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Republic blic of Indones esia ia Stabilit bility at the Foref efront ont, Syner ergized gized Reforms ms Move ve Novem ember ber 2018 About ut Inves esto tor Relatio tions ns Unit of the Republic ublic of

  1. Indones esia ia Remain ains the he Investment stment Desti stinatio tion of C Cho hoice ice The Econo nomi mist: : Indo done nesia a round nds out the top five of Asian an econo nomi mies that t Indo done nesia a Enjo joys Large Investm tments Relat lative to Peers within n the Region 2 can look forwar ard d to increas ased d investme ment nt spendi nding ng. . (January nuary 2018) 18) 1 40 China 69.4 35 India 47.1 GDP (%) Indonesia 44.1 30 Vietnam 36.9 t / GD Singapore 30.6 25 Australia 30.1 tment 20 Hong Kong 28.8 tal Investm Thailand 28.7 15 South Korea 28 Japan 26.6 10 Tota Philippines 24.7 30.35 31.69 32.04 33.85 33.45 33.90 25.87 25.46 25.39 24.28 25.03 26.21 21.08 22.84 24.18 26.58 26.57 27.85 5 Malaysia 24.3 Myanmar 20.2 0 Taiwan 18.2 India Indonesia Malaysia Philippines Thailand Vietnam 0 10 20 30 40 50 60 70 80 2016 2017 2018e UNCTAD: AD: Indonesia a is listed d in the top 20 host econo nomi mies based d on FDI JBIC: C: Among ng ASEAN AN countr ntries, , Indonesia a is one of the most prefe ferred d plac ace inflo lows, , 2016 16 and d 2017 17 (June ne 2018) 18) 3 for busine ness investm tment nt (Nove vembe ber 2017) 17) 4 500 China 45.7 450 India 43.9 400 2016 2017 Vietnam 38.1 350 Thailand 34.5 Billion USD 300 Indonesia 33.1 250 USA 26.1 Mexico 200 18.2 Philippines 150 10.6 (x) = 2016 ranking Myanmar 9 100 Brazil 6.3 50 Korea 6.3 0 Malaysia 5.9 Russia 4.3 Singapore 3.8 % of surveyed who consider each country has promising prospects Turkey 2.7 0 10 20 30 40 50 1. Source: The Economist – Asia Business Outlook Survey 2018 3. Source: United Nations Conference on Trade and Development (UNCTAD) – World Investment Report 2018 2. Source: IMF World Economic Outlook, Database April 2018 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (29th Annual Survey) 8

  2. Natio iona nal Strategic tegic Dev evel elopmen pment Plan an (Naw awa Cita ta) The 3 Dimensio ions on Econom omic ic Develop opment ment Priority Sector Human Development Equitable Development Development Food Security rity Educ ucation ion Inte ter- Incom ome Group oup Energy & Electr tric ical Securi rity ty Healt alth Inte ter-Reg Region: ion: Mari ritime time & Mari rine ne (1) Rural al Area ea, Hous using ing (2) Perip ripher hery, y, Touris urism & Indus ustr try (3) Outs tside ide Java, Char aracte ter Water ter Security rity, Basic ic (4) Easte tern rn Area ea. . Infras rastru truct cture re & Connecti nectivity vity Necessary sary Condit ition on Legal Certainty & Governance Politic & Democracy Security & Order Law Enforcement 9

  3. Economic ic Equal alit ity Policies cies to support sustainab nable le public ic welfar are.. ... Build a fair land distribution scheme • Build a priority scale of Tanah Objek Reforma Agraria (TORA) recipient based on land gini ratio, • Agra raria ian Reform rm Econo nomic ic poverty, & land demand Developing an agricultural industry by agglomeration or cluster method • Equali ality ty Define Lahan Pertanian Pangan Berkelanjutan LP2B to prevent land usage for non-agriculture • Polici cies purposes Agric icultu ture e (Landle dless Land consolidation for agriculture • Farm rmer er) Improve research on seeds and agriculture method, off-farm infrastructure, integrated logistic • system, build seeds market, tools and machinery Data collection & law enforcement on palm oil land area, including land bank data collection • Land Building a database and arranging policy on planting non-agriculture commodities • Planta tatio ion Improve cooperative performance by encouraging SOEs and private sectors involvement • Research support, market synergies, off-takers, and supply chain on downstream business • Social Housing • Urban Poor & Affordable ble House financing • Hou ousing Land banks and affordable land prices • Law enforcement on spatial policies • Integrating fishing and seaweeds sectors Fisher hermen en & Seaweed eed • Improve and support aquaculture industry and fishery sector value chain • Cult ltiv ivation tion Encourage Private sector investment on seaweed sector (process and off-taker) • Develop and improve progressive tax, capital gain tax and tax on unutilized asset • Fair ir Tax x System tem supporting fiscal spending • Developing natural resources industries and value chains • Manufactu ture e and d ICT Minimize interest gap between large companies and small companies • Protect market share from integrated businesses and strong capital • Oppor portuni tunity ty Regulate and build a database on traditional/modern market, traditional and modern shops • Regulate the distances, location, and zone of the market and modern stores • Retail l and Mark rket et Compulsory mandates to maximize the usage of Local products • Fair access to the logistic system • Fina nanc ncin ing & Gove vernm nment nt Improving Kredit Usaha Rakyat (KUR) scheme to support non-bankable SME • Budget Improving procurement scheme to support SME accessibility to finance • Identified and built priority scale on sectors, sub-sectors of leading industries and profession • Voca catio iona nal, , Improving link and match scheme between industries and vocation Human n Resour urce ce • Entre repr preneurs neurship ip & & Labor r Early childhood education • Capaci city ty Mark rket Encourage education system to be more skill, collaborative, flexibility and impact oriented instead • of degree consideration Source: Coordinating Ministry for Economic Affairs Priority 10

  4. The he Economic ic Policy cy Pac ackag ages es “To improve national industry competitiveness, export and investment to generate significant economic growth” Harmo moni nizi zing ng Regulations ons Simp mpli lifyin ying Bureauc ucratic Proc ocess Ensuring Law Enfo forceabi bili lity Phase e I (9 Sept t ’15) Phase e IX (27 Jan ’16) Improving national industry competitiveness Accelerating electricity generation, stabilizing meat prices and improving rural – urban logistics sector Phase e II (29 Sept t ’15) Easing permit requirement and simplifying export proceeds Phas ase e X (11 11 Feb ’16) requirement Revising the Negative investment List and improving Phase e III I (7 Oct t ’15) protection for SMEs Financial services facilitation, export financing and elimination Phase XI (29 29 Mar r ’16) of business unnecessary burden Stimulating national economy through facilitation to SMEs Phase e IV (15 Oct t ’15) and industries Social safety net and betterment of people welfare Phase e V (22 Oct t ’15) Phase e XII II (28 28 Apr ’16) Improving industry and investment climate through tax Improving Indonesia’s rank on Ease of Doing Business (EODB) incentives and deregulation on sharia banking Phase e XIII I (24 Aug ’1 6) Phas ase e VI (5 Nov ov ’15) Low Cost Housing for Low-Income Communities Stimulating economic activities in border areas and facilitating strategic commodities availability Phase e XI XI V (10 Nov ’1 6) Roadmap for E-commerce Phase e VII (7 De Dec ’15) Stimulating business activities in labor-intensive industries Phase e XV (15 Jun ’1 7) nation-wide through incentives in the form of accelerating Improving logistics land certification process for individuals Phase e XVI (1 (16 Nov Nov ’1 8) Phase e VIII I (21 De Dec ’15) Improving the competitiveness and domestic economy Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation industries In additio dition to the 16 Policy licy Packa kages ges, on Augu gust t 31, 2017 the Gov over ernmen ent has issued ed a Pres esiden identia tial l Regulatio tion No. o.91/2017 for or enha hancin ing g busin ines ess licen ense e serv rvic ice standa dard Source: Coordinating Ministry for Economic Affairs 11

  5. Improving ving the Compet petitivene itiveness ss an and Domes estic ic Economy th Econo The 16 th nomic mic Policy cy Packag age has been launche nched TAX HOLIDAY EXPANSIO ION EXPORT PROCEEDS (DHE) SCHE HEME ME Backgr ground und In order to further increase investment value in Indonesia, there is a need for expansion of sector and standard classification of Indonesian Business Fields (KBLI) that are given tax holiday, complemented with a process simplification to receive the tax holiday according to the Online Single Submission (OSS). Objectiv tives es and benefits fits 1) Increasing investment and strengthening the industrial sectors from the downstream to the upstream through the expansion of the business sector, KBLI’s pioneer industries, and Special Economic Zones (SEZ) that can receive tax holiday facilities 2) Increasing the process of convenience of filing process Tax Rate tes on Deposit it Tax Rate tes on Deposit it Interest Income Inte terest t Income and tax holiday facilities provision Source: Coordinating Ministry for Economic Affairs 12

  6. Boosting ting the he Competitive petitivenes ness through ugh Lo Logisti stical al Efficienc ciency th Econo The 15 th nomic ic Policy Packag age has been launche nched Policy cy Goals Policy cy Target ets 0% 0% Import duty for 115 types of ship’s spare 1 parts and components Opportunities for national shipping to serve export and import transportation of around Strengthen the Institution 2 USD 600 00 millio lion/y n/year ear of the Indonesia National Single Window (INSW) 70-100 units of new worth USD 700 00 millio lion 3 ships Increase Competitiveness of Logistic Service Providers New employment opportunity of 4 2,000 000 sai ailors rs Provide Market Opportunities Improve the Regional Government’s role for Shipping Companies, 5 to 30% in development of Regional Logistics 30% Marine Insurance, and National System to control inflation and reduce Ship Maintenance Businesses post-harvest product damage up Source: Coordinating Ministry for Economic Affairs 13

  7. Progres ess of t the he Economic ic Policy cy Pac ackag ages es* 233 33 I – XV I – XII Initially, there are 233 regulations which need to be TOTAL INITIAL TIAL REGULATION TIONS deregulated 11 11 I – XV I – XII Based on the further assessment, 11 regulations has been REVOK OKED ED revoked from deregulation process REGULATIONS TIONS 222 22 I – XV I – XII Total regulation subject to be deregulated: 222 TOTAL REGULATION TIONS regulations 220 220 99% 99% SET As of September 26 th , 2018, deregulation of 220 98% 98% PRESIDE DENTIAL AL LEVEL 52 PRESI SIDE DENTI NTIAL regulations are finished (99%), comprising 51 regulations 51 51 47 47 42 42 TOTAL FINI NISHED SHED at Presidential level and 169 regulations at VEL 99% SELESAI Ministerial/Institutional level MINIST STERIAL IAL/I /INST NSTIT ITUTI UTIONAL ONAL LEVEL 99% 170 169 FINI NISHED SHED TOTAL Unfinishe ished reg egula latio ions: Proposed Policy on Development 1% 2 ON GOIN ING of Business and competitiveness of National Logistics DISCU SCUSSION SION Service Providers *as of September 26, 2018 Source: Coordinating Ministry for Economic Affairs 14

  8. Other her Progress ess on Economic ic Policy cy Pac ackag ages es Develo lopment ment of Fair, Simplif ifie ied & & Spesial al Economic mic Zone ne (SEZ) Project ctable able Wage Sys System 29 Provinces have set 2016 Minimum Wage Investment commitments in SEZ up to System in accordance to the Government 2017 reach 41 T, with 3 hour licenses Regulation (GR) No. 78/2015 already applied in 4 SEZ’s Administrators in 2017 Indus ustrial rial Zone Dereg egula ulation ion on Logis istics ics Sect ctor 52 Bonded Logistic Center has been • The Provinces of Central Java proposed 3 launched to support various industries IZ’s : Kendal, Demak, and Ungaran • Pharmaceutical IZ in Bitung (North Sulawesi) in 2017 15

