small

ll entrep epren eneu eurs through the market place will be subject to 0.5% incom

• me

e tax

Source: Coordinating Ministry for Economic Affairs

26

New Tax Holida day Po Polic licy*

to boost

• st indust

stry y sector

Taxpayer er Pioneer Industry with minimum investment value of 1 trillion Rupiah (minimum investment value of 500bn Rupiah for telecommunication sector) Corporate te Income e Tax (CIT) reduction rate Conces ession ion period iod Transit ition

• n

Afte ter Tax Holiday Not available 100% (single rate)

• 5 – 15 years; or
• Can be extended to 20 years; subject to MoF

discretion 1. 500Bn – 1Tn : 5 years 2. 1Tn – 5Tn : 7 years 3. 5Tn – 15Tn : 10 years Pioneer Industry with minimum investment value of 500bn Rupiah Applied to 8 industry groups: (i) upstream basic metal industry; (ii) oil and gas refinery industry; (iii) organic basic chemicals industry; (iv) machinery industry; (v) plantation, forest, and fishery products processing industry; (vi) telecommunication, information and communication industry; (vii) marine transportation; and (viii) economic infrastructure Applied to 17 industry groups: (i) upstream base metal; (ii) oil and gas refinery; (iii) petrochemical (oil, gas,

• r coal based); (iv) non-organic base chemical; (v) organic base chemical;

(vi) pharmaceutical materials; (vii) semiconductor and other components; (viii) communication devices components; (ix) medical devices components; (x) machine manufacturing for industry; (xi) machine main components manufacturing; (xii) robotic components manufacturing; (xiii) ship components manufacturing; (xiv) airplane components manufacturing; (xv) train components manufacturing; (xvi) power plants; and (xvii) economic infrastructure PROVISI ISION BEFORE RE AFTER ER 5 – 20 years depends on the investment value (in IDR): 4. 15Tn – 30Tn : 15 years 5. ≥ 5Tn : 20 years 50% CIT reduction for the next 2 years 10 – 100% Tax allowance not provided Tax allowance for business expansion can be provided with terms and conditions applied

Source: Coordinating Ministry for Economic Affairs *) MoF has issued a new Tax Holiday policy through Regulation No. 35/PMK.010/2018 (PMK-35) dated 4 April 2018.

27

Enhanc ancing ing Busine ness Licen ense e Servic vice e Standar ndard

Presi siden dential Re Regulation

• n to Ac

Accelera erate e Ease se of Doing g Busi sines ess s has been en launched hed

Source: Coordinating Ministry for Economic Affairs

Polic icy Goals ls

1 2 3 4 5 6

Improve efficient, streamlined, & integrated business license service standards Accelerate the business licensing process Provide business licensing process assurance in terms of the costs and lead times Increase coordination & synergy between central & regional government Overcome the barriers to doing business in Indonesia Implement integrated licensing process (single submission)

Main n Polic icy

Forming a Task Force to identify &

• vercome the end-to-end licensing

barriers Implementing a licensing checklist for Special Economic Zones (KEK), Free Trade Zones (FTZ), Industrial Zones & Tourist Zones Utilizing data sharing

Business license regulatory reforms Implementation of the Single Submission system

1st

st Phase

2nd

nd Phase

Note: 1st and 2nd Phase are implemented in parallel

28

Imp mproving ving Inves estment ent Clima mate

Online Single Submissi ssion (OSS) S) Has Been Launched...

Source: Coordinating Ministry for Economic Affairs

OSS is a web-based business licensing system intended to cut the red tape involved in obtaining business permits and integrated between the central government and regional administrations

Lorem Ipsum Suitable for all category, Environm

• nmen

ent & Forestry Sector Electricity Sector Public Works & Housing Sector Health h Sector

• r

Indus ustry Sector Marine ne & Fisher ery Sector Medicine ne & Food Sector Transpor

• rtation
• n

Sector Trade Sector Infor

• rmation
• n &

Communi nication

• n

Sector Other Sector Sectors The Advant ntage of Using ng OSS Business licenses can be secured in under an hour Standardized business licenses are available Ellectronically integrated The whole licensing process is monitored by the Task Force More practical Accessible at anytime and anywhere

29

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

• f

Finance as part

• f

the implementation of the 1st Economic Policy Package. PLB facility aims to improve efficiency and reduce the cost of transportation and logistics in Indonesia; support the growth of the domestic industry, including small and medium industries; increase investment; and to make Indonesia to become a logistics hub in Asia Pacific.

To To date, 52 Bo Bonded Logistic stic Center has been launched to to support va variou

• us industri

ries.

Improving ing Investme tment nt Climat ate

…Bonded Logistic Center to Improve Indonesia’s Competitiveness

Oil il and ga gas, s, and mining industry Food & bev ever erages es industry Auto- motive e industry Pe Persona nal care/ home e care industry Tex extile e (cotton)

• n)

indust stry Small and medium um industry Synthet hetic tex extile e (chemi emical substanc nces es) industry.

Bonded Logistic Center

Heavy Equipmen ent industry Defen fence e industry Aircraft MRO indust stry

30

Improving ing Investme tment nt Climat ate e

…revising the Negative Investment List

Before

Cold storage Restaur urant nts, Bars Pha harmaceut utic ical l Raw Materia ials ls Manuf nufacturin ing Sports Center, Film lm Processing ing Lab, Crum umb Rubber

Revi vision of "Par artnership" " category to refer to partnership with Micro, Smal all and Medium m Enterprises (MSMEs) Gran andfat ather Law: If a particular sector is tightened in future, existing foreign inves vestor does not need to comp mply with tighter stak ake Key Reforms ms in Negative Foreign Inves vestme ment List Strengthen impleme mentat ation of negat ative inves vestme ment law through active roles from m ministries, agencies and regional gover vernme ments

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

Distrib ibut utio ion, n, Warehous housing ing Priv ivate Museum um, Catering ing, apparel l Manuf nufacturin ing, Exhib ibit itio ions ns & Convent ntio ions ns Toll l Road Operator, Telecommunic unicatio ion n Testin ing Company ny Consult ultanc ncy for Construc uctio ion1 Telecom

• mmunic

icatio ion Prov

• vid

ider with h Integrated Servic ices Professio iona nal l Traini ining ng, Golf lf Cour urse Mana nagement nt, Air Trans nsport Support Servic ices, Travel l Bureau

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

Introd

• duction

ion of New Foreig eign Owner ership ip Regula lation ion for Strateg egic ic Sector

• rs

Source: Investment Coordinating Board (BKPM)

31

Investme tment nt Realizati ization

• n (Q1-20

2020) 20)

IDR R tn

2013 2014 2015

Direc ect Inves estmen ents

2016

Mining ing Housing ing, Industria ial l Estate, e, and Offic ice e Buil ilding ing Food Industry Elec ectric icit ity, , Gas, , and Water er Supply ly US$602. 602.9 mn

US$1, 1,523. 523.8 8 mn mn US$298. 298.4 mn mn US$482. 482.7 mn mn US$868. 868.6 mn mn US$806. 806.9 mn mn Trans nsportation, ion, Wareh ehous use, e,

and Telec ecom

• mmunic

ication ion

50.9%

US$569. 569.4 mn mn

81.3% 43.1% 21.5% 22.1% 36.5% 149.1% Invest estment ent Re Realization

Top 8 FDI Reali lization ion by Sectors (Q1-2020 vs Q1-2019)

Source: Investment Coordinating Board (BKPM), compared to Q1-2019 period

2017

Rp145.4 T Rp159.4 T IDR98tn tn 434 434,463 463

9.6% 15.6%

9.2% 29.3%

Q1-201 2016 Q1-201 2017 Q1-201 2019 Q1-20 2020 20 Q1-201 2016 Q1-201 2017 Q1-201 2019 Q1-20 2020 20

*

* * person 37 375,982 IDR210.7tn tn

8.0%

Q1-201 2019 Q1-20 2020 20

IDR195.1tn tn IDR87.2tn IDR107.9tn tn IDR112.7tn tn Chem emic ical l and Pharmaceu eutic ical l Industry

Metal, , Excep ept Machiner nery, , and Equip ipmen ent Industry

2018 2019

Food Crop

• ps,

Plantation ions, , and Lives estoc

• ck

US$478. 478.8 mn

120.5%

98.0 112.7 210.7 20 40 60 80 100 120 140 160 180 200 220 240 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 FDI DDI TOTAL 2020 decreasing

Econom

• nomic

ic Factor

• r:

Strong and Stable able Growth wth Prospect

• spects

s Remain main Intac act t

Section tion 2

33

Conduciv ducive e Envir iron

• nment

nt Underp derpinn inning ing Strong

• ng Grow
• wth

th Funda damen entals tals

Larges est t Economy my in South th East t Asia 4th Most t Populous countr try in the World; 64% in producti tive ve age Managea eable e Inflati tion Rate te Rising Middle e Class and Affluen ent t Custo tomer ers

From m comm mmodity-bas ased to manufac acturing and servi vice sectors via a infras astructure developme ment From m consump mption-led to inves vestme ment-led growth via a a stronger manufac acturing sector and more investme ment initiatives Policies to maintai ain purchas asing power to stimulat ate dome mestic economy my in the midst of weak akening macroeconomic conditions Budget reform m as a a part of larger economi mic reform initiat ative ve Tax base to be broad adened from m

• ne reduce

dependency on comm mmodities Fuel subsidies significantly reduced and spending redirected to more productive ve allocation Prudent debt manag agement

Refo form rm-Ori rien ented ed Administra ration

• n

Three main sources of finan ancing for inves vestment needs: Stat ate and regional al budget, Stat ate Owned Enterprises and PPP Continuing from m 2015 policy, infras astructure will be higher than an fuel subsidy Fiscal al and non-fiscal al incentives to attrac act infras astructure inves vestme ment and promo mote PPP Infrastructure spending focused on basic infrastructure projects

Large and Stable Econom

• my

Consisten tent t Budget Reform rm New Econom

• mic

c Structu ture re High Infrast structu ture re Investme stments

34

Indonesia’s Strong GDP

Growth Pros

• spec

ect Stron

• ng GDP Growth1

%

Institutions 2020 GDP growth (%YoY) 2020 Budget 5.3 Bank Indonesia around 2,3 IMF (WEO April 2020) 0.5 World Bank (GEP April 2020) 2.1 ADB (ADO April 2020) 2.5 Consensus Forecast (April 2020) 2.1

Favou

• urable

e GDP Growth Comp mpared ed to Peer ers2

1. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption 2. Source: World Economic Outlook Database – October 2019; * indicates estimated figure %

• Despite global economic moderation, resilient national economic growth has been

maintained in Indonesia. For the year 2019, solid economic growth was recorded at 5.02% in 2019, albeit down slightly from 5.17% in 2018. The main driver of economic growth in 2019 was domestic demand, as export performance declined. In the fourth quarter of 2019, economic growth stood at 4.97% (yoy), down slightly from 5.02% (yoy) in the previous period.

• Solid domestic demand was a key contributor to economic growth momentum in 2019 as

exports languished on dwindling global demand and sliding international commodity prices. Domestic demand was influenced by stable household consumption, which grew 5.04% in 2019, relatively unchanged from the 5.05% posted in 2018. Household consumption was maintained in line with controlled inflation and upbeat consumer confidence.

• Furthermore, the general election held in 2019 edged up consumption by non-profit

institutions serving households (NPISH) to 10.62% from 9.10% in 2018. Domestic demand was also buoyed by strong investment performance, building investment in particular which grew 5.37% in the reporting period, similar to the 5.41% recorded in 2018. Services in the tertiary sector were the main locomotive of economic growth in 2019, led by communications and information, financial services and insurance as well as other services.

0.04 3.83 3.27 (2.07) (0.16) 3.74 3.31 (1.73) (0.36) 4.01 3.14 (1.81) (0.30) 4.01 3.19 (1.70) (0.41) 4.21 3.09 (1.69) (0.52) 4.20 3.06 (1.74) 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 5.01 5.06 5.19 5.065.275.175.185.075.055.024.97

• 3.0
• 1.0

1.0 3.0 5.0 7.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 2017 2018 2019 QoQ YoY 3.7 3.2 3.4 3.6 6.1 7.0 5.0 5.1 5.7 6.2 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2012 2013 2014 2015 2016 2017 2018 2019* 2020* Bulgaria Colombia India Indonesia Philippines

35

GDP P Growth th Breakdo akdown

GDP GDP Grow

• wth by Sector
• r (%, YoY)

By sectors 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 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 Q2 Q2 Q3 Q3 Q4 Q4 Tot Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot Agriculture, forestry, and fishery 3.7 6.5 2.9 1.6 3.8 1.5 3.5 3.2 5.5 3.4 7.1 3.3 2.8 2.4 3.9 3.4 4.7 3.6 3.8 3.9 1.8 5.3 3.1 4.3 3.6 Mining and Quarrying 0.6 (3.6) (4.4) (6.0) (3.4) 1.2 1.0 0.2 1.4 0.9 (1.3) 2.1 1.8 0.0 0.7 1.1 2.6 2.7 2.2 2.2 2.3 (0.7) 2.3 0.9 1.2 Manufacturing 4.1 4.2 4.6 4.4 4.3 4.7 4.6 4.5 3.3 4.3 4.3 3.5 4.9 4.5 4.3 4.6 3.9 4.4 4.2 4.3 3.9 3.5 4.1 3.7 3.8 Construction 6.0 5.4 6.8 7.1 6.4 6.8 5.1 5.0 4.2 5.2 6.0 7.0 7.0 7.2 6.8 7.4 5.7 5.8 5.6 6.1 5.9 5.7 5.6 5.8 5.8 Wholesale and Retail Trade, Repair of Car and Motorcycle 3.8 1.6 1.4 3.5 2.5 4.3 4.3 3.7 3.9 4.0 4.6 3.5 5.2 4.5 4.5 5.0 5.2 5.3 4.4 5.0 5.2 4.6 4.4 4.2 4.6 Transportation and Storage 6.3 6.0 7.0 7.5 6.7 7.4 6.5 8.2 7.6 7.4 8.1 8.8 8.9 8.2 8.5 8.5 8.7 5.7 5.5 7.1 5.5 5.9 6.7 7.6 6.4 Information and communication 9.7 9.3 10.6 9.2 9.7 7.6 9.3 8.9 9.6 8.9 10.5 11.1 8.8 8.3 9.6 7.8 5.1 8.1 7.1 7.0 9.1 9.6 9.2 9.7 9.4 Financial service 8.6 2.6 10.3 12.8 8.6 9.3 13.6 9.0 4.2 8.9 6.0 5.9 6.1 3.8 5.5 4.3 3.1 3.1 6.2 4.2 7.2 4.5 6.1 8.5 6.6 Other Services* 5.1 6.5 4.8 5.5 5.4 6.0 5.6 4.5 3.8 4.9 4.2 3.5 4.8 6.0 4,6 5.4 6.2 6.7 6.4 6.2 6.8 7.3 6.4 6.2 6.7 GDP GDP 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0 5.0 5.0 5.1 5.2 5.1 5.1 5.3 5.2 5.2 5.2 5.1 5.1 5.0 5.0 5.0 Source: Central Bureau of Statistics of Indonesia (BPS) *Other services consist of 10 sectors (according to Standard National 2008)

GDP Growt

• wth Based

ed on Expen endit itures es (%, YoY)1

By expen enditure 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 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 Q2 Q2 Q3 Q3 Q4 Q4 Tot Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot

• HH. Consumption

5.0 5.0 5.0 4.9 5.0 5.0 5.1 5.0 5.0 5.0 4.9 5.0 4.9 5.0 4.9 5.0 5.2 5.0 5.1 5.1 5.0 5.2 5.0 5.0 5.0 Non profit HH. consumption (8.1) (8.0) 6.6 8.3 (0.6) 6.4 6.7 6.7 6.7 6.6 8.1 8.5 6.0 5.3 6.9 8.1 8.8 8.6 10.8 9.1 17.0 15.3 7.4 3.5 10.6 Government consumption 2.9 2.6 7.1 7.1 5.3 3.4 6.2 (3.0) (4.0) (0.1) 2.7 (1.9) 3.5 3.8 2.1 2.7 5.2 6.3 4.6 4.8 5.2 8.2 1.0 0.5 3.2 Gross Fixed Cap. Formation 4.6 4.0 4.9 6.4 5.0 4.7 4.2 4.2 4.8 4.5 4.8 5.3 7.1 7.3 6.2 7.9 5.8 6.9 6.0 6.6 5.0 4.6 4.2 4.1 4.4 Exports (0.6) (0.3) (1.0) (6.4) (2.1) (3.1) (1.5) (5.9) 3.9 (1.7) 8.4 2.7 16.5 8.4 8.9 5.8 7.5 8.3 4.6 6.5 (1.6) (1.7) 0.1 (0.4) (0.9) Imports (2.6) (7.1) (6.5) (8.6) (6.2) (5.0) (3.4) (4.1) 2.7 (2.4) 4.8 0.2 15.4 11.9 8.1 12.5 14.9 13.8 7.1 11.9 (7.5) (6.8) (8.3) (8.0) (7.7) GDP GDP 4.8 4.7 4.8 5.2 4.9 4.9 4.9 5.2 5.2 5.0 4.9 5.0 5.0 5.0 5.1 5.2 5.1 5.1 5.3 5.2 5.2 5.2 5.1 5.1 5.0 5.0 5.0 1. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption

36

Regional

• nal Econom

nomic ic Growth th

Source: Central Bureau of Statistics of Indonesia (BPS)

Solid domestic demand is supported by increasing income from inter-regional trade, such as in Sumatra. Meanwhile, economic growth in Kalimantan and Bali-Nusa Tenggara has been maintained as exports of primary commodities improved.

Exter ernal al Factor

• r:

Impr mproved ed Exter ernal al Resi silienc lience

Section tion 3

38

1.97 (8.35 35) (2.06) 06) 0.31

• 2.84
• 4.5
• 4.0
• 3.5
• 3.0
• 2.5
• 2.0
• 1.5
• 1.0
• 0.5

0.0

• 12
• 10
• 8
• 6
• 4
• 2

2 4 6 8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1*Q2*Q3* Q4** 2013 2014 2015 2016 2017 2018 2019** Goods Services Primary Income Secondary Income Current Account (%GDP) (rhs) US$b $bn

Extern ernal al Balanc ance e under r Contr trol

• l Support

rted ed by Adequ equat ate e Reserv rves es

Curren ent t Account Deficit with thin Safe e Thres eshold Balance e of Paymen ents ts Portr trait Substa tanti tial FX Reser erve ves to Miti tigate te Exte ternal Challen enges Trade e Balance Portr trait

Source: Bank Indonesia Source: Bank Indonesia Source: BPS * Preliminary Figure ** Very Preliminary Figure

Source: Bank Indonesia FX Reserve ves as of March 2020: US$121.0 bn n (Equiv. to 7.0 months of imports + servicing of government debt) US$b $bn

2015: CA Deficit (US$17.5bn) n) 2013: CA Deficit (US$29.1bn) n) 2014: CA Deficit (US$27.5bn) n) 201 2016: CA Deficit (US$17.0bn) n) 201 2017: CA Deficit (US$16.2bn) n)

2018: CA Deficit (US$30.6bn) n)

(8.12) 12) 12.38 8 4.28 129.18 18 40 80 120 160

• 15
• 10
• 5

5 10 15 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1*Q2*Q3* Q4** 2013 2014 2015 2016 2017 2018 2019**

Indone nesia ia's Balance of Payment nts

US$b $bn US$b $bn 2019: CA Deficit (US$30.4bn) n)

• 1.13
• 0.50
• 1.63
• 3.00
• 2.00
• 1.00

0.00 1.00 2.00 3.00 4.00 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 7 9 11 1 3 2013 2014 2015 2016 2017 2018 2019 2020 OG Non-OG Total

• 1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 50 60 70 80 90 100 110 120 130 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 2013 2014 2015 2016 2017 2018 2019 2020 FX Reserves (LHS) Month of Import & Debt Service (RHS)

Month US$bn

39

Excha hang nge e Rate e In Line e with h Fundam damen entals tals

Movem emen ent of Rupia iah Rupia iah Exchange e Rate e Fared ed Relative ively ly Well ll Compared ed to Peer ers

IDR/US$

The rupiah regained some of

• f its lost val

value in in the second week of

• f April 2020 as

as global fi financial market ket panic began to to subside. On 13th April 2020, the rupiah appreciated 4.35% (ptp) on the level recorded at the end of March 2020. Notwithstanding, the rupiah has still depreciated by around 11.18% on the level recorded at the end of

• 2019. The rupiah appreciated in April 2020 in response to an influx of foreign capital

flows to domestic financial markets after various policies were implemented around the world to mitigate the economic impact of COVID-19, including in Indonesia. The stronger rupiah was also supported by the maintained supply of foreign exchange from domestic players, which underpinned rupiah exchange rate stability. Bank Indonesia is confident that the current value of the rupiah is adequate to support economic rebalancing, as the currency is fundamentally undervalued. Furthermore, rupiah stability is expected as the currency strengthens towards Rp15,000 per US dollar at the end of 2020. Bank Indonesia will continue to bolster rupiah stabilization policy in line with the currency's fundamental value and market mechanisms. To that end, Bank Indonesia will increase the intensity of triple intervention policy through the spot and Domestic Non-Deliverable Forward (DNDF) markets, as well as purchasing SBN in the secondary market. To boost the effectiveness of exchange-rate policy, therefore, Bank Indonesia will continue to optimize monetary operations in order to ensure sound market mechanisms and adequate liquidity in the money and foreign exchange markets.

