REFORMS IN THE MAKING REFORMS IN JUNE 2016 THE MAKING APRIL 2016 - - PowerPoint PPT Presentation

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REFORMS IN THE MAKING

APRIL 2016 REPUBLIC OF INDONESIA

REPUBLIC OF INDONESIA

REFORMS IN THE MAKING

JUNE 2016

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1 The Republic of Indonesia Investor Relations Unit (IRU) has been established as the joint effort between the 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 address

concerns of investors, especially financial market investors. IRU is expected to serve as a single point of contact for the financial market participants. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is being administrated by the International Department of Bank Indonesia. However, investor relations activities involve a coordinated efforts which are supported by all relevant government agencies, i.e. Bank Indonesia, the Ministry of Finance, the Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of Industry, State Ministry of State Owned Enterprises, State Asset Management Company, and the Central Bureau of Statistics. IRU also holds an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit – Republic of Indonesia Contact: Wiwit Widyastuti K. (International Department - Bank Indonesia, Phone: +6221 2981 8279) Dalyono (Fiscal Policy Office – Ministry of Finance) Farid Arif Wibowo (Directorate General of Budget Financing and Risk Management- Ministry of Finance) E-mail: contactIRU-DL@bi.go.id

About the Republic of Indonesia Investor Relations Unit

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2

Overview

Institutional And Governance Effectiveness: Unwavering Commitment on Reforms Agenda Wide Range of Policy Reforms to Boost Economic Growth Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Management Monetary Factor: Monetary Policy Anchors Price Stability Economic Factor: Healthy Growth Prospects Remain Intact External Factor: Improved External Resiliency

1 2 3 4 5 6

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Section Institutional And Governance Effectiveness: Unwavering Commitment on Reforms Agenda 1

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4

Improving Global Perception

Source: World Economic Forum; World Bank; Transparency International

World Governance Indicators Ease of Doing Business WEF Global Competitiveness Corruption Perception Index

28 36 35 38 44 50 20 30 40 50 60 2010 2011 2012 2013 2014 2015 Indonesia Thailand Malaysia 54 37 49 55 56 75 87 47 75 56 30 45 60 75 90 2009 2010 2011 2012 2013 2014 2015 Indonesia India Brazil Phillipines Vietnam Higher score is better Higher rank is better Higher rank is better Higher rank is better 53 31 55 49 42 34 20 25 30 35 40 45 50 55 2010 2011 2012 2013 2014 Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption 129 109 132 130 127 116 32 73 30 60 90 120 150 2009 2010 2011 2012 2013 2014 2015 2016 Indonesia India Brazil South Africa

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5

Indonesia Remains the Investment Destination of Choice

IDR tn

2015E Total Investment / GDP (%)

Indonesia Enjoys Large Investments Relative to Peers within the Region2

3,9 3,9 4,6 5,5 6,2 7,9 11,1 11,5 16,6 23,6 27,5 30,7 38,8 38,8 40,4 5 10 15 20 25 30 35 40 45 Turkey Korea Singapore Russia Malaysia Myanmar Brazil Philippines USA Mexico Vietnam Thailand China Indonesia India % of surveyed who consider each country has promising prospects

JBIC: Amongst ASEAN countries, Indonesia is the most preferred place for business investment (December 2015)4 The Economist: Indonesia among the top 3 destination for attracting investors in Asia (January 2016)3

18,9 22,9 23,6 24,8 27,1 28,3 29,0 30,1 32,2 32,7 37,2 48,0 58,2 69,3 0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 Taiwan Hong Kong South Korea Singapore Australia Japan Thailand Vietnam Myanmar Malaysia Philippines Indonesia China India % of surveyed who plan to increase investment in each country 1. Source: Indonesia Investment Coordinating Board (BKPM); 2. Source: IMF World Economic Outlook, Database October 2015; 3. The Economist – Asia Business Outlook Survey 2016; 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (27th Annual Survey);

50 100 150 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

FDI DDI Total

145.4 46.2 99.2 2013 2014 2015 2016

Rising Direct Investments1

18,0 30,7 34,0 26,5 20,7 24,7 5 10 15 20 25 30 35 Brazil India Indonesia Malaysia Philippines Thailand

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6

National Strategic Development Plan (Nawa Cita)

Human Development

Education Health Housing Character

Priority Sector Development

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

Equitable Development

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

Security & Order Politic & Democracy Governance

The 3 Dimensions on Economic Development Necessary Condition

Legal Certainty & Law Enforcement

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7

Improving Investment Climate:

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

BKPM

• Arrive at One-stop Integrated Service at

BKPM directly from the airport.

• Consult with Director of Investment

Service.

• Submit the required documents & data.

3-hour Service

Available for investors with minimum investment of IDR 100 billion (USD 8 million) and/or employing 1,000 local workers. No requirements for investment in infrastructure sector.

9 documents obtained

Wait at the lounge while

documents are processed by BKPM, in-house notary, ministries, & other government institutions.

Obtain eight documents & letter

• f land availability within three

hours to start your business.

Certainty to work

• RPTKA / Employment plan
• IMTA / Working permit

Certainty to start a business

• Investment license
• Certificate of incorporation
• NPWP / Tax registration
• TDP / Company registration

Certainty to import capital goods

• APIP / Import identification
• NIK / Customs registration

Accurate land Information

• Letter of land availability

Priority Investment Service

Until April 2016, there were 43 companies obtained 3 hours services

Source: Investment Coordinating Board (BKPM)

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8

Improving Investment Climate:

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

Direct Construction (KLIK)

No Requirements

• No minimum investments or workers is required.
• Available for selected industrial parks.
• Construction permits can be obtained in parallel with

construction process. Investors can directly start their project construction before obtaining construction permits. This service is supported by both Central and Regional

• Governments. KLIK also as the first step to

synergize between central and local licensing. Obtain investment licence at

One-stop Integrated Service (PTSP) at national or regional level.

• Survey a land within

selected industrial parks.

• Acquire the land for your

industry.

• Start the construction of your
• project. No other permits are required.
• Apply for building construction permit &

environmental permit, in parallel with construction process.

Priority Investment Service

Source: Investment Coordinating Board (BKPM)

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9

Improving Investment Realization (Q1-2016)

Source: Investment Coordinating Board (BKPM), compared to Q1-2015 period

Rp124.6 T Rp146.5 T Rp82.1 T Rp96.1 T Rp42.5 T Rp50.4 T 315,229 327,170

17.6% 3.8% 17.1% 18.6%

Q1-2015 Q1-2016 Q1-2015 Q1-2016 Q1-2015 Q1-2016 Q1-2015 Q1-2016

*

* person

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10

FDI Realization by Sectors (Q1-2016)

Mining Chemical and Pharmaceutical Industry

54%

US$6.392 Mn

61%

Transport Equip and Other Transport Industry Metal, Machinery and Electronic Industry

Source: Investment Coordinating Board (BKPM), compared to Q1-2015 period

US$954.81 mn US$26.7 mn

Leather Goods and Footwear Industry Real Estates, Industrial Estate and Business Activities

US$380.12 mn US$828.90 mn US$189.22 mn US$696.9 mn US$219.1 mn

Other Services

US$199.6 mn

Rubber and Plastic Industry

27.6% 50.8% 8.9% 83.3% 42.4% 13.0% 96.3% 55.4% etc

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Section

Economic Factor: Healthy Growth Prospects Remain Intact 2

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12

Conducive Environment Underpinning Strong Growth Fundamentals

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

• n commodities

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

New Reform- Oriented Administration

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

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

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13

Indonesia’s Strong GDP

Indonesia’s strong GDP growth remains favorable compared to peers, supported by demographic bonus and strong domestic demand

Growth Prospect GDP Growth Based on Expenditures Strong GDP Growth

By expenditure 2014 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Household consumption 5.3 5.1 5.1 5.1 5.0 5.0 5.0 4.9 4.9 Non profit household consumption 23.2 22.4 5.8 (0.5) (8.1) (8.0) 6.6 8.3 6.4 Government consumption 6.1 (1.8) 1.2 0.9 2.9 2.6 7.1 7.3 2.9 Investment 5.2 4.1 4.5 4.6 4.6 3.9 4.8 6.9 5.6 Exports 3.2 1.4 4.8 (4.6) (0.6) 0.0 (0.6) (6.4) (3.9) Imports 5.0 0.4 0.3 3.2 (2.2) (7.0) (5.9) (8.1) (4.2) GDP 5.1 5.0 5.0 5.0 4.7 4.7 4.7 5.0 4.9 0,06 3,83 3,29

• 2,11
• 0,23

3,75 3,36

• 1,83
• 0,34

5,14 4,96 4,97 5,04 4,73 4,66 4,74 5,04 4,92

• 3,0
• 1,0

1,0 3,0 5,0 7,0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2014 2015 2016

QoQ YoY %

Institutions 2016 GDP growth (%YoY) 2016 National Budget 5.3 Bank Indonesia 5.0 – 5.4 IMF 4.9 World Bank 5.1 ADB 5.2 Consensus Forecast (May 2016) 5.0



Q1 2016 GDP growth still showed that our economy remains on a stable growth path



Indonesia recorded solid GDP growth supported by our strong household consumption, investment, as well as government expenditure



Main challenges arose from external sectors

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14

Strong and Stable GDP Performance

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



Majority of growth was driven from Java



Drop in commodity prices affected commodity-based regions such as Sumatra, Kalimantan, Papua



Sulawesi, Bali Nusa Tenggara & Java continue to grow above the national average



Government policies continue to encourage regional growth

4,0 5,7 4,0 (1,3) 4,6 6,4 1,8 (0,7)

• 3,0

0,0 3,0 6,0 9,0

Manufacturing Services Agriculture Mining

Q1 2015 Q1 2016

%

GDP growth by sectors (YoY) (%) 2014 2015 2016 Q1 Q2 Q3 Q4 Yearly Q1 Q2 Q3 Q4 Yearly Q1 Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 4.0 6.9 3.3 1.6 4.0 1.8 Mining (1.0) 1.1 1.2 1.5 0.7 (1.3) (5.2) (5.7) (7.9) (5.1) (0.7) Industrial processing 4.5 4.8 5.0 4.2 4.6 4.0 4.1 4.5 4.4 4.2 4.6 Construction 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 8.2 6.6 7.9 Big traders, wholesale, retail 6.1 5.0 5.2 4.5 5.2 4.1 1.7 1.4 2.8 2.5 4.0 Ransportation and warehousing 7.0 7.6 7.7 7.2 7.4 5.8 5.9 7.3 7.7 6.7 7.7 Information and communication 9.8 10.5 9.8 10.3 10.1 10.1 9.7 10.7 9.7 10.1 8.3 Financial service and insurance 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.4 12.5 8.5 9.1 Other1 5.4 4.7 5.9 6.5 5.7 5.1 6.5 5.0 5.9 5.6 6.0 GDP 5.1 5.0 5.0 5.0 5.0 4.7 4.7 4.7 5.0 4.8 4.9 Java: 58.9% Sumatera: 22.2% Maluku & Papua: 2.3% Sulawesi: 5.9% Kalimantan: 7.7% Bali & Nusa Tenggara: 3.1%

Spatial GDP Growth Contribution

Sumatera GDP Growth Q1 2016: 4.2% Java GDP Growth Q1 2016: 5.3% Kalimantan GDP Growth Q1 2016:1.1% Sulawesi GDP Growth Q1 2016:7.5% Maluku & Papua GDP Growth Q1 2016: 1.2% Bali & Nusa Tenggara GDP Growth Q1 2016: 7.1% Source: BPS

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Section

External Factor: Improved External Resiliency 3

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16

A Narrower, Structurally-Stronger Current Account Deficit

Improving Current Account Deficit Strong Balance of Payments Rising Foreign Reserves Amid Global Uncertainties Trade Balance Surplus Continues

Source: Bank Indonesia Source: Bank Indonesia

Source: Bank Indonesia

Source: BPS US$bn US$bn

FX reserve as of May 2016 is US$103.6bn (Equivalent to 7.6 months of imports and servicing of government debt) 50 100 150

