[PPT] - Maintain ntaining ing Resilie ilienc nce, Adapti aptive ve PowerPoint Presentation

SLIDE 1

Novem embe ber 2017 Republ ublic ic

f

Indone nesia ia

Maintain ntaining ing Resilie ilienc nce, Adapti aptive ve Policy icy Measu sures

SLIDE 2

1

About Investo tor Relatio tions ns Unit

f

the Republic ublic

f

Indones nesia ia

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

SLIDE 3

2

Overv rview iew

1 2 3 4 5 6

Institu itutio tional and Governance Effectiv tiveness: Accelerate ted Reforms Agenda with th Institu itutio tional Improvement Economic ic Factor: Strong and Stable Growth th Prospects ts Remain in Intact External Facto tor: Improved External Resil ilie ience Fiscal Performance and Flexib ibil ility ity: More Fiscal Stimulus with Prude dent t Fiscal Management Moneta tary and Financia cial Fact ctor: Credib ible Moneta tary Policy Track k Record and Favourable Financia ial Secto tor Progressiv ive Infrastr tructu ture Development: t: Strong Commitm itment t on Acceleratio tion

f Infrastr

tructu ture Provis isio ion

SLIDE 4

Inst stitu itution tional and Govern ernme ment nt Effectiv tivene ness: s: Accele elerate ted Reform

rms

Agen enda da with th Instit titutio tiona nal Improv

vement

ement

Sec ection

n

1

SLIDE 5

4

123 129 122 121 129 128 120 114 109 91 72

20 40 60 80 100 120 140 160 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Rank Indonesia India Morocco Romania Hungary

37 40 48 30 35 40 45 50 55 60 2012 2013 2014 2015 2016 Score Morroco Hungary Indonesia India Romania 41 41 36 36 40 40 71 71 68 68 60 60 20 30 40 50 60 70 80 90 Rank Indonesia India Morocco Romania Hungary

Improving ing Global bal Perceptio eption

…with recent improvem emen ents

n

globa bal compet petit itiv iven enes ess and gover erna nanc nce indica icator

1. Source: World Economic Forum –The Global Competitiveness Report 2017 – 2018; 2. Source: World Bank – Doing Business Report; 3. Source: World Bank; 4. Source: Transparency International – Corruption Perceptions Index 2016 Report

World ld Governance Indicato tors3 Ease of Doing ng Busine ness2 Globa bal l Competi titi tivene ness Index1 Corrupti uption n Perce cept ption n Index4

Higher rank is better Higher score is better Higher rank is better (rankings at the time of annual report publication) 50 33 53 50 39 43 15 35 55 2010 2011 2012 2013 2014 2015 2016 Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption Higher rank is better

SLIDE 6

5 Rank nk Count ntrie ies GCI Rank Chang ange in Rank nk 2017 2017-2018 2018 2016 2016-2017 2017

Singapore 3 2 1 Malaysia sia 23 23 25 25 2 Thail iland 32 32 34 34 2 Indonesia ia 36 36 41 41 5 Brunei Daruss ssalam 46 46 58 58 12 12 Vietn tnam 55 55 60 60 5 Philip ippin ines 56 56 57 57 1 Cambodia ia 94 94 89 89 5 Lao PDR 98 98 93 93 5

Improving ing Global bal Perceptio eption

Indo done nesia ia has improved ed its compet petit itiv iven enes ess among ng ASEAN AN member ers.. .... ..

Source: World Economic Forum –The Global Competitiveness Report 2017 – 2018

1 2 3 4 5 6 7 8 9

Rank nk Count ntrie ies Trans nsport Infas fastruc uctur ure Index Chang ange in Rank nk 2017 2017-2018 2016 2016-2017

Singapore 1 2 1 Malaysia ia 14 14 11 11 3 Indonesia ia 30 30 36 36 6 Thail iland 34 34 37 37 3 Brunei Darussalam 63 63 70 70 7 Vietn tnam 64 64 63 63 1 Philip ippin ines 90 90 90 90 Cambodia ia 108 108 102 102 6 Lao PDR 109 109 110 1 1 2 3 4 5 6 7 8 9

Indon

nesia is inchin

hing its way up the com

mpetit

itiv iveness ladder, , mov

vin

ing ahead 5 places Indonesia’s transport infrastructure continues to improve suppor ported by massiv ive infra rastructure re proj

jects

SLIDE 7

6 Fitch ch JCRA

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

BBB BBB- / / Positive Baa3 / Positive BBB BBB- / Stable

Feb 201 2017, , Baa3, , Outlook

k Revis

ised to Posit itiv ive “We changed the outlook on Indonesia's sovereign rating to positive from stable to reflect emerging signs of a reduction in structural constraints, including its level of external vulnerability and the strength of its institutions.“ May 2017, BBB-, Rating Upgraded “We raised the long-term sovereign credit to BBB- as the Indonesian authorities have taken effective expenditure and revenue measures to stabilize the public finances despite the terms of trade shock.” July 201 2017, , BBB-, Posit itiv ive Rating Affir irmed “Indonesia's ratings balance a low government debt burden, favourable growth outlook and limited sovereign exposure to banking sector risks with weak - but strengthening - external finances compared with 'BBB' category peers and some lagging structural factors, including governance standards and a still difficult - but improving - business environment.”

BBB BBB- / / Positive

March 201 2017, , BBB-, Outlook

k Revis

ised to Posit itiv ive “JCR has changed the rating outlook from Stable to Positive, based

n the recent improvement on the investment climate promoted by a

series of Economic Policy Packages & the containment of private external debt brought by Bank Indonesia’s prudential regulations on external borrowing.”

BBB BBB- / Positive

April il 2017, BBB-, Outlook

k Revise

sed to Posit itiv ive “Indonesia's macroeconomics stability has been maintained for several

years. Its external position is also improving,. fiscal deficits have been

reined in and government debt is low. In light of such factors, coupled with improved policy management, R&I has changed the rating outlook to Positive.’

BBB BBB- BB BB+ BB B+ BB-

Indone nesia ia is Now Fully Rated ed as Investme tment nt Grade Countr try

Belo low Investm tment nt Grade S&P R&I Moody’s

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7

Indone nesia ia Remain ins the Investme tment Destina inatio tion

f

Choice

1. Source: The Economist – Asia Business Outlook Survey 2017 2. Source: IMF World Economic Outlook, Database April 2017 3. Source: United Nations Conference on Trade and Development (UNCTAD) – World Investment Report 2017 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (28th Annual Survey)

Total Invest stment / GDP (%)

Indonesia Enjo joys Large Investments Relative to Peers within the Region2 JBIC IC: Amongst ASEA EAN N countries, Indonesia is the most preferred place for business investment (December 2016)4 The Economist: Indonesia among the top 3 destination for attracting investors in Asia (January 2017)1

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

% of surveyed who consider each country has promising prospects

18 18.9 21.3 24.8 25.3 26.3 27.7 28.4 33.3 39.4 46.2 53.7 55.7 71.6 10 20 30 40 50 60 70 80 Taiwan Singapore Japan Hong Kong South Korea Australia Malaysia Myanmar Thailand Phillipines Vietnam Indonesia India China

UNCTA TAD: Indonesia is listed as the top p 5 prospe pective investment destination in the world (June 2017)3

32.75 34.17 25.09 20.55 22.25 27.58 31.42 34.29 26.06 23.60 22.01 26.58 31.43 34.30 25.48 25.41 24.30 27.18 5 10 15 20 25 30 35 40 India Indonesia Malaysia Philippines Thailand Vietnam 2015 2016 2017* * 2017 estimation

3 4 4 4 5 6 7 7 7 9 11 11 20 36 40

10 20 30 40 50 Australia (13) Canada (18) Singapura (18) Vietnam (14) Spain (25) Philippines (9) Mexico (7) Germany (5) United Kingdom (4) Brazil (7) Thailand (14) Indonesia (8) India (3) China (2) United States (1)

% of executives responding (x) = 2016 ranking

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8

Natio iona nal Strateg tegic ic Develo elopment nt Plan (Nawa Cita)

Human Development

Educatio ion Health Housi sing ng Character er

Priority Sector Development

Food Security ity Energy & Electr tric ical Security ity Maritime itime & Marin ine Touris ism & Industr try

Water r Securit rity, Basic Infra rastru ructure re & Connectiv ivit ity

Equitable Development

Inter- Incom

me

Group Inter-Regi egion

n:

(1) Rural Area, (2) Periph pher ery, (3) Outsid side Java, (4) Easter ern Area.

Security & Order Politic & Democracy Governance

The 3 Dimension

ns
n

Economic Develop

pment

Necessary Condition

Legal Certainty & Law Enforcement

SLIDE 10

9

Equitable table Economic ic Polic icy

Source: Coordinating Ministry for Economic Affairs The Equi uitable table Econo nomic c Poli licy cy anno noun unce ced in April l 2017 embodies nationa nal l econo nomic c trans nsformati tion n to successfully ully overco come the

middle le income trap p and achi hieve the status of a develo lope ped countr try in the long-te term Land nd Socia ial Forestry

 The Ministry of Environment and Forestry (KLHK) will distribute access to social forest management covering an area of 211,522 ha for 48,911 families with total permits of 134  Initial focus will be on 11 villages with a total area of 15.576 ha for 9,411 households

Agrar arian ian Refo form and Trans ansmig igrat atio ion n Land nd Legal aliz izat atio ion

 Transmigration land of 220,000 ha and 3,800 ha under the National Agrarian Operation Project (PRONA) is ready to be legalized from a total of 4.5 million ha, while 23,000 ha of displaced land and 707,000 ha of forest disposal are also ready to be redistributed from a total of 4.5 million ha  The Land Object of Agrarian Reform (TORA) will be expanded to several provinces, including Banten, West Java, Central Java, Riau, West Kalimantan, West Sumatra, North Sumatra, and Maluku

Affordabl dable Housing ing for the Urban an Poor

 Committed to housing development within urban areas that are well connected to the center of activity, economic resources and public transportation for the urban poor  Core housing policies, among others, include provision of land for affordable housing (land availability), implementation of Housing Scheme for MBR (social housing), and the Housing Financing Scheme

Three Key Pillars and “Quick Win” Programs Oppo por

tuni

nity ty Targe geted ed Development nt

f Key Sect

ctors

 Focused on addressing issues related to the tax system, development of manufacturing and IT industries and retail sector  Improve the competitiveness of the retail sector and strengthen synergies between traditional and modern retail

Human Capital tal Vocat atio ional nal Training aining and Labo bour ur Marke kets

 Vocational and labor policies structured for capacity building of human resources, especially to align with industry needs and to support government priority programs  Policy steps will be taken by the government to draft and improve on the road map for vocational education and training, through reclassification and prioritization of business fields and positions  Job matching program that will focus on strengthening vocational programs for industries  Vocational schemes in place for the automotive, tourism and transportation sectors

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10

The Economic ic Polic icy Packag ages es

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

Phase III (7 Oct t ’15) Boosting investment, spurring exports, and maintaining people‘s purchasing power Phase IV (15 Oct t ’15) Simplifying wage formula and expanding loans for small business Phase V (22 Oct t ’15) Improving industry and investment climate through tax incentives and deregulation on sharia banking Harmo moni nizing ng Regul ulations

ns

Simpl mplifyin ying Bureaucr ucratic Proc

cess

Ensur uring ng Law Enfo forceabi bility 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 De Dec ’15) Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land certification process for individuals Phase VIII (21 De Dec ’15) Resolving land acquisition disputes, intensifying domestic

il 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 29 Mar ’16) Stimulating national economy through facilitation to SMEs and industries Phase XII II (28 28 Apr’16) Improving Indonesia’s rank on Ease of Doing Business (EODB) Phase se XIII (24 Aug ’16) Low Cost Housing for Low-Income Communities Phase XI XIV (10 Nov ’16) Roadmap for E-commerce

Source: Coordinating Ministry for Economic Affairs

Phase XV (15 Jun ’17) Development of Business and Competitiveness

f National Logistics Service Providers

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11

Boosting ting the Competitiv etitivene eness throug ugh Logis gistic tical Efficiency iency

The 15th

th Econo

nomic ic Polic icy Pack ckage has been launc nched

Source: Coordinating Ministry for Economic Affairs

Polic icy Goals

Strengthen the Institution

f the Indonesia National

Single Window (INSW) Provide Market Opportunities for Shipping Companies, Marine Insurance, and National Ship Maintenance Businesses Increase Competitivenes

f Logistic Service

Providers

Polic icy Targe gets

1 2 3 4 5

Import duty for 115 types

f

ship’s spare parts and components 0%

0%

Opportunities for national shipping to serve export and import transportation

f

around

USD 600 millio ion/yea year

70-100 units

f

new ships worth USD

700 millio lion

New employment

pportunity
f

2,000 sailo lors rs

Improve the Regional Government’s role in development

f

Regional Logistics System to control inflation and reduce post-harvest product damage up to 30%

30%

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12

Enhanc ncing ing Busines ness Licens nse Servic ice Stand ndar ard

Presiden identia ial Regulatio ion to Accel eler erate Ease

f

Doing ng Busin ines ess has been launc nched ed

Source: Coordinating Ministry for Economic Affairs

Policy y 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

f 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

f

the Single Submission system

1st

st Phase

2nd

nd Phase

SLIDE 14

13

Thematic ic Polic icy Issues

n

Deregu gula latio tion

Next Phase of

f Policy Packages

es based on

n Sectoral and Them

ematic ic Issues Six policy issu sues es under Packages I-XV:

improvement

f

industry competitiv titiveness improvement

f

society’s purchasin ing power widenin ing of

f

investm tment expansio ion of

f

export effic icie iency of

f

logis istics tics secto tor improveme ment

f

touris ism secto tor

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

Source: Coordinating Ministry for Economic Affairs

SLIDE 15

14

Progr gres ess

f

the Economic ic Polic icy Packag ages*

Initially, there are 233 regulations which need to be deregulated As of August 31st, 2017, deregulation of 217 regulations are finished (97%), comprising 50 regulations at Presidential level and 167 regulations at Ministrial/Institutional level Unfin inish ished reg egulatio ions: Proposed Policy on Development

f Business and competitiveness of National Logistics

Service Providers

I–XII

21 217

SET

97% 97% 11 11

REVOKE OKED REGULATIONS ONS

5

ON GOI OING NG DISC SCUSS USSION ON

3% 3%

170 170 TOTAL

16 167

MINISTRIAL/INSTITUTIONAL LEVE VEL

97% 97%

47 47 42 42

SELESAI

PRESI SIDENTI TIAL

52 TOTAL

50 50 FINISHED

PRESIDENTIAL LEVE VEL

96% 96% I–XV

FINISHED

I–XII

233 33

TOTAL INI NITI TIAL REGUL ULATI TION ONS

I–XV

I–XII

222 22

TOTAL REGULATIONS ONS

I–XV

Based

n

the further assessment, 11 regulations has been revoked from deregulation process Total regulation subject to be deregulated: 222 regulations

Source: Coordinating Ministry for Economic Affairs *as of September 22nd, 2017

SLIDE 16

15

Other Progr gres ess

n

Economic ic Polic icy Packag ages es

14 Provinces have set 2016 Minimum Wage System in accordance to the Government Regulation (GR) No. 78/2015 (Kepulauan Riau, Kalimantan Barat, Nusa Tenggara Barat, Sumatera Barat, Jambi, Aceh, Kalimantan Selatan, Banten, Gorontalo, Nusa Tenggara Timur, Jawa Barat, Bali, Sumatera Utara, and Bangka Belitung)

Fair, Simpl plified ified & & Projec ectabl ble Wage System em

State-owned train manufacturer PT Industri Kereta Api (INKA) in Madiun, East Java, has begun its first passenger train exports by shipping 15 train wagon to Bangladesh.