Source: Bank Indonesia

Rupia iah Exchange e Rate e Vola latil ilty

15630 14601 14798 14134 14254 14120 14064 14219 16195 14,141 14,381 14,220 14,031 14,232 14,113 14,006 13,714 15,179 16,195 13,000 13,500 14,000 14,500 15,000 15,500 16,000 16,500 17,000 12-May 12-Jun 12-Jul 12-Aug 12-Sep 12-Oct 12-Nov 12-Dec 12-Jan 12-Feb 12-Mar 12-Apr 12-May 12-Jun 12-Jul 12-Aug 12-Sep 12-Oct 12-Nov 12-Dec 12-Jan 12-Feb 12-Mar 12-Apr IDR/USD Quarterly Average Monthly Average data as of April 13th, 2020 0.25

• 0.41
• 0.71
• 0.78
• 0.84
• 1.23
• 1.76
• 2.26
• 2.37
• 5.71
• 6.27
• 6.57
• 9.30

0.16 0.07 0.50

• 0.38

0.42

• 0.01
• 0.81
• 1.07

0.17

• 2.27

4.35 1.91

• 1.23
• 10.0
• 8.0
• 6.0
• 4.0
• 2.0

0.0 2.0 4.0 6.0 PHP KRW CNY JPY SGD MYR EUR INR THB TRY IDR BRL ZAR point-to-point average *data as of April 13th, 2020

YTD 20 2020 20vs 201 019 %

18.1% 17.0% 16.0% 7.0% 5.4% 6.4% 6.2% 4.7% 28.7% 28.5% 18.0% 23.7% 3.7% 5.9% 14.4% 5.1% 15.99% ZAR BRL TRY IDR THB PHP INR MYR 2019 YTD 2020 Average YTD 2020 *data as of April 13th, 2020

40

Ample e Lines of Defens nse Agai ains nst t Externa ernal l Shoc

• cks

ks



Ample level of FX reserves to buffer against external shock



FX Reserves as of March 2020: US$121.0 billion

South Korea



Renewed a 3 year KRW / IDR swap arrangement with the size of up to KRW 10.7 trillion / IDR 115 trillion in March 2020

Australia



Renewed a 3 year A$/IDR swap arrangement of up to A$10 billion or IDR 100 trillion in August 2018

Chiang ng Mai Initiative e Multilater eralization

• n

(CMIM) Agreem eement ent



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



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



Doubled to US$240 bn effective July 2014

Japan



Renewed a 3 year USD22.76 billion swap line with Japan on October 14th, 2018



The facility is available in USD and JPY

IMF Global Financ ncial Safe fety Net - GSFN



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



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

Bilater eral Regiona

• nal

Global al FX Reser erve

Ample le Reser erves es Swap Arrangement

Source: Bank Indonesia

ASEAN Swap Arrang ngem ement ent (ASA)



Entitled to a maximum swap amount of USD600 million under ASA



The first MoU on the ASA was signed in 1977 among 5 ASEAN Central Banks with total facility USD100 million



Doubled to USD2 billion in 2005

Singapor

• re



Renewed a one year SGD/IDR swap arrangement with a size up to USD10 billion (equivalent) in November 2019

China



Renewed a 3 year swap arrangement and increased the size of swap line up to CNY 200 bn / USD 30 billion in November 2018

Malaysia



Established a 3 year RM/IDR swap arrangement with a size up to USD2 billion (equivalent) in September 2019

41

Solid id Po Polic licy Coordinat dination ion

In Managin ging g Financial cial Markets ets Volati tilit ity y

Source: Ministry of Finance First st Line of Defense State’s Budget Buyback fund at DG of Budget Financing and Risk Management Investment fund at Public Service Agency (BLU) (min. level Aware) State Owned d Enterprises (BUMN)’s Budget Related SOEs (min. level Aware) Social Security Organi nizing Agency (BPJS)’s Budget BPJS (min. level Aware) Second d Line of Defense State’s Budget

State General Treasury Account (Rekening KUN) (min. level Alert) Accumulated cash surplus (SAL) (min. Level Crisis)

Gov’t Securities Crisis Managem emen ent Protoc

• col
• l (CMP)

P)

• Indic

icato tors:

• Yield of benchmark series;
• Exchange rate;
• Jakarta Composite Index;
• Foreign ownership in government securities
• Policie

icies to address the crisis at every level :

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

Bond d Stabilization

• n Framewor
• rk

The enact ctme ment of Law No. 9/2016 rega garding g Prevention and Mitiga gation of Financia cial l System m Crise ses s as a legal foundation for the government to serves at the time of financial crisis in the form of Financi cial l System m Stabil bility Commi mittee (KSSK) K) KSSK membe bers: the Ministry of Finance, Bank Indonesia, the Financial Services Authority, and the Deposit Insurance Corporation Swap facility arrangements based on international cooperation Enhancing coordination between government institutions and continuous dialogue with market participants Implementing Crisis Management Protocol (CMP)

CMP

Implementing Bond Stabilization Framework (BSF)

BSF

42

Stren rengt gthe hene ned d Privat ivate e Extern ernal al Debt t Risk Managem agemen ent

Regulat ation Key Points Phas ase 1 Jan 1,2015 – Dec 31,2015 2015 Phas ase 2 Jan 1,2016 – Dec 31,2016 2016 Phas ase 3 Jan 1, 2017 & & beyond

Object of Regulation Governs all Foreign Currency Debt Hedging Ratio < 3 months 20%* 25%** > 3 – 6 months 20%* 25%** Liquidity Ratio (< 3 months) 50% 70% Credit Rating Not applicable Minimum rating of BB- Hedging transaction to meet hedge ratio not necessarily be done with a bank in Indonesia Must be done with a bank in Indonesia Sanction As of Q IV-2015 Applied External Debt/G /GDP (%)

Debt t Burden en Indicato tor (Exte ternal Debt/G t/GDP) Remains Comparable e to Peers Rati ting Encou

• uraging

ing Corporates Compli liance on Hedgin ing Ratio io & Liquid idit ity Ratio io

Source: Bank Indonesia

Liquidity ty Rati tio* Hedging Rati tio*

*Data as of Q3 2019, with total population 2.602 corporates

Regulati tion on Pruden enti tial Principle e in Managing Exte ternal Debt

Source: Bank Indonesia

Source: Moody’s Statistical Handbook, November 2019

23.9 36.2 20.0 39.9 57.3 23.0 36.7 20.9 42.9 56.5 21.9 37.0 21.4 42.3 54.3 10 20 30 40 50 60 70 Philippines Indonesia India Colombia Bulgaria 2020F 2019F 2018

2,341 , 90% 261 , 10%

≤ 3 months

2,443 , 94% 159 , 6%

> 3 - 6 6 months

2,294 , 88% 308 , 12% Comply Not Comply

43

Health lthy Extern ernal al Debt t Compos

• sit

ition ion

Exter ernal l Debt Structure

Source: Bank Indonesia, External Debt Statistics of Indonesia, April 2020 *Provisional Figures

The Structure e of Exter ernal l Debt is Domina inated ed by Long-Ter erm Debt Exter ernal l Debt Remains ins Managea eable le Exter ernal l Debt to GDP Ratio io & Debt to Expor

• rt Ratio

io

% % % 121.8 114.9 101.0 113.8 123.1 139.5 168.4 176.1 168.0 160.8 168.7 172.4 177.4 183.7 31.8 26.5 25.0 27.4 29.1 32.9 36.1 34.3 34.7 36.0 36.8 36.6 36.2 36.1 5 10 15 20 25 30 35 40 80 100 120 140 160 180 200 External Debt / Export Ratio External Debt / GDP Ratio (rhs)

42.6 41.4 47.4 50.0 53.6 55.8 54.1 50.5 48.8 50.4 50.8 49.8 50.0 49.8 49.5 50.1 57.4 58.6 52.6 50.0 46.4 44.2 45.9 49.5 51.2 49.6 49.2 50.2 50.0 50.2 50.5 49.9 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Private External Debt Public External Debt 18.3 21.2 20.7 21.7 21.2 20.2 17.9 17.1 15.6 16.0 16.2 15.8 14.1 15.7 14.6 14.6 81.7 78.8 79.3 78.3 78.8 79.8 82.1 82.9 84.4 84.0 83.8 84.2 85.9 84.3 85.4 85.4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Short Term External Debt Long Term External Debt

Million USD

11.5 17.1 11.3 12.0 5.4 10.2 5.9 3.0 10.1 6.5 8.3 10.1 10.5 7.7 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 External Debt External Debt Growth (rhs)

44

Manage geab able le Extern ernal al Debt t Prof

• file

ile

Short term non-bank nk corporate e debt bt (non n affiliation) n) represen esents only y 8.6% 6% of total private e ex exter erna nal debt

Private vate Short-Ter erm1 Priva vate te Non-Bank Exter ernal Debt Positi tion

Af Affiliat ation Non Af Affiliat ation

US$155.2bn

• r

76%

• f Private Ext.

Debt US$19.5bn

• r

9.6%

• f Private
• Ext. Debt

US$11.8bn

• r
• r

5.8% 8%

• f Priv

ivate te Ext.

• t. Debt

t US$17.7bn bn

• r
• r

8.7% 7%

• f Priv

ivate te Ext.

• t. Debt

t

Public Long Term 1 Private vate Bank

US$29.5bn

• r

14.4%

• f Private
• Ext. Debt

US$204 204.2b 2bn

• r

50 50.1%

• f total
• Ext. Debt

US$49bn

• r

24% 24%

• f Private
• Ext. Debt

External Debt Position as of February 2020

1 Based on remaining maturity

Source: External Debt Statistics of Indonesia, April 2020

US$407.5bn bn

US$203.3bn

• r

49.9%

• f Total Ext.

Debt

Fiscal al Performan mance e and Flexib ibili ility ty: Prudent dent Fiscal al Polic icy to Comb mbat at the COVID VID-19 Pandem emic ic and Maintain taining ing Econ

• nomic
• mic Sust

stain ainab ability lity

Section tion 4

46

Optim imizin izing the e Policy icy Mix x to Combat the e COVID ID-19 19 Pand ndem emic ic and nd Mainta intain ining ing Econo nomic ic Sustaina inabil ilit ity

Source: Ministry of Finance

2

Budget Refocusing & Reallocation

STIMULUS I

Rp8,5 T

STIMULUS II

Rp22,5 T

STIMULUS III

Rp405,1

Line ministries and regional govt: budget priorities to tackle COVID-19 Strengthening the domestic economy through:

• Accelerating spending &

encouraging labor- intensive policies

• Spending stimulus

Maintaining people's purchasing power and ease of export and import:

• Fiscal stimulus
• Non-Fiscal Stimulus
• Policy in the Financial Sector

Rescueing national health and economy, as well as maintaining the stability of the financial sector (through Perppu No.1 Tahun 2020)

• State Financial Policy (health, social safety

net, business support & economic recovery financing support)

• Policy in the Financial Sector

FISCAL POLICY

MONETARY*

• Reducing BI 7DRR
• Increasing triple intervention intensity
• Lowering Currency Statutory Reserves

(GWM) in Rupiah & foreign currency

• Extend SBN tenure

BANKING

• Relaxation of credit/financing/fund

provision requirements for MSMEs

• MSMEs credit/financing

restructuring

MONETARY AND FINANCIAL POLICY

Rp190 T Spending cut/saving Rp55 T Spending Reallocation

*For more detail please see section 5

47

Extra traor

• rdinar

dinary Handling dling of The COVID ID-19 Pandem demic ic

Gov

• vernment Regula

lation

• n in lieu of law (Perppu

pu) ) No. 1/2020 stipula lates s that everything spent by by the gov

• vernment on Cov
• vid-19

economic ic recovery programs s will be regarded as a measu sure to save the economy from crisis is and not a state loss

Source: Ministry of Finance

48

Extra traor

• rdinar

dinary Handling dling of The COVID ID-19 Pandem demic ic

Gov

• vernment Regula

lation

• n in lieu of law (Perppu

pu) ) No. 1/2020 stipula lates s that everything spent by by the gov

• vernment on Cov
• vid-19

economic ic recovery programs s will be regarded as a measu sure to save the economy from crisis is and not a state loss

Source: Ministry of Finance

49

Source: Ministry of Finance

Background:

• Adjustment of state budget deficit

threshold

• Utilization of budget funding alternative

sources

• Adjusment of mandatory spending,

shifting and refocusing central and regional budgets

• SBN issuance and loan program to

finance the additional deficit

• Incentives and tax facilities
• Implementation of the National

Economic Recovery Program for the sustainability of the real sector and financial sector.

MAIN PRINCIPLE/SETTINGS IN PERPPU

State Financial Policy Financial Sector Policy

• Expanding the authority of KSSK and

the scope of the KKSK meeting

• Strengthening the authority of the BI,

including in buying long-term SBN in the primary market to support the handling of Covid-19 pandemic

• Strengthening the authority of Financial

Service Authority (OJK) and Deposit Insurance Corporation (LPS) to prevent risks that endanger financial system stability and protect bank customers.

• Strengthening the authority of the

government in handling banking problems and financial system stability due to COVID-19 pandemic

PERPPU No. 1 of 2020

Quick and Extraordinary Steps in Handling COVID-19 and the Impact

COVID-19 P 19 PAND NDEMIC:

• Escalat

latio ion of confir irmed case se and fatali alitie ies

• Great

at economic ic impact

• Potentia

ial l disr sruptio ion to the stab abilit lity of financial al sy syst stem

Need quick and

anticipatory step

Forceful

urgency

1 2

PERPPU No. 1 of 2020

as a legal al bas asis is for r tak akin ing g ra rapid id and extrao aordin inar ary and coord rdin inat ated steps to counter r the COV OVID-19 pan andemic ic.

• carried out while maintaining good governance -

Extra traor

• rdinar

dinary Handling dling of The COVID ID-19 Pandem demic ic

Gov

• vernment Regula

lation

• n in lieu of law (Perppu

pu) ) No. 1/2020 stipula lates s that everything spent by by the gov

• vernment on Cov
• vid-19

economic ic recovery programs s will be regarded as a measu sure to save the economy from crisis is and not a state loss

50

COVID ID-19 9 Impac mpacts s and Count unter ermea measu sures es

Perpu No. 1/202 2020 0 provide des a legal basis to take e ex extraordi dina nary y steps in tackling ng COVI VID-19 huma mani nitarian n crisis s and saving ng the econom nomy

Source: Ministry of Finance

Health and Mental Threats Disruption of Social & Economic Activity Disruption in Real Sector and Increased Risk in the Financial Sector

 Losing source of income  Declining purchasing power and consumption ability  Disruption in business activity (production, investment, and trade)  Business is facing potential bankruptcy  Increase in financing and banking nonperforming loan  Liquidity and solvency issues in the financial sector (bank and nonbank)

Health Measures:

 Appoint dedicated hospital, emergency hospital, equipment support, and medical personnel support  Testing and tracing  physical distancing, work and study from home, etc.  Large-scale Social Restriction (PSBB)

Business Support:

 Reducing of import restriction (lartas) including manufacturing support, food and health/medical goods, acceleration of the export-import process, and improvement of services through the National Logistics Ecosystem  Incentives and tax facility  The National Economic Recovery Program through PMN, placement of Government investment, and/or guarantee activities  Various policies and relaxation in the financial sector: BI, OJK, LPS, and the Government

Social Safety Net:

 PKH improvement and expansion  Basic food cards improvement and expansion  Pre-Work Card expansion and flexibility  Exemption from electricity bills  Additional interest rate subsidy assistance  Infected  Starving  Death  Triggering mental health issues (anxiety, fear, sadness)

51

The objec jecti tives es of Governm rnmen ent t Stim imulu ulus

Source: Ministry of Finance

• 1. Helping economic player to

survive the impact of COVID-19

• 2. Minimizing the number of work

terminations (PHK)

• 3. Supporting banks in providing

relaxation and liquidity Trade sector could be one of the hardest-hit business sector, particularly because most of them are classified as MSMEs (with big concerns whether they have sufficient financial capacity to survive until the

• utbreak ends)

MSMEs absorp around 97% of total workforce and 99% of total job field, thus it is very crucial for the Government to maintain the sustainability of those MSMEs, minimize the number of layoffs, and maintain the level of unemployment in a tolerable level. In order to break the vicious cycle in conducting credit in this time of crisis, liquidity injection becomes

• important. It needs to be

done to channel liquidity to the real sector that needs cashflow to undergo a crisis due to COVID-19. Global economy as well as Indonesia economy face extraordinary challenges because of the impact of COVID-19. To overcome these, liquidity channeling policies need to be prepared in order to achieve the following objectives:

52

Flexib ibilit ility In 2020 Budget get To Respond nd Emergen rgency Condit dition ion

Wideni ening ng the defi ficit above e 3 percent ent of GDP is to acceler erate e the mitiga gation n of COVI VID-19, 9, salvage ge the econo nomy y from threa eaten ening ng crisis, and maint ntain n the stabl ble e financ ncial system em

Source: Ministry of Finance

• Slow economic activity,

plummeting of oil and commodities price

• Tax incentive for businesses
• Focusing for health, social safety net, and businesses

support, including the small and medium one;

• Reducing the non-priority spending, refocusing, and

reallocating to bolster the management of COVID-19;

• Enhancing the spending for COVID-19 treatment

Widening (Rp545.8T)

• The increasing of accumulated cash

surplus utilization (Rp45 trillion)

• Financing to promote the national

economy recovery (Rp150 trillion)

• Adding the securities issuance to cover

financing gap

Revenue Spending Deficit

Budget (Rp307.2T) = 1.76% GDP

Outlook (Rp853.0T) = 5.07% GDP

Budget Rp2,233.2T Budget Rp2,540.4T Outlook Rp1,760.9T Outlook Rp2,613.8T

53

Outlook look of 2020 Budget get Revenue ue in COVID ID-19 Emerge ergency ncy

Source: Ministry of Finance

DOMESTIC REVENUE

TAX REVENUE FROM D.G.TAX

TAX REVENUE

CUSTOMS & EXCISES REVENUE

Growth: -5.4% | Tax Ratio 9.4%

• Slowdown of economic growth and oil price war
• Tax incentive facilities stage II (PMK 23/2020)
• Additional tax relaxation  Stimulus widening
• Reducing of Corporate Income Tax into 22%
• Possibility of Dividend Income Tax suspend due to

Omnibus Law

Growth: -5.9%, by calculating the impact of:

Growth: -2.2%, considering the stimulus effect of import duty exemption for 19 industries

Growth: -26.5%

Reckoning the influence of:

• The drop of oil and gas

prices due to the lower ICP’s assumption

• It is similar to non-oil and gas

commodities since the coal’s price has plunged

GROWTH

• 10%

FROM 2019’s REALIZATION

OR

78.9%

2020 BUDGET TARGET

54

State e Expen endit diture ure & & Trans nsfer er to Regions

• ns Outlook

look in The e APBN 2020

Amid d Emergenc ergency y Situation

• n due to COVI

OVID-19 19

Source: Ministry of Finance

//////////////////////// ////////////////////////

BUDGET REFOCUSING & REALLOCATION TO FIGHT COVID-19

Rp190 T

Expenditure Savings: (Line Ministries: Rp95,7 T and Transfer to Region Rp94,2 T)

Rp54,6 T

Expenditure Reallocation

Rp255,1 T

Additional spending to mitigate COVID-19 (PERPPU)

////////////////////////

• Rp75 T  Additional health spending
• Rp110 T  Increasing Social Safety Net
• Rp70,1 T  Support for business

sector/industry

OUTLOOK

DBH

(Revenue sharing) in line with state revenue change

DAU

(general allocation fund) Cut by 10%

DAK Fisik

(Physical Specific Allocation Fund) cut by 25% except for education and health programs

DAK Non Fisik

(Non Physical Specific Allocation Fund) has been taking into account additional incentive for healthcare workers of Rp3,7 T

DID & Dana Desa

(Incentive Fund & Village Fund) taking into account disbursement capacity.

