[PPT] - Government Debt Securities Management April 14, 2014 Directorate of PowerPoint Presentation

SLIDE 1

Government Debt Securities Management

April 14, 2014

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia

SLIDE 2

Outline

1. Government Securities Management and Financing Strategy 2. Government Debt Securities Market Performance & Statistics 3. Crisis Management Protocol & Bond Stabilization Framework 4. Debt Outstanding & Risk Profile

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |2

SLIDE 3

Government Securities Management and Financing Strategy

SLIDE 4

General Strategy for Debt Financing 2014

1. Prioritizing the issuance of domestic government securities to support market development and risk management
f debt portfolio;
2. Issuing global bonds as complementary;
3. Determining debt instrument by taken into account of market need and investor base expansion need;
4. Issuing Retail Bond for market deepening and financial inclusion;
5. Performing active portfolio management Government securities through, among others, debt buybacks and

switches, including liability management for foreign currency Government Securities;

6. Expanding the scope of Bond Stabilization Framework and enhancing the market indicators of Crisis Management

Protocol (CMP) Government Securities in order to support the market stability;

7. Maintaining a negative net flow policy for foreign loans;
8. Strengthen the function of Investor Relations Unit, among others, through the proactive dissemination of

information, rapid and effective responses, and effective communication with investors and other stakeholders.

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |4

SLIDE 5

Government Securities Market Development Framework

Supply

Government

Debt Securities

SUKUK

Demand

Banks
Foreigners
Insurance

Company

Mutual Fund
Central Bank
Pension Funds
Securities Company
Retail Investor
Deposit Insurance

Corp.

Domestic Potential

Investors

Deep & Liquid Market

Sufficient Market Absorption & Efficient Price/Yield

Primary Market

1. Activities:

Regular Issuance (Auction, Book building, Private Placement)

2. Infrastructure:
Auction System for domestic and onshore USD issuance
Settlement system for retail bonds

Secondary Market

1. Activities:

Buyback, Debt switch, Securities Lending

2. Infrastructure:
Electronic Trading Platform (ETP): for retail and conventional bonds.

System Development: Debt Switch Program (Many to Many), Staplebonds, and Hittable of PDs quotation

System : Primary Dealers quotation, Exchange Trading Mechanism, OTC

Trading system

3. Price Discovery Mechanism: Benchmark Yield Curve, IBPA, Reporting

System

4. Repo & Derivative Instruments: GMRA & Government Bond Futures

MARKET INFRASTRUCTURE

Regulation and Supervision

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |5

SLIDE 6

Key Initiatives to Develop Domestic Gov. Securities Market

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |6

Facilitating the development of derivative instrument and Government securities repo:

Develop a deep and liquid repo market, coordinate with FSA
Facilitating the development of Government Bond Futures

Focused on a few benchmark series with large outstanding Introduction of an electronic trading platform(ETP) Strengthening Investor Relations (IR) Launch a new primary dealer system Increase domestic participation from key investors Continuously improving bond stabilization framework

SLIDE 7

Financing Trend, 2004 – 2014

(trillion IDR) Notes: * Preliminary Realization 2013 ** Budget 2014

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |7

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014** Govt Securities - net 6,9 22,6 36,0 57,2 85,9 99,5 91,1 119,9 159,7 224,6 205,1 Domestic Loan

0,4

0,6 0,8 0,2 1,0 External Loan - net (28,1) (10,3) (26,6) (26,6) (18,4) (12,4) (4,6) (17,8) (23,5) (13,3) (20,9) Others/Non-Debt - net 42,0 (1,2) 20,0 9,1 16,6 25,5 4,6 28,3 38,1 18,6 (9,8) Budget Defisit, % to GDP 1,1 0,5 0,9 1,3 0,1 1,6 0,7 1,1 1,8 2,2 1,7

1,1 0,5 0,9 1,3 0,1 1,6 0,7 1,1 1,8 2,2 1,7

(0,5)

0,5

1,0 1,5 2,0 2,5

50

50 100 150 200 250

SLIDE 8

Securities Financing Realization 2014

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |8

*Adjusted by changes in Cash Management & Debt Switch

(Million IDR) Budget 2014

Realization (ao Apr 11, 2014)