  9. Invest vestmen ment Inc ncent entives ives to Bo Boost st Industry dustry Sector or BUSINE INESS SS EXPANSIO ANSION INDUST STRIAL RIAL ZONE Tax allowa wanc nce • VAT T exem xempt ptio ion n on import or delivery of capital goods, • Exe xemptio mption n or relie lief of import t duty ty on capita ital l goods, machine chinery or • Import t Duty exemption xemption on machineries/goods/materials, • equi uipme pment nt for production purposes that can not be produced Tax Allowa lowanc nce and Tax Holid iday • domestically; Exe xemptio mption n or relie lief of import t duty ty on raw mate teria ials or auxi xilia liary • mate teria ial l for production purposes for a certain period of time and certain conditions; FREE TRAD ADE ZONES AND PORTS Exemptio ption or suspe pensio ion of VAT on the he import t of capita ital l goods • or machine chinery or equi uipme pment nt for production purposes that have not been produced domestically for a certain period of time; Exe xemptio mption n of: Accelerate depre preci ciatio tion n or amortiz tizatio tion n (part of tax allowance); Import t Duty • • and VAT • Prope perty ty tax relie lief, especially for certain business sectors in Luxu xury Goods Sale les Tax x (PPnB PnBM) • • certain regions; Custom toms duty ty • Combine with Online Single Submission (OSS) • MICRO RO, SMAL ALL, L, MEDIUM IUM ENTERPR RPRIS ISES (MSMES) PION ONEER INDUSTRIE DUSTRIES Decr creasin ing MSME MEs Tax from 1% to 0.5% % of gross revenue Tax holid liday of corporate income tax in a certain amount and time SPECIAL ECIAL ECONOMI ONOMIC ZONE E-COM OMMERC RCE No colle lectio ction n of VAT T and Luxu xury Goods Sale les Tax (PPnB PnBM), ), • Sales from customs areas for non-sma mall ll entrep treprene neur urs through • Custom toms tax exemption xemption, • the market place will be subject to 0.5% % inco come me tax and 1% Tax Allowa lowanc nce and Tax Holid iday, • VAT Suspe pens nsio ion n of Import t Duty, • Sales from customs areas for small ll entre trepre prene neur urs through the • 0% Import t Duty for goods produced using local components of • market place will be subject to 0.5% % inco come me tax a certain level Source: Coordinating Ministry for Economic Affairs 16

  10. New Tax Holiday liday Polic licy* y* to boost industry try sector BEFO FORE RE PROVIS VISION AFTE TER Pioneer Industry with minimum investment value of Pioneer Industry with minimum investment value of 500bn 1 trillion Rupiah (minimum investment value of Rupiah 500bn Rupiah for telecommunication sector) Applied to 17 industry groups: (i) upstream base metal; (ii) oil and gas refinery; (iii) Applied to 8 industry groups: petrochemical (oil, gas, or coal based); (iv) non-organic base (i) upstream basic metal industry; (ii) oil and gas chemical; (v) organic base chemical; (vi) pharmaceutical materials; refinery industry; (iii) organic basic chemicals industry; (vii) semiconductor and other components; (viii) communication (iv) machinery industry; (v) plantation, forest, and Taxpay payer devices components; (ix) medical devices components; (x) fishery products processing industry; (vi) machine manufacturing for industry; (xi) machine main telecommunication, information and communication components manufacturing; (xii) robotic components industry; (vii) marine transportation; and (viii) manufacturing; (xiii) ship components manufacturing; (xiv) airplane economic infrastructure components manufacturing; (xv) train components manufacturing; (xvi) power plants; and (xvii) economic infrastructure 10 – 100% 100% (single rate) Corporate te Income me Tax (CIT) T) reductio tion rate 5 – 20 years depends on the investment value (in IDR): 5 – 15 years; or • 1. 500Bn – 1Tn : 5 years 4. 15Tn – 30Tn : 15 years Can be extended to 20 years; subject to MoF • 2. 1Tn – 5Tn : 7 years 5. ≥ 5Tn : 20 years Conce cession n perio iod discretion 3. 5Tn – 15Tn : 10 years Not available 50% CIT reduction for the next 2 years Trans nsition ition Tax allowance for business expansion can be Tax allowance not provided provided with terms and conditions applied After er Tax Holiday *) MoF has issued a new Tax Holiday policy through Regulation No. 35/PMK.010/2018 (PMK-35) dated 4 April 2018. Source: Coordinating Ministry for Economic Affairs 17

  11. Enhan ancing cing Busines iness Li Licen ense se Serv rvice ice Stan andar dard Presiden identi tial al Regul ulati tion to Accelerate te Ease of Doing Busine ness ss has been launched ched Improve efficient, streamlined, Provide business licensing Overcome the barriers & integrated business license process assurance in terms to doing business in service standards of the costs and lead times Indonesia Goals 2 4 6 cy Go 1 3 5 Policy Implement integrated Accelerate the Increase coordination & business licensing synergy between central & licensing process process regional government (single submission) nd Phase st Phase 2 nd 1 st Forming a Task Force to Business license identify & overcome the end- regulatory reforms cy n Policy to-end licensing barriers Implementing a licensing checklist Implementation of the Main for Special Economic Zones (KEK), Single Submission Free Trade Zones (FTZ), Industrial system Zones & Tourist Zones Utilizing data sharing Note: 1 st and 2 nd Phase are implemented in parallel Source: Coordinating Ministry for Economic Affairs 18

  12. Impr proving ving Inv nvestment estment Clima imate Onlin ine Sing ngle le Submissi ission on (OSS SS) Has Been en Laun unched hed... ... OSS is a web-based business licensing system intended to cut the red tape involved in obtaining business permits and integrated between the central government and regional administrations Secto tors rs Lorem Ipsum Envir ironm nment ent Public lic Work rks Electricit ctricity Indus ustr try y Health Sec ecto tor Suitable for all & Fores restr try & Housin ing Secto tor Secto tor category, Secto tor Secto tor Informatio ation n & Mari rine ne & Medic icine ine & Trans nsport rtat atio ion n Trade ade Secto tor Commun unic icatio tion Fishery ery Secto tor Food Sector Secto tor Secto tor Other Secto tor The Advant antag age e of Using g OSS Business licenses Standardized Ellectronically can be secured in business licenses integrated under an hour are available The whole licensing Accessible at More practical process is monitored anytime and by the Task Force anywhere Source: Coordinating Ministry for Economic Affairs 19

  13. Improving ving Investment stment Clima imate te …Bonded Logistic Center to Improve Indonesia’s Competitiveness Bonded Logistic Center To To da date, e, 52 Bo Bond nded ed Logis gistic tic Cent nter ha has been en laun unched hed to to suppo pport variou rious indus dustries ries. (Pusat Logistik Berikat/PLB) is a facility provided by Ministry of Finance as part of the Small and Food & implementation of the medium ium bever erag ages es 1 st Economic Policy Package. indus ustr try indus ustr try Pers rsonal nal Oil il and PLB facility aims to improve care/ gas, ga s, and home care mining ng efficiency and reduce the cost of Synthetic tic indus ustr try indus ustr try transportation and logistics in textile ile Auto- (chemic ical al Indonesia; support the growth of motive ive substanc nces es) the domestic industry, including indus ustr try y indus ustr try. y. Textile ile Heavy small and medium (cotto tton) n) Equipment nt industries; increase indus ustr try indus ustr try investment; and to make Aircraft ft MRO Indonesia to become a logistics Defence indus ustr try indus ustr try hub in Asia Pacific. 20

  14. Improving ving Investment stment Clima imate te …revising the Negative Investment List Introduc uctio tion n of New w Foreig ign n Owne wnership ip Regula ulatio tion n for Strate tegic ic Secto ctors Sports Center, Pharmaceutical Raw Materials Cold storage ge Restaurants, , Bars Film P Processing Lab, Crumb Rubber Manufacturing After Before After Before After Before After Before 100% 100% 100% 100% 33% 85% 49% 51% Private Museum, Catering, g, apparel Toll Road Operator, Distribution, on, Wareho housing Key Reforms in Negative ive Foreig ign Manufacturing, g, Exhibitions ons & Telecom ommunication Testing Company Investment List Conve ventions ons Before After Before After Before After Revisio ion of "Partnership ip" category y to refer to partnership ip with Micro, Smal all and Mediu ium Enterpris ises 100% 67% 67% (MSME MEs) 95% 33% 51% Gran andfat ather Law: If a par artic icul ular ar sector is tightened in futur ure, existin ing Professiona onal Training, g, Golf Course Telecom ommunication Provide der foreig ign investor does not need to Management, , Air Transpor ort Suppor ort Services, , Consultancy for Construction on 1 with Integrated d Servi vices comply with tighter stak ake Trave vel Bureau Before After Before After Before After Strengthen implementatio ion of negative investment law throug ugh active ive roles from min inistrie ies, agencie ies 67% 67% 67% 49% 55% 65% and regio ional al governments 1 For total project value of IDR10bn and above Source: Investment Coordinating Board (BKPM) 21

  15. Inves estm tment ent Realiza izati tion (Q3-201 2018) 8) Direct ct Inve vestme tments nts FDI Reali lizatio tion n by Secto ctors (yoy) IDR tn 200 FDI DDI TOTAL 180 173.8 Non Metallic tallic 160 Mine neral l Indust ustry 140 120 US$76.0 US$ .0 mn mn 100 Transpo portatio tion, 64.2% 64 80 Warehouse use, and 60 Housin ing, Ind ndust ustria ial Estate tate, 89.1 40 Tele leco comm mmun unica catio tion and Offic ice Build ildin ing 20 US$1,050.0 US$ .0 mn mn US$671.7 US$ .7 mn 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 22.0% 130.7% 2013 2014 2015 2016 2018 2017 Trade & Repar paratio tion Textil xtile Indust ustry Invest stment nt US$ US$76.6 .6 mn mn Rp159.4 9.4 T US$99.0 US$ .0 mn IDR176.6tn tn IDR173.8tn tn 434,463 434 463 37 375,9 ,982 Reali liza zatio ion Rp145.4 5.4 T 82.0% 66.9% 66.9 Decreasin ing * -1.6 1.6% 9.6 9.6% 15.6 .6% Ele lectric icity ty Food Indus ustry US$ US$1,220.1 .1 mn mn Q3-201 017 Q3-201 018 US$385.7 US$ .7 mn mn Q1-201 016Q1-201 017 Q1-201 016 Q1-201 017 * perso * son 23.3% 23 35.9% IDR84.7tn tn IDR64.9tn tn IDR111.7tn tn Mini ning ng IDR89.1tn tn US$595.2 US$ .2 mn mn Decreasin ing 42.5% -20.2% 30.5% 30 Q3-201 018 Q3-201 017 Q3-201 018 Q3-201 017 Source: Investment Coordinating Board (BKPM), compared to Q3-2017 period 22

  16. Sec ection tion 2 Eco conomi mic Fact ctor: r: Strong and Stable Gr Growth Prospec ects Rema main In Intact ct

  17. Conducive cive Environment ment Underpin rpinning ning Strong ng Growth th Fundam ament ental als 4th Most Tax base to be Budget reform as broad adened from Larges gest t Economy my Populous country y a a part of larger one reduc uce in South East in the World; ; economic ic reform dependency on Asia 64% in init itiat iative commodit itie ies productiv tive e age Larg rge e and Consi nsiste tent nt Fuel subsid idie ies Stable able Risin ing g Middle e Budg dget t Reform orm signif ific ican antly y Econo nomy Manageable Class and reduc uced and Prud udent debt Inflatio tion Rate Affluen ent t spendin ing redir irected man anag agement to more produc uctive Custome mers allocat atio ion Refor orm-Orie iente ted Adminis inistr tratio ion Three main ain sources of finan ancin ing for From commodity-based to man anufa ufactur urin ing investment needs: Stat ate and regio ional al and servic vice sectors via infrast astruc ucture budget, Stat ate Owned Enterpris ises and PPP development New High h Contin inui uing from 2015 polic icy, infras astructur ure Econom nomic ic Infras rastructu ructure re From consum umptio ion-led to investment-led will be higher than fuel subsid idy growth via a strong nger manufac anufactur urin ing sector Structu ructure re Investments and more investment init itia iative ives Infras astructur ure spendin ing focused on basic ic infras astructur ure projects Policie ies to maint aintai ain n pur urchas asing ing power to stim imulat ate domestic ic economy in the mid idst Fiscal al and non-fis iscal al incentive ives to attrac act of weakenin ing mac acroeconomic ic condit itio ions infras astructur ure investment and promote PPP 24

