[PPT] - Dividends of Reforms December 2016 0 About Investor Relations Unit PowerPoint Presentation

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Republic of Indonesia

December 2016

Dividends of Reforms

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Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial market investors. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among

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

IRU also convenes an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit – Republic of Indonesia Contact: Wiwit Widyastuti K. (International Department - Bank Indonesia, Phone: +6221 2981 8279) Dalyono (Fiscal Policy Office - Ministry of Finance) Farid Arif Wibowo (Directorate General of Budget Financing and Risk Management - Ministry of Finance) E-mail: contactIRU-DL@bi.go.id

About Investor Relations Unit of the Republic of Indonesia

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Overview

1 2 3 4 5 6

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

f Infrastructure Provision

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Accelerated Reforms Agenda with Institutional Improvement Institutional and Government Effectiveness:

1

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Positive Global Perception

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

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

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

Higher rank is better

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

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Strong Improvement in Ease of Doing Business Rank*

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

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

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

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

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Indonesia Remains the Investment Destination of Choice

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

IDR tn

2016E Total Investment / GDP (%)

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

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

% of surveyed who plan to increase investment in each country

155.3 55.6 99.7 2013 2014 2015 2016

Rising Direct Investments1

17.96 31.66 34.65 26.15 23.74 24.42 5 10 15 20 25 30 35 Brazil India* Indonesia Malaysia Philippines Thailand 40 80 120 160 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 FDI DDI TOTAL

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

% of surveyed who consider each country has promising prospects

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National Strategic Development Plan (Nawa Cita)

Human Development

Education Health Housing Character

Priority Sector Development

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

Equitable Development

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

Security & Order Politic & Democracy Governance

The 3 Dimensions on Economic Development Necessary Condition

Legal Certainty & Law Enforcement

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Improving Investment Climate:

Introduce the 3-hour investment licensing service to complement the One Stop Service (OSS)

BKPM

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

Requirement for utilizing 3-hour Investment Lisencing Service:

No requirements for investment in infrastructure sector

9 documents obtained

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

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

Until November 2016, more than 180 companies have utilized the “3 hours services”

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

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

f the proposed company stakeholder

2 documents needed

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

finished products

Investor identitiy as the prospective shareholders Flowchart of business activities workflow

Source: Investment Coordinating Board (BKPM)

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Improving Investment Climate:

Introduce the 3-hour investment licensing service to complement the One Stop Service (OSS)

Direct Construction (KLIK)

No Requirements

No minimum investments or workers is

required.

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

with construction process.

Investors can directly start their project construction before

btaining construction permits. This service is supported by

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

Obtain investment licence at OSS

at national or regional level.

Survey a land within selected

industrial parks.

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

No other permits are required.

Apply for building construction permit &

environmental permit, in parallel with construction process.

Priority Investment Service

Source: Investment Coordinating Board (BKPM)

Until November 2016, 79 projects have utilized the “KLIK services”

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Improving Investment Realization (Q3-2016)

Source: Investment Coordinating Board (BKPM), compared to Q3-2015 period

Rp140.3 T Rp155.3 T Rp92.5 T Rp99.7 T Rp47.8 T Rp55.6 T 373,560 276,023

10.7% 26.1% 7.8% 16.3%

Q3-2015 Q3-2016 Q3-2015 Q3-2016 Q3-2015 Q3-2016 Q3-2015 Q3-2016

*

* person

Decreasing

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FDI Realization by Sectors (Q3-2016)

Mining Chemical and Pharmaceutical Industry Transport Equip and Other Transport Industry Metal, Machinery and Electronic Industry

Source: Investment Coordinating Board (BKPM), compared to Q3-2015 period

US$569.75 mn US$663.85 mn US$688.41 mn US$764.06 mn US$1,231.41 mn US$632.24 mn

Food Industry

50.3%

US$694.39 mn

Food Crops

24.4% 70.1% 15.8% 30.8% 3.2% 37.7%

Investment Realization

Electricity, Gas and Water Supply

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The Economic Policy Packages

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

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

f business unnecessary burden

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

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Boosting the Huge Potential of E-commerce in Indonesia

2.2 2.6 7.5 8.6 12.1 19.6

5 10 15 20 25

Indonesia India Japan World South Korea China

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

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

Indonesia Philippines Vietnam Thailand Malaysia Singapore

SMEs Loan Schemes
Crowdfunding
Grants
Easing tax payment
Incentive for local

start-up

National payment

gateway

Harmonizing

regulations

Trainings
Increasing internet

awareness

Revitalizing PT.

Pos Indonesia

Improving rural to

city logistics Expanding high fiber cable network

Develop cyber

security system

Awareness on

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

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

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

Source: Ministry of Finance

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Thematic Policy Issues on Deregulation

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

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

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

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Progress of the Economic Policy Packages

Initially, there are 215 regulations which need to be deregulated As

f

November 16th, 2016, deregulation

f

202 regulations are finished (99%), comprising 48 regulations at Presidential level and 154 regulations at Ministrial/Institutional level Unfinished regulations: (a) Proposed Presidential Regulation concerning Gas Buffer Enterprises (Aggregator); (b) Proposed Government Regulation concerning Acceleration on Housing Construction Licensing for Low- Income Communities; and (c) Proposed Policy

n

E-commerce Roadmap

I–XII

202

SET

99% 10

REVOKED REGULATIONS

3

ON GOING DISCUSSION

1%

154 TOTAL

154

MINISTRIAL/INSTITUTIONAL LEVEL 100%

47 42

SELESAI

PRESIDENTIAL

51 TOTAL

48 FINISHED

PRESIDENTIAL LEVEL

96% I–XIV

FINISHED

I–XII

215

TOTAL INITIAL REGULATIONS

I–XIV

I–XII

205

TOTAL REGULATIONS

I–XIV

Based on the further assessment, 10 regulations has been revoked from deregulation process Total regulation subject to be deregulated: 205 regulations

TECHNICAL REGULATIONS

As of November 16th, 2016, from total 26 technical regulations, 24 regulations are deregulated, which left 2 regulations in process of deregulation

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Early Outputs: Positive Influence on Investment

