Its All About Reforms December 2019 About Investor Relations Unit - - PowerPoint PPT Presentation

December 2019

Republic of Indonesia

It’s All About Reforms

1

About Investor Relations Unit of the Republic of Indonesia

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

• bjective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial marketinvestors.

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

2

What’s New in This Edition

Omnibus Law

…page 9

3

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 Resilience 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

Institutional and Government Effectiveness: Accelerated Reforms Agenda with Institutional Improvement

Section 1

5

Improving Global Perception

…with recent improvements on corruption perception index and governance indicator

1. Source: World Economic Forum – The Global Competitiveness Report 2019; 2. Source: World Bank – Doing Business 2020 Report; 3. Source: World Bank – The Worldwide Governance Indicators 2019 Update; 4. Source: Transparency International – Corruption Perceptions Index 2018 Report

Worldwide Governance Indicators3 Ease of Doing Business2 Global Competitiveness Index1 Corruption Perception Index4

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

*New Concepts by using the Global Competitiveness index 4.0 which captures the determinants of long-term growth.

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

6

Continuous Improvement of Investment Climate

…another leap on Indonesia’s Rank on Ease of Doing Business (EODB)*

EoDB 2020 Rank EoDB 2019 Rank Change in Rank EoDB 2020 Points EoDB 2019 Points Change in Points

Overall 73 73 69.6 68.0 1.6 Starting a business 140 134 6 81.2 81.2 0.0 Dealing with Construction Permits 110 112 2 66.8 66.6 0.2 Getting Electricity 33 33 87.3 86.4 0.9 Registering Property 106 100 6 60.0 61.7 1.7 Getting Credit 48 44 4 70.0 70.0 0.0 Protecting Minority Investors 37 51 14 70.0 63.3 6.7 Paying Taxes 81 112 31 75.8 68.0 7.8 Trading Across Borders 116 116 67.5 67.3 0.2 Enforcing Contracts 139 146 7 49.1 47.2 1.9 Resolving Insolvency 38 36 2 68.1 67.9 0.2

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

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

7

BBB / Stable Baa2 / Stable BBB / Stable

Apr 2018, Rating Upgraded at Baa2/Stable “The upgrade to Baa2 is underpinned by an increasingly credible and effective policy framework conducive to macroeconomic stability. Together with a build-up of financial buffers, prudent fiscal and monetary policy strengthens Moody’s confidence that the sovereign’s resilience and capacity to respond to shocks has improved.” May 2019, Rating Upgraded at BBB/Stable “We raised the ratings to reflect Indonesia’s strong economic growth prospects and supportive policy dynamics, which we expect to remain following the re-election of President Joko Widodo recently.” March 2019, Rating Affirmed at BBB/Stable The decision was supported by favorable GDP growth outlook on the back of resilient domestic demand and a small government debt burden compared with its peers. Indonesia’s sovereign credit fundamentals should be resilient to substantial exchange rate volatility.

BBB / Positive

April 2019, Rating Affirmed at BBB, Outlook Revised to Positive “The ratings mainly reflect Indonesia’s solid economic growth underpinned by domestic consumption, restrained level of budget deficit and public debt, and resilience to external shocks stemming from flexible exchange rate policies and accumulation of foreign exchange reserves. The administration led by President Joko Widodo has formulated a large-scale infrastructure development plan and is vigorously promoting it to eliminate the infrastructure shortage. In addition, it has succeeded in expanding infrastructure expenditures and expenditures on human capital, and has been curbing the budget deficit by reducing fuel subsidies.”

BBB / Stable

April 2019, Rating Affirmed at BBB/Stable “Indonesia’s economy is growing at a solid pace. The fiscal deficit to GDP ratio narrowed from a year earlier, and the government debt to GDP ratio remains low. While the CAD somewhat widened, foreign reserves are ample relative to short-term external debts. Its economic resilience to external shocks is maintained, supported by the government and central bank’s policies emphasizing macroeconomic stability.”

Indonesia Has Been Rated as Investment Grade Country since 2017

8

31,31 34,47 23,61 26,94 24,99 26,57 31,27 34,52 22,48 27,21 24,95 26,34 31,78 34,55 23,14 29,56 25,31 26,26 5 10 15 20 25 30 35 40 India Indonesia Malaysia Philippines Thailand Vietnam 2018 2019e 2020e

50 100 150 200 250 300 Billion USD 2018 2017 22,5 25,2 26,3 31,9 32,1 34,2 36,4 36,4 38,5 39,2 39,8 48,1 48,7 58,3 10 20 30 40 50 60 70 Myanmar Taiwan South Korea Philippines Hong Kong Malaysia Australia Japan Thailand Singapore Vietnam Indonesia India China 3,7 4,4 5,1 5,6 5,8 8,4 8,6 10,0 13,7 28,8 30,4 33,9 37,1 46,2 52,2 0,0 10,0 20,0 30,0 40,0 50,0 60,0 Russia Taiwan Korea Brazil Germany Malaysia Myanmar Philippines Mexico US Indonesia Vietnam Thailand India China

Indonesia Remains the Investment Destination of Choice

1. Source: The Economist – Asia Business Outlook Survey 2018 2. Source: IMF World Economic Outlook, Database October 2019 3. Source: United Nations Conference on Trade and Development (UNCTAD) – World Investment Report 2019 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (30th Annual Survey)

Total Investment / GDP (%)

Indonesia Enjoys Large Investments Relative to Peers within the Region2 JBIC: Among ASEAN countries, Indonesia is one of the most preferred place for business investment (November 2018)4 The Economist: Indonesia rounds out the top five of Asian economies that can look forward to increased investment spending. (January 2019)1

% of surveyed who consider each country has promising prospects

UNCTAD: Indonesia is listed in the top 20 host economies based on FDI inflows, 2017 and 2018 (June 2019)3

(x) = 2017 ranking

9

Omnibus Law

Simplifying regulation to improve the investment environment and to boost competitiveness, MSME, and employment.

• The Government will simplify regulations through Omnibus Law which aims to improve the investment environment and to boost

competitiveness, MSME, and employment.

• At present, the Government prepares to submit two draft laws (RUU) to Parliament (DPR), namely the Omnibus Law on Job Creation

and Omnibus Law on Taxation.

• The draft law will be submitted to Parliament in January 2020 and is targeted to be completed in three months (March or April 2020).

Taxation includes 6 clusters, namely: 1. Investment Funding, 2. Territory System, 3. Individual Tax Subject, 4. Taxpayer Compliance, 5. Equity of Business, 6. Taxation facility. The Omnibus law on taxation consists of 28 articles but amends 7 Laws specifically, the Income Tax Law, VAT Law, Taxation general provisions and procedures Law, Customs Law, Excise Law, regional tax and levies law and the regional government law. Omnibus Law on job creation includes 11 clusters, namely: 1. Simplification of Licensing Endeavors, 2. Investment Regulations, 3. Labor Reform, 4. Ease, Empowerment and Protection of MSMEs, 5. Ease of Doing Business, 6. Research and Innovation Support, 7. Government Administration, 8. Penalty, 9. Land Acquisition, 10. Ease of Government Investment and Projects, 11. Special Economic Zone. As of 12 December 2019, 82 laws and 1,194 articles were identified that will be harmonized through the Omnibus Law in Job Creation.

Source: Coordinating Ministry for Economic Affairs

10

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

11

• Identified and built priority scale on sectors, sub-sectors of leading industries and profession
• Improving link and match scheme between industries and vocation
• Early childhood education
• Encourage education system to be more skill, collaborative, flexibility and impact oriented instead of degree consideration
• Improving Kredit Usaha Rakyat (KUR) scheme to support non-bankable SME
• Improving procurement scheme to support SME accessibility to finance
• Regulate and build a database on traditional/modern market, traditional and modern shops
• Regulate the distances, location, and zone of the market and modern stores
• Compulsory mandates to maximize the usage of Local products
• Fair access to the logistic system
• Developing natural resources industries and value chains
• Minimize interest gap between large companies and small companies
• Protect market share from integrated businesses and strong capital
• Develop and improve progressive tax, capital gain tax and tax on unutilized asset
• supporting fiscal spending
• Integrating fishing and seaweeds sectors
• Improve and support aquaculture industry and fishery sector value chain
• Encourage Private sector investment on seaweed sector (process and off-taker)
• Social Housing
• House financing
• Land banks and affordable land prices
• Law enforcement on spatial policies
• Data collection & law enforcement on palm oil land area, including land bank data collection
• Building a database and arranging policy on planting non-agriculture commodities
• Improve cooperative performance by encouraging SOEs and private sectors involvement
• Research support, market synergies, off-takers, and supply chain on downstream business
• Define Lahan Pertanian Pangan Berkelanjutan LP2B to prevent land usage for non-agriculture purposes
• Land consolidation for agriculture
• Improve research on seeds and agriculture method, off-farm infrastructure, integrated logistic system, build seeds market, tools and machinery
• Build a fair land distribution scheme
• Build a priority scale of Tanah Objek Reforma Agraria (TORA) recipient based on land gini ratio, poverty, & land demand
• Developing an agricultural industry by agglomeration or cluster method

Economic Equality Policies

to support sustainable public welfare...

Source: Coordinating Ministry for Economic Affairs

Economic Equality Policies

Human Resource Capacity

Land

Opportunity Agrarian Reform Agriculture (Landless Farmer) Plantation Urban Poor & Affordable Housing Fishermen & Seaweed Cultivation Fair Tax System Manufacture and ICT Retail and Market Financing & Government Budget

Vocational, Entrepreneurship & Labor Market

Priority

12

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 of 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 (5 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 the 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

Source: Coordinating Ministry for Economic Affairs

Phase XV (15 Jun ’17) Improving logistics In addition to the 16 Policy Packages, on August 31, 2017 the Government has issued a Presidential Regulation No.91/2017 for enhancing business license service standard Phase XVI (16 Nov ’18) Improving the competitiveness and domestic economy

13

Improving the Competitiveness and Domestic Economy

The 16th Economic Policy Package has been launched

Source: Coordinating Ministry for Economic Affairs

TAX HOLIDAY EXPANSION

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

EXPORT PROCEEDS (DHE) SCHEME

Tax Rates on Deposit Interest Income Tax Rates on Deposit Interest Income

14

Progress of the Economic Policy Packages*

Initially, there are 236 regulations which need to be deregulated As of October 1st, 2019, deregulation of 223 regulations are finished (99%), comprising 53 regulations at Presidential level and 170 regulations at Ministerial/Institutional level Total regulation which are still discussed: 2

I–XII

223

SET

99% 11

REVOKED REGULATIONS

2

ON GOING DISCUSSION

1%

171 TOTAL

170

MINISTERIAL/INSTITUTIONAL LEVEL

99%

47 42

PRESIDENTIAL

54 TOTAL

53

FINISHED

PRESIDENTIAL LEVEL

99% I–XVI

FINISHED

I–XII

236

TOTAL INITIAL REGULATIONS

I–XVI

I–XII

225

TOTAL REGULATIONS

I–XVI

Based on the further assessment, 11 regulations has been revoked from deregulation process Total regulation subject to be deregulated: 225 regulations

Source: Coordinating Ministry for Economic Affairs *as of October 1st, 2019

15

Other Progress on Economic Policy Packages

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

Fair, Simplified & Projectable Wage System

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

Demak, and Ungaran

• Pharmaceutical IZ in Bitung (North Sulawesi) in 2017

Industrial Zone Development of Spesial Economic Zone (SEZ)

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

Deregulation on Logistics Sector

16

Investment Incentives to Boost Industry Sector

BUSINESS EXPANSION

• Tax allowance
• Exemption or relief of import duty on capital goods, machinery or equipment for production

purposes that can not be produced domestically;

• Exemption or relief of import duty on raw materials or auxiliary material for production

purposes for a certain period of time and certain conditions;

• Exemption or suspension of VAT on the import of capital goods or machinery or equipment for

production purposes that have not been produced domestically for a certain period of time;

• Accelerate depreciation or amortization (part of tax allowance); and
• Property tax relief, especially for certain business sectors in certain regions;
• Combine with Online Single Submission (OSS)

Tax holiday of corporate income tax in a certain amount and time

PIONEER INDUSTRIES SPECIAL ECONOMIC ZONE

• No collection of VAT and Luxury Goods Sales Tax (PPnBM),
• Customs tax exemption,
• Tax Allowance and Tax Holiday,
• Suspension of Import Duty,
• 0% Import Duty for goods produced using local components of a certain level

INDUSTRIAL ZONE FREE TRADE ZONES AND PORTS MICRO, SMALL, MEDIUM ENTERPRISES (MSMES) E-COMMERCE

• VAT exemption on import or delivery of capital goods,
• Import Duty exemption on machineries/goods/materials,
• Tax Allowance and Tax Holiday

Exemption of:

• Import Duty
• VAT
• Luxury Goods Sales Tax (PPnBM)
• Customs duty

Decreasing MSMEs Tax from 1% to 0.5% of gross revenue

• Sales from customs areas for non-small entrepreneurs through the market place will be

subject to 0.5% income tax and 1% VAT

• Sales from customs areas for small entrepreneurs through the market place will be subject to

0.5% income tax

Source: Coordinating Ministry for Economic Affairs

17

New Tax Holiday Policy*

to boost industry sector

Taxpayer

Pioneer Industry with minimum investment value of 1 trillion Rupiah (minimum investment value of 500bn Rupiah for telecommunication sector) Corporate Income Tax (CIT) reduction rate

Concession period Transition

After Tax Holiday Not available 100% (single rate)

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

1. 500Bn – 1Tn : 5 years 2. 1Tn – 5Tn : 7 years 3. 5Tn – 15Tn : 10 years Pioneer Industry with minimum investment value of 500bn Rupiah Applied to 8 industry groups: (i) upstream basic metal industry; (ii) oil and gas refinery industry; (iii) organic basic chemicals industry; (iv) machinery industry; (v) plantation, forest, and fishery products processing industry; (vi) telecommunication, information and communication industry; (vii) marine transportation; and (viii) economic infrastructure Applied to 17 industry groups: (i) upstream base metal; (ii) oil and gas refinery; (iii) petrochemical (oil, gas, or coal based); (iv) non-organic base chemical; (v) organic base chemical; (vi) pharmaceutical materials; (vii) semiconductor and other components; (viii) communication devices components; (ix) medical devices components; (x) machine manufacturing for industry; (xi) machine main components manufacturing; (xii) robotic components manufacturing; (xiii) ship components manufacturing; (xiv) airplane components manufacturing; (xv) train components manufacturing; (xvi) power plants; and (xvii) economic infrastructure

PROVISION BEFORE AFTER

5 – 20 years depends on the investment value (in IDR): 4. 15Tn – 30Tn : 15 years 5. ≥ 5Tn : 20 years 50% CIT reduction for the next 2 years 10 – 100% Tax allowance not provided Tax allowance for business expansion can be provided with terms and conditions applied

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

18

Enhancing Business License Service Standard

Presidential Regulation to Accelerate Ease of Doing Business has been launched

Source: Coordinating Ministry for Economic Affairs

Policy Goals

1 2 3 4 5 6

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

Main Policy

Forming a Task Force to identify & overcome the end-to-end licensing barriers Implementing a licensing checklist for Special Economic Zones (KEK), Free Trade Zones (FTZ), Industrial Zones & Tourist Zones Utilizing data sharing

Business license regulatory reforms Implementation of the Single Submission system

1st Phase 2nd Phase

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

19

Improving Investment Climate

Online Single Submission (OSS) Has Been Launched...