  18. Indonesia’s Strong GDP Strong ng GDP Growth th 1 % QoQ YoY Indonesia’s national economy grew by 5.17% (yoy) in the third 7.0 • quarter of 2018 on the back of domestic demand. The data 5.06 5.27 5.17 5.12 4.94 4.93 5.05 4.82 4.74 4.77 5.17 4.92 5.18 5.01 4.94 5.01 5.01 5.06 5.19 points to stronger domestic demand in the reporting period, with 5.0 4.21 3.83 4.01 growth increasing from 6.35% (yoy) in the second quarter of 2018 4.01 3.74 3.31 3.27 3.19 3.14 3.09 to 6.40% (yoy). 3.0 In terms of spending, the dominant role of domestic demand in • 1.0 0.04 driving economic growth mostly stemmed from investment and government expenditure. Investment growth accelerated to 6.96% (0.16) (0.36) (0.30) (0.42) -1.0 (yoy) from 5.86% (yoy) in the previous period, supported by (1.73) (1.70) (1.81) building and non-building investment. Government expenditure grew (2.07) -3.0 by 6.28% (yoy) in the third quarter of 2018, the highest level Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 recorded since 2016. 2014 2015 2016 2017 2018 Favo vour urable ble GDP Growth th Compar pared to Peers 2 Growth th Prospe pect ct % 9.0 Instit itutio ions 201 2018 GDP growth (%YoY) 8.0 7.0 2018 Budget 5.4 5.3 6.0 5.1 Bank Indonesia 5.0 – 5.4 5.0 4.0 IMF 5.3 3.0 World Bank 5.3 2.0 1.0 ADB 5.3 0.0 Consensus Forecast 2012 2013 2014 2015 2016 2017 2018* 5.2 (November 2018) Indonesia India Philippines Bulgaria Colombia 1. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption 2. Source: World Economic Outlook Database – April 2018; * indicates estimated figure 25

  19. GDP Growth th Break akdown wn GDP Growth th Based on Expe penditu itures es (%, YoY YoY) 1 2014 14 2015 15 2016 16 2017 17 2018 18 By expen pendit diture Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot Q1 Q1 Q2 Q2 Q3 Q3 5.2 5.2 5.1 5.1 5.1 5.0 5.0 5.0 4.9 5.0 5.0 5.1 5.0 5.0 5.0 4.9 4.9 4.9 5.0 5.0 5.0 5.1 5.0 HH. Consumption Non profit HH. 23.2 22.4 5.8 (0.5) 12.2 (8.1) (8.0) 6.6 8.3 (0.6) 6.4 6.7 6.7 6.7 6.6 8.1 8.5 6.0 5.2 6.9 8.1 8.7 8.5 consumption Government 6.1 (1.8) 1.2 0.9 1.2 2.9 2.6 7.1 7.1 5.3 3.4 6.2 (3.0) (4.0) (0.1) 2.7 (1.9) 3.5 3.8 2.1 2.7 5.2 6.3 consumption Gross Fixed Cap. 5.4 4.0 4.4 4.1 4.4 4.6 4.0 4.9 6.4 5.0 4.7 4.2 4.2 4.8 4.5 4.8 5.3 7.1 7.3 6.2 7.9 5.9 7.0 Formation 3.1 1.5 4.9 (4.4) 1.1 (0.6) (0.3) (1.0) (6.4) (2.1) (3.1) (1.5) (5.8) 4.1 (1.6) 8.4 2.8 17.0 8.5 9.1 6.1 7.6 7.5 Exports 5.1 0.4 0.2 3.0 2.1 (2.6) (7.1) (6.5) (8.6) (6.2) (5.0) (3.5) (4.1) 2.7 (2.4) 4.8 0.2 15.5 11.8 8.1 12.8 15.3 14.1 Imports 5.1 4.9 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0 5.0 5.1 5.2 5.1 5.1 5.3 5.2 GDP 1. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption GDP Growth th by Secto ctor (%, YoY YoY) 2014 14 2015 15 2016 16 2017 17 2018 18 By sectors Q1 Q1 Q2 Q2 Q1 Q1 Q2 Q2 Q1 Q1 Q2 Q2 Q3 Q3 Q3 Q3 Q4 Q4 Tot. Q3 Q3 Q4 Q4 Tot. Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Agriculture, forestry, and 5.2 4.9 3.6 3.3 4.2 3.7 6.5 2.9 1.6 3.8 1.5 3.5 3.2 5.5 3.4 7.2 3.2 2.8 2.2 3.8 3.3 4.8 3.6 fishery Mining and Quarrying -1.2 0.7 0.7 1.5 0.4 0.6 (3.6) (4.4) (6.0) (3.4) 1.2 1.0 0.2 1.4 0.9 (1.2) 2.1 1.8 0.1 0.7 0.9 2.6 2.7 Manufacturing 4.5 4.9 5.0 4.2 4.6 4.1 4.2 4.6 4.4 4.3 4.7 4.6 4.5 3.3 4.3 4.3 3.5 4.8 4.5 4.3 4.6 3.8 4.3 Construction 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 7.1 6.4 6.8 5.1 5.0 4.2 5.2 6.0 6.9 7.0 7.2 6.8 7.4 5.7 5.8 Wholesale and Retail Trade, Repair of Car and 6.1 5.1 5.2 4.4 5.2 3.8 1.6 1.4 3.5 2.5 4.3 4.3 3.7 3.9 4.0 4.6 3.5 5.2 4.5 4.4 5.0 5.2 5.3 Motorcycle Transportation and 7.0 7.6 7.7 7.2 7.4 6.3 6.0 7.0 7.5 6.7 7.4 6.5 8.2 7.6 7.4 8.1 8.8 8.9 8.2 8.5 8.6 8.7 5.6 Storage Information and 9.9 10.7 9.8 10.1 10.1 9.7 9.3 10.6 9.2 9.7 7.6 9.3 8.9 9.6 8.9 10.5 11.1 8.8 9.0 9.8 8.5 5.9 9.0 communication 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.3 12.8 8.6 9.3 13.6 9.0 4.2 8.9 6.0 5.9 6.2 3.9 5.5 4.3 3.0 3.4 Financial service Other Services * 5.4 4.7 5.9 6.5 5.7 5.1 6.5 4.8 5.5 5.4 6.0 5.6 4.5 3.8 4.9 4.1 3.5 4.8 6.1 4,7 5.5 6.3 6.7 GDP 5.1 4.9 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0 5.0 5.1 5.2 5.1 5.1 5.3 5.2 Source: Central Bureau of Statistics of Indonesia (BPS) *Other services consist of 10 sectors (according to Standard National 2008) 26

  20. Regio gional al Growth th Remains ains Positi tive ve Higher Growth th Occurr urred In Most Of The Regio ions ns and Java Still Contrib ibut utes Meanin ningfull ully Source: Central Bureau of Statistics of Indonesia (BPS) 27

  21. Sec ection tion 3 Ext xternal rnal Fact ctor: r: Im Improved Ext xtern ernal al Resilie ienc nce

  22. Exter ernal al Bal alan ance ce under r Contr trol l Support rted ed by A y Adequ quate ate Reser Re serves es Balance e of Payme ments Portrait it Curren ent t Account Defic icit it withi hin Safe Thres esho hold US$bn US$bn 2012: 2012: 2013: 2013: 2014: 2014: 2015 2015: 2016: 201 2017: 201 Current Account Capital and Financial Account CA Defic icit CA Defic icit CA Defic icit CA Defic icit CA Defic icit CA Defic icit 20 160 US$bn (US$24.4bn) n) (US$29.1bn) n) (US$27.5bn) n) (US$17.5bn) n) (US$16.9b 9bn) n) (US$17.3 .3bn) n) Overall Balance Reserve Asset (RHS) 8 15 6 115 5 120 4 10 2 1.79 4.17 17 5 0 80 -2 (8.03) 0 -4 -6 -5 (4.39) .39) 40 (8.85) 5) -8 (2.22) -10 (8.85) .85) -10 (0.40) -12 -15 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1*Q2*Q3*Q4*Q1*Q2* Q3** Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1*Q2*Q3*Q4*Q1*Q2* Q3** 2012 2013 2014 2015 2016 2017* 2018** 2012 2013 2014 2015 2016 2017* 2018** Goods Services Primary Income Secondary Income Current Account Source: Bank Indonesia Source: Bank Indonesia Substantia tial FX Reser erves es to Mitiga igate te Exter ernal Challen enges ges Trade e Balance Defic icit it in line e with h Imp mprovin ing g Economi mic Activ ivities ities 2013: 2013 2014: 2014 2015: 201 2016: : 2017: FX Reserves s as of Octo tober 201 2018: US$115 15.2 bn n US$bn Defic icit it Defic icit it Surplus us Surplus us Surplus us (Equiv iv. to 6.2 month ths s of impo ports ts + servic icin ing of government t debt) t) (US$4.10bn) n) (US$2.37bn) n) US$7.59bn US$8.83b 3bn US$11.83bn bn 3.00 US$bn Month 130 15 FX Reserves (LHS) Month of Import & Debt Service (RHS) 14 2.00 120 13 12 1.00 110 11 10 100 9 0.00 8 90 7 -1.00 6 80 5 4 70 OG Non-OG Total -2.00 3 2 60 1 -3.00 50 - 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 * Preliminary Figure ** Very Preliminary Figure Source: Bank Indonesia Source: BPS 29

  23. Exchang ange Rate In Li Line ne with Fundam ament entals als Move veme ment nt of Rupia iah IDR/US$ Th The Rup upiah iah exchan ange rat ate move ves ac according to to market mechan anis isms an and sup upports Data as of November 14 th , 2018 15,450 the process of of external sector ad adjust ustment to to sust ustain ain economic ic sust ustain ainab abil ilit ity. The 15,176 Rupiah recorded depreciation in the third quarter and October 2018 and then 15,250 IDR/USD 15,064 strengthened in November 2018. Point to point, the Rupiah weakened by 3.84% in 15,050 Monthly Average 14,787 the third quarter of 2018 and 1.98% in October 2018 due to global economic 14,850 Quarterly Average uncertainty. In November 2018, the stronger Rupiah was influenced by foreign 14,869 14,601 14,650 capital inflows triggered by still conducive domestic economic conditions, financial 14,808 market deepening policies, and the influence of positive sentiments from the US 14,450 14,561 election result and easing trade tensions between the US and China. Foreign 14,250 14,409 14,058 14,043 capital inflows to the domestic financial market occur in all types of assets, 13,952 14,050 including the stock market. With these developments, until November 14, 2018, 13,760 13,850 year to date (ytd) Rupiah depreciated 8.25% or lower than Turkey, South Africa, 13,603 13,576 India and Brazil. Going forward, Bank Indonesia will remain vigilant of the risks of 13,650 13,809 uncertainty in the global financial market by continuing to carry out measures to 13,450 13,378 stabilize the exchange rate according to its fundamental values, and maintaining 13,250 the operation of the market mechanism, supported by financial market 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov development efforts. Rupia iah Exc xchang nge Rate Fared Relative latively ly Well ll Compar pared to Peers Rupia iah Exc xchang nge Rate Volatil tilty ty YTD 2018 vs 201 017 % -30.57 45 TRY -23.99 -14.03 ZAR 40 1.39 Oct-18 Nov-18 -12.51 BRL 34.5 .5 -12.03 35 -11.67 INR 30.2 .2 -4.40 -8.25 30 IDR -5.80 25.6 .6 -6.52 EUR 23.3 .3 4.78 22.1 .1 25 -6.38 CNY 19.5 .5 2.69 20 -6.21 PHP -4.31 point-to-point average -5.89 KRW 15 12.4 .4 3.05 11.3 .3 10.7 .7 10.2 .2 -3.56 MYR 8.6 7.05 9.0 9.9 10 7.5 -3.29 5.6 SGD 5.3 2.55 4.0 3.9 4.2 -1.26 5 THB 3.0 5.13 Data as of November 14 th , 2018 -1.09 JPY 1.82 % 0 TRY IDR ZAR BRL KRW INR PHP SGD MYR THB -35.0 -30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 Source: Bank Indonesia 30