Dana Desa

(Village fund) can be used for cash transfer social assistance in village level

55

State e Financ ancing ing Outlook look in The APBN 2020

Amid d Emergenc ergency y Situation

• n due to COVI

VID-19 19

Source: Ministry of Finance

DEFICIT OUTLOOK

INCREASE TO BE

5,07%

OF GDP

FROM

1,76%

OF GDP IN APBN 2020

FINANCING

Additional financing will use accumulated cash surplus (Saldo Anggaran Lebih /SAL), endowment fund, and fund from BLU.

NON DEBT FINANCING Rp10 108, 8,9 9 T

Debt financing will come from:

• Government bonds issuance (SBN), in global and

domestic market,

• Loan withdrawal from multilateral and bilateral

sources.

• Government bonds issuance including bonds that will be

purchased by Bank Indonesia in the primary market.

Rp545,7 TRILLION

DEBT FINANCING Rp654, 4,5 T

Government will utilize debt financing sources with relatively low cost and manageable risk.

Adittional education financing Rp18,6 T  to fulfill mandatory education spending of 20% of total budget

Non debt financing include:

Financing t support National Economic Recovery Program of Rp150 T

56

The Realiz lizati ation n of The Stat ate e Budget et up to March h 2020

Control

• lled

ed State e budget get Amid d the Pandem emic c Pressu ssure re

Source: Ministry of Finance

Budget (IDRtn) 2019 2020 Budget Realization as of 31 March % to Budget Growth (%) Budget Realization as of 31 March % to Budget Growth A Revenue and Grant 2,165.1 349.0 16.1 4.6 2,233.2 375.9 16.8 7.7

• I. Domestic Revenue

2,164.7 348.9 16.1 4.6 2,232.7 375.9 16.8 7.7

• 1. Taxation Revenue

1,786.4 278.7 15.6 6.2 1,865.7 279.9 15.0 0.4

• a. Tax Revenue

1,577.6 247.7 15.7 1.3 1,642.6 241.6 14.7 (2.5)

• b. Custom and Excise

208.8 31.0 14.8 73.1 223.1 38.3 17.2 23.6

• 2. Non Taxation Revenue

378.3 70.2 31.0 (1.2) 367.0 96.0 26.2 36.8

• II. Grants

0.4 0.1 33.7 (43.7) 0.5 0.1 15.5 (47.4) B Expenditure 2,461.1 452.1 18.4 7.7 2,540.4 452.4 17.8 0.1

• I. Central Government Expenditure

1,634.3 260.7 16.0 11.4 1,683.5 277.9 16.5 6.6

• 1. Line Ministries Expenditure

855.4 128.8 15.1 24.8 909.6 143.0 15.7 11.0

• 2. Non Line Ministries

Expenditure 778.9 132.0 16.9 0.9 773.9 134.9 17.4 2.2

• III. Transfer to Region and Village Fund

826.8 191,3 23.1 3.1 856.9 174.5 20.4 (8.8)

• 1. Transfer to Region

756.8 181.2 23.9 3.4 784.9 167.3 21.3 (7.7)

• 2. Village Fund

70.0 10.1 14.4 (1.9) 72.0 7.2 10.0 (28.6) C Primary Balance (20.1) (32.5) 161.5 87.1 (12) (2.6) 21.6 (92.0) D Surplus/(Deficit) (296.0) (103.1) 34.8 20.1 (307.2) (76.4) 24.9 (25.8) % of GDP (1.8) (0.65) (1.76) (0.45) E Financing 296.0 177.9 60.1 16.9 307.2 74.2 24.2 (58.3)

57

Governm rnmen ent t Securit urities ies

Indicative e Financing g Plan for 2020

Source: Ministry of Finance

Governm rnmen ent t Securi riti ties (GS)

Issuance

Composition

GS Rupiah Domestic [82% - 86%]

Auction [76% – 80%] Non-auction [6% - 8%]

Forei eign n Deno nomina nated ed GS GS International [14% - 18%]

• Auction:
• Conventional Securities – 24x
• Islamic Securities – 24x
• Non-auction:
• Retail GDS (tradable/ORI & non-tradable), Retail

Sovereign Sukuk (tradable/Sukri & non-tradable);

• Private Placement – based on request.
• Foreign denominated GS as com
• mplemen

mentary  Avoid

• id crowd
• wding

ing out

• ut in domestic market.
• The target amou
• unt can be

be adjus justed to the potential

• f other financing sources and financing needs.

*in IDR Trillion

58

Governmen nment t Securities urities Financin ncing g Realiz ization ation

(as of Marc rch h 31, 2020)

Source: Ministry of Finance

*Dual-currency bonds issuance using SEC format amounted USD2 bn and EUR1 bn, settlement on January 14, 2020 (BI mid day exchange rate; 1 USD = 13,654 IDR & 1 EUR = 15,207.83 IDR)

• Including SBR009 issued February 17, 2020

59

GS Primar ary Mark rket et Perform

• rmanc

ance e 2019-2020 2020

Through Auction

Source: Ministry of Finance

2.11 3.11 2.80 2.12 2.15 3.17 2.59 1.97 2.34 2.97 2.44 5.14 6.50 3.01

• 1.00

2.00 3.00 4.00 5.00 6.00 7.00

• 50

100 150 200 250 300 350 400 Incoming Bids Awarded Bids % Bid to Cover Ratio (RHS) Incoming bid 2020 = Rp65.49T , while awarded bid 2020 = Rp13.91T

60

Republic lic of Indone nesia ia – USD4.3 .3bn GLOBAL OBAL BONDS S ISSUANCE CE

Source: Ministry of Finance

On April 7, 2020, the Republic of Indonesia priced a transaction comprising USD4.3bn in senior unsecured notes

Issuer Republic of Indonesia Issuer Rating Baa2 Moody’s (Stable) BBB S&P (Stable) BBB Fitch (Stable)

• Exp. Issue Rating

Baa2 Moody’s / BBB S&P / BBB Fitch Format U.S. SEC registered Issue Senior unsecured fixed rate notes Pricing Date April 6, 2020 Settlement Date April 15, 2020 Aggregate Size USD4,300 mm Long 10.5-year ar Long 30.5-year ar Long 50-year ar Maturity Oct 15, 2030 Oct 15, 2050 Apr 15, 2070 Tranche Size USD1,650 mm USD1,650 mm USD1,000 mm Coupon (p.a.) 3.850% 4.200% 4.450% Reoffer Price 99.573 99.150 99.009 Reoffer Yield (p.a.) 3.900% 4.250% 4.500% Listing Singapore, Frankfurt Open Market Law New York Use of Proceeds For general purposes of the Republic of Indonesia, including financing COVID-19 relief and recovery Transaction Highlights

 Net proceeds will be used for general purposes of the Republic, including financing COVID-19 relief and recovery efforts for the Republic to contain the virus and mitigate its impact on Indonesia.  The Republic's fiscal policy amidst volatile market conditions includes support for healthcare, the social safety net, and small and medium enterprises.  The debut 50-year offering on strong demand in the long end of the curve.  The transaction is the largest global offering by the Republic and demonstrates the Republic’s ability to respond swiftly to markets and capture favorable issuance windows.

Investor Breakdown by Investor Type Investor Breakdown by Region

RI1030 030 RI0470 RI1050 050

45% 25% 21% 9% 52% 20% 26% 2% 44% 38% 18%

US Europe Asia ex-Indonesia Indonesia

RI1030 030 RI0470 RI1050

Asset Managers Insurance/Pension Fund Central Bank/Sovereign Wealth Fund Banks Private Banks Others

64% 20% 1% 4% 1% 10%

71% 22% 1% 1% 2% 3%

61

Discip iplined lined and Sophistic isticated ed Debt t Po Portf tfolio

• lio Managem

gemen ent

Weig ighted ed Aver erage e Debt Maturit ity of ~8. 8.5 Years Pruden ent Fiscal l Defic icit it

Source: Ministry of Finance

Well l Diver ersif ified ied Acros

• ss Differ

eren ent Curren encies ies

% of Yearly Issuance Source: Ministry of Finance Source: Ministry of Finance Source: Ministry of Finance

Stable le Debt to GDP Ratio io Over er the e Years

IDR Tn Government Debt / GDP (%) Note: *as of endo of December by using GDP assumption (interpolation) 265 265 362 362 407 407 442 442 358 358 (9) 19 19 (4) (20) 14 14 (7) (58) (69) (56) (66) (227) (298) (308) (341) (269)

• 2.2%
• 2.6%
• 2.5%
• 2.5%
• 1.8%
• 3.0%
• 2.5%
• 2.0%
• 1.5%
• 1.0%
• 0.5%

0.0% (400) (300) (200) (100)

• 100

200 300 400 500 2014 2015 2016 2017 2018 SBN (neto) Pinjaman DN & LN (neto) Non Utang (neto) Surplus (Defisit) APBN Rasio Defisit APBN thd. PDB (RHS) Non Debt (Net) Bonds (Net) Loans (Net) Budget Surplus/Deficit Fiscal Deficit (%GDP, RHS) 1,931.2 2,410.0 2,780.6 3,248.6 3,612.7 4,014.8 4,292.73 714.4 677.6 755.1 734.8 746.2 810.7 764.5 24.7% 27.4% 28.3% 29.4% 29.8% 30.2% 32.1% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

• 1,000.0

2,000.0 3,000.0 4,000.0 5,000.0 2014 2015 2016 2017 2018 2019*) Mar-20 Bond Loan Debt/GDP Ratio [RHS] 9.8 9.4 9.1 8.7 8.4 8.5 8.6 2014 2015 2016 2017 2018 2019 Mar-20 ATM (in years) 57% 59% 58% 62% 59% 31% 30% 30% 27% 29% 4% 4% 4% 4% 5% 7% 6% 6% 5% 6% 1% 1% 1% 1% 1% 0% 20% 40% 60% 80% 100% 2016 2017 2018 2019 Mar-20 IDR USD EUR JPY OTHER

62

Well ll Balanced nced Maturity urity Prof

• file

ile With h Strong

• ng Resilience

lience Agains inst t Extern ernal al Shocks ks

Decli lining ing Inter eres est Rate e Risks ks Debt Maturit ity Profi

• file

le Decli lining ing Exchange e Rate e Risks ks Upcom

• ming

ing Maturit itie ies (Nex ext 5 Years)

IDR tn tn

Note: using GDP assumption

Source: Ministry of Finance

14.8 13.7 12.1 10.6 10.6 9.8 10.2 21.0 20.7 17.5 19.2 19.7 16.1 14.9 2014 2015 2016 2017 2018 2019 Mar-20 Variable rate ratio [%] Refixing [%]

• 20 35
• 110

• 50

100 150 200 250 300 350 400 450 500 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049-2058 IDR Denominated (Triliun Rp) Other Currencies (Triliun Rp) 10.7 12.2 12.1 12.1 12.3 11.3 13.3 43.4 44.5 42.6 41.3 41.0 37.9 41.3 2014 2015 2016 2017 2018 2019 Mar-20 FX Debt to GDP ratio (%) FX Debt to total debt ratio (%) 7.7 8.4 6.5 9.9 10.6 8.1 6.7 20.1 21.4 22.7 25.0 25.5 24.3 23.5 33.9 34.7 36.0 39.3 40.4 41.0 40.1 2014 2015 2016 2017 2018 2019 Mar-20 in 1 year (%) in 3 year (%) in 5 year (%)

63

Holder ders of Tradab dable le Central tral Govern ernmen ent t Securities urities

More e Balance e Ownersh ership In Term erms s of Holders ders and Tenors

• rs

Foreig eign n Owner ership ip of Gov’t Domestic Debt Secur urit ities ies by Tenor

• r

Holder ers of Tradable Gov’t Domestic Debt Securities

Source: Ministry of Finance

23.9% 22.5% 23.4% 20.3% 21.1% 26.9% 37.8% 39.9% 36.8% 42.0% 40.3% 40.3% 38.2% 37.5% 39.8% 37.7% 38.6% 32.7%

0% 20% 40% 60% 80% 100% Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Mar-19

Foreign Holders Domestic Non -Banks Domestic Banks 3.2% 3.5% 5.0% 4.3% 2.4% 2.4% 1.3% 5.3% 5.1% 1.9% 6.7% 7.9% 11.8% 17.8% 17.3% 18.4% 22.0% 23.1% 39.0% 37.4% 35.6% 36.8% 34.1% 31.6% 44.7% 36.0% 37.0% 38.6% 34.8% 35.0% 38.2% 37.5% 39.8% 37.7% 38.6% 32.7%

0% 20% 40% 60% 80% 100% Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Mar-20

0-1 >1-2 >2-5 >5-10 >10 % Foreign Ownership of Total

64

Owners rship hip of IDR Tradab dable le Central tral Govern ernment nt Securit urities ies

(as of Marc rch h 31, 2020)

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

(IDR tn)

Source: Ministry of Finance

Descripti tion Dec-15 15 Dec-16 16 Dec-17 17 Dec-18 18 Dec-19 19 Mar -2020 2020 Banks ks* 350.07 23.95% 399.46 22.53% 491.61 23.41% 481.33 20.32% 581.37 21.12% 763.39 26.94% Govt Insti titu tuti tions (Bank k Indones esia**) 148.91 10.19% 134.25 7.57% 141.83 6.75% 253.47 10.70% 262.49 9.54% 255.10 9.00% Bank Indonesia (gross) 157.88 8.90% 179.84 8.56% 217.36 9.18% 273.21 9.93% 426.08 15.04% GS used for Monetary Operation 23.63 1.33% 38.01 1.81% (36.15) (1.52%) 10.72 0.39% 170.98 6.03% Non-Banks 962.86 65.87% 1,239.57 69.90% 1,466.33 69.83% 1,633.65 68.98% 1,908.88 69.34% 1,814.88 64.05% Mutual Funds 61.60 4.21% 85.66 4.83% 104.00 4.95% 118.63 5.01% 130.86 4.75% 129.44 4.57% Insurance Company and Pension Fund 221.45 15.15% 325.52 18.36% 348.86 16.61% 414.47 17.50% 471.67 17.13% 498.08 17.58% Forei eign Holder ers 558.52 38.21% 665.81 37.55% 836.15 39.82% 893.25 37.71% 1,061.86 38.57% 926.91 32.71% Foreign Govt's & Central Banks 110.32 7.55% 120.84 6.81% 146.88 6.99% 163.76 6.91% 194.45 7.06% 183.58 6.48% Individual 42.53 2.91% 57.75 3.26% 59.84 2.85% 73.07 3.09% 81.17 2.95% 86.97 3.07% Others 78.50 5.37% 104.84 5.91% 117.48 5.60% 134.22 5.67% 163.32 5.93% 173.48 6.12% Total 1,461.85 100% 1,773.28 100% 2,099.77 100.00% 2,368.45 100.00% 2,752.74 100.00% 2,833.36 100.00%

Monetar tary and Financial ial Factor: Credib edible le Monetar tary Policy icy Trac ack Rec ecord d and Favou

• urab

able le Financial ial Sec ector

• r

Section tion 5

66

Bank Indonesia’s Policy Mix

To Mainta tain in Macr croecon

• economi
• mic

c and Financial cial Syst stem em Stabil ilit ity

Source: Bank Indonesia

 Implementing Macro prudential Intermediation Ratio (RIM)  Implementing Macro prudential Liquidity Buffer (MLB)  Electronification: Social program, e- payment for Government  Financial technology  National Payment Gateway (NPG)  QRIS (QR Indonesia Standard)  Expanding National Clearing System (SKNBI) services  Developing market instruments for financing infrastructure  Developing financial market infrastructures  Rupiah Interest Rate Swaps (IRS) and Overnight Index Swap (OIS)  Domestic non-Deliverable Forward (DNDF)  Developing the Commercial Papers (Surat Berharga Komersial)  Controlling inflation: TPIP, TPID  Structural reforms: Government  Financial deepening & stability: KSSK (Financial System Stability Committee), OJK (Financial Services Authority)  Coordinating efforts in reducing Current Account Deficit  Accommodative monetary policy consistent with controlled inflation in the target corridor, while serving as a pre-emptive measure to maintain domestic economic growth momentum  Stabilize exchange rate consistent with fundamentals  Optimize monetary operations in

• rder to ensure market

mechanisms and adequate liquidity in the money and foreign exchange markets

Monet etary Po Policy Coordi dination

• n

with other er Author horities es Financial Market et Deepen ening Macro- pruden dential Po Policy Paymen ent System em Po Policy

1 2 3 4 5

67

Bank Indone

• nesia

ia Po Polic licy Mix: : April il 2020

The e BI Board rd of Gover ernors rs agree eed d on 13th h and 14th h Apri ril 2020 020 to hold d the BI 7-Da Day y Rever erse e Repo Rate e at 4.50 50%, while e also maintaini ning ng the Deposit Facility y (DF) and Lendi nding ng Facility y (LF) rates es at 3.75 75% and 5.25 25%. Rupiah h Reser erve e Requireme ement nt Lowe wered d by 200 0 bps

Continue to

• ptimize monetary
• perations in order

to ensure market mechanisms and adequate liquidity in the money and foreign exchange markets Holds the BI 7-Day Reverse Repo Rate at 4.50% Continue to strengthen coordination with financial authorities and relevant government ministries/agencies will constantly be improved in terms of formulating an

• ptimal policy mix and to

mitigate escalating risk in the financial system.