Source: Coordinating Ministry for Economic Affairs

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

Lorem Ipsum Suitable for all category, Environment & Forestry Sector Electricity Sector Public Works & Housing Sector Health Sector Industry Sector Marine & Fishery Sector Medicine & Food Sector Transportation Sector Trade Sector Information & Communication Sector Other Sector Sectors The Advantage of Using OSS Business licenses can be secured in under an hour Standardized business licenses are available Ellectronically integrated The whole licensing process is monitored by the Task Force More practical Accessible at anytime and anywhere

20

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

• f

Finance as part

• f

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

To date, 52 Bonded Logistic Center has been launched to support various industries.

Improving Investment Climate

…Bonded Logistic Center to Improve Indonesia’s Competitiveness

Oil and gas, and mining industry Food & beverages industry Auto-motive industry Personal care/ home care industry Textile (cotton) industry Small and medium industry Synthetic textile (chemical substances) industry.

Bonded Logistic Center

Heavy Equipment industry Defence industry Aircraft MRO industry

21

Improving Investment Climate

…revising the Negative Investment List

Before

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

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% 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 33% 49%

Introduction of New Foreign Ownership Regulation for Strategic Sectors Source: Investment Coordinating Board (BKPM)

22

Investment Realization (Q3-2019)

IDR tn

2013 2014 2015

Direct Investments

2016

Mining Housing, Industrial Estate, and Office Building Food Industry Electricity US$681.8 mn US$587.3 mn US$296.1 mn US$285.6 mn

US$1,554.0 mn US$1,842.6 mn

Transportation, Warehouse, and Telecommunication

75.5%

US$315.6 mn

30.3% 27.4% 52.0% 23.2% 1.5% 17.8% Investment Realization

Paper, Paper Based Goods, and Printing Industry US$314.2 mn

453.5%

Top 8 FDI Realization by Sectors (Q3-2019 vs Q3-2018)

Source: Investment Coordinating Board (BKPM), compared to Q3-2018 period

2017

Rp145.4 T Rp159.4 T IDR105.0tn 434,463

9.6% 15.6%

17.8% 18.9%

Q1-2016 Q1-2017 Q3-2018 Q3-2019 Q1-2016 Q1-2017 Q3-2018 Q3-2019

*

* person 375,982 IDR205.7tn

18.4%

Q3-2018 Q3-2019

IDR173.8tn IDR84.7tn IDR89.1tn IDR100.7tn Chemical and Pharmaceutical Industry Metal, Except Machinery, and Equipment Industry 105,0 205,7

20 40 60 80 100 120 140 160 180 200 220 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 FDI DDI TOTAL

2018 2019

Economic Factor: Strong and Stable Growth Prospects Remain Intact

Section 2

24

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 Rising Middle Class and Affluent Customers

From commodity-based to manufacturing and service sectors 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 on commodities Fuel subsidies significantly reduced and spending redirected to more productive allocation Prudent debt management

Reform-Oriented Administration

Three main sources of financing for 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

25

Indonesia’s Strong GDP

Growth Prospect Strong GDP Growth1

%

Institutions 2019 GDP growth (%YoY) 2019 Budget 5.3 Bank Indonesia Around 5.1 IMF (WEO October 2019) 5.0 World Bank 5.2 ADB 5.2 Consensus Forecast (December 2019) 5.0

Favourable GDP Growth Compared to Peers2

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

• Indonesia has maintained economic growth momentum against a backdrop of worsening global economic moderation.

Economic growth in the third quarter of 2019 was recorded at 5.02% (yoy), relatively unchanged compared with the 5.05% (yoy) posted in the previous period. Such developments were influenced by solid domestic demand and improving external sector performance despite dwindling global demand and lower international commodity prices.

• In the third quarter of 2019, exports achieved positive 0.02% (yoy) growth and imports experienced a deeper

contraction to 8.61% (yoy). Meanwhile, solid domestic demand has been maintained, primarily on the back of expansive household consumption growth. In addition, investment is also expanding, led by 5.03% (yoy) building investment growth.

• In terms of production, a number of economic sectors have achieved stronger growth, including mining and quarrying

in the primary sector; the manufacturing industry in the secondary sector; and wholesale and retail trade, transportation and storage, as well as financial services and insurance in the tertiary sector.

0,04 3,83 3,27 (2,07) (0,16) 3,74 3,31 (1,73) (0,36) 4,01 3,14 (1,81) (0,30) 4,01 3,19 (1,70) (0,41) 4,21 3,09 (1,69) (0,52) 4,20 3,06 5,12 4,94 4,93 5,05 4,82 4,74 4,77 5,17 4,92 5,18 5,01 4,94 5,01 5,01 5,06 5,19 5,06 5,27 5,17 5,18 5,07 5,05 5,02

• 3,0
• 1,0

1,0 3,0 5,0 7,0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2014 2015 2016 2017 2018 2019 QoQ YoY 3,7 3,2 3,4 3,6 6,1 7,0 5,0 5,1 5,7 6,2 0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0 2012 2013 2014 2015 2016 2017 2018 2019* 2020* Bulgaria Colombia India Indonesia Philippines

26

GDP Growth Breakdown

GDP Growth by Sector (%, YoY)

By sectors 2014 2015 2016 2017 2018 2019 Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot Q1 Q2 Q3 Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 3.7 6.5 2.9 1.6 3.8 1.5 3.5 3.2 5.5 3.4 7.1 3.3 2.8 2.4 3.9 3.3 4.7 3.7 3.9 3.9 1.8 5.3 3.1 Mining and Quarrying

• 1.2

0.7 0.7 1.5 0.4 0.6 (3.6) (4.4) (6.0) (3.4) 1.2 1.0 0.2 1.4 0.9 (1.3) 2.1 1.8 0.0 0.7 1.1 2.6 2.7 2.2 2.2 2.3 (0.7) 1.9 Manufacturing 4.5 4.9 5.0 4.2 4.6 4.1 4.2 4.6 4.4 4.3 4.7 4.6 4.5 3.3 4.3 4.3 3.5 4.9 4.5 4.3 4.6 3.9 4.4 4.2 4.3 3.9 3.5 4.1 Construction 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 7.1 6.4 6.8 5.1 5.0 4.2 5.2 6.0 7.0 7.0 7.2 6.8 7.4 5.7 5.8 5.6 6.1 5.9 5.7 5.6 Wholesale and Retail Trade, Repair

• f Car and Motorcycle

6.1 5.1 5.2 4.4 5.2 3.8 1.6 1.4 3.5 2.5 4.3 4.3 3.7 3.9 4.0 4.6 3.5 5.2 4.5 4.5 5.0 5.2 5.3 4.4 5.0 5.3 4.6 4.7 Transportation and Storage 7.0 7.6 7.7 7.2 7.4 6.3 6.0 7.0 7.5 6.7 7.4 6.5 8.2 7.6 7.4 8.1 8.8 8.9 8.2 8.5 8.6 8.7 5.6 5.3 7.0 5.3 5.8 6.6 Information and communication 9.9 10.7 9.8 10.1 10.1 9.7 9.3 10.6 9.2 9.7 7.6 9.3 8.9 9.6 8.9 10.5 11.1 8.8 8.3 9.6 7.8 5.1 8.1 7.2 7.0 9.1 9.6 9.1 Financial service 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.3 12.8 8.6 9.3 13.6 9.0 4.2 8.9 6.0 5.9 6.1 3.8 5.5 4.2 3.1 3.1 6.3 4.2 7.3 4.5 6.1 Other Services* 5.4 4.7 5.9 6.5 5.7 5.1 6.5 4.8 5.5 5.4 6.0 5.6 4.5 3.8 4.9 4.2 3.5 4.8 6.0 4,6 5.4 6.2 6.7 6.4 6.2 6.8 7.3 6.4 GDP 5.1 4.9 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0 5.0 5.1 5.2 5.1 5.1 5.3 5.2 5.2 5.2 5.1 5.0 5.0 Source: Central Bureau of Statistics of Indonesia (BPS) *Other services consist of 10 sectors (according to Standard National 2008)

GDP Growth Based on Expenditures (%, YoY)1

By expenditure 2014 2015 2016 2017 2018 2019 Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot Q1 Q2 Q3 Q4 Tot Q1 Q2 Q3

• HH. Consumption

5.2 5.2 5.1 5.1 5.1 5.0 5.0 5.0 4.9 5.0 5.0 5.1 5.0 5.0 5.0 4.9 5.0 4.9 5.0 4.9 4.9 5.2 5.0 5.1 5.0 5.0 5.2 5.0 Non profit HH. consumption 23.2 22.4 5.8 (0.5) 12.2 (8.1) (8.0) 6.6 8.3 (0.6) 6.4 6.7 6.7 6.7 6.6 8.1 8.5 6.0 5.3 6.9 8.1 8.8 8.6 10.8 9.1 16.9 15.3 7.4 Government consumption 6.1 (1.8) 1.2 0.9 1.2 2.9 2.6 7.1 7.1 5.3 3.4 6.2 (3.0) (4.0) (0.1) 2.7 (1.9) 3.5 3.8 2.1 2.7 5.2 6.3 4.6 4.8 5.2 8.2 1.0 Gross Fixed Cap. Formation 5.4 4.0 4.4 4.1 4.4 4.6 4.0 4.9 6.4 5.0 4.7 4.2 4.2 4.8 4.5 4.8 5.3 7.1 7.3 6.2 7.9 5.9 7.0 6.0 6.7 5.0 5.0 4.2 Exports 3.1 1.5 4.9 (4.4) 1.1 (0.6) (0.3) (1.0) (6.4) (2.1) (3.1) (1.5) (5.9) 3.9 (1.7) 8.4 2.7 16.5 8.4 8.9 5.9 7.6 8.1 4.3 6.5 (1.9) (2.0) 0.0 Imports 5.1 0.4 0.2 3.0 2.1 (2.6) (7.1) (6.5) (8.6) (6.2) (5.0) (3.4) (4.1) 2.7 (2.4) 4.8 0.2 15.4 11.9 8.1 12.6 15.2 14.0 7.1 12.0 (7.4) (6.8) (8.6) GDP 5.1 4.9 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0 5.0 5.1 5.2 5.1 5.1 5.3 5.2 5.2 5.2 5.1 5.0 5.0 1. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption

27

Regional Economic Growth

Economic growth was supported by robust household consumption in various regions, coupled with strong investment from national strategic projects in Sulawesi, Kalimantan and Java.

Source: Central Bureau of Statistics of Indonesia (BPS)

External Factor: Improved External Resilience

Section 3

29

1,8

• 8,4
• 2,3

1,3

• 2,7
• 4,5
• 4,0
• 3,5
• 3,0
• 2,5
• 2,0
• 1,5
• 1,0
• 0,5

0,0

• 12
• 10
• 8
• 6
• 4
• 2

2 4 6 8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4* Q1* Q2* Q3** 2013 2014 2015 2016 2017 2018* 2019**

Goods Services Primary Income Secondary Income Current Account (%GDP) (rhs) US$bn

• 1

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

Month US$bn

• 3,00
• 2,00
• 1,00

0,00 1,00 2,00 3,00 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2013 2014 2015 2016 2017 2018 2019 OG Non-OG Total

External Balance under Control Supported by Adequate Reserves

Current Account Deficit within Safe Threshold Balance of Payments Portrait Substantial FX Reserves to Mitigate External Challenges Trade Balance Portrait

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

Source: Bank Indonesia FX Reserves as of November 2019: US$126.6bn (Equiv. to 7.2 months of imports + servicing of government debt) US$bn

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

2018: CA Deficit (US$30.5bn)

• 7,7

7,6 0,0 124,3 40 80 120 160

• 15
• 10
• 5

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

Indonesia's Balance of Payments

Current Account Capital and Financial Account Overall Balance Reserve Asset (rhs) US$bn US$bn

30

4,03 1,72 1,35 0,72

• 1,09
• 2,55
• 2,74
• 4,15
• 5,42
• 5,60
• 7,17
• 8,21
• 14,32

7,12 3,78 0,56 2,90 0,49

• 0,13
• 1,82
• 1,69
• 2,84
• 4,96
• 4,69
• 0,06
• 10,30
• 20,0
• 15,0
• 10,0
• 5,0

0,0 5,0 10,0 THB PHP JPY IDR SGD MYR INR CNY EUR KRW BRL ZAR TRY point-to-point average % *data as of December 19, 2019

Exchange Rate In Line with Fundamentals

Movement of Rupiah Rupiah Exchange Rate Fared Relatively Well Compared to Peers

IDR/US$

The rupiah continues to appreciate, supported by improving BOP performance. As of 18th December 2019, the rupiah strengthened by 0.93% (ptp) on the November 2019 level, thus appreciating 2.90% (ytd) since the beginning of the year. The strong rupiah is supported by the supply of foreign exchange from exporters and maintained foreign capital inflows due to the favourable national economic outlook, highly attractive domestic financial markets and less uncertainty in the global financial markets. Looking forward, Bank Indonesia predicts rupiah stability in line with the currency's fundamental value and maintained market mechanisms, supported by the sound BOP outlook based on maintained foreign capital inflows in line with the promising domestic economic

• utlook and attractive yields, as well as the positive impact of dovish monetary policy in advanced economies.

Bank Indonesia will continue to accelerate financial market deepening, targeting the money market and foreign exchange market in particular, in order to support exchange rate policy effectiveness and strengthen domestic financing.