• 20
• 10

10 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4* Q1** 2010 2011 2012 2013 2014 2015* 2016** Current Account Capital & Financial Account Overall Balance Reserve Assets (RHS) 103.6 4.0 (0.3) (5.0) 2011: CA Surplus US$1.7 Bn 2015: CA Deficit (US$17.8 Bn) 2012: CA Deficit (US$24.4 Bn) 2013: CA Deficit (US$29.1 Bn) 2014: CA Deficit (US$27.5 Bn)

US$bn

• 15
• 10
• 5

5 10 15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4* Q1** 2011 2012 2013 2014 2015* 2016** Goods Services Income Secondary Inc. Current Acc. (7.6) (1.1) 2.8 1.2 (4.7) 2015: Surplus US$7.52bn 2014 Deficit US$1.89bn

US$bn

Jan-May 2016: Surplus US$2,7 Bn

Source: Bank Indonesia FX Reserves as of May 2016: US$103.6 Bn (Equiv. to 7.6 months of imports + servicing of government debt) Month US$bn FX Reserves (LHS) Month of Import & Debt Service (RHS)

• 3

6 9 12 15

• 20

40 60 80 100 120 140 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May 2012 2013 2014 2015 2016

• 2,50
• 2,00
• 1,50
• 1,00
• 0,50

0,00 0,50 1,00 1,50 2,00 2,50

Jan Feb Mar Apr Mei Jun Jul Ags Sep Okt Nov Des Jan Feb Mar Apr Mei Jun Jul Ags Sep Okt Nov Des Jan Feb Mar Apr Mei 2014 2015 2016 Non-OG OG Total

2016**: CA Deficit (US$4.7 Bn)

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17

Exchange Rate In Line with Fundamentals

Stable Movement of Rupiah

Source: Bank Indonesia Source: Bank Indonesia

YTD 2016* vs 2015

Source: Bank Indonesia

Rupiah Exchange Rate Relatively Well Compared to Peers

IDR/US$ * data as of 31 May 2016

• On average, the Rupiah depreciated 1.95% (mtm) to a

level of Rp13,434 per USD in May 2016. Depreciatory pressures, which were also felt in other countries, were triggered by global risks associated with the proposed FFR hike.

• The Rupiah rebounded at the beginning of June 2016,

however, as foreign capital flowed back into Indonesia after weaker-than-expected labour data was announced in the United States. The Federal Reserve’s decision to postpone the FFR hike at the FOMC on 15th June 2016 should help stabilise the Rupiah.

• Looking forward, Bank Indonesia will continue to maintain

exchange rate stability in line with the rupiah’s fundamental value

• 1,64
• 1,42
• 1,15
• 0,92

0,27 0,92 0,95 2,17 4,01 9,67

• 4,00
• 2,00

0,00 2,00 4,00 6,00 8,00 10,00 INR KRW ZAR TRY PHP IDR THB EUR MYR BRL %

* data as of 31 May 2016

0,29

• 1,38
• 1,63
• 2,24
• 2,68
• 3,46
• 4,41
• 4,87
• 5,36
• 5,43
• 10,02
• 0,86
• 0,76
• 0,93
• 1,06
• 0,39
• 1,95
• 2,39

0,40

• 1,66
• 3,65
• 5,07
• 12,00
• 10,00
• 8,00
• 6,00
• 4,00
• 2,00

0,00 2,00 PHP INR CNY THB EUR IDR KRW BRL TRY MYR ZAR Average Point to Point

May 2016 vs Apr 2016

%

* data as of 31 May 2016 IDR/USD Monthly Average Quarterly Average

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18

Lines of Defense Against External Shocks

FX Reserve



Ample of level of FX reserves to buffer against external shock



FX Reserves as of May 2016: US$103.6 billion China



Agreed to renew currency swap agreement with PBOC and increase volume of funds to RMB130 billion up from RMB100 billion



Agreement was signed in 2009 and was previously extended for a period of 3 years in 2013 South Korea



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



Exchange of local currencies between the two central banks of up to A$10 billion or IDR 100 trillion



Effective as of December 15, 2015. The effective period will be three years, and could be extended by mutual consent of both sides First Line of Defence Second Line of Defence BI’s Existing Bilateral Currency Swap Arrangement (BCSA)

* In addition to the above facilities, Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem as part of IMF’s Global Financial Safety Net (GSFN) initiative. Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL)

Japan



US$ 22.76 billion swap line with the Bank of Japan currently in place



The quantum of the swap line was increased from US$12 billion in December 2013 Chiang Mai Initiative Multilateralization (CMIM) Agreement



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



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



Doubled to US$ 240 billion effective July 2014

Source: Bank Indonesia

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19

Comprehensive Stabilization Framework Ensures Proactive Risk Management of Financial System

19

Deferred drawdown option facilities up to US$5bn

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

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

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

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

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

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20

Strengthened Private External Debt Risk Management

(US$bn)

Source: External Debt Statistics of Indonesia, June 2016

(%)

Source: Moody’s Statistical Handbook, November 2015

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

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

Prudent External Debt Management

External Debt / GDP (%)

23,8 22,0 28,9 29,2 33,8 47,3 23,2 27,0 27,3 33,1 34,6 50,4 0,0 10,0 20,0 30,0 40,0 50,0 60,0 India Brazil Philippines Indonesia Thailand Turkey 2014 2013

Total FCY Debt: US$319 Bn Private Sector FCY Debt: US$165 Bn



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

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



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

50 100 150 200 250 300 350 50 100 150 200 250 300

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015* Jan 2016* Feb 2016* Mar 2016* Apr 2016** Public (Govt. & BI) Private Total (RHS)

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21

Manageable External Debt Profile

... short term non-bank corporate debt represents only 17.5% of total private external debt

External Debt Position as of April 2016

1 Based on remaining maturity

Source: External Debt Statistics of Indonesia, June 2016

Private Short-Term1 Private Non-Bank

External Debt Position Affiliation Non Affiliation

US$319.0bn

US$165.2bn

• r

51.8%

• f total
• Ext. Debt

US$48.2bn

• r

29.2%

• f Private
• Ext. Debt

US$153.8 Bn

• r

48.2%

• f Total Ext.

Debt US$117.0 Bn

• r

70.8%

• f Private Ext.

Debt US$19.3 Bn

• r

11.7%

• f Private
• Ext. Debt

US$11.0 Bn

• r

6.7%

• f Private
• Ext. Debt

US$17.9 Bn

• r

10.8%

• f Private
• Ext. Debt

US$28.9bn

• r

17.5%

• f Private Ext. Debt

SLIDE 23

Section

Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Policy 4

SLIDE 24

23

Consistent Domestic Reform is Fundamental to Accelerate Growth

Structural Challenges Global Volatility

Investment to contribute larger part in achieving sustainable and equitable economic growth

5,3 7,6 6,8 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 2013 2014 2015 2016 2017 2018 2019 2020

Revenue Optimization Quality Spending Sustainable Financing

Budget Reforms Long Term Strategy to Create Sustainable and Equitable Economic Growth

Improve People Purchasing Power Improve Quality of Investment Climate Structural Reforms

Short Term Strategy to Navigate Global Uncertainties and Financial Turmoil

SLIDE 25

24

Budget Reform as a Part of Larger Economic Reform Initiative

…to support sustainable and equitable economic growth

Challenges

Slow and low disbursement performance Revenue Shortfall (tax, low oil and commodity prices) Dependency on foreign financing Narrow tax base Miss targeted subsidy

Objective: Creating a Sustainable and Equitable Economic Growth for Indonesia Pillar I Revenue Optimization Pillar II Quality of Spending Pillar III Sustainable Financing

I. Shift from commodity-based revenues

• II. Broaden tax coverage
• III. Improve tax compliance and prevent

leakages

• IV. Strengthen taxation institution
• I. Higher spending productivity
• II. Better targeted subsidy scheme
• III. Empowerment of local governments

I. Secure budget financing

• II. Effective utilization of domestic and

international funding sources

• III. Financing schemes to support

infrastructure development program Implemented:



Reinventing policy



e-Invoice



Compliance risk management



Adjustment of non-taxable income threshold



ICT improvement in Tax Office Initiatives:



Tax Amnesty



Tax Administrative Reform



Regulatory Reform (tax provisions & procedures (UU KUP), non tax revenue (UU PNBP)



Development of Semi-Autonomous Tax Office Initiatives:



Improve government procurement regulation



Continue targeted subsidy reform (electricity, seed, fertilizer, interest (KUR))



Larger budgetary allocations for:

• Infrastructure projects
• Social welfare
• Cashless smart cards
• Rural transfer

Initiatives:



Maintain manageable budget deficit



Improve bilateral and multilateral financing sources, including BSA and DDOs



Increase financing instruments



Increase capital injection to SOEs to include SOEs in infrastructure development Source: Ministry of Finance

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25

Long Term Strategies to Achieve Sustainable Growth

…stimuli to maintain purchasing power

The Virtuous Cycle of Purchasing Power Stimuli

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

economic growth in recent years

 The government has designed stimulus program to maintain and

enhance purchasing power for households

 The government has increased non-taxable income level and

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

 Funds are targeted at not only to improve basic village

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

u

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

Maintaining Purchasing Power

Increase non-taxable income limit Stabilized price for meat products

SLIDE 27

26

Long Term Strategies to Achieve Sustainable Growth

…stimuli to promote investments

Licensing Incentives Tax Incentives Other Incentives Business and Infrastructure Incentives

Tax incentives

• n property

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

• f power

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

• ptimization

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

SLIDE 28

27

‘The Big Bang” Policy on Relaxation of Foreign Investment

…promoting competition and growth from investments

Introduction of New Foreign Ownership Regulation for Strategic Sectors

1 For total project value of IDR10bn and above

Before

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

49%

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

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

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

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

SLIDE 29

28

2015 Budget Realization

Indicators 2015 Revised Budget Realization1 Economic growth (%, YoY) 5.7 4.8 Inflation rate (%, YoY) 5.0 3.4 3-month-SPN (Treasury bills, %) 6.2 6.0 Exchange rate (US$/IDR,Average) 12,500 13,392 Indonesia crude price (US$/bbl) 60 50 Oil lifting (thousand bbl/day) 825 779 Gas lifting (thousand bbl/day oil equivalent) 1,221 1,195 Description (IDRtn) 2015 Realization % to Budget Δ 2015 – 2014 (IDRtn) Per 31 Dec A. Revenue 1,505 85.4% (46) I. Domestic revenue 1,494 85.0% (51)

• 1. Tax revenue

1,240 83.3% 94

• 2. Non tax revenue

254 94.3% (145) II. Grant 10 314.9% 5 B. Government spending 1,797 90.5% 19 I. Central government 1,174 88.9% (30)

• 1. Personnel, operational & capital spending

725 91.1% 148

• 2. Subsidies, interest payment & others

449 85.7% (178) II. Inter-governmental transfers 623 93.7% 49

• 1. Transfer to regional & local governments

602 93.5% 29

• 2. Rural transfer

21 100.0% 21 C. Primary balance (136) 203.8% (43) D. Surplus/deficit (292) 131.3% (65) % deficit to GDP (2.5%) (0.3%) E. Financing 318 143.0% 69 I. Domestic financing 308 126.9% 47 II. Foreign financing (net) 10 (51.9%) 23 Surplus/(deficit) financing 26 4

Source: Ministry of Finance

1 As of Dec 31st 2015



Pressures on macroeconomic indicators in 2015 due to:

• Global economic slowdown
• Drop in commodities prices



Non-oil & gas tax revenue went up by 12.6%



Slow down in manufacturing and mining sector led to lower tax revenue collected in these sectors



The improved budget structure has created a base for acceleration of economic development in the midst of global uncertainty



Capital expenditure in 2015 reached IDR209tn (41.8% increase from 2014 realization)



Rural transfer initiatives, started in 2015, amounted to IDR20.8tn as of December 2015, have been entirely distributed

SLIDE 30

29

Comprehensive Budget for 2016

...focus on productive spending, broadening tax base, improved subsidy schemes and fiscal decentralization

Indicators 2016 Budget Economic growth (%, YoY) 5.3 Inflation rate (%, YoY) 4.7 3-month-SPN (Treasury bills, %) 5.5 Exchange rate (US$/IDR, average) 13,900 Indonesia crude price (USD/bbl) 50 Oil lifting (thousand bbl/day) 830 Gas lifting (thousand bbl/day oil equivalent) 1,155 Description (In IDRtn)

2016

Budget Δ 2016 – 2015 (IDRtn) A. Revenue 1,823 61

I.