Source: Bank Indonesia

Focus on macroprudential policy measures on efforts to maintain financial system stability and anticipate potentially higher risks in the financial sector due to COVID-19. Reinforced its policy mix towards mitigating the risk of COVID-19 transmission, perceives adequate space to lower the policy rate due to mild inflationary pressures and the urgent need to stimulate economic growth Monetary policy considers the need to maintain external stability amidst heightened global financial market uncertainty

68

Bank Indone

• nesia

ia Po Polic licy Mix: : April il 2020

1) To stabilize and strengthen rupiah exchange rates, Bank Indonesia has strengthened the intensity of triple intervention policy through the spot and Domestic Non-Deliverable Forward (DNDF) markets, as well as purchasing SBN in the secondary market. 2) To support national economic recovery efforts from the deleterious COVID-19 impact, Bank Indonesia will increase monetary easing through quantitative easing as follows:

• a. Expand monetary operations by providing banks and the corporates a term-repo mechanism with SUN/SBSN underlying transactions of tenors up to
• ne year.
• b. Lower the rupiah reserve requirement ratios by 200bps for conventional commercial banks and by 50bps for Islamic banks/Islamic business units,

effective from 1st May 2020.

• c. Relax the additional demand deposit obligations to meet the Macroprudential Intermediation Ratio (MIR) for conventional commercial banks as well

as Islamic banks/Islamic business units for a period of one year, effective from 1st May 2020. 3) To strengthen liquidity management in the banking industry and in relation to the lower rupiah requirements, Bank Indonesia has raised the Macroprudential Liquidity Buffer (MLB) by 200bps for conventional commercial banks and by 50bps for Islamic banks/Islamic business units, effective from 1st May 2020. The banking industry is required to meet the additional MLB through purchases of government issued SUN/SBSN in the primary market. 4) To increase the uptake of non-cash payment instruments in order to mitigate the COVID-19 impact, Bank Indonesia is increasing various payment system policy instruments as follows:

• a. Supporting government programs to accelerate non-cash social aid program (bansos) disbursements to members of the public in conjunction with

payment system service providers by expediting the electronification of relevant social programs, including the Family Hope Program (PKH), Noncash Food Assistance Program (BPNT), Pre-Employment Card and Smart Indonesian Card (KIP).

• b. Increasing public socialization activities in collaboration with payment system service providers to increase the uptake of non-cash payment

instruments through digital banking, electronic money and broader QRIS acceptance.

• c. Relaxing credit card policy by lowering the upper limit for credit card interest, minimum payment requirements and the penalties for late payments,

while supporting credit card issuer policy to extend the due date for customers.

The BI Board of Govern rnor

• rs

s agreed on 13th and 14th April 2020 to hold the BI 7-Day Reverse rse Repo Rate at 4.50%, while also maintaining the Deposi sit t Facility ty (DF) and Lending Facility y (LF) rates at 3.75% 5% and 5.25% 5%. Rupiah Reserv rve Require rement t Lowere red by 200 bps

69

Bank Indon

• nes

esia ia Po Polic licy Mix: : March 2020

Mitiga igati ting g the risk sk of COVID-19 19 transmiss smission

• n

To

• strengthen coord

rdinati tion and the va various s policy y measu sure res s already y take ken, Bank Indonesia on Marc rch 2nd

nd 2020 intro

roduce ced a va variety ty of five ve follow

• w-up

p policy cy measure res s to to mainta tain moneta tary and financial market t stabi bility ty as well as mitigate te the COVID-19 19 risks

1) Intensify triple intervention policy to ensure rupiah exchange rates move in line with the currency's fundamental value and market mechanisms. To that end, Bank Indonesia will optimize its intervention strategy in the DNDF market, spot market and SBN market in order to minimize the risk of increasing rupiah exchange rate volatility. 2) Lower the FX reserve requirements for commercial banks from 8% to 4%, effective 16th March 2020, which will increase FX liquidity in the banking industry by around USD3.2 billion and simultaneously alleviate foreign exchange market pressures. 3) Lower the rupiah reserve requirements by 50bps for banks financing export-import activity in coordination with the

• Government. Effective from 1st April 2020 for a period of nine months before a further review, this policy is

expected to facilitate export-import activity through lower costs/fees. 4) Expand the range of underlying transactions available to foreign investors in order to provide alternative hedging instruments against rupiah holdings. 5) Reaffirm that global investors can utilize global and domestic custodian banks to conduct investment activity in Indonesia.

70

Bank Indon

• nes

esia ia Po Polic licy Mix: : March 2020

Mitiga igati ting g the risk sk of COVID-19 19 transmiss smission

• n

Bank k Indon

• nesi

sia on the Board of Gov

• vern

rnor

• rs

s Meeti ting 18th

th and 19

19th

th Marc

rch 2020 has reinfor

• rced

ed its policy mix towa

• wards

ds mitigating the risk k of COV OVID-19 transm smissi ssion

• n, while

e maintaining money ey market et and financial system em stabi bility and catalyzi zing economi

• mic growt
• wth

h momentum m throu

• ugh

h the followi

• wing policy measu

sures es:

1) Strengthening the intensity of triple intervention policy to maintain rupiah exchange rate stability in line with the currency's fundamental value and market mechanisms, including the spot and DNDF markets as well as purchasing SBN in the secondary market. 2) Extending the SBN repo tenor to 12 months and providing daily auctions to loosen rupiah liquidity in the banking industry, effective from 20th March 2020. 3) Increasing the frequency of FX swap auctions for 1, 3, 6 and 12-month tenors from three times per week to daily auctions in order to ensure adequate liquidity, effective from 19th March 2020. 4) Strengthening foreign currency term deposit instruments in order to enhance foreign currency liquidity management in the domestic market, while encouraging the banks to utilize the foreign currency reserve requirements lowered by Bank Indonesia for domestic purposes. 5) Expediting the enforcement of domestic vostro rupiah accounts for foreign investors as underlying transactions for Domestic Non-Deliverable Forwards (DNDF), thus increasing hedging alternatives against rupiah holdings in Indonesia, which has been brought forward from 1st April 2020 to no later than 23rd March 2020. 6) Expanding the incentive of a 50bps daily rupiah reserve requirement beyond banks that are engaged in export-import financing to include the financing

• f MSMEs and other priority sectors, effective from 1st April 2020.

7) Strengthening payment system policy to support COVID-19 mitigation efforts by:

• providing hygienic currency fit for circulation, alternative cash and backup services, and urging the public to prioritize non-cash payment transactions;
• encouraging the use of non-cash payment channels by reducing the cost of the National Clearing System (SKNBI) from the banking industry to Bank

Indonesia from Rp600 to Rp1 and from customers to the banking industry from a maximum of Rp3,500 to Rp2,900, effective from 1st April 2020 until 31st December 2020; and

• supporting non-cash disbursements for government programs, such as the Family Hope Program (PKH) and Noncash Food Assistance Program

(BPNT), Pre-Employment Card and College Smart Indonesia Card.

71

Bank Indon

• nes

esia ia Po Polic licy Mix: : March 2020

Mitiga igati ting g the risk sk of COVID-19 19 transmiss smission

• n

Bank k Indon

• nesi

sia on the Board of Gov

• vern

rnor

• rs

s Meeti ting 18th

th and 19

19th

th Marc

rch 2020 has reinfor

• rced

ed its policy mix towa

• wards

ds mitigating the risk k of COV OVID-19 transm smissi ssion

• n, while

e maintaining money ey market et and financial system em stabi bility and catalyzi zing economi

• mic growt
• wth

h momentum m throu

• ugh

h the followi

• wing policy measu

sures es:

1) Strengthening the intensity of triple intervention policy to maintain rupiah exchange rate stability in line with the currency's fundamental value and market mechanisms, including the spot and DNDF markets as well as purchasing SBN in the secondary market. 2) Extending the SBN repo tenor to 12 months and providing daily auctions to loosen rupiah liquidity in the banking industry, effective from 20th March 2020. 3) Increasing the frequency of FX swap auctions for 1, 3, 6 and 12-month tenors from three times per week to daily auctions in order to ensure adequate liquidity, effective from 19th March 2020. 4) Strengthening foreign currency term deposit instruments in order to enhance foreign currency liquidity management in the domestic market, while encouraging the banks to utilize the foreign currency reserve requirements lowered by Bank Indonesia for domestic purposes. 5) Expediting the enforcement of domestic vostro rupiah accounts for foreign investors as underlying transactions for Domestic Non-Deliverable Forwards (DNDF), thus increasing hedging alternatives against rupiah holdings in Indonesia, which has been brought forward from 1st April 2020 to no later than 23rd March 2020. 6) Expanding the incentive of a 50bps daily rupiah reserve requirement beyond banks that are engaged in export-import financing to include the financing

• f MSMEs and other priority sectors, effective from 1st April 2020.

7) Strengthening payment system policy to support COVID-19 mitigation efforts by:

• providing hygienic currency fit for circulation, alternative cash and backup services, and urging the public to prioritize non-cash payment transactions;
• encouraging the use of non-cash payment channels by reducing the cost of the National Clearing System (SKNBI) from the banking industry to Bank

Indonesia from Rp600 to Rp1 and from customers to the banking industry from a maximum of Rp3,500 to Rp2,900, effective from 1st April 2020 until 31st December 2020; and

• supporting non-cash disbursements for government programs, such as the Family Hope Program (PKH) and Noncash Food Assistance Program

(BPNT), Pre-Employment Card and College Smart Indonesia Card.

72

Bank Indon

• nes

esia ia Po Polic licy Mix: : April il 2020

Mitiga igati ting g the risk sk of COVID-19 19 transmiss smission

• n

As a follow-up p measu sure to stren rengthen monetary and financial mark rket stabi bility in conjunction

• n with the Coordi

dinating Minist stry of Economi

• mic Affairs,

s, Minist stry of Finance, e, Indon

• nes

esian Financial Services es Au Autho hority (OJK) and Deposi

• sit Insurance

e Corpora

• ration
• n (LPS), th

the e Gov

• vernor
• r of Bank

k Indon

• nesi

sia, Perry Wa Warjiyo, on April 1st 2020 delivered ered The policy mix impleme emented ed by by Bank k Indo dones esia to mitigate e the COV OVID-19 impact is as follows ws:

1) Lower the BI 7-Day (Reverse) Repo Rate in February and March by 25bps respectively; 2) Intensify triple intervention policy in the spot and DNDF markets and purchasing SBN in the secondary market; 3) Reduce the foreign currency reserve requirements for conventional commercial banks from 8% to 4%; 4) Extend the SBN repo tenor and provide daily auctions to loosen rupiah liquidity as well as increase the frequency of FX Swap auctions to daily in order to ensure adequate liquidity; 5) Expand the types of underlying transactions for Domestic Non-Deliverable Forwards (DNDF), thus increasing hedging alternatives against rupiah holdings in Indonesia; 6) Lower the rupiah reserve requirements by 50bps for banks that are engaged in export-import financing, as well as the financing of MSMEs and other priority sectors; 7) Loosen the Macroprudential Intermediation Ratio (MIR); 8) Provide hygienic currency fit for circulation, reduce the costs of the National Clearing System (SKNBI), maintain a QRIS Merchant Deposit Rate (MDR) of 0% for micro-merchants, and support non-cash disbursements of various government programs, including the Family Hope Program (PKH) and Noncash Food Assistance Program (BPNT), as well as the Pre-Employment Card and College Smart Indonesia Card. Bank Indonesia reiterated that rupiah exchange rates are currently adequate and the outlook scenario formulated for the main macroeconomic indicators is a form of forward-looking anticipatory measure towards prevention through joint efforts, while Bank Indonesia continues to maintain rupiah stability.

73

Bank Indon

• nes

esia ia Po Polic licy Mix: : April il 2020

Mitiga igati ting g the risk sk of COVID-19 19 transmiss smission

• n

As a follow-up p measu sure to stren rengthen monetary and financial mark rket stabi bility in conjunction

• n with the Coordi

dinating Minist stry of Economi

• mic Affairs,

s, Minist stry of Finance, e, Indon

• nes

esian Financial Services es Au Autho hority (OJK) and Deposi

• sit Insurance

e Corpora

• ration
• n (LPS), th

the e Gov

• vernor
• r of Bank

k Indon

• nesi

sia, Perry Wa Warjiyo, on April 1st 2020 delivered ered The policy mix impleme emented ed by by Bank k Indo dones esia to mitigate e the COV OVID-19 impact is as follows ws:

• Bank Indonesia also backs promulgation of the Government Regulation in Lieu of Law in order to relax prevailing laws to mitigate the COVID-19

impact as an anticipatory measure in conjunction with the Government, OJK and LPS. COVID-19 handling requires extraordinary measures, unconventional policies and policies that exceed previous jurisdiction.

• To that end, Bank Indonesia has reiterated its authority in accordance with Government Regulation in Lieu of Law (Perpu) No. 1 of 2020 as

follows: 1) Expansion of BI authority to purchase long-term government securities (SBN) and government Islamic securities (SBSN) in the primary market in

• rder to assist the Government finance the handling of the COVID-19 impact on financial system stability.

2) SBN will be purchased in the primary market by Bank Indonesia as a last resort if the market is unable to fully absorb the SBN issued by the

• Government. Further provisions will be regulated in conjunction with the Minister of Finance and the Governor of Bank Indonesia based on the

following considerations: financial market conditions and the impact on inflation. 3) As an anticipatory measure, Bank Indonesia will purchase repo securities held by the Deposit Insurance Corporation (LPS) in order to finance the handling of solvency issues at systemic and non-systemic banks; 4) Provision of short-term liquidity loan or short-term liquidity financing facilities in compliance with sharia principles to systemic and non-systemic banks; 5) Foreign exchange flow management for residents. The use of foreign exchange by residents, including provisions for the surrender, repatriation and conversion of foreign exchange to maintain macroeconomic and financial system stability as follows: 6) Bank Indonesia would like to stress that this measure is not a form of foreign exchange control but policy to manage foreign exchange applicable

• nly to residents (excluding non-residents/foreign investors). Foreign portfolio investment and foreign direct investment (FDI) are still required for

the Indonesian economy, thus existing policy permitting the free flow of foreign exchange by foreign investors remains effective. 7) Regulating foreign exchange amongst residents is consistent with international prudential principles for macroeconomic management, particularly under economic distress, such as the current COVID-19 pandemic.

74

Bank Indon

• nes

esia ia Po Polic licy Mix: : April il 2020

Mitiga igati ting g the risk sk of COVID-19 19 transmiss smission

• n

Bank k Indon

• nesi

sia has agree eed d a repurcha hase se agree eemen ent line (repo

• line) with

h the US Federal reser erve e worth USD6 D60 billion

• n
• The agreement may be used by Bank Indonesia to fulfil US dollar liquidity if required. The repo line facility for Foreign and International

Monetary Authorities (FIMA) has only been extended to a few central banks, thus indicating confidence in Indonesia's economic outlook and the macroeconomic policies implemented. In addition, Bank Indonesia has also established repo line facilities with several other institutions, namely the Bank for International Settlements (BIS), worth USD2.5 billion, the Monetary Authority of Singapore (MAS), USD3 billion, as well as other central banks in the region valued at USD500 million-USD1 billion.

• The agreements will strengthen Bank Indonesia’s second line of defence, encompassing Bilateral Currency Swap Arrangements (BCSA) with

several other central banks, namely the People’s Bank of China (PBoC), worth CNY200 billion (equivalent to USD30 billion), the Bank of Japan (BOJ), USD22.76 billion, Bank of Korea, KRW10.7 trillion (equivalent to Rp115 trillion), and the Monetary Authority of Singapore (MAS), USD10 billion.

75

Bank Indon

• nes

esia ia Po Polic licy Mix: : April il 2020

Mitiga igati ting g the risk sk of COVID-19 19 transmiss smission

• n

Bank k Indon

• nesi

sia Issued d Impl pleme menting Prov rovisi sion

• ns

s for Au Auction

• n of Gov
• vern

rnme ment Debt Securi rities s (SUN) ) and/ d/or

• r

Gov

• vernmen

ment Islamic Securities es (SBSN) in the Prima mary Market et

• Bank Indonesia issued Board Member of Governors Regulation No. 22/5/PADG/2020 on Auction of Government Debt Securities and/or

Government Islamic Securities in the Primary Market to Maintain State Financial Management Sustainability as Implementation of Government Regulation in Lieu of Law Number 1 of 2020 on State Financial Policy and Stability of Financial Systems for the Management

• f Corona Virus Disease 2019 (Covid-19) and/or Encounter the Threat to National Economy and/or Stability of Financial Systems. The

regulation starts to take effect on 20 April 2020.

• The regulation serves as a follow-up to Government Regulation in Lieu of Law Number 1 of 2020, granting authority to Bank Indonesia

among others to purchase Government Debt Securities (SUN) and/or Government Islamic Securities (SBSN) in the primary market . It is necessary as a funding source for the government to recover the national economy including maintaining state financial management sustainability including SUN and/or SBSN issued in response to COVID-19 pandemic. Purchase of SUN and/or SBSN in the primary market is based on principle that Bank Indonesia is a last resort if the market capacity is unable to purchase them and/or result in high yield

• increase. Further, this regulation specifies the following:

1) Bank Indonesia holds auction of SUN and/or SBSN and auction of additional SUN and/or SBSN for long-term SUN and/or SBSN in the primary market as a follow-up to the implementation of Government Regulation in Lieu of Law Number 1 of 2020. 2) Provisions for offer quote and participants of auction of SUN and/or SBSN and auction of additional SUN and/or SBSN refer to the applicable Finance Minister Regulation on auction of SUN and/or SBSN in the domestic primary market. 3) Bank Indonesia may quote an offer to purchase long-term SUN and/or SBSN in auction of SUN and/or SBSN and auction of additional SUN and/or SBSN in the following manners: a. directly without using the main dealer and/or SBSN main dealer; b. non-competitive bid. 4) Implementation of auction of SUN and/or SBSN and auction of additional SUN and/or SBSN refer to the applicable Bank Indonesia provisions for auction of Government securities in the primary market provided that they are not in contravention of this regulation.

76

Princ ncipl iples es of Average ge Reser erve e Requirem uiremen ent Ratios ios Impr provemen

• vement

Substanc nce Old New Effec ective e Date a. Additional rupiah average reserve requirement for conventional commercial banks Fixed RR: 5% Average RR: 1.5% RR: 6.5% Fixed RR: 4.5% Average RR: 2% RR: 6.5% 16th July 2018 b. Annulment of demand deposit renumeration 2.5% (from 1.5% RR) 0% 16th July 2018 c. Implementation of foreign exchange average reserve requirement for conventional commercial banks Fixed RR: 8% Average RR: 0% RR: 8% Fixed RR: 6% Average RR: 2% RR: 8%* 1st October 2018 d. Implementation of average reserve requirement for Islamic banks Fixed RR: 5% Average RR: 0% RR: 5% Fixed RR: 3% Average RR: 2% RR: 5%* 1st October 2018

* Complemented by harmonisation feature to align with the average reserve requirement in rupiah feature for conventional commercial banks (e.g. Calculation period, lag period, and Maintenance period of 2 weeks)

• Improvement in average reserve requirement is a follow up

to the monetary policy

• perational

framework reform implemented by Bank Indonesia since 2016.

• Monetary policy operational framework reform started in

August 2016 as BI7DRR replaced BI Rate as policy rate. This was then strengthened in 1st July 2017, by the implementation of the average reserve requirement in rupiah for conventional commercial banks at 1.5% out of the total 6.5% of GDP reserve requirement in Rupiah. The reformulation is also backed by various efforts in financial market deepening.

• The current improvement aims to elevate flexibility in

banking liquidity management, enhance banking intermediation function, and support efforts in financial market deepening. This multiple targets will in turn improve the effectiveness

• f

monetary policy transmission in maintaining economic stability.