  24. Bank Indonesia’s Policy licy Direct ection ion To maintain ain Rupiah ah stabilit lity and support growth Measures es To To Stabilize lize Rupia piah h Excha hange ge Rate te Measures es To Supp ppor ort t Gro rowth th 1 1 To stabilise the rupiah A pre-emptive, front- Further easing of exchange rate, while To bolster the growth of the loading and ahead-of- macroprudential consistently controlling inflation property sector which has positive the-curve policy policy within the 2018-2019 target impact to the economy response range of 3.5±1% 2 2 Dual intervention in Coordination with the Coordinating the foreign exchange To stabilise the rupiah Policy Ministry of Economic Affairs, the market and exchange rate, adjust fair coordination to Ministry of Finance, and the government securities prices in the financial markets accelerate Financial Services Authority to (Surat Berharga Negara and maintain adequate liquidity financial market accelerate financial market – SBN) market in a in the money market deepening deepening, particularly in private measured way financing for infrastructure. 3 3 Strengthening the Electronification to support social Payment system To maintain adequate liquidity monetary operations in assistance disbursement and development to in the rupiah money market the foreign exchange and financial transcation of the central support digital and interbank swap market money markets and regional government economy 4 4 Sharia economy and finance Intensive communication, To form rational expectations, development to create halal value Sharia economy especially to market thus helping to mitigate the chain, sharia financal sector and finance players, banks, rupiah overshooting its development both for commercial development businesses, and fundamental level. and social purposes, including its economists education and communication Source: Bank Indonesia 31

  25. Ampl ple Li Lines of D Defen efense se Against ainst Ext xter ernal nal Shocks cks Ampl ple Reserve ves Ample level of FX reserves to buffer against external shock  FX Reserv rve FX Reserves as of October 2018: US$115.2 billion  Swa wap p Arrang ngeme ment nt USD22.76 billion swap line with Japan currently in place  Japan As of October 14th,2018, the facility is available in USD and JPY  The size of the swap line was increased from USD12 billion in December 2013  South th Korea Renewed a 3 year KRW / IDR swap arrangement with the size of up to KRW 10.7 trillion / IDR 115 trillion in March 2017 teral Bilateral  Australia alia Established a 3 year A$/IDR swap arrangement of up to A$10 billion or IDR 100 trillion in August 2018  Singapo apore Established a one year SGD/IDR swap arrangement with a size up to USD10 billion (equivalent) in November 2018  Renewed a 3 year swap arrangement and increased the size of swap line up to CNY 200 bn / USD 30 billion in  China November 2018 Entitled to a maximum swap amount of USD600 million under ASA  ASEAN N Swap p The first MoU on the ASA was signed in 1977 among 5 ASEAN Central Banks with total facility USD100 million  Arra rangem gemen ent (ASA) nal Doubled to USD2 billion in 2005 iona  Regio Chia iang g Mai i Entitled to a maximum swap amount of US$ 22.76 bn under the ASEAN+3 (Japan, China, and Korea) FX reserves pool  created under the agreement Initia tiative tive Multila ltilatera terali liza zation tion Came into effect in 2010 with a pool of US$120 bn  (CMIM IM) ) Agreem eemen ent Doubled to US$240 bn effective July 2014  IMF Global al al Global Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem  Financ ncial ial Safety ty Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL)  Net - GSFN Source: Bank Indonesia 32

  26. Solid id Policy cy Coordi dina natio tion In Managin aging Financial ancial Market kets Volati tili lity ty The enac actm tment nt of Law No. 9/201 016 6 regar arding ng Prevention ntion and Mitig tigat ation on of Financ nancial al Syste tem Crises Gov’t Securities Crisis is Mana nage gement ent Proto tocol (CMP) as a legal foundation for the government to serves Indicators: at the time of financial crisis in the form of Financi Financial al  - Yield of benchmark series; Syste tem Stabili ability ty Com ommitt ttee (KSSK) - Exchange rate; - Jakarta Composite Index; - Foreign ownership in government securities KSSK membe bers: the Ministry of Finance, Bank Policies to address the crisis at every level : Indonesia, the Financial Services Authority, and the  Deposit Insurance Corporation - Repurchase the government securities at secondary market - Postpone or stop the issuance Bond nd Stabilizatio ilization n Framew ework rk Swap facility arrangements based on international cooperation First Line of Defense Buyback fund at DG of Budget Financing and Risk Management State’s Budget Investment fund at Public Service Enhancing coordination between government Agency (BLU) (min. level Aware) institutions and continuous dialogue with market Stat ate Owned Enterprises Related SOEs (min. level Aware) participants (BUMN)’s Budget Social al Secur urity y Organ anizing zing Agency y BPJS (min. level Aware) (BPJS)’s Budget CMP Implementing Crisis Management Protocol (CMP) Second Line of Defense State General Treasury Account (Rekening KUN) (min. level Alert) State’s Budget Accumulated cash surplus (SAL) (min. Level Crisis) BSF Implementing Bond Stabilization Framework (BSF) Source: Ministry of Finance 33

  27. Streng engthened hened Pri rivate te Exter erna nal Deb ebt Risk Man anag agem ement ent Enco cour uragin ing Corpor porate tes Compli lianc nce on Hedgin ing Ratio io & Liqui uidity ty Ratio io Debt Burden en Indicator (Exter ernal Debt/G /GDP DP) ) Rema mains Comp mparable e to Peers Rating Hedging ging Ratio* Exter ernal Debt/ bt/GDP (%) 185 ; 6.8% 295 ; 10.8% Bulgaria 64.7 Colombia 42.2 Indonesia 32.8 ≤ 3 m mont nths hs > 3 - 6 mont nths hs Philippines 21.6 India 22.4 2,432 ; 89.2% 2,542 ; 93.2% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 2019F 2018F 2017 Source: Moody’s Statistical Handbook, May 2018 Liquid idity ity Ratio* Regulatio tion on Pruden entia tial Prin incipl iple in Managing g Exter ernal Debt 350 ; 12.8% Phase 1 Phase 2 Phase 3 Regulat atio ion Key Points Jan 1,2015 – Jan 1,2016 – Jan 1, 2017 Dec 31,2015 Dec 31,2016 & & beyond Obj bjec ect of Regu gulatio ion Governs all Foreign Currency Debt Hedg dgin ing g Ratio io < 3 months 20%* 25%** 2,377 ; 87.2% > 3 – 6 months 20%* 25%** Liquid idit ity y Ratio io (< 3 months) 50% 70% Credi edit Ratin ing Not applicable Minimum rating of BB- Must be done Comply Not Comply Hedg dgin ing g transactio ction n to meet not necessarily be done with a with a bank in hedg dge ratio io bank in Indonesia Indonesia *Data as of Q2 2018, with total population 2.727 corporates Sanctio ion As of Q IV-2015 Applied Source: Bank Indonesia Source: Bank Indonesia 34

  28. Healthy althy Exter erna nal Deb ebt Composit sitio ion Exte xterna nal l Debt Struc uctur ture The Struc uctur ture of Exte terna nal l Debt bt is Domin inate ted by Long ng-Te Term m Debt bt Private Debt Government and Central Bank Debt Short Term External Debt Long Term External Debt 100% 100% 90% 90% 80% 57.4 58.6 52.6 50.0 46.4 44.2 45.9 49.5 51.2 51.2 50.8 51.4 51.3 50.7 50.4 50.4 50.2 49.8 80% 70% 70% 60% 60% 81.7 78.8 79.3 78.3 78.8 79.8 82.1 82.9 84.5 83.8 84.0 84.0 84.2 84.1 84.9 84.3 84.4 84.2 50% 50% 40% 40% 30% 30% 42.6 41.4 47.4 50.0 53.6 55.8 54.1 50.5 48.8 48.8 49.2 48.6 48.7 49.3 49.6 49.6 49.8 50.2 20% 20% 10% 10% 18.3 21.2 20.7 21.7 21.2 20.2 17.9 17.1 15.5 16.2 16.0 16.0 15.8 15.9 15.1 15.7 15.6 15.8 0% 0% Exte xterna nal l Debt t Rema mains ns Manageabl ble Exte xterna nal l Debt t to GDP Ratio io & Debt bt to Expo xport t Ratio io External Debt External Debt Growth (rhs) Million USD % External Debt to Export Ratio External Debt / GDP Ratio (rhs) 400,000 20.0 % % 200 40 36.1 18.0 34.8 34.8 34.3 34.5 350,000 34.2 17.1 32.9 31.8 35 16.0 180 29.1 300,000 27.4 26.5 14.0 30 25.0 176.1 250,000 160 12.0 12.0 168.4 167.9 166.7 25 11.5 11.3 160.6 157.8 10.3 10.2 200,000 10.0 140 20 9.0 8.0 150,000 139.5 15 120 6.0 5.9 5.7 5.4 100,000 123.1 121.8 10 4.2 4.0 114.9 113.8 100 3.0 5 50,000 2.0 101.0 80 0 0 0.0 *Provisional Figures **Very Provisional Figures Source: Bank Indonesia, External Debt Statistics of Indonesia, November 2018 35

  29. Man anag ageable eable External rnal Debt bt Profile le Short rt term non-ba bank nk corpo rporate debt (non affi filia liation) ion) repr pres esen ents ts only 8.9% of total priva vate externa rnal debt Public ic Long Term 1 Priv ivate te Bank Affil Af iliat iation US$179.2bn US$132.4bn US$19.6bn or or or 49.8% 73.3% 10.8% US$12.7bn of Total Ext. of Private Ext. of Private or or Debt Debt Ext. Debt 7.0% 0% Exter ernal Debt of Private ate Positio tion Ext. . Debt t US$180.6bn US$48.2bn US$28.7bn or or or 50 50.2% US$359 59.8bn bn 26 26.7% 15,9% of total of Private of Private Ext. Debt Ext. Debt Ext. Debt Priv ivate te Non-Bank US$16 16.0bn 0bn Short-Term Term 1 or or 8.9% 9% Priv ivate te of Private ate Ext. . Debt t External Debt Position as of September 2018 1 Based on remaining maturity Non Af Affil iliat iation Source: External Debt Statistics of Indonesia, November 2018 36

  30. Sec ection tion 4 Fisca cal Perf rforma rmanc nce and Flexib xibilit ility: More Fiscal cal Stimu mulus us with Pru rudent nt Fisca cal Policy cy

  31. Integ tegrated ted Reform orm to Prov ovide ide Higher her Quality ity of Econo onomic mic Growth wth Struct ctur ural al reform rms to enhance ance potential ial growth wth and navig igate throug ugh chall lleng nges • Fair State Budget that declines poverty and income inequality Fiscal al Synergy gy in reform rm to boost the more sustainab nable le and inclu lusiv ive • Monetary policy to support Mone netary ary & • Efficient, competitive, and Real al Secto tor growth wth macroeconomic stability Finan ancial ial innovative real sectors • Price stability and sustainable Secto ctor • Job-creation current account deficit • Trade and investment • Efficient and credible policies that support growth, financial sector efficiency, and stability Source: Ministry of Finance 38

  32. Growth th Momentum ntum is Expected cted to Contin tinue ue Several al key drivers rs and strategie ies to accele lerate growt wth Strateg egies ies to Encour ourage Grow owth th Key Driv iver ers Main intainin taining g purchasing ing powe wer, r, boosting ing domes estic ic • Consumptio ion remains robust among others • demand nd and suppor orting ting business activity ity. supported by benign inflation Improve distribution channels  Increased shopping events, creative industries  Inves estment ent grows stably supported by • and festivals in tourism areas infrastructure acceleration, business climate improvement, rating upgrades, economic Incentives for manufacture  packages Developing e-commerce industry  Expor ort and Impor ort keeps improving driven by • Encourag ouraging ing priva ivate te sector or's rol ole in investment nt • increasing demand and improving prices Strengthening and deepening financial  markets Support from sever eral import rtan ant events ts such as • Making a stable investment climate through  Asian Games, Regional Elections, and IMF-WB political stability annual meeting Expand nd servic ices es sector, especially ially touris urism • Increasing foreign tourists arrival through  Risks ks & Challe halleng nges es cooperation with other countries by increasing the direct flight schedule Globa bal econo nomic ic uncert rtain ainties ties: China economic rebalancing Encouraging national creative industry growth  and its financial vulnerability, advanced countries policy normalization, geopolitic, and climate change 39