Domestic revenue 1,821 62

• 1. Tax revenue

1,547 57

• 2. Non tax revenue

274 5

II.

Grant 2 (1) B. Government Spending 2,096 112

I.

Central government 1,326 6

• 1. Personnel, operational & capital

spending 784 (11)

• 2. Subsidies, interest payment & others

54 17

II.

Inter-governmental transfers 770 106

• 1. Transfer to local & regional governments

723 79

• 2. Rural transfer

47 26 C. Primary Balance (88) (21) D. Surplus / Deficit (273) (51) % deficit to GDP (2.15%) E. Financing 273 51

I.

Domestic financing 273 30

II.

Foreign financing 0.4 20

Fiscal Risks Have Shifted from Spending to Revenue Revenue Expenditure Financing

Continuously increasing infrastructure project Reducing bureaucracy Prudent and targeted budget expansion (2.15% of GDP) Strengthening fiscal decentralization Sustainable national social security system Improved subsidy scheme (objects, subjects, delivery methods) 1 Million-House Program

Key Strategic Policies

Source: Ministry of Finance 

Setting pragmatic revenue using 2015 revenue outlook



Broaden tax base and improving compliance, tax administration as well as IT system



Improve fiscal incentives for strategic purposes



Optimizing non-tax revenue from government institutions



Develop priority infrastructure projects



Efficient spending



Targeted subsidy scheme



Fulfill mandatory spending



Stimulating regional economies to reach

• ptimum growth



Maintaining budget deficit under constitutional threshold (3% of GDP)



Diversified budget financing



Combining financing sources with competitive terms and conditions

Broadening tax base for businesses 20% budget allocation for education 5% budget allocation for health

SLIDE 31

30

Optimizing Tax Revenue Strategy

...improving tax ratio and buoyancy remains a challenge

Share of Tax-based Revenue to be Increased Going Forward Global Growth (yoy) Showings Signs of Recovery in 2016 There are 44.8 mm Potential Taxpayers Based on Demographics Data Boosting Tax Buoyancy Becomes a Key Priority

Year 2012 2013 2014 2015 Total taxation 1.22 0.94 0.60 0.98 Tax and oil & gas income tax 1.25 0.97 0.65 0.90 Non oil and gas income tax 0.66 0.90 0.92 2.45 Value added tax 2.15 1.32 0.59 0.45 General policies to achieve taxation target includes:

• 1. Maintain conducive investment climate
• 2. Maintain national economic stability and protect purchasing power
• 3. Improve national competitiveness and industry value-add
• 4. Tighten monitoring on excisable goods consumption

Breakdown 2015 2016 (in IDR bn) Budget-R Budget

• 1. Tax revenue

1,489,255.5 1,546,664.6

• a. Domestic tax revenue

1,439,998.6 1,506,577.5 1) Income tax 679,370.1 757,230.1

• Non-oil & gas income tax

629,835.3 715,788.6

• Oil & gas income tax

49,534.8 41,441.5 2) VAT 576,469.2 571,732.7 3) Land and building tax 26,689.9 19,408.0 4) Duties 145,739.9 146,439.9 5) Other Tax 11,729.5 11,766.8

• b. Tax from international trade

49,256.9 40,087.1 1) Import duty 37,203.9 37,203.9 2) Export duty 12,053.0 2,883.2

Total population1 254.8 MM >15 yr old1 206.6 MM Potential tax payer2 44.8 MM Registered tax payer2 26.9 MM Tax report2 10.3 MM Paying tax2 1.0 MM

1 Source : Ditjen Dukcapil, June 2014 2 Source : Tax Office, April 2015

72,3% 73,3% 74,9% 74,0% 84,5% 84,9% 37,8% 35,9% 32,9% 34,8% 18,1% 17,7% 1,5% 1,6% 1,9% 1,3% 1,2% 0,7% 0% 15% 30% 45% 60% 75% 90% 2011 2012 2013 2014 2015 2016 Tax Revenue Non Tax Revenue Grant

SLIDE 32

31

Reform in the Budget (Revenue, Spending, Financing)

…as part of a larger structural reform

High economic integration Contributes high value addition and externalities Introduces new technology Has strategic role on the national economy

Tax Allowance Facility Up to 30% of invested capital is deductible for tax purposes

• Taxable Income reduction amounting up to 30% of

the invested capital

• Accelerated depreciation and amortization
• Reduction of Income Tax on dividend from 20% to

10%

• Extended loss carried forward (from 5 years) to max
• f 10 years
• Eligible Industry: 66 sector industries and 77 sector

industries in specified region

Tax Holiday Facility Income Tax Relief or Reduction

• Corporate income-tax relief for a minimum period of 5 - 15 years.

Can be extended to 20 years

• Eligible industries:

Tax Allowance Tax Holiday

Support economic diversification Strengthen national industry structure Competitive in the international market High absorptions of workers and supporting technology transfer Located outside Java, Bali, and Batam Islands (Remote Areas & KTI) Pioneer Industry/Projects High Priority Industry/Projects Incentives

• Basic metal industry
• Oil refinery
• Petrochemical industry
• Machinery
• Agricultural, forestry and

fisheries

• Telecommunication,

information and communication

• Marine transportation
• Major manufacturing in

Special Economic Zone

• Infrastructure, ex. PPP

projects Incentives

SLIDE 33

32

Targeted Tax Incentives to Attract Investment

…supportive fiscal (tax allowance and tax holiday) to further improve business climate

 Improve regulation; Tax amnesty, Amendment of Income tax law (UU PPh), VAT law (UU PPN), General tax provisions and procedures (UU KUP), and non tax revenue (PNBP).  Reinventing policy, E-Invoice, Compliance risk management.  Adjustment of non-taxable income threshold .  Broaden tax base, improve compliance, improve tax administration and improve the Tax Office Information and Communication Technology (ICT).  Improve fiscal incentives for strategic purposes.  Optimize non-tax revenue from government institution.  Develop priority infrastructure projects as committed.  More efficient spending.  Better targeted subsidy scheme.  Fulfill mandatory spending.  Improve Government procurement regulation.  Continue targeted subsidy reform (Electricity, seed, Fertilizer, Interest (KUR)).  Stimulate regional economies to reach optimum growth by introducing transfer to rural regions (dana desa).  Larger Budgetary allocations for:  Infrastructure projects  Social welfare  Cashless smart cards  Rural transfers  Keep budget deficit under constitutional threshold (3% of GDP).  Mix budget financing instruments and currencies.  Combine financing sources with competitive terms and conditions (Bilateral loan, DDO, etc).  Increase capital injection to SOEs to include SOEs in infrastructure development.

Revenue Expenditure Financing

SLIDE 34

33

Optimization of Government Revenue

…the focus of government to broaden tax base, increase compliance, and improve the quality of tax administration 33

Optimization of tax revenue to maintain investment climate Maintain national economic stability and people's purchasing power Improve competitiveness and added value to the national industry Control the consumption of goods subject to customs

Grand Strategy to Achieve Taxation Target Policy Direction

Reinventing policy; e-INVOICE Extensification and Intensification of Taxpayers

Data matching, optimization of IT, e-tax invoice, improved regulation

Improvement of tax administration Shifting the sources of income derived from commodities Widening the scope of revenue base Increasing the level of tax compliance Prevent tax leakage, especially VAT refunds Control the consumption of goods subject to customs

Tax Policies

Optimization of inspection

The focus of the leading sectors of each regional office, transfer pricing, and fraud;

Implementation of 2016 as the year of Law Enforcement Tax Amnesty Adjustments to Non-Taxable Income Threshold Revision on Taxation Regulation

(Amendments Tax Procedures Law, Income Tax Law, and VAT Law)

Compliance Risk Management

SLIDE 35

34

Tax Amnesty Scheme as a Policy Breakthrough

…short and long term impact is expected to be very positive on economic growth

Providing Tax Relief for Taxpayers Who Revise Their Unreported Assets

Assets and Properties of Indonesian Citizen Deposited Overseas

Accelerating Economic Growth through Asset Repatriation Paying for certain amount of compensation Lowering tax rate for repatriation than declaration Lowering tax rate for early reporting

+

Increase domestic liquidity Improve the stability of IDR currency Create lower interest rate Support investment growth Expanding Tax Base through Reliable, Integrated and Comprehensive Database Increasing More Sustainable Tax Collection

Rp Rp Rp

By the implementation of Automatic Exchange of Information (AEOI) globally in 2018, taxpayers could not hide the information of their asset to avoid taxation

Objectives

SLIDE 36

35

Transfer to Local Government and Rural Also Being Revisited

• 1. Transfer to region to be closer or even higher than line

ministries

• 2. Increasing the amount and improving the formula of General

Allocation Fund (DAU) as an equalization grant

• 3. Strengthening Specific Allocation Fund (DAK) as an

instrument to improve the quality of public infrastructure as well as a tool to support national priority

• 4. Strengthening and improving incentive mechanism through

reform on Regional Incentive Fund (DID) policy

• 5. Strengthening village fund

Policy Reform for 2016 Transfer to Region

IDR tn

697 884 1.011 1.137 1.204 1.320 1.326 345 411 481 513 574 665 770 500 1.000 1.500 2.000 2.500 2010 2011 2012 2013 2014 Revised Budget 2015 Budget 2016 Central Government Spending Regional & Rural Transfer

• Objectives of non-cash scheme on regional transfer, are:
• 1. To encourage a more healthy, efficient, and effective regional budget management
• 2. To push a more optimum and timely regional budget disbursement
• 3. To lesser regional government unusual cash and/or bank deposits
• Non-cash scheme can be delivered by government sharia/obligation scheme
• Time period of the sharia/obligation is 3 months, with yield 50% of interest rate of government deposit in Bank Indonesia (65%

from BI rate)

SLIDE 37

36

Future Growth Policies Geared Towards Investments

% of GDP 56,2 56,1 56,3 54,9 2,2 1,2 1,1 1,0 32,1 32,6 32,8 39,0 20 40 60 80 100 2013 2014 2015 2019 Target Household Consumption Non Profit Private Consumption Investment

Increased share of investments in GDP

Policy to Accelerate Infrastructure Development Incentive for Business Sector expected to create stable trade sector Policy to Maintain Purchasing Power

Strategies & Policies to Boost Investments

• 1. Maintain economic stability to promote strong business and investment climate
• 2. Simplify licensing and investment procedures
• 3. Harmonize investment regulations between central government and local governments
• 4. Consistently improve the involvement of state owned enterprise (SOE) in infrastructure development
• 5. Increase the role of banking institutions in lending rate development, especially for working capital and investment credits
• 6. Expand the role of non-bank financial institutions in the development of infrastructure financing alternative

Indonesia will continue to have young and vibrant population as evidenced by stable dependency ratio outlook

Share of Growth Geared Towards Investment Stable Dependency Ratio Showing Sustainable Support for Investment Activities

Source: BPS Source: Euromonitor

The Government will encourage the development of infrastructure projects to boost investment opportunities and create greater competitiveness for Indonesian economy

30 40 50 60 70 80 90 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 China India Russia Brazil Indonesia Japan

SLIDE 38

37

Improvement in Budget Implementation Supports Sustainable Economic Growth

267 311 345 376 409 419 41 47 53 68 77 105 255 306 310 350 138 102 114 146 156 178 290 312 150 300 450 2011 2012 2013 2014 Revised Budget 2015 Budget 2016 Education Healthcare Energy Subsidy Infrastructure (IDR tn) EDUCATION  28.3% INFRASTRUCTURE  103.5% ENERGY SUBSIDY  60.7% HEALTH 75.4% Comparison between average allocation in 2015 - 2016 and 2011 - 2014