Source: Bank Indonesia

YTD 2019 vs 2018

Rupiah Exchange Rate Volatilty

13,975 13.576 13.952 14.601 14.798 14.134 14.254 14.120 14.078 14.141 14.381 14.220 14.031 14.232 14.100 14.113 14.065 14.037

13.000 13.500 14.000 14.500 15.000 15.500 16-Jan 16-Feb 16-Mar 16-Apr 16-May 16-Jun 16-Jul 16-Aug 16-Sep 16-Oct 16-Nov 16-Dec 16-Jan 16-Feb 16-Mar 16-Apr 16-May 16-Jun 16-Jul 16-Aug 16-Sep 16-Oct 16-Nov 16-Dec IDR/USD Quarterly Average Monthly Average *data as of December 18, 2019 19,90 7,11 7,73 2,90 7,93 2,71 5,75 6,73 2,84 5,28 18,18 11,53 10,07 4,52 11,92 2,50 3,70 5,52 4,53 3,05

• 5

10 15 20 25 BRL ZAR TRY IDR KRW THB MYR INR SGD PHP

Nov-19 Dec-19

% *data as of December 18, 2019

31

Bank Indonesia’s Policy Direction

To maintain Rupiah stability and support growth

A pre-emptive, front-loading and ahead-of-the-curve policy response Strengthening the monetary operations in the foreign exchange and money markets To stabilise the rupiah exchange rate, while consistently controlling inflation within the 2018-2019 target range of 3.5±1% To stabilise the rupiah exchange rate, adjust fair prices in the financial markets and maintain adequate liquidity in the money market To maintain adequate liquidity in the rupiah money market and interbank swap market To form rational expectations, thus helping to mitigate the rupiah overshooting its fundamental level. Dual intervention in the foreign exchange market and government securities (Surat Berharga Negara – SBN) market in a measured way Intensive communication, especially to market players, banks, businesses, and economists

4 3 2

Measures To Stabilize Rupiah Exchange Rate Measures To Support Growth

Further easing of macroprudential policy Payment system development to support digital economy To bolster the growth of the property sector which has positive impact to the economy Coordination with the Coordinating Ministry of Economic Affairs, the Ministry of Finance, and the Financial Services Authority to accelerate financial market deepening, particularly in private financing for infrastructure. Electronification to support social assistance disbursement and financial transcation of the central and regional government Sharia economy and finance development to create halal value chain, sharia financal sector development both for commercial and social purposes, including its education and communication Policy coordination to accelerate financial market deepening Sharia economy and finance development

4 3 2 1 1

Source: Bank Indonesia

32

Ample Lines of Defense Against External Shocks



Ample level of FX reserves to buffer against external shock



FX Reserves as of November 2019: US$126.6 billion

South Korea



Renewed a 3 year KRW / IDR swap arrangement with the size of up to KRW 10.7 trillion / IDR 115 trillion in March 2017

Australia



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

Chiang Mai Initiative Multilateralization (CMIM) Agreement



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



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



Doubled to US$240 bn effective July 2014

Japan



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



The facility is available in USD and JPY

IMF Global 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

Ample Reserves Swap Arrangement

Source: Bank Indonesia

ASEAN Swap Arrangement (ASA)



Entitled to a maximum swap amount of USD600 million under ASA



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



Doubled to USD2 billion in 2005

Singapore



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

China



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

Malaysia



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

33

Solid Policy Coordination

In Managing Financial Markets Volatility

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

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

Gov’t Securities Crisis Management Protocol (CMP)

• Indicators:
• Yield of benchmark series;
• Exchange rate;
• Jakarta Composite Index;
• Foreign ownership in government securities
• Policies to address the crisis at every level :
• Repurchase the government securities at secondary market
• Postpone or stop the issuance

Bond Stabilization Framework

The enactment of Law No. 9/2016 regarding Prevention and Mitigation of Financial System Crises as a legal foundation for the government to serves at the time of financial crisis in the form of Financial System Stability Committee (KSSK) KSSK members: the Ministry of Finance, Bank Indonesia, the Financial Services Authority, and the Deposit Insurance Corporation Swap facility arrangements based on international cooperation Enhancing coordination between government institutions and continuous dialogue with market participants Implementing Crisis Management Protocol (CMP)

CMP

Implementing Bond Stabilization Framework (BSF)

BSF

34

Strengthened Private External Debt Risk Management

Regulation Key Points Phase 1 Jan 1,2015 – Dec 31,2015 Phase 2 Jan 1,2016 – Dec 31,2016 Phase 3 Jan 1, 2017 & beyond

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

Debt Burden Indicator (External Debt/GDP) Remains Comparable to Peers Rating

Encouraging Corporates Compliance on Hedging Ratio & Liquidity Ratio

Source: Bank Indonesia

Liquidity Ratio* Hedging Ratio*

*Data as of Q2 2019, with total population 2.550 corporates

Regulation on Prudential Principle in Managing External Debt

Source: Bank Indonesia

Source: Moody’s Statistical Handbook, November 2019

2,295, 90% 255, 10%

≤ 3 months

2,385, 94% 165, 6%

> 3 - 6 months

2,244, 88% 306, 12% Comply Not Comply

23,9 36,2 20,0 39,9 57,3 23,0 36,7 20,9 42,9 56,5 21,9 37,0 21,4 42,3 54,3 10 20 30 40 50 60 70 Philippines Indonesia India Colombia Bulgaria 2020F 2019F 2018

35

11,5 17,1 11,3 12,0 5,4 10,2 5,9 3,0 10,1 6,5 8,0 9,5 9,8 0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 18,0 20,0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* Q1-2019* Q2-2019* Q3-2019* 50.000 100.000 150.000 200.000 250.000 300.000 350.000 400.000 450.000 External Debt External Debt Growth (rhs)

Healthy External Debt Composition

External Debt Structure

Source: Bank Indonesia, External Debt Statistics of Indonesia, October 2019 *Provisional Figures

The Structure of External Debt is Dominated by Long-Term Debt External Debt Remains Manageable External Debt to GDP Ratio & Debt to Export Ratio

Million USD % 121,8 114,9 101,0 113,8 123,1 139,5 168,4 176,1 168,0 162,3 169,9 173,6 178,4 31,8 26,5 25,0 27,4 29,1 32,9 36,1 34,3 34,7 36,2 37,0 36,7 36,3 5 10 15 20 25 30 35 40 80 100 120 140 160 180 200 External Debt / Export Ratio External Debt / GDP Ratio (rhs) % % 42,6 41,4 47,4 50,0 53,6 55,8 54,1 50,5 48,8 50,4 50,2 49,8 50,8 51,2 50,9 49,8 49,9 49,9 50,0 49,6 57,4 58,6 52,6 50,0 46,4 44,2 45,9 49,5 51,2 49,6 49,8 50,2 49,2 48,8 49,1 50,2 50,1 50,1 50,0 50,4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Private External Debt Public External Debt 18,3 21,2 20,7 21,7 21,2 20,2 17,9 17,1 15,6 16,0 16,1 15,1 15,7 16,8 16,1 15,8 14,7 14,3 14,1 14,3 81,7 78,8 79,3 78,3 78,8 79,8 82,1 82,9 84,4 84,0 83,9 84,9 84,3 83,2 83,9 84,2 85,3 85,7 85,9 85,7 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Short Term External Debt Long Term External Debt

36

Manageable External Debt Profile

Short term non-bank corporate debt (non affiliation) represents only 9.1% of total private external debt

Private Short-Term1 Private Non-Bank External Debt Position

Affiliation Non Affiliation

US$151.5bn

• r

76.3%

• f Private Ext.

Debt US$19.1bn

• r

9.6%

• f Private
• Ext. Debt

US$10.0bn

• r

5.1%

• f Private
• Ext. Debt

US$18.0bn

• r

9.1%

• f Private
• Ext. Debt

Public Long Term 1 Private Bank

US$28.0bn

• r

14.1%

• f Private
• Ext. Debt

US$198.6bn

• r

49.6%

• f total
• Ext. Debt

US$47.2bn

• r

23.7%

• f Private
• Ext. Debt

External Debt Position as of October 2019

1 Based on remaining maturity

Source: External Debt Statistics of Indonesia, December 2019

US$400.6bn

US$201.9bn

• r

50.4%

• f Total Ext.

Debt

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

Section 4

38

Integrated Reform to Provide Higher Quality of Economic Growth

Structural reforms to enhance potential growth and navigate through challenges

• Fair State Budget that declines poverty and

income inequality

• Efficient, competitive, and innovative real

sectors

• Job-creation
• Trade and investment policies that

support growth, efficiency, and stability

• Monetary policy to support macroeconomic

stability

• Price stability and sustainable current

account deficit

• Efficient and credible

financial sector Fiscal Real Sector Monetary & Financial Sector

Synergy in reform to boost the more sustainable and inclusive growth

Source: Ministry of Finance

39

Growth Momentum is Expected to Continue

Several key drivers and strategies to accelerate growth

Strategies to Encourage Growth Key Drivers

• Consumption remains robust among others supported by benign

inflation

• Investment grows stably supported by infrastructure acceleration,

business climate improvement, rating upgrades, economic packages

• Export and Import keeps improving driven by increasing demand

and improving prices

• Support from several important events such as Asian Games,

Regional Elections, and IMF-WB annual meeting

• Maintaining purchasing power, boosting domestic demand and

supporting business activity.  Improve distribution channels  Increased shopping events, creative industries and festivals in tourism areas  Incentives for manufacture  Developing e-commerce industry

• Encouraging private sector's role in investment

 Strengthening and deepening financial markets  Making a stable investment climate through political stability

• Expand services sector, especially tourism

 Increasing foreign tourists arrival through cooperation with other countries by increasing the direct flight schedule  Encouraging national creative industry growth

Risks & Challenges

Global economic uncertainties: China economic rebalancing and its financial vulnerability, advanced countries policy normalization, geopolitic, and climate change

40

2019 State Budget (APBN 2019)

Healthier, More Equitable, Self-Sufficient

Healthier

• Deficit 1.84% of GDP, the lowest since

2013

• Towards positive primary balance
• Debt to GDP ratio below 30% of GDP

More equitable

• Strengthening decentralization

(increasing fiscal transfer to regions)

• Strengthening social protection

programs

• Focusing on human capital quality

improvement (inter-generational fairness)

Self sufficient

• Increasing tax revenue
• Increasing the share of local currency

bond issuance

• Domestic financial deepening
• Driving export

Macroeconomic Assumption

Growth 5.3% Inflation 3.5% 3 months T-bills 5.3% Exchange Rate 15,000/US$ ICP 70/barrel Oil Lifting 775 thousands barrel/day Gas Lifting 1,250 thousands barrel/day

Development Target Unemployment 4.8% – 5.2% Poverty 8.5 – 9.5 Gini ratio 0.38 – 0.39 HDI 71.98 REVENUE Rp2,165.1 T  Tax Rp1,786.4 T  Non Tax Rp378.3 T  Grant Rp0.4T EXPENDITURE Rp2,461.1 T  Central Government Rp1,634.3T  Transfer to Region Rp756.8 T  Village Fund Rp70.0 T

Deficit Rp296.0 T (1.84% of GDP) Primary Balance (Rp20.1 T) Debt Financing Rp359.3 T Investment Rp75.9T

Source: Ministry of Finance

41

Credible and Healthier Budget

…providing more certainty to all stakeholders

Indicator 2017

2017

2018 2019 R-Budget Realization Budget Budget Economic growth (%, yoy)

5.2 5.1 5.4 5.3

Inflation (%, yoy)

4.3 3.6 3.5 3.5

3-Month Treasury Bill (SPN) (%)

5.2 5.0 5.2 5.3

Exchange Rate (Average, IDR/USD)

13,400 13,384 13,400 15,000

ICP (USD/barrel)

48 51.2 48 70

Oil Production (thousand barrel/day)

815 804 800 775

Gas Production (millions barrel/day)

1.15 1.14 1.20 1.25 Macroeconomic Assumption for 2018 & 2019 Budget

Source: Ministry of Finance

• 2018 Budgetrealization showed healthy and credible performances:
• with tax revenues grewrelatively high
• improving tax ratio
• ptimal level of expenditure
• 2019 Budgetis healthier, more equitable, and self-sufficient
• towards positive primarybalance
• strengthening decentralization
• increasing tax revenue

Description (IDR Trillion) 2016 Audited Realization 2017 Audited Realization 2018 Audited Realization 2019 Proposed Budget Budget Realization (a.o. November 30) % Realization to Budget A. Revenues and Grants 1,555.9 1,666.4 1,943.7 2,142.5 2,165.1 1,677.1 77.5

• I. Domestic Revenue

1,546.9 1,654.8 1,928.1 2,142.1 2,164.7 1,675.2 77.4

• 1. Tax Revenue

1,285.0 1,343.5 1,518.8 1,781.0 1,786.4 1,312.4 73.5

• 2. Non Tax Revenue

262.0 311.2 409.3 361.1 378.3 362.8 95.9

• II. Grants

9.0 11.6 15.6 0.4 0.4 1.9 447.3 B. Expenditure 1,864.3 2,007.3 2,213.1 2,439.7 2,461.1 2,046.0 83.1

• I. Central Government Expenditure

1,154.0 1,265.3 1,455.3 1,607.3 1,634.3 1,293.2 79.1

• 1. Ministerial Spending

684.2 765.1 846.5 840.3 855.4 717.8 83.9

• 2. Non Ministerial Spending

469.8 500.2 608.8 767.1 778.9 575.4 73.9

• II. Transfer to Region and Village Fund

710.3 742.0 757.8 832.3 826.8 752.8 91.1 C. Primary Balance

• 125.6
• 124.4
• 11.5
• 21.7
• 20.1
• 101.3

503.8 D. Surplus (Deficit)

• 308.3
• 340.9
• 269.4
• 297.2
• 296.0
• 368.9

% of GDP

• 2.49
• 2.51
• 1.81
• 1.84
• 2.30

E. Financing 334.5 366.6 305.7 297.2 296.0 421.0 142.2

42

2020 State Budget (APBN 2020)

Indicator 2019 2020 Outlook Budget Economic growth (%, yoy)

5.2 5.3

Inflation (%, yoy)

3.1 3.1

3-Month Treasury Bill (SPN) (%)

5.6 5.4

Exchange Rate (Average, IDR/USD)

14,250 14,400

ICP (USD/barrel)

63 63

Oil Production (thousand barrel/day)

754 755

Gas Production (millions barrel/day)

1.07 1.19 Macroeconomic Assumption for 2020 Budget

Source: Ministry of Finance

Description (IDR Trillion) 2019 Outlook Growth (%) 2020 Proposed Budget Growth (%) Budget Growth (%) A. Revenues and Grants 2,030.8 4.5 2,221.5 9.4 2,233.2 10.0

• I. Domestic Revenue
• 1. Tax Revenue

1,643.1 8.2 1,861.8 13.3 1,865.7 13.5

• 2. Non Tax Revenue

386.3 (5.6) 359.3 (7.0) 367.0 (5.0)

• II. Grants

1.3 (91.7) 0.5 (61.5) 0.5 (61.5) B. Expenditure 2,341.6 5.8 2,528.8 8.0 2,540.4 8.5

• I. Central Government Expenditure

1,527.2 4.9 1,670.0 9.4 1,683.5 10.2

• II. Transfer to Region and Village Fund

814.4 7.5 585.8 5.5 856.9 5.2 C. Primary Balance

• 34.7

201.7

• 12.0

(65.4)

• 12.0

(65.4) D. Surplus (Deficit)

• 310.8

15.4

• 307.2

(1.2)

• 307.2

(1.2) % of GDP

• 1.93

6.04

• 1.76

(8.81)

• 1.76

(8.81) E. Financing 310.8 1.7 307.2 (1.2) 307.2 (1.2)

2020-2030

Improving Competitiveness

STRENGTHENING THE FUNDAMENTAL TRANSITION ADVANCED INDONESIA

2031-2035

Strengthening Competitiveness

2036-2045

Sovereign, Advanced, Just, and Prosperous Country

Indonesia 2045: Becoming a Developed Country

Fiscal Competitiveness Theme 2020 “State Budget to Accelerate Competitiveness through Innovation and Strengthening Quality of Human Resources” Revenue Mobilization Effective state spending Creative financing FISCAL POLICY STRATEGY FOR 2020

43

New and Strategic Programs

The policies and initiatives in State Budget 2020 for Improvement in human resource quality and competitiveness.