1

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

6

Export Financing/KURBE Export of Train Wagon to Bangladesh

2

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

3

Industrial Zones (IZ)

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

Demak, and Ungaran

Pharmaceutical IZ in Bitung (North Sulawesi) in 2017

5

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

7

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

4

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

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

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

8

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

f 13.4 days (previously 2 years)

9

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

10

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

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Strong and Stable Growth Prospects Remain Intact Economic Factor:

2

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Conducive Environment Underpinning Strong Growth Fundamentals

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

n commodities

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

Reform-Oriented Administration

Three main sources of financing for IDR 5 tn investment needs: State and regional budget, State Owned Enterprises and PPP Continuing from 2015 policy, infrastructure will be higher than fuel subsidy Fiscal and non-fiscal incentives to attract infrastructure investment and promote PPP Infrastructure spending focused on basic infrastructure projects

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

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Indonesia’s Strong GDP

Growth Prospect GDP Growth Based on Expenditures1 Strong GDP Growth1

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

%

Institutions 2016 GDP growth (%YoY) 2016 Revised Budget 5.2 Bank Indonesia 4.9 – 5.3 IMF 4.9 World Bank 5.1 ADB 5.0 Consensus Forecast (December 2016) 5.0

5.0
3.0
1.0

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

Brazil India Indonesia Malaysia Philippines Singapore Thailand

Favourable GDP Growth Compared to Peers2

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

%

0.06 3.83 3.29

2.11
0.23

3.75 3.36

1.83
0.35

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

3
1

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

QoQ YoY

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Strong and Stable GDP Performance

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



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



Logistic-related sector growth is driven by the development

f

infrastructure projects and the improvement on logistic efficiency



Agriculture sector slowed due to unfavorable weather



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

%

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

Tenggara: 3.2%

Spatial GDP Growth Contribution

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

8
4

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

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Improved External Resiliency External Factor:

3

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A Narrower, Structurally-Stronger Current Account Deficit

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

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

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

US$bn

(7.9) (1.5) 3.9 1.0 (4.5)

Source: Bank Indonesia FX Reserves as of Nov 2016: US$111.5bn (Equiv. to 8.1 months of imports + servicing of government debt) Month US$bn FX Reserves (LHS) Month of Import & Debt Service (RHS)

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

Source: BPS

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

US$bn

Jan- Nov 2016: Surplus US$7.78bn 20 40 60 80 100 120 140 160

20
15
10
5

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

15
10
5

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

3

6 9 12 15

20

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

2.5
2.0
1.5
1.0
0.5

0.0 0.5 1.0 1.5 2.0 2.5 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 2014 2015 2016 Non-OG OG Total

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Exchange Rate In Line with Fundamentals

Stable Movement of Rupiah

Source: Bank Indonesia

YTD 2016* vs 2015

Source: Bank Indonesia

Rupiah Exchange Rate Relatively Well Compared to Peers

IDR/US$

Rupiah appreciation was maintained through to October 2016 but then derailed somewhat in November after the US presidential election. Point-to- point, the rupiah strengthened 1.7% (ytd) to a level of Rp13,550 per USD at the end of November 2016. The rupiah appreciated on positive sentiment concerning the domestic economic outlook in line with stable macroeconomic conditions and the successful implementation of the Tax Amnesty. Nonetheless, rupiah appreciation was halted in November 2016 due to widespread global economic uncertainty stemming from the US election and the expectation of FFR hike.

Nov 2016* vs Oct 2016

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

2.66
1.80
2.35
1.65
2.47
2.83
3.72
2.15
6.08
7.09
5.68
9.32

0.15

0.77
1.32
1.69
1.79
2.08
2.23
3.16
3.81
4.21
4.64
6.37
11.00
9.00
7.00
5.00
3.00
1.00

1.00 ZAR THB INR CNY PHP EUR IDR KRW MYR JPY BRL TRY

%

13550 13206 13206 13315

1.72

2.41

0.52 1.12

5.58
3.27

16.98

3.85
14.46

11.80 0.73 0.17

2.33
2.79
3.74
4.46
4.53
5.11
8.66
13.54
18.00
13.00
8.00
3.00

2.00 7.00 12.00 17.00 IDR EUR KRW THB PHP INR BRL MYR TRY ZAR %

Average Point-to-point

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24

Ample Lines of Defense Against External Shocks



Ample of level of FX reserves to buffer against external shock



FX Reserves as of November 2016: US$111.5 billion South Korea



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



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

Ample Reserves Swap Arrangement

Chiang Mai Initiative Multilateralization (CMIM) Agreement



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



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



Doubled to US$ 240 billion effective July 2014 Japan



US$ 22.76 billion swap line with Japan currently in place



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



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



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

Bilateral Regional Global

FX Reserve

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25

Comprehensive Stabilization Framework Ensures Proactive Risk Management of Financial System

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

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

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

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

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

Crisis Management Protocol

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

Bond Stabilization Framework

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

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26

Strengthened Private External Debt Risk Management

(US$bn)

Source: External Debt Statistics of Indonesia, December 2016

(%)

Source: Moody’s Statistical Handbook, November 2016

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

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

Prudent External Debt Management

External Debt / GDP (%)



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

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



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

(US$bn) Total Ext. Debt: US$323.2bn Private Sector

Ext. Debt:

US$163.5bn

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

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

SLIDE 28

27

Manageable External Debt Profile

...short term non-bank corporate debt (non affiliation) represents only 9.5% of total private external debt

Private Short-Term1 Private Non-Bank

External Debt Position Affiliation Non Affiliation

US$159.8 Bn

r

49.4%

f Total Ext.

Debt US$114.8 Bn

r

70.2%

f Private Ext.