Expo port-Or Orien iented ed Busin ines ess Credit dit (KUR URBE) BE) Devel elopm pmen ent

f

Spesial Econo nomic ic Zone ne (SEZ)

Total value of facilities and incentives for

SEZs amounted IDR 33.8 trillion (as of September 2016)

18

companies benefitted from the simplification of fiscal incentive process with average processing time of 13.4 days (previously 2 years)

North Sulawesi has sucessfully exported

coconut product through SOEs’ joint program

30 Bonded Logistic Center has been

launched to support various industries

Deregu egulatio ion

n

Logis gistic ics Sector

SLIDE 17

16

Improving ing Inves estme tment Climate te

…implement 3-hour investmen ent lice cens nsin ing servic ice to compl plem emen ent the One Stop Servic ice (OSS)

BKPM

Arriv

rive at OSS at BKPM directly from the airport

Consult with Director of Investment Service
Submit

it the required documents & data Requirement for utilizi zing 3-ho hour r Investment Lisencin ing Servic ice:

No requirements ts for investm tment nt in infrastructu ture sector

9 documen ents

btained

ed

Wait at the lounge while documents are

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

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

Certa tain inty ty to start a busin iness Certa tain inty ty to Import capita ital goods Certa tain inty ty to work Accurate te land informatio tion

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

2 docu cumen ents needed eded

ID Card
And/or Deed of Establishment (Indonesian company) or

Article of Association (Foreign company)

Containing workflow from raw material production to the

finished products

Investo tor identity tity as the prospectiv tive shareholders Flowchart

f

busin iness activ ivitie ities workf kflow

Source: Investment Coordinating Board (BKPM)

From Jan – September 2017, 130 projects have ve utilized the “3 hours servic ices”

SLIDE 18

17

Improving ing Inves estme tment Climate te

…implement 3-hour investmen ent lice cens nsin ing servic ice for Ener ergy gy and Mine neral Resources es Sector

Director arrives at central OSS, then submit required documents* Waiting in priority lounge, while the documents processed

1 2 3

Applicant receive the requested licensing products Note *: ESDM3J service is given if the company has fulfilled

the checklist of administrative & technical requirements as regulated on MEMR Ministrial Decree No.15 of 2016

9 Types

f

licensi nsing ng issue ued by ESDM3J servi vice

No. Type

f

Licensin ing Duratio tion for reguler servic ice (work days) 1 Temporary Business License for Electricity 20 2 Temporary Business License for Oil/Fuel/LPG storage 32 3 Temporary Business License for Storage

f

Processed Products/CNG 32/40 4 Temporary Business License for LNG Storage 32 5 Temporary Business License for Oil Refinery 32 6 Temporary Business License for Processing Oil Residue Industry 32 7 Temporary Business License for Natural Gas Processing 32 8 Temporary Business License for General Trade

f

Oil/Fuel 40 9 Temporary Business License for General Trade

f Processed

Product 40

Source: Investment Coordinating Board (BKPM)

From Jan – Septem ember ber 2017, 40 40 project ects have utiliz ized ed the 3 3 hours servic ices es for EMR Sector

SLIDE 19

18

Improving ing Inves estme tment Climate te

…impl plem emen ent Direc ect Constructio ion Permit to attract ct investmen ent in Indu dustria ial Estates es

Direc ect Construct ctio ion (KLI LIK) K)

No Requir irem ements ents

No

minimum investments

r

workers is required.

Available for 32

32 selected ed indust stria ial estates es.

Construction

permits can be

btained

in parallel with construction process.

Investors can directly start their project construction before

btaining construction permits. This service is supported by

both Central and Region

nal Gov

Governments nts which become th the first step to to synergize between central and local licensing

Obtain in investment licence at

OSS at national or regional level.

Survey a land within selected

industrial estates.

Acquir

ire the land for your

industry.

Start

rt the construction ion of your

project. No other permits are

required.

Apply for building construction permit

& environmental permit, in parallel with construction process.

Priority Investment Service Until il September 2017, 112 projects have utilized the “KLIK servic ices”

Source: Investment Coordinating Board (BKPM)

SLIDE 20

19

Improving ing Inves estme tment Climate te

…Direct Constructio ction Permit it is expanded nded to 32 Indus dustria ial Estates es (IE) through ghout Indo done nesia ia

1

Bant nten (3 3 IE IE; ; 3,150 ha)

1. Modern Cikande Industrial

Estate/MCIE (1,800 ha)

2. Wilmar Integrated

Industrial Park/WIIP (800 ha)

3. Krakatau Industrial Estate

Cilegon/KIEC (570 ha) West Java a (5 5 IE IE; ; 1.151 ha)

1. Bekasi Fajar Industrial

Estate/BFIE (300 ha)

2. Delta Silicon 8 (158 ha)
3. Karawang Internasional

Industrial City/KIIC (293 ha)

4. Suryacipta City of

Industry/SCI (300 ha)

5. GT Tech Park @

Karawang (100 ha) Cent ntral al Java a (3 3 IE IE; ; 840 840 ha)

1. Kendal Industrial Park/KIP

(700 ha)

2. Bukit Semarang Baru/BSB

(40 ha)

3. Wijayakusuma Industrial

Estate/KIW (100 ha) East Java a (1 1 IE; 1,761 ha) KI Java Integrated Industrial and Port Estate/JIIPE (1,761 ha) North Sumat atera a (1 1 IE; 100 ha) Medan Industrial Estate/KIM (100 ha) South Sulaw awesi i (1 1 IE IE; ; 3,000 000 ha ha) Bantaeng Industrial Park/BIP (3,000 ha)

KLIK 1st

st Stage (14 IE)

KLIK 2nd

nd Stage (18

IE)

1 2 3 4 5 6 3 5 6 7

1 2 3 4 5 6

East Java (2 IE; 341 341 ha) 1. IE Maspion (151 ha) 2. IE Tuban (190 ha) East Kalim imant ntan an (1 1 KI KI;133.8 8 ha ha) IE Kariangau (133.8 ha) Riau au Island and (5 IE; 556 ha)

1. Batamindo Industrial

Park (61.4 ha)

2. Bintang Industrial

Park II (20 ha)

3. Kabil Integrated

Industrial Estate (142.5 ha)

4. Bintan Inti Industrial

Estate (229.6 ha)

5. West Point Maritim

Industrial Park (102.5 ha) West Java (6 IE; 1,814 814.1 1 ha)

1. Artha Industrial Hill

(315.1 ha)

2. Greenland International

Industrial Center (GIIC)/Deltamas (400 ha)

3. Jababeka Tahap III

(45 ha)

4. Kota Bukit Indah Ind.

City (510 ha)

5. Indotaisei Kota Bukit

Indah (300 ha)

6. Marunda Center (300

ha) Cent ntral al Java (1 1 IE IE; ; 285 285.7 7 ha ha) IE Demak (285.7 ha)

2

1

Riau au (1 IE IE; ; 198 198.9 9 ha) IE Dumai (198.9 ha)

2

4

DKI Jakar arta (2 IE; 129 129 ha)

1. Kawasan Berikat

Nusantara/KBN (118.6 ha)

2. Jakarta Industrial

Estate Pulagadung/JIEP (10.4 ha)

3 6 4 7 5

Source: Investment Coordinating Board (BKPM)

SLIDE 21

20

(Pusat Logistik Berikat/PLB) is a facility provided by Ministry of Finance as part

f

the implementation

f

the 2nd Economic Policy Package. PLB facility aims to improve efficiency and reduce the cost of transportation and logistics in Indonesia; support the growth of the domestic industry, including small and medium industries; increase investment; and to make Indonesia to become a logistics hub in Asia Pacific.

To To date, 30 30 Bond nded ed Logi gist stic Cen enter has be been en launched ed to to suppor

rt various

us indust ustrie ies.

Improving ing Inves estme tment Climate te

…Bonded Logistic Center to Improve Indonesia’s Competitiveness

Oil il and ga gas, s, and mining ning indust stry Food & beverages es indust stry Auto- motive ive indust stry Person

nal

care/ home care indust stry Textil ile (cotton) indust stry. . Small and medium ium indust stry Synthetic ic textile (chem emic ical substanc nces es) indust stry. .

Bonded Logistic Center

SLIDE 22

21

Improving ing Inves estme tment Climate te

…revising the Negative Investment List

1 For total project value of IDR10bn and above

Before

Cold storag age Restau auran ants, s, Bars Phar armac aceut utical al Raw Material als s Manufac nufactur turing ng Sports s Center, Film Process ssing ng Lab, b, Crumb b Rubb bber

Revision

n of "Partn

tners ership" cate tegory

ry to

refer er to part rtners ership with Micro, cro, Small and Medium m Enterp rpris rises es (MSMEs) Gra randfather er Law: If a part rticu cular sect ctor

r is tighten

ened in future re, existing foreig reign inves estor

r does

es not need ed to com

mply with tigh

ghter er stake ke Key Refor

rms

ms in Nega gative e Fore reign gn Inves estmen ment List Stren rengt gthen en implemen ementation

n of

nega gative e inves estmen ment law throu

ugh

gh activ tive e roles es from

m ministri

ries es, age genci cies es and regi gion

nal gover

ernme ments

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

Dist stribu bution, n, Warehousi sing ng Privat ate Muse seum, Catering ng, appar arel Manuf nufac actur uring ng, Exhibi bitions ns & Convent ntions ns Toll Road ad Operat ator, Telecommuni unicat ation n Test sting ng Compan any Cons nsul ultan ancy for Cons nstruc uction1 Telecommuni unicat ation n Provider with Integrat ated Services Profess ssiona nal Trai aini ning ng, Golf Cour urse se Manag nagement nt, Air Transp ansport Sup upport Services, s, Trav avel Bureau au

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

Introduc ucti tion n of New Foreign n Owne nership p Regula ulati tion n for Strate tegic c Secto tors Source: Investment Coordinating Board (BKPM)

SLIDE 23

22

Continu tinuous us Improvem ement ent

f

Inves estme tment Climate te

…ano nother er leap

n Indonesia’s

Rank

n

Ease

f

Doing ng Busin ines ess (EODB)*

EODB 201 2018 Rank EODB 201 2017 Rank Change in Rank EODB 201 2018 Point nts EODB 201 2017 Point nts Change in Point nts

Overall 72 72 91 91 19 66.47 61.52 4.95 Startin ting a business 144 151 7 77.93 76.43 1.5 Dealin ing with th Constr tructio tion Permit it 108 108 116 8 66.08 65.73 0.35 Gettin ting Electric icity ity 38 38 49 49 11 83.87 80.92 2.95 Regis iste terin ing Property ty 106 106 118 12 59.01 55.72 3.29 Gettin ting Credit dit 55 55 62 62 7 65.00 60.00 5.00 Prote tectin ing Minority ity Investo tors 43 43 70 70 33 63.33 56.67 6.66 Payin ing Taxes 114 104 104 10 68.04 69.25 1.21 Tradin ing Across Borders 112 108 108 4 66.59 65.87 0.72 Enforcin ing Contr tracts ts 145 166 21 47.23 38.15 9.08 Resolvin ing Insolvency 38 38 76 76 38 67.61 46.46 21.15

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 2018 was published in October 2017

SLIDE 24

23

Improving ing Inves estme tment Realiza izatio tion (Q3-201 2017) 7)

IDR tn

2013 2014 2015

Rising ng Direct ct Investm tments nts

2016

Mini ning ng Wood Indus ustr try Rubbe ber and Plasti tic c Indus ustry try Metal, l, Machi chine nery & & Electr ctroni nic c Indus ustry try US$ US$272.1 mn

US$ US$212 212 mn mn US$ US$88.1 mn mn US$ US$10 1034. 4.6 mn mn US$ US$1166.5 mn mn US$ US$45 455.2 mn mn Transpo porta tati tion,

Warehous use, and Teleco communica cati tion

156.3 .3%

US$ US$425 425 mn mn

151% 5.3% 35.4% 36.7% 1,887.6 87.6% 97.9% Inves estmen ent Realiz izatio ion

Texti tile le Indus ustr try US$ US$59.3 mn

39.2%

FDI I Reali lizati tion n by Secto ctors

Source: Investment Coordinating Board (BKPM), compared to Q3-2016 period

2017

Rp145.4 T Rp159.4 T IDR99. 9.7tn IDR111.7tn IDR55.6tn 434 434,463 463

9.6% 15.6%

12.0% 16.8%

Q1-2016 Q1-2017 Q3-2016 Q3-2017 Q1-2016Q1-2017 Q3-2016 Q3-2017

*

* * person 37 375,982 IDR15 155.3tn IDR17 176.6tn

13.7% 7%

Q3-2016 Q3-2017

IDR64.9tn Trade & Reparati tion Non Metall llic Mineral l Industry 111.7 176.6

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

SLIDE 25

Econom nomic ic Factor tor: Stron

ng

and Stab able le Growth Prospec pects ts Remain main Intact tact

Sec ection

n

2

SLIDE 26

25

Condu duciv ive Envir ironment nt Underp erpinn inning ing Strong Growth wth Fundam amenta entals ls

Largest Econo nomy in South East Asia 4th Most Popul ulous us country in the World; ; 64% in product ductiv ive age Manag nageabl able Infl flat atio ion n Rate Growing ing Middle Inco come Class

From

m commo

modity-based ed to manufact cturin ring g and serv rvice ce sector

rs via infrastru

ruct cture e devel elop

pmen

ent From

m consump

mption

n-led

ed to investmen ment-led ed grow

wth via a stron

ronger ger manufact cturin ring g sect ctor

r

and more

re investmen

tment t initia tiati tives es Policies es to maintain purc rchasing g power er to stimu mulate e dom

mestic

c econ

nomy
my in the midst
f weaken

kening g macro croecon economi

mic

c condition

ns

Budge get ref eform

rm as

a a part rt of larger rger econ

nomi
mic

c refor

rm

m initiative Tax base e to be broa

adened

ed from m

ne

e reduce ce dependen ency cy on com

mmod

modities es Fuel el subsidies es sign gnifica cantly reduced ced and spen ending g redirect ected ed to more

re prod
ductive

e alloca

cation

Pru rudent debt manage gemen ment

Reform-Orie iente ted Admin inis istr tratio tion

Three ee main sources rces of financin cing g for r inves estmen ment need eds: State e and regi gion

nal

budget get, State Owned ed Enter erprises es and PPP Contin tinuing from

m 2015 policy

cy, infra rastr tructu ture re will be higher er than fuel el subsidy Fisca cal and non-fisca cal incen centives es to attra ract ct infrastru ruct cture e inves estmen ment and promote romote PPP Infrastru ruct cture e spen ending g focu cused ed on basic c infrastru ruct cture e proje

jects

cts

Large e and Stable Econom

my

Consi sist stent nt Budget et Reform New Econom

mic

ic Structure High gh Infrast struc uctur ure e Invest stmen ents

SLIDE 27

26

Indonesia’s Strong GDP

Growth th Prospe pect GDP Growth th Based on Expe pend nditur tures (%, YoY YoY)1 Strong ng GDP Growth th1

By expenditure 2014 2014 2015 2015 2016 2016 2017 2017 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 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 4.9 4.9 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 6.6 6.7 6.6 8.0 8.5 6.0 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 (2.9) (4.0) (0.1) 2.7 (-1.9) 3.5 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 Exports 3.1 1.5 4.9 (4.4) 1.1 (0.7) (0.3) (0.9) (6.4) (2.1) (3.3) (2.2) (5.6) 4.2 (1.7) 8.7 3.6 17.3 Imports 5.1 0.4 0.2 3.0 2.1 (2.6) (7.4) (6.6) (8.7) (6.4) (5.1) (3.2) (3.7) 2.8 (2.3) 5.1 0.2 15.1 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 %

Institution

ns

2017 7 GDP growth (% (%YoY

Y)

2017 R-Budget Plan 5.2 Bank Indonesia 5.0-5.4 IMF 5.1 World Bank 5.2 ADB 5.1 Consensus Forecast (October 2017) 5.1

Favour urable ble GDP Growth th Compared to Peers2

1. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption 2. Source: World Economic Outlook Database – October 2017; * indicates estimated figure %

0.04 3.83 3.27 (2.07) (0.17) 3.75 3.30 (1.70) (0.40) 4.01 3.13 (1.77) (0.34) 4.00 3.18 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

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 2014 2015 2016 2017 QoQ YoY

3
1

1 3 5 7 9 2012 2013 2014 2015 2016 2017* 2018* Indonesia India Morocco Romania Hungary

SLIDE 28

27

Strong ng and Stable ble GDP Performan rmance

GDP GDP Growth th by Secto ctor (%, YoY YoY) Spati tial l GDP Growth th (YoY)

By sectors 2014 2014 2015 2015 2016 2016 2017 2017 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 3.8 6.5 2.9 1.6 3.8 1.5 3.4 3.0 5.3 3.3 7.1 3.3 2.9 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 1.2 0.3 1.6 1.1 (-0.6) 2.3 1.8 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 3.4 4.3 4.2 3.5 4.8 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 7.1 Wholesale and Retail Trade, Repair of Car and Motorcycle 6.1 5.1 5.2 4.4 5.2 3.8 1.6 1.4 3.7 2.6 4.1 4.1 3.6 3.9 3.9 5.0 3.8 5.5 Transportation and Storage 7.0 7.6 7.7 7.2 7.4 5.8 5.9 7.3 7.7 6.7 7.9 6.9 8.3 7.9 7.7 8.0 8.5 8.3 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 9.0 9.6 8.9 9.1 10.9 9.3 Financial service 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.4 12.8 8.6 9.3 13.6 9.0 4.2 8.9 6.0 5.9 6.4 Other Services* 5.4 4.7 5.9 6.5 5.7 5.1 6.5 4.8 5.5 5.4 5.9 5.4 4.4 3.7 4.8 4.0 3.4 4.6 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

Java: 58.51 58.51% Sumater era: 21.54% Maluku & Papua: 2.47 2.47% Sulawesi: esi: 6,16% Kalimantan: 8. 8.1% Bali & Nusa Tengga ggara: 3.22%

Spati tial l GDP Growth th Contr tribu buti tion

Sumatera GDP Growth Q3 2017: 2017: 4.43% Java GD GDP Gr Growth Q3 2017: 5.51% Kalim imantan GDP Growth Q3 2017:4.67% Sulawesi si GP Growth Q3 2017: 2017:6.69% Maluku & Papua GDP Growth Q3 2017: 3.98% Bali i & Nusa sa Tenggara GD GDP Gr Growth Q3 2017: 5.24% Source: Central Bureau of Statistics of Indonesia (BPS) *Other services consist of 10 sectors (according to Standard National 2008)