Source: Ministry of Finance

Tax Incentives for supporting human resources development & competitiveness

• Super deduction for vocational program and R&D
• Mini tax holiday for investment commitment under 500 billion rupiah
• Investment allowance for human intensive industry

Kuliah

Improvement In Human Resource Quality and Social Assistance Indonesian Smart Card College/KIP Kuliah Pre Workers Card

Improving the job seekers’ productivity

Food Aid Card

Supporting the poor people to achieve the higher education level Protecting the food access for poors

Accelerated completion of 4 super priority tourism destinations

The development of Danau Toba, Borobudur, Labuan Bajo and Mandalika, synergy among line ministries and local government

Strengthening The Transfer to Regions and Village Funds

• Strengthening The Physical Specific Allocation Fund for social

and marine transportation sectors;

• Additional General Allocation Fund DAU for equalization

village officials’ fixed income and remuneration of Government Employees with Work Agreements (PPPK)

Endowment Fund for Human Resource and Culture  Culture Endowment Fund  Higher Education Endowment Fund  Significant additional endowment fund for research and development The Utilization of endowment fund investment to improve the the quality of higher education and promotion of national culture, through:

Supporting the reducing current account deficit in the short and long term

Strengthening The Current Account Balance

44

In 2020, Budget Deficit will be Maintained at level 1.76% GDP Directed to be healthier and

adaptive to face the economic risks

Source: Ministry of Finance

• Deficit to GDP ratio in 2020 will be the lower deficit in the

past five years

• Primary balance deficit will be decreased gradually to

positive direction

• Tax revenue for supporting the competitiveness with the

realistic and optimal target

• Budget spending will be prioritized for productive spending
• Budget financing will be decreased and will be utilized for

competitiveness improvements

11,6 10,8 10,7 11,4 11,1 11.6 2015 2016 2017 2018 2019 Outlook 2020 Budget

TAX RATIO

(298,5) (308,3) (341,0) (269,4) (310,8) (307,2) (142,5) (125,6) (124,4) (11,5) (34,7) (12,0) (2,59) (2,49) (2,51) (1,82) (1,93) (1,76) (3,00) (2,50) (2,00) (1,50) (1,00) (0,50) 0,00 (400,0) (350,0) (300,0) (250,0) (200,0) (150,0) (100,0) (50,0) 0,0 2015 2016 2017 2018 2019 Outlook 2020 Budget Budget Deficit (Trillion IDR) Primary Balance % Deficit to GDP

45

State Revenue Optimization

Followed by tax reforms for supporting the economy and business climate.

Source: Ministry of Finance

Improvement to Support Taxation

• Increasing the tax compliance
• Service quality improvement, counseling, and supervision through the

strengthen IT system and tax and administration

• Equalizing the level playing field
• Improving the business process especially for VAT refund
• Implementing the AEoI
• Extensification of excise goods
• Adjusting the excise duty rates on tobacco

1.240,4 1.285,0 1.343,5 1.518,8 1.643,1 1.861,8 1.865,7 8,2 3,6 4,6 13,0 8,2 12,6 5,8 2,9 13,4 10,5 13,5 14,8

• 200

400 600 800 1.000 1.200 1.400 1.600 1.800 2.000 2015 2016 2017 2018 2019 Outlook 2020 RAPBN 2020 APBN Pajak nonmigas Kepabeanan dan Cukai Penerimaan Perpajakan Pertumbuhan Penerimaan Perpajakan (%) Pertumbuhan Pajak nonmigas (%)

Tax Revenue (Trillion Rupiah)

(35,9) 2,5 18,8 31,5 (5,6) (40,0) (30,0) (20,0) (10,0)

• 10,0

20,0 30,0 40,0

• 50,0

100,0 150,0 200,0 250,0 300,0 350,0 400,0 450,0 2015 2016 2017 2018 Outlook 2019 RAPBN 2020 APBN 2020

PNBP Migas (Triliun Rp) PNBP Nonmigas (Triliun Rp) Pertumbuhan (%)

(7,0) (5,0) 255,6 262,0 311,2 409,3 386,3 359,3 370,0

Non Tax Revenue (Trillion IDR)

• Management and Utilization of Optimal, Effective and Efficient Natural

Resources

• Service Improvement and Tariff Adjustment
• Improvement of BUMN Efficiency and BLU Performance
• Improving Governance

The role of the non-oil and gas PNBP sector continues to be strengthened accompanied by increased services to the community

Oil & Gas Custom & Excises Non Oil & Gas Tax Revenue Growth (%) Non Oil & Gas Tax Tax Revenue Growth (%) Oil & Gas (Trillion Rp) Non Oil & Gas(Trillion Rp) Growth (%) 2020 Budget Plan 2020 Budget 2020 Budget Plan 2020 Budget

46

Government expenditure in 2020

A better spending to supporting development to be efficient and effective.

Source: Ministry of Finance

47

Central Government Expenditure

Directed to support Human Capital improvement and several strategic programs

Source: Ministry of Finance

 Human Resource Quality Improvement

Smart Indonesian Card (KIP) for Higher Ecuation Supporting the poors to continue their education to higher education Pre-Employment Card To Improve the productivity of job seekers

• Sustainability of health service provision (increased premium aid

by Government)

 Social Protection Strengthening

• Food access improvement (Food Card)

 Infrastructure Development

• Equalizing inter-region development
• Accelerating development of 4 destination of super-priority

tourism

48

Budget for Improving the Human Resource Quality

Higher quality of human resources for achieving the welfare and just society.

Source: Ministry of Finance

Investment Financing

Rp29,0 T

• National Education Development (DPPN)
• Rp18,0 T
• scholarships for 5.000 new students (higher degree level)
• scholarships for 12.333 students (higher degree level)
• Financing 104 researches
• Culture Endowment Fund Rp1,0 T

Ensure the continuity of culture promotion for the next generation

• Research Endowment Fund Rp5,0 T
• Increasing the human resource quality and

competitiveness

• Increasing the research which supported the university

stakeholders

• Incresing the research contribution to economic growth
• Higher Education Endowment

Fund

• Rp5,0 T

Human resources and education infrastructure for achieving the World Class University

49

The National Budget is to Prepare the Younger Generation to Improve the Quality of Human Resources

Source: Ministry of Finance

Education Budget

Rp508,1 T

50

The National Budget is Preparing the Youth through Job Training

Source: Ministry of Finance

Total Budget Rp10 T Target 2 Billion participants

Digital: 1.5 Mill Regular: 0.5 Mill

Definition of Pre-Employment Card

“It is a card given to job seekers or workers to get vocational training (skilling and re-skilling) and / or job competency certification"

Skilling Targets : Fresh graduate job seekers Objectives : skill adjustment, vocational skill to work Outcome : reduce unemployment Re-Skilling Targets : Workers who are laid off or potentially laid off Objective : to equip new/different vocational skills for new profession/entrepreneur Outcome : prevent unemployment from returning

Design of Implementation of Digital and Regular Access

• Participants choose the

type of training through a digital platform (GoJek, Tokopedia, Jobstreet etc.).

• Private training *

Online (e-learning) and Offline (Class) Digital Training + Incentives

• Training and Certification in

Government Job training Center (LPK) (including Vocational Center/BLK), Private LPK, and Industrial Taining Center Offline training (class) Regular Training + Certification + Incentives

51

Source: Ministry of Finance

Total Budget Rp423,3 T

Infrastructure Budget

To build infrastructure and remote areas Investment for accelerating infrastructure development (SOE and PSA):

• PT HK Rp 3.5 T for building toll road Pekanbaru- Dumai and Terbanggi Besar- Pematang Panggang – Kayu Agung
• PT PLN Rp 5.0 T for fulfilling electrification target 100 % by 2020
• PT SMF Rp 2.5 T to support financing for building house for low income society
• PSA LMAN Rp 10.5 T for land clearing to support national strategic project
• PPPDP Rp 9.0 T for financing credit housing FLPP

18,758 km

Bridges

3

Airports

19,879 ha

Irrigations

238.8 km

Railroads Internet Connectivity Development (Palapa Ring)

• Development of drinking water pipelines
• Development of domestic wastewater treatment systems
• Provision of infrastructure for processing waste

Clean Water &Sanitations

6,346 km

Roads

Housing for Low Income Society

49

Dams

52

Source: Ministry of Finance

Subsidy is Directed to Improve Effectivity and Efficiency through Attempts in Accuracy Improvement

Energy Subsidy

Budget 2020 Outlook 2019 125.3 T 142.6 T

• Continuing fix subsidy for diesel of Rp1.000/litre
• Price differential subsidy for kerosene and LPG 3 kg canister
• Electricity subsidy is given to certain tariff groups.
• Electricity subsidy is given accurately for household customer of 450 VA

and 900 VA

• Improving electricity ratio and reducing inter-regions disparity

Policy :

Non Energy Subsidy

62.3 T 69.8 T Budget 2020 Outlook 2019

• Data validation of beneficiaries and their needs of subsidized fertilizer  e-RDKK

(Definitive Plan of Group Needs)

• Expanding the use of Farmer Card to buy subsidized fertilizer
• Improving public service in transportation and public information

Policy :

• Expanding capital access of Micro, Small, Medium Enterprises

through interest subsidy of KUR

• Allocating down payment and interest differential subsidy to encourage

house ownership of low income people

53

Source: Ministry of Finance

Transfer to Region and Village Fund

Increased by Rp42.5 triliun from the Outlook 2019 that is directed to:

Improving basic public service delivery Accelerating competitiveness Promoting productive spending

Rp856.9 T

• Accelerate the provision of public infrastructure and

strengthen the quality

• f

human resources, especially through education, health, drinking water, social protection, and inter-regional connectivity.

• Increase competitiveness through innovation, ease of

doing business, governance, and incentive policies that support the investment climate.

• Increase productivity, especially export-oriented

through the development of regional economic potential.

54

Source: Ministry of Finance

Debt Financing Policy 2020

Debt financing that is productive, efficient, fulfills prudential aspects and supported by good governance and risk management systems.

Debt Financing Direction

Prudent

• debt ratio control within the safe limit ranges from 29.4 - 30.1 percent
• f GDP to support fiscal sustainability
• Maintaining macro balance by maintaining the composition of

domestic and foreign debt in a controlled limit and deepening the financial markets

Debt Financing Strategy

• Optimizing community participation in the domestic bond market

(financial deepening)

• Active debt management through liability and asset

management.

55

2017 Achievements of State Budget

Value creation on various projects and country development

Healthcare and Social Security:

• Distribution of Indonesian Health Card to 92.1 million people

Education:

• Distributed Indonesian Smart Card to 19.8

million students

• School Operational Benefit for 8.0million
• Scholarship for 364.4 students

Infrastructure:

• 794 km roaddevelopment
• 9,072 m bridgedevelopment
• 3 airports completed
• 618.3 km railways

Local Government Achievements Central Government Milestones

15.5% 101.7% 118.5% 7.4% 23.0% 27.8%

• Tax revenue growth vs. 2016 (excluding

Tax Amnesty and Asset Revaluation)

• Revenue of customs and excise
• ver 2017 revised Budget, a 7.4%

increase vs. 2016

• Non-tax revenue over 2017 revised

Budget, a growth of 17.7% vs 2016

• Growth of realized government

spending vs. 2016

• Capital expenditure growth vs.

2016, a 92.8% over 2017 revised Budget.

• Growth of transfer to village
• vs. 2016, 99.6% over 2017

revised Budget Roads: 1,033 km in development, 1,503km maintenance, 9,789 km improvement Bridges: 3,749 m bridgein development, 291 m maintenance, and 2,916m improvement Classroom: 1,351new classrooms,11,006 rehabilitation, 11,758 rural library collection Medical: Improved facilities in 347 hospitals and 3,873 clinics Tuition: Reduced tuition costs for 46.6 million students and 5.6 million kindergarten-agedchildren Welfare: Increased welfare and work ethics

• f 1.7million civil teachers in rural areas

and compensated 41,000 teachers in special regions Rural: 107,9 villageroads, 89,200 health clinics, 178,800 toilets, and 107,700 connected clean water and 25,903 Ha irrigated lands Source: Ministry of Finance

56

Indonesia’s Tax Amnesty Program – A Success Story

With more than 965,900 taxpayers participating in the program

Tax Amnesty Result (as of the end of March 31st, 2017) Redemption Money Assets Declared

114,2 18,8

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

Revenue IDR 134.8tn (~1.1% GDP)

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

Composition of Participants Based on Asset Declared

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

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

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

​Onshore Declaration 76% ​Offshore Declaration 21%

Repatriation 3%

Asset Declared IDR 4,881tn (~39.4% of GDP) Source: Ministry of Finance

57

2019 Financing Needs

Fulfilled from Government Securities IDR 903.37 tn (92.41%) and Loan IDR74.22 tn (7.59%)

Source: Ministry of Finance

58

Government Securities

Indicative Financing Plan for 2019

Source: Ministry of Finance

GS Net [446.49] GS Matured [457.60]

GS Issuance Need [904.09]

Issuance Composition

GS Rupiah Domestic [83% - 86%]

Auction [74% – 76%] Non-auction [9% - 10%]

Foreign Denominated GS International [14% - 17%]

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

(tradable/Sukri & non-tradable);

• Private Placement – based on request.
• Foreign denominated GS as complementary  Avoid crowding out in

domestic market.

• The target amount can be adjusted to the potential of other financing

sources and financing needs.