Consider derations

• ns for the Aver

erage e Reser erve e Requi uirem emen ent Ratios

• s

Improv

• vem

ement nt

Source: Bank Indonesia

77

Relaxing ing Reserve rve Requir irem emen ent t Ratios ios

Regulati tion

• n

1 200bps for conventional commercial banks INELIGIBLE for looser daily reserve requirements as per macroprudential policy to support export-import and MSME financing, effective from 1st April 2020, to 3.5%, with a daily ratio of 0.5% and average ratio of 3% 2 50bps for Islamic banks and Islamic business units INELIGIBLE for looser daily reserve requirements as per macroprudential policy to support export-import and MSME financing, effective from 1st April 2020, to 3.5%, with a daily ratio of 0.5% and average ratio of 3% 3 200bps for conventional commercial banks eligible for looser daily reserve requirements as per macroprudential policy to support export- import and MSME financing, effective from 1st April 2020, to 3.0%, with a daily ratio of 0% and average ratio of 3% 4 50bps for Islamic banks and Islamic business units eligible for looser daily reserve requirements as per macroprudential policy to support export-import and MSME financing, effective from 1st April 2020, to 3.0%, with a daily ratio of 0% and average ratio of 3%

Source: Bank Indonesia

Lower reserve requirements, effective 1st May 2020

78

Prin inciples les of Macrop

• pruden

rudenti tial al Interm ermediat ediation ion Ratio

• (MIR)

R) and Macrop

• prude

rudential ntial Liquidity uidity Buffer er (MLB)

Striving to stimulate the bank intermediation function and liquidity management, Bank Indonesia issued Bank Indonesia Regulation (PBI) No. 20/4/PBI/2018 and Board

• f Governors Regulation (PADG) No.

20/11/PADG/2018 concerning the Macroprudential Intermediation Ratio (MIR) and Macroprudential Liquidity Buffer (MLB) for Conventional Commercial Banks, Sharia Banks and Sharia Business Units. The policy is expected to stimulate the bank intermediation function to the real sector congruent with sectoral capacity and the economic growth target in compliance with prudential principles, while also overcoming the issue of liquidity procyclicality. The regulation is effective for conventional commercial banks from 16th July 2018 and for sharia banks from 1st October 2018.

Consideration

• ns

s for Macropr prudential l Instruments s Macrop

• prudential Intermediation
• n Ratio
• (MIR) and

Macroprudentia ial Liqu quidity Buffer (MLB)

1 2 3 4

This macroprudential policy instrument is countercyclical and can be adjusted in line with prevailing economic and financial dynamics.

Source: Bank Indonesia

79

Prin inciples les of Macrop

• pruden

rudenti tial al Interm ermediat ediation ion Ratio

• (MIR)*

)*

Regulati tion MIR (Conventional Commercial Bank) MIR Sharia (Sharia Banks s and Sharia Business s Units)

1 MIR Accounting Formula Credit + Owned Bond Deposit + Issued Bond Financing + Owned Sharia Bond Deposit + Issued Sharia Bond 2 Rate and Parameters  Ceiling 94%  Floor 84%  Minimum Capital Adequacy Requirement 14%  Upper disincentive parameter 0.2  Lower disincentive parameter 0.1  Ceiling 94%  Floor 84%  Minimum Capital Adequacy Requirement 14%  For Sharia business units, the Minimum Capital Adequacy Requirement is the same as that of the parent conventional commercial bank  Upper disincentive parameter 0.2  Lower disincentive parameter 0.1 3 Scope of credit/financing and deposits to calculate MIR / MIR Sharia  Credit: rupiah and foreign currency  Deposits in rupiah and a foreign currency: (i) demand deposits, (ii) savings deposits; and (iii) term deposits, excluding interbank funds  Financing: rupiah and foreign currency  Deposits in rupiah and a foreign currency: (i) wadiah savings; and (ii) unrestricted investment funds, excluding interbank funds 4 Source of Data Monthly Commercial Bank Reports Monthly Sharia Bank Reports 5 Criteria for securities held  Corporate bonds and/or corporate sukuk Corporate bonds and/or corporate sukuk  Issued by a nonbank corporation and by a resident  Offered to the public through a public offering  Equivalent to investment grade rating affirmed by a rating agency  Administrated by an authorised securities institution

*As part of further relaxation on macroprudential policy, an adjustment will be applied starting from December 2nd, 2019

80

Prin inciples les of Macrop

• pruden

rudenti tial al Interm ermediat ediation ion Ratio

• (MIR)*

)*

Regulati tion

• n

MIR (Convention

• nal Commercial Bank)

MIR Sharia (Sharia Banks and Sharia Busines ess Units)

6 Percentage of the securities held 100% 7 Criteria for securities issued  medium-term notes (MTN), floating rate notes (FRN) and/or bonds other than subordinated bonds  sharia-compliant medium-term notes (MTN) and/or sukuk other than subordinated sukuk  Issued by a nonbank corporation and by a resident  Offered to the public through a public offering  Equivalent to investment grade rating affirmed by a rating agency  Administrated by an authorised securities institution 8 Securities Reporting Offline delivery mechanism (email) 9 Scope of deposits to meet DD MIR /DD MIR Sharia  Average daily total deposits in rupiah at all branch

• ffices in Indonesia

 Including rupiah liabilities to a resident and non- resident third-party nonbank, consisting

• f:

(i) demand deposits, (ii) savings deposits; (iii) term deposits, and (iv) other liabilities  Average daily total deposits in rupiah at all branch

• ffices and sharia business units in Indonesia

 Including rupiah liabilities to a resident and non- resident third-party nonbank, consisting of: (i) wadiah savings; (ii) unrestricted investment funds, and (iii)

• ther liabilities

10 Relaxation of DD MIR/Sharia DD MIR  Bank Indonesia may relax the provisions of the DD MIR/Sharia DD MIR based on credit/financing disbursement and fund accumulation  The provisions may be relaxed based on a request from a conventional commercial bank, Sharia bank or Sharia business unit or a recommendation from the Financial Services Authority (OJK)  Conventional commercial banks, Sharia banks or Sharia business units that receive the relaxed policy are exempt from sanctions

*As part of further relaxation on macroprudential policy, an adjustment will be applied starting from December 2nd, 2019

81

Adjus justment ent of Macr cropr

• prud

udentia ential Inter ermed mediatio iation n Ratio io (MIR)/ )/Sharia ia Macr cropr

• prud

udentia ential Inter ermed mediati iation

• n Ratio

io (Sharia ia MIR)* )*

• In response to global and domestic economic

developments, BI is maintaining an accommodative policy mix to maintain the economic growth while also maintaining macroeconomic and financial system stability.

• BI relaxed MIR/sharia MIR policy in March

2019, which stimulated bank lending. Nevertheless, the macroprudential intermediation ratio (MIR) is again approaching the upper bound, thus necessitating efforts to increase bank lending capacity.

• Considering the potential of bank funding

sources that are not included in the MIR ratio, for example the expanding share of loans/financing received by banks, BI decides to adjust MIR/sharia MIR policy in order to

• ptimize loans/financing received for bank

lending.

• This policy to stimulate credit growth will

comply with prudential principles. Therefore, BI is only encouraging banks with low non- performing loans and adequate capital resilience to expand credit/financing.

Policy Backgroun

• unds

Source: Bank Indonesia

Bank Indonesia strengthens accommodative macroprudential policy through an adjustment to the Macroprudential Intermediation Ratio by including the loan/financing received by banks as a component of funding in MIR/sharia MIR.

• Including loan received by conventional commercial banks and financing received by Islamic banks and Islamic

business units as a source of bank funding in the calculation of MIR/sharia MIR.

• The criteria for loans/financing received by banks that are eligible to be included in MIR/sharia MIR calculation

are as follows: a. Loans/financing received in Rupiah and foreign currency; b. Loans/financing received in the form of bilateral loans and/or syndicated loans for conventional commercial banks, Islamic banks and Islamic business units; c. Loans/financing excludesinterbank loans/financing. d. Loans/financing received with a maturity of no less than 1 year; and e. Loans/financing received based on a loan agreement.

• Based on points a and b, the adjusted MIR/sharia MIR formula is as follows:
• The reference rate used to calculate penalties for banks that do not meet MIR/sharia MIR policy will be adjusted

from the Jakarta Interbank Offered Rate (JIBOR) to the Indonesia Overnight Index Average (IndONIA).

Main Regul ulator

• ry Points

Cred edit t + Owned ed Bond Deposit t + Issued Bond + Loan/Financing Rec ecei eived ed Lowe wer disincen enti tive ve paramet eter er

MIR/shar aria MIR RR RR= Lower Disincentives Parameter x (Lower Bound of MIR/Sharia MIR Target – Bank’s MIR/Sharia MIR) x Deposit

Upper disincen enti tive ve paramet eter er

MIR/shar aria MIR RR RR= 0.2 x (Bank’s MIR/sharia MIR - Upper Bound of MIR/Sharia MIR Target – ) x Deposit

*This disincentive applies for banks with CAR below 14%. *This adjustment will be effective from December 2nd, 2019

82

Prin inciples les of Macrop

• pruden

rudenti tial al Liquidit uidity Buffer er (MLB)

Regulati tion MLB (Conventi tional Commerci cial Bank) MLB Sharia (Shari ria Banks) s)

1 Rate 4% of rupiah deposits (including Sharia Business Units deposits) 4% of rupiah deposits 2 Components  Securities denominated in rupiah held by a conventional commercial bank that may be used for monetary

• perations (including SBI/SDBI/SBN); and

 Sharia-complaint securities denominated in rupiah held by an Sharia business unit that may be used for sharia- compliant monetary operations (including SBIS/SBSN)  Sharia-complaint securities denominated in rupiah held by an Sharia bank that may be used for sharia- compliant monetary operations (including SBIS/SBSN) 3 Calculation Formula Percentage of rupiah securities held by a conventional commercial bank to rupiah deposits Percentage of sharia-compliant rupiah securities held by an Sharia bank to rupiah deposits 4 Flexibility Under certain conditions, the securities used to meet the MLB may be used for repo transactions to Bank Indonesia for open market operations, totalling no more than 2% of rupiah deposits Under certain conditions, the securities used to meet the sharia MLB may be used for repo transactions to Bank Indonesia for open market operations, totalling no more than 2% of rupiah deposits 5 Sources

• f

Data

• n

Deposits  Monthly Commercial Bank Reports  Rupiah deposits to calculate MLB are the average daily total deposits at all branches in Indonesia  Rupiah deposits include: (i) demand deposits, (ii) savings deposits; (iii) term deposits, and (iv) other liabilities  Monthly Sharia Bank Reports  Rupiah deposits to calculate sharia MLB are the average daily total deposits at all branches in Indonesia  Rupiah deposits include: (i) wadiah savings; (ii) unrestricted investment funds, and (iii) other liabilities

83

Macr cropr

• prud

udentia ential Liquid uidit ity y Buf uffer er (MLB LB) ) Policy icy and nd Credit it card policy icy

Regulati tion Before re Afte ter

1 Increase in the Macroprudential Liquidity Buffer (MLB) for conventional commercial banks 4% of rupiah deposits 6% of rupiah deposits 2 Increase in the Macroprudential Liquidity Buffer (MLB) for Islamic banks and Islamic business units 4% of rupiah deposits 4.5% of rupiah deposits

Policy to increase the Macroprudential Liquidity Buffer (MPLB), effective 1st May 2020.

Regulation

• n

Before re Afte ter Effectiv tive Period

1 Lower upper limit on credit card interest 2.25% per month 2% per month 1st May 2020 2 Temporary reduction of minimum payment requirements 10% 5% 1st May 2020 – 31st December 2020 3 Temporary reduction

• f

late payment penalties 3% or maximum of Rp150,000 1% or maximum of Rp100,000 1st May 2020 – 31st December 2020 4 Supporting credit card issuer policy to extend the due date for customers Issuer discretion 1st May 2020 – 31st December 2020

Credit card policy, effective 1st May 2020.

84

Relaxing xing the Loan-to to-Value lue (LTV) ) and Fina inancin cing-to to-Value lue (FTV) ) Ratios ios*

The LTV/ V/FT FTV V relaxation is conduc ucted ed while taking g into account nt aspects of prude dential and consum umer er protect ection*

• 1. Increasing opportunities of first time buyers to fulfill their housing needs

through housing loan, specifically by adjusting the LTV ratio for property loan and the FTV ratio for property financing for the 1st facility, 2nd facility, etc., making the largest LTV ratio for property credit and FTV ratio for property financing as shown in the table below.

“-“= The LTV rate depends on each bank’s risk management

• 2. Relaxing the amount of loan/financing facility through indent

mechanism to a maximum of 5 facilities without taking account of the orders

• 3. Adjusting the arrangement of stages and amount of property

loan/financing disbursement of indent property:

Source: Bank Indonesia

*As part of further relaxation on macroprudential policy, an adjustment will be applied starting from December 2nd, 2019

85

Pruden dential aspec ects s of Re Relaxing g the e Loan-to to-Value e (LTV) V) and Financing-to to-Value e (FTV) V) Ratios

• s

1. The requirements of the LTV ratio for property credit and FTV ratio for property financing are as follows: i. The net ratio of NPL to total credit or NPF to total financing must not exceed 5%; and ii. The gross ratio of property NPL to total property credit or property NPF to total financing must not exceed 5%. 2. Banks must make sure that there is no loan transfer to another borrower at the same bank or different bank for tenors of less than 1 year. The requirements are valid for banks that will disburse pre-order property loan/financing. 3. Banks are required to comply with prudential principles when disbursing loans. 4. Gradual loan liquidation is only allowed for developers that comply with bank’s risk management policy (e.g.the business feasibility of the developer). 5. Banks are required to ensure that transactions to disburse loans (including down payment) and gradual liquidation must be processed through the debitor and developer/seller’s bank account.

LTV V / FTV V Exem emptions

Central government or local government loan / financing programs are exempt from this regulation.

Relaxing xing the Loan-to to-Value lue (LTV) ) and Fina inancin cing-to to-Value lue (FTV) ) Ratios ios*

Source: Bank Indonesia

86

Adjustm justment ent of LTV Ratio io for Proper erty y Loans ns, , FTV Ratio io for Proper perty y Fina nanc ncing, ing, and nd Down

• wn Paymen

yments on Automo

• motiv

ive e Loans ns/Fi Fina nanci ncing* ng*

• 1. Adjustment of LTV Ratio for Property Loans and FTV Ratio for Property Financing.
• a. BI decides to relax the LTV ratio for property loans and FTV ratio for property

financing by 5% from current ratio as follows:

Source: Bank Indonesia

Bank Indonesia adjusts macroprudential policy in the property and automotive sectors by: (i) relaxing the LTV ratio for property loans and the FTV ratio for property financing; (ii) providing additional incentive on LTV ratio for green property loans and FTV ratio for green property financing; (iii) relaxing down payments on automotive loans/financing; (iv) providing additional incentive on down payments on green automotive loans. Policy Backgroun

• unds

Main Regul ulator

• ry Points

*This adjustment will be effective from December 2nd, 2019

• In

response to global and domestic economic developments, BI is maintaining an accommodative policy mix to maintain the economic growth while also maintaining macroeconomic and financial system stability. This effort will be targeted to several potential sectors.

• Considering the ongoing needs to stimulate the property

and automotive sectors which have a huge backward and forward linkages to other sectors in the economy, BI decides to relax LTV/FTV policy for property loans/financing and down payments on automotive loans in compliance with prudential principles.

• Additional incentives are also given to support sustainable

development through green financing in order to reduce potential disruptions to financial system stability stemming from environmental degradation.

• As a prudential mitigation, those relaxations will be given to

borrower with strong repayment capacity and low credit/financing risk.

• BI will regularly evaluate this policy at least once a year.

87

• 2. Additional incentive on the LTV ratio for green property loans and

FTV ratio for green property financing.

• a. The Green Property criteria refers to the standards/certificates

issued by a nationally

• r

internationally recognized environmental institution.

• b. Green property that is granted for the incentive has to meet the

following standards: i. For residential areas/buildings in certified green belt areas, each unit in the residential area/building is considered to meet the criteria. ii. In case that the residential area/building is not a certified green belt area, an evaluation will be conducted on each unit as follows:

• For buildings < 2500m2, the bank may conduct a self-

assessment using the tools/applications provided by a recognized institution.

• For buildings > 2500m2,

the assessment must be conducted by a recognized institution;

• For new buildings constructed in an area by one

developer or group of developers, the assessment must be conducted by a recognized institution and the certificate must be submitted by the developer i. Additional incentive for green property on LTV ratio for property loans and FTV ratio for property financing is 5% from the LTV/FTV ratio presented in Table 2 as follows:

Adjustm justment ent of LTV Ratio io for Proper erty y Loans ns, , FTV Ratio io for Proper perty y Fina nanc ncing, ing, and nd Down

• wn Paymen

yments on Automo

• motiv

ive e Loans ns/Fi Fina nanci ncing* ng*

Source: Bank Indonesia

Main Regul ulator

• ry Points
• 3. Adjustment of Down Payments on Automotive Loans/Financing
• a. Down Payments on Automotive Loans/Financing is adjusted as

follows: i. Relaxation on the down payments of automotive loans or automotive financing 5%-10% from current regulations; ii. The relaxation should consider the gross NPL/NPF ratios and gross NPL/NPF ratios on automotive loans/financing; iii. The adjustment

• f

down payments

• f

automotive loans/financing in points a and b is as follows:

*This adjustment will be effective from December 2nd, 2019

88

• 4. Adjustment of Down Payments on Green Automotive Loans/Financing
• a. The green vehicles criteria refers to the Presidential Regulation No. 55 of 2019 concerning Battery Electric Vehicles.
• b. The down payments on green automotive loans or green automotive financing is adjusted as follows:

i. Additional incentive of 5% on green vehicles from the down payment presented in Table 5; ii. The down payment incentives considers the gross NPL/NPF ratios and gross NPL/NPF ratios on automotive loans/financing; iii. The down payment regulation for green automotive loans or green automotive financing in points a and b is as follows:

Adjustm justment ent of LTV Ratio io for Proper erty y Loans ns, , FTV Ratio io for Proper perty y Fina nanc ncing, ing, and nd Down

• wn Paymen

yments on Automo

• motiv

ive e Loans ns/Fi Fina nanci ncing* ng*

Source: Bank Indonesia

Main Regul ulator

• ry Points

Note: Adjustments of the LTV ratio for property loans, FTV ratio for property financing and down payments on automotive loans or financing will be effective from December 2nd, 2019

*This adjustment will be effective from December 2nd, 2019

89

Prin inciples les of Domes estic tic Non n Deliv iverab erable le Forwar ard d (DND NDF) F) Trans nsac acti tion

• n

Purposes

• ses

1. To support the effort of stabilizing the Rupiah exchange rate through the additional of alternative hedging instruments 2. To support the development and deepening of the domestic financial market 3. To increase the confidence of exporters, importers, and investors in conducting economic and investment activities through the flexibility of hedging transactions against Rupiah currency risk

Genera eral Pro rovision isions

 Domest stic c Non-Delivera rabl ble Forward Transa sacti ction

• n (DNDF Transa

sacti ction

• n)

Plain vanilla derivatif transaction of foreign exchange against rupiah in the form of forward transaction with fixing mechanism in the domestic market

 Forward Transa sacti ction

• ns

Forward Transactions are sell/purchase foreign currencies againts rupiah whereas the delivery of funds shall be performed in more than 2 days after the transaction date

 Fixing Mechanism sm

Transaction settlement mechanism without full movement of funds by calculating the difference between rate on the transaction date and reference rate in JISDOR on a specified future time agreed in the contract (fixing date)

 Other r Definiti tion

• ns

The definition of derivative transaction of foreign exchange againts rupiah, Forward Transaction, Spot Transaction, Customers, Foreign Party is referring to Bank Indonesia regulations regarding foreign exchange transaction againts rupiah

Source: Bank Indonesia

90

Prin inciples les of Domes estic tic Non n Deliv iverab erable le Forwar ard d (DND NDF) F) Trans nsac acti tion

• n

Bank can perform

• rm DNDF

F Tra ransactions

• ns as follows:

s:

Bank – Customer Bank – Foreign Party

Bank – Bank

Transa sacti ction

• n between:

Can only be performed to hedge rupiah exchange rate risk.