% Realization to Budget 2014 Government Securities Net 205.068.831 125.337.055 61,12% Government Securities Maturing in 2014 164.821.745 63.135.740 38,31%

Buyback

3.000.000 970.968 32,37% Issuance Need 2014* 369.890.576 188.472.795 50,95% Government Debt Securities (GDS) 152.003.450 Domestic GDS 99.550.000

Coupon GDS (Auction, Private Placement)

71.400.000

Conventional T-Bills (Auction, Private Placement)

15.750.000

SPNNT 20140303

12.400.000

Retail Bonds
International Bonds

52.453.450

USD Global Bonds

48.468.000

USD Domestic Bonds

3.985.450 Government Islamic Debt Securities 36.469.345 Domestic Government Islamic Debt Securities 36.469.345 Global Sukuk

SLIDE 9

2014 Budget Financing

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |9

[in IDR billion]

Budget % to GDP

A. Total Revenue

1.667.140,8 16,07%

0,00%
B. Total Expenditure

1.842.495,3 17,76%

C. Primary Balance

(54.069,0)

0,52%
D. Deficit

(175.354,5)

1,69%
E. Financing

175.354,5 1,69%

I. Non Debt Financing

(9.773,7)

0,09%
II. Debt Financing

185.128,2 1,78%

1. Government Securities (Net)

205.068,8 1,98%

2. Foreign Loan (Net)

(20.903,6)

0,20%

+ Disbursement 39.132,7 0,38%

Program Loan

3.900,0 0,04%

Project Loan

35.232,7 0,34% + Subsidiary Loan Agreement (SLA) (1.226,3)

0,01%

+ Repayment (58.810,0)

0,57%
3. Domestic Loan (Net)

963,0 0,01% Assumptions :

a. GDP (trillion IDR) (Y.o.Y)

10.376.006,3

b. Growth (%)

6,0

c. Inflation (%) y-o-y

5,5

d. 3-month-SPN (%)

5,5

e. IDR/USD (average)

10.500

SLIDE 10

Government Securities Financing Gross (2014)

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |10

DOMESTIC:  Auction:

23 times of conventional securities auction
20 times of islamic securities auction

 Non-Auction

Retail bonds, consist of ORI, Saving Bond and

Sukuk Retail.

 Private Placement (SDHI)

INTERNATIONAL BOND  Issuance of International Bonds as complement to avoid crowding out in domestic market and provide benchmark for corporate issuance, consist

f USD, YEN or EURO global bonds

 Maximum issuance international bond 20% from target gross

Issuing the Government Securities using Front Loading Strategy in the first semester

Indicative Target

Govt. Securities (net)

205.069 Redemption 135.893 SPNNT 20140303 12.400 Cash Management 14.000 Buyback 3.000

Govt. Securities (gross)

370.362 Financing Flexibility 6.550

Govt. Securities (gross) adjusted

363.812 Domestic 82,9% Auction 67,8% Non Auction 10,3% Private Placement/Non Tradable 4,8% Foreign 17,1%

SLIDE 11

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |11

Government Debt Securities Transaction Plan (2014)

Domestic Auction

IDR issuance
Onshore USD issuance

International Bond Issuance

Global bonds issuance (USD, Euro)
Samurai bonds issuance (Yen)

Retail Bond Issuance

Conventional retail (ORI)
Saving bonds

Portfolio Management Transaction

Buyback/direct transaction
Debt switch (many to many & staple bonds)
Liabilities management (USD)

SLIDE 12

Government Securities Performance

SLIDE 13

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |13

Primary Market Performance 2014

Demands for Indonesia govt bonds remains high.

48,73 95,57 189,46 136,18 198,23 315,91 393,41 430,59 435,04 205,10 22,54 39,30 70,78 66,06 79,20 101,90 138,85 152,77 207,85 87,15 13,97 10,14 10,01 11,86 10,04 7,57 5,96 5,30 8,49 7,81

0,00 3,00 6,00 9,00 12,00 15,00

100

200 300 400 500

2005 2006 2007 2008 2009 2010 2011 2012 2013 02-Apr-14

Total Incoming Bid Total Bid Accepted Yield at Tenor 10 year (RHS)

[IDRTrillion]

Govt. bonds incoming bids on 8th April 2014 issuance reached Rp3,58T.
Average foreign incoming bids from Jan - 8th April 2014 reach 30,9%, higher

than the same period in 2013, which only reach 30,3%.