  33. 2019 State Bu Budget et (AP APBN BN 2019) 9) Healthie hier, r, More Equit itable able, Self-Suf Sufficie icient nt Macroecono economic ic Healt althier hier Assum umption ption Growth th Inflation tion Exchang nge Rate 3 months ths T-bill lls Deficit 1.84% of GDP, the • 5.3% 3.5% 15,000/US$ 5.3% lowest since 2013 Towards positive primary • balance ICP Oil Lifting ing Gas Liftin ing Debt to GDP ratio below • 70/barrel 775 thousands barrel/day 1,250 thousands barrel/day 30% of GDP More equit uitab able le Dev evelop lopmen ent Unempl ploy oyment nt Pov over erty ty Gini ni ratio tio HDI Strengthening • Target 4.8% – 5.2% 8.5 – 9.5 0.38 – 0.39 71.98 decentralization (increasing fiscal transfer to regions) EXPEND NDITURE ITURE REVENU NUE Strengthening scisl • Rp2,461.1 T Rp2,165.1 T protection programs  Cen entr tral al Gov over ernmen ent  Tax Focusing on human capital • Rp1,634.3T Rp1,786.4 T quality improvement  Tran ansfer er to Region gion  Non Tax (inter-generational Rp756.8 T fairness) Rp378.3 T  Villag lage Fund nd  Gran ant Self lf suffic icie ient nt Rp70.0 T Rp0.4T Increasing tax revenue • Increasing the share of • local currency bond Deficit it Primary imary Balance ce issuance Rp296.0 T (1.84% of GDP) (Rp20.1 T) Domestic financial • deepening Debt Finan ancing ing Inves estment ent Rp359.3 T Driving export Rp75.9T • Source: Ministry of Finance 40

  34. More Credible dible an and Real alis istic tic Budget et …providing more certainty to all stakeholders Macroeconomic Assum umptio ion for 2018 & 2019 Budget Credibl ible and realis istic tic budget, given that the 2016 and 2017 • 2017 2017 17 2018 18 2019 19 full year realization is relatively accurate with the budget. Indic icator R-Budge Budget Realiz ization Budget dget Budget dget 2017 realization is considerably accurate with the revised • Economic ic growt wth (%, yoy ) budget. This goes along with accurate macroeconomic 5.2 5.1 5.4 5.3 indicators relative to the budget. Inflatio ion (%, yoy ) 4.3 3.6 3.5 3.5 The House of Representatives has approved the 2018 budget • 3-Mo Month Treasury y Bill (SPN PN) (%) 5.2 5.0 5.2 5.3 with substantial increase in Revenues, mainly contributed by Exchang nge Rate e (Aver erage ge, IDR/US USD) 13,400 13,384 13,400 15,000 20.4% tax revenue increase compared to 2017 realization. ICP (USD/ba barrel) 48 51.2 48 70 2018 budget deficit is to be set at 2.19% of GDP, much • Oil il Productio ction n (thousand nd barrel el/da day) lower compared to 2017 realization. 815 804 800 775 Gas Produ ductio ction n (mil illions ns barrel el/da day) 1.15 1.14 1.20 1.25 2018 2019 2016 2017 Difference of % difference Descriptio ion (IDR Tril illio ion) Audit ited Audit ited Realizat ization % Realizat izatio ion Proposed Budget to Budget with R- Budget Realizat ization Realizat ization (a.o. Oct 31) to Budget Budg dget Proposed d Budget Budget A. A. Revenue ues and Gran ants 1,555.9 1,666 66.4 1,894.7 9.1 1,483.9 78.3 2,142.5 2,165.1 22.6 I. Domestic Revenue 1,546.9 1,893.5 9.3 1,476.1 77.9 2,142.1 2,164.7 22.6 1,654.8 1. Tax Revenue 1,285.0 1,343.5 1,618.1 9.9 1,160.7 71.7 1,781.0 1,786.4 5.4 2. Non Tax Revenue 262.0 311.2 275.4 5.8 315.4 114.5 361.1 378.3 17.2 II. Grants 9.0 11.6 1.2 -61.3 7.8 648.8 0.4 0.4 0.0 B. Expendit iture 1,864.3 2,007.3 2,220.7 4.1 1,720.8 77.5 2,439.7 2,461.1 21.4 I. Central Government Expenditure 1,154.0 1,454.5 6.4 1074.4 73.9 1,607.3 1,634.3 27.0 1,265.3 1. Ministerial Spending 684.2 765.1 847.4 6.1 586.4 69.2 840.3 855.4 15.2 2. Non Ministerial Spending 469.8 500.2 607.1 6.8 488.0 80.4 767.1 778.9 11.8 II. Transfer to Region and Village Fund 710.3 766.2 -0.0 646.4 84.4 832.3 826.8 -5.6 742.0 C. C. Prim imar ary y Balan ance -125.6 -124.4 -87.3 -51.0 -23.7 22.2 -21.7 -20.1 1.6 D. Surplus us (Defic icit it) -308.3 -340.9 -325.9 -18.0 -236.9 -297.2 -296.0 1.2 % of GDP -2.49 -2.51 -2.19 -1.60 -1.84 E. Finan ancin ing 334.5 325.9 -18.0 320.0 98.2 297.2 296.0 -1.2 366.6 Source: Ministry of Finance 41

  35. Increasing easing Tax ax Reven enue ue Over er The Years Tax revenue in 2019 is expected to grow by 15,4% from 2018’s outlook, supported by continuo inuous us tax reform rm Tax Revenue nue (in IDR trilli lion) on) 2019 TAXATION ON POLICY ICY Strengthenin ing the taxat atio ion servic vice Ratio io to GDP (%) - RHS a a. Simplifying registration and expanding number of service center 13.7% 2000 15% b. Expanding e-filling coverage, and 12.2% 1800 11.6% c. Simplifying refund system 11.6% 13% 10.8% 10.7% 1600 11% Law enforcement 1400 a. Conducting fair law enforcement 9% b. Improving audit quality by reforming governance 1200 1,786.4 7% 1000 Tax complian ance supervis visio ion 1,548.5 1,343.5 800 1,285.0 a. Implementing the AEol and financial information access 1,240.4 5% 1,146.9 b. Extensification and enhancing supervision as a follow-up 600 to tax amnesty 3% 400 c. Handling SMEs end-to-end by Business Development 1% Services (BDS) approach 200 d. Establishing DG Tax-DG Customs and Excise joint program 0 -1% e. Improving tax database f. Implementing the Compliance Risk Management (CRM) 2014 2015 2016 2017 2018 2019 Budget Outlook 2019 CUSTOM OM AND EXCISE SE POLI LICY The contribution of tax revenues • Improvin ving the dwelling time: to total revenue is increasing Accelerating the service of Bonded Logistics Continuing the control of importers, exporters,  From 74% in 2014 to 82.5% in Centre (Pusat Logistik Berikat) and high risk excise policy (PIBT, PEBT and 2019 Simplifying the import procedure PCBT)  synergy with DG Tax, army, police,  Import duty and tax payment 24x7 (with MPN G2) and public prosecutor  Fiscal incentives (tax holiday, tax •  including customs service 24x7 allowance, etc) are provided to maintain the sustainability of the Developing/expanding Kemud udahan ahan Impor Tujua uan Continuing the preve ventio ion of smug ugglin ing and investment climate and increase Ekspor (KITE TE) facility for SMEs controlling illegal al excise goods (cigarettes, alcohol) competitiveness Adding new excise goods (plas astic packag agin ing) Effic icie iency of logistic ic costs a Tax ratio derived from tax revenue + revenue from natural resources/GDP Source: Ministry of Finance 42

  36. Non-Tax ax Reven enue ue Encour urag aged by rising ng in oil prices, s, increas asing ing quali lity and volume me of service ices, s, and improving ing governan rnance ce (non-tax ax revenue nue in 2019) Non-Tax ax Revenue nue (in IDR trillion) n) 450 400 398.6 350 378.3 349.2 300 311.2 250 262.0 255.9 200 150 100 50 0 2014 2015 2016 2017 2018 Outlook 2019 Budget Non-Tax ax Revenue nue General al Policy Product uct Optimizat imization Use of Integr grat ated ed Technol nology ogy with Non-tax income payment Followed by cost efficiency effort, downstream industry • system. expansion, environment sustainability, and business continuity. Follo lowing ing-up up the amend ndme ment nt of non tax x revenu enue e law Improvin oving g Services vices and Adjus usting ing Tariffs iffs Simplifying non-tax revenue tariff, particularly related to • While still considering purchasing power, expanding business, • service. and optimizing imizing stat ate e proper erty management gement. Executing non-tax revenue tariff policy up to Rp 0.0 (zero • percent) Incre reas asing ing Stat ate-Owned ned Enter erprises rises (BUM UMN) ) Divid vidend end Strengthening the non-tax revenue supervision and inspection • While still considering BUMN cashf hflow low and financial ability by • Implementing objection, remission, and reimbursement option. • expanding business and executing government assignment. Source: Ministry of Finance 43

  37. Commitm tment nt to Contin tinue ue Streng ngth thenin ening Productive ductive Spending ing Alloca cating ing budget to a more product uctive ive spendin ing Central Govern ernmen ent Spendin ing Rp. 855 Rp. 855,4 ,4 T Line Minis nistries ries • Improving the quality of state apparatus by strengthening bureaucratic reform 2016 • Strengthening social assistance 20 2019 • Capital Expenditure optimization Rp1,154.0 T 2015 • Goods Expenditure management Rp1,634.3 T Rp1,183.3 T Rp. Rp.77 778,9 T T Line Mini Non nistries 2018 Outlook look 2017 Rp1,453.6 T Rp1,259.6 T Non Ener ergy gy Subsidy idy Ener ergy gy Subsidy idy Deb ebt Inte terest est • Focused on more • Focused on • Maintain targeted subsidy policies accountability of subsidies. that are more Supporting competitiveness improvement, exports debt • • Towards non- targeted. and investment increase, followed by management. cash distribution. strengthening value for money. • Optimal choice of • Continuing the debt composition limited subsidies and utilization of Accommodating strategic initiatives (i.e. natural • of diesel. hedging. disaster reconstruction rehabilitation, democratic • Increasing the • Decreasing the agenda). use of renewable growth of debt energy. financing. Source: Ministry of Finance 44

  38. Investm estments ts in Huma man Cap apital tal Has as Been een Ra Rampe ped Up 20% of national nal budget is alloca cated for educa catio ion and anothe her 5% for healt lth Budg udget t for Educ ucatio tion n Program Budg udget t for Healt lth Program IDR tn IDR IDR tn 123.1 600 125 107.4 492.5 500 92.4 100 91.4 435.0 406.0 390.3 370.8 400 353.4 75 65.9 59.7 300 50 200 25 100 0 0 2014 Real 2015 Real 2016 Real 2017 Real 2018 2019 2014 Real 2015 Real 2016 Real 2017 Real 2018 2019 Budget Outlook Budget Outlook Some Improvem ements ents are made for 2019 Educ ucatio ion Progr gram am Some Improvem ements ents are made for 2019 Health th Progr gram am Quality and Access Improvement: Quality and Access Improvement: a. Increasing the effectiveness of BOS (School Operations Aid) a. Expansion of Contribution Aid Recipients (PBI) in the  BOS is based on performance and affirmation. framework of National Health Insurance (JKN) (2015: 86.4 b. The continuity of Program Indonesia Pintar is followed by million people; 2019: 96.8 million people) followed by an the increasing of target accuracy. increase in target accuracy. c. Acceleration of the construction of school and university b. Improving services at first-level health facilities. facilities (part of which is carried out by the Ministry of c. Strengthening the stunting handling by specific and sensitive Public Works and DAK supervised by the Ministry of Public nutrition intervention in 160 regencies/cities (2018: 100 Works). regencies/cities). d. Expansion of the affirmation/Bidik Misi Scholarship program. d. Continuing the optimalization of BPJS health deficit handling e. Allocating the endowment research. policy: f. Enforcement fulfills the education budget by the Regional Cigarette tax policy • Government. Improvement of referral system • g. Link and match vocational education. Improvement of claim management. • 45