*in IDR Trillion

59

Government Securities Realization

As of End of November 29, 2019 – in Trillion IDR

Government Securities realization as of November 29, 2019 IDR903.36 T or 99.92% from the target From IDR903.36 T consist of:

526,03 58% 119,06 13% 228,76 26% 29,52 3%

IDR Government Debt Securities FX Government Debt Securities IDR Sovereign Sharia Securities FX Sovereign Sharia Securities

Source: Ministry of Finance

381,83 841,78 460,27 903,36 Government Securities Net Isuance Need for 2019 Realization as of Nov 29, 2019 Budget 2019

60

Disciplined and Sophisticated Debt Portfolio Management

Weighted Average Debt Maturity of ~8.6 Years Prudent Fiscal Deficit

Source: MoF

Well Diversified Across Different Currencies

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

Stable Debt to GDP Ratio Over the Years

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

• 2,2%
• 2,6%
• 2,5%
• 2,5%
• 1,8%
• 3,0%
• 2,5%
• 2,0%
• 1,5%
• 1,0%
• 0,5%

0,0% (400) (300) (200) (100)

• 100

200 300 400 500 2014 2015 2016 2017 2018 SBN (neto) Pinjaman DN & LN (neto) Non Utang (neto) Surplus (Defisit) APBN Rasio Defisit APBN thd. PDB (RHS) Non Debt (Net) Bonds (Net) Loans (Net) Budget Surplus/Deficit Fiscal Deficit (%GDP, RHS) 1.661,1 1.931,2 2.410,0 2.780,6 3.248,6 3.612,7 4.044,3 714,4 677,6 755,1 734,8 746,2 810,7 770,0 24,9% 24,7% 27,4% 28,3% 29,4% 29,8% 30,0% 0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0%

• 1.000,0

2.000,0 3.000,0 4.000,0 5.000,0 2013 2014 2015 2016 2017 2018 2019*) Bond Loan Debt/GDP Ratio [RHS] 9,8 9,4 9,1 8,7 8,4 8,6 2014 2015 2016 2017 2018 Nov 2019 ATM (in years) 53% 57% 55% 57% 59% 58% 62% 62% 29% 29% 32% 31% 30% 30% 28% 27% 3% 3% 3% 4% 4% 4% 4% 4% 12% 9% 8% 7% 6% 6% 6% 5% 3% 2% 2% 1% 1% 1% 1% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2013 2014 2015 2016 2017 2018 Oct-19 Nov-19 IDR USD EUR JPY OTHER

61

Well Balanced Maturity Profile With Strong Resilience Against External Shocks

Declining Interest Rate Risks Debt Maturity Profile Declining Exchange Rate Risks Upcoming Maturities (Next 5 Years)

IDR tn

Note: using GDP assumption

Source: Ministry of Finance

14,8 13,7 12,1 10,6 10,6 9,9 21,0 20,7 17,5 19,2 19,7 16,4 2014 2015 2016 2017 2018 Nov 2019 Variable rate ratio [%] Refixing [%]

27 247 258 199 210 266 90 139 141 132 208 85 143 96 94 150 26 99 27 89 62 13 23 20 22 28

• 12 24
• 19

130 151 166 161 154 150 117 103 120 80 31 43 26 22 16 33 8 26 31 3 2 2 33 23 30 29 19 36 25 34

• 50

100 150 200 250 300 350 400 450 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049-2058 IDR Denominated (Triliun Rp) Other Currencies (Triliun Rp) 7,7 8,4 6,5 9,9 10,6 8,4 20,1 21,4 22,7 25,0 25,5 24,7 33,9 34,7 36,0 39,3 40,4 41,4 2014 2015 2016 2017 2018 Nov 2019 in 1 year (%) in 3 year (%) in 5 year (%) 10,7 12,2 12,1 12,1 12,3 11,4 43,4 44,5 42,6 41,3 41,0 38,0 2014 2015 2016 2017 2018 Nov 2019 FX Debt to GDP ratio (%) FX Debt to total debt ratio (%)

62

Holders of Tradable Central Government Securities

More Balance Ownership In Terms of Holders and Tenors

Foreign Ownership of Gov’t Domestic Debt Securities by Tenor Holders of Tradable Gov’t Domestic Debt Securities

Source: Ministry of Finance

31,0% 23,9% 22,5% 23,4% 20,3% 25,4% 30,8% 37,8% 39,9% 36,8% 42,0% 36,0% 38,1% 38,2% 37,5% 39,8% 37,7% 38,5% Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Nov-19 Domestic Banks Domestic Non-Banks Foreign Holders 4,6% 3,2% 3,5% 5,0% 4,3% 2,1% 3,7% 1,3% 5,3% 5,1% 1,9% 6,3% 15,2% 11,8% 17,8% 17,3% 18,4% 22,1% 33,6% 39,0% 37,4% 35,6% 36,8% 34,3% 42,8% 44,7% 36,0% 37,0% 38,6% 35,2% 38,1% 38,2% 37,5% 39,8% 37,7% 38,55% 0% 20% 40% 60% 80% 100% Dec 14 Dec 15 Dec-16 Dec-17 Dec-18 29-Nov-19 0-1 ≥1-2 ≥2-5 ≥5-10 ≥10 %Foreign Ownership of Total

63

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 Dec-15 Dec-16 Dec-17 Dec-18 Nov-19 Banks*

350.07 23.95% 399.46 22.53% 491.61 23.41% 481.33 20.32% 704.11 25.42%

Govt Institutions (Bank Indonesia**)

148.91 10.19% 134.25 7.57% 141.83 6.75% 253.47 10.70% 145.91 5.27%

Bank Indonesia (gross)

157.88 8.90% 179.84 8.56% 217.36 9.18% 260.94 9.42%

GS used for Monetary Operation

23.63 1.33% 38.01 1.81% (36.15) (1.52%) 115.03 4.15%

Non-Banks

962.86 65.87% 1,239.57 69.90% 1,466.33 69.83% 1,633.65 68.98% 1,920.18 69.32%

Mutual Funds

61.60 4.21% 85.66 4.83% 104.00 4.95% 118.63 5.01% 131.16 4.73%

Insurance Company and Pension Fund

221.45 15.15% 325.52 18.36% 348.86 16.61% 414.47 17.50% 473.87 17.11%

Foreign Holders

558.52 38.21% 665.81 37.55% 836.15 39.82% 893.25 37.71% 1,067.80 38.55% Foreign Govt's & Central Banks 110.32 7.55% 120.84 6.81% 146.88 6.99% 163.76 6.91% 195.77 7.07%

Individual

42.53 2.91% 57.75 3.26% 59.84 2.85% 73.07 3.09% 82.67 2.98%

Others

78.50 5.37% 104.84 5.91% 117.48 5.60% 134.22 5.67% 164.67 5.94%

Total

1,461.85 100.00% 1,773.28 100.00% 2,099.77 100.00% 2,368.45 100.00% 2,770.19 100.00%

Source: Ministry of Finance

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

Section 5

65

Bank Indonesia’s Policy Mix

To Maintain Macroeconomic and Financial System Stability

Source: Bank Indonesia

 Implementing Macro prudential Intermediation Ratio (RIM)  Implementing Macro prudential Liquidity Buffer (MLB)  Electronification: Social program, e-payment for Government  Financial technology  National Payment Gateway (NPG)  QRIS (QR Indonesia Standard)  Expanding National Clearing System (SKNBI) services  Developing market instruments for financing infrastructure  Developing financial market infrastructures  Rupiah Interest Rate Swaps (IRS) and Overnight Index Swap (OIS)  Domestic non-Deliverable Forward (DNDF)  Developing the Commercial Papers (Surat Berharga Komersial)  Controlling inflation: TPIP, TPID  Structural reforms: Government  Financial deepening & stability: KSSK (Financial System Stability Committee), OJK (Financial Services Authority)  Coordinating efforts in reducing Current Account Deficit  Pre-emptive, front loading and ahead-of-the- curve policy rate response  Stabilize exchange rate consistent with fundamentals  Accelerate implementation of reserve requirement averaging  Maintaining a monetary operations strategy

• riented towards increasing available liquidity

(FX swap)

Monetary Policy Coordination with other Authorities Financial Market Deepening Macro- prudential Policy Payment System Policy

1 2 3 4 5

66

Bank Indonesia Policy Mix: December 2019

The BI Board of Governors agreed on 18th and 19th December 2019 to hold the BI 7-Day Reverse Repo Rate at 5.00%, while also maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 4.25% and 5.75%.

Continues to orient monetary operations towards maintaining adequate liquidity, particular during the approach to yearend, and supporting the transmission of an accommodative policy mix. Holds the BI 7-Day Reverse Repo Rate at 5.00% Continues to strengthen coordination with the Government and other relevant authorities in

• rder to maintain economic

stability and catalyse domestic demand, while boosting exports and tourism and attracting foreign capital flows, including Foreign Direct Investment (FDI).

Source: Bank Indonesia

Maintains accommodative macroprudential policy to stimulate economic financing in line with the suboptimal financial cycle, while also paying due consideration to prudential

• principles. Payment system policy and financial

market deepening will be strengthened to support economic growth. The current policy response will maintain economic stability and bolster economic growth momentum in Indonesia to mitigate the global risks. Monitors domestic and global economic development in using its room to implement an accommodative policy mix in

• rder to maintain controlled

inflation and external stability as well as to support economic growth momentum Monetary policy remains accommodative and is consistent with controlled inflation in the target corridor, maintained external stability as well as efforts to maintain domestic economic growth momentum against a backdrop

• f global economic

moderation.

67

Principles of Average Reserve Requirement Ratios Improvement

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

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

• Improvement in average reserve requirement is a follow up to the monetary

policy operational frameworkreform implemented by Bank Indonesia since 2016.

• Monetary policy operational framework reform started in August 2016 as BI7DRR

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

• The current improvement aims to elevate flexibility in banking liquidity

management, enhance banking intermediation function, and support efforts in financial market deepening. This multiple targets will in turn improve the effectiveness of monetary policy transmission in maintaining economic stability.

Considerations for the Average Reserve Requirement Ratios Improvement

Source: Bank Indonesia

68

Principles of Macroprudential Intermediation Ratio (MIR) and Macroprudential Liquidity Buffer (MLB)

Striving to stimulate the bank intermediation function and liquidity management, Bank Indonesia issued Bank Indonesia Regulation (PBI)

• No. 20/4/PBI/2018 and Board of Governors

Regulation (PADG) No. 20/11/PADG/2018 concerning the Macroprudential Intermediation Ratio (MIR) and Macroprudential Liquidity Buffer (MLB) for Conventional Commercial Banks, Sharia Banks and Sharia Business Units. The policy is expected to stimulate the bank intermediation function to the real sector congruent with sectoral capacity and the economic growth target in compliance with prudential principles, while also overcoming the issue of liquidity procyclicality. The regulation is effective for conventional commercial banks from 16th July 2018 and for sharia banks from 1st October 2018.

Considerations for Macroprudential Instruments Macroprudential Intermediation Ratio (MIR) and Macroprudential Liquidity Buffer (MLB)

1 2 3 4

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

Source: Bank Indonesia

69

Principles of Macroprudential Intermediation Ratio (MIR)*

Regulation MIR (Conventional Commercial Bank) MIR Sharia (Sharia Banks and Sharia Business Units)

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

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

70

Principles of Macroprudential Intermediation Ratio (MIR)*

Regulation MIR (Conventional Commercial Bank) MIR Sharia (Sharia Banks and Sharia Business Units)

6 Percentage of the securities held 100% 7 Criteria for securities issued  medium-term notes (MTN), floating rate notes (FRN) and/or bonds

• ther than subordinated bonds

 sharia-compliant medium-term notes (MTN) and/or sukuk other than subordinated sukuk  Issued by a nonbank corporation and by a resident  Offered to the public through a public offering  Equivalent to investment grade rating affirmed by a rating agency  Administrated by an authorised securities institution 8 Securities Reporting Offline delivery mechanism (email) 9 Scope of deposits to meet DD MIR /DD MIR Sharia  Average daily total deposits in rupiah at all branch offices in Indonesia  Including rupiah liabilities to a resident and non-resident third-party nonbank, consisting of: (i) demand deposits, (ii) savings deposits; (iii) term deposits, and (iv) other liabilities  Average daily total deposits in rupiah at all branch offices and sharia business units in Indonesia  Including rupiah liabilities to a resident and non-resident third-party nonbank, consisting of: (i) wadiah savings; (ii) unrestricted investment funds, and (iii) other liabilities 10 Relaxation of DD MIR/Sharia DD MIR  Bank Indonesia may relax the provisions of the DD MIR/Sharia DD MIR based on credit/financing disbursement and fund accumulation  The provisions may be relaxed based on a request from a conventional commercial bank, Sharia bank or Sharia business unit or a recommendation from the Financial Services Authority (OJK)  Conventional commercial banks, Sharia banks or Sharia business units that receive the relaxed policy are exempt from sanctions

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

71

Adjustment of Macroprudential Intermediation Ratio (MIR)/Sharia Macroprudential Intermediation Ratio (Sharia MIR)*

• In response to global and domestic economic developments,

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

• BI relaxed MIR/sharia MIR policy in March 2019, which

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

• Considering the potential of bank funding sources that are not

included in the MIR ratio, for example the expanding share of loans/financing received by banks, BI decides to adjust MIR/sharia MIR policy in order to optimize loans/financing received for bank lending.

• This policy to stimulate credit growth will comply with

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

Policy Backgrounds

Source: Bank Indonesia

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

• Including loan received by conventional commercial banks and financing received by Islamic banks and Islamic business units as a source of bank

funding in the calculation of MIR/sharia MIR.

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

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

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

Rate (JIBOR) to the Indonesia Overnight Index Average (IndONIA).

Main Regulatory Points

Credit + Owned Bond Deposit + Issued Bond + Loan/Financing Received Lower disincentive parameter

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

Upper disincentive parameter

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

*This disincentive applies for banks with CAR below14%. *This adjustment will be effective from December 2nd, 2019

72

Principles of Macroprudential Liquidity Buffer (MLB)

Regulation MLB (Conventional Commercial Bank) MLB Sharia (Sharia Banks)

1 Rate 4% of rupiah deposits (including Sharia Business Units deposits) 4% of rupiah deposits 2 Components  Securities denominated in rupiah held by a conventional commercial bank that may be used for monetary operations (including SBI/SDBI/SBN); and  Sharia-complaint securities denominated in rupiah held by an Sharia business unit that may be used for sharia-compliant monetary operations (including SBIS/SBSN)  Sharia-complaint securities denominated in rupiah held by an Sharia bank that may be used for sharia-compliant monetary operations (including SBIS/SBSN) 3 Calculation Formula Percentage of rupiah securities held by a conventional commercial bank to rupiah deposits Percentage of sharia-compliant rupiah securities held by an Sharia bank to rupiah deposits 4 Flexibility Under certain conditions, the securities used to meet the MLB may be used for repo transactions to Bank Indonesia for open market operations, totalling no more than 2% of rupiah deposits Under certain conditions, the securities used to meet the sharia MLB may be used for repo transactions to Bank Indonesia for open market operations, totalling no more than 2% of rupiah deposits 5 Sources of Data on Deposits  Monthly Commercial Bank Reports  Rupiah deposits to calculate MLB are the average daily total deposits at all branches in Indonesia  Rupiah deposits include: (i) demand deposits, (ii) savings deposits; (iii) term deposits, and (iv) other liabilities  Monthly Sharia Bank Reports  Rupiah deposits to calculate sharia MLB are the average daily total deposits at all branches in Indonesia  Rupiah deposits include: (i) wadiah savings; (ii) unrestricted investment funds, and (iii) other liabilities

73

Relaxing the Loan-to-Value (LTV) and Financing-to-Value (FTV) Ratios*

The LTV/FTV relaxation is conducted while taking into account aspects of prudential and consumer protection*

1. Increasing opportunities of first time buyers to fulfill their housing needs through housing loan, specifically by adjusting the LTV ratio for property loan and the FTV ratio for property financing for the 1st facility, 2nd facility, etc., making the largest LTV ratio for property credit and FTV ratio for property financing as shown in the table below.