Debt US$19.7 Bn

r

12.1%

f Private
Ext. Deb

US$13.5bn

r

8.3%

f Private
Ext. Debt

US$15.4 Bn

r

9.5%

f Private
Ext. Debt

Public Long Term 1 Private Bank

US$28.9bn

r

17.7%

f Private
Ext. Debt

US$323.2bn

US$163.5bn

r

50.6%

f total
Ext. Debt

US$48.7bn

r

29.8%

f Private
Ext. Debt

External Debt Position as of October 2016

1 Based on remaining maturity

Source: External Debt Statistics of Indonesia, December 2016

SLIDE 29

More Fiscal Stimulus with Prudent Fiscal Policy Fiscal Performance and Flexibility:

4

SLIDE 30

29

Budget

Better targeted subsidy
Social welfare spending
Strengthening regional involvement

through intergovernmental transfer Incentives

Effort to maintain consumption

growth

Deregulations to ease business

climate

Increasing non taxable income

threshold

Improving the easiness in doing

business

Main Strategy to Spur Economic Growth

...integrated policy framework through integrated fiscal, real sector and monetary policy reform

Liquidity management
Low and stable inflation
Bolster growth stilmuli
Ensure the success of ongoing structural reforms

Budget

Focusing on more sustainable

revenue, esp. taxation

More realistic revenue target

calculation

Increasing more productive

spending, inc. infrastructure

Budget efficiency on non-priority

spending

More sustainable financing
Maintaining fiscal rule of 3% deficit to

GDP Incentives

Investment friendly policies
Regulation to stimulate the trade of

high value added domestic products

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

By utilizing:

Credible and realistic budget
Incentives for strategic

sectors

Support for stable

consumption

LONG Term Policies

Monetary Policy in line with Efforts to Optimize Domestic Economic Recovery while Maintaining Macroeconomic Stability

SLIDE 31

30

Long Term Strategies to Achieve Sustainable Growth

…stimuli to maintain purchasing power

The Virtuous Cycle of Purchasing Power Stimuli

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

economic growth in recent years

 The government has designed stimulus program to maintain and

enhance purchasing power for households

 The government has increased non-taxable income level and

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

 Funds are targeted at not only to improve basic village

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

u

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

Maintaining Purchasing Power

Increase non-taxable income limit Stabilized price for meat products

SLIDE 32

31

Long Term Strategies to Achieve Sustainable Growth

…stimuli to promote investments

Licensing Incentives Tax Incentives Other Incentives Business and Infrastructure Incentives

Tax incentives

n property

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

f power

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

ptimization

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

SLIDE 33

32

‘The Big Bang” Policy on Relaxation of Foreign Investment

…promoting competition and growth from investments

Introduction of New Foreign Ownership Regulation for Strategic Sectors

1 For total project value of IDR10bn and above

Before

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

49%

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

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

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

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

SLIDE 34

33

2017 Macroeconomic Assumptions and Budget Posture

Indicator 2016 2017 R-budget Outlook Budget Economic growth (%, yoy) 5.2 5.0 5.1 Inflation (%, yoy) 4.0 3.2 4.0 3-Month T-Bills (%) 5.5 5.4 5.3 Exchange Rate (Rp/US$) 13,500 13,300 13,300 ICP (US$/barrel) 40 40 45 Oil Lifting (thousand barrel/day) 820 820 815 Gas Lifting (thousand barrel

il equivalent/day)

1,150 1,150 1,150

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

how the government policy would impact the economy.

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

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

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

Source: Ministry of FInance

2017 Macroeconomic Assumption 2017 Budget

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

A.

REVENUE 1,786.2 1,567.3 1,737.6

2.0

10.6

I.

Domestic Revenue 1,784.2 1,565.3 1,737.6

2.0

10.6

1. Tax Revenue

1,539.2 1,320.2 1,495.9

2.6

13.5

2. Non Tax Revenue

245.1 245.1 240.4 2.0

4.1

II.

Grant 2.0 2,0 1.4

30.0
30.0

B.

GOVERNMENT SPENDING 2,082.9 1,906.1 2,070.5

0.1

9.6

I.

Central Government 1,306.7 1,202.7 1,310.4 0,7 10.1

1. Ministerial Spending

767.8 683.0 758.4

0.5

13.6

2. Non Ministerial Spending

538.9 519.7 552.1 2.4 5.5

II.

Intergovernmental Transfer 776.3 703.3 760.1

1.5

8.8

1. Regional Transfer

729.3 659.1 700.0

3.3

6.9

2. Rural Transfer

47.0 44.2 60.0 27.7 35.7

C.

PRIMARY BALANCE (105.5) (149.6) (111.4) 3.3

13.8

D.

BUDGET SURPLUS/(DEFICIT) (296.7) (338.9) (332.8) 11.3 4.6 % deficit to GDP (2.35) (2.70) (2.41) 2.6

3.6

E.

FINANCING 296.7 338.8 332.8 11.3 4.6

I.

Debt Financing 371.6 411.0 389 3.5

0.8

II.

Investment Financing (94.0) (91.5) (49.1)

49.5
48.1

III.

Other Financing 19.3 19.3 0.3

136.6
136.1

SLIDE 35

34

A More Realistic Tax Revenue Target

...tax policies are directed to expand tax base and increase compliance

800 900 1000 1100 1200 1300 1400 1500 1600 2014 2015 2016 2017 Realisasi Target 600 700 800 900 1000 1100 1200 1300 1400 2014 2015 2016 2017 Realisasi Target Source: Ministry of Finance

19,5% 8,2% 29,9% 3,4% 6,4% 24,1%

2,6%

13,5% 25,9% 38,7% 8,2% 6% 30,4% 9,4%

3,6%

15%

Realization/ Outlook for 2016 Realization/ Outlook for 2016 Target to target growth Realization to target growth Realization to realization growth

Increase tax base and tax compliance i.e. through IT and database improvement Provide tax incentives to support competitiveness and investment climate Improve taxation regulation i.e. through the amendment of laws (KUP, VAT, Income Tax, Stamp Duty Laws) Excises to control consumption of certain goods and minimize negative externality Optimize international taxation to enforce transparency Tax Collection Target (IDR tn) Non Oil and Gas Tax Collection (IDR tn)

2017 Main Tax Policies

SLIDE 36

35

Tax Amnesty as Policy Breakthrough

...expected to be strongly affecting the economy trajectory in both short and long run