  39. Subsid bsidy Policy licy is Directed cted to be Better Targeted ted and nd Tow owar ard Non on-cas cash Di Distributio tribution throug ugh various us polici cies in energy and non-ene nergy subsid idy 224.3 224 Ener ergy gy Subsidy idy increa eases, 2019 Subsidy idy Budg dget et (Tn IDR) Part rtly ly due due to to the chang nge of of excha hang nge rate te assum umption ption Oil and gas as Tn IDR Energy Subsidy • Continuing diesel el limit ited ed subsidy sidy 200.0 subs bsidy idy 3.5% 160.0 163.5 • Impr mprovin ing the he tar arget et of of gas gas ben enef efic iciar iarie ies: 67.4% 100.7 100 150.0 households, micro businesses, and low- 119.1 10.3% 106.8 97.6 8.6% income fishermanPerbaikan sasaran 100.0 Electr tric icit ity • Impr mprovin ing the he tar arget et sub subsi sidy ac accu curac acy subsidy idy 50.0 for 450 and 900 VA users 59.3 • Increasing of electrif ific icatio ion ratio io - 2015 2016 2017 2018 Outlook APBN 2019 BBM dan LPG 3 Kg Oil and Gas 3 Kg Listrik Electricity No Non-en ener ergy gy sub ubsidy dy am amoun ount is is the he sam ame wit ith idy 29 government’s propos osal al in in RAPBN PBN 2019 Fert rtil iliz izer er sub ubsidy 29.5 Hous using ing inte terest est Supporting food Non-energy Subsidy Tn IDR idy 3.5 subsidy security is fitted to the 80.0 68.8 66.9 67.4 0.8% 64.7 64.3 6.0% land area 1.9% For lo low-in inco come me 0.5% 60.0 popula pulatio ion with Busine iness credit dit 100 thousand 12.0 12 40.0 (KUR UR) subsidy idy units publishing 20.0 KUR distribution target is Rp120 T with 7% interest rate - for SMEs and Indonesian 2015 2016 2017 2018 Outlook APBN 2019 workers Pupuk Pangan Benih PSO Bunga Kredit Program Credit interest Pajak DTP Tax borne Food Crops Fertilizer Source: Ministry of Finance 46

  40. Incr creas easing ing Tran ansfer sfer to Regions ions and nd Villag lage Fund nd (T (TKDD DD) to support public ic service ice in the region % Increasing allocation of Transfer to Regions Trilion IDR and Village Fund (TKDD) Budget 900 16 826.8 proport ortiona ionally ly ( fits to the region’s needs and 14.0 763.6 capacity, and also state financial 800 742.0 14 capabilities) 710.3 11.8 700 12 Supporting the regions financing needs (to 623.1 provide services and developments) 573.7 600 10 Focus on decrea easing ing ser ervic ice inequ equality lity 500 between-region 08 Sy Synchr hroniz nizin ing planning and budgeting of 400 8.6 8.3 TKDD dengan belanja K/L 06 4.5 300 Maintaining the 5 years sustainability 2.9 04 development program (human resource 200 development, connectivity, tourism 02 destination, poverty reduction, village fund 100 strengthening) - - Encourage eff effec ective, eff effic icie ient, an and pr produ oductive 2014 2015 2016 2017 2018 2019 use of region’s budget with value for money Outlook APBN as its principle . DBH DAU DTK DID Village Otsus & DIY Dana Desa Growth (%) Fund Source: Ministry of Finance 47

  41. 2017 Achiev ievem ement ents of S State te Budget et Value ue creatio ion on various us project cts and count ntry ry developmen ment 15.5% 101.7% 118 18.5% 7.4% 23.0% 27.8% • Tax revenue growth vs. • Non-tax revenue over • Growth of realized • Growth of transfer • Revenue of customs • Capital expenditure 2017 revised Budget, a to village vs. 2016, 2016 (excluding Tax government spending and excise over 2017 growth vs. 2016, a growth of 17.7% vs 99.6% over 2017 Amnesty and Asset vs. 2016 revised Budget, a 92.8% over 2017 2016 revised Budget Revaluation) 7.4% increase vs. revised Budget. 2016 Local Gover ernment ment Achi hievements ements Centr ntral Government Milest stones es Infr frast structu ture: e: • 794 km road development Brid idges: 3,749 m bridge • 9,072 m bridge development in development, 291 m • 3 airports completed maintenance, and • 618.3 km railways 2,916m improvement Clas assroom: 1,351 new classrooms, 11,006 Roads: 1,033 km in rehabilitation, 11,758 development, 1,503 km rural library collection Educati ucation: n: maintenance, 9,789 km • Distributed Indonesian Smart Card to 19.8 improvement million students Tuition: Reduced tuition Tu • School Operational Benefit for 8.0 million costs for 46.6 million • Scholarship for 364.4 students students and 5.6 million kindergarten- Welfare: Increased welfare aged children and work ethics of 1.7 Medic ical: Improved million civil teachers in rural Health thcare and Socia ial Sec ecurity: ty: facilities in 347 areas and compensated • Distribution of Indonesian Health Card to hospitals and 3,873 41,000 teachers in special 92.1 million people clinics regions Rural al: 107,9 village roads, 89,200 health clinics, 178,800 toilets, and 107,700 connected clean water and 25,903 Ha irrigated lands Source: Ministry of Finance 48

  42. Indonesia’s Tax Amnesty Program – A Succes ess Story ry With more than 965, 965,900 taxpayers rs particip cipating ing in the program Tax Amne nesty ty Resul ult (as of the end nd of March ch 31 st st , 2017) Repatriation Preliminary 3% Evidence Payment SMEs 1% 2% Tax Arrears Companies ​Offshore 147.1 .1 Payment 12% 1.7 Declaration 14% 85.59 21% 18.8 .8 594.9 .99 1,036 Individual SMEs 18% 861.8 .81 3,323.3 .36 ​Onshore 3,698 114.2 4.2 Declaration Individuals 76% Redemption 68% Money 85% Reven enue Compo posit ition n of Partic icipa ipants Asset Declared IDR 134. 4.8t 8tn n (~1. 1.1% 1% GDP) P) Based ed on Asset et Declared ed IDR 4,881tn (~39.4% of GDP) Redemp mption tion Mone ney Assets ts Decla clared 39.3 1.10 % of GDP % of GDP 0.62 0.58 8.3 0.20 5.2 0.17 0.15 3.9 3.6 0.12 2.1 0.04 0.04 0.3 0.3 Germany Belgium Italy Chile Indonesia India South Spain Australia India Spain Chile Indonesia Italy South Australia (2004) (2004) (2009) (2015) (2016) (1997) Africa (2012) (2014) (1997) (2012) (2015) (2016) (2009) Africa (2014) (2003) (2003) Source: Ministry of Finance 49

  43. Finan ancing cing Policy cy 2018: 8: Gener neral al Objective jective & P Policy cy To meet financing needs at efficient cost and tolerable risk To support the General al development of Policy cy deep, active, and liquid market To enhance public accountability as part of transparent Government debt Cost control management and debt risk Source: Ministry of Finance 50

  44. 2018 Finan ancing cing Need eds Fulfill lled from Governm rnment nt Securit uritie ies IDR 730.2 tn tn (92%) and Loan IDR6 R63.1 tn tn (8%) Domestic GS IDR591.0 tn Deficit it Domestic Debt Rp325,9 T IDR595.5 tn Debt t matu ture res (75%) Rp394,1 T (inclu lude de Domestic Loan Rp10,1 T of IDR4.5 tn Priva ivate te Placem emen ent) Inves estme tment t Financing Lendin ding g Financin ing g Rp6,7T Needs Rp65,7T IDR793.3 tn Foreign Other er Denominated financin ing g Bonds (Rp0,2T) T) (JPY, EUR, USD) IDR139.3 tn Gov over ernmen ent t Foreign Debt Guarantee tee IDR197.8 tn Obliga igatio tion (25%) Rp1,1T Foreign Loan (Program & Project) IDR58.5 tn Source: Ministry of Finance 51

  45. Indica cative tive Finan ancing cing Plan an for 2018 Creating ing prudent nt and sustainab inable le fiscal al manag agement nt Gove vernm nment t Se Secur uriti ties to Meet t Stat tate Bud udget Fin inanci cing Dome mest stic ic Bonds Indic icativ tive Budg udget Target* Weekly auct uction: Instrum uments nts IDR tn tn USD bn bn Conventional securities 25x 25x Budget et Defic icit it (2.19%) 325.9 24.3 Islamic securities 24x 24x Gover ernment ment Sec ecuritie ties (Net) t) 407.2 30. 30.4 Non-Auct uction Gover vernmen ment t Sec ecuritie ties (Gros oss) 822.2 61.4 .4 Retail bonds (ORI, Retail Sukuk, Online Savings Bond Retail, Savings Sukuk) Private Placement Based on request Compo positi tion Tar arget avg. tenor mat aturity for Government Secur uritie ies (SB SBN) N) Issua uance Domestic Bond 80-83% 7-8 ye year ars International Bond 17-20% Issuance Targets gets for Gover vernmen ent t Debt t Sec ecurit itie ies and Sukuk Inter ternatio tional Bonds (USD, SD, Sukuk USD D EUR, JPY-den enomin minated ted) Avoid crowding out in domestic market  Provide benchmarks for corporate bonds  25.0% - 30.0% Investor base diversification  Front t Loading ing Issu suance e for 2018 Budge get Fina nanc ncing ng Faster access to liquidity  Anticipate developments in global environment  70.0% - 75.0% Government Debt Securities Government Sukuk *exchange rate assumption in 2018 budget: IDR13,400/USD Source: Ministry of Finance 52

  46. Discip scipline lined an and Sophist istica icated ted Deb ebt Port rtfolio lio Man anag agem ement ent Stable ble Debt bt to GDP Ratio Ove ver the Years Defic icit it Produc uctivity tivity** Government Debt / GDP (%) US$ bn 6.8 5.5 5.3 350 35.0% 5.1 30.7% 29.4% 3.4 28.3% 2.7 2.1 2.1 27.4% 1.6 300 30.0% 1.2 24.9% 24.7% 55.1 54.8 250 25.0% 54.7 200 54.7 20.0% (0.1) (0.4) (0.6) 54.5 (1.6) (2.2) 58.6 (2.8) (2.9) (3.3) (3.7) 150 15.0% (4.8) (5.3) (5.8) (6.1) 239.8 239.4 (7.1) 100 207.0 10.0% 174.7 155.2 136.3 50 5.0% India Brazil Japan UK USA S Africa Malaysia Australia Italy Indonesia Turkey Thailand 0 0.0% 2013 2014 2015 2016 2017 2018 *) Bond Loan Debt/GDP Ratio (RHS) GDP Growh Fiscal Deficit (% GDP) Source: MOF, World Economic Outlook Source: Ministry of Finance Weig ighte ted Ave verage Debt bt Matur urity ity of ~8. 8.5 Years Well ll Dive versif ifie ied Across Different nt Currenc ncie ies % of Yearly y Issuance ce 1% 9.8 2% 1% 9.7 2% 3% 3% 100% 4% 3% 4% 3% 3% 3% 6% 9.4 7% 8% 9% 12% 14% 9.1 80% 29% 30% 31% 29% 24% 29% 60% 8.6 8.5 40% 60% 58% 57% 56% 56% 53% 20% 0% 2013 2014 2015 2016 2017 Oct 2018 2012 2013 2014 2015 2016 2017 ATM (in years) IDR USD JPY EUR Others*** Source: Ministry of Finance Source: Ministry of Finance *using GDP assumption IDR14,596.64 as mentioned in APBN Kita **GDP growth and fiscal deficit numbers are average of 2012-2016 (5 years), ***SDR, AUD, and other. 53