• 2015 Revised Budget

Capital Spending Profile

• 2015 Revised Budget

Goods Spending Profile

697 884 1.011 1.137 1.204 1.320 1.326 345 411 481 513 574 665 770 500 1.000 1.500 2.000 2.500 2010 2011 2012 2013 2014 Revised Budget 2015 Budget 2016 (IDR tn) Central Government Spending Regional & Rural Transfer

10 Ministries with Highest Budget Allocation Budget (IDR tn)

• Min. of Public Works and Housing

104.1

• Min. of Defence

99.5 National Police 73.0

• Min. of Health

63.5

• Min. of Religious Affairs

57.1

• Min. of Basic Education

49.2

• Min. of Transportation

48.5

• Min. of Higher Education and Research

40.6

• Min. of Finance

39.3

• Min. of Agriculture

31.5

20 40 60 80 100 120 140 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

2014 2015 30 60 90 120 150 180 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 2014 2015 (IDR tn) (IDR tn)

The Result of Online Procurement: Acceleration of Capital and Goods Spending in 2015 Government Spending grew 11% CAGR from 2010 – 2016 with Regional and Rural Transfer Allocation Outgrowing Central Government Budget Reallocation of Energy Subsidies to Productive Areas: Education, Healthcare and Infrastructure

SLIDE 39

38

Spending Profile Indicates Further Improvement in Q1 2016

... increasing productive spending in both central and regional segments

222,7 212,5 170 180 190 200 210 220 230 Q1 2015 Q1 2016

643,8 170,4 723,2 190,3 20,8 47 7,1

100 200 300 400 500 600 700 800 900 R Budget Q1 Real. Budget Q1 Real. Q1 2015 Q1 2016 Regional Transfer Village Fund

Capital Spending Realization Regional Transfer Realization Regional Government Banking Deposit

IDRtn % 2 4 6 8 10 12 0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 6,0% Jan Feb Mar

IDR tn , % Jan Feb Mar Q1 2015 realization 0.1 1.3 3.9 % of real. to budget 0.0% 0.1% 1.5% Q1 2016 realization 1.5 5.4 10.2 % of real. to budget 0.7% 2.7% 5.1%

Q1 2015 realization (RHS) Q1 2016 realization (RHS) 2015 % of realization to budget (LHS) 2016 % of realization to budget (LHS)

IDRtn IDRtn

• Capital spending increased significantly by almost 3x vs Q1 2015
• The increasing regional transfer realization is expected to push infrastructure spending in rural areas
• Regional government banking deposits in Q1 decreased compared to the same period last year. However, the amount remains substantial and can be

used for further infrastructure spending in regional areas Source: Ministry of Finance

SLIDE 40

39

Alternative Source of Infrastructure Financing

2015 – 2019 Infrastructure Plan SOEs and PPP Become Alternative Source of Funding as Government Budget Could Only Support ~20% of Our Infrastructure Needs



Central & Regional Budget (Special Allocation Fund & Rural Transfer)



Mainly to support basic infrastructure projects:

►

Food Security: Irrigation, dams etc.

►

Maritime: Seaports, shipyards etc.

►

Connectivity: Village roads, public transportation etc.

Budget



Government to inject capital to SOEs – with leveraging process a multiplier effect, more infrastructure projects can be developed



Key focus areas:

►

For commercial and/or complex projects



Medium term infrastructure developments focus: electricity and power plants, toll road

State Owned Enterprises

New Sea Ports – 24 Sea Port Development – 59 Pioneer Cargo Ships New Airports – 15 Airport Infrastructure Development Airplanes – 20 Rail lines – 2,159 km Intra City Rail Lines – 1,099 km New Roads – 2,650 km Highway – 1,000 km Road Maintainance – 46,770 km Bus Corridors – 2

Infrastructure Financing Needs 2015 - 2019 Scenario 1 (Full Scenario) Scenario 2 (Partial Scenario) Baseline (Baseline) Roads 1,274 851 637 Rail System 278 222 140 Urban Transportation 155 115 75 Sea Transportation 563 424 282 Ferry and Other Waster Transportation 91 80 60 Air Transportation 182 165 100 Electricity 1,080 762 714 Other Energy dan Gas 535 420 268 Waer Resources 1,091 845 645 Water and Sanitation 666 450 330 Public Housing 384 247 180 Information and Communication Technology 242 200 130 Total 6,541 4,781 3,561



Government support for PPP :

►

Land Fund: Modification and simplification of land acquisition process

►

Project Development Facility (PDF) through PT Sarana Multi Infrastructure

►

Indonesia Infrastructure Guarantee Fund (IIGF)

►

Viability Gap Fund (VGF)

►

Infrastructure Fund & Availability Payment (AP) Public Private Partnership And Private Sector



Projects Ready for Auction under PPP Scheme:

►

Toll roads projects such as Balikpapan-Samarinda, Manado- Bitung

►

Railway projects such as Halim-Soetta Airport Express Railway

►

Water supply such as West Semarang water supply project

SLIDE 41

40

Budget Financing Breakdown in 2016

Source: Ministry of Finance. USD/IDR: 13,200

Debt (Gross) IDR628.6tn

Redemption IDR297.7tn Budget Financing IDR273.2tn Non-Debt Financing IDR57.7tn

Breakdown of Budget Financing IDR tn US$ bn Government Debt (net) 330.88 24.92 Government Securities (net) 327.22 24.65 Issuance 555.72 41.86 Redemption & Cash Management (225.49) (16.98) Debt Portfolio Management (3.00) (0.23) Domestic Loans (net) 3.26 0.25 Withdrawal 3.71 0.28 Redemption (0.45) (0.03) Foreign Loans (net) 0.40 0.03 Withdrawal 69.18 5.21 Redemption (68.78) (5.18)

SLIDE 42

41

Government Securities – Financing Plan for 2016

Instruments Preliminary Budget Indicative Target (IDR bn) Indicative Target (US$ mm) Government Securities (Net) 327,224 24,648 Redemption 196,999 14,839 Cash Management 28,500 2,147 Buyback 3,000 226 Government Securities (Gross) 555,723 41,859 Composition Domestic 76% Auction 66% Non-Auction 10% International Bond 24%

Government Issuance Targets International Bonds

• Issuance of international bonds as

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

• Provides benchmark for Indonesia

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

• Target maximum 30% of issuance

via international bonds

Source: Ministry of Finance

Domestic Bonds

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

Front Loading Issuance For Budget Financing

• Pre-funding to optimize cost ahead of potential Fed rate hikes
• Anticipate developments in global environment
• Our target is to front load 68%-73% of the annual budget in 1H16

Government Debt Outstanding (as of Apr 2015)

IDR tn US$ bn Total government debt outstanding 3,279 248,4 Loan 750 56.7 Securities 2,529 191.6

Debt Securities 76% Sukuk 24%

US$/IDR: 13,204

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

SLIDE 43

42

Disciplined and Sophisticated Debt Portfolio Management

* Preliminary figures in 2015, ** Using GDP at Current Market Prices [2010 Version],*** SDR, AUD, and other

Stable Debt to GDP Ratio Over the Years Weighted Average Debt Maturity of ~9.3 Years (As of Apr 2016)**

US$ bn

Remarkable Debt Reduction Initiative Over the Past 10 Years

Change in Debt to GDP Ratio (2005 to 2015, point to point; in %) Source: IMF World Economic Outlook Database, April 2016

Well Diversified Across Different Currencies

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

(1)

131 141 136 155 175 188 69 64 58 54 55 56 23.1% 23.0% 24.9% 24.7% 27.4% 5 10 15 20 25 30 50 100 150 200 250 2011 2012 2013 2014 2015* May-16 Securities (LHS) Loans (LHS) Govt Debt / GDP (%) (RHS) 9,32 9,70 9,60 9,73 9,28 9,30 9,0 9,3 9,5 9,8 10,0 2011 2012 2013 2014 2015* Apr-16** 55% 56% 53% 57% 56% 57% 22% 24% 29% 29% 31% 30% 17% 14% 12% 9% 8% 8% 3% 3% 3% 3% 3% 3% 3% 3% 3% 2% 2% 2% 0% 20% 40% 60% 80% 100% 2011 2012 2013 2014 2015 Apr-16 IDR USD JPY EUR Others*** Years

238,1 143,8 115,2 63,1 50,7 38,8 33,1 30,1 29,0 9,9 7,5 6,0

• 16,9
• 36,1
• 37,2
• 38,1
• 80,0
• 30,0

20,0 70,0 120,0 170,0 220,0 270,0 Australia Chile United Kingdom United States South Africa Malaysia Japan Italy Colombia Poland Brazil Germany India Indonesia Philippines Turkey

SLIDE 44

43

Well Balanced Maturity Profile With Strong Resilience Against External Shocks

Declining Interest Rate Risks Debt Maturity Profile

%

Declining Exchange Rate Risks

%

Upcoming Maturities (Next 5 Years)

% IDR tn

Source: Ministry of Finance 18,8 16,2 16,0 14,8 14,0 12,7 25,9 22,5 23,2 21,0 21,1 19,2 5 10 15 20 25 30 2011 2012 2013 2014 2015* Apr-2016** Variable Rate Ratio¹ Refixing Rate²

95 109 145 146 87 111 76 85 167 45 109 48 53 99 29 77 47 53 98 6 47 23 23 8 17 24 24 22 20 49 94 111 128 110 120 103 81 86 114 83 24 21 18 17 15 15 15 10 28 4 23 29 1 1 1 32 21 28 28 19

50 100 150 200 250 300

2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046- 2060

IDR-Denominated Other Currencies 10,4 10,2 11,7 10,7 11,8 11,0 45,1 44,4 46,7 43,4 43,9 42,7 10 20 30 40 50 2011 2012 2013 2014 2015* Apr-2016** FX Debt to GDP Ratio FX Debt to Total Debt Ratio 8,2 7,2 8,6 7,7 8,5 7,9 22,7 21,5 21,8 20,1 21,8 23,9 34,6 32,4 33,4 33,9 35,3 33,8 0,0 10,0 20,0 30,0 40,0 2011 2012 2013 2014 2015* Apr-2016** In < 1 year In < 3 year In < 5 year

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) * Preliminary figures for 2015; ** Using GDP assumption in 2016 budget

SLIDE 45

44

Financing Policy 2016

Description (IDR tn) 2015 2016 R-Budget Budget I. Domestic Financing 242,5 272,8 1. Domestic Banking 4,8 5,5 2. Domestic Non-Banking 237,7 267,3 II. Foreign Banking

• 20,0

0,4 1. Foreign Outstanding Loan (Gross) 48,6 75,1

• a. Program Loan

7,5 36,8

• b. Project-Based Loan

41,1 38,3 2. Standby Loan Agreement (SLA) 4,5

• 5,9

3. Foreign Debt Principal Repayment 64,2

• 68,8

TOTAL 222,5 273,2

(0,73) (1,14) (1,86) (2,33) (2,25) (1,90) (2,15)

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

2010 2011 2012 2013 2014 2015 R-Budget 2016 Budget

% IDR tn

Deficit % to PDB

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

(ALM)

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

income class Debt Financing Non Debt Financing

SLIDE 46

45

Profile of Total Central Government Debt

Government Debt Outstanding Increasing Foreign Ownership of Government Securities at Longer Tenors

(%)

Foreign Holders of Government IDR Bonds – Composition May 2016

USD bn

%

209.41 199.48 204.51 194.55 214.88 224.60 229.70 243.80 248.30

(%) 30,8 32,98 32,54 38,13 38,12 38,94 38,98 38,48 38,85 38,28 32,58 30,49 33,76 30,83 37,85 31,25 30,48 32,89 32,44 34,05 36,63 36,53 33,7 31,04 23,95 29,81 30,53 38,48 28,7 27,63 20 40 60 80 100 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Foreign Holder Domestic Non Banks Domestic Banks