SLIDE 29

Exte tern rnal Facto tor: Improved External al Resil ilie ience nce

Sec ection

n

3

SLIDE 30

29

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 2013 2014 2015 2016 2017

OG Non-OG Total

1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 50 60 70 80 90 100 110 120 130

1 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 2013 2014 2015 2016 2017

FX Reserves (LHS) Month of Import & Debt Service (RHS)

Month US$bn

A Narro rower, er, Struc uctu tural rally ly-Str tronge nger r Current ent Account t Deficit it

Improving ing Current nt Account unt Defic icit it Strong ng Balance ance of Payment nts Supported d by Subs bstant antial ial FX Reserves to Mitig igate External nal Chal alleng nges Trade de Balance ance Surplus us Continue inues

Source: Bank Indonesia Source: Bank Indonesia

2015: CA Deficit (US$17.5bn) n) 2012: CA Deficit (US$24.4bn) n) 2013: CA Deficit (US$29.1bn) n) 2014: CA Deficit (US$27.5bn) n) 201 2016* 6*: CA Deficit (US$16.8bn) n)

Source: BPS

* Preliminary Figure ** Very Preliminary Figure 2015: Surplus US$7.59bn 2013: Deficit (US$4.10bn) n) 2014: Deficit (US$2.37bn) n) 201 2016: : Surplus US$8.83b 3bn 2017: Surplus US$11,78bn bn* Source: Bank Indonesia FX Reserves s as of October 2017: US$1 $126.5 5 bn n (Equiv. to 8.3 months s of imports s + servicing of government debt)

4.34

10.44 5.36 129.4 .40 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** 2012 2013 2014 2015 2016* 2017** Current Account Capital and Financial Account Overall Balance Reserve Asset (RHS) US$bn US$bn US$bn 0.98

8.41

(2.20) 5.30

4.34
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** 2012 2013 2014 2015 2016* 2017**

Current nt Account unt

Goods Services Income Secondary Income Current Account

US$bn

SLIDE 31

30

13563 13304 13321 13298 13346 13343 13528 13309 13333 13333 13307 13528 13,100 13,150 13,200 13,250 13,300 13,350 13,400 13,450 13,500 13,550 1-Apr 6-Apr 11-Apr 16-Apr 21-Apr 26-Apr 1-May 6-May 11-May 16-May 21-May 26-May 31-May 5-Jun 10-Jun 15-Jun 20-Jun 25-Jun 30-Jun 5-Jul 10-Jul 15-Jul 20-Jul 25-Jul 30-Jul 4-Aug 9-Aug 14-Aug 19-Aug 24-Aug 29-Aug 3-Sep 8-Sep 13-Sep 18-Sep 23-Sep 28-Sep 3-Oct 8-Oct 13-Oct 18-Oct 23-Oct 28-Oct

IDR/USD Monthly Average Quarterly Average

Exchang ange Rate In Line with Fundam amenta entals ls

Stable ble Movement nt of Rupi piah Rupi piah Exch chang nge Rate Fared Relati atively ly Well ll Compared to Peers

IDR/US$ % %

*data as of October 31st, 2017

In In Octo ctobe ber 2017, the Ru Rupi piah depreci ciate ted by by an an average of

f 1,63

63% to to Rp Rp13 13,528 per USD. The depreciation was in line with prevailing trends for most

ther

global currencies against the US dollar. The US dollar appreciated globally as an impact

f

the financial market’s response to the nomination

f The Federal Reserve Governor as well as

its monetary policy stance normalisation, growing expectations of a further FFR hike and US plans for tax reform.

YTD 201 2017* vs 201 2016

*data as of October 31st, 2017 Source: Bank Indonesia

Okt kt vs Sept 2017

*data as of October 31st, 2017 10.86 9.65 3.33 3.00 1.94 1.26

0.36
4.32
5.71
16.06
2.78
0.49

7.90 4.91 7.63 9.57

0.66

6.01

3.78
7.05
20.00
15.00
10.00
5.00

0.00 5.00 10.00 15.00 ZAR BRL THB INR KRW EUR IDR MYR PHP TRY Point to Point Average

0.44
0.85
5.55
1.30
0.72
3.85
1.90
0.23
1.63
0.83

0.01

1.94
0.92
0.27

0.27

6.02
1.44
0.38
4.02
3.33

0.31

0.67
1.33

2.24

0.99

0.82

7.0
6.0
5.0
4.0
3.0
2.0
1.0

0.0 1.0 2.0 3.0 MYR CNY TRY EUR SGD ZAR BRL THB IDR PHP KRW JPY INR Point to Point Average

SLIDE 32

31

Ample Lines of Defens nse Agains nst Extern ernal al Shocks ks



Ample level of FX reserves to buffer against external shock



FX Reserves as of October 2017: US$126.5 billion

South Korea



Renewed a 3 year KRW/IDR swap arrangement with the size of up to 10.7 tn KRW/IDR115 tn in March 2017

Austr tralia ia



Established a 3 year A$/IDR swap arrangement with the size of up to A$10 bn or IDR100 tn in Dec. 2015

Chi hiang Mai Initia iativ ive Multil ilatera raliz izatio ion (CMIM) Agreeme ment



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



US$22.76 billion swap line with Japan currently in place



The size of the swap line was increased from US$12 bn in December 2013

IMF Global Financia ial Safety ty 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)

Bilate teral Regio ional Global FX Reserve

Ample Reserves Swap p Arrang ngement nt

Source: Bank Indonesia

SLIDE 33

32

Measur ures es to Manag age Extern ernal al Volatili tility ty

Pre-emptiv tive Measures

Implementing Crisis Management Protocol (CMP)
Implementing Bond Stabilization Framework (BSF)
Enhancing coordination between government institutions

and continuous dialogue with market participants

Specific policies in place to address crises enacted in

2017 budget law

Swap facility arrangements based on international

cooperation

Crisis is Management Protocol

Indicators to determine crisis level of Government

Securities Market condition (normal, aware, alert, crisis)

Several market indicators that are monitored daily:
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

First Line

f

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’s Budget Related SoE (min. level Aware) Social Securit rity Organiz izin ing Agency (BPJS)’s Budget BPJS (min. level Aware)

Second Line

f

Defense

State’s Budget State General Treasury Account (Rekening KUN) (min. level Alert) Accumulated cash surplus (SAL) (min. Level Crisis) State Owned Enterprises’s Budget Related SoE (min. level Alert) Social Securit rity Organiz izin ing Agency (BPJS)’s Budget BPJS (min. level Alert)

Bond Stabi biliza zation ion Framewor work

Source: Ministry of Finance

SLIDE 34

33

23.2 36.1 42.5 55.4 105.4 20.4 34.0 44.7 51.9 92.1 22.6 34.2 42.2 52.9 95.2

0.0 20.0 40.0 60.0 80.0 100.0 120.0 India Indonesia Morocco Romania Hungary 2017F 2016 2015

50 100 150 200 250 300 350 400 50 100 150 200 250 300 US$bn US$bn Public (Govt. & BI) Private Total (RHS)

2401; (93.72%) 161; (6.28%) Comply Not Comply 2299; (89.73 %) 263; (10.27%)

Streng ength thened ned Private te Extern ernal al Debt Risk Manag agem ement nt

Source: External Debt Statistics of Indonesia, November 2017 Source: Moody’s Statistical Handbook, November 2017

Regu gulation Key Points Phase e 1 Jan 1,2015 – Dec 31,2015 2015 Phase e 2 Jan 1,2016 – Dec 31,2016 2016 Phase e 3 Jan 1, 2017 & & beyon

nd

Object of Regulation ion Governs all Foreign Currency Debt Hedgin ing Ratio io < 3 months 20%* 25%** > 3 – 6 months 20%* 25%** Liquid idit ity Ratio (< 3 months) 50% 70% Credit it Rating Not applicable Minimum rating of BB- Hedgin ing transaction ion to meet hedge ratio not necessarily be done with a bank in Indonesia Must be done with a bank in Indonesia Sanctio ion As of Q IV-2015 Applied External al Debt/GDP DP (%)

Debt bt Burde den n Indi dicat cator (External nal Debt/GDP) Remains ins Compar arabl able to Peers Rat ating ing Private te Exte terna nal l Debt t Remains ns Manageable ble Enco cour uraging ng Corpo porate tes Compli lianc nce on Hedging ng Rati tio & Liqui uidity ty Ratio

> 3 – 6 mont

nths

hs < 3 mont

nths

Source: Bank Indonesia

Total Ext. Debt: US$343,1bn Private Sector

Ext. Debt:

US$167,2bn

* Provisional Figures ** Very Provisional Figures

Liqui quidi dity Ratio io* Hedg dging ing Ratio io*

*Data as of Q2 2017, with total population 2.562 corporates

2238; (87.35%) 324; (12.65%)

SLIDE 35

34

Manag ageable able External rnal Debt Profile file

shor

rt

term rm non-ban ank corpor rporate deb ebt (non

n

affil ilia iatio ion) n) repres esent nts

nly

9% %

f

total priv ivate extern ernal al deb ebt

Priv ivat ate Short-Term1 Priv ivat ate Non-Bank ank External nal Debt bt Posit itio ion

Af Affiliation

n

Non Af Affiliation

n

US$121.9bn

r

72.9%

f Private Ext.

Debt US$18.9bn

r

11.3%

f Private
Ext. Debt

US$11.5 .5bn

r
r

6.9%

f Private

Ext. . Debt US$15. 5.bn bn

r
r

9%

f Private

Ext. . Debt

Publ blic ic Long Term 1 Priv ivat ate Bank

US$26.5bn

r

15.8%

f Private
Ext. Debt

US$167.2bn bn

r

48.7%

f total
Ext. Debt

US$45.4bn bn

r

27. 27.1%

f Private
Ext. Debt

External Debt Position as of September 2017

1 Based on remaining maturity

Source rce: External Debt Statistics of Indonesia, November 2017

US$343.1bn

US$175.9bn

r

51.3%

f Total Ext.

Debt

SLIDE 36

Fiscal al Perf rform

rmance

and Flex exib ibil ilit ity: More Fiscal al Stim imulus lus with th Prudent dent Fiscal al Policy

licy

Sec ection

n

4

SLIDE 37

36

Susta taining ining Polic icy Sy Synergy On All Secto tors rs

Creatin ing inclusiv ive growt wth to

verco

come devel elopm pmen ent challen enges es

Productive

and realistic budget

Credible

budget execution

Policy

to maintain consumption and improve investment climate

Economic

policy packages

Inflation

management

Monetary

policy to ensure macroeconomic and financial system stability

Macro-prudential

policies Fisc scal Real Sector Monetary & Financ ncial Sector

Synergy in reform to boost the more susta tain inable and inclusiv ive growth

Source: Ministry of Finance

SLIDE 38

37

Long Term Strateg tegie ies to Achieve Sustain ainable able Growth wth

…stim imuli to mainta ntain in purch chasing ng power er

 Consumptio

tion is still the largest contr trib ibuto tor to Indonesia’s GDP

 Private

consumption has been a key factor driving Indonesia’s economic growth in recent years

 The

government has designed stimulus program to main inta tain in and enhance purchasin ing power for households

 The

government has increased non-ta taxa xable income level and adjuste ted wage policy to ensure that the lowest income bracket has the greatest support

 Funds

are targeted at not

nly

to improve basic village infrastr tructu ture but also to create te jobs through labor intensive projects as well as

ther

job creation programs

u Fuel price and electric icit ity adjust stment Predic ictable labour wages Boostin ing housi sing develop

pment

Elimination ion of luxury goods s tax for consumer goods 2 months addit ition ion of rice subsi sidy program Rural transfer for productiv ive spendin ing Ease of land certific icatio ion and licensi sing for street vendor

rs

Maint ntaining ining Pu Purchasi sing Power er

Increase se non-taxable income limit Stabil iliz ized price for meat products

The Virtuou

us

s Cycle of Purchasing sing Power er Stimul uli

SLIDE 39

38

Long Term Strateg tegie ies to Achieve Sustain ainable able Growth wth

…stim imuli to promote inves estmen ents

Licensin ing Incentiv tives Tax Incentiv tives Other Incentiv ives Busin iness and Infrastr tructu ture Incentiv tives

Tax incent ncentiv ives

n property

Speci cial al econo nomic ic zones Relax axat atio ion n of negat ativ ive foreig ign n investment nt list Integrat ated logistic ics zones CPO fund Support for export-orie ient nted indus ustrie ies Villag age-ci city logistic ics improvement nt Accelerat atio ion

f power

infras astruct uctur ure Inco come tax relie ief f for labor intens nsiv ive indus ustrie ies Permit & licens nsing ing simplfi ficat catio ion One map polic icy Ince cent ntiv ives for footwear ar and appar arel indus ustrie ies Simplif ifica catio ion of import licens nsing ing for drugs and raw food Accelerat ating ing infras astruct uctur ure development nt Water management nt and regul ulat atio ion Tax incent centiv ives es for REITS Relax axat atio ion n of entry visa a polic icie ies Expans ansio ion n of coverag age and interest subsid idy for MSME Dwelling ing time

ptim

imiz izat ation Oil refine inery development nt Aviat iatio ion sector incent ntiv ives Downs nstream am indus ustrie ies Debt bt To equit ity ratio io

SLIDE 40

39

Build lding ing a Credible ible and Realis istic tic Budget et

…providing more certainty to all stakeholders

Indic icator

r

2016 2016 2017 2017 2018 2018 Realiz ization ion¹ Budget R-Budget October Realiz ization ion Budget Economic growth (%, yoy) 5.02 5.1 5.2 5.062 5.4 Inflatio ion (%, yoy) 3.02 4.0 4.3 3.58 3.5 3-Month Treasury Bill (SPN) (%, eop) 5.7 5.3 5.2 4.80 5.2 Exchange Rate (IDR/USD, , eop) 13,307 13,300 13,400 13,572 13,400 ICP (USD/barrel, , eop) 40 45 48 52.47 48 Oil Production ion (thousand barrel/day, , eop) 829 815 815 816.293 800 Gas Production ion (thousa sand barrel oil equivalent/day, eop) 1,180 1,150 1,150 1,195.253 1,200

3. Data as of September 2017

Macroec croecon

nomi

mic c Assump mption

n for
r 2018 Budge

get

Source: Ministry of Finance 1. Audited 2. Q3 GDP Growth

2018

budget will focus

n

efficiency and quality

f

priority expenditure,

ptimization

and reforms

n

government revenue, and maintaining economic momentum as well as public confidence.

2018 fiscal deficit is set lower than 2017 R-budget at

2.19%

f

GDP. However, government spending is targeted towards infrastructure development as well as poverty and unemployment reduction for an equitable development and improved connectivity.