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

Establishment of Semi Autonomous Revenue

Agency

More effective and better targeted law

enforcement

Improvement of IT and communication

system

Enhancement of data management
Amendment of General Provision of Taxation

Law

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

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

Accelerating Economic Growth through Asset Repatriation, via several transmissions:

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

SLIDE 37

36

One of the Most Succesful Tax Amnesty in the World

...proving the huge potential on Indonesia tax base

Indiv. Non MSME
Indiv. MSME
Corp. Non MSME
Corp. MSME

0.04% 0.12% 0.24% 0.35% 0.62% 0.76% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% Austalia Spain Italy India Chile Indonesia 0% 2% 2% 4% 8% 23% 0% 5% 10% 15% 20% 25% Australia India Spain Italy Chile Indonesia

% of GDP Penalty as % of GDP Source: Ministry of Finance, Deutsche Bank Calculation, as of Sept, 30th 2016 (the end of Tax Amnesty Program’s first period)

7.14 0.03 0.23

7.4

186.52 10.33 71.52

268.4

5.71 0.19 0.71

6.6

Tax Amnesty Revenue Realization, Based On Tax Payment Slip (US$ bn) Tax Amnesty Revenue Realization, Based on Tax Declaration Letter (US$ bn) Realization Of Asset Declaration From Tax Amnesty (US$ bn) Repatriation Onshore Declaration Offshore Declaration Tax Arrears Payment Redemption (TPS) Preliminary Evidence Payment Declared Assets Revenue From Tax Amnesty

SLIDE 38

37

Worldwide Declaration and Repatriation*

* in IDR trillion Source: Ministry of Finance, as of Sept, 30th 2016 (the end of Tax Amnesty Program’s first period)

SLIDE 39

38

Tax Amnesty Progress

3,028.4 1,002.9 141.3

IDR105,1 trillion 562.992 Taxpayers

Tax Amnesty Revenue Tax Amnesty Participants

Penalty Fee

Repatriation

: 2%

Onshore Decl. : 2%
Offshore Decl. : 4%

Penalty Fee

Repatriation

: 3%

Onshore Decl. : 3%
Offshore Decl. : 6%

Penalty Fee

Repatriation

: 5%

Onshore Decl. : 5%
Offshore Decl. : 10%

Repatriation Onshore Declaration Offshore Declaration

4,172.6

Total Declared Asset (IDR tn)

Source: Ministry of Finance, as of Dec, 29th 2016; 11:00 WIB

1st Phase

(ended on Sept, 30th 2016)

2nd Phase

(Until Dec, 31th 2016)

3nd Phase

(Jan, 1st - Mar, 31th 2017)

SLIDE 40

39

Commitment to Continue Productive Spending

...budget allocation for education, infrastructure, and health significantly increasing

Energy

64.6%

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

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

Source: Ministry of Finance

SLIDE 41

40

Budget for Priority Program

...20 percent for education and 5 percent for health

Bidikmisi

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

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

f children below 2 years old

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

Budget for Education Program Budget for Health Program

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

SLIDE 42

41

Infrastructure Budget Continues to Increase

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

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

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

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

Source: Ministry of Finance

SLIDE 43

42

Subsidy Policy in 2017 Aims to be Better Targeted and Improved Mechanism

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

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

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

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

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

and 4.05 million customers of R-1/900 VA

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

gradually adjusted by three times every two months.

Food

subsidy will be given to 14.3 million households

Gradual conversion of rice for the poors (Rastra) to

become non-cash/voucher food assistance

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

to support the improvement

f

agriculture productivity

Provision
f

9.55 millions volume

f

fertilizer subsidy

Seeds subsidy provision for rice and soybean.
Support MSME through KUR (interest subsidy)

Share of Energy Subsidy Share of Non-Energy Subsidy

Energy Subsidy Non-Energy Subsidy

Source: Ministry of Finance

SLIDE 44

43

Increasing the Effectiveness and Efficiency of Transfer to Regions & Village Fund

IDR503.6 tn

(General Transfer

Fund)

IDR173.4 tn

(Special Transfer Fund)

IDR7.5 tn

(Incentive Fund)

IDR20.3 tn

(Special Autonomy & Daerah Istimewa Yogyakarta)

IDR60.0 tn

(Village Fund)

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

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

Improving efficiency and effectiveness of Special Autonomy & DIY Fund.

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

Gradually increases Village Fund.

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

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

2017 Transfer to Regions and Village Funds*

SLIDE 45

44

Preserving Fiscal Sustainability Through the Compliance with Fiscal Rule and Productive Financing

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

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

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

(0,7)

(0,9) Other Financing 0,5 0,3 19,3 0,3

Indonesia’s Fiscal Deficit (% of GDP) Prudent and Cautious Expansive Fiscal Deficit

Source: Ministry of Finance

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

never exceeded the constitutional threshold

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

sector)

Loan as an alternative instrument for financing
Active

Debt Management and Assets and Liabilities Management

Government sharia debt securities (SUKUK) as project-based

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

SLIDE 46

45

Management of Contingent Liabilities

Government Guarantee Program and Portfolios 2008 - Present

Central Government Guarantees are carefully provided to meet

various item of infrastructure programs

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

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

SLIDE 47

46

Financing Policy 2016

Description (IDR tn) 2016 2016 Budget R-Budget I. Domestic Financing

272.8 299.3

1. Domestic Banking

5.5 25.4

2. Domestic Non-Banking

267.3 273.9

II. Foreign Banking

0.4

2.53

1. Foreign Outstanding Loan (Gross)

75.1 72.9

a. Program Loan

36.8 35.8

b. Project-Based Loan

38.3 37.2

2. Standby Loan Agreement (SLA)

5.9
5.8

3. Foreign Debt Principal Repayment

68.8
69.7

TOTAL

273.2 296.7

(0,73) (1,14) (1,86) (2,33) (2,25) (1,90) (2,35)

(3,0) (2,0) (1,0) 0,0 (300) (250) (200) (150) (100) (50)

2010 2011 2012 2013 2014 2016 Budget 2016 R-Budget

% IDR tn

Deficit % to PDB

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

(ALM)