2011 2012 2013 2014 Jun-15 Dec-15 Jan-16 Mar-16 Apr-16 May-16 Loan Government Securities 74.13 68.82 70.04 75.81 75.73 76.14 76.95 65.66 77.16 77.13 25.87 34.34 31.18 29.96 24.27 23.86 24.19 23.05 22.84 22.87 244.10 11,87 7,84 5,2 4,65 3,23 3,04 3,04 3,28 3,54 2,94 24,97 19,32 18,29 18,96 13,1 13,44 13,10 12,45 12,60 12,66 63,16 72,84 76,5 76,39 83,66 83,52 83,87 84,27 83,87 84,41 30,8 32,98 32,54 38,13 38,21 38,94 38,98 38,59 38,85 38,28 20 40 60 80 100 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 0-1 >1-5 >5 Foreign Ownership to Total (RHS)

SLIDE 47

46

Ownership of IDR Tradable Central Government Securities

Source: Ministry of Finance

1) Non Resident are consisted of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company, and Pension Fund. 2) Others such as Securities Company, Corporation, and Foundation. *) Including the gov't securities used in monetary operation with Bank Indonesia. **) net, excluding gov't securities used in monetary operation with Banks. (IDR tn) Description Banks* 299.66 36.73% 335.43 33.70% 375.55 31.04% 350.07 23.95% 442.76 29.81% 462.62 28.70% 449.71 27.68% Govt Institutions (Bank Indonesia**)

• 0.00%

44.44 4.47% 41.63 3.44% 148.91 10.19% 56.41 3.80% 54.37 3.37% 71.62 4.41% Bank Indonesia (gross) 150.18 10.11% 149.49 9.28% 148.82 9.16% GS use for Monetary Operation 93.77 6.31% 95.13 5.90% 77.20 4.75% Non-Banks 517.53 63.21% 615.38 61.83% 792.78 65.52% 962.86 65.87% 985.99 66.39% 1094.70 67.92% 1103.58 67.92% Mutual Funds 43.19 5.28% 42.50 4.27% 45.79 3.78% 61.60 4.21% 61.48 4.14% 73.02 4.53% 73.49 4.52% Insurance Company 83.42 10.21% 129.55 13.02% 150.60 12.45% 171.62 11.74% 173.26 11.67% 203.41 12.62% 213.22 13.12% Foreign Holders 270.52 32.98% 323.83 32.54% 461.35 38.13% 558.52 38.21% 578.32 38.94% 626.17 38.85% 621.96 38.28% Foreign Govt's&Central Banks 50.06 6.13% 78.39 7.88% 103.42 8.55% 110.32 7.55% 110.98 7.47% 112.49 6.98% 116.32 7.16% Pension Fund 56.46 6.91% 39.47 3.97% 43.30 3.58% 49.83 3.41% 52.24 3.52% 57.41 3.56% 59.74 3.68% Individual 32.48 3.26% 30.41 2.51% 42.53 2.91% 41.42 2.79% 49.19 3.05% 49.05 3.02% Others 63.64 7.79% 46.68 4.69% 60.51 5.00% 78.50 5.37% 78.99 5.32% 85.50 5.31% 86.12 5.30% Total 817.19 100% 995.25 100% 1,209.96 100% 1,461.85 100% 1,485.16 100% 1,611.69 100% 1,624.91 100% May-16 Dec-13 Dec-12 Dec-14 Jan-16 Apr-16 Dec-15

SLIDE 48

47

Government Securities Realization

• Based on projection of deficit 2,15%
• Adjusted by changes in Cash Management & Debt Switch

Source: Ministry of Finance Note:

• Issuance Government Securities Conversion

360.814 360.184

• Matured Government Securities Conversion

360.184 Nett Issuance Government Securities Conversion 380.184

(IDR mn)

*(Million IDR) Budget 2016

Realization (a.o. May 31, 2016) % Realization to Budget 2016

Government Securities Net 327,224,357 226,103,050 69.10% Government Securities Maturing in 2016 and Buyback 228,499,399 118,900,587 52.04% Issuance Need for 2016 555,723,756 345,003,637 62.08% Government Debt Securities (GDS) 216,356,137 Domestic GDS 167,713,137

• Coupon GDS

118,750,000

• Conventional T-Bills

27,890,000

• Private Placement

17,154,132

• Retail Bonds

3,919,005 International Bonds 48,643,000

• USD GMTN

48,643,000

• Euro GMTN
• Samurai Bonds
• Domestic GDS
• Government Islamic Debt Securities

128,647,500 Domestic Government Islamic Debt Securities 95,240,000

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

Sukuk) 61,240,000

• Retail Sukuk

31,500,000

• Private Placement

2,500,000 Global Sukuk 33,407,500

SLIDE 49

Section

Monetary Factor: Monetary Policy Anchors Price Stability 5

SLIDE 50

49

Bank Indonesia Policy Mix: 2015 - 2016

18 June 2015 Loosens Macroprudential Policy

• Increase the Loan-to-Value

(LTV) ratio

• Reduce downpayments for

automotive loans 14 January 2016

• Cut BI Rate 25 bps to 7.25%
• Cut DF & LF Rate at 5.25% &

7.75% resp.

• BI lower its monetary operation

rates even further, ranging from 25bps to 45bps (O/N to 1Y) 17 November 2015 Lowering IDR Primary RR by 50bps from 8.0% to 7.5%. Effective since 1 Dec 2015 18 February 2016

• Cut BI Rate 25 bps to 7%
• Cut DF & LF Rate at 5% &

7.5% resp.

• BI lower the rupiah

denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from 16th March 2016 18 March 2016

• Cut BI Rate 25 bps to

6.75%

• Cut DF & LF Rate at

4.75% & 7.25% resp. 21 April 2016

• Hold BI Rate at 6.75%, and maintain DF & LF

Rate at 4.75% & 7.25% respectively.

• Reformulate policy rate from BI Rate into the 7 day

(Reverse) Repo Rate to improve the effectiveness

• f monetary policy transmission. The change will

be effective on August 19th 2016 26 June 2015 Reserve Requirement Policy:

• RR-LDR RR-LFR
• Accomodate banks SMEs

loan in RR calculation 16 June 2016

• Cut BI Rate 25 bps to 6.5%
• Cut DF & LF Rate at 4.5% & 7.0% resp
• Relaxing the loan-to-value ratio (LTV) and

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

• Relaxing partially prepaid loans/financing*
• Raise the floor on the Reserve Requirement -

Loan to Funding Ratio (RR-LFR) from 78% to 80%, with the ceiling maintained at 92%. The change will be effective in August 2016.

* The regulation is only applicable to banks with a gross NPL ratio on housing loans below 5% and total gross non-performing loans (NPL) below 5%.

SLIDE 51

50

Bank Indonesia Policy Mix: June 2016

The BI Board of Governors agreed on 16th June 2016 to lower the BI Rate at 6.5%, as well as the Deposit Facility and Lending Facility rates at 4.5% and 7.0%, respectively Lower the BI Rate to 6.5% Bank Indonesia’s term structure of monetary

• perations remains

as follows: Remain vigilant towards global developments, specifically the expected adjustment

• f the Fed Fund Rate

(FFR), the possibility

• f Brexit, China’s

economy recovery, and the rising of international commodity prices Strengthen coordination with the Government to to control inflationary pressures during Ramadan this year Maintain exchange rate stability in line with the currency’s fundamental value 7-day 5.25% 2 Weeks 5.45% 1 Month 5.70% 3 Months 6.10% 6 Months 6.30% 9 Months 6.40% 12 Months 6.50% Raise the floor on the Reserve Requirement

• Loan to Funding

Ratio (RR-LFR) from 78% to 80%, with the ceiling maintained at 92%. The change will be effective in August 2016. Relaxing the loan-to- value ratio (LTV) and financing-to-value ratio (FTV) on housing loans/financing as well as partially prepaid loans/financing* * The regulation is only applicable to banks with a gross NPL ratio on housing loans below 5% and total gross non-performing loans (NPL) below 5%.

SLIDE 52

51

Enhancement of Monetary Operations Framework

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

BI RATE

• BI

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

• BI Rate is used as a benchmark

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

• BI

Rate effectively affect banking interest rate

• Excess

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

• The shallow financial markets also

inhibit the transmission of monetary policy.

CHALLENGES ENHANCEMENT

BI rate as reference rate Challenges: Transmission of monetary policy is less effective Enhancement of monetary operations framework 12 months

(equivalent) 7 day Non-Transactional Transactional (Central Bank) Not optimally reflected in money market interest rates Stronger relationship to the money market interest rates Cost of being illiquid is lower, support financial deepening

BI rate BI 7-day repo rate OMO term structure Character Transmission Financial Deepening Cost of being illiquid is too high, does not support financial deepening

SLIDE 53

52

Stable Monetary Environment Despite Challenges

Pre-emptive and Bold Monetary Policy Supported by Substantial FX Reserves to Mitigate External Challenges Managed Core Inflation Over The Past Few Months Rupiah Exchange Rate Remains Comparable to Peers

3.33

• 0.95

8.15 3.41

*data as of 31 May 2016 Source: Bank Indonesia YTD 20162 vs. 2015 FX Reserves as of May 2016: US$103.60 Bn (Equiv. to 7.6 months of imports + servicing of government debt) US$bn Month

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

%

• 3

6 9 12 15

• 20

40 60 80 100 120 140 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May 2012 2013 2014 2015 2016

• 1

4 9 14 19 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May 2011 2012 2013 2014 2015 2016

CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy)

6,50 6,75 6,50 6,00 5,75 6,00 6,50 7,00 7,25 7,75 7,50 7,25 7,00 6,75 6,50

5,00 5,50 6,00 6,50 7,00 7,50 8,00 123456789 10 11 12 123456789 10 11 12 123456789 10 11 12 123456789 10 11 12 123456789 10 11 12 123456789 10 11 12 123456 2010 2011 2012 2013 2014 2015 2016

• 1,64
• 1,42
• 1,15
• 0,92

0,27 0,92 0,95 2,17 4,01 9,67

• 4,00
• 2,00

0,00 2,00 4,00 6,00 8,00 10,00 INR KRW ZAR TRY PHP IDR THB EUR MYR BRL %

SLIDE 54

53

Banking Sector Continues to Show Resilience

...strong supervision, robust capitalization, stable liquidity and sustainable credit growth

Robust Banking Sector with High CAR & Low NPL Ratios LDR Remains at Comfortable Level Credit Growth Supported by Macroprudential Policy Act of Financial System Crisis Prevention and Resolution (PPKSK)

Loan-to-Deposit Ratio (%)

89,5% Source: Bank Indonesia

% %

YoY % 10.4% 5.3% 8.0% 12.2%

• Strengthening the role, function, and coordination among the 4 financial

authorities in the crisis prevention and resolution.

• Financial crisis prevention by strengthening the regulatory and supervisory

functions of banking especially against SIBs.

• Strengthening the resolution of systemic bank issues by prioritizing bail-in

principle.

• BI provides Short-Term Liquidity Loans (PLJP) to banks which are solvent

and has sufficient collateral.

• Implementation of the action plan (recovery plan) by OJK and early

intervention by LPS in the event of a systemic bank experiencing solvency issues.

• In financial distress, the president has full authority to take decisions for

crisis handling.

• Immunity and Legal Protection for KSSK members (MoF, BI, OJK, LPS).