Descr cription

n (IDR Trillion
n)

2016 2016 Audited Realizatio tion 2017 2017 2018 2018 R-Budget et Oct Realization

n

% Realizati tion

n

to Budget get Budge get % differ eren ence ce with R-Budget get A. A. Reven enues es and Gra rants 1,555.90 1,736.10 1,238.2 71.3% 1,894.7 9.1%

I. Domestic Revenue

1,546.90 1,733.00 1,235.5 71.3% 1,893.5 9.3%

1. Tax Revenue

1,284.90 1,472.70 991.2 67.3% 1,618.1 9.9%

2. Non Tax Revenue

262 260.2 224.3 93.9% 275.4 5.8%

II. Grants

9 3.1 2.7 87.2% 1.2

61.3%

B. Expen enditure re 1,864.30 2,133.30 1,537.1 72.1% 2,220.7 4.1%

I. Central Government Expenditure

1,154.00 1,367.00 898.5 65.7% 1,454.5 6.4%

1. Ministerial Spending

684.2 798.6 847.4 9.6%

2. Non Ministerial Spending

469.8 568.4 607.1 2.2%

II. Transfer to Region and Village Fund

710.3 766.3 638.6 83.3% 766.2 0.0% C. C. Prima mary Balance ce

125.6
178
115.8

65.1% (87.3)

51.0%

D. Surp rplus (Def eficit cit)

308.3
397.2

298.9 75.3% (325.9)

18.0%

% of GDP

2.49
2.92
2.2

(2.19) E. Financin cing 334.9 397.2 382.5 96.3% 325. 5.9 9

18.0%

SLIDE 41

40

A More Realis istic tic 2018 Tax Revenue nue Target et

…taxation policies are directed at expanding the tax base and increase compliance

Source: Ministry of Finance

Tax Collection Growth (yoy, %)

Tax Reven enue (in IDR Tril illio ion)

2014:

1.146,9

2015:

1.240,4

2016:

1.285 85,0

6,5 2017:

1.472,7 2018:

1.618, 8,1

Custom and nd Excise 194,1

Oil and Gas Incom

me

Tax Non Oil and Gas Tax

38,1 1.385 85,9 1.424,0 Tax

2018 Tax Revenue Target

1.618,1 8,1

2017 Outlook: 1.472 72,7

8,2 3,6 14,6 10

Measur ures es to Impro prove ve Taxation ion

Automatic Exchange of Information (AEoI) Data and Information System Taxation Taxpayer compliance Tax incentives Human Resources and Regulation

SLIDE 42

41

Maintain ainin ing Product ctive ive and Effect ctive ive Spendin ing Polici cies es

Contin inue the efficie ficienc ncy

f
per

eratio iona nal expen ense and increa ease the prio iorit ity expen endit ditures es

Ministerial ial Spendin ing

847.4 T

Improved performance-based planning in line with development priorities

Non Ministerial ial Spendin ing

607.1 T

%

Interes est Paymen ent

238.6 T

Energy Subsi sidy

94.5 T

Non Energy Subsi sidy

61.7 T 2018 Budg dget et

Operational Expense Efficiency Monitoring and Evaluation Implementation Earlier Auction Process

↑ IDR 48.8 T from 2017 R-Budget ↑ IDR 38.7 T from 2017 R-Budget

Source: Ministry of Finance

SLIDE 43

42

Improvin ing qualit lity

f

budget spendin ing to incr crea ease se compet etit itiv iven eness ess: Infrast astructure and Human an resou source ces

0% 5% 10% 15% 20% 25% 2012 2013 2014 2015 2016 2017 2018 Energy Subsidy Infrastructure Infr fras astruct uctur ure 130.9% Energy Subsid idy 73.0% Δ 2018 : 2014

The efforts on improving quality

spending focus on allocating more on productive avenues such as infrastructure and well targeted social program and subsidy

The percentage of budget for

energy subsidy to total state expenditure continues to decline, in line with the government's commitment to increase spending on infrastructure

Indonesia is committed to

strengthen the quality of its people through good education and health budget spending. Education and Health allocations will be maintained at 20% and 5% from Budget. Δ 2018 : 2014 Rp Rp 410.7 T Rp Rp 94.5 T 18.5% 4.3%

Source: Ministry of Finance

SLIDE 44

43

Better ter Targetin eting

f

Subsid idy Polic icy in 2018

...m .more budg dget et alloca cated ed to non ener ergy gy subsid idy and prio iorit ity progr grams to improve basic servic ices es

Bidi dikm kmis isi Scholar arship

353.4 390.1 370.4 419.8 444.1

50 100 150 200 250 300 350 400 450 500

2014 Real 2015 Real 2016 Real 2017 Outlook 2018 Budget

IDR tn

59.7 65.9 92.3 104.9 111.0

25 50 75 100 125

2014 Real 2015 Real 2016 Real 2017 Outlook 2018 Budget

IDR tn

Basic & complete immunization for 92.5% of 0-11 months old infants

Immuniz izat atio ion

92.4 million people

Indo done nesia ia Heal althy Program am

49 hospitals/health centers

Provis isio ion n of Health Faci cilit itie ies

74 thousand certifications

Drug and Food Certif ific icat atio ion

1.8 million people

Family Plan n Program am (KB) Budget t for Educ ucati tion n Program Budget t for Healt lth Program Indo done nesia ia Smart Program am

19.7 million students

Targets ts

f

Educatio tion Program in 2018 (Prelim imin inary)

School Rehabil abilit itat atio ion School Operat atio ional nal Assistance ance (BOS OS) Teach acher Allowance ance

56 million students 401.5 thousand college students 61.2 thousand rooms

Non Civil Servants

: 435.9 thousand teachers

Civil Servants

: 257.2 thousand teachers

Local Civil Servants : 1.2 million teachers

Targets ts

f

Health th Program in 2018 (Prelim imin inary)

SLIDE 45

44

Improve

ved

Budget et Alloc

catio

ion Between een Cent ntral al & & Local al Government vernment

…promoting better alloca catio ion

f

budget et spend nding ng to local gover ernm nmen ent

65.85% 22.67% 0.98% 2.65% 7.85%

Gradually increasing Village ge Fund allocation Average allocation of IDR800.5 million per village Village ge Fund (IDR60.0 tn tn) Improving efficiency and effectiveness of Specia ecial Auton

nomy

my & DIY Fund. Specia ecial Auton

nomy

my & D.I Yogyakarta ta - DIY (IDR21.1 tn tn) Incen centive e Fund (IDR8.5 tn tn) Minimum of 25% (IDR122.7 tn) earmarked for public service facility development acceleration. It provides revenue sharing fund to promote equal opportunity for natural resource producers & high tax earners Gen enera eral Transfer er Fund (IDR490.7 tn tn) Specia ecial Transfer er Fund allocation is based on each regions’ proposal and national priorities Specia ecial Transfer er Fund (IDR185.9 tn tn) Incen centive e Fund allocation has been increased (317 regions were awarded an incentive ranging between IDR 7.5bn and IDR 65. 3bn)

Implementation
f

policy to allocate te spendin ing to regio ions

Minim

imum 25%

f

general transfer fund has to be used for public service infrastructure 2018 2018 Transfer to Regio ions and Village Funds (Budget) t) Transf sfer to Regio ions/Vil /Village Funds s & Minis iste teria ial Spendin ing

IDRtn 2013 2013 Audited 2014 2014 Audited 2015 2015 Audited 2016 2016 Audited 2017 Budge get 2017 R-Budget et 2018 Budge get Transfer to Region 513.3 573.7 602.4 663.6 704.9 706.3 706.2 Village Fund

20.8

46.7 60.0 60.0 60.0 Total Inter ergov govern rnmen men tal Transfer er 513.3 573.7 623.2 710.3 764.9 766.3 766.2 Minister erial Spen ending 582.9 577.2 732.1 684.2 763.6 798.6 847.4 Source: Ministry of Finance

SLIDE 46

45

Polic icy

n

n Infrastr truc uctur ture Spend nding ing and Trans nsfe fer to Regio ions

…developing the nation through gh target eted ed spendi nding ng

In 2017, minimu mum m 25% of genera ral transfer er fund has to be used for public service infrastructure

Kali limanta ntan 2016 : 2,889.9 2017 : 3,641.6 2016 : 597.9 2017 : 634.5 2016 : 2,694.4 2017 : 4,117.1 2016 : 606.2 2017 : 1,042.6 2016 : 3,749.1 2017 : 3.686.3 2016 : 1,680.2 2017 : 1,941.7 Sumatera 2016 : 3,895.4 2017 : 3,545.7 2016 : 1,044.8 2017 : 1,320.4 2016 : 3,229.4 2017 : 3,257.8 2016 : 461,1 2017 : 1,147.5 2016 : 661.3 2017 : 1,207.3 2016 : 101.1 2017 : 308.2 Ja Java 155.9 154.7 256.1 269.1 388.3 410.7 50 100 150 200 250 300 350 400 450 2013 Real 2014 Real 2015 Real 2016 Real 2017 Outlook 2018 Budget IDR tn Maluku uku & Papua ua Sulaw lawesi Bali li & Nusa Tenggara Infrastru tructu cture Budget t Allo loca cati tion 2017 2017 Infr fras astruc uctur ure e Budge get Alloca catio ion (IDR billio ion) and 2016 realiz izat atio ion 201 2018 Infrastru tructu cture Target t (Preli limina nary) Highw hway Develop

pment

Target: 865 km Airpo rport rt Target: 8 Infor

rmation

ion & Telecom

m.

Target Rural Broadband: 100 area Target BTS: 380 area Railways Target: 620 km

Source: Ministry of Finance

Toll Road Developm

pment

Target: 25 km LRT Develop

pme

ment Target: 23 km Bridge Constru ruction ion Target: 8,695 m Low Incom

me Housin

ing Target Flat development: 13,405 Target stimulants assistance: 180 thousands

SLIDE 47

46

2016 Budget et Realiza izatio tion Did Not Impede ede Prio iori rity ty Proje jects ts

Although gh defic icit it was capped ped at managea eabl ble level el, infr frastructur cture devel elopm pmen ent conti ntinu nued ed to accel eler erate

Infrastru tructu cture Reali lizati tion1 Infrastru tructu cture Develo lopm pment nt Achievement nt in 2016 Food Security Reali lizati tion

100 200 300 400 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing

290.3 256.2 317.2 267.0

2015: 2015: 88. 88.2% % of budget 2016: 2016: 84. 84.9% % of budget

IDR tn 50 100 150 200 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing

2015: 2015: 87. 87.5% % of budget 2016: 2016: 84. 84.3% % of budget

IDR tn

125.9 110.3 117.9 99.3

Road Developm

pment (km)

Target: 3,149.6 Realization: 2,528.7 Airpo rport rt Target: 15 (up to 2019) Realization: 3 Bridge (km) Target: 12.9 Realization: 10.6 Railway2 (km) Target: 114.9 Achievement: 114.9 Dam Target: 37 Achievement: 37 Irrig rigatio ion (km) Target: 4,889 Achievement: 1,025

Source: Ministry of Finance 1. Not including LRT South Sumatra and Jabodetabek 2. Land issues are in progress

SLIDE 48

47

Educatio tion and Health th Spend nding ing Well Deliver ered ed in 2016

Inves estmen ent to improve socia ial welfa fare in the longer er term

Educ ucati tion n Expend nditur ture Health lth Expe penditur ture

Immu munization

n for

r infants betw twee een 0 0 – 11 mon

nth

ths Realization

n: 4 million infants

Target 4 million infants Univer ersity schol

lars

rships for r under erprivileged eged studen ents (Bidikmi misi) Realization

n: 324 thousand college

students Target: : 332 thousand college students Health Insura rance ce Subsidy (PBI BI) Realization

n: 91.1 million

people Target 92.4 million people School

ol Opera

eration

nal

Assistance ce (BOS OS) Realization

n: 8.0 million

students Target: 8.2 million students Vacc ccine availability in Community ty Hea ealth th Centr tre e (Puskes kesma mas) Realization

n: 81.5%

Target 80.0% School

ol Rehabilitation

Realization

n: 28,400 rooms

Target: 30,300 rooms Malaria ria Era radica cation

n

Realization

n: 247 cities

Target 245 cities Indon

nes

esia Smart Card rd (KIP) Realization

n: 20.7 million

students Target: 19.5 million students Accre credited ed Region

nal Hospital

Realization

n: 201 hospitals

Target 190 hospitals

100 200 300 400 500 600 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing 20 40 60 80 100 120 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing

2016: 88.9% % of budget get 408.5 390.2 416.6 370.5 2015: 88.1% % of budget get 2016: 88.6% % of budget get

IDR tn

74.8 67.0 104.1 92.3 2015: 95.5% % of budget get

IDR tn

Source: Ministry of Finance

SLIDE 49

48

Regional nal Reven enue ue and Expenditure enditure Profile ile

…effective expen pendit diture e polic icy y as a tool to promote e equalit ity y across Indo done nesia ia

SUMATERA Revenue nue 141.1

a. Tax

66.9

b. Custom & Excise

6.8

c. Non Tax Revenue

70.4 Expendit nditur ure 232.3

a. Transfer to Region

176.1

b. Ministerial

Spending 56.2 Nett (88.2) JAVA Revenue nue 1.143.2

a. Tax

884.9

b. Custom & Excise

161.6

c. Non Tax Revenue

96.6 Expendit nditur ure 302.8

a. Transfer to Region

201.8

b. Ministerial

Spending 101 Nett 840.4 BALI & NUSRA Revenu enue 15.5

a. Tax

11.7

b. Custom & Excise

1.5

c. Non Tax Revenue

2.3 Expendit enditur ure 56.4

a. Transfer to Region

39.5

b. Ministerial Spending

17.0 Nett (40.9) KALIMANTAN Revenue nue 86.0

a. Tax

32.0

b. Custom & Excise

1.1

c. Non Tax Revenue

52.9 Expendit nditur ure 93.9

a. Transfer to Region

73.7

b. Ministerial

Spending 20.3 Nett (7.9) SULAWESI Revenue nue 19.7

a. Tax

16.6

b. Custom & Excise

0.6

c. Non Tax Revenue

2.5 Expendit nditur ure 104.5

a. Transfer to Region

73.3

b. Ministerial Spending

31.2 Nett (84.8) PAPUA & MALUKU Revenue nue 18.4

a. Tax

10.7

b. Custom & Excise

1.7

c. Non Tax Revenue

6.0 Expendit nditur ure 89.6

a. Transfer to Region

71.7

b. Ministerial Spending

17.9 Nett (71.3) Notes: 1. Average data 2014 - 2016 2. Revenue  amount collected from certain region for central government budget 3. Expenditure  amount spent for certain region from central government budget 4. Figure in IDR trillion Source: Ministry of Finance

SLIDE 50

49

Indonesia’s Tax Amnesty Program – A Success Story ry

With more than 965,000 000 taxpa payer yers partic icipa ipatin ing in the progr gram

Source: Ministry of Finance

Tax Amnesty ty Result lt (as of the end of March ch 31st

st, 2017)

Redempti tion n Mone ney Assets ts Declar lared

114.2 18.8

1.7 Preliminary Evidence Payment 1% Redemption Money 85% Tax Arrears Payment 14%

Revenue IDR 134.8tn (~1.1% GDP)

3,323.3 .36 861.8 .81 594.9 .99 85.59 Individuals 68% Individual SMEs 18% Companies 12% SMEs 2%

Composi sition ion of Partic icip ipants s Based on Asset Declared

0.04 0.15 0.20 0.62 1.10 0.58 0.17 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 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 36 147.1 .1

Onshore Declaration 76% Offshore Declaration 21%

Repatriation 3%

Asset Declared IDR 4,881tn (~39.4% of GDP)

SLIDE 51

50

Compr mprehensi nsive ve Tax Reform to Improve ve and Sustai tain Reve venu nue Colle lecti ction

Focused ed

n

expa pandi nding ng taxpa payer yer databa base, e, improving ng busine ness proce cesses es, revis isin ing regulatio ions ns and stren ength gthen enin ing suppo port system em

56.2% 59.2% 60.4% 62.3% 49% 54% 59% 64% 10 20 30 40 2013 2014 2015 2016 Registered Taxpayers Registered Taxpayers – Tax Report Required Submitted Tax Report Compliance Rate = Submitted Tax Report/Registered Taxpayers-Tax Report Required

Expe pecte cted Tax Revenu nue / GDP Incr crease (%) Ongoing ng Comprehens nsive Tax Reform on 4 Pillar lars Compli lianc nce Rate in Submitt tting ng Annual Tax Report

Source: Ministry of Finance

Human Resources Business Process

Improvement of the human

resources and

rganizational capacity and

capabilities

Establishment of tax reform

task force team

Discipline in terms of Plan-

Do-Check-Action to monitor tax collection

Stronger law enforcement
Authorization to gather 3rd

party data (banking)

Implementation of

Automatic Exchange of Information

Simplification of tax

registration

Regulation

General Provision and Tax

Procedures

VAT Law
Income Tax Law
Stamp Duty Law

IT Support

Improvement of IT and

communication system

Increased accessibility of

public data for individual data management

Enhancement of data

management

11.2 11.4 11.3 10.8 10.7 10.4 11.5 11.6 5 10 15 2011 2012 2013 2014 2015 2016 2017 Budget 2018 Budget

SLIDE 52

51

Financ ncing ing Polic icy 201 2017: : General Object ectiv ive & Polic icy

To conduct active debt portfolio To manage debt-to- GDP ratio To optimize the use of external and domestic loans To

ptimize

currency mix of issuance

General Policy

To support market development To enhance public accountability as part

f

transparent Government debt management To meet financing needs at

ptimum

cost and tolerable risk

Source: Ministry of Finance

SLIDE 53

52

Budget et Financ ncing ing Breakd kdown in 201 2017

Debt (Gross) IDR735.6tn tn (eq. USD 55.1bn) Redemptio tion IDR350.9tn tn (eq. USD 26.3bn) Budget Financin ing IDR330.2tn tn (eq. USD 24.7bn) Non-De Debt Financin ing IDR54.5tn tn (eq. USD 4.1bn)

USD/IDR: 13,351 as of August 31, 2017 Note: Subject to change in market conditions and other factors

Breakd kdown

f

budget financin ing IDR tn tn USD bn bn Government debt (net) t) 384.7 28.8 Government securitie ities (net) t) 400.0 30.0 Domestic tic loans (net) t) 1.5 0.1 Foreig ign loans (net) t)

16.8
1.3

Source: Ministry of Finance

SLIDE 54

53

Governm ernment ent Securi rities ties: Indic icativ tive Financ ncing ing Plan for 2017*

…prudent and sustain inabl ble fiscal managem emen ent

Governme rnment Issuance Targets Interna rnationa ional Bonds

Issuance
f

international bonds as a complement to avoid crowding

ut

the domestic market;

Consists
f

USD, YEN

r

EURO global bonds;

International bond issuance

can be maximized up to 25% from gross target, depends on financing need

Domestic tic Bonds

Weekly kly Aucti tion: n: Conv nventi ntiona nal l secur uriti ties 24 x Islamic c securiti ties 24 x Non-Auc ucti tion: n: Retail bonds Private te Place cement nt Based on request Front

nt Loadin

ing Issuance For

r Budget Financin

ing

Government Securities issuance in semester I:

– Target: 57.4% from gross issuance target – Realization: 57.7% from gross issuance target

Rupiah Government Securities issuance in semester I:

‐ Target: 42.7% from gross issuance target ‐ Realization: 43.1% from gross issuance target