Sharpen PMN recipients and purposes
Provide government guarantee for infrastructure project
Support accessibility for education and housing for low

income class Debt Financing Non Debt Financing

SLIDE 48

47

Budget Financing Breakdown in 2016

Debt (Gross) IDR729.03tn

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

Breakdown of Budget Financing IDR tn US$ bn Government Debt (net)

407.79 30.07

Government Securities (net)

407.89 30.07

Issuance

654.42 48.25

Redemption & Cash Management

(243.54) (17.95)

Debt Portfolio Management

(3.00) (0.24)

Domestic Loans (net)

3.25 0.24

Withdrawal

3.58 0.27

Redemption

(0.33) (0.02)

Foreign Loans (net)

(3.35) (0.25)

Withdrawal

71.02 5.24

Redemption

(74.37) (5.48)

Source: Ministry of Finance. USD/IDR: 13,563 (as of November 30, 2016)

SLIDE 49

48

Government Securities – Financing Plan for 2016

Instruments Revised Budget Indicative Target (IDR bn) Indicative Target (US$ mm)

Government Securities (Net) 407,886 31,253 Redemption 215,089 16,481 Cash Management 27,874 2,136 Buyback 3,000 230 Gov’t Securities Conversion 573 44 Government Securities (Gross) 654,422 50,143 Composition Domestic 78% Auction 63% Non-Auction 15% International Bond 22%

Government Issuance Targets International Bonds

Issuance of international bonds

as a complement to diversify investor base in domestic market and to avoid crowding

ut the domestic market
Provides benchmark for

Indonesia corporate issuances, consisting of USD, JPY and EUR denominated bonds

Target maximum 27% of

issuance via international bonds

Source: Ministry of Finance

Domestic Bonds

Weekly Auction: Conventional securities 23 x Islamic securities 23 x ATM for Government Securities (SBN) by auction 9-11 years Non-Auction: Retail bonds Sukuk Retail (Q1), SBR1 (Q2), Sukuk Tabungan2 (Q3), and ORI3 (Q4) Private Placement Based on request

Front Loading Issuance For Budget Financing

Pre-funding to optimize cost ahead of potential Fed rate hikes
Anticipate developments in global environment
Target: to front load 74% of the annual budget in 1H16

Government Debt Outstanding (as of end of November 2016)

IDR tn US$ bn Total government debt outstanding 3,485 257.0 Loan 744 54.9 Securities 2,741 202.1 Debt Securities 72% Sukuk 28%

US$/IDR: 13,563 (as of Nov. 30, 2016)

1 SBR: “Savings Bond Ritel” or Retail Savings Bond 2 Sukuk Tabungan means Sukuk Savings Bond 3 ORI: “Obligasi Negara Ritel” or Indonesian Retail Bond

SLIDE 50

49

Disciplined and Sophisticated Debt Portfolio Management

Stable Debt to GDP Ratio Over the Years Weighted Average Debt Maturity of ~9.2 Years (As of Oct. 2016)**

US$ bn

Remarkable Debt Reduction Initiative Over the Past 10 Years

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

Well Diversified Across Different Currencies

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

(1)

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

35.3
31.9
29.0
11.2

2.8 11.0 11.4 18.9 29.9 32.9 34.6 40.8 64.9 70.1 117.0

60.0

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

9.32 9.70 9.60 9.73 9.40 9.15 9.0 9.3 9.5 9.8 10.0 2011 2012 2013 2014 2015 Nov-16** 55% 56% 53% 57% 56% 58% 22% 24% 29% 29% 31% 29% 17% 14% 12% 9% 8% 8% 3% 3% 3% 3% 3% 4% 3% 3% 3% 2% 2% 2% 0% 20% 40% 60% 80% 100% 2011 2012 2013 2014 2015 Nov-16 IDR USD JPY EUR Others***

SLIDE 51

50

Well Balanced Maturity Profile With Strong Resilience Against External Shocks

Source: Ministry of Finance

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

**Using GDP assumption in 2016 R-Budget; **Preliminary figures;

Debt Maturity Profile

% %

Upcoming Maturities (Next 5 Years)

% IDR tn

Declining Interest Rate Risks Declining Exchange Rate Risks

18.8 16.2 16.0 14.8 13.7 12.2 25.9 22.5 23.2 21.0 20.7 17.7 5 10 15 20 25 30 2011 2012 2013 2014 2015 Nov-2016* Variable Rate Ratio¹ Refixing Rate² 10.4 10.2 11.7 10.7 12.2 11.6 45.1 44.4 46.7 43.4 44.5 42.1 10 20 30 40 50 2011 2012 2013 2014 2015 Nov-2016* FX Debt to GDP Ratio* FX Debt to Total Debt Ratio 8.2 7.2 8.6 7.7 8.4 6.6 22.7 21.5 21.8 20.1 21.4 22.7 34.6 32.4 33.4 33.9 34.7 36.7 10 20 30 40 2011 2012 2013 2014 2015 Nov-2016* In < 1 year In < 3 year In < 5 year

4 134 159 169 100 134 91 93 168 45 126 66 53 100 29 117 48 52 97 5 66 22 22 7 15 26 23 20 25 11 93 111 136 111 125 104 104 87 114 88 26 44 20 19 16 16 15 11 29 4 23 29 1 1 1 32 21 28 28 19

50 100 150 200 250 300

2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046- 2055

IDR-Denominated Other Currencies

SLIDE 52

51

Profile of Total Central Government Debt

Increasing Foreign Ownership of Government Securities at Longer Tenors

(%)

Holders of Government IDR Bonds – Composition November 2016

USD bn 209.41 199.48 204.51 194.55 224.60 229.70 256.97 256.59

(%)

265.02

Government Debt Outstanding

2011 2012 2013 2014 2015 Jan-16 Jul-16 Sep-16 Nov-16 Loan Government Securities

%

74.13 68.82 70.04 75.73 76.14 78.23 65.66 78.41 78.64 25.87 34.34 31.18 29.96 24.27 23.86 21.77 21.59 21.36 11.87 7.84 5.2 4.65 3.23 3.04 3.30 3.02 0.86 24.97 19.32 18.29 18.96 13.1 13.44 22.11 20.9 20.13 63.16 72.84 76.5 76.39 83.66 83.52 74.5 76.08 79.01 30.80 32.98 32.54 38.13 38.21 38.94 39.39 39.16 37.05 20 40 60 80 100 2011 2012 2013 2014 2015 Jan-16 Jul-16 Sep-16 Nov-16 0-1 1-5 >5 Foreign Ownership to Total