  47. Well ll Bal alan ance ced Maturit rity Profile le With th Strong ng Re Resilie silience nce Again ainst st Exter ernal al Shocks cks Declin clinin ing Exch change Rate te Risks ks Declin clinin ing Inte terest t Rate te Risks ks FX Debt to GDP ratio (%) FX Debt to total debt ratio (%) Variable rate ratio [%] Refixing [%] 23.2 21.0 20.7 46.8 20.4 19.5 44.5 43.4 42.6 42.5 40.4 17.5 16.0 14.8 13.7 12.1 10.7 10.6 13.0 12.2 12.1 11.7 11.7 10.7 2013 2014 2015 2016 2017 Oct 2018 2013 2014 2015 2016 2017 Oct 2018 Debt bt Matur urity ity Profile ile Upco comi ming ng Matur uritie ities (Ne Next 5 Years) IDR tn tn in 1 year (%) in 3 year (%) in 5 year (%) 500 41.0 IDR Denominated Other Currencies 39.8 450 36.0 400 34.7 33.9 157 33.3 350 26.2 300 25.4 22.7 158 21.7 21.4 250 161168 127 138 20.1 200 107104123 310 150 25 11.1 30 10.1 158 8.6 8.4 7.7 24 21 15 7 33 100 174190162169187 6.5 126 139133118 140 121 50 100 92 82 97 2 36 24 32 34 29 28 87 2 2 51 35 28 29 29 7 15 26 23 21 28 10 0 5 2018 2022 2026 2030 2034 2038 2042 2013 2014 2015 2016 2017 Oct 2018 Note: using GDP assumption IDR14,596.64 as mentioned in APBN Kita Source: Ministry of Finance 54

  48. Holders ers of Trad adab able le Centr ntral al Gover ernme nment nt Secu curi rities ies More Balance nce Ownership rship In Terms of Holders rs and Tenors rs Hold lders of of Tradable Gov’t Domestic Debt Securities Foreig ign n Owne wnership p of Gov’t Domestic Debt Secu curitie ities by Teno nor 100% 32.5% 38.2% 36.0% 37.0% 37.3% 37.5% 37.5% 38.1% 80% 39.8% 42.8% 44.5% 44.7% 60% 33.8% 30.8% 34.5% 39.8% 38.2% 38.1% 37.8% 39.9% 37.5% 37.3% 36.8% 40% 32.5% 35.6% 37.4% 37.1% 32.0% 33.6% 20% 39.0% 17.3% 17.8% 33.7% 12.9% 31.0% 15.2% 20.1% 28.3% 23.9% 23.4% 22.5% 11.8% 5.4% 5.1% 3.7% 5.3% 1.0% 1.3% 4.6% 5.0% 4.3% 3.5% 5.2% 3.2% 0% Dec 13 Dec 14 Dec-15 Dec-16 Dec-17 31-Oct-18 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Oct-18 0-1 ≥ 1-2 Foreign Holders Domestic Non-Banks Domestic Banks ≥ 2-5 ≥ 5-10 ≥ 10 %Foreign Ownership of Total Source: Ministry of Finance 55

  49. Owner ersh ship ip of IDR Tra radab able le Cen entr tral al Governm rnment ent Securit urities ies (IDR DR tn) Descr criptio iption Dec-14 14 Dec-15 15 Dec-16 16 Dec-17 17 Octobe tober-18 18 Banks* nks* 375. 5.55 55 31.0 .04% 4% 350. 0.07 07 23.9 .95% 5% 399. 9.46 46 22.5 .53% 3% 491. 1.61 61 23.4 .41% 1% 655. 5.54 54 28.2 .29% Govt Institutio titutions ns (Bank nk Indone nesia ia**) 41.6 .63 3 3.44 44% 148. 8.91 91 10.1 .19% 9% 134. 4.25 25 7.57 57% 141. 1.83 83 6.75 75% 82.8 .85 3.58 58% Bank Indonesia (gross) 157.88 8.90% 179.84 8.56% 219.50 9.47% GS used for Monetary Operation 23.63 1.33% 38.01 1.81% 136.65 5.90% Non-Banks nks 792. 2.78 78 65.5 .52% 2% 962. 2.86 86 65.8 .87% 7% 1,239.5 .57 69.9 .90% 0% 1,466 66.3 .33 69.8 .83% 3% 1,578 78.8 .89 68.1 .14 % Mutual Funds 45.79 3.78% 61.60 4.21% 85.66 4.83% 104.00 4.95% 116.31 5.02 % Insurance Company and Pension 193.90 16.03% 221.45 15.15% 325.52 18.36% 348.86 16.61% 412.59 17.81 % Fund Foreig ign n Hold lders 461. 1.35 35 38.1 .13% 3% 558. 8.52 52 38.2 .21% 1% 665. 5.81 81 37.5 .55% 5% 836. 6.15 15 39.8 .82% 2% 863. 3.65 65 37.2 .27 % Foreign Govt's & Central Banks 103.42 8.55% 110.32 7.55% 120.84 6.81% 146.88 6.99% 159.15 6.87 % Individual 30.41 2.51% 42.53 2.91% 57.75 3.26% 59.84 2.85% 53.85 2.32 % Others 60.51 5.00% 78.50 5.37% 104.84 5.91% 117.48 5.60% 132.49 5.72 % Total 1,209.96 100.00% 1,461.85 100.00% 1,773.28 100.00% 2,099.77 100.00% 2,317.28 100 100.00% 1) Non Resident consists of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company and Pension Fund. 2) Others such as Securities Company, Corporation, and Foundation. *) Including the Government Securities used in monetary operation with Bank Indonesia. **) net, excluding Government Securities used in monetary operation with Banks. Source: Ministry of Finance 56

  50. Sec ection tion 5 Monetar ary and Finan anci cial al Fact ctor: r: Cr Credible Monetary ary Policy cy Track ck Reco cord and Favour urab able le Financ ncial ial Sect ctor

  51. Bank Indonesia’s Policy Mi Mix 2018 To Mainta tain in Macroe oeco conomic and Finan ancial cial Sy Syste tem Stabi bili lity ty Implementing Macro prudential  Pre-emptive, front loading and  Intermediation Ratio (RIM) ahead-of-the-curve policy rate 2 Implementing Macro prudential Liquidity response  1 Buffer (MLB) Stabilize exchange rate  consistent with fundamentals Macro- prude udentia ntial Moneta etary ry Accelerate implementation of  Polic licy Polic licy reserve requirement averaging Electronification: Social  3 program, e-payment for Government Financial technology  Paymen ent Coordina inatio ion National Payment Gateway  System Sy with other er (NPG) Polic licy Authorit ities ies 4 Controlling inflation: TPIP, TPID 5  Structural reforms: Government  Financ ncial ial Marke arket Financial deepening & stability:  Deepening ning KSSK (Financial System Stability Developing market instruments for financing  Committee), OJK (Financial infrastructure Services Authority) Developing financial market infrastructures  Source: Bank Indonesia 58

  52. Ban ank Indones esia ia Policy cy Mix: November ber 2018 th and th Novem The e BI Board ard of Gov over ernors ors agr gree eed on 14 14 th d 15 th ember r 2018 18 to raise ise the e BI 7-Day Revers rse e Repo o Rate te by 25 bps to 6.00 00%, , while le also o raisin ising the e Dep epos osit it Facility lity (DF) F) and d Lendin ding Facility ility (LF) ) rate tes by 25 bps to 5.25 25% and d 6.75 75% res espectiv ectively. ely. To maintain flexibility and Optimizes its policy mix to Strengthens efforts to liquidity distribution in the safeguard macroeconomic Maintains lower current account banking industry, BI raises and financial system macroprudential policy deficit within a the Average Reserve stability, while strengthening Raises the without adjusting the manageable threshold Requirement (conventional policy coordination with the Bl 7-Day Countercyclical Capital and to improve the and sharia) from 2% to Government and other Reverse Buffer (CCB), namely attractiveness of 3% and the relevant authorities to Repo Rate remains at 0%, and domestic financial Macroprudential Liquidity maintain economic stability by 25 bps the Macroprudential markets by anticipating Buffer (conventional and and bolster external to 6.00%. Intermediation Ratio global policy rate hike sharia) that can be resilience, which includes (MIR) in the 80-92% in the next few repurchased to BI, from reducing the current target range. months. 2% to 4%, each as a account deficit to around ratio of Third Party Funds. 2.5% of GDP in 2019. Source: Bank Indonesia 59

  53. Princi ciple les of Average ge Re Reserve erve Re Requi uireme rement nt Ra Ratios os Improve vement ent Consid ider eratio tions for r the Average rage Reserv rve Requir irem ement ent Effect ective ive Substa tance Old Old New Date Ratios ios Impro rovement t a. Additional rupiah 16 th July Improvement in average reserve requirement is a • average reserve Fixed RR: 5% Fixed RR: 4.5% follow up to the monetary policy operational requirement for Average RR: 1.5% Average RR: 2% 2018 framework reform implemented by Bank Indonesia conventional RR: 6.5% RR: 6.5% since 2016. commercial banks Monetary policy operational framework reform • 16 th July b. Annulment of started in August 2016 as BI7DRR replaced BI Rate 2.5% (from 1.5% demand deposit 0% 2018 as policy rate. This was then strengthened in 1st RR) renumeration July 2017, by the implementation of the average reserve requirement in rupiah for conventional c. Implementation of commercial banks at 1.5% out of the total 6.5% of foreign exchange Fixed RR: 8% Fixed RR: 6% 1 st GDP reserve requirement in Rupiah. The average reserve Average RR: 0% Average RR: 2% October reformulation is also backed by various efforts in requirement for RR: 8% RR: 8%* 2018 financial market deepening. conventional commercial banks The current improvement aims to elevate flexibility in • banking liquidity management, enhance banking d. Implementation of 1 st intermediation function, and support efforts in Fixed RR: 5% Fixed RR: 3% average reserve October financial market deepening. This multiple targets will Average RR: 0% Average RR: 2% requirement for 2018 in turn improve the effectiveness of monetary policy RR: 5% RR: 5%* Islamic banks transmission in maintaining economic stability. * Complemented by harmonisation feature to align with the average reserve requirement in rupiah feature for conventional commercial banks (e.g. Calculation period, lag period, and Maintenance period of 2 weeks) Source: Bank Indonesia 60

  54. Pri rincip iples les of Mac acropru rudentia dential Inte term rmedia ediatio tion Ratio (MIR) R) an and Mac acropr prudential dential Li Liqu quidi idity ty Buffer er (MLB) LB) Consider sideratio ions for Macr croprudential ial Instr trument ments Macr cropr prudenti tial Intermedia mediatio ion Ratio io (MIR) IR) and Macr cropr prudenti tial Liquid idit ity Buff ffer (MLB) B) 1 2 3 4 Striving to stimulate the bank The policy is expected to This The regulation is intermediation function and stimulate the bank macroprudential effective for liquidity management, Bank intermediation function to the policy instrument is conventional Indonesia issued Bank Indonesia real sector congruent with countercyclical and commercial banks from 16 th July Regulation (PBI) No. sectoral capacity and the can be adjusted in 2018 and for 20/4/PBI/2018 and Board of economic growth target in line with prevailing sharia banks from 1 st Governors Regulation (PADG) No. compliance with prudential economic and October 2018. 20/11/PADG/2018 concerning principles, while also financial dynamics. the Macroprudential overcoming the issue of Intermediation Ratio (MIR) and liquidity procyclicality. Macroprudential Liquidity Buffer (MLB) for Conventional Commercial Banks, Sharia Banks and Sharia Business Units. Source: Bank Indonesia 61

  55. Pri rincipl iples of Mac acropr prudential dential Inter termedia mediatio tion Ra Ratio (MIR) MIR Shar aria ia (Sha haria ria Banks nks and Sharia aria Regu gula lation ion MIR (Con onven entio tional al Com ommer ercial ial Bank) nk) Busine iness Units) ts) 1 MIR Accounting Formula Credit + Owned Bond Financing + Owned Sharia Bond Deposit + Issued Bond Deposit + Issued Sharia Bond 2 Rate and Parameters Ceiling 92% Ceiling 92%   Floor 80% Floor 80%   Minimum Capital Adequacy Requirement Minimum Capital Adequacy Requirement 14%   14% For Sharia business units, the Minimum Capital  Upper disincentive parameter 0.2 Adequacy Requirement is the same as that of the  parent conventional commercial bank Lower disincentive parameter 0.1  Upper disincentive parameter 0.2  Lower disincentive parameter 0.1  3 Scope of credit/financing Credit: rupiah and foreign currency Financing: rupiah and foreign currency   and deposits to calculate Deposits in rupiah and a foreign currency: Deposits in rupiah and a foreign currency: (i)   MIR / MIR Sharia (i) demand deposits, (ii) savings deposits; wadiah savings; and (ii) unrestricted investment and (iii) term deposits, excluding interbank funds, excluding interbank funds funds 4 Source of Data Monthly Commercial Bank Reports Monthly Sharia Bank Reports 5 Criteria for securities held Corporate bonds and/or corporate sukuk Corporate bonds and/or corporate sukuk  Issued by a nonbank corporation and by a resident  Offered to the public through a public offering  Equivalent to investment grade rating affirmed by a rating agency  Administrated by an authorised securities institution  62