Debt Securities 71% Sukuk

29% Average Tenor Maturity (ATM) for Government Securities: 7-9 years

Composit itio ion Domestic ic 80% 80% Auction 93% Non-Auction 7% Internat natio ional nal Bond 20% 20%

*: Based on Budget 2017 Source: Ministry of Finance

Instrum ument nts Budge dget R-Budg udget Indi dicat cativ ive Target (IDR trn) Indi dicat cativ ive Target (USD bn bn)* Indi dicat cativ ive Target (IDR trn) Indi dicat cativ ive Target (USD bn bn)* Governm nment nt Secur curit itie ies (Net) 399.99 29.96 432.96 32.43

* USD/IDR: 13,351 as of August 31, 2017

SLIDE 55

54

6.8 (0.4) 1.2 2.1 2.1 1.6 5.1 2.7 (0.6) 5.3 5.5 3.4 (7.1) (6.1) (5.8) (5.3) (4.8) (3.7) (3.3) (2.9) (2.8) (2.2) (1.6) (0.1) I N D I A B R A Z I L J A P A N U K U S A S A FR I CA M A L A YS I A A U S TR A L I A I TA L Y I N D ON ES I A TU R KEY TH A I L A N D

GDP Growh Fiscal Deficit (% GDP)

Sound nd Govern ernmen ent Debt Portf tfolio lio Manag agement ent

Portfolio io managem emen ent character cterized ed by stabl ble debt/GDP ratio io and well-di diver versified ified debt bt

Weighte ted Average Debt t Matur urity ty of ~8.7 .7 Years Defici cit Produc ucti tivity ty**

Source: MOF, World Economic Outlook

Well l Diversified Across Different nt Currenc ncies

% of Yearly Issuan ance Source: Ministry of Finance Source: Ministry of Finance Source: Ministry of Finance Years 9.7 9.6 9.7 9.4 9.0 8.7 8.0 8.3 8.5 8.8 9.0 9.3 9.5 9.8 10.0 2012 2013 2014 2015 2016 Oct-17 56% 53% 57% 56% 58% 59% 24% 29% 29% 31% 30% 29% 14% 12% 9% 8% 7% 6% 3% 3% 3% 3% 4% 4% 3% 3% 2% 2% 1% 1% 0% 20% 40% 60% 80% 100% 2012 2013 2014 2015 2016* Oct-17 IDR USD JPY EUR Others***

Stable ble Debt to GDP Ratio Over the Years*

141 136 155 175 207 232 64 58 54 55 54 55 23.0% 24.9% 24.7% 27.4% 28.6% 00 05 10 15 20 25 30 35 50 100 150 200 250 300 2012 2013 2014 2015 2016 2017 Securities (LHS) Loans (LHS) Govt Debt / GDP (%) (RHS) 28.3% US US$ bn Government Debt / GDP (%) *2017 year end position of debt/GDP is projected based on GDP assumptions in 2017 budget, **GDP growth and fiscal deficit numbers are average of 2012-2016 (5 years), ***SDR, AUD, and other.

SLIDE 56

55

28 257 211 125 151 139 103 168 45 126 122 53 100 29 128 86 52 97 5 98 22 41 7 15 26 23 21 28 16 139 121 130 138 109 107 120 90 87 50 22 21 18 17 17 12 30 5 24 29 2 2 1 32 22 28 28 54 50 100 150 200 250 300 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 IDR-Denominated Other Currencies 10.2 11.7 10.7 12.2 12.1 11.6 44.4 46.7 43.4 44.5 42.6 40.6 10 20 30 40 50 2012 2013 2014 2015 2016 Oct-17 FX Debt to GDP Ratio* FX Debt to Total Debt Ratio

Well Balanc nced ed Matur turity ity Profile file With Strong Resilienc lience Agains nst External rnal Shocks ks

Decli lini ning ng Interest t Rate Risks ks Debt t Matur urity ty Profile le Decli lini ning ng Exch chang nge Rate Risks ks Upco coming ng Matur uriti ties (Next xt 5 Years)

IDR tn tn

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

*Using GDP assumption in 2017 Budget.

Source: Ministry of Finance % %

2046- 2055

%

16.2 16.0 14.8 13.7 12.1 10.7 22.5 23.2 21.0 20.7 17.5 19.3 5 10 15 20 25 2012 2013 2014 2015 2016 Oct-17 Variable Rate Ratio¹ Refixing Rate² 7.2 8.6 7.7 8.4 6.5 9.9 21.5 21.8 20.1 21.4 22.7 24.9 32.4 33.4 33.9 34.7 36.0 39.4 0.0 10.0 20.0 30.0 40.0 50.0 2012 2013 2014 2015 2016 Oct-17 In < 1 year In < 3 year In < 5 year

SLIDE 57

56

Profile file

f

Tota tal Centr tral Governme rnment nt Debt

Foreign Ownershi hip p of Government t Securiti ties at Longer Tenors Holders of Governm nment nt IDR Bond nds – Compositi tion n Octo tobe ber 2017 Governm nment nt Debt t Compositi tion

(%)

Source: Ministry of Finance

(%) (%)

7.8 5.2 4.6 3.2 3.5 3.4 5.2 5.8 4.9 6.1 4.8 19.3 18.3 18.9 13.1 23.1 19.8 18.6 21.5 23.3 22.6 22.8 73 77 76 84 73 77 76 73 71.9 71.2 72.4 33.0 32.5 38.1 38.2 37.5 37.8 38.2 39.1 39.3 36.0 38.4

20 40 60 80 100

2012 2013 2014 2015 2016 Jan-17 Mar-17 Mei-17 Jul-17 Sep-17 Okt-17

0-1 1-5 >5 Foreign Ownership to Total

33.0 32.5 38.1 38.2 38.9 39.1 37.5 37.8 37.5 38.2 39.0 39.1 39.5 39.3 39.0 40.0 39.0 30.5 33.8 30.8 37.9 31.3 38.9 39.9 34.9 34.5 35.5 35.0 34.6 40.1 32.7 32.4 31.6 32.3 36.5 33.7 31.0 24.0 29.8 22.0 22.5 27.3 28.0 26.2 26.0 26.3 20.4 28.0 28.6 28.4 28.6

20 40 60 80 100 2012 2013 2014 2015 Jan-16 Jun-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Foreign Holder Domestic Non Banks Domestic Banks 68.8% 70.0% 74.1% 76.2% 79.1% 81.1% 31.2% 30.0% 25.9% 23.8% 20.9% 18.9% 0% 20% 40% 60% 80% 100% 2012 2013 2014 2015 2016* Oct-2017 Government Securities Loan

SLIDE 58

57

Ownersh rship ip of IDR Tradable able Central ral Governm ernment nt Securi rities ties

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

(IDR tn)

Source: Ministry of Finance

Descr cript ption Dec-14 14 Dec-15 15 Dec-16 16 Jan-17 17 Oct-17 17 Banks nks* 375.5 .55 31.0 .04% 350.07 23.9 .95% 399.46 22.5 .53% 493.82 27.2 .27% 601.44 28.9 .97% Govt Insti tituti tutions ns (Bank nk Indone nesia**) 41.6 .63 3.44% 148.91 10.1 .19% 134.25 7.57% 53.3 .31 2.94% 46.2 .20 2.23% Bank Indonesia (gross) 157.88 8.90% 163.63 9.03% 184.93 8.91% GS used for Monetary Operation 23.63 1.33% 110.32 6.09% 138.73 6.68% Non-Banks nks 792.7 .78 65.5 .52% 962.86 65.8 .87% 1239.5 .57 69.9 .90% 1264.0 .02 69.7 .79% 1428.3 .33 68.8 .80% Mutual Funds 45.79 3.78% 61.60 4.21% 85.66 4.83% 87.84 4.85% 100.42 4.84% Insurance Company 150.60 12.45% 171.62 11.74% 238.24 13.43% 241.25 13.32% 263.73 12.70% Foreign Holders 461.3 .35 38.1 .13% 558.52 38.2 .21% 665.81 37.5 .55% 685.51 37.8 .85% 796.20 38.3 .35% Foreign Govt's&Central Banks 103.42 8.55% 110.32 7.55% 120.84 6.81% 118.91 6.57% 143.38 6.91% Pension Fund 43.30 3.58% 49.83 3.41% 87.28 4.92% 86.95 4.80% 87.18 4.20% Individual 30.41 2.51% 42.53 2.91% 57.75 3.26% 57.69 3.19% 62.76 3.02% Others 60.51 5.00% 78.50 5.37% 104.84 5.91% 104.78 5.79% 118.05 5.69% Total 1,209.9 .96 100% 1,461.8 .85 100% 1,773.2 .28 100% 1,811.1 .14 100% 2,075.9 .97 100.00%

SLIDE 59

58

Governm ernment ent Securi rities ties Realiza izatio tion

(IDR mn mn)

Source: Ministry of Finance

Budget 2017 R-Budget 2017* Budget Realiza izatio tion (a.o. Oct. 31, , 2017) % Realiza izatio tion to Budg dget 2017 Government Securitie ities Net 399,992,586 432,959,100 431,910,888 99.76% Government Debt Securit itie ies (GDS) 497,043,138 IDR Denomin inate ted GDS 39 395,021,660

Coupon

GDS 209,180,000

Conventional

T-Bills 176,500,000

Private

Placement 393,000

Retail

Bonds 8,948,660 Internatio tional Bonds 102,021,478

USD

GMTN 73,825,500

Euro

GMTN 15,352,390

Samurai

Bonds 12,117,580

Domestic

Foreign Denominated Bonds 726,008 Sovereig ign Sharia ia Securitie ities 180,044,267 Domestic tic Sovereig ign Sharia ia Securitie ities 140,075,267

IFR/PBS/T-Bills

Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) 124,037,957

Retail

Sukuk 14,037,310

Indonesia

Hajj Fund Sukuk 2,000,000 Global Sukuk 39,969,000

*Using 2.67 deficit scenario

SLIDE 60

59

Positiv itive Respons nse

f

Governm ernment ent Securi rities ties Issuanc nce in 2017

The

average incoming bids in 2017 is IDR25.9 tn/auction, higher than 2016 (IDR18.81 tn/auction)

The average awarded bids in 2017 is IDR11.2 tn/

auction, higher than 2016 (IDR9.44 tn/auction)

IDR bn bn Increasing Incoming Bids in 2016’s Government Securities Issuance

Source: Ministry of Finance

Pric icing ing Date Dece cember 1, 2016 March ch 22, 2017 May 31, 2017 July 11, 2017 2017 Instrum ument nt Global bal Conv nvent ntio ional nal Bonds ds (Prefundi funding ng) Global bal Sukuk kuk Samurai ai Bonds nds Global bal Conv nvent ntio ional nal Bonds ds Euro-Deno nominat inated d Bonds ds Tenur nure 5 yr 10 yr 30 yr 5 yr 10yr 3 yr 5 yr 7 yr 10 yr 30 yr 7 yr Nominal nal US$ 0.75 bn US$ 1.25 bn US$ 1.5 bn US$1 bn US$2 bn JPY40 bn JP50 bn JPY10 bn US$1 bn US$1 bn EUR1 bn Coupon n Rate 3.70% 4.35% 5.25% 3.40% 4.15% 0.65% 0.89% 1.04% 3.85% 4.75% 2.15% Yield 3.75% 4.40% 5.30% 3.40% 4.15% 0.65% 0.89% 1.04% 3.90% 4.80% 2.178% Inco coming ing Bid US$12 bn bn US$10.8 bn bn JPY100 bn bn US$7.3 bn bn EUR4 R4.3 bn bn

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 20 40 60 80 100 120 140 160 180 200 Incoming Bid Awarded Bid Bid to Cover Ratio(RHS)

SLIDE 61

Monet etary ary and Finan nancial ial Facto tor: r: Credib dible le Moneta tary ry Polic icy Track ack Recor

rd

and Favour

urab

able le Finan nancial ial Secto tor

Sec ection

n

5

SLIDE 62

61

Bank Indones esia ia Polic icy Mix: November ber 2017

Holds the BI 7-day Repo Rate at 4.25% Continues to stabilise the rupiah in line with the currency’s fundamental value, while maintaining market mechanisms.

The BI Board of Governo nors s agreed on 15 15th

th and 16

16th

th Novem

embe ber 201 2017 to hold the BI 7-days s Reverse se Repo Rate e at 4.25 25%, , while maint ntaini ining ng the Deposi sit Facility and Lending g Facility rates es at 3.50% and 5.00% respective ively, effective ive 17 17th

th Novem

ember ber 2017

Continues to strengthen policy coordination with the Central and Regional Government to control inflation within the target corridor Predicts national economic growth in 2017 at 5.1% Remains vigilant of the risks, including the global risks linked to the plans to tighten monetary policy in several advanced countries, as well as domestic risks, such as the limited growth in household consumption and banking intermediary Decides to maintain the Countercyclical Capital Buffer (CCB) at 0%, to encourage the improvement of banking intermediation function

SLIDE 63

62

Bank Indones esia ia Polic icy Mix: : 2015-2017

14 14 Jan 2016 2016

Cut BI Rate 25

bps to 7.25%, DF & LF Rate at 5.25% & 7.75%

BI lower its

monetary

peration rates

even further, ranging from 25bps to 45bps (O/N to 1Y) 19 Jan – 20 20 July 2017 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 % 20 Oct ct 2016 Cut BI 7-day RR Rate to 4.75%, DF and LF Rate to 4.00% and 5.50% 19 19 Aug 2016

Held BI 7-

day RR Rate and DF Rate at 5.25% and 4.5%

Cut LF Rate

to 6.00%. 16 Jun 20 2016 16

Cut BI Rate 25 bps to 6.5%, DF &

LF Rate at 4.5% & 7.0% respectively

Relaxed the loan-to-value ratio

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

Relaxed partially prepaid

loans/financing

Raised the floor on the Reserve

Requirement - Loan to Funding Ratio (RR-LFR) from 78% to 80%, with the ceiling maintained at 92%. The change was effective on Aug. 2016 18 18 Mar r 2016 2016 Cut BI Rate 25 bps to 6.75%, DF & LF Rate at 4.75% & 7.25% 17 Nov – 15 Dec c 2016 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 % 22 Sep 2016 2016 Cut BI 7-day RR Rate to 5.0%, DF and LF Rate to 4.25% and 5.75%. 21 21 Jul 2016 2016

Held BI Rate at 6.5%, &

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

BI continued to conduct

financial market deepening by introducing new investment & hedging products in the financial market, strengthened monetary management strategies, & encouraged the real sector to make optimal use of repatriation funds to support the implementation of the 2016 Tax Amnesty Law 21 Apri ril 2016

Held BI Rate at

6.75%, and maintained DF & LF Rate at 4.75% & 7.25% respectively.

Reformulated policy

rate from BI Rate into the 7 day (Reverse) Repo Rate to improve the effectiveness of monetary policy

transmission. The

change was effective

n Aug. 19th 2016

18 18 Feb eb 2016

Cut BI Rate 25

bps to 7%, DF & LF Rate at 5% & 7.5%

BI lower the

rupiah denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from

Mar. 16th

2016 21 21-22 Aug g 201 2017 Cut BI 7-day RR Rate to 4.50%, DF Rate and LF Rate to 3.75% and 5.25 % 22 Sept 20 2017 Cut BI 7-day RR Rate to 4.25%, DF Rate and LF Rate to 3.50% and 5.00% 19 9 May 2016 2016 Held BI Rate at 6.75%, and maintained DF & LF Rate at 4.75% & 7.25% respectively 19 19 Oct ct – 16 Nov 2017 Held the BI 7- days RR Rate at 4.25%, DF Rate at 3.50% and LF Rate 5.00%

SLIDE 64

63

Bank nk Indones

nesia

ia Policy Mix: : Maint ntai ainin ning Stab abilit ility, Supportin rting Growth

Accommoda dativ ive moneta etary and macropr pruden dentia ial polic icies es to suppo port growt wth

Polic icy Rate ↓ 200 bps

(Jan‘16 – Oct’17)

RR RR ↓ 150 bps

(Dec’15 –Oct’17) 17)

Deposit it Rate

(Jan’16 –Sept’17 17)

↓ 160 bps (6.34%)

Lending nding Rate

(Jan’16 – Sept’17) 17)

↓123 bps (11.6%)

Deposit it

(Sept’16 16 – Sept’17 (LBU) Total ↑ Rp538.3 T (11.7% yoy)

Lend nding ing

(Sept’16 16 – Sept’17 (LBU) Total ↑ Rp331.2 T (7.9% yoy)

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. 1. Monetar ary Polic icy Polic icy Rate Reserve Requi quirement nt 2. 2. Exch chang ange Rate Polic icy 3. 3. Macr croprude udent ntial ial Polic icy

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. 4. Payment nt System Policy cy

National Payment

Gateway (June)

Modernized cash

management underway 2015 2015 2016 2016 2017 2017

Impacts of LTV Relaxation Monetary Transmission

Ags'16 Sep-17 Construction 17.24 14.89 Real Estate 23.32 8.66 Housing 6.21 9.82 Total 6.83 7.86 Loan Growth, % (yoy)

SLIDE 65

64

3.00 4.00 5.00 6.00 7.00 8.00 10.86 9.65 3.33 3.00 1.94 1.26

0.36
4.32
5.71
16.06
2.78
0.49

7.90 4.91 7.63 9.57

0.66

6.01

3.78
7.05
20.00
15.00
10.00
5.00

0.00 5.00 10.00 15.00 ZAR BRL THB INR KRW EUR IDR MYR PHP TRY Point to Point Average

Stable ble Moneta etary ry Envir ironm nment ent Despit ite Chall llen enges es

Rupi piah Exch chang nge Rate Remains ns Comparable ble to Peers Well l Mainta ntaine ned Inflati lation Ensur ured Price ce Stabi bili lity ty Streng ngth thene ned Mone netary Poli licy cy Framework Credit t Growth th Suppo ported by Macr cropru prudenti ntial Poli licy

(YoY) Source: Bank Indonesia

YTD 201 2017* vs 201 2016

%

*data as of October 31st, 2017 BI 7Day RR Rate: 4.25 25

(%)

LF Rate: 7.00 LF Rate: 5.00 00 BI Rate: 6.50 DF Rate: 3.50 50

19 Augu gust 2016

The New Monetary Operation Framew ework 3.58 3.07 0.19 8.68

2

3 8 13 18 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 2012 2013 2014 2015 2016 2017 (%)

CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) 7.86 8.05 5.39 9.82

5 10 15 20 25 30 35 40 2013 2014 2015 2016 2017 Total Growth Working Capital Loans Investment Loans Consumption Loans

SLIDE 66

65

6 Measur ures es to Contr trol Inflatio ion in 2017

On On Ja January 25 25th

th, 2017, th

the Government and Bank Indo donesia ia agreed on

n six

ix str trate tegic ic measures to to contr trol in inflatio tion in in 2017 with ithin in th the ta target corrid idor of

f 4±1% (as well as

as in in 2018 at at 3.5±1%), whil ile also settin tting th the in inflatio tion ta targets ts for 2019-2021 at at 3.5±1%, 3±1% and 3±1% respectiv tively. Those measures are needed to to address several onerous domestic tic and exte ternal challenges tha that demand vig igil ilance and early mitig itigatio tions. The external challenges mainly stem from rising international commodity prices, while the domestic challenges stem from ongoing energy reform through adjustments of electricity tariffs for 900VA subscribers as well as fuel prices as the global oil prices continues to

rise. The current aforementioned reform is warranted to ensure equitable development and to create more healthy fiscal space.