30.80 32.98 32.54 38.13 38.12 38.94 39.39 39.16 37.05 32.58 30.49 33.76 30.83 37.85 31.25 32.49 39.77 38.31 36.63 36.53 33.70 31.04 23.95 29.81 28.12 21.07 24.65 20 40 60 80 100 2011 2012 2013 2014 2015 Jan-16 Jul-16 Sep-16 Nov-16 Foreign Holder Domestic Non Banks Domestic Banks

SLIDE 53

52

Ownership of IDR Tradable Central Government Securities

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)

Description Banks* 375.55 31.04% 350.07 23.95% 361.54 21.95% 436.50 24.65% Govt Institutions (Bank Indonesia**) 41.63 3.44% 148.91 10.19% 150.13 9.12% 104.51 5.90% Bank Indonesia (gross) 149.07 9.05% 157.85 8.91% GS used for Monetary Operation

1.05
0.06%

53.33 3.01% Non-Banks 792.78 65.52% 962.86 65.87% 1135.18 68.93% 1229.94 69.45% Mutual Funds 45.79 3.78% 61.60 4.21% 76.44 4.64% 82.96 4.68% Insurance Company 150.60 12.45% 171.62 11.74% 214.47 13.02% 237.52 13.41% Foreign Holders 461.35 38.13% 558.52 38.21% 643.99 39.10% 656.06 37.05% Foreign Govt's&Central Banks 103.42 8.55% 110.32 7.55% 118.53 7.20% 118.38 6.68% Pension Fund 43.30 3.58% 49.83 3.41% 64.67 3.93% 85.80 4.84% Individual 30.41 2.51% 42.53 2.91% 48.90 2.97% 62.57 3.53% Others 60.51 5.00% 78.50 5.37% 86.72 5.27% 105.02 5.93% Total 1,209.96 100% 1,461.85 100% 1,646.85 100% 1,770.95 100% Nov-16 Dec-14 Dec-15 Jun-16

SLIDE 54

53

Government Securities Realization

Issuance Government Securities Conversion

572,581 572,581

Matured Government Securities Conversion

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

(IDR mn, as of end of November 2016; budget deficit: 2.7%)

*Including the issuance of Government Securities Conversion

Revised Budget 2016 Widening Budget Deficit 2.7%

Realization (a.o. Nov. 30 2016) % Realization to Budget 2016

Government Securities Net 364,866,887 407,885,535 408,898,016 100.25% Government Securities Maturing in 2016 and Buyback 246,535,735 243,972,550 236,755,793 97.04% Issuance Need for 2016 611,402,622 651,858,085 645,653,809 99.05% Government Debt Securities (GDS) 465,755,157 Domestic GDS 356,716,437

Coupon GDS

247,970,000

Conventional T-Bills

53,240,000

Private Placement*

31,895,977

Retail Bonds

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

USD GMTN

48,643,000

Euro GMTN

44,975,610

Samurai Bonds

12,760,910

Domestic GDS

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

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

Sukuk) 108,356,030

Retail Sukuk

34,085,122

Private Placement

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

SLIDE 55

Credible Monetary Policy Track Record and Favourable Financial Sector Monetary and Financial Factor:

5

SLIDE 56

55

Bank Indonesia Policy Mix: 2016

18 March 2016

Cut BI Rate 25 bps

to 6.75%

Cut DF & LF Rate

at 4.75% & 7.25% respectively 18 February 2016

Cut BI Rate 25 bps to

7%

Cut DF & LF Rate at 5%

& 7.5% resp.

BI lowered the rupiah

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

Cut BI Rate 25 bps to 6.5%
Cut DF & LF Rate at 4.5% & 7.0%

respectively

Relaxed the loan-to-value ratio

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

Relaxed partially prepaid

loans/financing

Raised the floor on the Reserve

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

n August 2016.

21 April 2016

Held BI Rate at 6.75%,

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

Reformulated policy rate

from BI Rate into the 7 day (Reverse) Repo Rate to improve the effectiveness of monetary policy transmission. The change was effective on August 19th 2016 14 January 2016

Cut BI Rate 25 bps to

7.25%

Cut DF & LF Rate at

5.25% & 7.75% resp.

BI lowered its monetary
peration rates even

further, ranging from 25bps to 45bps (O/N to 1Y) 19 August 2016

Held BI 7-day

RR Rate and DF Rate at 5.25% and 4.5%

Cut LF Rate to

6.00%. 21 July 2016

Held BI Rate at 6.5%, &

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

BI continued to conduct financial

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

Held BI Rate at

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

Lowered BI 7-

day RR Rate to 4.75%

Lowered DF

and LF Rate to 4.00% and 5.50% 22 September 2016

Lowered BI 7-day

RR Rate to 5.0%

Lowered DF and LF

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

SLIDE 57

56

Bank Indonesia Policy Mix: December 2016

The BI Board of Governors agreed on 15 December 2016 to hold the BI 7-days Repo Rate at 4.75%, as well as the Deposit Facility at 4.00% and Lending Facility at 5.50% Holds the BI 7- day Repo Rate at 4.75% Projects credit and deposit growth in 2017 to improve, within the 10-12% and 9-11%, respectively, in line with increased economic activity and the loose monetary and macroprudential policy stance adopted. Remains vigilant towards global risks, such as the uncertain fiscal and international trade policy direction of the United States, as well as the economic rebalancing and financial system restructuring process in China Continues to strengthen coordination with the Government to control inflation, focusing on efforts to maintain supply and distribution of basic needs, and relating to the timing of administered prices adjustments Monitors the risk of a sudden capital reversal linked to the ambiguous US policy direction and implement exchange rate stabilisation measures in line with the rupiah’s fundamental value by maintaining market mechanisms Predicts economic growth in 2016 to reach 5.0% (yoy) and 5.0-5.4% range in 2017, buoyed by solid domestic demand and an export recovery, along with the improvements in Indonesia’s export commodity prices

SLIDE 58

57

Enhancement of Monetary Operations Framework

Bank Indonesia will enhance the monetary operations framework that is supported by the deepening of the financial markets in order to strengthen the transmission of monetary policy.