• 1. Must have Unde

derlyi ying Transa sact ction

• ns:

Includ uding ng all follow

• wing

ng activities es : a. Trade of goods and services b. Investments, loans, capital, and other investements. c. Banks credit or financing in foreign currencies (specifically for transactions between bank and customers) Exclud uding ng follow

• wing

ng activities es: a. Bank Indonesia certificates; b. Placement of funds with bank; c. Unwithdrawn credit facilities; d. Documents of foreign currencies sales againts rupiah; e. Money transfer by fund transfer companies f. Intercompany loan g. Money changer activities.

2. Nominal of DNDF Transactions ≤ Nominal of Underlying Transactions 3. Tenor of DNDF Transactions ≤ Tenor of Underlying Transactions

Source: Bank Indonesia

91

Prin inciples les of Domes estic tic Non n Deliv iverab erable le Forwar ard d (DND NDF) F) Trans nsac acti tion

• n

Transa saction

• n Settlem

emen ent

• Use Fixing mechanism
• Reference rate: JISDOR for USD/IDR and BI FX Transaction MidRate for non-USD/IDR
• Settlement currency : IDR
• Roll over and early termination are not allowed

Roll ov

• ver and early term

rmination

• n for DNDF is pro

rohibited However, unwind can be done by opening the reverse DNDF transactions

Cov

• ver

er Hedgi dging

Bank may conduct DNDF Transactions with Bank Overseas for cover hedging purpose.

• Underlying Transactions: DNDF Transaction between Bank and Customer/Foreign
• Purpose: Hedging

Custom tomer / / Foreign Party

Bank Ove vers rsea eas Bank

Hedging

Notes: Customer A conduct DNDF transactions with Bank B, and so Bank B can conduct DNDF transactions with overseas Bank for the purpose of cover hedge.

Cover Hedging

Source: Bank Indonesia

92

Amendm ndmen ent t on DNDF DF Regulat lation ion

*to to provid ide e more e flexib exibil ility ty in DNDF F transa sacti ction

• n

*to to increa ease se liqui quidit ity y and efficiency ciency in domestic stic foreign ign exch exchange ge market et

BI Re Regulation

• n No. 20/10/PBI/2018

Source: Bank Indonesia

BI Re Regulation No. 21/7/PBI/2019

AMENDMENT

Article e 3

• 1. DNDF transactions must have Underlying

Article e 3

• 1. Sell FX/IDR through DNDF up to $ 5 mio can be done without

underlying documents Article e 6

• 2. Not Regulated;

Article e 6

• 2. DNDF can be terminated (unwind);

Article e 11

• 3. Underlying documents must be final (firm) with additional

supporting documents Article e 11

• 3. Underlying documents for buy FX/IDR for DNDF is :
• Final (firm commitment) + Supporting documents
• 4. Underlying documents for sell FX/IDR for DNDF above

threshold $ 5 mio can be:

• Final (firm commitment) + Supporting documents
• Projection (anticipatory basis) + Supporting documents

Article e 11

• 4. Not Regulated;

Article e 11

• 5. In using estimate underlying transaction documents in the

form of cash flow projection, Bank must evaluate the appropriateness through:

• a. Supplementary documents;
• b. Historical data within at least 1 year before; and
• c. Track record of the Customer or Foreign Party.

*Effective on May 17th, 2019; English version of the regulation is available in BI website.

93

Overnight night Index Swaps (OIS) S) & Interes erest t Rate Swaps (IRS)

Source: Bank Indonesia

As hedging instruments s against st Rupiah interest st rate changes

IRS is a contract between two parties to periodically exchange rupiah interest rate flows during the contract period or at the completion

• f

the contract based on certain notional

• amount. IRS pricing is based on JIBOR.

OIS is an interest rate swap agreement based on a daily overnight reference rate (IndoNIA)  Encourage price transparency in the rupiah money market  Strengthen monetary policy transmission  Provide alternative hedging instruments against rupiah interest rate changes  Support securities market deepening in Indonesia

1 2 3 4

IndoNIA & JIBOR OIS transaction with IndoNIA as benchmark rate Alignment between JIBOR and OIS interest rate Improvement of IRS transaction liquidity

Strengthening reference rate based on real transactions

94

OIS and IRS Trans nsac action ions: : General eral Provis vision ions

Source: Bank Indonesia

Market Pla

• layers. Banks, bank clients, both individual

and non-bank institutions, and also foreign parties. Transa sact ction ion Nee Needs An Analysis

• sis. A bank performing an IRS
• r OIS transaction with a customer and/or foreign party
• n behalf of the customer and/or foreign party is

required to have an analysis on the need of rupiah interest rate derivative transactions. Market Con

• nventions. When performing IRS and OIS

transactions, the respective bank is bound by market conventions agreed upon by market players through industry association including the Indonesian Foreign Exchange Market Committee. Set Settlem

• lement. Settlement can be performed as a netting

payment and every transaction has to be settled in Rupiah. Clos lose-out nettin ing can be applied under predetermined conditions.

Market Conventions

Calculation

• n

Base se AC ACT/360 IndON ONIA Index x with h 5 5 decima mals Compou

• und

d Floating Rates es (CFR) based ed

• n 5 decima

mals Interest erest Paymen ent based ed on Netting Notion

• nal of Net

interest rest payme ment in IDR with 0 decima mals Settlemen ment Date e = 1 busines ess s days s after er Maturi rity Date (MD) OIS Quotation

• n rates

es based ed on 2 decima mals Quotation

• n : 1W, 2W,

1M, 2M, 3M, 4M, 5M, 6M At At the 1st phase se, OIS settleme ement will only be done at the end

• f the OIS tenor
• r

(MD+1bd). d).

95

3.00 4.00 5.00 6.00 7.00 8.00 LF Rate BI Rate BI-7Day RR Rate DF Rate LF Rate (Dummy)

Rupia iah Exchange Rate Remains ins Comparable le to Peer ers Well l Maint intaine ined Infla latio ion Ensured ed Pric ice e Stabil ilit ity Stren engthen ened ed Monet etary Poli licy Framew ewor

• rk

Cred edit it Growt

• wth Profi
• file

le

BI 7Day RR Rate: e: 4.50

(%)

LF Rate: 7.00 LF Rate: e: 5.25 25 BI Rate: e: 6.50 DF Rate: e: 3.75

19 August 2016

The New Moneta tary Operati tion

• n

Framewor

• rk

8.38 8.36 3.35 3.02 3.61 3.13 2.72 2.96

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

• 2

2 4 6 8 10 12 14 16 18 20

2013 2014 2015 2016 2017 2018 2019 Mar-2020 (%) CPI (%, yoy) rhs Core (%, yoy) - lhs Volatile Food (%, yoy) - lhs2 Administered (%, yoy) - lhs

Source: Bank Indonesia 0.25

• 0.41
• 0.71
• 0.78
• 0.84
• 1.23
• 1.76
• 2.26
• 2.37
• 5.71
• 6.27
• 6.57
• 9.30

0.16 0.07 0.50

• 0.38

0.42

• 0.01
• 0.81
• 1.07

0.17

• 2.27

4.35 1.91

• 1.23
• 10.0
• 8.0
• 6.0
• 4.0
• 2.0

0.0 2.0 4.0 6.0 PHP KRW CNY JPY SGD MYR EUR INR THB TRY IDR BRL ZAR point-to-point average *data as of April 13th, 2020

YTD 20 2020 20 vs 201 019 %

5.9 3.4 10.3 6.1 2 4 6 8 10 12 14 16 18 20 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 2015 2016 2017 2018 2019 2020 %,yoy Total Growth Working Capital Loans Investment Loans Consumption Loans

Stab able le Monetar etary Envir ironm

• nmen

ent t Despit ite e Challen llenges ges

96

Regional

• nal Inflati

lation

• n Remain

ins under er Contr trol

• l

Source: Central Bureau of Statistics of Indonesia (BPS), calculated

Inflation in most regions remained within the 2020 national inflation target range of 3.0% ± 1%. Inflation in West Java (3,9%) and Aceh (3.9%) remained high, driven by rising commodity prices of various fish and gold jewelery

REGIONAL INFLATION, MARCH 2020 20 (% (%, YOY)

97

4 Strat ateg egies ies to Achie ieve e the Inflation ation Target et

Achieving inflation at 3,5%±1%

• Maintaining core inflation
• Maintaining volatile food stability at 4-5%
• Controlling administered price inflation

2018-2019 19 Target

Stabilizing the price

• 1. Price

e Affor

• rda

dabi bility lity Achieving inflation at 3,0%±1%

• Maintaining core inflation
• Maintaining volatile food inflation less than 4%
• Controlling administered price inflation

20 2020 20-20 2021 Target

Managing demand side Strengthening production, Government food reserves and food export- import management

• 2. Supply

ly Availa labil ility ity

Strengthening institution Encouraging trade cooperation between regions

• 3. Well

l Managed ed Distr trib ibution tion

Improving trade infrastructure Improving data quality

• 4. Effec

ectiv tive e Communica ication tion

Strengthening central-regional coordination

Source: Bank Indonesia

4 Strategies

98

Improving ing the Effec ecti tiven enes ess of Monet etar ary Po Polic licy Trans nsmis ission ion

Bank k Indon

• nes

esia has instituted uted a Reform

• rmul

ulation

• n of Moneta

etary y Policy Operation

• ns Framew

ework

• rk which consists of 3 pillars;

(1) 1) implem emen enta tati tion of BI 7day y Rever erse e Repo

• Rate;

e; (2) 2) implem ementa entation

• n of reser

erve e requi uirem ement ent averaging ng; and (3) continue nue to implem ement ent money ey market et deep epeni ening ng prog

• gram.

Enhancement of monetary policy signal Enhancement of banking liquidity management Implem emen entation

• n of BI 7 Day

Rev ever erse e Repo

• Rate

Implem emen entation

• n of Reser

erve e Requi uirem emen ent (RR) Aver eraging ng Refor formul ulation

• n of

Monet etary Po Policy Operationa

• nal Framew

ewor

• rk

Enhancement of instruments and transactions Implem emen entation

• n of Money

Market et Deepen ening ng Program

Source: Bank Indonesia

99

Enhanc ancem emen ent t of Monetar etary Operati ations

• ns Framewor
• rk
• Can be traded among contributor banks for 10

minutes.

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

minutes.

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

CURRENT NT JIBOR (as per June 1st, 2016) PREVI VIOUS S JIBOR

Source: Bank Indonesia

100

Financ ancial ial Interm ermediat ediation ion Managed aged to Maintain ntain Its Stable le Growth th

Financial industry's intermediation still experiences positive and moderate growth in Feb-20 despite external pressure.

Source: Financial Service Authority (OJK)

As of Mar-20 20, the total of capita tal raising on 2020 reaches IDR 23.43 Tn. Banki king interme mediati ation can still maintain its moderate ate growth at 5.93% in Feb-20 20

5,538 5.93% 0% 2% 4% 6% 8% 10% 12% 14% 16% 1,000 2,000 3,000 4,000 5,000 6,000 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 IDR Tn yoy Bank Loans Growth (rhs) 12.07 9.6 16.43 14.7 0.09 67.12 88.19 35.45 29.17 116.18 156.71 114.18 122.98 5.46 20 40 60 80 100 120 140 160 180 2016 2017 2018 2019 Jan-20 Feb-20 Mar-20 IDR Tn IPO Rights Issue Corporate Bond & Sukuk

Growt wth of financing distr tribute ted by multi ti-finance e also grows moder erate tely at 2.82% yoy in Feb-20 20 Growt wth of insurance e gross premium of insurances es remains stable e as of Feb-20 20

• 3.75

20.94

• 30
• 20
• 10

10 20 30 40 50 60 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Life Insurance Premium Growth General & Reinsurance Premium Growth 452 2.82% 0% 2% 4% 6% 8% 10% 100 200 300 400 500 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 yoy IDR tn Financing Growth (rhs)

101

Stab able le Financi ncial l Insti titutions utions

Domestic financial institutions exhibit a relatively stable condition. The capital is consistently well above the minimum requirements, while profitability and leverage remain to be at a sufficient level.

Source: Financial Service Authority (OJK)

CAR of the e banki king secto tor remains high and stable e at 22.42% with th Tier er-1 capita tal at 20.68% as of Feb-20 20 Prof

• fita

tability ty of the e banki king secto tor has mainta tained ed relati tivel vely stable RBC of the e insurance e industr try remains high and well above ve the e minimum thres eshold (120%) %) Geari ring rati tio

• of multi

ti-finance e companies es is steadily mainta tained ed at a level vel of bel elow

• w

three ee times es in Feb-20 20

22,42 20,68 10 12 14 16 18 20 22 24 26 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 CAR Tier 1

670 312 312

50 100 150 200 250 300 350 400 100 200 300 400 500 600 700 800 900 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Life Insurance (Lhs) General Insurance (rhs) 4,81 2,49 1 2 3 4 5 6 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Net Interest Margin Return on Assets 2,52 1 2 3 4 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20

102

Manageab geable le Credit dit Risks with Adeq equat uate Liquidit uidity

Financial Institutions are equipped with sufficient liquid assets. Credit risks are also managed at a low level and remains below the threshold.

The rati tio of liquid asset ets to deposit t and non-core e deposits ts in the e banki king secto tor is mainta tained ed wel ell above ve the e thres eshold. As of Feb 20, the e gross & net t NPL rati tios of the e banki king secto tor are e 2.79% and 1% accordingly, well mainta tained below the e thres eshold. NPF rati tio

• of the

e multi ti-finance e industr try consta tantl tly mainta tained ed low w at 2.7% as of Feb-20 20 Inve vestme tment t adeq equacy rati tio in the insurance industr try is mainta tained ed above ve 100%

Source: Financial Service Authority (OJK) 108,12 22.81 5 10 15 20 25 30 40 50 60 70 80 90 100 110 120 130 140 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 % % Liquid Assets to Non-Core Deposits Liquid Assets to Deposits

threshold LA to Deposit (rhs) = 10% threshold LA/ NCD= 50%

114,83 183,49 50 100 150 200 250 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Life Insurance General Insurance 1,00 2,79 1 2 3 4 5 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 % NPL Net NPL Gross % % 2,7 1 2 3 4 5 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20

103

Manageab geable le Market et Risks

Amidst the increasing market volatility, the risk profile of financial institutions remains manageable

Net et open en position in in the banking secto tor is is maintained significantly below the maximum limit (20 20%) Insurance & pension fund inve vestme tment value is is growing steadily. The exposures es of multi ti-finance e comp mpanies es to forei eign debt t have ve largel ely been en miti tigate ted by company hed edging measures es Mu Mutu tual funds’ net et asset et va value (NAV) is is res estr trained afte ter following a consider erable decline in in JCI during March’20 20

Source: Financial Service Authority (OJK)

2,35 1 2 3 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 %

1.000 2.000 3.000 4.000 5.000 6.000 7.000 260 310 360 410 460 510 560 610 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 IDR Tn NAV Mutual Funds JCI (rhs) As of 1 April, 2020 1146.8 280 200 250 300 350 400 300 600 900 1.200 1.500 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 IDR Tn IDR Tn Insurance Pension Funds (rhs) 174,05 102,17 25 50 75 100 125 150 175 200 225 250 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Domestic Debt Foreign Debt IDR Tn

104

Domes esti tic Capit ital al Market t Perform

• rmance

nce Amid id Glob

• bal

al Challen llenges ges

Source: Bloomberg and Ministry of Finance

Domes estic ic bond and stoc

• ck

k index ex begin in to recov

• ver after

er a sharp fell l at the e end of March Gover ernmen ent t bonds record capita tal inflow in Apr-20 afte ter previ viously exper erien encing significant t net t sell due e to global pres essure The COVID-19 pandemi mic continues to weigh on JCI's performan ance alongside with the plunging global stock k market ket The gover ernm nmen ent bond nd yields on the e benc nchmark k of 10-yr and 20-yr rise e to abov

• ve

e 8 percent followin lowing rupia iah deprecia iatio ion.

• 18.0
• 35.9
• 20.5
• 18.2
• 19.9
• 13.8
• 7.5
• 27.7
• 20.2
• 14.0
• 24.1
• 17.0
• 23.1
• 20.6
• 40
• 35
• 30
• 25
• 20
• 15
• 10
• 5

TURK BRAZ US EU JPN MAL CHIN PHIL SIN HKN INDO S KOREA THAI WORLD Stock Index x Performance as of 7 Apr ’20 (compared to 31 Dec’19) 0.9

• 1.5
• 140
• 120
• 100
• 80
• 60
• 40
• 20

20 40 60 80 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 7 Apr-20 Gov't Debt Securities Equity

266 266

4,779 3000 3500 4000 4500 5000 5500 6000 6500 7000 200 210 220 230 240 250 260 270 280 290 300 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Comp Bond Index Comp Stock Index (rhs) As of 7 April, 2020 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 5 6 7 8 9 10 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Yield (%) 5-yr Yield 10-yr Yield 20-yr Yield IDR (rhs)

105

Strat rategi gic Po Polic icies ies in Financ ancia ial l Sector

• r

Source: Financial Service Authority (OJK)

Providing financing alternatives for Goverment Priority Sectors Supporting acceleration of national economic growth Providing financial access to MSMEs especially in remote areas Preparing financial services industry to cope with Industrial Revolution 4.0 Improvement of business process in the industry

106

Conti tinu nuous

• us Program
• gram on Capit

ital al Market t Deepen ening ing

…continuously strengthened, including through capital market deepening initiatives es

Strengthening market t infrast stru ructu cture re

• Development of Integrated Licensing (SPRINT).
• Enhancement of electronic reporting system.
• Development of electronic public offering.
• Integrated data warehouse and supervisory system.

Enhanci cing the supply-si side

• Product: QIB offering and private placements, private

fund, asset-backed securities, REITs, infrastructure fund, IGBF (Indonesia Government Bonds Future) & equity crowdfunding.

• Issuer: Financial conglomerates, big bank debtors, local

government, IDX incubators, SMEs, SOEs & big tax payers.

Enhanci cing the demand-side de Strengthening gov

• vern

rnance ce & custo tomer pro rotecti ction

• n
• Development of market players’ capacity
• Enhancement of GCG for publicly-listed companies
• Establishment of disgorgement fund

Source: Financial Service Authority (OJK)

• Enhancing the role of the domestic institutional investors

(insurers & pension funds) in capital markets .

• Development of the domestic investor base (conducting

investor education programs).

• Simplification in opening securities account.
• Development of regional securities companies.
• Development of e-bookbuilding.
• Online marketing initiative

107

Enhanc ancing ing Finan ancial al Literac eracy & Inclus lusion ion

Source: Financial Service Authority (OJK)

OJK strives s to to build a strong foundati tion for r financi cial inclusi sion pro rogra rams, s, to to ensure re acce cess ss to to financi cial pro roducts cts & services ces by by Indo donesia esians of all socia cial classes

• es. Such initiatives also
• include

de the enhanceme cement of financia cial litera eracy cy and d financi cial consu sumer r pro rotecti ction

• n.

Developing financial education models utilizing various delivery channels Enhancing the role of the “Investment Alert Taskforce” The result of OJK’s 2019 national survey demonstrated an improvement in financial literacy & inclusion among Indon

• nesians

s compa mpare red to to that t of 2016. 6.