Maint ntaini ining ng volatil ile food (VF) inflation ion at 4-5% by:

1 2 3 4 5 6

Strengthening infrastructure for food logistics in local areas, particularly warehousing for storage Developing a commodity flow data system, specifically for food commodity Utilising fiscal instruments and incentives to extend the local government’s role in price stability

Dampenin ing the second-round effec ect

f

Administ istered Price adjust stments Introducin ing Administ ister ered ed Price Seque uencin ing Estab ablis ishin ing the Nat ational Inflatio ion Control Team am Stren engt gthen enin ing central al and local governmen ent coordin inatio ion

Through Eighth National TPID Coordination Meeting in July 2017

Stren engt gthen enin ing the Bank Indonesia esia polic icy mix to maintain ain macroec economic ic stabil ilit ity

Through Presidential Decree to strengthen the National Inflation Task Force (TPI) and Regional Inflation Task Forces (TPID)

Strengthening interregional cooperation Encouraging diverse food consumption in the community, especially of fresh chillies and alliums, by fostering product innovation in the processed foods industry Accelerating connectivity infrastructure development Improving planting patterns

Example: Controlling transportation fares Including the planned conversion of several direct subsidies to cash transfers (fertilizer, rice for the poor and 3kg LPG) 3kg

Source: Bank Indonesia

SLIDE 67

66

Improving ing the Effectiv tivene eness

f

Moneta etary ry Polic icy Trans nsmis missio ion

Bank k Indone

nesia has instit

ituted a Refor

rmulatio

ion of Monetary ry Policy Opera rations ions Framewor

rk which

h consis ists of 3 pillars rs; (1) implementatio ion of BI 7day Revers rse Repo

Rate;

(2) implementatio ion of reserv rve requir irement avera raging; and (3) contin inue to implement mon

ney marke

rket deepenin ing prog

gra

ram.

Source: Bank Indonesia

Enhancement

f

monetary policy signal Enhancement

f

banking liquidity management Implementa tatio ion

f

BI 7 Day Reverse Repo Rate te Implementa tatio ion

f

Reserve Requir irement (RR) Averagin ing Reformulatio tion

f

Moneta tary Policy Operatio tional Framework Enhancement

f

instruments and transactions Implementa tatio ion

f

Money Marke ket Deepenin ing Program

SLIDE 68

67

3,0% 3,5% 4,0% 4,5% 5,0% 5,5% 6,0% 6,5%

/n

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

Enhanc ncem ement nt

f

Moneta etary ry Operatio tions ns Framew ework rk

...p .posit itiv ive results thus far

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

O/N 1W 1W 2W 2W 3W 3W 1M 1M 2M 3M 12M 12M JIBOR IBMM Repo FX Swap MO MO IBMM: Interbank Money Market MO: Monetary Operation

Domesti tic Money Marke ket t Yield ld Curve (2nd

nd week

k of November 2017)

Source: Bank Indonesia

Domest stic ic mon

ney

ey market ket yield curve tend to converge Monetary

peratio

ion term structure is being ng referred ed by mon

ney

ey market ket rates es

6M

SLIDE 69

68

Introduc ucing ing Reserv rve Requir irem ement ent (RR) Averaging ging

The Pu Purpos

se
f

RR Averaging

Previo iously, RR ratio tio is set at 6.5% (fixed)

f

the TPF (Third Party ty Fund) and to be main inta tain in

n

dail ily basis. From 1 July 2017, the fulfil ilment meth thod

f

RR has been adjuste ted to daily RR

f

5%

f

TPF and average RR

f

1.5%

f

TPF within in a fixed perio iod

1 2 3

To provide flexib ibil ility ity in liquidity idity management in

rder

to increase bank effic icie iency To functio ion as an inte terest rate te buffer in

rder

to reduce inte terest rate te volatil tility ity in the money marke ket

$

To provide space for liquid idity ity placement in

rder

to boost financia ial marke ket deepenin ing

Source: Bank Indonesia

SLIDE 70

69

Interm ermedia ediatio ion is Expec ecte ted to Expand and in 2018

The in inter ermed edia iatio ion growt wth is is stil ill at at a moder erat ate lev evel el in in lin ine wit ith consolidatio ions in in the real eal sector. Inter ermed edia iatio ion is is projec ected ed to to improve nex ext yea ear (10 10-12 12%). In In the domest estic cap apit ital al mar arket kets, cap apit ital al raisin aising by by corporatio ions (p (par artic icular arly rig ight issues es and corporate bond issuan ance) remain ins strong.

Source: Financial Service Authority (OJK)

The growth th of fina nanc ncing ng distri tribu bute ted by multifinance nance compani nies was 8.63% (yoy) in Sep-17 17 Gross premium revenue in the domesti tic insurance industry is also conti ntinu nuous usly ly growing ng Capital tal raising ng throug ugh rights ts issue ues and corpo porate te bond issua uanc nce in Jan-Oct ct 2017 incr creased by 30.7 .75% from the same period last t year The growth th of bank k lending ng was 7.86% (yoy) as of Sep-17 17

IDR tn IDR mn IDR tn IDR tn

8.20% 8.26% 7.86%

0% 5% 10% 15% 20% 25% 1,000 2,000 3,000 4,000 5,000 2012 2014 2016 Feb-17 Apr-17 Jun-17 Aug-17 Bank Loans YoY Growth (rhs)

9.57% 9.13% 8.63%

5%

5% 15% 25% 35%

50

50 150 250 350 450 Financing YoY Growth (rhs)

12 6 67 64 116 126

20 40 60 80 100 120 140 2012 2013 2014 2015 2016 Jan-Oct 2017 IPO Equity Rights Issue Corporate Bonds & Sukuk 292 50 100 150 200 250 300 350 400 2012 2013 2014 2015 2016 Jan-Sep 2017

SLIDE 71

70

Financ ncial ial Instit itutio tions ns Remain in Robus ust

CAR of the banking nking sector remains ins at a high level. As of Sep-17 CAR & Tier 1 Capital al was 23.27% & 21.53%, respect ctiv ively Risk-bas based d capit ital al (RBC) of the insur urance ance indus ustry also remains ns high, well above the minimum threshold (120%) Gear aring ing ratio io of multifi finan nance ce companie anies was at 3.0 times (well below the maximum requir uirement nt of 10 times), providi ding ng ample room for futur ure growth Profi fitabil abilit ity of the banking king sector is relat ativ ively stabl ble

Domestic financial instit itutions ions exhi xhibit genera rally ro robust cond

ndit

ition

n. Capit

ital adequacy is is maintain ined well abov

ve the

he minim imum re require irements. Pro Profitability and levera rage are re maintained at at a sufficient level. Furthe her, r, gearing (debt-to to-equity) ra ratio of

f multifinance compa

panies pro provides ampl ple roo

om for future

re growth.

Source: Financial Service Authority (OJK)

23.34 23.27 21.59 21.53

5 10 15 20 25 % CAR Tier-1 Capital 294% 493% 300% 350% 400% 450% 500% 550% 600% 200% 250% 300% 350% 400% Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 RBC - General Insurance RBC - Life Insurance (rhs)

5.35 5.34 2.47 2.48

0.0 1.0 2.0 3.0 4.0 5.0 6.0 2012 2014 2016 Feb-17 Apr-17 Jun-17 Aug-17 % Net Interest Margin Return on Assets 2.98 3.00 1.0 1.5 2.0 2.5 3.0 3.5 4.0

SLIDE 72

71

Adequa uate te Liquidit uidity, y, Managea eable ble Credit it Risks

Ba Banks are re equipp pped wit ith adequate liquid assets to to anticipa pate depositors’ withd hdra

rawal. Insurance industry

ry also demons

nstra

rates an an enha hanced level level of

f investment adequacy ratio
io. The non-pe

perf rfor

rmin

ing loan/fin inancin ing (NPL/NPF NPF) ratio io is is main intain ined below

w the thresho

hold.

The ratio io of liquid id assets to deposit its in the banking nking sector was well maintaine ained d at a high level. As of Sep-17, the gross & net NPL ratio ios of the banki king ng sector were 2.93% & 1.23% respectiv ively, maintaine ained d below the threshold NPF ratio io of the multifi finance nance indus ustry was 3.18% as of Sep-17, maintaine ained d well below the 5% threshold Investment nt adequacy quacy ratio io in the insur urance ance indus ustry is maintaine ained d above 100%

Source: Financial Service Authority (OJK) 105.92 21.98 5 10 15 20 25 60 70 80 90 100 110 120 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 % % Liquid Assets to Non-Core Deposits (lhs) Liquid Assets to Deposit (rhs) *

*The spike in this ratio was due a change in calculation methods.

130.38 196.60 100 120 140 160 180 200 100 110 120 130 140 % % Life Insurance General Insurance (rhs)

1.29 1.23

3.05 2.93 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2012 2014 2016 Feb-17 Apr-17 Jun-17 Aug-17 % NPL Net NPL Gross

3.31% 3.18%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

SLIDE 73

72

Manag ageable able Marke ket Risk Amidst Fluctu tuati tions

Marke rket risks ks are re genera rally manageable in in line wi with the he stre rengthe hening tre rend of

f the

he dom

mestic

ic financial marke

rket. Ne

Net ope

pen pos
sition

ion of

f the

he banki king sector re remains low

w, whi

hile the he investment value of

f domestic instit

itutiona ional inv nvestors rs (mutual funds, insure rers rs, and pe pension ion funds) contin inues to to incre rease. Net open n positi tion n in the banki nking ng secto tor was kept t far below the maximum limit t (20%) %) The investment nt value ue of insur urers & pension n funds remaine ned in an incr creasing ng trend nd Multi tifinance companies’ exposures to foreign debt have generally been mitigate ted throug ugh hedging ng measures The movement of mutual funds’ net asset value (NAV) is in line with th that t of market t index, x, but with th much lower volati latili lity ty

Source: Financial Service Authority (OJK) 1.91 1 2 3 2012 2014 2016 Feb-17 Apr-17 Jun-17 Aug-17 % 4,800 5,000 5,200 5,400 5,600 5,800 6,000 6,200 260.0 300.0 340.0 380.0 420.0 IDR tn NAV of Mutual Funds (lhs) IDX Stock Composite Index (rhs) 953.1 251.5 200 250 300 700 750 800 850 900 950 1,000 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 IDR tn IDR tn Investment of Insurers Investment of Pension Funds (rhs) 172 84 60 80 100 120 140 160 180 IDR tn Domestic Debt Foreign Debt

SLIDE 74

73

Capital ital Marke ket Demons nstr trate tes Strength ngthen ening ing Trend nd

In In the he middle of

f unfavor
rable globa
bal environ
nment, the

he domestic capit ital marke kets cont

ntinues it

its stre rengthening tre

rend. Th

The vol

latilit

ity of

f the

he marke rkets is is relativ ively low.

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

Both th the stock ck & bond nd markets ts conti ntinue nued a streng ngth theni ning ng trend nd, with th a low level l of volati latili lity ty Despi pite te the recent t moderate te outf tflo lows, the domesti tic market still ll streng ngth thens ns. The IDX Stock ck Composite te Index has streng ngth thene ned by 14.2 .25% (ytd as of 17/11) In line ne with th the stabi bili lizing ng IDR and improving ng domesti tic c prospe pects, the governm nment nt bond nd yield lds conti tinu nued to decli line ne

36.0 21.9

4.5

18.2 4.2 17.2 4.9 9.0 21.5 17.4 32.7 14.3 25.0 10.8 16.1

10

10 20 30 40 TURK BRAZ RUS AS EURO JPN MAL CHIN PHIL SIN HKN INDO KOREA THAI WORLD

%

4,200 4,700 5,200 5,700 6,200 180 190 200 210 220 230 240 250 Comp Bond Index Comp Stock Index (rhs)

50

50 100 150 IDR tn Gov't Debt Securities Equity 12400 12800 13200 13600 14000 14400 5 6 7 8 9 10 Yield (%) 5-yr Yield 10-yr Yield 20-yr Yield IDR (rhs)

SLIDE 75

74

Maintain ntaining ing Financ ncial ial Sy Syste tem Stabili bility ty

…maintaining resil ilien ience ce in confr nfronting nting possib ible shock cks and enhanc ncing ng financ ncia ial system em stabi bilit ity

Stren engt gthenin ening financ ncial sector supervi vision sion

Assessment
n

the soundness

f

financial institutions

Liquidity

coverage ratio for banks

Regulations
n

risk management for financial institutions

Minimum

capital requirement for banks

Enhancement
f

GCG for financial institutions and publicly-listed companies

Stren engt gthenin ening & structur urin ing financ ncial sector based

n

inter erna nation ional stand ndards

Risk-based

supervision for all financial sectors

Regulations
n

domestic systemically-important banks and capital surcharge

Enhancement
f

crisis management protocol and interagency coordination Financia ial conglomerate tes account for 66.77% %

f

the total assets

f

financial sector…

Impr proving ving the integ egrated ed regulatio ion & supervision framework…

Such

improvement has become even more important due to the dominance

f

financial conglomerates in the domestic financial sector.

OJK

has issued regulations

n

GCG, risk management, and minimum capital requirements for financial

conglomerates. These

will be followed by regulations

n

liquidity management, capital management, and intragroup transaction exposures.

Source: Financial Service Authority (OJK), June 2017

66.77% 33.23% Financial Conglomerates Others

SLIDE 76

75

A A Comprehens nsiv ive Financ ncial ial Deepe pening ning Program am …strategy

egy to tackle challenges in deepening Indonesia’s financial markets

Source: Bank Indonesia

Financia ial Marke rket Deepe penin ing Progra ram

First Priority: Continuous Basis

Marke rket Develop

pment

Coor

ordination

ion

Monitoring, match making, and solution:

Repo
Hedging

Money Market Encourage well-functioning money market (deep and efficient, risk mitigation, and market integrity), through:

Bank Indonesia Regulation (PBI)

I) on Negotiable Certificate of Depo posit (NCD) Enriching money market instruments, encourage banks to raise long term funding, and acts as an alternative investment for investors

Bank Indonesia Regulation (PBI)

I) on Commercial Pape per Alternative sources of financing for non-bank corporations, as well as an investment outlet for investors FX Market

Developme

pment roadmap p of Indonesia CCP P in OTC Derivatives To support FX market development and reduce market segmentation.

Establish

h Local Currency Settlement Framework Reducing dependency on USD payment for international trade.

Encourage product developm

pment to increase hedging Suppl ply in domestic market To provide hedging instrument alternative for corporations to manage their risk exposure

Corporate

Bonds

Government

Bonds

Medium term

notes

Other

instruments

Infrastructure

(ETP, etc)

Suppor portin ing Regulatio ions

Money Broker Certification of Dealer and Code of Conduct Strengthening JISD SDOR

Increase the governance of money broker
Revitalize role of money broker in financial

market

Obligation on certification for dealers
Obligation to honor code of conduct
Dealers’ training for certification
Strengthening the credibility of JISDOR
Extend the usage of JISDOR

Inter-agency Coope

pera

ratio ion On April 2016, the Minister of Finance, the Governor of Bank Indonesia, and the Chairman of the Board of Commissioners

f the Financial Services Authority have launched a Coordination Forum for the Development Financing through Financial

Market (FK-PPPK). The three authorities have agreed to formulate “The National Strategy to Develop Indonesian Financial Market Towards 2025” which is expected to be concluded by the end of 2017/early 2018.