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

2. Relaxing the amount of loan/financing facility through indent mechanism to a maximum of 5 facilities without taking account of the orders 3. Adjusting the arrangement of stages and amount of property loan/financing disbursement of indent property:

Source: Bank Indonesia

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

74

Prudential aspects of Relaxing the Loan-to-Value (LTV) and Financing-to-Value (FTV) Ratios

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

LTV / FTV Exemptions

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

Relaxing the Loan-to-Value (LTV) and Financing-to-Value (FTV) Ratios*

Source: Bank Indonesia

75

Adjustment of LTV Ratio for Property Loans, FTV Ratio for Property Financing, and Down Payments on Automotive Loans/Financing*

1. Adjustment of LTV Ratio for Property Loans and FTV Ratio for Property Financing. a. BI decides to relax the LTV ratio for property loans and FTV ratio for property financing by 5% from current ratio as follows:

Source: Bank Indonesia

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

• n down payments on green automotive loans.

Policy Backgrounds Main Regulatory Points

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

• In response to global and domestic economic developments, BI is maintaining

an accommodative policy mix to maintain the economic growth while also maintaining macroeconomic and financial system stability. This effort will be targeted to several potential sectors.

• Considering the ongoing needs to stimulate the property and automotive

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

• Additional incentives are also given to support sustainable development

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

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

strong repaymentcapacityand low credit/financing risk.

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

76

2. Additional incentive on the LTV ratio for green property loans and FTV ratio for green property financing. a. The Green Property criteria refers to the standards/certificates issued by a nationally or internationally recognized environmental institution. b. Green property that is granted for the incentive has to meet the following standards: i. For residential areas/buildings in certified green belt areas, each unit in the residential area/building is considered to meet the criteria. ii. In case that the residential area/building is not a certified green belt area, an evaluation will be conducted on each unit as follows:

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

tools/applications provided by a recognized institution.

• For buildings > 2500m2,

the assessment must be conducted by a recognized institution;

• For new buildings constructed in an area by one developer or group of

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

Adjustment of LTV Ratio for Property Loans, FTV Ratio for Property Financing, and Down Payments on Automotive Loans/Financing*

Source: Bank Indonesia

Main Regulatory Points 3. Adjustment of Down Payments on Automotive Loans/Financing a. Down Payments on Automotive Loans/Financing is adjusted as follows: i. Relaxation on the down payments of automotive loans or automotive financing 5%-10% from current regulations; ii. The relaxation should consider the gross NPL/NPF ratios and gross NPL/NPF ratios on automotive loans/financing; iii. The adjustment of down payments of automotive loans/financing in points a and b is as follows:

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

77

4. Adjustment of Down Payments on Green Automotive Loans/Financing a. The green vehicles criteria refers to the Presidential Regulation No. 55 of 2019 concerning Battery Electric Vehicles. b. The down payments on green automotive loans or green automotive financing is adjusted as follows: i. Additional incentive of 5% on green vehicles from the down payment presented in Table 5; ii. The down payment incentives considers the gross NPL/NPF ratios and gross NPL/NPF ratios on automotive loans/financing; iii. The down payment regulation for green automotive loans or green automotive financing in points a and b is as follows:

Adjustment of LTV Ratio for Property Loans, FTV Ratio for Property Financing, and Down Payments on Automotive Loans/Financing*

Source: Bank Indonesia

Main Regulatory Points

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

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

78

Principles of Domestic Non Deliverable Forward (DNDF) Transaction

Purposes

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

General Provisions

 Domestic Non-Deliverable Forward Transaction (DNDF Transaction)

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

 Forward Transactions

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

 Fixing Mechanism

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

 Other Definitions

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

Source: Bank Indonesia

79

Principles of Domestic Non Deliverable Forward (DNDF) Transaction

Bank can perform DNDF Transactions as follows:

Bank – Customer Bank – Foreign Party

Bank – Bank

Transaction between:

Can only be performed to hedge rupiah exchange rate risk.

• 1. Must have Underlying Transactions:

Including all following activities : a. Trade of goods and services b. Investments, loans, capital, and other investements. c. Banks credit or financing in foreign currencies (specifically for transactions between bank and customers) Excluding following activities: a. Bank Indonesia certificates; b. Placement of funds with bank; c. Unwithdrawn credit facilities; d. Documents of foreign currencies sales againts rupiah; e. Money transfer by fund transfer companies f. Intercompany loan g. Money changer activities.

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

Source: Bank Indonesia

80

Principles of Domestic Non Deliverable Forward (DNDF) Transaction

Transaction Settlement

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

Roll over and early termination for DNDF is prohibited However, unwind can be done by opening the reverse DNDF transactions

Cover Hedging

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

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

Customer / Foreign Party

Bank Overseas Bank

Hedging

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

Cover Hedging

Source: Bank Indonesia

81

Amendment on DNDF Regulation

*to provide more flexibility in DNDF transaction *to increase liquidity and efficiency in domestic foreign exchange market

BI Regulation No. 20/10/PBI/2018

Source: Bank Indonesia

BI Regulation No. 21/7/PBI/2019

AMENDMENT

Article 3 1. DNDF transactions must have Underlying Article 3 1. Sell FX/IDR through DNDF up to $ 5 mio can be done without underlying documents Article 6 2. Not Regulated; Article 6 2. DNDF can be terminated (unwind); Article 11 3. Underlying documents must be final (firm) with additional supporting documents Article 11 3. Underlying documents for buy FX/IDR for DNDF is :

• Final (firm commitment) + Supporting documents

4. Underlying documents for sell FX/IDR for DNDF above threshold $ 5 mio can be:

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

Article 11 4. Not Regulated; Article 11 5. In using estimate underlying transaction documents in the form of cash flow projection, Bank must evaluate the appropriateness through: a. Supplementary documents; b. Historical data within at least 1 year before; and c. Track record of the Customer or Foreign Party.

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

82

Overnight Index Swaps (OIS) & Interest Rate Swaps (IRS)

Source: Bank Indonesia

As hedging instruments against Rupiah interest rate changes

IRS is a contract between two parties to periodically exchange rupiah interest rate flows during the contract period or at the completion of the contract based on certain notional amount. IRS pricing is based on JIBOR. OIS is an interest rate swap agreement based on a daily

• vernight reference rate (IndoNIA)

 Encourage price transparency in the rupiah money market  Strengthen monetary policy transmission  Provide alternative hedging instruments against rupiah interest rate changes  Support securities market deepening in Indonesia

1 2 3 4

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

Strengthening reference rate based on real transactions

83

OIS and IRS Transactions: General Provisions

Source: Bank Indonesia

Market Players. Banks, bank clients, both individual and non-bank institutions, and also foreign parties. Transaction Needs Analysis. A bank performing an IRS or OIS transaction with a customer and/or foreign party on behalf of the customer and/or foreign party is required to have an analysis on the need

• f rupiah interest rate derivative transactions.

Market Conventions. When performing IRS and OIS transactions, the respective bank is bound by market conventions agreed upon by market players through industry association including the Indonesian Foreign Exchange Market Committee.

• Settlement. Settlement can be performed as a netting payment and every

transaction has to be settled in Rupiah. Close-out netting can be applied under predetermined conditions.

Market Conventions

Calculation Base ACT/360 IndONIA Index with 5 decimals Compound Floating Rates (CFR) based on 5 decimals Interest Payment based

• n Netting

Notional of Net interest payment in IDR with 0 decimals Settlement Date = 1 business days after Maturity Date (MD) OIS Quotation rates based

• n 2 decimals

Quotation : 1W, 2W, 1M, 2M, 3M, 4M, 5M, 6M At the 1st phase, OIS settlement will only be done at the end of the OIS tenor (MD+1bd).

84

Bank Indonesia Policy Mix: 2015 – 2017

• Further relaxation of LTV for property loans

(Sept)

• Strengthening systemic surveillance & Crisis

Management Protocol (April)

• E-money for social transfer (Nov)
• Financial Technology (FinTech) Office (Nov)
• New Rupiah issuance (Dec)
• Obligation to use IDR in domestic

transaction (March)

• Non-cash movement (GNNT)
• Market-based exchange rate stability consistent with fundamental
• Dual intervention in the FX market and purchases of government bonds from secondary market in time of distress (capital reversal) or large mis-

alignment

• BI 7-day RR Rate cut of 25bps to 4.50%

(Aug)

• Further BI 7-day RR Rate cut of 25 bps

to 4.25% (Sept)

• Further lowering RR by 100bps to 6.5% (Feb)
• Lowering RR by 50bps to 7.5% (Nov)
• Policy Rate cuts of 150bps
• Moving from BI Rate (12 month) to BI 7-day

Reverse Repo Rate (Aug) 1. Monetary Policy Policy Rate Reserve Requirement 2. Exchange Rate Policy 3. Macroprudential Policy

• Relaxation of LTV for property and

automotive loans (June)

• BI Rate cut of 25bps (Feb)
• Implementation of RR Averaging (Aug):

RR fixed 5%; RR Averaging 1.5%

• Initiative to issue macroprudential

regulation on Financing to Funding Ratio (FFR) 4. Payment System Policy

• National Payment Gateway (June)
• Modernized cash management underway

2015 2016 2017

Source: Bank Indonesia

85

4,03 1,72 1,35 0,72

• 1,09
• 2,55
• 2,74
• 4,15
• 5,42
• 5,60
• 7,17
• 8,21
• 14,32

7,12 3,78 0,56 2,90 0,49

• 0,13
• 1,82
• 1,69
• 2,84
• 4,96
• 4,69
• 0,06
• 10,30
• 20,0
• 15,0
• 10,0
• 5,0

0,0 5,0 10,0 THB PHP JPY IDR SGD MYR INR CNY EUR KRW BRL ZAR TRY point-to-point average % *data as of December 19, 2019 3,00 4,00 5,00 6,00 7,00 8,00

Stable Monetary Environment Despite Challenges

Rupiah Exchange Rate Remains Comparable to Peers Well Maintained Inflation Ensured Price Stability Strengthened Monetary Policy Framework Credit Growth Profile

BI 7Day RR Rate: 5.00

(%)

LF Rate: 7.00 LF Rate: 5.75 BI Rate: 6.50 DF Rate: 4.25

19 August 2016

The New Monetary Operation Framework Source: Bank Indonesia

YTD 2019 vs 2018

8,38 8,36 3,35 3,02 3,61 3,13 2,48 3,28 3,39 3,13 3,00

0,00 1,00 2,00 3,00 4,00 5,00 6,00 7,00 8,00 9,00

• 2

2 4 6 8 10 12 14 16 18 20 2013 2014 2015 2016 2017 2018 Q1 2019 Q2 2019 Q3 2019 Oct-19 Nov-19 (%) CPI (%, yoy) - rhs Volatile Food (%, yoy) - lhs Administered (%, yoy) - lhs Core (%, yoy) - lhs 6,5 4,1 11,2 6,5 2 4 6 8 10 12 14 16 18 20 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 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 2015 2016 2017 2018 2019 %,yoy Total Growth Working Capital Loans Investment Loans Consumption Loans

86

Regional Inflation Remains under Control

In November 2019, most regions recorded inflation within the national inflation target range. Nevertheless, North Sulawesi inflation (6.3% yoy) were relatively high, particularly triggered by tomatoes price.

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

87

4 Strategies to Achieve the Inflation Target

Achieving inflation at 3,5%±1%

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

2018-2019 Target

Stabilizing the price

• 1. Price Affordability

Achieving inflation at 3,0%±1%

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

2020-2021 Target

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

• 2. Supply Availability

Strengthening institution Encouraging trade cooperation between regions

• 3. Well Managed Distribution

Improving trade infrastructure Improving data quality

• 4. Effective Communication

Strengthening central- regional coordination

Source: Bank Indonesia

4 Strategies

88

Improving the Effectiveness of Monetary Policy Transmission

Bank Indonesia has instituted a Reformulation of Monetary Policy Operations Framework which consists of 3 pillars; (1) implementation of BI 7day Reverse Repo Rate; (2) implementation of reserve requirement averaging; and (3) continue to implement money market deepening program.

Enhancement of monetary policy signal Enhancement of banking liquidity management Implementation of BI 7 Day Reverse Repo Rate Implementation of Reserve Requirement (RR) Averaging Reformulation of Monetary Policy Operational Framework Enhancement of instruments and transactions Implementation of Money Market Deepening Program

Source: Bank Indonesia

89

Enhancement of Monetary Operations Framework

• Can be traded among contributor banks for 10 minutes.
• Up to the amount of Rp10 billion.
• Up to 1-month tenor.
• Can be traded among contributor banks for 20 minutes.
• Up to a total of Rp20 billion.
• Up to 3-month tenor.

CURRENT JIBOR (as per June 1st, 2016) PREVIOUS JIBOR

Source: Bank Indonesia

90

Financial Intermediation is Expected to Expand

Banking and multi-finance intermediation are managed to grow at their potential level. While at the same period, domestic capital markets and insurance premium is also rising.

Source: Financial Service Authority (OJK)

Meanwhile, Financing distributed by multi-finance companies is continued to grow at level of 3.46% yoy. The gross premium revenue starts to pick up in 2019. Capital raising through corporate issuance continues to increase since early 2019 and it has reached IDR 155 tn as of 26 Nov ’19. Banking intermediation is growing moderately at 6.52% in Oct 2019 inline with economic slowdown.

450,6 3,46% 0% 2% 4% 6% 8% 10% 350 375 400 425 450 475 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 yoy IDR tn Financing Growth (rhs)

• 2,39

17,89

• 20
• 10

10 20 30 40 50 60 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 % yoy Pertumbuhan premi asuransi jiwa Pertumbuhan premi asuransi umum & reasuransi Gross Insurance Premium Growth (YoY%) Gross General Insurance & Reinsurance Premium Growth (YoY%) 12 29 114 20 40 60 80 100 120 140 160 180 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 26 Nov 2019 IDR Tn IPO Rights Issue Corporate Bond & Sukuk 5.506 6,52% 0% 2% 4% 6% 8% 10% 12% 14% 16% 3.500 4.000 4.500 5.000 5.500 6.000 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 IDR Tn yoy Bank Loans YoY Growth (rhs)

91

Financial Institutions Remain Robust

CAR of the banking sector remained high and stable at 23.54% with Tier 1 Capital at 21.97% as of Oct-19. Risk-based capital (RBC) of the insurance industry remained high and well above the minimum threshold (120%). RBC of the life insurance is reported up to 705% in Oct-19. Gearing ratio of multi-finance companies is steadily maintained at 2.69 times in Oct-19. Providing ample room for future growth. Profitability of the banking sector has been relatively stable during the past three years with the highest net interest margin in the region.