Financ ncial Litera teracy Fina nanc ncial Inclusion

• n

21.8% 8%

2013

Developing micro-credit products with additional business support (“KUR Klaster”) Promoting the establishment

• f Islamic

microfinance institutions (“Bank Wakaf Mikro”) Strengthening the role of Financial Access Acceleration Taskforce (TPAKD) in local areas 29.7%

2016

38.03%

2019

2019 Target: 35%

59 59.7%

2013

67 67.8%

2016

76.19 19%

2019

2019 Target: 75%

108

A A Compreh rehen ensiv ive e Financial ancial Deepen ening ing Program gram …strategy

egy to tackle challenges in deepening Indonesia’s financial markets

Source: Bank Indonesia

In Apr-2016 016, the Mini nister er of Financ nce, e, the Gover erno nor of Bank k Indon

• nes

esia, and the Chairman n of the Board of Commission

• ner

ers of the Fina nanc ncial Services es Auth thori rity ty launc nched ed a Coord rdinati tion Forum for Devel elop

• pment

ent Financ ncing ng throu

• ugh Financ

ncial Market et (FK-PPPK). The three ee authori

• rities

es have agreed eed to formul ulate e “The Nation

• nal

Strateg egy y of Financ ncial Market et Devel elop

• pment

ent”

Vision: To Establish Deep, Liquid, Efficient, Inclusive, and Safe Financial Market

ECONOMIC FUNDING & RISK MANAGEMENT MARKET INFRASTRUCTURE DEVELOPMENT POLICY COORDINATION, HARMONIZATION & EDUCATION Benchmark Rate & Standardization Instrument Fund Regulatory Framework Market Infrastructure Intermediaries Coordination & Education

Mission: Financial Market as Sources of National Development Financing

1 2 3

Money Market FX Market Bond Market Stock Market Syariah Market Structure Product Market

3 Pilars 6 Markets 7 Elements

• f Financial

Market Ecosystem

TARGET KEY PERFORMANCE INDICATOR STRATEGIC ACTION PLAN

109

BI’s Roles in Supporting Distribution of Non-Cas ash h Socia ial l Assista tance e (NCSA)

BI supports s gove vernment’s pro rogram of shifting social assista stance ce to to targeted non cash social assista stance ce disbursem sement thro rough the electr tronic c payment t system

• tem. In the future, electr

tron

• nic

c mechanism sm disburse rsement t will be also

• applied to

to LPG subsidy. NCSA Pro rogra rams

Family Hope e Program (Prog

• gram Kelua

uarga Harapan n -PKH) H) Smart Indone

• nesia

Program (Prog

• gram

Indone

• nesia Pintar-PI

PIP) P) Non Cash Food Assistanc nce e (Bantuan Pangan Non Tunai – BPNT)

2016-2020 020

Pilot Pro roject Gradual Implementa tati tion

• n

Inter erconnec ected ed & interop

• perabl

ble paymen ment system em

LPG Subsidy dy

Full Implementa tati tion

• n

XXYYZZ 12345678 5678

Source: Bank Indonesia

110

Progres ess of NCSA Program ams

Family ly Hope Pro rogra ram (Program m Keluarga Harapa pan - PKH) Non Cash Food Assist stance ce (Bantuan Pangan Non Tunai - BPNT)

• The Family Hope Program (PKH) is a program that

provides cash to very poor households. Rp 1,89 million /year will be granted for each

• household. PKH will be granted every February,

May, August, and November.

• As of December 2017, PKH has been distributed

to 6,0 million households on non-cash basis.

• In 2018, PKH has been distributed to 10 million

households on non-cash basis.

• BPNT is a poverty alleviation and social protection

program that is managed by the central

• government. It provides subsidized rice and eggs

to low-income households. Rp 110 thousand/month will be granted for each household as BPNT that can be used in certain stores which called e-warong.

• As of December 2017, BPNT was distributed to

1,2 million households in 44 cities.

• In 2018, BPNT has been distributed to 10.1 million

households (65.1% of the target of 15.5 million households target).

Source: Bank Indonesia

• As of Sept-2019, PKH has been distributed to 9.8

million households

• n

non-cash basis with realization of 82.52% of the 2019 budget.

• As
• f

Sept-2019, BPNT has been distributed to 13.0 million households with realization of 68.04% of the 2019 budget.

111

Strong

• nger

er Fundame damentals ntals Facin ing g the Headw dwinds inds

82.4 12.1 6.8 1998 2008 Sep-15 30 30 3.8 2,79 1998 2008 Aug-15 17.4 50.2 1998 2008 Sep-15

Inflation ion Rate (%) IDR Movem ement (%) Non Non-Per erfor

• rming

ing Loan/NP NPL (% (%) Gover ernmen ent Debt/G /GDP Foreig eign Reser erves (USD SD bn)

100.0% 1998 1998 27.4% 2008 2008 29.8% Q4 - 201 2019 8.6x 1998 1998 3.1x 2008 2008 3.1x Q4 - 201 2019 116.8% 1998 1998 33.2%

2008 2008

36.1%

Q4 - 2019 019

More e Liq iquid id Market et (%) Exter ernal l Debt (Publi lic & Priva ivate) e) to FX Reser erve e Ratio io Exter erna nal Debt/G /GDP

Inflat ation contro trolled within the target t range IDR appreciat ated year-to to-dat ate in April 2020 NPL level (gross) is below w the maximum threshold of 5% Consiste tently y well-mai aintained Significan antly y higher r than 1998 & 2008, , ample to cover r 7.0 month ths of import t and external al debt t repaym yment Significan antl tly y lower than 1998 crisis Slightl tly higher than 2008, , but significan antl tly lower than 1998 Mar ’20 121 121

Mar ’20

2.96 (yoy)

Feb ‘20 62 62 10.5 5.7 1998 2008 Jul-15

Overnight t interban ank k money y market t rate te is relat atively y lower

Tw IV ‘19

4.8

4.35

• 35
• 197
• 250
• 200
• 150
• 100
• 50

50 13-Apr-20 2008 1998 (ytd)

112

Outlook look of Domes esti tic Econom nomy Remains ins Robus ust

...dom

• mest

estic econom

• mic gro

rowth h is predi edicted ed to be modera derated ed in in 2019 and reboun bound d in 2020

2019 and 2020 Economic Outlook

• k

 Bank Indonesia projects economic growth in 2020 at around 2.3%, revised down from 4.2-4.6%.  Bank Indonesia projects inflation in 2020 within the target range, namely 3.0%±1%.  Bank Indonesia projects growth of outstanding loans disbursed by the banking industry in 2020 in the 6-8% range, revised down from

9-11% previously, in line with the revised economic growth projection in 2020. Economic nomic Grow

• wth

Inflation ion CAD D (% (% of

• f GDP)

Credit edit Growt

• wth

Source : Bank Indonesia

2018 2018 Realizati tion

• n

5.17% 7% 3.13 13% 2.98% 11 11.75 75% 201 2019 9 Realizati tion

• n

5.02% 2.72% 2.72% 6.08% 20 2020 20 aro round 2.3 % 3. 3.0±1% 2.5 - 3 % 6.0-8. 8.0% 0%

Progre

• gress

ssiv ive e Infrastr astructure ture Develo elopmen ment: Strong g Commitment mmitment on Ac Acceleration eleration of Infrastr astructur ture e Provision ision

Section tion 6

114

IIGF has the potential to provide project guarantee for non-PPP projects

The Govern ernmen ent t has Enacted ed Various rious Reform rms to Accele elerat rate e Infrastruct rastructure ure Provis vision ion

Fiscal Reform rms Institu tuti tion

• nal Reform

rms Regulator

• ry Reform

rms

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

Viability y Gap Funding ng (VGF) KPPIP Direc ect Lend nding ng Increase project financial feasibility by contributing up to 49% of the construction cost (MoF Reg. No. 223/2012) Availability y Payment ent Land nd Revol

• lving

ng Fund Issuance of regulatory framework to allow annuity payment by the Government during concession period to concessionaire since project operation based on infrastructure service availability (MoF

• Reg. No. 190/2015 for Central Gov’r and MoHA
• Reg. No. 96/2016 for Regional Gov’t.)

A revolving-fund sourced from State Budget, to accelerate land acquisition (MoF Reg. No. 220/2010) KPPIP is actively involved in accelerating delivery

• f priority infrastructure projects
• PT. Sarana

na Multi Infrastrukt uktur ur Merging between PT. SMI and Gov’t Investment Center (PIP) to become an infrastructure funding company Indones

• nesia Infras.

. Guarant ntee ee Fund (IIGF) PPP Unit Provide facilities to help GCA on preparing PPP project (PDF/TA) BLU U LMAN The State Asset Management Agency (BLU LMAN) is mandated to provide land fund for National Strategic Projects to ensure timely land acquisition process Allow guarantee for direct lending to SOE to accelerate financial close process for infrastructure projects (Presidential Reg. No. 82/2015) Land nd Acqui uisition

• n

Stipulate land acquisition acceleration based on Law No. 2/2012 (Presidential Reg. No. 148/2015) and land acquisition fee payment for impacted community (Presidential Reg. No.56/2017) Econo nomy y Packa kages es Conduct deregulation for issues hindering infrastructure delivery and develop a task force under CMEA to ensure the effectiveness of economic packages implementation Risk-sharing ng Guidel elines nes IIGF has issued risk allocation and mitigation guidelines for PPP project Tax Incenti entives es (Tax Holiday) y) MoF Reg. No.35/2018 allowed 100% Tax Holiday for 17 Pioneering Industries for 5 – 20 years depending on the investment value Indon

• nes

esia Infrastruc ucture ure Guarantee ntee Fund (IIGF) IIGF has the potential to provide project guarantee for non-PPP projects

115

Some e of Most Recent nt Reform

• rms

Policy y reform

• rms are aiming to create

e a more re condu ducive e inves vestmen ent climate e for infr frast stru ructure re deliver ery

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

President dential Reg. No. 20/2018 on Use of Foreign n Labor – released on March 2018

This regulation aims at simpli lifying ing the e permit it appli lication ion proc

• ces

ess for foreig eign worker kers, hence making the process more efficient and faster, in order to rise foreign direct investment in Indonesia

President dential Reg. No. 56/2017 on Social Impact Handl dling ng in Land Acqui uisition

• n Proces

ess fo for PSN – released on June 2017

This Presidential Reg. allows the Exec ecuting ing Agen ency to pay land acquis isit ition ion compen ensation ion to the e impacted ed communit ity who does es not have e offic icial l rights

• ver

er the e land nd requir uired for PSN.

• N. This regulation helps to solve the land acquisition problem due to community objection over the land use.

MoF No. 60/2017 on Procedur dures es fo for the Prov

• vision
• n of Central Gov
• ver

ernm nmen ent Guarant ntee ee fo for the Accel eler eration

• n of the Nationa

nal Strategic Projec ects Implem emen entation

• n – released on May 2017

The supporting regulation for Presidential Reg. No. 3/2016 on the Acceleration of the National Strategic Projects Implementation. This regula lation

• n

regula lates es the e scop

• pe

e and gener eral l requir irem emen ents and proc

• ced

edures to prop

• pos
• se

e and grant guarantee ees, , as well l as alloc

• cate

e state e budget et ob

• blig

igation ion on gover ernmen ent guarantees es to all PSN.

• N. The guarantee provision is expected to increase the feasibility and trust of investors to participate in the

implementation of PSN.

Gov

• ver

ernm nmen ent Reg. No. 13/2017 on Nationa nal Spatial Plan n (RTRWN) – released on April 2017

The issuance of RTRWN can resolve spatial planning mismatch in the implementation of infrastructure projects listed in the annex of Government Reg.

• No. 13/2017. A number of breakthroughs were developed, and one of them is that the Minis

ister er of Agrarian and Spatia ial l can issue e a recom

• mmen

endation ion of spatia ial l util iliz ization ion; ; so that the e proc

• cess of obtaini

ining proje

• ject permission

ion can be done. e.

MoF No. 21/2017 on Procedur edures es fo for Land Acqui uisition

• n fo

for Nationa

• nal Strateg

egic Projec ects and Asset et Managem emen ent of Land Acqui uisition

• n by

State Asset et Managem ement Agen ency – released on February 2017

The implementing regulation of Presidential Reg. No. 102/2016 on Financing of Land Acquisition for the Development of Public Interest in the Framework of the National Strategic Implementation. This regulation becomes the legal basis for the financing of the procurement of National Strategic and Priority Projects by BLU LMAN.

116

Reforms Along the Project’s Life Cycle

...to

• encour
• urage

ge and accelera erate e infr frast stru ructure re proj roject ect using PPP schem eme Govern vernment ent of Indones esia

Pro roject ct Deve velop

• pment

t Facility ty (PDF) Viability y Funding Gap (VGF) Guarantee tee Fund Tax Facilitie ties Ava vailabi bility ty Payment Land Ac Acqu quisition

• n

Preparation Bidding Process Construction

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

• n GCA proposal

Gov’t. commitment: 49% max. Per project cost

Guaranteeing

• Govt. contractual
• bligations under

infrastructure concession agreements and Mof Regulation No 130/PMK. 08/2016 re: Govt guarantee for electricity project acceleration Managing entity: IIGF and MoF Govt’s comitment: US$ 450 mn

MoF Reg. No. 159/PMK. 010/2015 re: tax holiday for pioneer sector, such as base metal, oil refinery, basic petrochemical, machinery, renewable energy, & telco equipment industries. Sector will be further expanded Managing entitiy: Ministry of Finance A scheme in which concessionaires receive sum of money periodically from central or regional government after the completion

• f an asset.

MoF Regulation, and MoHA Regulation on Availability Payment has been ratified. Managing entity: Ministry of Finance & Ministry of Home Affairs A facility to support land acquisition for infrastructure projects particularly projects that involve private sector Managing enitiy: Ministry of Finance, Ministry of Agrarian and Land Spatial/BPN and BLU-LMAN Gov’t. commitment: US$ 12 mn (2016) Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

117

Effor

• rts

ts to Acceler elerate e Infrastruct rastructure ure Provis vision ion

Re Regulation

• n improvemen

ment to to accel elera erate land procureme ement proces ess

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

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

• For its implementation, the Law No. 2 of 2012 was supported by the Presidential Regulation
• No. 71 of 2012 on Land Acquisition Implementation for Developing Public Facilities, which

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

Land Procureme ement t Proces ess as Stipulate ted in Law No. 2 of 2012

Law No

• No. 2/2012

012 was succes essful ully applied ed in in: 1.

• 1. Palem

embang ng – Indralaya sec ection

• n of
• f the Trans

Sumater era Toll Road Proj

• jec

ect 2.

• 2. Java North Line

ne Double Track Rail Proj

• jec

ect

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

118

Effor

• rts

ts to Acceler elerate e Infrastruct rastructure ure Provis vision ion

…the establishment of Indones

• nesia Asse

set Managem gemen ent Agen ency y (LMAN AN)

Source: Ministry of Finance

Govern

• vernmen

ent has establ blished hed State e Asset set Managem gemen ent Unit (LMAN) AN) as a solution

• n to

accelera erate e the land acqu quisition

• n thr

hrough

• ugh the

e pro rovision

• n of land acqu

quisi sition

• n fund

1. Unutilized fund can be allocated for the following year 2. Non-project-specific land acquisition fund allocation. Unused allocated fund can flexibly be made available for the

• ther project

3. Land acquisition fund for PSN projects is managed under one agency

• 1. LMAN was established in December 2015

through the issuance of MoF Reg. 219/2015 concerning State Assets Management

• 2. In 2016, BLU LMAN was mandated to provide

land acquisition fund as a support to Ministry

• f Public Works due to US$ 1,081 Mio

shortage of fund to acquire land for priority toll roads

• 3. The scope of support is broaden for all

National Strategic Projects through the issuance of MoF Reg. 21/2017 concerning land acquisition financing guideline for PSN

• 4. In January 2018, LMAN has disbursed up to

US$ 881.48 Million (IDR 11.9 Trillion) through bridging finance scheme for 27 toll road projects, and planned to start the implementation of direct payment scheme

Land d Ac Acqu quisition

• n Budget

dgeting g Schem eme LMAN N at a Glance This s LMAN AN initiative ve pro rovi vides des bet etter r flex exibi bility, coor

• rdi

dination

• n and

managem gemen ent of land acqu quisi sition

• n fund

d pro rovi visi sion

• n for Nation
• nal Strategi

egic Pro roject ects (PSN) N)

119

New ew Fundame damental ntal Regulat lations ions Have Been een Initi tiat ated ed in 2017

to accelera erate e infra rast stru ructure re proj roject ects deliver ery

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

1

Gov

• ver

ernm nment ent Reg. No. 13/2017 on Nationa nal Spatial Plan n (RTRWN) The issuance of RTRWN can resolve spatial planning mismatch in the implementation of infrastructure projects listed in the annex of Government Reg. No. 13/2017. A number of breakthroughs were developed, and one of them is that the Minister of Agrarian and Spatial can issue a recommendation of spatial utilization; so that the process of

• btaining project

permission can be done.

2

MoF No. 60/2017 on Procedur dures es fo for the Prov

• vision
• n of Central Gov
• ver

ernm nmen ent Guarant ntee ee fo for the Accel eler eration

• n of the Nationa

nal Strategic Projec ects Implem ement ntation

• n

The supporting regulation for Presidential Reg. No. 3/2016 on the Acceleration of the National Strategic Projects

• Implementation. This regulation regulates the scope and general requirements and procedures to propose and

grant guarantees, as well as allocate state budget obligation on government guarantees to all PSN. The guarantee provision is expected to increase the feasibility and trust of investors to participate in the implementation of PSN.

3

President dential Reg. No. 56/2017 on Social Impact Handl dling ng in Land Acqui uisi sition

• n Process

ess fo for PSN This Presidential Reg. allows the Executing Agency to pay land acquisition compensation to the impacted community who does not have official rights over the land required for PSN. This regulation helps to solve the land acquisition problem due to community objection over the land use.

4

MoF No. 21/2017 on Procedur edures es fo for Land Acqui uisition

• n fo

for Nationa

• nal Strateg

egic Projec ects and Asset et Managem ement ent of Land Acqui uisi sition

• n by State Asset

et Managem ement ent Agen ency The implementing regulation of Presidential Reg. No.102/2016 on Financing of Land Acquisition for the Development of Public Interest in the Framework of the National Strategic Implementation. This regulation becomes the legal basis for the financing of the procurement of National Strategic and Priority Projects by BLU LMAN

120

Under der Presidential idential Reg. No.56/2018, , PSN N list t has been n revised ed into

• 223 Projec

jects and 3 Program grams

projects

27

53 53

17

12 12

Sulawes esi

US$23.4 B

Kalimanta tan

US$35.7 B

Sumatr tra

US$43.6 B

Maluku ku & Papua

US$34.5 B

89 89 3

Programs

Nati tional

Projects

1 2

Projects

Java va

US$72.7 B US$100 100.7 B

13 13

Bali & Nusa a Tenggar ara US$0.7 B

Exchange rate: US$ 1 = IDR 13,500

Road 69 Projects Dams 51 Projects SEZs & IEs 29 Projects Railway 16 Projects Energy 11 Projects Ports 10 Projects Clean Water & Sanitation 8 Projects Airports 7 Projects Irigation 6 Projects Smelter 6 Projects Electricity 1 Program Technology 4 Projects Housing 3 Projects Fisheries/Farming 1 Projects Sea Dike 1 Projects Education 1 Projects Economic Equality 1 Program Aeroplane Industry 1 Program

Projec ect Program

PSN includes des 15 15 sectors rs at projec roject leve evel and 3 sectors rs at prog rogram leve evel

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

121

PSN N may y receiv eive e privil ivilege eges as stip ipula ulated ed in the e Pres esid identia ential l Reg. . No. 3/2016 6 j.o j.o. . the e Pres esid ident entia ial l Reg. . No. 58/2017

01 01 02 03

Determination of National Strategic Projects

04 05 06 07 08 09 10 10 11 12

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

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

122

Progres gress on 223 Projec jects ts and 3 Progra grams PSN

The Estima mated Invest stmen ment Value for 223 Project cts + 3 P Progra rams ms PSN1

Exchange rate : US$ 1 = IDR 13,500

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

State Budget 10% SOEs/ RSOEs 31% Private 59% Total Inve vest stme ment Value2

US$ 307.4 .4 Billion lion

State Budget US$ 31.6 Bn Bn SOEs/RSOEs US$ 96.6 Bn Bn Private US$ 179.2 Bn Bn

5 Sectors

• rs with

h Highest ghest Inves estmen ent Value

Energy 11 Projects US$ 89.8 Bn Electricity 1 Program US$ 76.7 Bn Roads 69 Projects US$ 49.7 Bn Railways 16 Projects US$ 29.2 Bn SEZs and IEs 31 Projects US$ 31 Bn

123

Progres gress on 223 Projec jects ts and 3 Progra grams PSN

Progress s of National Strate tegic c Projects s (as of Decembe ber 2018)

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

32 projects already completed 32 projects, 1 electricity program, and 1 economic equality program in construction and partial-operation phase 48 projects in construction and will start operating in 2019 52 projects in construction and will start operating after 2019 14% 14% 15% 15% 21% 21% 23% 23% 3% 3% 24% 24% 6 projects in transaction 53 projects and 1 Aircraft Industry Program in preparation phase

Progress s of National Strate tegic c Projects s (as of Septembe ber r 2019)

51 projects already completed 27 projects, 1 electricity program, and 1 economic equality program in construction and partial-operation phase 22 projects in construction and will start operating in 2019 80 projects in construction and will start operating after 2019 4 projects in transaction 39 projects and 1 Aircraft Industry Program in preparation phase

22% 13% 12% 33% 3% 18%

124

In 2016 - 2018, , 62 PSNs have been Completed ed with h Tot

• tal

al Estimat ated ed Investm tmen ent t Value ue of

• f USD23.7

.7 Billion ion

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

125

Progres gress on 37 Priorit

• rity Projec

jects

Fro rom the revise sed National Strateg tegic c Pro rojects, cts, the Gove vern rnment t has select cted a list of 37 Priority y Pro rojects cts to to be the focus s of

• f

infrastruct cture e pro rovi visi sion.