SLIDE 77

76

Continu tinuous us Progr gram

n

Capital ital Marke ket Deepening ning

…continuously strengthened, including through capital market deepening initia iativ ives es

The utilization ion of capi pital marke rkets by domestic ic corpo pora rations ions (including financia ial instit itutio ions) demon

nstrates an increasin

ing trend

Stren engt gthenin ening marke ket infr frast struc ucture

Expansion
f

Single Investor Identification (SID) coverage

Development
f

electronic trading platform (ETP) in the debt market

Development
f

integrated investment management system

Enhancement
f

the clearing and settlement process

Enhancement
f

capital market data warehouse

Enhancin ing the supply-sid side

Simplification
f

public-offering requirements & procedures

Development
f

financial market products (mutual funds, private equity funds, REITs, ABS)

Development
f

municipal bonds

Cross-border
ffering

(harmonizing regulations with ASEAN Disclosure Standards established by ACMF)

Enhancin ing the demand nd-sid side

Expansion
f

the domestic investor base (conducting investor education programs)

Expansion
f

mutual fund distribution channels, including the marketing methods

f

securities companies

Stren engt gthenin ening governa nance

Development
f

market players’ capacity

Enhancement
f

GCG for publicly-listed companies

Development
f

repo regulations and infrastructure

Source: Financial Service Authority (OJK), July 2017

12.1 4.1 67.1 53.8 116.2 84.7 20 40 60 80 100 120 140 2012 2013 2014 2015 2016 Jan-Jun 2017 IDR tn IPO Equity Rights Issue Corporate Bonds & Sukuk

SLIDE 78

77

Macroprud ruden ential tial Polic icy Mix to Support rt Growth wth

Effective from August 29th, 2016, Bank Indonesia relaxed the Loan to Value Ratio (LTV TV) and Financing to Value Ratio (FTV TV) on housing loans at 85-90% for the first mortgage lending facility, 80-85% for the second mortgage lending facility, and 75-80% for the third mortgage lending facility. The relaxation is only applicable to banks with nett NPL for total loan below 5% and gro ross NPL for property loan/financing below 5%. Housin ing Loans and Financin ing Based on Mura rabaha hah h and Istis ishn hna Contra racts

Property type (m2) Lending nding/Financing inancing Faci cilit ity First Second Third House >70 m2 85% 80% 75% 22 - 70 m2

85%

80% <21 m2

Apartment

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

85%

80% Home Shop/Office

85%

80%

Housin ing Financin ing Based on MMQ Q and IMBT BT Contracts

Property type (m2) Lending nding/Financing inancing Faci cilit ity First Second Third House >70 m2 90% 85% 80% 22 - 70 m2

90%

85% <21 m2

Apartment

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

85%

80% Home Shop/Office

85%

80%

The rationale is to stimulate domestic demand in order to drive domestic economic growth momentum while maintaining compliance to prudential principles.

Source: Bank Indonesia

1 2

Effective from August 24th, 2016, Bank Indonesia raised the lower limit of the primary reserve requirement’s loan financing ratio (GWM – LFR) from 78% to 80% with the upper limit unchanged at 92%, in order to support credit growth.

SLIDE 79

78

Financ ncial ial Sector: r: Foste teri ring Domestic tic Growth wth

…boosting domestic econo nomic activ ivit ities es and suppo portin ing the natio iona nal econo nomic ic devel elopm pmen ent

Funding ng

f

infrast structure & prior

rity

econom

mic

ic sector

rs
Enhancement
f

NBFI

wnership

in government bonds

Private

equity funds for infrastructure financing

Asset-backed

securities specifically designed for secondary mortgage financing

Insurance

for farmers and fishermen

Capacity buildin ing

f

fina nanc ncial inst stit itut utio ions ns

Strengthening

the capital

f

financial institutions to increase their financing capacity

Expansion
f

the business lines

f

multifinance companies

Capital

requirements for rural banks based

n

their

perational

zones

Developm

pment

ent

f

financia ial produc ucts & servi vices es

Expansion
f

the distribution channels for financial products & services

Development
f

sustainable finance regulations

Utilization
f

KYC information from third parties

Facilitating

access to capital market as a source

f

funding (e.g. simplification

f

public

ffering

procedures)

Capital

market deepening initiatives

Developm

pment

ent

f

Islamic financia ial sector

Strengthening

the capital

f

Islamic financial institutions

Spin-off
f

the Islamic business units

f

commercial banks

Development
f

Islamic financial product regulations (sukuk, mutual funds, asset-backed securities)

Continuous

education & socialization

n

Islamic financial products & services

Source: Financial Service Authority (OJK)

SLIDE 80

79

BI’s Roles in Supporting Distribution

f

Non-Cas ash Social al Assistan tance (NCSA)

BI supports government nt’s program

f shift

fting ing social assist stanc nce to targe geted ed non cash social assi sist stanc nce disbu sbursem sement ent throug ugh the electron

nic

payment nt

system. In

the futur ure, electron

nic

mec echani nism disb sbur urse sement nt will be also applied ed to LPG subsi sidy. . NCSA Program ams

Famil ily Hope Program (Program Keluarga Harapan

PKH)

Smart Indonesia ia Program (Program Indonesia ia Pinta tar-PIP) Non Cash Food Assista tance

2016-2020

Pi Pilot Projec ect Gradual Impl plem ement entation ion

Inter erconnec ected ed & inter eroperab able paymen ent system

LPG Subsid idy

Full Impl plem ement entation ion

XXYYZZ 12345678

9876543210

SLIDE 81

80

Progress

f

NCSA Program ams

Famil ily Hope Progr gram (Prog

gram

Keluarga ga Harapa pan

PKH)

Prosp sper erou

us

Rice (Beras Sejahtera / Rastra)

The Family Hope Program (PKH) is a program that

provides cash to very poor households. Rp 2 million /year will be granted for each household (hh). PKH will be granted every February, May, August, and November

In 2017, PKH is targeted for 6 million hh (50% or

3 million distributed on non-cash basis and the remaining in cash basis. However, in the 2nd semester of 2017 all PKH will be distributed on non-cash basis.

As of June 2017, Non-Cash PKH was granted to

2.65 million hh (88,33% of 3 million hh).

Rastra is a poverty alleviation and social

protection program that is managed by the central government. It provides subsidized rice to low-income households. Rp 110 thousand/month will be granted for each hh as Non-Cash Rastra.

For 2017, Non-Cash Rastra was targeted for 1.6

million hh (9% of total target 15.5 million hh) in 45 cities and 6 regencies. Non-cash Rastra can be used in certain stores: Toko Sembako, E-warong, and Rumah Pangan Kita.

As of February 2017, Non-Cash Rastra was

granted to 881 thousand hh.

Non-Cash Rastra will be expanded

to 10 million families in 200 regencies in 2018.

Cash 50% Non- Cash 50%

January 2017

Non- Cash 100%

2nd Semester of 2017

PKH Targe get

In December 2016, Non-Cash PKH was granted to

23% of total target of household.

SLIDE 82

81

Strong nger er Fundam amentals ntals Facing the Headwinds winds

82.4 12.1 6.8 1998 2008 Sep-15 30 30 3.8 2.8 1998 2008 Aug-15 17.4 50.2 1998 2008 Sep-15

Inflati lation n Rate (%) IDR Movement nt (%) Non-Pe Performing ng Loan/NPL PL (% (%) Governm nment nt Debt/ t/GDP Foreign n Reserves (USD SD bn)

100.0% 1998 98 27.4% 2008 08 28.6% 2017 20171 8.6x 1998 98 3.1x 2008 08 2.7x Q3-201 2017 116.8% 1998 98 33.2% 2008 08 34.36% Q3-201 2017

More Liquid Marke ket (%) Exte terna nal l Debt t (Publi blic c & Private ate) to FX Reserve Ratio Exte terna nal l Debt/ t/GDP

Infla lation controlle lled within the target get range ge IDR sligh ghtly ly deprec eciated ed in October er 2017 17 NPL level el is below w the maximum thres eshold ld of 5% Consisten ently ly well-maintained ed belo low 30% Significa cantly ly higher er than 1998 8 & 2008, 08, ample le to cover er 8. 8.3 months of import and exter ernal l debt repaymen ent Significa cantly ly lower er than 1998 8 crisis Sligh ghtly ly higher er than 2008, 08, but significa cantly ly lower er than 1998 98 October 17 12 126, 6,5

Oct’ 17

3.58 (yoy)

September ‘17 2.9 .9 62 62 10.5 5.7 1998 2008 Jul-15

Overnigh ght inter erbank k money ey market ket rate e is rela lativel ely lower er

Sept’ 17

4. 4.04 04

0.66
35

35

197

October '17 2008 1998 (ytd td)

12017 year end position of debt/GDP is projected based on GDP

assumptions in 2017 budget

SLIDE 83

82

Outlo look

f

Domestic stic Economy my Remains ins Robust ust

...d .domes estic ic econo nomic ic growt wth is predic dicted ed to be higher in 2017

2017 Econom

mic

ic Outlook

k

 Economy is predicted to grow at 5.1% (yoy) in 2017, on the back of increased investment and consumption activities, in line with more

expansive government spending

 Inflation is expected to remain low at 3.0%-3.5%, within the lower end of the 4.0±1% target range, with the current account deficit

maintained at below 2% of GDP

 Credit growth is estimated to grow at around 8%, in line with Bank Indonesia’s effort to encourage the improvement of banking

intermediation function. Econom

mic Growth

Infla lation

n

CAD (% (% of

f GDP)

Credit Growth

2017 Outlook

k

5.1% 3.0 .0-3.5 .5% <2% 2% 8%

Global Domestic tic Opportu tunit itie ies

Improving

global economic growth

Acceleration
f

world trade volume

Projection
n

commodity prices which set to remain high

Continous economic

recovery process, with a more equitable and balanced structure Challenges

Potentially

tighter monetary policy in advanced countries as well as geopolitical factors

Limited growth

in household consumption and banking intermediary

2017 Econom

mic

ic Opportun unities es & & Challeng nges es

Source : Bank Indonesia

2018 5.1–5.5 .5 % 3.5±1% <3% 10 10-12 12% %

SLIDE 84

Prog

gressiv

ive Infras astru ructu ture Developm lopment: Stron

ng

Commitm itment

n

Accele leratio tion

f

Infras astru ructu ture Prov

visio

ision

Sec ection

n

6

SLIDE 85

84

The Govern rnment has Enacte ted Various us Reforms rms to Accelerate te Infras astr truc uctur ture Provis isio ion

Fiscal Reforms Instit itutio iona nal Reforms Regulatory Reforms

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

Viabil ility ity Gap Fundin ing (VGF) KPPIP Direct Lendin ing Issuance

f

MoF Reg. No. 223/2012. To increase project financial feasibility by contributing up to 49%

f

the construction cost Avail ilabil ility ity Payment Land Revolvin ing Fund Risk-sha harin ing Guid idelin ines Issuance

f

regulatory framework for annuity payment scheme by the Government (MoF Reg. No. 190/2015 for Central Gov’r and MoHA Reg. No. 96/2016 for Regional Gov’t.) during the concession period after the project

perational

by private sector in

rder

to make the project bankable Issuance

f

MoF Reg. No. 220/2010. A revolving-fund sourced from State Budget, to accelerate land acquisition IIGF has issues risk allocation and mitigation guidelines for PPP project KPPIP is actively involved in accelerating delivery

f

priority infrastructure projects

PT. Sarana Multi

ti Infrastr truktu ktur Merging between

PT. SMI

and Gov’t Investment Center (PIP) to become an infrastructure funding company Indonesia ia Infrastr tructu ture Guarante tee Fund (IIGF) IIGF has the potential to provide project guarantee for non-PPP projects PPP Unit Provide facilities to help GCA

n

preparing PPP project (PDF/TA) BLU LMAN The State Asset Management Agency is mandated to provide land fund for National Strategic Projects to ensure timely land acquisition process Issuance

f

Presidential

Reg. No.

82/2015. Allow guarantee for direct lending to SOE to accelerate financial close process for infrastructure projects Land Acquis isitio ition Issuance

f

Presidential

Reg. No.

148/2015. To stipulate land acquisition acceleration based

n

Law

No. 2/2012

Economy Packa kages Conduct deregulation for issues hindering infrastructure delivery and develop a task force under CMEA to ensure the effectiveness

f

economic packages implementation

SLIDE 86

85

Reforms Along the Project’s Life Cycle

...t .to enco courage and accel eler erate infrastructur cture projec ect using ng PPP schem eme Gover ernm nmen ent

f

Indone nesia ia

Projec ect Developm

pment

ent Facility (PDF) F) Viabil bility Funding ng Gap (VGF) Guarant ntee Fund Tax Facilities ies Availabil bility Paymen ent Land Acquisit sition ion Preparation Bidding Process Construction

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

n GCA

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

Guaranteeing Govt. contractual

bligations

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

159/PMK. 010/2015 re: tax holiday for pioneer sector, such as base metal, oil refinery, basic petrochemical, machinery, renewable energy, & telco equipment

industries. Sector

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

SLIDE 87

86

Effort rts to Accele lerate Infras astr truc uctu ture Provis isio ion

Regu gulatio ion improvem emen ent to to acceler erate land procurement process ss

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

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

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

Regulation No. 71 of 2012 on Land Acquisition Implementation for Developing Public Facilities, which has been revised into the Presidential Regulation No. 30

f 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 d in Law No. 2 of 2012

Law No

No. 2/2012 was successfully applie

ied in in: 1. 1. Pa Palembang – Indra ralaya section ion of

f the

he Tra Trans Sumatera ra Toll Road Proj

ject

2. 2. Java Nort rth Line Double Track Rail Proj

ject

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

SLIDE 88

87

Effort rts to Accele lerate Infras astr truc uctu ture Provis isio ion

…the establishment

f

Indone nesia ia Asset et Managem emen ent Agenc ncy (LMA MAN)

Source: Ministry of Finance

On On De December 12 12th, 2016, Indonesia ia As Asse set Management Agency (Le Lembaga Manajemen Aset Negara/L /LMAN) has been launched to to optim timiz ize th the use of

f sta

tate te assets

ts. LM

LMAN should plan for funding and util tiliza izatio tion of

f land banks

ks as as well as as pay compensatio tion for land acquis isit itio ion to to support the government’s infrastr tructu ture development program

Manda ndate

1. Government Regulation No.27/2014

n

the Management

f

State/Region Property 2. Finance Minister Regulation No.219/PMK/2015

n

the Governance and Organization

f

State Asset Management 3. Finance Minister Regulation No.1319/KMK.05/2015

n

the Appointment

f

Indonesia Asset Management Agency as Government Agency to Implement Financial Management

f

Public Service Agency

Lega gal Basis is

1. Property

Management

2. Land

Funding for National Strategic Project

1. Asset
f

ex-Pertamina: LNG Badak Bontang, LNG Arun, and Tarogong Land

2. Asset
f

ex-Indonesian Bank Restructuring Agency (BPPN) Other portfolio: Asset

f

ex-Asset Management Company (PPA) and ex- Contractor Cooperation Contract (KKKS)

Portfolio io Asset ets

SLIDE 89

88

Under er Presid ident ential ial Reg. . No.3/2 3/201 016 j.o. the Presid ident entia ial Reg. . No.58 58/201 /2017, 245 projec ects and 2 program ams are listed ed as PSN

PSN includes es 15 sectors at projec ect level el and 2 sectors at progr gram level el

7

IRIGASI

Project ct

Electricity 1 PROGRAM Small- Medium Airplane 1 PROGRAM

74 74 12 12 6 4 7 54 54 9 3 3 30 30 8 10 10 23 23

61 24 27 13 15

Projects Proyek

93 93 10 10 1 12 12 2

Projects Programs

US$47.3 Bn US$41.7 Bn US$24.3 Bn US$33.2 Bn US$98.8 Bn US$0.8 Bn US$81.1 Bn

Projects Projects Projects Project s Projects Projects Projects Projects Projects Projects Projects Projects Projects ROAD RAILWAY SEAPORT AIRPORT INDUSTRI-AL ZONE HOUSING NATIONAL BORDERS WATER & SANITA- TION IRRIGA- TION DAM TECH- NOLOGY OIL & GAS SMELTER

Projects Projects Projects Projects Projects Projects

1

Project FISHERY

Exchange rate: US$ 1 = IDR 13,500

1

Project SEA DIKE

Program

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

Kalimantan Sumatra Sulawesi Maluku & Papua Java National

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

SLIDE 90

89

PSN may receive ive privil vileg eges es as stip ipul ulated ed in the Presid ident ential ial Reg. g.