Average incoming bids 2014 = Rp17,82T, while average incoming bids 2013 =

Rp12,01T

Average awarded bid 2014 = Rp7,25T, while average awarded bid 2013 =

Rp5,45T.

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

10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Aprl 8, '14

Incoming Bids Awarded Bids Foreign Incoming Bids Foreign Awarded Bids % Foreign Incoming Bids (RHS)

Average incoming bids 2013 = Rp12,01T/auction Average awarded bids 2013 = Rp5,45T/auction

SLIDE 14

10 20 30 40 50 60 70

Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |14

Secondary Market Performance 2014

Average daily trading (IDR Trilion)

Up to April 3, 2014

Global Financial Crisis

Eurozone sovereign debt crisis

[In Percentage]

As of April 11, 2014

Activity in the domestic bond market increasing Yield of Benchmark Series trend to pick up Bid Ask Spread 10 Y Government Bond Turn Over 10 Y Government Bond

2.549 3.307 5.899 4.235 3.421 4.963 7.671 9.180 12.024 16.183 17.092 19.474

80

160 240 320 400 480 560

6.000

12.000 18.000 24.000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jan 14 Feb 14 March 14

Volume (billion rupiah) - LHS Frequency -RHS

2,00 4,00 6,00 8,00 10,00 12,00 14,00 16,00 18,00 20,00 22,00

Apr'08 Jun'08 Agust'08 Okt'08 Des'08 Feb'09 Apr'09 Jun'09 Agust'09 Okt'09 Des'09 Feb'10 Apr'10 Jun'10 Agust'10 Okt'10 Des'10 Feb'11 Apr'11 Jun'11 Agust'11 Okt'11 Des'11 Feb'12 Apr'12 Jun'12 Agust'12 Okt'12 Des'12 Feb'13 Apr'13 Jun'13 Agust'13 Okt'13 Des'13 Feb'14 Apr'14 5Y 10Y 15Y 20Y

SLIDE 15

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |15

Yield SBN on peer’s market

LCY 10 Year Government Bonds Latest Yield YTD Change (BP) MTD Change (BP)

HK 2.180

12.5
12.3

ID 7.836

61.6
15.4

JP 0.605

13.6
3.7

KR 3.534

5.1

+1.4 MY 4.081

4.7
2.8

PH 4.150 +55.0

5.0

SG 2.430

13.0
6.0

TH 3.583

31.4
12.0

US 2.625

40.4
9.3

VN 8.850

20.0

+12.5

Market Watch as of April 14, 2014
Source: Asian Bonds Online

Indonesia Gov’t bond yield post take highest increase among others in Asia region

2.0

4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 22.0 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y10Y 15Y 20Y 30Y

11 Apr '14 3 Apr '14 11 Mar '14 9 Feb '12 23 Sep '11 27 Oct '08 13 Sep'05 [in percentage]

SLIDE 16

Ownership of Tradable Domestic Government Securities

During 2009 – 2013, domestic financial institutions are picking up in size, however growth of ownership from this institution still lower than foreign investors.

(In IDR Trillion)

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |16

` Banks 254,36 43,72% 217,27 33,88% 265,03 36,63% 299,66 36,73% 335,43 33,70% 361,95 33,49% Govt Institutions 22,50 3,87% 17,42 2,72% 7,84 1,08% 3,07 0,37% 44,44 4,47% 33,68 3,12% Non-Banks 304,89 52,41% 406,53 63,40% 450,75 62,29% 517,53 63,09% 615,38 61,83% 685,17 63,39% Mutual Funds 45,22 7,77% 51,16 7,98% 47,22 6,53% 43,19 5,27% 42,50 4,27% 44,22 4,09% Insurance Company 72,58 12,48% 79,30 12,37% 93,09 12,86% 83,42 10,17% 129,55 13,02% 143,69 13,29% Foreign Holders 108,00 18,56% 195,76 30,53% 222,86 30,80% 270,52 32,98% 323,83 32,54% 370,39 34,27% Pension Fund 37,50 6,45% 36,75 5,73% 34,39 4,75% 56,46 6,88% 39,47 3,97% 39,34 3,64% Securities Company 0,46 0,08% 0,13 0,02% 0,14 0,02% 0,30 0,04% 0,88 0,09% 1,43 0,13% Individual 32,48 3,26% 35,56 3,29% Others 41,12 7,07% 43,43 6,77% 53,05 7,33% 63,64 7,76% 46,68 4,69% 50,53 4,67% Total 581,75 100% 641,21 100% 723,61 100% 820,27 100% 995,25 100% 1.080,80 100% Dec-12 Dec-09 Dec-10 11-Apr-14 Dec-11 Dec-13