2.9

0% 5% 10% 15% 20% 25% 30% 35% 40%

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 2013 2014 2015 2016

Total Growth Working Capital loans Investment Loans Consumption Loans

83 84 85 86 87 88 89 90 91 92 93

1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 2013 2014 2015 2016 5 10 15 20 25 1 2 3 4 5 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 2013 2014 2015 2016 Capital Adequacy Ratio (CAR) (RHS) Gross Non-Performing Loan (NPL) 21.7 4 2016

SLIDE 55

54

A Comprehensive Financial Deepening Program

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

Source: Bank Indonesia

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

• Repo
• Hedging

Money Market

• Bank Indonesia Regulation (PBI) on Money Market

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

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

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

• Bank Indonesia Regulation (PBI) on Commercial Paper

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

• Swap Link Deposit

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

• Dual Currency Deposit

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

• Corporate Bonds
• Government

Bonds

• Other instruments

Supporting Regulations Market Code of Conduct Certification of Dealer Strengthening JIBOR

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

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

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

SLIDE 56

55

Stronger Fundamentals Facing the Headwinds

82,4 12,1 6,8 1998 2008 Sep-15 197,0 35,0 15,5 1998 2008 Sep-15 60,0 9,5 7,5 1998 2008 Okt-15 30,0 3,8 2,8 1998 2008 Agu-15 17,4 50,2 1998 2008 Sep-15

Inflation Rate IDR Depreciation BI Rate Non-Performing Loan (NPL) Government Debt/GDP Foreign Reserves

100.0% 1998 27.4% 2008 17.7% Q1-2016 8.6x 1998 3.1x 2008 3.0x Q1-2016 116.8% 1998 33.2% 2008 36.5% Q1-2016

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

Inflation controlled under the revised Budget target Depreciation rate lower than 1998 & 2009 BI Rate is lower than 2008 NPL level is below the maximum threshold of 5% Continue to decline and allocated to productive sectors Significantly higher than 1998 & 2008, ample to cover 7.3 months of import and external debt repayment Significantly lower than 1998 crisis Slightly higher than 2008, but significantly lower than 1998

May 16

4.53 (ytd)

May 16

103,6

Jun 16 May 16

3.33 (yoy)

Apr 16

2.9 6.5

62 10,5 5,7 1998 2008 Jul-15

Overnight interbank money market rate is relatively lower

May 16

4.9

SLIDE 57

56

Outlook of Domestic Economy Improves

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

2016 Economic Outlook

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

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

 Inflation projected at the midpoint of the 4±1% inflation target, with the current account deficit is projected below 3% of GDP  Credit is projected to grow 12-14% on the back of improving purchasing power and fiscal stimulus.

2015 2016 4.79%

Economic Growth

5.0-5.4%

Inflation

3.35% 4.0%±1%

CAD (% GDP)

2.06% < 3.0%

Credit Growth

10.45% 11% - 13%

SLIDE 58

57

Financial Stability Indicators Remain Robust

Amidst the prolonged uncertainties in the global economy, the stability of the domestic banking sector remains intact.

Capital adequacy ratio (CAR) of the banking sector increased compared to the pre-global crisis

• period. The high level of CAR

provides room for the banking sector to further extend its loan. Credit risks in the banking sector are quite low, indicated by a low level of nonperforming loan (far below the 5% threshold). Net interest margin

• f

the banking sector is relatively stable compared to previous few years. Capital Adequacy Ratio Nonperforming Loan - Gross Net Interest Margin

SLIDE 59

58

Financial Stability Indicators Remain Robust (Cont’d)

In the nonbank financial industry, the stability is also maintained. The fluctuating market risks have been effectively mitigated by nonbank financial institutions.

Risk-based capital (RBC) of the insurance industry is maintained at a high level; sufficient enough to absorb the fluctuating market risks. Credit risks in multi-finance companies are quite low, indicated by a low level of non- performing financing (far below the 5% threshold). The investment value

• f

insurers and pension funds still demonstrates an increasing trend. Risk-Based Capital Nonperforming Financing Investment Value of Insurers & Pension Funds

SLIDE 60

59

Indonesian Financial Sector Master Plan 2015-2019

OJK has also clearly set out three directions to develop the domestic financial sector in the medium-term, as stipulated in the “Indonesian Financial Services Sector Master Plan 2015-2019”. In ongoing efforts to achieve a robust and sustainable economic growth, the domestic financial sector is directed to play a more vital role in terms

• f

catalyzing national economic activities. To support the sustainability of economic development, financial stability plays an important role. To that end, financial sector must maintain its resilience to confront possible shocks that could emerge from the domestic or external environments. Financial sector has the opportunity to play an increasingly significant role in

• vercoming inequality that may arise.

Initiatives undertaken by OJK include promoting financial inclusion and catalyzing local economy.

Contributive Stable Inclusive

SLIDE 61

60

Indonesian Financial Sector Master Plan 2015-2019 (Cont’d)

From each direction in the Master Plan, OJK has formulated initiatives and programs in order to enhance the role of the domestic financial sector in accelerating the domestic economic growth, strengthening financial stability, and enhancing financial inclusion.

Contributive Stable Inclusive

• Funding of infrastructure

& priority economic sectors

• Capacity building at

financial institutions

• Financial sector product

& service development

• Improving financial

literacy

• Strengthening the role of

Islamic financial sector

• Strengthening financial

sector supervision, including through integrated & risk-based supervision

• Strengthening crisis

management protocol and interagency coordination

• Strengthening financial

sector regulations in accordance with international standards

• Enhancing the role of

financial sector in developing local economic potentials

• Expanding financing

access to micro, small, and medium enterprises

• Expanding financial

inclusion to reach all social strata

• Enhancing consumer

protection

SLIDE 62

Section

Wide Range of Policy Reforms to Boost Economic Growth 6

SLIDE 63

62

Short Run Policy Package I, II, and III

…to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package

Stimulus Package I: 9 Sep 2015 Cut Red Tapes Accelerate Strategic National Projects Boost Low Income Housing

• Rewriting 89 out of 154 regulations
• Deregulation policies such as relaxing visa

requirements, gas price adjustment for certain industries and enhancing cooperative function

• Simplification to obtain business licenses

and implementation of e-services

• Simplifying spatial license & land

accommodation

• Accelerating goods & service procurement

for the government

• Discretion in legal issue barriers
• Strengthen the role of regional heads to

accelerate national strategic project completion

• Promoting housing construction for low

income citizens

• Expanding opportunity for investments in

property sector

Tax Incentives Integrated Logistics Facilities Stimulus Package II: 29 Sep 2015 Simpler Permit Requirements

• Ease bureaucracy for investments via 3-hour

permit issuance program

• Faster process for tax allowance and

holiday for qualified investments to 25 days and 45 days, respectively

• Streamline permit requirements in forestry

sector from 14 to 9

• Elimination of VAT for transport industries

(train, shipping and air transport inc. spare parts)

• Reducing tax rate on deposits from export
• proceeds. 1-month deposit tax 10%, 3-month

7.5%, 6-month 2.5% and more than 6-month 0%

• Facility incentive on integrated logistic

center

• Two facilities slated to be operational by end
• f 2015; Cikarang (Manufacturing) and Merak

(Fuels)

Lower Fuel and Electricity Prices Stimulus Package III: 7 Oct 2015

• Lower retail fuel costs (jet fuel, LPG and retail

fuel)

• Decrease gas price for factories and qualified

industries

• Lower industrial electricity prices
• 3-hour turnaround for land availability
• Faster approval time for building, leasehold,

use right and land permits

Land Permit Simplification for Investment Activities Broadening of Small Business Credit Recipients

• Expanding criteria for allowed recipients to

include salaried workers

SLIDE 64

63

Short Run Policy Package IV, V, and VI

…to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package

Stimulus Package VI: 5 Nov 2015

Propel Rural Economies through Development in Special Economic Zones (SEZs)

• Tax holiday (reduce income tax) and tax allowance

(reduce net income and accelerate depreciation.

• No charges on value-added tax and luxury goods tax
• Import duty tariff require Certificate of Origin
• Foreigners allowed to have property
• Reduce tax on development and amusement in tourist

areas

• Establish wage boards and specialized tripartite

agencies

• Grant 30 days visitor visa which are extendable for 5

times

• SEZ administrator able to provide land services
• SEZ administrator able to issue principles and business

permits

• Accelerating licensing process a max. of 3 hours
• Drafting government regulations (RPP) on water

resources utilization

• Drafting RPP on water supply systems (SPAM)
• Ensure that private entities do not dominate the whole

SPAM subsystem

• Private water supplier to meet their needs on its own.

Sustainable and Equitable Water Supply to the Community Simplifying Import Licensing for Pharmaceutical Raw Materials

• Simplifying the licensing process to only 5.7 hours
• Target 100% paperless

00

Stimulus Package V: 23 Oct 2015

Lower Asset Revaluation Tax

• Revaluation tax originally set at 10%
• Under new incentive, tax rates are cut

according to periods, detailed below:

• Revaluation period until 31 Dec 2015: tax

rate at 3%

• Revaluation period until 30 Jun 2016: tax

rate at 4%

• Revaluation period until 31 Dec 2016: tax

rate at 6%

• Eliminating double taxation system for

Real Estate Investment Trusts (REITs)

• Encourage Indonesian property and

infrastructure companies to issue REITs in Indonesia

Eliminating Double Taxation for REITs Stimulus Package IV: 15 Oct 2015 Fair, Simplified and Projectable Wage System

• Setting Provincial Minimum Wage regulation
• Formula for setting minimum wage to ensure

simplified, stable and projectable yearly wage adjustments

• Government provides subsidy on small

business credit to stimulate credit growth in banking sector and affordability to applicants

• Expanding criteria for small business credit

to include:

• Micro, Small and Medium enterprises in

productive sectors (farming, fishery, manufacturing, creative business, trading and services)

• Overseas Indonesian workers with
• ccupation in formal sectors
• Family members of salaried workers
• Ex-Overseas Indonesian workers
• Overseas Indonesian workers with

terminated contract

Ease and Affordability of Small Business Credit

SLIDE 65

64

Short Run Policy Package VII, VIII, and IX

…to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package

Stimulus Package VII: 4 Dec 2015

Acceleration of Land Certification Process

• Increasing numbers of certified surveyor,

especially from non-civil servant.

• Speed up the time needed to land

registration announcement, from 60-30 days to 14 days

• Shifting land registration process to electronic

system

• Giving communal rights for indigeneous

peoples and people who lives in plantation/forest area

• Releasing Government Regulation (PP)

which facilitate income tax (PPh) for the labor works in labor intensive industry for 2 years

• Giving tax facilities for various footwear

industries throughout provinces in Indonesia Tax Incentive for Labor Intensive Industry

Stimulus Package VIII: 21 Dec 2015

One Map Policy

• All government office will use only

thematic map in 1:50.000 in order to accelerate the settlement of land using problem and to solve the country’s borderline problem

• New refinery will be constructed in Tuban

and Bontang, to support the existing refinery in Cilacap, Balikpapan, Balongan and Dumai. Refinery Construction

Incentive for Aircraft Maintenance Companies

• 0% of import duty will be applied for 21

tariff post regarding aircraft sparepart and maintenance components

Stimulus Package IX: 27 Jan 2016

Accelerated Construction of Electricity Infrastructure

• The Government will support State Electricity

Company (PLN) in its various actions by guaranteeing the supply of primary energy;

• Giving facilities for development of renewable

energy sources;

• Streamlining of licensing through the one-

stop-shop;

• Resolution of conflicting spatial planning,

provision of land and resolution of legal issues

• Expanding the cattle population;
• Development of logistics and distribution;
• Improvements to the cattle and beef

regulated trading schemes;

• Institutional strengthening involving

Smallholder Livestock Centres (SPRs).

Stabilisation of Meat Prices Deregulation on Logistics Sector

• Development of commercial postal services
• Electronic single billing for port services
• SoE’s synergy in development od export

aggregators for SME’s products, geographical indications and the creative economy

• Electronic port integrated services system

SLIDE 66

65

Short Run Policy Package X, XI, and XII

…to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package

Stimulus Package XI: 29 Mar 2016

• Provide

complete and integrated export finance facilities for the working capital and investment needs

• f micro, small and medium enterprises.

Export-Oriented People’s Business Credit (KURBE) Real Estate Investment Trust (REITs) Risk Management for Expediting Flows of Goods in Ports (Indonesia Single Risk Management/ISRM) Further Development of the Pharmaceutical and Medical Equipment Industries

• The government has added 19 business categories to

those reserved for micro, small and medium enterprises and cooperative (MSMECs) in a revision to Presidential Decree Number 39 of 2014 concerning the List of Business Closed and Conditionally Open to Investment, more commonly known as the Negative Investment List (NIL).