No. 3/201

2016 j.o. the Presid ident entia ial Reg. . No. 58/201 /2017

01 01 02 03

Determination of National Strategic Projects

04 05 06 07 08 09 10 10 11 12

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

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

SLIDE 91

90

Progr gres ess

n

245 Natio ional nal Strategic tegic Projec ects ts

2% 59% 4% 35%

4 projects are completed 147 projects are under construction2 9 projects are during transaction 87 projects are in preparation

Progr gres ess of Natio iona nal Strategic egic Projec ects (as of October ber 201 2017)1 The Estim imated ed Investmen ent Cost of Natio iona nal Strategic egic Projec ects1

1Exclude 12 projects which investment value are still unknown 2Exchange rate : US$ 1 = IDR 13,500

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

2Including 35GW electricity program under construction category (42% of

electricity program has reached construction per October 2017)

1Under Presidential Reg. No.58/2017 (to amend Presidential Reg. No.3/2016),

PSN list has been revised

State Budget 13% SOEs/ RSOEs 28% Private 59%

Total Invest stment nt Value2

US$ 327.2 Billio lion

State Budget US$ 40.6 Bn Bn SOEs/RSOEs US$ 92.9 Bn Bn Private US$ 193.7 Bn Bn

5 Sectors with h Highes ghest Inves estmen ent Value

Energy 12 Projects US$ 93 Bn Electr tric icity ity 1 Program US$ 76.7 Bn Road 74 Projects US$ 52.2 Bn Train in 23 Projects US$ 46.2 Bn SEZs and IEs 30 Projects US$ 28.7 Bn

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

SLIDE 92

91

Progr gres ess

n

37 Priori rity ty Projec ects ts

From

m

the revise sed Nationa nal Strateg egic Projec ects, s, the Government nt has selected ed a list

f

37 Priorit ity Projec ect to be the focus

f
f

infrast struc uctur ure provi visi sion

n.

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

Note: New Priority Projects are highlighted in the red color

SLIDE 93

92

Progr gres ess

n

37 Priori rity ty Projec ects ts

Recent Milestone

nes

Prog

gre

ress of 37 Prior

rit

ity Proj

jects (as of Octobe
ber 201

2017) Fundin ing Scheme of 37 Pri rior

rit

ity Proj

jects

20 projects are in construction 5 projects are in transaction 12 projects are in preparation Project loan pledge (1st

stage

construction and monitoring) has been done by the Government

f

Japan in August 2017. Loan proposal (2nd

phase

construction and 1st phase additional construction) amounted USD 1,869 billion has been included in the Green Book published

n

July 2017 and approved by Regional Parliament Letter

f

recommendation regarding spatial and reroute

f

road trace has been published and environmental lisence has been issued by Ministry

f

Environment and Forestry. Ministry

f

Finance has issued Letter

f

assignment to PT. Sarana Multi Infrastruktur (PT. SMI) to provide project development facility

n

September 29th 2017.

Patim imban Port MRT North – South Jakarta Cilacap Refine nery Revitaliza izatio ion West Semarang Water Supply Sy System em

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

51% 51% 39% 39% 10% 10%

US$92.4 billion from Private/ PPP US$71.8 billion from SOE/ Regional SOE US$17.5 billion State/ Regional Budget (including G-to-G loan)

54% 54% 14% 14% 32% 32%

Exchange rate : US$ 1 = IDR 13,500

Total Investment Value US$ 181.6 Billion

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

SLIDE 94

93

Energy gy Sector: r: the Progr gress

f

35.000 MW Progr gram

No No Phase MW MW % 1 Operating 948 3 2 Construction 15,126 42 3 Signed Power-purchase Agreement 13,673 38 4 Procurement 3,763 11 5 Planning 2,328 6 17 Dec ‘14 Cabine binet Meeting ing “There’s electricity crisis in Indonesia, requires construction

f large capacity plant "

Jan ‘15

Averag age econo nomic ic growth of 6.7% % requi uires 7,000 MW / year or 35,000 MW / 5 years (Kepmen ESDM No. 0074/2015 on RUPTL 2015-2024)

Jan ‘15

Debo bottlene necki cking ng throug ugh regul ulat atio ion: n:

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

f

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

16 Mar ‘15 4 May ‘15 June‘17

Cabine binet Meeting ing Progress of 35,000 MW Launch unching ng 35.000 MW by the President in Goa Beach Sanden DIY The e progr gres ess so far:

Sulawesi si 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 Prog

gra

ram Distrib ibution ion

Source: PLN

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

Note : Progress of 35,000 MW Electricity Program per October 2017 Note: This data is still going to be verified by The Executive Office of President (KSP) and Indonesia’s National Government Internal Auditor (BPKP)

SLIDE 95

94

Acceler eratio tion

f

35.000 MW Progr gram am

Governm nment ent PT PLN

EPC Powerpl rplant and Transmis mission ion PLN Subsid idiary (Joi

int Venture

re) Indepe pendent Power r Producer r

Strength then Equity ity 2B 2B 1

Governme rnment Suppor port (outsid ide Guara rantee)

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 2A

Assignment SJKU* U* Minis istry ry of Finance

Strength then PLN‘s Balance Sheet

*)SJKU=Surat Jaminan Kelayakan Usaha/ Business Viability Guarantee Letter The Gov

vernme

rnment has issued Presid identia ial Regulatio ion No. 4/2016 on Electricit ricity Infra rastru ructure re Accelera ration ion to accelera rate power r proj

jects

Prov

vision

ion of Electric icit ity Refinancin ing Hedging Financia ial Asset Optim imiz izatio ion 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

f funding

Equity Injection by the Government

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

SLIDE 96

95

Signific nifican ant Progr gres ess

n

Infras astr tructur ture Proje jects ts

Database Project information such as map, track, existing study and latest project status. An inte tegrate ted IT system with monitoring capacity for stakeholders, so that they can have real time data ta. Platf tform data

utlook

that is efficient and functional using a user-friendly framework. Record decisions related to projects and synchronize ize the implementation schedule that can be utilized by stakeholders.

KPPIP developed an integrated IT System for monitoring

f

national strategic and priority projects, providing database on projects’ latest status which can be effectively utilized for monitoring and decision-making purposes. Impro proving ng Moni nitoring ring System on Infras rastruct cture re Project cts1 Roads

Trans-Sumatra Toll Road Merah Putih Bridge, Ambon

Dams

Jatigede Dam (Operational)

Trans nspo portati tation

Jakarta MRT Project2

Drinki king Water Processing

Umbulan Drinking Water Provisi sion Syst stem, East st 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

SLIDE 97

96

Inves estme tment nt in Iron Ore, Alumina ina and Bauxite ite Smelter ter

Existin ing Iron

n Ore Refinery

ry Facilit ity

No. Company Prod

duct

Ore e Input t Capacit city (ton

n)

Con

ncen

entr trate e Input Capaci city (ton

n)

Inves estmen ent (USD mn) Progr

gres

ess Completi etion

n Date

te 1 PT DPS Sponge iron 1.100.000 220.000 40 100% 2012 2 PT MJIS Sponge iron, slab, billet 3.300.000 660.000 150 100% 2013 3 PT SBP Cold Bricket Iron 240.000 65.800 120 100% 2017 No. Company Prod

duct

Ore e Input Capacit city (ton

n)

Con

ncen

entrate e Input Capacit city (ton

n)

Inves estme ment (USD D mn) Progr

gres

ess Completion etion Date 1 PT SILO Sponge iron 8.000.000 6.300.000 170 61% 2021 2 PT RS Sponge iron 3.200.000 264.000 6,9 0% 2020

Completed but not operating

No. Company Prod

duct

Input Capacit city (ton

n)

Inves estmen ment (US$ mn) Progr

gres

ess Completion etion Date 1 PT Indonesia Chemical Alumina Chemical Grade Alumina 851.725 0,49 100% 2013 2 PT Well Harvest Winning Smelter Grade Alumina 3.000.000 (Phasa 1) 6.000.000 (Phase 2) 1,1 Phase 1 : 100% Phase 2 : 0% 2016 (Phase 1) 2017 (Phase 2)

Upcom

min

ing Iron

n Ore Refinery

ry Facilit ity Existin ing Alumin ina and Bauxit xite Refinery ry Facil ilit ity Completed and operating

Source: Ministry of Energy and Mineral Resources, July 2017

SLIDE 98

97

Inves estme tment nt in Nickel el Smelter ter

Source: Ministry of Energy and Mineral Resources, July 2017

SLIDE 99

98

Financ ncing ing Needs and Schemes es

98

Source: Ministry of Finance

145.9

SOE SOE

Private 234.8 88.8 Financin cing Needs Gov’t t Budget et Financin cing Gap 399.6 164.8 *(USD bn bn) ) 41,3% 58,7% 22,2% 36,5% 100% 100%

Government Budget is used for basic infrastructure projects,

mainly for projects that are economically feasible but financially are not.

SOE scheme is used for projects managed under SOEs

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

PPP scheme is mainly targeted for projects that are both

economically and financially feasible.

The government may provide financial support to make certain projects

financially feasible.

The government may appoint certain SOEs to assign specific

infrastructure projects

To support the infrastructure provision through the SOEs, the

government provide a number of financial facilities, such as:

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

Infras rastruct ructure Fina nanc ncin ing Need 2015-2019 Genera ral criteria ria for r financin ing schemes Financia ial Facil ilitie ies Prov

vided to SOEs Infra

rastru ructure re Proj

jects

PPP scheme and facilit itie ies provid ided to PPP Proj

jects

Source: Ministry of Finance

SLIDE 100

99

Governm ernment ent Guarante antee For Basic Infras astr tructur ture Develo lopme ment nt

Refl flec ects strong commitm itmen ent to natio ional devel elopm pmen ent plannin ing

Source: Ministry of Finance Central Gov

ver

ernme ment Guarantee ee for r Infra rastru ruct cture e Progra rograms ms Guarantee ee Docu cumen ments Commi mmitted ed Guarantee ee Amou

unt

(USD bn bn) Expos

sure/

re/ Outstanding g (USD bn bn) 1 Coal Power Plant 10,000MW Fast Track Program (FTP 1) 36 6.95 2.96 2 Clean Water Supply Program 10 0.02 0.01 3 Direct Lending from International Financial Institution to SOEs 3 1.43 0.35 4 Sumatra Toll Road Development 5 0.61 0.48 5 Renewable energy, Coals & Gas Power Plant 10,000 MW (FTP 2) 12 11.59 1.59 6 Public-Private Partnerships (PPP) 5 3.46 1.06 7 Regional infrastructure financing 1 0.20 0.07 Total 72 72 26.03 6.53

Guarante ntee Program Based on Guarante ntee Classificati tion Governm nment nt Guara rantee Program Credi dit Guarant antee PPP Guarant antee Busine iness Viabil bilit ity Guarant antee

 Power er (Elect ectric ricity) – Full credit guarantee for PLN’s default on its payment obligation (FTP 1 10,000 MW, 35GW)*  Water er – 70% guarantee of PDAM’s principal payment obligation  Infrastru ruct cture - Full credit guarantee on SOE’s default (for lending from international financial institution) & guarantee for PT SMI (local infrastructure financing)  Toll road – Full credit guarantee on Hutama Karya’s payment obligation (Sumatra Toll Road Development)  Power er (Electricity) – Guarantee on the viability

f PLN to fulfill Purchase Contract Electricity &

guarantee against political risk  Infrastru ruct cture – Guarantee on the obligation of Government related entities in accordance to the Agreement

 For the period 2018 – 2021, the Maxim imum Gu Guarantee Limit is set at 6% of GD GDP  In compliance with the guarantee limit, with projected 2021 GDP of eqv.IDR19,600 trillion, the space for guarantee issuance during 2018-2021 is eqv.IDR 1,200 trillion – cumulative

Polit itic ical al Risk k Guarant antee

Infrastru ruct cture – Guarantee against political risk for National Strategic Projects (Presidential Decree No.3/2016) which are not covered by other type of guarantees

*) MOF provides both credit guarantees and BVGs for 35GW program

SLIDE 101

100

Governm ernment ent Financ ncial ial Facilit itie ies for PPP Proje jects ts

Financia cial Facil cilitie ities to Attract ct More Private te Particip ticipatio tion

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

f the following PPP projects:

Viabil ility ity Gap Fund (VGF) Project Development Facil cility ity (PDF) Government Guarante tees (dir irectl tly by MoF or through IIGF) Financin ing from PT

PT. SMI

and

PT. IIF

Avail ilabil ility ity Payment Schemes More Fundin ding Schemes are

n

the Pipelin ines

Project Financing funde ded d by the priv ivat ate sector through the granting of concessions for an

perating asset owned by the

Government/SOE (based on the policy of the Government) to the private sector to be

perated & managed.

Project Financing funde ded d by any source ce of funds ds 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 Char arac acteris istic ics Scheme Char arac acteris istic ics

LCS (Lim imite ited Concessio ion Scheme) PINA (Non-Go Government Budget Infrastr tructu ture Financin ing)

Source: Ministry of Finance

SLIDE 102

101

Progr gres ess

f

PPP Infras astr truc uctur ture Proje jects ts

No No Project ct Name Project ct Cost (IDR tn tn) Financial nancial Faci cilit ities Status us 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 ts Reachin ing Financia ial Close in 2016 and 2017

No No Project ct Name Project ct Cost (IDR tn tn) Financial nancial Faci cilit ities Status us 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 ts in 2016 and 2017

Source: Ministry of Finance, as of July 2017

SLIDE 103

102

New Guarantee ntee Schemes for Non-PPP Proje jects ts

The Government had issued Presid identia tial Regulatio tion No No 82 82/2015 and Min inis istry of

f Fin

inance Regulatio tion No No 189/2015 to provide guarantee for SOE Direct Lending from IFIs for the Development of Infrastructure Projects. Guarante tee

n

SOE Direct ct Lendin ing from Internatio tional Financia cial Institu itutio tions (IFIs) s) Guarante tee for Regio ional Infrastr tructu cture Financin cing Provisio ision State te finance soundness Fiscal susta tain inabil iliy iy Best practic tice

f

fiscal risk management The

bjective
f

this guarantee is to provid ide credit it enhancement in terms

f

low inte terest rate te and long tenor financin ing, with 3 main in princip ciples: s:

The Government had issued Ministry ry

f
f Finance

Regulation

n

No No 174 174 of

f 2016 to provide guarantee

to PT SMI

n the

assignment

f

regional infrastructure financing provision, by loan to local governments that is transferred from PIP to PT SMI, and new loan channeled by PT SMI to the local government. Based

n

Gov

vern

rnment Regulation No No. 95 95/2015 and Ministry ry

f
f

Finance Regulation

n

No No. 232/2015, Minister of Finance assigns PT SMI (Sarana Multi Infrastruktur) to carry

ut functions in providing loan to

local government, as previously carried

ut

by PIP (Government Investment Center). The objective is to give stim imulus to to the he accelera ration

n
f
f

loca

cal

infra rastru ructure re develop

pment

through the ease of access to infrastructure financing and to boost local economic growth, as well as to provide alternative financing schemes in

rder

to meet local infrastructure development needs and to reduce reliance

n

state/local budget.

SLIDE 104

103

Progress

f

SOE’s Projects

Prog

gre

ress of Proj

jects Benefitin

ing from

m Guarantees on SOE Loans

No No Sectio ions Length th (Km) Project Cost (IDR bn bn) Statu tus (as

f

March 10 10th

th,

2017) 1 Medan-Binjai 17 2.74 Construction progress: 54.18% Land Acquisition: 89.91% 2 Palembang-Indralaya 22 3.30 Construction progress: 52.68% Land Acquisition: 97.68% 3 Bakauheni-Terbanggibesar 140 16.79 Construction progress: 23.88% Land Acquisition: 78.14% 4 Pekanbaru-Dumai 131 16.21 Construction progress: 41.02% Preparation for DED 5 Terbanggibesar-Pematangpanggang 100 11.86 Preparation 6 Pematangpanggang-Kayuagung 85 10.08 Preparation 7 Kisaran-Tebingtinggi 60 6.99 Survey and Planning 8 Palembang-Tanjungapiapi 90 14.29 Survey and Planning The Government issued government guarantees to loans of PT. Hutama Karya in the development of Trans-Sumatera Toll Road, as comprise as follow:

Source: Ministry of Finance

SLIDE 105

104

Progress

f

SOE’s Projects

Prog

gre

ress of Proj

jects Benefitin

ing from

m Guarantees on SOE Dire

rect Lending

No No Project Name Project Cost (IDR mn mn) Lender SOE Statu tus 1 Sumatera Power Transmission and Distribution 600 ADB

PT. PLN

Guarantee is effective 2 Sumatera Power Distribution 500 World Bank

PT. PLN

Guarantee is effective 3 The Enhancement

f

Electricity Grid 330 IDB

PT. PLN

Preparation

f

guarantee issuance (recommendation to the Minister

f

Minister for Approval)

Other r Guaran rantees That Have Been Provid ided to SOE Project cts

No No Program Guarante tee Commite ited (IDR bn bn) SOE Number

f

Guarante tees 1 Fast Track Program 1 6.98

PT. PLN

36 2 Fast Track Program 2 11.91

PT. PLN

12 3 Clean Water Supply Program 0.02 PDAM 10

Source: Ministry of Finance