SLIDE 17

Development of Domestic Institutional and Retail Investors

Pension Fund Insurance Company

Retail investor development in primary market

Individual Ownership (SBN)

16,561 33,546 47,434 23,617 16,320 15,198 23,127 34,776 14,295 17,231 15,487 17,606 17,783

5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 2006 2007 2008 2009 2010 2011 2012 2013

ORI SR 29,06% 27,52% 24,66% 22,12% 20,34% 0% 10% 20% 30% 40%

40

80 120 160 2008 2009 2010 2011 2012 SBN Bond Stock Mutual Funds Deposit Others

% SBN (RHS)

Rp86,55 T Rp108,06 T Rp125,68 T Rp137,13 T Rp153,75 T 29,36% 26,09% 20,09% 22,12% 19,74% 0% 10% 20% 30% 40% 50%

100

200 300 400 500 2008 2009 2010 2011 2012

SBN Bond Stock

Mutual Funds

Deposit Others

% SBN (RHS)

Rp207,80 T Rp283,20 T Rp356,40 T Rp417,70 T Rp497,03 T

3,09% 2,82% 2,51% 2,27% 4,20% 3,24% 3,28% 3,12% 4,35% 5 10 15 20 25 30 35 40 45 50 0,00% 0,50% 1,00% 1,50% 2,00% 2,50% 3,00% 3,50% 4,00% 4,50% 5,00% Nominal Percent (RHS) Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |17

SLIDE 18

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |18

Foreign Investor Activity 2014

Net Buyer (Seller) - Non Resident Foreign Ownership - Proportion by Tenor

[In IDR Trillion]

Foreign investors mostly dominated by real money long term investors

(1,49) (29,29) 1,69 (4,99) 8,06 13,11 (8,99) (2,27) 4,15 (4,37) (0,08) 10,13 (1,41) 7,83 9,35 19,52 0,68 2,68 8,44 (0,88) 17,97 4,22 (19,98) 2,81 (1,76) 10,13 23,98 6,08 (0,37) 4,82 16,49 15,77 9,49 (0,15) (0,10) (0,05) 0,00 0,05 0,10 (40,00) (30,00) (20,00) (10,00) 0,00 10,00 20,00 30,00

Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 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-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 11-Apr-14

Capital Inflows Capital inflows over total foreign holders

10% 12% 8% 5% 6% 6% 5% 8% 3% 5% 5% 5% 18% 17% 16% 13% 11% 10% 21% 25% 28% 32% 38% 38% 46% 38% 45% 44% 41% 40%

30,53% 30,80% 32,98% 32,54% 33,64% 34,27% 0,00% 20,00% 40,00%

0% 20% 40% 60% 80% 100%

Dec-10 Dec-11 Dec-12 Dec-13 Mar-14 11-Apr-14

>10 >5-10 >2-5 >1-2 0-1 % Foreign Ownership to Total (RHS)

SLIDE 19

Crisis Management Protocol & Bond Stabilization Framework

SLIDE 20

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |20

Deferred drawdown option facilities up to US$5bn Implementing Crisis Management Protocol Implementing Bond Stabilization Framework Enhancing coordination between government institutions and continuous dialogue with market participants Specific policies in place to address crisis enacted in the 2014 budget law Swap facility arrangements based on international cooperation with a total value of US$47.76bn (China, Japan and South Korea BSA) 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

Pre-emptive Measures Fiscal Buffers to Prevent and Mitigate Crisis

 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 Crisis Management Protocol Potential purchase of government bonds by State Owned Enterprises Buyback Funds DMO Budget SOE Budget Other Gov’t Budget Buyback of government bonds by the DMO from the state budget Related SOEs (min. Alert level) KUN (State’s General Cash) (min. Alert level) Potential purchase of government bonds by the Treasury Office using the State’s General Cash (KUN) Potential purchase of government bonds by the Indonesia Investment Agency PIP Investment Funds (min. Alert Level) SAL (min. Crisis Level) Purchase of government bonds using the accumulated cash surplus (SAL). Parliament approval is required Bond Stabilization Framework 1 2 3 4 5 1 6 2