BI RATE

BI

Rate reflects monetary policy stance as a tool to anchor economic agent’ inflation expectations

BI Rate is used as a benchmark

interest rate for transactions in financial markets and eventually to influence general interest rate

BI

Rate effectively affect banking interest rate

Excess

liquidity due to massive capital inflows post 2008 global financial crisis draw down overnight interbank rates around DF Rate. Meanwhile, the BI rate is currently around 9-12 months OM instrument.

The shallow financial markets also

inhibit the transmission of monetary policy.

CHALLENGES ENHANCEMENT

BI rate as reference rate Challenges: Transmission of monetary policy is less effective Enhancement of monetary operations framework 12 months (equivalent) 7 day Non-Transactional Transactional (Central Bank) Not optimally reflected in money market interest rates Stronger relationship to the money market interest rates Cost of being illiquid is lower, support financial deepening BI rate BI 7-day repo rate OMO term structure Character Transmission Financial Deepening Cost of being illiquid is too high, does not support financial deepening

SLIDE 59

58

Enhancement of Monetary Operations Framework

...positive results thus far

Source: LHBU, HARTIS, Bloomberg

Domestic Money Market Yield Curve (Dec 2015) Domestic Money Market Yield Curve (Nov-V 2016) Monetary operation term structure is being referred by money market rates… Domestic money market yield curve tend to converge 4,0% 4,5% 5,0% 5,5% 6,0% 6,5% 7,0% 7,5%

/n

1m 2m 3m 1b 3b 6b 12b

Nov V-2016

JIBOR PUAB Repo FX Swap OM

5,0% 6,0% 7,0% 8,0% 9,0% 10,0% 11,0%

/n

1w 2w 3w 1m 2m 3m 6m 12m JIBOR PUAB Repo FX Swap TS OM

SLIDE 60

59

Enhancement of Monetary Operations Framework

...positive results thus far

...JIBOR has been strengthened as a market reference

Can be traded among contributor

banks for 10 minutes.

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

PREVIOUS JIBOR

Can be traded among banks

contributor for 20 minutes.

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

CURRENT JIBOR

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

1

ACCELERATED MARKET REPO TRANSACTIONS by promoting GMRA

2

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

3

SLIDE 61

60

Stable Monetary Environment Despite Challenges

Source: Bank Indonesia

Rupiah Exchange Rate Remains Comparable to Peers

YTD 2016* vs. 2015

Strengthened Monetary Policy Framework

(%)

Credit Growth Supported by Macroprudential Policy Downward Trend of Inflation Ensured Price Stability

7.43% 6.1% 7.46% 10.0% YoY

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

19 August 2016

The New Monetary Operation Framework 3.58 0.09

(%)

3.07 9.14

1

4 9 14 19 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2011 2012 2013 2014 2015 2016 CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Okt-16 Nov-16 Des-16 LF Rate BI Rate BI-7Day RR Rate DF Rate 0% 5% 10% 15% 20% 25% 30% 35% 40% 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 2013 2014 2015 2016 Total Growth Working Capital loans Investment Loans Consumption Loans

* data as of 30 November 2016 1.72

2.41

0.52 1.12

5.58
3.27

16.98

3.85
14.46

11.80 0.73 0.17

2.33
2.79
3.74
4.46
4.53
5.11
8.66
13.54
18.00
13.00
8.00
3.00

2.00 7.00 12.00 17.00 IDR EUR KRW THB PHP INR BRL MYR TRY ZAR %

Average Point-to-point

SLIDE 62

61

Financial Intermediaries Development

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

Source: OJK

The growth of financing distributed by multifinance companies also continues to improve… Gross premium revenue in the domestic insurance industry also demonstrates a positive development in 2016 Capital raising through IPOs, rights issues, and corporate bond issuance in the capital market is relatively stable The growth of banking loans started to improve in October. The IDR- denominated loans remain at a high level…

IDR tn %

SLIDE 63

62

Financial Institutions Remain Robust and Less Vulnerable

Source: OJK

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

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

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

companies provides ample room for future growth.

% % %

SLIDE 64

63

Adequate Liquidity, Manageable Credit Risks

Source: OJK

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

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

% % %

SLIDE 65

64

Manageable Market Risk Amidst Fluctuations

Source: OJK

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

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

IDR tn IDR tn IDR tn IDR tn IDR tn

SLIDE 66

65

Capital Market Demonstrate Strengthening Trend

Volatility in the domestic capital market tends to ease in 2016. The market indices are back to a strengthening trend, accompanied by significant nonresident capital inflows.

Source: Bloomberg, Thomson Reuters

The volatility in the domestic equity market now tends to ease… The domestic bond market again attracts nonresident inflows… The IDX Composite Index demonstrated a positive growth and listed among the best-performing indices (ytd) in the region

IDR tn

SLIDE 67

66

Macroprudential Policy Mix to Support Growth

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

Housing Loans and Financing Based on Murabahah and Istishna Contracts

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

85%

80% <21 m2

Apartment

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

85%

80% Home Shop/Office

85%

80%

Housing Financing Based on MMQ and IMBT Contracts

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

90%

85% <21 m2

Apartment

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

85%

80% Home Shop/Office

85%

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

SLIDE 68

67

A Comprehensive Financial Deepening Program

...strategy to tackle challenges in deepening Indonesia’s financial markets

Source: Bank Indonesia

Financial Market Deepening Program

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

Repo
Hedging

Money Market

Bank Indonesia Regulation (PBI) on Money Market

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

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

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

Bank Indonesia Regulation (PBI) on Commercial Paper

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

Swap Link Deposit

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

Dual Currency Deposit

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

Corporate Bonds
Government

Bonds

Other instruments

Supporting Regulations

Market Code of Conduct Certification of Dealer Strengthening JIBOR

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

Inter-agency Cooperation

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

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

SLIDE 69

68

Stronger Fundamentals Facing the Headwinds

197
35

5.62

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

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

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

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

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

Nov 16

111.5

Nov 16

3.31 (yoy)