• 35

business categories, including crumb rubber production; cold storage; tourism (restaurants, bars, cafés, recreational, art and entertainment businesses, sports facilities); the film-making industry; operation of marketplace electronic transactions above Rp 100 billion; establishment

• f

telecommunication devices testing institutions; toll road concessions; non-hazardous waste management and disposal; and the pharmaceutical raw material industry have been taken

• ff the NIL.
• The revisions to the NIL also opens 20 business

categories to foreigners permitted to hold shares up to particular levels, compared to the previously required 100% domestic investment, including health support services (max. 67% foreign capital), land passenger transportation (max. 49%), the film-making industry including film distribution (up to 100%) and high/extra high voltage power utility installations.

Stimulus Package X: 11 Feb 2016

Easing of Investment Restrictions

• Issue REITs at relatively low cost in order to bolster

efficiency in provision of long-term investment funds in support of accelerated construction of infrastructure and housing under the National Medium-Term Plan for 2015-2019.

• Expedite services for import/export activities that can
• ffer business certainty, efficiency in times and costs
• f licensing, and savings in dwelling time through

more effective supervision through integration of risk management among the relevant line ministries/government agencies.

• Guarantee

the availability

• f

pharmaceutical preparations (i.e. drugs, drug raw materials, traditional medicines and cosmetics) and medical equipment in an effort to improve health services under the National Health Insurance (JKN) and promote affordable prices for drugs in Indonesia.

Stimulus Package XII: 28 April 2016

Simplification of Licensing, Procedures, Duration, and Cost of Starting Business in Indonesia

• Starting Business

Cutting procedures and minimum requirements in the establishment of Limited Company (Ltd.)

• Dealing with Construction Permit

Simplification of 17 procedures / 210 days to 14 procedures / 52 days

• Registering Property

Simplification of 5 procedures / 25 days to 3 procedures / 7 days

• Paying Taxes

Introduce online taxation system to simplify procedure from 54- time to 10-time payments.

• Getting Credit

Access to credit will be conducted through PT PEFINDO and PT Indonesia Jaya Credit Bureau.

• Enforcing Contract

Contract enforcement by regulating simple lawsuit settlement

• Getting Electricity

Simplification

• f

electricity connection process from 5 procedures / 80 days to 4 procedures / 25 days

• Trading Across Borders

Cut export time from 4.5 days to 3 days and export fees from USD424 to USD83.

• Resolving Insolvency

Compensation to curator will be calculated based on the debt value, not based on debtor’s asset value.

• Protecting Minority Investors

Minority investors will be protected by the existing regulations.

SLIDE 67

66

Indonesian Policy Packages

…update on regulation issuance (implementation)

Logistic and Bounded Zone facilities President Decree No. 85/2015 Facilities on VAT in Port Service President Decree No.75/2015 VAT incentive President Decree No. 69/2015; No. 81/2015; No. PP 106/2015 MoF Decree No. 267/2015, No. 268/2015 Incentive for Industrialized Zone President Decree No. 142/2015 Luxury tax incentive MoF Decree No. 206/PMK.010/2015 Import duty exemption for Industry MoF Decree No. 188/PMK.010/2015 Deposit interest for Export Proceed President Decree No. 123/2015 MoF Decree No. 26/PMK.010/2016

VAT Exemption for Transportation President Decree No. 39/2015 MoF Decree No. 192/2015; No. 193/2015 Fiscal Incentive in Logistic Area MoF Decree 272/PMK.010/2015 (Cikarang &Merak)

Issued Regulation in 2nd Package

Facilities for Investment in Special Economic Zone President Decree No. 96/2015 0% duty for airline related goods MoF Decree No. 35/2015 Tax incentive for Asset Revaluation MoF Decree No. 191/PMK.010/2015 MoF Decree No. 233/PMK.003/2015 Elimination of Double taxation in REITS MoF Decree No. 200/PMK.003/2015 Tax Cut for REITS Issuance

Issued Regulation in 1st Package Issued Regulation in 6th and 8th Package Issued Regulation in 4th Package

Regulation in Pipeline (Mostly 70% in Issuing)

Tax and Custom Exemption Facility in Industrial Area Import Duty Exemption for Export Oriented Product Physical Check Easing by DG Custom and Excise Shorten Tax Allowance and Tax Holiday Process Income Tax Relief for Labor Intensive Industry Expanding Industry Eligibility for Tax Allowance

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67

Ministry of Finance Policy Package

…comprehensive approach across sectors Stimulus to Enhance Household Purchasing Power

• Increase non-taxable income threshold to IDR 36.0 million (~US$ 2,570) from IDR 24.3 million (~US$ 1,671)
• Increase distribution of rice for low income household by two months, to 14 months
• Faster turnaround for drawdown and realization of village fund budget
• Provision of official guidance on realization of village fund on labor intensive sectors and projects
• Slated to provide IDR 4-5 Tn (~US$ 286 – 357 million) in additional income and provides additional 800 thousand – 1 million workforce across

Indonesia

Source: Ministry of Finance

Stimulus to Increase Incentive for Businesses

• Revision of Tax Allowance and Tax Holiday policies
• Levy of luxury tax (for houses, vehicles, airplanes and firearms) to provide competitive

advantage on domestic industries

• Support small business through interest rate subsidies in small business credit (KUR).

lowered to 12%, less than general SMEs credit rate

• Implementation of 4:1 Debt-Equity ratio for tax purposes to encourage capital inflow and

improvements in capital structure

• Construction of integrated logistic centers, in Cikarang (Manufacturing) and Merak

(Fuels)

• Higher threshold for property luxury tax to IDR 10 billion (~US$ 714 thousand) for

apartments and IDR 20 billion (~US$ 1.4 million) for landed houses

• Support export financing for domestic industries through Indonesia Exim Bank via

government capital allocation and National Interest Account

• Lower tax on asset revaluation. 3% tax before Dec 31st
• Remove double taxation for Real estate investment trusts (REITs)
• Lower tax on dollar deposit interest, especially for exporters
• Elimination of VAT levy on certain transportation industries (trains, river shipping and

airplanes, including spare parts)

Implemented

• Taxation Administrative and Regulatory Reform,

including amendment of Income Tax Law, VAT Law, General Tax Administration Law and regulation regarding Tax Amnesty

• Develop more Special Industrial Zones outside Java

with special incentives (tax allowance, tax holiday and elimination of customs fee)

• Support economic activities in Special Economic Zones

via longer tax holiday up to 25 years

• Revision on Ease of Import for Export Destination

(KITE) regulations by providing free import fee facilities and more efficient administration process

On Pipeline

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68

Bank Indonesia Backs the Government’s September Policy Package (9th Sept. 2015)

• Preserving

foreign exchange market confidence by controlling currency volatility

• Maintaining

market confidence in tradable government securities (SBN) through purchases

• n the secondary market,

while monitoring its impact

• n

SBN availability in terms of inflow and money market liquidity.

Strengthening inflation control and stimulating the real sector from the supply side Maintaining rupiah exchange rate stabilization Strengthening liquidity management Rupiah, through Open Market Operations (OMO), in order to divert the daily liquidity to longer tenors

• Strengthening

coordination amongst the National and Regional Inflation Control Teams to accelerate implementation

• f

the national and regional inflation control roadmap. There are currently more than 430 regional inflation control teams throughout Indonesia, each having a regional inflation roadmap.

• Strengthening

Regional Economic and Financial cooperation between Bank Indonesia and the Government

• Changing the auction mechanism of

Reverse Repo (RR) SBN from variable rate tender into fixed rate tender, adjust the pricing of RR SBN, and extend the tenor by issuing RR SBN 3 months

• Changing the auction mechanism of

Certificates

• f

Deposit

• f

Bank Indonesia (SDBI) from variable rate tender into fixed rate tender, adjust the pricing of SDBI, and issue SDBI with 6 months tenor

• Reissue Bank Indonesia Certificates

(SBI) tenor of 9 months and 12 months with a fixed rate tender auction mechanism as well as pricing adjustment

Strengthening foreign exchange supply and demand management

• Adjust

the frequency

• f

the auctions of Foreign Exchange (FX) swap from 2 times/week to 1 time/week

• Change the Foreign Currency

Term Deposit (TD) auction mechanism from variable rate tender into fixed rate tender, pricing adjustment, and extend the tenor of up to 3 months;

• Lower

the purchase limit

• f

foreign currency by verifying the underlying documents from US$ 100,000 to US$ 25,000 per customer per month and requires the use

• f

Tax Identification Number (NPWP)

• Expediting the bank foreign debt

approval process while adhering to prudential principles

Deepening the money market

• Providing

swap hedging facilities to shore up investment infrastructure and simultaneously strengthen foreign exchange reserve assets.

• Refining

money market regulations covering all components

• f

market development, including the instruments, players and infrastructure.

In line with the government’s effort to promote economic growth, Bank Indonesia introduced the September Policy Package to support macroeconomic and financial system stability

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69

Monetary Policy Package: September II

30th September 2015

Maintaining Rupiah Exchange Rate Stability

The presence of Bank Indonesia in the domestic foreign exchange market to stabilise the rupiah exchange rate was strengthened through intervention in the forward market. In addition to intervention in the spot market, Bank Indonesia also intervenes in the forward market to help balance supply and demand. Maintaining balance in the forward market is important to alleviate pressures in the spot market.

Strengthening Rupiah Liquidity Management

Bank Indonesia reinforced rupiah liquidity management by releasing three-month Bank Indonesia Certificates of Deposit (SDBI) along with two-week reverse repo tradable government securities (SBN). The release of such open market operation instruments will absorb liquidity, prompting a shift towards longer tenor instruments, which should reduce the risk of excessive use of rupiah liquidity that could intensify pressures on the rupiah exchange rate.

Strengthening Foreign Exchange Supply and Demand Management

• Policy to manage supply and demand on the forward market was strengthened. The policy aims to encourage forward selling transactions
• f foreign currencies/rupiah and clarify underlying forward buys of foreign currencies/rupiah by raising the forward selling threshold that

requires an underlying document from US$1 million to US$5 million per transaction per customer and broaden the scope of underlying assets for forward sells to include domestic and offshore foreign currency term deposits.

• Foreign currency Bank Indonesia securities (SBBI) were also issued to back financial market deepening efforts, especially on the foreign

exchange market.

• The holding period of Bank Indonesia Certificates (SBI) was reduced from 1 month to 1 week in order to attract foreign capital inflows.
• Incentive was provided in the form of a reduction in the interest tax paid on term deposits for exporters depositing their FX earnings at

banks in Indonesia or converting the proceeds into rupiah as requested by the government. The policy is expected to keep FX earnings in the country for longer.

• BI ensured greater transparency and information availability when using FX by strengthening the FX flow report (LLD). In this case, LLD

participants are obliged to report their use of FX through supplementary supporting documentation for transactions of a certain value. The regulation is pursuant to Act No. 24 of 1999 concerning the Flow FX and the Exchange Rate System, where Bank Indonesia is authorised to request information and data regarding the flow of FX from residents.

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70

Financial Sector Policy Packages to Boost Growth

As part of national efforts to reverse the recent economic slowdown, OJK has issued a series of financial sector policies. Such measures are directed to, among others, to maintain the level of household/private consumption and to support the Government’s infrastructure development.