Comprehensive Stabilization Framework to Pro-Actively Manage Capital Markets

SLIDE 21

Debt Outstanding & Risk Profile

SLIDE 22

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |22

Government Debt Outstanding, 2008-2014

2009 2010 2011 2012 2013 #) Jan 2014 #)

Nominal %

Central Govt. Debt Total (in trillion IDR)

1,590.66 1,681.66 1,808.95 1,977.71 2,371.39 2,465.45 2,428.63 98.5%

a. Loans (in trillion IDR)

611.20 617.25 621.29 616.61 710.34 720.90 688.90 29.2%

1). External Loan

611.20 616.86 620.28 614.81 708.14 718.63 686.63 29.1%

Bilateral *)

387.92 380.67 381.66 359.80 380.91 389.86 372.02 15.8%

Multilateral **)

202.37 208.28 212.96 230.23 287.41 288.50 274.50 11.7%

Commercial ***)

20.24 27.34 25.15 24.37 39.47 39.95 39.80 1.6%

Suppliers ***)

0.66 0.57 0.50 0.41 0.35 0.32 0.30 0.0%

2). Domestic Loan

0.39

1.01 1.80 2.20 2.27 2.27 0.1%

b. Securities (in trillion IDR)

979.46 1,064.40 1,187.66 1,361.10 1,661.05 1,744.55 1,739.73 70.8%

Foreign Currency ##)

143.15 161.97 195.63 264.91 399.40 449.99 428.26 18.3%

Local Currency

836.31 902.43 992.03 1,096.19 1,261.65 1,294.56 1,311.47 52.5%

Central Govt. Debt Total

(In billion US$)

169.22 187.04 199.49 204.52 194.55 201.66 208.75 100.0%

Consist of :

Local Currency Securities (in billion US$)

88.97 100.37 109.40 113.36 103.51 105.89 112.73 52.5%

Foreign Currency Securities (in billion US$)

15.23 18.02 21.57 27.39 32.77 36.81 36.81 18.3%

Local Currency Loan (in billion US$)

0.04

0.11 0.19 0.18 0.19 0.20 0.1%

Foreign Currency Loan (in billion US$)

65.02 68.61 68.40 63.58 58.10 58.78 59.02 29.1%

Exchange Rate (IDR to US$1)

9,400 8,991 9,068 9,670 12,189 12,226 11,634

Feb 2014 #)

Notes : * Semi commercials included ** Some semi commercials included *** Commercials

#) Provisional ##) Include Domestic Global Bond

SLIDE 23

*) As of February 28, 2014

Government Debt Outstanding, Based on Currency

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |23

53% 54% 55% 56% 53% 54% 21% 21% 22% 24% 29% 29% 17% 18% 17% 14% 12% 11% 5% 4% 3% 3% 3% 3%

2% 2% 2% 2% 2% 2% 2% 2% 1% 1% 1% 1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 2013 2014*)

IDR USD JPY EUR SDR AUD Others

SLIDE 24

Favorable Govt. Debt Position and Sustainable Fiscal Deficit

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |24

SLIDE 25

Interest Rate Risk Steadily Declining Exchange Rate Risk on Downward Trend Long Average Years to Maturity Debt Maturity Evenly Spread

 Lower exchange rate

volatility has lessened foreign debt impairment of Indonesia’s fiscal strength

 Active and disciplined

government bond portfolio management emphasizing long average years to maturity and evenly spread debt maturities

 Funding from domestic

market and financial institutions is prioritized

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |25

Reduction in Central Government Debt Portfolio Risk

SLIDE 26

END PRESENTATION

Directorate General of Debt Management Ministry of Finance of Republic of Indonesia Directorate of Government Securities Frans Seda building, 4th floor,

Jl. Wahidin Raya No. 1, Jakarta Pusat – Postal Code: 10710

Phone: +6221 3810175

Fax. : +6221 3846516

Site: www.djpu.depkeu.go.id