Oct 16

3.2

62 10.5 5.7 1998 2008 Jul-15

Overnight interbank money market rate is relatively lower

Nov 16

4.17 0.73 (ytd)

Nov 16

SLIDE 70

69

Outlook of Domestic Economy Improves

...domestic economic growth is predicted to be higher in 2016

2016 Economic Outlook

 Economic growth expected to increase, supported by fiscal stimulus linked specifically to accelerated infrastructure project

development. Private investment is expected to increase as a result of government policy packages and measurable

monetary easing

 Inflation is predicted around the floor of the 2016 inflation target of 4±1% in the 3.0-3.2% range, with the current account

deficit is projected below 2% of GDP

 Credit is projected to grow 7-9% in line with looser monetary and macroprudential policy mix as well as acceleration of

fiscal stimulus

2015 2016 4.79%

Economic Growth

4.9-5.3%

Inflation

3.35% 4.0±1%

CAD (% GDP)

2.06% <2%

Credit Growth

10.45% 7-9%

SLIDE 71

Strong Commitment on Acceleration of Infrastructure Provision Progressive Infrastructure Development:

6

SLIDE 72

71

The Government has Enacted Various Reforms to Accelerate Infrastructure Provision

Investing in Indonesian

infrastructure has been regarded as risky

Uncertain returns on

investment

Did not have any fiscal

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

Fiscal Reforms Institutional Reforms Regulatory Reforms

Indonesia now has fiscal supports:

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

Revised regulations on:

PPP, Availability Payment
Direct Lending
Land Acquisition
Other deleregulations as

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

f:
KPPIP
Empowerment of PT SMI &

IIGF

PPP

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

Before After

Source: KPPIP

SLIDE 73

72

Reforms Along the Project’s Life Cycle

...to encourage and accelerate infrastructure project using PPP scheme

Government of Indonesia

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

Preparation Bidding Process Construction

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

n GCA

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

Govt. contractual
bligations

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

industries. Sector

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

f an asset. Ministry
f Finance

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

SLIDE 74

73

Efforts to Accelerate Infrastructure Provision

Improvement on PPP Regulation

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

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

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

SLIDE 75

74

Efforts to Accelerate Infrastructure Provision (continued)

Regulation improvement to accelerate land procurement process

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

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

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

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

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

Law No. 2/2012 was successfully applied in:

1. Palembang – Indralaya section of the Trans

Sumatera Toll Road Project

2. Java North Line Double Track Rail Project

SLIDE 76

75

Significant Progress on Key Infrastructure Projects

Roads Dams Housing

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

Transportation

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

1 Source: KPPIP 2 Not funded from National Budget

Progress of National Strategic Project (as of August 2016)1

38% 37% 11% 6% 8% 25 projects is being reassessed 14 projects is completed* 83 projects is under construction 17 projects is during transaction 86 projects is in preparation *Gempol-Pandaan Toll Road, Sentani Airport, Juwata Airport, Matahora Airport, Labuan Bajo Airport, SHIA Terminal 3, Kalibaru Port, Belawan-Sei Mangkei Gas Pipe, Rajul Dam, Jatigede Dam, Bajulmati Dam, Nipah Dam and Titab Dam

SLIDE 77

76

30 Priority Projects Within the Pipeline

Source: KPPIP

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

SLIDE 78

77

Energy Sector: the Progress of 35.000 MW Program

No Phase MW % 1 Planning 7,640 20.83 2 Procurement 10,844 29.56 3 Power-purchase Agreement 9,790 26.69 4 Construction 8,215 22.39 5 Commercial Operation Date 195 0.53

17 Dec ‘14

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

f large capacity plant "

Jan ‘15

Average economic growth of 6.7% requires 7,000 MW / year or 35,000 MW / 5 years (Kepmen ESDM No. 0074/2015 on RUPTL 2015-2024)

Jan ‘15

Debottlenecking through regulation: 1. Regulation No.1/2015 concerning electricity supply cooperation and joint utilization of the electrical network among license holders. 2. Regulation No.3/2015, concerning Procedures

f Purchasing Electrical Power and benchmark

prices for Electrical Power through the Direct Selection and Appointment.

16 Mar ‘15 4 May ‘15 Sept ‘16

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

Source: KPPIP

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

35,000 MW Program Distribution

Source: PLN

SLIDE 79

78

Existing Iron Ore Refinery Facility

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

Completed but not operating

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

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

Investment in Iron Ore, Alumina and Bauxite Smelter

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Investment in Nickel Smelter

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80

Infrastructure Financing

80

Source: Bappenas

129.75 SOE

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

Infrastructure Financing Need 2015-2019 General criteria for financing schemes

Government Budget is used for basic infrastructure projects, mainly

for projects that are economically feasible but financially not.

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

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

PPP scheme in mainly targeted for projects that are both

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

*) USD1=IDR13500 (APBNP 2016)

PPP scheme and facilities provided to PPP Projects

The government may appoint certain SOEs to assign specific

infrastructure projects

To support the infrastructure provision through the SOEs, the

government provide a number of financial facilities, such as:

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

Financial Facilities Provided to Infrastructure SOEs

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81

Financing the Acceleration of Infrastructure Development

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

in the development of public infrastructure.

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

in developing public infrastructure.

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

2

Total 213,578.10 75,731.42 62

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

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

through IIIGF)

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

the Development Infrastructure Projects

Government guarantees to SOEs’ loans for the

development of Sumatra Toll Roads

Business Viability Guarantee Letter for PT. PLN power

projects

Credit guarantees for Regional Water Companies

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

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Progress on PPP-Schemed Infrastructure Projects

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

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

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

thers are still on the

preliminary stage.

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Progress of SOE Projects: Facility for Non-PPP Projects

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

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

PT. PLN

Guarantee is effective 2 Sumatera Power Distribution 500 mn World Bank

Pt. PLN

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

PT. PLN

Proposal has been submitted