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

1. Balikpapan-Samarinda Toll Road 2. Manado-Bitung Toll Road 3. Panimbang-Serang Toll Road 4. 15 Segments of Trans – Sumatera Toll Road 5. Probolinggo – Banyuwangi Toll Road 6. Yogyakarta – Bawean Toll Road 7. SHIA Express Railway 8. MRT Jakarta South-North Line 9. Makassar-Parepare Railway 10. Light Rail Transit (LRT) of Jakarta-Depok- Bogor-Bekasi 11. LRT of South Sumatera 12. East Kalimantan Railway 13. LRT of DKI Jakarta 14. Kuala Tanjung International Hub Seaport 15. Bitung International Hub Seaport 16. Patimban Port 17. Inland Waterways Cikarang-Bekasi-Laut (CBL) 18. Palapa Ring Broadband 19. Batang, Central Java Power Plant (CJPP) 20. Central – West Java Transmission Line 500 kV 21. Indramayu Coal-fired Power Plant 22. Sumatera 500 kV Transmission (4 Provinces) 23. Mulut Tambang Coal-fired Power Plant (6 Provinces) 24. PLTGU (16 Provinces) 25. Bontang Oil Refinery 26. Tuban Oil Refinery 27. RDMP/Revitalization of the Existing Refineries (Balikpapan, Cilacap, Balongan, Dumai, Plaju) 28. Abadi WK Masela Field 29. Unilization Field Has Jambaran-Tiung Biru 30. Indonesian Deepwater Development (IDD) 31. Tangguh LNG Train 3 Development 32. West Semarang Drinking Water Supply System 33. Jakarta Sewerage System 34. National Capital Integrated Coastal Development (NCICD) Phase A 35. Jatiluhur Drinking Water Supply 36. Lampung Drinking Water Supply 37. Waste to Energy Program in 8 cities

126

Progres gress on 37 Priorit

• rity Projec

jects

Recent ent Miles eston

• nes

es Prog

• gres

ess of 37 Priori

• rity Proj
• jec

ects (as of Septem ember er, 2019) Funding ng Scheme e of 37 Priori rity ty Proj

• jec

ects

Loan Agreement has been signed on 15 November 2017. On March 2018, pre-qualification stage has resulted 4 shortlisted bidders Allocation of repayment liability on additional-loan for Phase I and Phase II has been decided in the KPPIP Ministerial meeting – 49% will be borne by Central Government and 51% will be borne Provincial Government of DKI Jakarta.

Patimba mban Po Port

West Semarang ng Water Supply System em:

Mass ss Rapid d Transi sit (MRT) Jaka karta South-Nor

• rth

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

66% 66% 26% 26% 8% 8%

US$120.7 billion from Private/ PPP US$47.7 billion from SOE/ Regional SOE US$15.5 billion State/ Regional Budget (including G-to-G loan)

Exchange rate : US$ 1 = IDR 13,500

Total Investment Value US$ 183.9 Billion

West package has been fully operasional since April 2018.

Palapa Ring

Note: This data is still going to be verified by The Executive Office of President (KSP) and Indonesia’s National Government Internal Auditor (BPKP)

Outline Business Case has been done on December 2017.

Yogyakarta-Bawen en Toll Ro Road

6% 6% 16% 16% 30% 30% 24% 24% 8% 8% 16% 16% 3 projects in transaction 6 projects in preparation 6 projects in construction and partial operation phase 2 project is completed 11 projects in construction and will start operating in 2019 9 projects in construction and will start operating after 2019

127

Energy rgy Sector:

• r: the Progres

gress of 35.0 .000 MW Program gram

No No Phase MW MW % 1 Operating 3,792 11 2 Construction 22,739 62 3 Signed Power-purchase Agreement 6,923 21 4 Procurement 1,279 4 5 Planning 734 2 17 Dec ‘14 Cabinet et Meeti ting “There’s electricity crisis in Indonesia, requires construction of large capacity plant "

Jan ‘15

Aver erage e economic growt wth of 6.7% % requires es 7,000 MW / year r or 35,000 MW / 5 years (Kepmen ESDM No. 0074/2015 on RUPTL 2015-2024)

Jan ‘15

Debott ttlen enec ecki king through reg egulati tion:

• 1. Regulation

No.1/2015 concerning electricity supply cooperation & joint utilization

• f

the electrical network among license holders.

• 2. Regulation No.3/2015, concerning Procedures of

Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection & Appointment.

16 Mar ‘15 4 May ‘15 June‘17

Cabinet et Meeti ting Progress of 35,000 MW Launching 35.000 MW by the President in Goa Beach Sanden DIY The progres ess so far:

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

35,000 000 MW Prog

• gram Distributi

ution

• n

Source: PLN

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

Note : Progress of 35,000 MW Electricity Program as of August 2019

128

Energy rgy Sector:

• r: the Progres

gress of 35.0 .000 MW Program gram

Decembe ber 2016

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

706 MW in operating phase 10,141 MW in construction phase 8,478 MW sighned Power-purchase Agreement 10,560 MW in procurement phase

2% 2% 28% 28% 24% 24% 30% 30% 16% 16%

5,824 MW in planning phase

3% 3% 44% 44% 38% 38% 9% 9% 6% 6% 8% 8% 52% 52% 32% 32% 5% 5% 3% 3% 19% 19% 57% 57% 19% 19% 3% 3% 2% 2%

998 MW in operating phase 15,676 MW in construction phase 13,782 MW sighned Power-purchase Agreement 3,163 MW in procurement phase 2,228 MW in planning phase 2,899 MW in operating phase 18,207 MW in construction phase 11,467 MW sighned Power-purchase Agreement 1,683 MW in procurement phase 954 MW in planning phase 6,811 MW in operating phase 20,168 MW in construction phase 6,678 MW sighned Power-purchase Agreement 829 MW in procurement phase 734 MW in planning phase

November r 2017 Decembe ber 2018 Decembe ber 2019

129

Acceler elerati ation

• n of 35.0

.000 MW Program gram

Gov

• vern

rnment PT PLN

EPC Pow

• wer

erplant nt and Transmission

• n

PLN Subsidiary (Joi

• int

nt Ventur nture) e) Indep epend endent ent Power er Prod

• duc

ucer er

Strengthen hen Equity 2B 2B 1

Gover ernm nment ent Support (outside e Guarantee) ntee)

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

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

2A 2A

Assignm nment ent SJKU KU* Mini nistry

• f Financ

nce

Strengthe hen PLN‘s Balance e Sheet et

*)SJKU=Surat Jaminan Kelayakan Usaha/ Business Viability Guarantee Letter The Gover ernm nment ent has issued ued Pres esidenti ential Regul ulation

• n No. 4/2016

016 on Elec ectricity y Infrastruc ucture ure Accel eler eration

• n to acceler

erate e pow

• wer

er proj

• jec

ects Prov

• vision
• n of Elec

ectricity Refina nanc ncing ng Hedging ng Financ ncial Asset et Optimization

• n

Direct Lending Direct Lending Bond issuance by PT PLN Company Tax Holiday PT PLN’s divident allocation Loan from independent lenders Asset Revaluation Other types of funding Equity Injection by the Government

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

130

Signif nificant ant Progres gress on Infrastruct rastructure ure Projec jects

Database Project information such as map, track, existing study and latest project status. An integrated ed IT system with monitoring capacity for stakeholders, so that they can have real time data. Platfor

• rm data outlook

that is efficient and functional using a user- friendly framework. Record decisions related to projects and synchr hroni

• nize

e the implementation schedule that can be utilized by stakeholders.

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. Improving Monitori toring System em on Infrastr tructure ture Projec ects ts1 Roads

Trans-Sumatra Toll Road Merah Putih Bridge, Ambon

Dams ms

Jatigede Dam (Operational)

Transportation ion

Jakarta MRT Project2

Drink nking ing Water er Proc

• ces

essing ing

Umbulan Drinking Water Provi vision System, East Java va 1 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

2 Not funded from National Budget

Terminal 3 Ultimate Soekarno-Ha Hatta2 New Tanjung Priok Port Project2 Nop Goliat Dekai, Papua

131

Infrastruct rastructure ure Projec jects and Financi ncing g Sche hemes es

Prom romotion

• n of Infr

frast structure re Devel evelop

• pmen

ent to Ac Accelera erate e Econom

• mic Gro

rowth

Esta tablishment of PPP PPP Unit

Broad ad Objective  Champion project preparation and acceleration of the PPP agenda in Indonesia Core Man andat ates  Improve quality of project selection under KPPIP – OBC criteria  Support project preparation through PDF support and highlyqualified transactionadvisors  Act on behalf the Minister of Finance in providing government support and approvals for projects Additional al Man andates  Coordinate all public financeinstruments  Provide input for PPP Policy program Development andRegulations  Implement capacity building forGovt. Contracting Agency(GCAs)  One stop shop for PPP promotion & Information

Budget et Public Private te Part rtner ership SOE E & Pri riva vate Secto tor

 Ce Central & regional budget (special al allocat ation fund & rural tran ansfer)  Prima marily to to support basic infras astructureprojects: – Foodsecurity: Irrigation, dams etc. – Mar aritime me: Seaports, shipyardsetc. – Connectivity: Village roads, public transportationetc.  Certain infrastructure projects to be funded and operated through a partnership between the Indonesian governme ment and the priva vate sector – Projects ready for auction under the PPP Scheme: – Toll roads projects such as Balikpapan-Samarinda andManado-Bitung – Railway projects such as an express line into Soekarno-Hatta International Airport – Water supply projects such as the West SemarangProject  Various governme ment support for PPP: – Project Devel velopme ment Facility (PDF): Helps Government Contracting Agencies (GCAs) in project preparation and transaction – Viab ability Gap Fund: improves financial viability of PPP projects – Gove vernment Guar arantees: Supports PPP projects’ bankability by providing sovereignguarantees – Infrastructure Financing Fund: Provided through PT SMI and IIGF – Avai ailab ability Payment (AP): GCA pays private partner based of availability of infrastructure services  Government to inject capital into SOEs OEs: Intended multiplier effect to develop more infrastructure projects  Key focusareas: – Infrastructure and maritimedevelopment – Transportation and connectivity – Food security  Medium m term m infras astructure devel velopme ments to focuson: – WaterSupply – Airports – Seaports – Electricity and power plants – Housing – Mining

Source : Ministry of Finance; Bappenas; KPPIP: “Komite Kebijakan Percepatan Penyediaan Infrastruktur” or National Committee for the Acceleration of Infrastructure Delivery Note: OBC: Outline Business Case; PDF: Project Development Facility; GCA: Government Contracting Activity

 Infrastructure Development in order to:

• 1. Accelerate growth particularly in rural areas
• 2. Support industrial development and tourism
• 3. Reduce unemployment and poverty

 Infrastructure fundrai aising needs: $357.9 bn bn (or equivalent to IDR4,796.2 tn)  245 245 National Strategy Projects under National Medium Term Plan for 2015 – 2019 with an estimated total cost of IDR 4,197 tn (USD 313 bn)  37 priority infras astructure projects with an estimated cost of IDR 2,490 tn (USD 180 billion)  Majority of 37 priority projects are expected to commence commercial operation by 2018 - 2022

Infra rastr tructu ture e Devel elop

• pment

t is a Key Prior

• rity

ty

132

Governm rnment ent Guarant rantee ee For Basic Infrastruc rastructure ture Developm lopment ent

Re Reflec ects s stron

• ng

g commitmen ent to nation

• nal devel

evelop

• pmen

ent planning

Source: Ministry of Finance No. Central al Gover vernme ment Guar aran antee for Infrastructure Programs ams Exposure/ Outstan anding (USD bn bn) 1 Coal Power Plant 10,000 MW Fast Track Program (FTP 1) 1.75 2 Clean Water Supply Program 0.01 3 Direct Lending from International Financial Institution to SOEs 1.46 4 Sumatra Toll Road 1.53 5 Renewable energy, Coals & Gas Power Plant 10,000 MW (FTP 2) 6.78 6 Public-Private Partnerships (PPP) 3.35 7 Regional Infrastructure Financing 0.19 8 Public Transportation (Light Rail Transit) 0.07 9 Electricity Infrastructure Fast Track Program (35GW) 0.06 Total al 15.20

Conting ingen ent Liabil ilit ities ies from

• m Gover

ernmen ent Guarantee ees Gover ernmen ent Guarantee ntee Program Cred edit t Guarante tee PPP Guarante tee

Business Viability Guar aran antee (BVG)  Power (Electricity) – Full credit guarantee for PT PLN’s debt payment obligation under FTP 1 10,000MW and 35GW programs*.  Cl Clean an Water – Guarantee for 70% of PDAM’s debt principal payment obligations.  Toll road ad – Full credit guarantee for PT Hutama Karya’s debt payment obligations for the development of Sumatra Toll Roads.  Infrastructure - Full credit guarantee on SOE’s borrowing from international financial institution & guarantee for PT SMI’s local infrastructure financing.  Public Tran ansportat ation (Light Rail Tran ansit) – Full credit guarantee for PT Kereta Api Indonesia’s debt payment

• bligations for the development of LRT Jabodebek.

 Power (Electricity) – Guarantee for PT PLN’s obligations under Power Purchase Agreements with IPPs (off-take and political risk) under FTP-2 10.000MW and 35GW programs*  Infrastructure – Guarantee for Government-related entities obligations (line ministries, local governments, SOEs, local SOEs) under PPP contracts/agreements  From 2008 to Q3-2019, the Government has issued 84 guarantee documents with total value of USD35.44 billion, 23 of which (worth USD3.44 billion) have expired.  The Maximum Guarantee Limit for the period 2018 – 2021 is set at 6% of GDP.  The space for guarantee issuance for the period 2018-2021 is approximately IDR 1,200 trillion (cumulative). As of end of September 2019; currency conversion of IDR 14,147/USD1 (Sept 30, 2019)

Politi tical Risk k Guara rantee tee

 Infrastructure – Guarantee against infrastructure risks for National Strategic Projects (Presidential Decree No.58/2017) which are not covered by other type of guarantees *) MOF provides both credit guarantees and BVGs for 35GW program

133

Governm rnmen ent t Financ ancial ial Facilit ilities ies for PPP P Projec jects ts

Financial Facilities es to Attract More Private e Participation

• n

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

• f the following PPP projects:

Viability Gap Fund (VG VGF) Projec ect Dev evel elop

• pmen

ent Facility (PDF) Gov

• ver

ernm nmen ent Guarant ntees ees (direc ectly by MoF or throug ugh h IIGF) Financing ng from PT

• PT. SMI and PT. IIF

Availability Paymen ent Schemes es More e Funding Schemes es are on the Pipel elines es

Project Financing funded ed by the private vate secto tor through the granting of concessions for an operating asset

• wned by the Government/SOE (based on the policy
• f the Government) to the private sector to be
• perated & managed.

Project Financing funded ed by any source of funds

• ther than Government’s budget, e.g. long term

management funds (insurance, repatriated funds from tax amnesty, pension funds, etc.), private equity investors and infrastructure funds. Supported & facilitated by National Development Planning Ministry/Bappenas.

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

years

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

Schem eme e Characte teri risti tics Schem eme e Characte teri risti tics

LCS (Limited ed Conces ession

• n

Scheme) e) PINA NA (Non

• n-Gover

ernm nmen ent Budget et Infrastruc uctur ure e Financing)

Source: Ministry of Finance

134

Progres gress of PPP P Infrastruct rastructure ure Projec jects

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

Successful ful Projec ects Reachi hing ng Financ ncial Clos

• se

e in 2016 and 2017

No No Projec ect t Name Projec ect t Cost t (IDR tn tn) Financial Faciliti ties es Statu tus 1 Batang–Semarang Toll Road 11 IIGF Guarantee PPP & guarantee contracts signed on April 27th, 2016 2 Manado–Bitung Toll Road 5.1 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 3 Samarinda–Balikpapan Toll Road 9.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 4 Pandaan–Malang Toll Road 5.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 5 Serpong–Balaraja Toll Road 6.0

• PPP contracts signed on June 8th, 2016

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

Signed ed PPP Projects in 2016 and 2017

Source: Ministry of Finance, as of July 2017

135

New Guaran arantee ee Schem emes es for Non-PPP PPP Projec jects ts

The Government had issued Preside dent ntial Regul ulation

• n No

No 82 82/2015 and Mini nistry of

• f Financ

nce Reg egul ulation

• n No

No 189 189/2015 to provide guarantee for SOE Direct Lending from IFIs for the Development of Infrastructure Projects. Guarant ntee ee on SOE Direct Lending ng from Inter erna nationa

• nal Financial Institut

utions ns (IFIs) s) Guarant ntee ee fo for Regiona

• nal Infrastruc

uctur ure e Financing ng Prov

• visi

sion

• n

State finance e soundn ndnes ess Fiscal sustaina nabiliy Best practice e of fiscal risk managem emen ent The objective of this guarantee is to prov

• vide

de credit enhanc ncem emen ent in terms of low

• w interes

est rate and long ng tenor financing ng, with 3 main n principles: es:

The Government had issued Ministry of

• f

Fina nance Regul ulation

• n No

No 174 174 of

• f 2016

2016 to provide guarantee to PT SMI on the assignment

• f

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

• n

Gov

• ver

ernm nment ent Regul ulati tion

• n

No

• No. 95

95/2015 2015 and Mini nistry of

• f Fina

nanc nce Reg egul ulation

• n No
• No. 232

232/2015 2015, Minister of Finance assigns PT SMI (Sarana Multi Infrastruktur) to carry out functions in providing loan to local government, as previously carried

• ut

by PIP (Government Investment Center). The objective is to give stimul ulus us to to the accel eler eration

• n
• f
• f

loc

• cal

inf nfrastruc ucture ure dev evel elopment ent through the ease of access to infrastructure financing and to boost local economic growth, as well as to provide alternative financing schemes in

• rder

to meet local infrastructure development needs and to reduce reliance on state/local budget.

136

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