Domestic financial institutions exhibit a generally robust condition. The capital is steadily well above the minimum requirements, while profitability and leverage are still constantly at a sufficient level.

Source: Financial Service Authority (OJK) 23,54 21,97 10,0 12,0 14,0 16,0 18,0 20,0 22,0 24,0 26,0 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 CAR Tier 1 4,9 2,5 1,0 2,0 3,0 4,0 5,0 6,0 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 % Net Interest Margin Return on Assets 2,69 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 705 329

• 20

30 80 130 180 230 280 330 380

• 50

50 150 250 350 450 550 650 750 850 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Life Insurance (Lhs) General Insurance (rhs)

92

Manageable Credit Risks with Adequate Liquidity

Banks are equipped with sufficient liquid assets. Insurance industry also demonstrates a sufficient level of investment adequacy ratio. Credit risk is also managed at a low level as non-performing loan and non-performing financing remains below the threshold.

The ratio of liquid assets to deposit and LA/NCD in the banking sector is maintained at a sufficient level. As of Oct-19, the gross & net NPL ratios of the banking sector were 2.70% & 1.21% respectively, still well maintained far below the threshold of 5%. NPF ratio of the multi-finance industry constantly remained below 3% since Q4 2018, and currently at 2.5% as of Oct-19. Investment adequacy ratio in the insurance industry was kept above 100%.

Source: Financial Service Authority (OJK) 118,96 185,76 90 110 130 150 170 190 210 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Life Insurance General Insurance Threshold = 100% 2,5 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 1,21 2,70 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 % NPL Net NPL Gross 87,8 18,4 5 10 15 20 25 30 40 50 60 70 80 90 100 110 120 130 140 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 % % Liquid Assets to Non-Core Deposits (lhs) Liquid Assets to Deposit (rhs) threshold LA /Deposit = 10% threshold LA/ NCD= 50%

93

Manageable Market Risks

Amidst the increasing market volatility, the risk profile of financial institutions remains manageable. Net open position of the banking sector was maintained at a low level, while the investment value of domestic institutional investors was still relatively stable.

Net open position in the banking sector maintained significantly far below the maximum limit (20%). The investment value of insurance & pension funds are continuously increasing. Multi-finance companies’ exposures to foreign debt has generally been mitigated through company hedging measures. Mutual funds’ net asset value (NAV) is steadily increasing with low volatility.

Source: Financial Service Authority (OJK) 177 104 60 80 100 120 140 160 180 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 IDR tn Domestic Debt Foreign Debt 5.000 5.200 5.400 5.600 5.800 6.000 6.200 6.400 6.600 6.800 320 350 380 410 440 470 500 530 560 590 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 IDR Tn NAV Mutual Funds IDX (rhs) 1.116 277 200 250 300 350 400 300 600 900 1.200 1.500 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 IDR Tn IDR Tn Insurance Pension Funds (rhs) 1,52 1 2 3 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 %

94

Domestic Capital Markets Maintained Positive Growth

The domestic financial market performance tends to improve and has room to further strengthen.

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

Domestic capital markets performance bounced back after mid of May 2019. Nonresident investors recorded net buy bonds in the last 3 months. JCI has managed to rebound in the early Dec-19 after positive developments on the U.S. – China trade front Indonesia’s bond prices extended its upside movement due to attractive return and stable rupiah.

Stock Index Performance 16 Dec 2019 (compared to 31 Dec’18) 272 6.212 3.000 3.500 4.000 4.500 5.000 5.500 6.000 6.500 7.000 200 210 220 230 240 250 260 270 280 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Comp Bond Index Comp Stock Index (rhs) 12500 13000 13500 14000 14500 15000 15500 5 6 7 8 9 10 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Yield (%) 5-yr Yield 10-yr Yield 20-yr Yield IDR (rhs)

• 1,10

0,73

• 30
• 20
• 10

10 20 30 40 50 60 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 13 Dec-19 Gov't Debt Securities Equity 21,8 27,3 21,0 23,6 19,7

• 7,2

19,7 3,2 4,5 6,4 0,3 6,2

• 0,9

22,7

• 10
• 5

5 10 15 20 25 30

TURK BRAZ AS EURO JPN MAL CHIN PHIL SIN HKN INDO KOREA THAI WORLD

95

Strategic Policies in Financial Sector

Source: Financial Service Authority (OJK)

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

96

Continuous Program on Capital Market Deepening

…continuously strengthened, including through capital market deepening initiatives

Strengthening market infrastructure

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

Enhancing the supply-side

• Product: QIB offering and private placements, private fund, asset-backed

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

• Issuer: Financial conglomerates, big bank debtors, local government, IDX

incubators, SMEs, SOEs & big tax payers.

Enhancing the demand-side Strengthening governance & customer protection

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

Source: Financial Service Authority (OJK)

• Enhancing the role of the domestic institutional investors (insurers & pension

funds) in capital markets .

• Development of the domestic investor base (conducting investor education

programs).

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

97

Enhancing Financial Literacy & Inclusion

Source: Financial Service Authority (OJK)

OJK strives to build a strong foundation for financial inclusion programs, to ensure access to financial products & services by Indonesians of all social classes. Such initiatives also include the enhancement of financial literacy and financial consumer protection. Developing financial education modelsutilizing variousdelivery channels Enhancingthe role of the “Investment AlertTaskforce” The result of OJK’s 2019 national survey demonstrated an improvement in financial literacy & inclusion among Indonesians compared to that of 2016.

Financial Literacy Financial Inclusion

21.8%

2013

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

• f Islamic microfinance

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

2016

38.03%

2019

2019 Target: 35%

59.7%

2013

67.8%

2016

76.19%

2019

2019 Target: 75%

98

A Comprehensive Financial Deepening Program …strategy to tackle challenges in deepening Indonesia’s financial markets

Source: Bank Indonesia

In Apr-2016, the Minister of Finance, the Governor of Bank Indonesia, and the Chairman of the Board of Commissioners of the Financial Services Authority launched a Coordination Forum for Development Financing through Financial Market (FK-PPPK). The three authorities have agreed to formulate “The National Strategy of Financial Market Development”

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

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

Mission: Financial Market as Sources of National Development Financing

1 2 3

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

3 Pilars 6 Markets 7 Elements of Financial Market Ecosystem

TARGET KEY PERFORMANCE INDICATOR STRATEGIC ACTION PLAN

99

BI’s Roles in Supporting Distribution of Non-Cash Social Assistance (NCSA)

BI supports government’s program of shifting social assistance to targeted non cash social assistance disbursement through the electronic payment

• system. In the future, electronic mechanism disbursement will be also applied to LPG subsidy.

NCSA Programs

Family Hope Program (Program Keluarga Harapan -PKH) Smart Indonesia Program (Program Indonesia Pintar-PIP) Non Cash Food Assistance (Bantuan Pangan Non Tunai – BPNT)

2016-2020

Pilot Project Gradual Implementation

Interconnected & interoperable payment system

LPG Subsidy

Full Implementation

XXYYZZ 12345678

9876543210

Source: Bank Indonesia

100

Progress of NCSA Programs

Family Hope Program (Program Keluarga Harapan - PKH) Non Cash Food Assistance (Bantuan Pangan Non Tunai - BPNT)

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

very poor households. Rp 1,89 million /year will be granted for each household. PKH will be granted every February, May, August, and November.

• As of December 2017, PKH has been distributed to 6,0 million

households on non-cash basis.

• In 2018, PKH has been distributed to 10 million households on non-

cash basis.

• BPNT is a poverty alleviation and social protection program that is

managed by the central government. It provides subsidized rice and eggs to low-income households. Rp 110 thousand/month will be granted for each household as BPNT that can be used in certain stores which called e-warong.

• As of December 2017, BPNT was distributed to 1,2 million

households in 44 cities.

• In 2018, BPNT has been distributed to 10.1 million households (65.1%
• f the target of 15.5 million households target).

Source: Bank Indonesia

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

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

• As of Sept-2019, BPNT has been distributed to 13.0

million households with realization of 68.04% of the 2019 budget.

101

2,90

• 35
• 197

18-Dec-19 2008 1998

Stronger Fundamentals Facing the Headwinds

82,4 12,1 6,8 1998 2008 Sep-15 30 3.8 2,8 1998 2008 Aug-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 29.7% Q3 - 2019 8.6x 1998 3.1x 2008 3.2x Q3 - 2019 116.8% 1998 33.2% 2008 36.3% Q3 - 2019

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

Inflation controlled within the target range IDR appreciated year-to-date in December 2019 NPL level (gross) is below the maximum threshold of 5% Consistently well-maintained Significantly higher than 1998 & 2008, ample to cover 7.1 months of import and external debt repayment Significantly lower than 1998 crisis Slightly higher than 2008, but significantly lower than 1998 Nov ’19 126.6

Nov ‘19

3.00 (yoy)

Oct ‘19 2.7 62 10,5 5,7 1998 2008 Jul-15

Overnight interbank money market rate is relatively lower

Nov ‘19

4.8 (ytd)

102

Outlook of Domestic Economy Remains Robust

...domestic economic growth is predicted to be higher in 2019 and 2020

2019 and 2020 Economic Outlook

 Economic growth in 2019 is projected to grow at around 5.1% before increasing towards the middle of the 5.1-5.5% range in 2020.  Bank Indonesia projects inflation in 2019 at around 3.1% and within the target range for 2020, namely 3.0%±1%.  Bank Indonesia projects growth of outstanding loans disbursed by the banking industry to be around 8% in 2019 and 11–13% (yoy) in 2020.

Economic Growth Inflation CAD (% of GDP) Credit Growth

Source : Bank Indonesia

2018 Realization 5.17% 3.13% 2.98% 11.75% 2019 Around 5.1% Around 3.1% Around 2.7% Around 8.0% 2020 5.1–5.5 % 3.0±1% 2.5-3.0 % 11.0-13.0%

Progressive Infrastructure Development: Strong Commitment on Acceleration of Infrastructure Provision

Section 6

104

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

The Government has Enacted Various Reforms to Accelerate Infrastructure Provision

Fiscal Reforms Institutional Reforms Regulatory Reforms

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

Viability Gap Funding (VGF) KPPIP Direct Lending Increase project financial feasibility by contributing up to 49% of the construction cost (MoF Reg. No. 223/2012) Availability Payment Land Revolving Fund Issuance of regulatory framework to allow annuity payment by the Government during concession period to concessionaire since project operation based on infrastructure service availability (MoF

• Reg. No. 190/2015 for Central Gov’r and MoHA Reg. No. 96/2016

for Regional Gov’t.) A revolving-fund sourced from State Budget, to accelerate land acquisition (MoF Reg. No. 220/2010) KPPIP is actively involved in accelerating delivery of priority infrastructure projects

• PT. Sarana Multi Infrastruktur

Merging between PT. SMI and Gov’t Investment Center (PIP) to become an infrastructure funding company Indonesia Infras. Guarantee Fund (IIGF) PPP Unit Provide facilities to help GCA on preparing PPP project (PDF/TA) BLU LMAN The State Asset Management Agency (BLU LMAN) is mandated to provide land fund for National Strategic Projects to ensure timely land acquisition process Allow guarantee for direct lending to SOE to accelerate financial close process for infrastructure projects (Presidential Reg. No. 82/2015) Land Acquisition Stipulate land acquisition acceleration based on Law No. 2/2012 (Presidential Reg. No. 148/2015) and land acquisition fee payment for impacted community (Presidential Reg. No.56/2017) Economy Packages Conduct deregulation for issues hindering infrastructure delivery and develop a task force under CMEA to ensure the effectiveness of economic packages implementation Risk-sharing Guidelines IIGF has issued risk allocation and mitigation guidelines for PPP project Tax Incentives (Tax Holiday) MoF Reg. No.35/2018 allowed 100% Tax Holiday for 17 Pioneering Industries for 5 – 20 years depending on the investment value Indonesia Infrastructure Guarantee Fund (IIGF) IIGF has the potential to provide project guarantee for non-PPP projects

105

Some of Most Recent Reforms

Policy reforms are aiming to create a more conducive investment climate for infrastructure delivery

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

Presidential Reg. No. 20/2018 on Use of Foreign Labor – released on March 2018

This regulation aims at simplifying the permit application process for foreign workers, hence making the process more efficient and faster, in order to rise foreign direct investment in Indonesia

Presidential Reg. No. 56/2017 on Social Impact Handling in Land Acquisition Process for PSN – released on June 2017

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

MoF No. 60/2017 on Procedures for the Provision of Central Government Guarantee for the Acceleration of the National Strategic Projects Implementation – released

• n May 2017

The supporting regulation for Presidential Reg. No. 3/2016 on the Acceleration of the National Strategic Projects Implementation. This regulation regulates the scope and general requirements and procedures to propose and grant guarantees, as well as allocate state budget obligation on government guarantees to all PSN. The guarantee provision is expected to increase the feasibility and trust of investors to participate in the implementation of PSN.

Government Reg. No. 13/2017 on National Spatial Plan (RTRWN) – released on April 2017

The issuance of RTRWN can resolve spatial planning mismatch in the implementation of infrastructure projects listed in the annex of Government Reg. No. 13/2017. A number of breakthroughs were developed, and one of them is that the Minister of Agrarian and Spatial can issue a recommendation of spatial utilization; so that the process of obtaining project permission can be done.

MoF No. 21/2017 on Procedures for Land Acquisition for National Strategic Projects and Asset Management of Land Acquisition by State Asset Management Agency – released on February 2017

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

106

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

• n 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 on GCA proposal Gov’t. commitment: 49% max. Per project cost

Guaranteeing Govt. contractual obligations 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

• f money periodically from

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

107

Efforts to Accelerate Infrastructure Provision

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

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

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

108

Efforts to Accelerate Infrastructure Provision

…the establishment of Indonesia Asset Management Agency (LMAN)

Source: Ministry of Finance

Government has established State Asset Management Unit (LMAN) as a solution to accelerate the land acquisition through the provision of land acquisition fund

1. Unutilized fund can be allocated for the following year 2. Non-project-specific land acquisition fund allocation. Unused allocated fund can flexibly be made available for the other project 3. Land acquisition fund for PSN projects is managed under one agency

1. LMAN was established in December 2015 through the issuance

• f MoF Reg. 219/2015 concerning State Assets Management

2. In 2016, BLU LMAN was mandated to provide land acquisition fund as a support to Ministry of Public Works due to US$ 1,081 Mio shortage of fund to acquire land for priority toll roads

• 3. The scope of support is broaden for all National Strategic

Projects through the issuance of MoF Reg. 21/2017 concerning land acquisition financing guideline for PSN 4. In January 2018, LMAN has disbursed up to US$ 881.48 Million (IDR 11.9 Trillion) through bridging finance scheme for 27 toll road projects, and planned to start the implementation of direct payment scheme

Land Acquisition Budgeting Scheme LMAN at a Glance This LMAN initiative provides better flexibility, coordination and management of land acquisition fund provision for National Strategic Projects (PSN)

109

New Fundamental Regulations Have Been Initiated in 2017

to accelerate infrastructure projects delivery

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

1

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

2

MoF No. 60/2017 on Procedures for the Provision of Central Government Guarantee for the Acceleration of the National Strategic Projects Implementation The supporting regulation for Presidential Reg. No. 3/2016 on the Acceleration of the National Strategic Projects Implementation. This regulation regulates the scope and general requirements and procedures to propose and grant guarantees, as well as allocate state budget obligation on government guarantees to all PSN. The guarantee provision is expected to increase the feasibility and trust of investors to participate in the implementation of PSN.