• Banking

sector: measure are focused

• n

increasing bank loans to MSMEs and housing financing – Adjustment of risk weighting for certain types

• f loans

– Relaxation

• f

requirements for debt restructuring

• Capital market sector: Measures are focused on

supporting financing for housing and infrastructure, as well as developing SMEs through financing from the capital market – Development & expansion

• f

investment products – Development of municipal bonds – Unlocking opportunities for SMEs to go public

• NBFI sector: Measures are focused on fostering

the growth

• f

multifinance companies and microfinance institutions – Relaxation

• f

regulations

• n

NPF in multifinance companies – Development of microfinance institutions – Establishment of a rating agency for MSMEs

• Relaxation of regulations on business

trust

• Preparation
• f

agricultural insurance scheme

• Revitalization
• f

venture capital, especially to finance start-up businesses

• Establishment
• f

financing industry consortium, especially to provide financing for creative industry, export-

• riented businesses, and MSMEs
• Empowerment of the Indonesia Export

Financing Agency (LPEI)

• Implementation of one-project concept in

assessing quality of loans

July 2015 October 2015

• Encourage individual foreign

currency account

• pening

for foreign residents – Opening an account up to $50,000

• nly

need to present a passport – Opening an account with

• ver than $50,000 will be

subject to simple customer due diligence process

• passport

and

• ther

supporting documents

September 2015

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71

Efforts to Accelerate Infrastructure Provision

Improvement on PPP Regulation

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

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

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

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72

Efforts to Accelerate Infrastructure Provision (continued)

Regulation improvement to accelerate land procurement process

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

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

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

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

Land Procurement Process as Stipulated in Law No. 2 of 2012 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

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Indonesia Infrastructure Projects and Financing Schemes

Financing Breakdown (2015 – 2019)

Govt & Local Budget (41.3%) Financing Gap Total Financing Needs: ~ US$345.1 Bn

~ US$142.4 Bn

SOE (22.2%) PPP (36.5%)

~ US$76.7 Bn ~ US$126.0 Bn Alternative Financing Scheme

Establishment of PPP Unit

• Champion project preparation and acceleration of the PPP agenda

in Indonesia Broad Objective Core Mandates

• Improve quality of project selection under KKPPI – OBC criteria
• Support project preparation through PDF support and use a high

quality Transaction Advisor

• Act on behalf the Minister of Finance in providing government support

approvals for projects Additional Mandates

• Coordinate all public finance instruments
• Provide input for PPP Policy Development and Regulations
• Implement capacity building program to GCA
• One stop shop for PPP promotion & Information

New Roads 2,650 km Highway 1,000 km Road ad mai maintenance 46,770 km Bus Corridors 2 New Sea Ports 24 Sea port developments 59 Railway Lines 2,159 km Intra City Rail Lines 1,099 km New Airports 15 Airplanes for new routes 20 Sea Port Roads Railways Airport Budget Public Private Partnership State Owned Enterprise & Private Sector

• Central & Regional

Budget (Special Allocation Fund & Rural Transfer)

• Mainly to support

basic infrastructure projects:

‒ Food Security:

Irrigation, dams etc.

‒ Maritime:

Seaports, shipyards etc.

‒ Connectivity:

Village roads, public transportation etc.

• Certain infrastructure projects to be funded and operated

through a partnership between the Indonesian government and private sector companies

‒ Projects Ready for Auction under PPP Scheme: ‒ Toll roads projects such as Balikpapan-Samarinda and

Manado-Bitung

‒ Railway projects such as an Express Line into Soekarno-

Hatta International Airport

‒ Water supply such as West Semarang water supply project

• Government to support the PPP via initiatives:

‒ Land Fund: Modification and simplification of land

acquisition process

‒ Project Development Facility (PDF) through PT Sarana

Multi Infrastructure

‒ Indonesia Infrastructure Guarantee Fund (IIGF): A mutual

government guarantee scheme for infrastructure risks

‒ Viability Gap Fund (VGF) for PPP projects with near-term

financial constraints

‒ Infrastructure Fund: To offer long term financing for

infrastructure projects

‒ Availability Payment (AP): To allow availability of

infrastructure services provided by PPP companies

• Government to inject

capital into SOEs – intention is that through a multiplier effect, more infrastructure projects can be developed

• Key focus areas:

‒ Infrastructure and

maritime development

‒ Transportation and

connectivity

‒ Food security

• Medium term

infrastructure developments in focus:

‒ Water Supply ‒ Airports ‒ Seaports ‒ Electricity and power

plants

‒ Housing ‒ Mining

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74

Government Guarantee for Basic Infrastructure Development

1 USDIDR exchange rate of 13,200

Guarantee Program based on Guarantee Classification

In 2016, Government will add credit guarantee program (i) infrastructure financing through direct loans from international financial institutions (ii) acceleration of toll road construction in Sumatera

75,8 67,3 47,2 46,3 69,2 60,0 45,0 3,8 1,1 0,8 2,7 0,2 0,1 0.1 4,5 3,7 3,8 24,5 79,5 68,5 48,0 53,4 73,0 63,9 69,6 2010 2011 2012 2013 2014 Revised Budget 2015 2016 Electricity Development Clean Water Program PPP & Electricity Dev. Project

Budget Allocation for Claims on Government Guarantee (1)

Program Guaranteed Party

• No. of

Letters Currency Value (bn) Outstanding as of 2015 (bn) A Credit Guarantee 47 US$ 4.0 2.7 IDR 36,007.0 19,138.9

• Acceleration of coal-

fired power plant project (10,000 MW) – stage 1 PLN 11 US$ 4.0 2.7 25 IDR 35,678.7 18,975.7

• Acceleration of

drinking water supply project PDAM 11 IDR 328.3 163.2 B Investment Guarantee 10 US$ 8.2 – IDR – –

• Acceleration of coal-

fired power plant project (10,000 MW) – stage 2 IPP 9 US$ 5.0 –

• Government

partnership with Enterprise Infrastructure Guarantee Agency Private 1 US$ 3.2 – Total 57 US$ 12.1 2.7 IDR 36,007.0 19,138.9

Source: Ministry of Finance (US$ mm)

1,000.0 889.0 623.3 611.2 913.7 792.0 593.9 50.0 15.0 10.0 35.0 2.2 1.8 0.9 – – – 59.2 48.2 49.7 323.2

(IDR bn equivalent)

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75

30 Priority Projects Within the Pipeline

OBC Development Ready for PPP Tender Permit and Land Acquisition Financial Close Construction

• 1. Trans-Sumatera Toll Road (>Rp 31T)
• 2. Makasar-Parepare Railway (Rp 6,4 T)
• 3. SHIA Express Railway (Rp2,7 T)
• 4. MRT Jakarta (Rp 25 T)
• 5. LRT Jabodetabek (Rp 11,9 T)
• 6. LRT Palembang (Rp11,5 T)
• 7. Kuala Tanjung Int’l Hub Port (Rp 30 T)
• 8. Manado-Bitung Toll Road (Rp 4,3 T)
• 9. Balikpapan-Samarinda Toll Road (Rp13,1 T)

10.Batang 2.000 MW Power Plant (Rp40 T)

• 1. Sumsel 8 Power Plant (Rp 25 T)
• 2. Palapa Ring Broadband (Rp 6 T)
• 1. High Voltage Direct Voltage Transmission

(Rp20 T)

• 2. 1.000MW Indramayu Power Plant (Rp20 T)
• 3. Central-West Java 500 kV Transmission

Line (Rp7,64T)

• 4. National Capital Integrated Coastal

Development (NCICD) Tahap A (Rp 20 T)

• 5. Karangkates Power Plant (2x50MW)
• 6. Kesamben Power Plant (37MW)
• 7. Lodoyo Power Plant (10MW)
• 8. Bitung Port Development (Rp34 T)
• 9. Kalimantan Timur Railways (Rp72 T)
• 1. SPAM Semarang Barat (Rp845 M)
• 2. Bontang Refinery (Rp140 T)
• 3. Tuban Refinery (Rp165 T)
• 4. Sumatera 500 kV Transmission (Rp6,71 T)
• 5. Panimbang-Serang Toll Road (Rp12 T)
• 6. Sumsel 9, 10 Power Plant (Rp 44 T)
• 1. Jakarta Sewerage System

(Rp70 T, Zona 1 Rp7 T)

• 2. Existing Refinery Upgrading

Project (Cilacap, Balongan, Plaju, Dumai, dan Balikpapan) (~Rp210T)

• 3. New Port in Northern West

Java (TBA)

• 4. Inland Waterways/ Cikarang –

Bekasi – Laut (CBL) (Rp35T)

Implementation Stage Preparation Stage

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76

Significant Progress on Key Infrastructure Projects

Roads Dams Housing

Trans-Sumatra Highway Cikampek-Palimanan Highway (Operational) Jatigede Dam (Operational) Raja Ampat Housing Project, Papua

Transportation

Jakarta MRT Project1 Terminal 3 Ultimate Soekarno-Hatta1 New Tanjung Priok Port Project1 Komodo Airport, NTT Matahora Airport, Southeast Sulawesi Tual Airport, Maluku Juwata Airport, Tarakan 1 Not funded from National Budget

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Progress of Infrastructure Initiatives under SOEs

Description Length (km)* Investment (Rp trillions)* Concession By** Status** Remarks** Completion Target** Solo-Ngawi-Kertosono 177,1 10 Waskita Karya, Jasa Marga In Progress Solo-Ngawi: Construction 80% completed (by end-2015) Ngawi-Kertosono: Construction 40% completed (will finish by end of 2017) 2018 Soreang-Pasir Koja 10,57 1,2 Wijaya Karya, PT. Jasa Sarana In Progress Land Clearing: 96% completed June 2016

• Tb. Tinggi-Kuala Tj-Sei Mangkei

57 5,5 n/a In Progress n/a n/a Manado-Bitung 39 3,2 n/a In Progress Land Clearing: 64% completed (Section I) Construction: 4% 2018 Balikpapan-Samarinda 99 8,5

• PT. Jaya Karya, PT.

Samacita, Waskita Karya, Hutama Karya, Adhi Karya In Progress Land Clearing: 80% completed 2019 Cinere-Serpong 10,14 1,8 Jasa Marga, Waskita In Progress Land Clearing: 1% completed 2019 Medan-Binjai 16,72 1,5 Jasa Marga, Hutama Karya, Waskita Karya In Progress Land Clearing: 70% (11,7 km) completed Construction: 8% completed 2016 Bakauheni-Terbanggi Besar 140 14,2 Hutama Karya, PP, Waskita Karya, Wijaya Karya, Adhi Karya In Progress Land Clearing: 18% (25,2 km) completed Construction: 5% completed 2018 Palembang-Indralaya 22 3,3 Hutama Karya In Progress Land Clearing: 49,1% (10,8 km) completed Construction: 10,4% completed 2018 Pekanbaru-Dumai 131 11,9 Hutama Karya In Progress Land Clearing: 19,5% completed Construction starts in 2016 2018 Bekasi-Cawang-Kampung Melayu 21,04 7,2 Waskita Karya In Progress Groundbreaking: October 2014 Land Clearing: Section 1 - 70% completed, Section 2 - 30% completed 2017 Pejagan-Pemalang 57,5 5,5 Waskita Karya In Progress Land Clearing: 99% completed Construction: Section I & II 92% completed 2017 Pemalang-Batang 39,2 4,1 Jasa Marga, Waskita Karya In Progress Land Clearing: 4.25% completed 2018 Batang-Semarang 75 7,2 Waskita Karya In Progress Land Clearing: 3% completed 2018 Ciawi-Sukabumi 7,78 7,7

• PT. MNC Tol Investama

In Progress Groundbreaking: Februari 2015 Land Clearing: 70% completed 2016 Krian-Legundi-Bunder 30 4,6 Waskita Karya In Progress Land Clearing: uncompleted, followed by concession tender (June 2016) 2018 Medan-Kualanamu-Tb. Tinggi 61,7 4,1 Jasa Marga, Waskita, Hutama Karya In Progress Land Clearing: 85.98% completed Construction: 6% completed 2017 Total 994,75 101,5

* Source: Ministry of State Owned Enterprises ** Source: Anecdotal information from various media e.g. Kompas, Media Indonesia, Liputan6, Republika, Tribunnews, Merdeka, etc

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Energy Sector: 35,000 MW Program has been Launched

No Phase MW % 1 Planning 12.226,80 34,4 2 Procurement 8.377,70 23,6 3 Power-purchase Agreement 10.941,00 30,8 4 Construction 3.862,45 10,9 5 Commercial Operation Date 123,00 0,3 Total 35.530,95 100,0

17 Dec ‘14

Cabinet Meeting “There’s electricity crisis in Indonesia, requires construction of large capacity plant "

Jan ‘15

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

Jan ‘15

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

• f

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

16 Mar ‘15 4 May ‘15 Apr ‘16

Cabinet Meeting Progress of 35,000 MW Launching 35.000 MW by the President in Goa Beach Sanden DIY

The progress so far:

Source: Ministry of Energy and Mineral Resources

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

35,000 MW Program Distribution

Source: PLN