3

Presidential Reg. No. 56/2017 on Social Impact Handling in Land Acquisition Process for PSN This Presidential Reg. allows the Executing Agency to pay land acquisition compensation to the impacted community who does not have official rights

• ver the land required for PSN. This regulation helps to solve the land acquisition problem due to community objection over the land use.

4

MoF No. 21/2017 on Procedures for Land Acquisition for National Strategic Projects and Asset Management of Land Acquisition by State Asset Management Agency The implementing regulation of Presidential Reg. No.102/2016 on Financing of Land Acquisition for the Development of Public Interest in the Framework

• f the National Strategic Implementation. This regulation becomes the legal basis for the financing of the procurement of National Strategic and

Priority Projects by BLU LMAN

110

Under Presidential Reg. No.56/2018, PSN list has been revised into 223 Projects and 3 Programs

projects

26

53

18

12

Sulawesi

US$22.8 B

Kalimantan

US$35.6 B

Sumatra

US$40.4 B

Maluku & Papua

US$34.4 B

89 3

Programs

National

Projects

1 2

Projects

Java

US$73.8 B US$99.7 B

13

Bali & Nusa Tenggara US$0.7 B

Exchange rate: US$ 1 = IDR 13,500

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

Project Program

PSN includes 15 sectors at project level and 3 sectors at program level

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

111

PSN may receive privileges as stipulated in the Presidential Reg. No. 3/2016 j.o. the Presidential Reg. No. 58/2017

01 02 03

Determination of National Strategic Projects

04 05 06 07 08 09 10 11 12

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

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

112

Progress on 223 Projects and 3 Programs PSN

The Estimated Investment Value for 223 Projects + 3 Programs PSN1

Exchange rate : US$ 1 = IDR 13,500

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

State Budget 10% SOEs/ RSOEs 31% Private 59% Total Investment Value2

US$ 307.4 Billion

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

5 Sectors with Highest Investment Value

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

113

Progress on 223 Projects and 3 Programs PSN

Progress of National Strategic Projects (as of December 2018)

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

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

Progress of National Strategic Projects (as of September 2019)

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

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

114

In 2016 - 2018, 62 PSNs have been Completed with Total Estimated Investment Value of USD23.7 Billion

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

115

Progress on 37 Priority Projects

From the revised National Strategic Projects, the Government has selected a list of 37 Priority Projects to be the focus of infrastructure provision.

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

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

116

Progress on 37 Priority Projects

Recent Milestones Progress of 37 Priority Projects (as of September, 2019) Funding Scheme of 37 Priority Projects

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

Patimban Port

West Semarang Water Supply System:

Mass Rapid Transit (MRT) Jakarta South-North

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

66% 26% 8%

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

Exchange rate : US$ 1 = IDR 13,500

Total Investment Value US$ 183.9 Billion

West package has been fully operasional since April 2018.

Palapa Ring

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

Outline Business Case has been done on December 2017.

Yogyakarta-Bawen Toll Road

6% 16% 30% 24% 8% 16% 3 projects in transaction 6 projects in preparation 6 projects in construction and partial

• peration phase

2 project is completed 11 projects in construction and will start

• perating in 2019

9 projects in construction and will start

• perating after 2019

117

Energy Sector: the Progress of 35.000 MW Program

No Phase MW % 1 Operating 3,792 11 2 Construction 22,739 62 3 Signed Power-purchase Agreement 6,923 21 4 Procurement 1,279 4 5 Planning 734 2

17 Dec ‘14

Cabinet Meeting “There’s electricity crisis in Indonesia, requires construction of 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 & joint utilization of the electrical network among license holders. 2. Regulation No.3/2015, concerning Procedures of Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection & Appointment.

16 Mar ‘15 4 May ‘15 June‘17

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

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

35,000 MW Program Distribution

Source: PLN

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

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

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Energy Sector: the Progress of 35.000 MW Program

December 2016

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

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

2% 28% 24% 30% 16%

5,824 MW in planning phase

3% 44% 38% 9% 6% 8% 52% 32% 5% 3% 11% 64% 19% 4% 2%

998 MW in operating phase 15,676 MW in construction phase 13,782 MW sighned Power- purchase Agreement 3,163 MW in procurement phase 2,228 MW in planning phase 2,899 MW in operating phase 18,207 MW in construction phase 11,467 MW sighned Power- purchase Agreement 1,683 MW in procurement phase 954 MW in planning phase 3,792 MW in operating phase 22,739 MW in construction phase 6,923 MW sighned Power- purchase Agreement 1,279 MW in procurement phase 734 MW in planning phase

November 2017 December 2018 August 2019

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Acceleration of 35.000 MW Program

Government PT PLN

EPC Powerplant and Transmission PLN Subsidiary (Joint Venture) Independent Power Producer

Strengthen Equity 2B 1

Government Support (outside Guarantee)

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

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

2A

Assignment SJKU* Ministry of Finance

Strengthen PLN‘s Balance Sheet

*)SJKU=Surat Jaminan Kelayakan Usaha/ Business Viability Guarantee Letter The Government has issued Presidential Regulation No. 4/2016 on Electricity Infrastructure Acceleration to accelerate power projects

Provision of Electricity Refinancing Hedging Financial Asset Optimization Direct Lending Direct Lending Bond issuance by PT PLN Company Tax Holiday PT PLN’s divident allocation Loan from independent lenders Asset Revaluation Other types of funding Equity Injection by the Government

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

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Significant Progress on Infrastructure Projects

Database Project information such as map, track, existing study and latest project status. An integrated IT system with monitoring capacity for stakeholders, so that they can have real time data. Platform data outlook that is efficient and functional using a user-friendly framework. Record decisions related to projects and synchronize the implementation schedule that can be utilized by stakeholders.

KPPIP developed an integrated IT System for monitoring of national strategic and priority projects, providing database on projects’ latest status which can be effectively utilized for monitoring and decision-making purposes. Improving Monitoring System on Infrastructure Projects1 Roads

Trans-Sumatra Toll Road Merah Putih Bridge, Ambon

Dams

Jatigede Dam (Operational)

Transportation

Jakarta MRT Project2

Drinking Water Processing

Umbulan Drinking Water Provision System, East Java

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

Terminal 3 Ultimate Soekarno-Hatta2 New Tanjung Priok Port Project2 Nop Goliat Dekai, Papua

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Infrastructure Projects and Financing Schemes

Promotion of Infrastructure Development to Accelerate Economic Growth

Establishment of PPPUnit

Broad Objective  Champion project preparation and acceleration of the PPP agenda in Indonesia Core Mandates  Improve quality of project selection under KPPIP – OBC criteria  Support project preparation through PDF support and highlyqualified transactionadvisors  Act on behalf the Minister of Finance in providing government support and approvals for projects Additional Mandates  Coordinate all public financeinstruments  Provide input for PPP Policy program Development andRegulations  Implement capacity building forGovt. Contracting Agency(GCAs)  One stop shop for PPP promotion &Information

Budget Public Private Partnership SOE & Private Sector

 Central & regional budget (special allocation fund & rural transfer)  Primarily to support basic infrastructureprojects: – Food security: Irrigation, damsetc. – Maritime: Seaports, shipyardsetc. – Connectivity: Village roads, public transportationetc.  Certain infrastructure projects to be funded and operated through a partnership between the Indonesian government and the private sector – Projects ready for auction under the PPPScheme: – Toll roads projects such as Balikpapan-Samarinda andManado-Bitung – Railway projects such as an express line into Soekarno-HattaInternational Airport – Water supply projects such as the West SemarangProject  Various government support for PPP: – Project Development Facility (PDF): Helps Government Contracting Agencies (GCAs) in project preparation and transaction – Viability Gap Fund: improves financial viability of PPPprojects – Government Guarantees: Supports PPP projects’ bankability by providing sovereignguarantees – Infrastructure Financing Fund: Provided through PT SMI and IIGF – Availability Payment (AP): GCA pays private partner based of availability of infrastructure services  Government to inject capital into SOEs: Intended multiplier effect to develop more infrastructure projects  Key focus areas: – Infrastructure and maritimedevelopment – Transportation andconnectivity – Foodsecurity  Medium term infrastructure developments to focus on: – WaterSupply – Airports – Seaports – Electricity and powerplants – Housing – Mining

Source : Ministry of Finance; Bappenas; KPPIP: “Komite Kebijakan Percepatan Penyediaan Infrastruktur” or National Committeefor the Acceleration of Infrastructure Delivery Note: OBC: Outline Business Case; PDF: Project Development Facility; GCA: Government Contracting Activity

 Infrastructure Development in order to: 1. Accelerate growth particularly in rural areas 2. Support industrial development and tourism 3. Reduce unemployment and poverty  Infrastructure fundraising needs: $357.9 bn (or equivalent to IDR4,796.2 tn)  245 National Strategy Projects under National Medium Term Plan for 2015 – 2019 with an estimated total cost of IDR 4,197 tn (USD 313 bn)  37 priority infrastructure projects with an estimated cost of IDR 2,490 tn (USD 180 billion)  Majority of 37 priority projects are expected to commence commercial operation by 2018 - 2022

Infrastructure Development is a Key Priority

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Government Guarantee For Basic Infrastructure Development

Reflects strong commitment to national development planning

Source: Ministry of Finance No. Central Government Guarantee for Infrastructure Programs Exposure/ Outstanding (USD bn) 1 Coal Power Plant 10,000 MW Fast Track Program (FTP 1) 1.86 2 Clean Water Supply Program 0.01 3 Direct Lending from International Financial Institution to SOEs 1.37 4 Sumatra Toll Road 1.27 5 Renewable energy, Coals & Gas Power Plant 10,000 MW (FTP 2) 6.16 6 Public-Private Partnerships (PPP) 3.15 7 Regional Infrastructure Financing 0.19 8 Public Transportation (Light Rail Transit) 0.07 9 Electricity Infrastructure Fast Track Program (35GW) 0.06 Total 14.13

Contingent Liabilities from Government Guarantees Government Guarantee Program

Credit Guarantee PPP Guarantee

Business Viability Guarantee (BVG)  Power (Electricity) – Full credit guarantee for PT PLN’s debt payment

• bligation under FTP 1 10,000MW and 35GW programs*.

 Clean Water – Guarantee for 70% of PDAM’s debt principal payment

• bligations.

 Toll road – Full credit guarantee for PT Hutama Karya’s debt payment

• bligations for the development of Sumatra Toll Roads.

 Infrastructure - Full credit guarantee on SOE’s borrowing from international financial institution & guarantee for PT SMI’s local infrastructure financing.  Public Transportation (Light Rail Transit) – Full credit guarantee for PT Kereta Api Indonesia’s debt payment obligations for the development of LRT Jabodebek.  Power (Electricity) – Guarantee for PT PLN’s obligations under Power Purchase Agreements with IPPs (off-take and political risk) under FTP-2 10.000MW and 35GW programs*  Infrastructure – Guarantee for Government-related entities obligations (line ministries, local governments, SOEs, local SOEs) under PPP contracts/agreements  From 2008 to Q2-2019, the Government has issued 83 guarantee documents with total value of USD35.13 billion, 21 of which (worth USD3.44 billion) have expired.  The Maximum Guarantee Limit for the period 2018 – 2021 is set at 6% of GDP.  The space for guarantee issuance for the period 2018-2021 is approximately IDR 1,200 trillion (cumulative). As of end of June 2019; currency conversion of IDR 14,141/USD1 (June 28, 2019)

Political Risk Guarantee

 Infrastructure – Guarantee against infrastructure risks for National Strategic Projects (Presidential Decree No.58/2017) which are not covered by other type of guarantees *) MOF provides both credit guarantees and BVGs for 35GW program

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Government Financial Facilities for PPP Projects

Financial Facilities to Attract More Private Participation

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

• f financial close
• f the following PPP projects:

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

• r through IIGF)

Financing from

• PT. SMI and PT. IIF

Availability Payment Schemes More Funding Schemes are on the Pipelines

Project Financing funded by the private sector through the granting of concessions for an operating asset owned by the Government/SOE (based on the policy of the Government) to the private sector to be

• perated & managed.

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

• Asset is owned by public sector
• Operating asset, not greenfield project
• Records positive cash flow for the last several years
• Predicted revenue
• Asset is owned by private sector
• Greenfield / brownfield / operating projects

Scheme Characteristics Scheme Characteristics

LCS (Limited Concession Scheme) PINA (Non-Government Budget Infrastructure Financing)

Source: Ministry of Finance

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Progress of PPP Infrastructure Projects

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

Successful Projects Reaching Financial Close in 2016 and 2017

No Project Name Project Cost (IDR tn) Financial Facilities Status 1 Batang–Semarang Toll Road 11 IIGF Guarantee PPP & guarantee contracts signed on April 27th, 2016 2 Manado–Bitung Toll Road 5.1 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 3 Samarinda–Balikpapan Toll Road 9.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 4 Pandaan–Malang Toll Road 5.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 5 Serpong–Balaraja Toll Road 6.0

• PPP contracts signed on June 8th, 2016

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

Signed PPP Projects in 2016 and 2017

Source: Ministry of Finance, as of July 2017

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New Guarantee Schemes for Non-PPP Projects

The Government had issued Presidential Regulation No 82/2015 and Ministry of Finance Regulation No 189/2015 to provide guarantee for SOE Direct Lending from IFIs for the Development

• f Infrastructure Projects.

Guarantee on SOE Direct Lending from International Financial Institutions (IFIs) Guarantee for Regional Infrastructure Financing Provision State finance soundness Fiscal sustainabiliy Best practice of fiscal risk management The objective of this guarantee is to provide credit enhancement in terms of low interest rate and long tenor financing, with 3 main principles:

The Government had issued Ministry of Finance Regulation No 174 of 2016 to provide guarantee to PT SMI on the assignment of regional infrastructure financing provision, by loan to local governments that is transferred from PIP to PT SMI, and new loan channeled by PT SMI to the local government. Based on Government Regulation

• No. 95/2015

and Ministry of Finance Regulation No. 232/2015, Minister of Finance assigns PT SMI (Sarana Multi Infrastruktur) to carry out functions in providing loan to local government, as previously carried out by PIP (Government Investment Center). The objective is to give stimulus to the acceleration

• f local infrastructure development through the ease
• f access to infrastructure financing and to boost local

economic growth, as well as to provide alternative financing schemes in order to meet local infrastructure development needs and to reduce reliance on state/local budget.