  56. Pri rincipl iples of Mac acropr prudential dential Inter termedia mediatio tion Ra Ratio (MIR) Regu gula lation ion MIR (Con onven entio tional al Com ommer ercial ial Bank) nk) MIR Shar aria ia (Shar Sharia ia Banks nks and Sharia aria Busin iness Units) ts) 6 Percentage of the 100% securities held 7 Criteria for securities medium-term notes (MTN), floating rate notes sharia-compliant medium-term notes (MTN)   issued (FRN) and/or bonds other than subordinated and/or sukuk other than subordinated sukuk bonds Issued by a nonbank corporation and by a resident  Offered to the public through a public offering  Equivalent to investment grade rating affirmed by a rating agency  Administrated by an authorised securities institution  8 Securities Reporting Offline delivery mechanism (email) 9 Scope of deposits to Average daily total deposits in rupiah at all Average daily total deposits in rupiah at all   meet DD MIR /DD MIR branch offices in Indonesia branch offices and sharia business units in Sharia Indonesia Including rupiah liabilities to a resident and  non-resident third-party nonbank, consisting Including rupiah liabilities to a resident and non-  of: (i) demand deposits, (ii) savings deposits; resident third-party nonbank, consisting of: (i) (iii) term deposits, and (iv) other liabilities wadiah savings; (ii) unrestricted investment funds, and (iii) other liabilities 10 Relaxation of DD Bank Indonesia may relax the provisions of the DD MIR/Sharia DD MIR based on credit/financing  MIR/Sharia DD MIR disbursement and fund accumulation The provisions may be relaxed based on a request from a conventional commercial bank, Sharia  bank or Sharia business unit or a recommendation from the Financial Services Authority (OJK) Conventional commercial banks, Sharia banks or Sharia business units that receive the relaxed  policy are exempt from sanctions 63

  57. Pri rincipl iples of Mac acropr prudential dential Li Liqu quidi idity ty Buffer er (MLB) LB) Regu gula lation ion MLB (Con onven entiona ional Commercial ial Bank nk) MLB Sharia aria (Sha haria ria Bank nks) 1 Rate 4% of rupiah deposits (including Sharia Business Units 4% of rupiah deposits deposits) 2 Components Securities denominated in rupiah held by a Sharia-complaint securities denominated in   conventional commercial bank that may be used rupiah held by an Sharia bank that may be for monetary operations (including SBI/SDBI/SBN); used for sharia-compliant monetary operations and (including SBIS/SBSN) Sharia-complaint securities denominated in rupiah  held by an Sharia business unit that may be used for sharia-compliant monetary operations (including SBIS/SBSN) 3 Calculation Formula Percentage of rupiah securities held by a conventional Percentage of sharia-compliant rupiah securities commercial bank to rupiah deposits held by an Sharia bank to rupiah deposits 4 Flexibility Under certain conditions, the securities used to meet Under certain conditions, the securities used to the MLB may be used for repo transactions to Bank meet the sharia MLB may be used for repo Indonesia for open market operations, totalling no transactions to Bank Indonesia for open market more than 2% of rupiah deposits operations, totalling no more than 2% of rupiah deposits 5 Sources of Data on Monthly Commercial Bank Reports Monthly Sharia Bank Reports   Deposits Rupiah deposits to calculate MLB are the average Rupiah deposits to calculate sharia MLB are   daily total deposits at all branches in Indonesia the average daily total deposits at all branches in Indonesia Rupiah deposits include: (i) demand deposits, (ii)  savings deposits; (iii) term deposits, and (iv) other Rupiah deposits include: (i) wadiah savings; (ii)  liabilities unrestricted investment funds, and (iii) other liabilities 64

  58. Relaxing ing the Loan-to to-Value lue (LTV) and Financi ncing-to to-Val alue ue (FTV) Ratios os The LTV/FTV TV relaxa axati tion on is conducte ducted while taking into to accoun count aspect pects of pruden dential al and consumer mer protect otection on 2. Relaxing the amount of loan/financing facility through indent 1. Increasing opportunities of first time buyers to fulfill their housing mechanism to a maximum of 5 facilities without taking needs through housing loan, specifically by adjusting the LTV ratio account of the orders for property loan and the FTV ratio for property financing for the 1st facility, 2nd facility, etc., making the largest LTV ratio for 3. Adjusting the arrangement of stages and amount of property property credit and FTV ratio for property financing as shown in the loan/financing disbursement of indent property: table below. “ - “= The LTV rate depends on each bank’s risk management Source: Bank Indonesia 65

  59. Relaxing ing the Loan-to to-Value lue (LTV) and Financi ncing-to to-Val alue ue (FTV) Ratios os Prudent ntial ial aspect cts of Relaxin xing the Loan-to to-Value alue (LTV) V) and Financi ncing ng-to to-Value alue (FTV) V) Ratios 1. The requirements of the LTV ratio for property credit and FTV ratio for property financing are as follows: i. The net ratio of NPL to total credit or NPF to total financing must not exceed 5%; and ii. The gross ratio of property NPL to total property credit or property NPF to total financing must not exceed 5%. 2. Banks must make sure that there is no loan transfer to another borrower at the same bank or different bank for tenors of less than 1 year. The requirements are valid for banks that will disburse pre-order property loan/financing. 3. Banks are required to comply with prudential principles when disbursing loans. 4. Gradual loan liquidation is only allowed for developers that comply with bank’s risk management policy (e.g.the business feasibility of the developer). 5. Banks are required to ensure that transactions to disburse loans (including down payment) and gradual liquidation must be processed through the debitor and developer/seller’s bank account. LTV / FTV Exemptio ions ns Central government or local government loan / financing programs are exempt from this regulation. Source: Bank Indonesia 66

  60. Pri rincip iples les of Domes estic tic Non Del eliv iver erable able Forw rwar ard (DND NDF) F) Tran ansac actio tion Purpos poses General Provis vision ions  Domestic ic Non-Deliv liverable le Forwar ard Tran ansaction action (DND NDF Tran ansaction) action) 1. To support the effort of Plain vanilla derivatif transaction of foreign exchange against rupiah in the form stabilizing the Rupiah exchange of forward transaction with fixing mechanism in the domestic market rate through the additional of  Forwar ard Tran ansactio tions ns alternative hedging instruments Forward Transactions are sell/purchase foreign currencies againts rupiah whereas the delivery of funds shall be performed in more than 2 days after the 2. To support the development and transaction date deepening of the domestic  Fixing ing Mecha hanis nism financial market Transaction settlement mechanism without full movement of funds by calculating the difference between rate on the transaction date and reference 3. To increase the confidence of rate in JISDOR on a specified future time agreed in the contract (fixing date) exporters, importers, and investors in conducting  Other her Def efin inition itions economic and investment The definition of derivative transaction of foreign exchange againts rupiah, activities through the flexibility of Forward Transaction, Spot Transaction, Customers, Foreign Party is referring to hedging transactions against Bank Indonesia regulations regarding foreign exchange transaction againts Rupiah currency risk rupiah Source: Bank Indonesia 67

  61. Pri rincip iples les of Dome mestic stic Non Del eliv iver erable able Forw rwar ard (DND NDF) F) Tran ansac actio tion Bank can perform rm DNDF Trans nsact actio ions ns as follows: 1. Must have Under erly lyin ing Tran ansa sact ctio ions: Tran ansaction action betwe tween en: Inclu ludin ing all l fol ollo lowin ing g activit tivities ies : a. Trade of goods and services b. Investments, loans, capital, and other investements. c. Banks credit or financing in foreign currencies (specifically for transactions between bank and customers) Can only be performed to Bank – Customer Exclu ludin ding g fol ollo lowin ing g activit tivities ies: hedge rupiah a. Bank Indonesia certificates; b. Placement of funds with bank; exchange rate c. Unwithdrawn credit facilities; risk. d. Documents of foreign currencies sales againts rupiah; e. Money transfer by fund transfer companies f. Intercompany loan g. Money changer activities. Bank – Foreign Party 2. Nominal of DNDF Transactions ≤ Nominal of Underlying Transactions 3. Tenor of DNDF Transactions ≤ Tenor of Underlying Transactions Bank – Bank Source: Bank Indonesia 68

  62. Pri rincip iples les of Dome mestic stic Non Del eliv iver erable able Forw rwar ard (DND NDF) F) Tran ansac actio tion Trans nsacti action Settlement nt Use Fixing mechanism • Reference rate: JISDOR for USD/IDR and BI FX Transaction MidRate for non-USD/IDR • Settlement currency : IDR • Roll over and early termination are not allowed • termina nation on for Roll over er and early rly DNDF NDF is prohib hibited ited However, unwind can be done by opening the reverse DNDF transactions Cover Hedging ing Bank may conduct DNDF Transactions with Bank Overseas for cover hedging purpose. Underlying Transactions: DNDF Transaction between Bank and Customer/Foreign • Purpose: Hedging • Overseas seas Cus usto tomer er / / Bank Cover Hedging Foreig eign Party rty Bank Hedging Notes: Customer A conduct DNDF transactions with Bank B, and so Bank B can conduct DNDF transactions with overseas Bank for the purpose of cover hedge. Source: Bank Indonesia 69

  63. Overnight rnight Index Swap aps (OIS IS) & I Inter eres est Rate Swap aps (IRS) S) As hedg dging ing instrum rument nts against ainst Rupiah iah inte tere rest t rate te chang nges es IR IRS is a contract between two parties to periodically exchange rupiah interest rate 4 flows during the contract period or at the completion of the contract based on certain notional amount. IRS pricing is based on JIBOR. OIS is an interest rate swap agreement based OI 3 on a daily overnight reference rate (IndoNIA) Improvement of IRS transaction 2 liquidity Alignment between JIBOR Encourage price transparancy in the  and OIS interest rupiah money market rate OIS transaction 1 Strengthen monetary policy  with IndoNIA as transmission benchmark rate Provide alternative hedging instruments  against rupiah interest rate changes IndoNIA & JIBOR Support securities market deepening in  Indonesia Strengthening reference rate based on real transactions Source: Bank Indonesia 70

  64. OIS an and IRS Tran ansactio actions: ns: Gener neral al Provisio ions ns Market Pl Playe yers. Banks, bank clients, both individual and non-bank institutions, and also foreign parties. Market Conventions Transa sact ctio ion Ne Needs Analysis lysis. A bank performing an IRS or OIS transaction with a customer and/or foreign party on behalf of the customer and/or Calcu cula latio ion OIS Quotatio ion rates es Inter erest st Payment foreign party is required to have an analysis on the Base based on 2 based on Nett ttin ing need of rupiah interest rate derivative transactions. ACT/36 360 decimals IndONI NIA Notio ional al of Net Market Co Conventi tions. When performing IRS and OIS Quotatio ion : 1W, inter erest st payment in in Index ex 2W, 1M, 2M, 3M, transactions, the respective bank is bound by IDR with 0 0 with 5 5 4M, 5M, 6M market conventions agreed upon by market players decimal als decimal als through industry association including the Indonesian Foreign Exchange Market Committee. At the 1st phase, Compound Settle lemen ent Date = OIS settle lemen ment will Floatin ing Rates Sett ttlement ment. Settlement can be performed as a 1 busin iness ess days only be done at the (CFR) based netting payment and every transaction has to be after er Maturit ity Date end of the OIS on 5 settled in Rupiah. Clo Close se-out nett tting can be applied (MD) tenor (MD+1bd). ). decimal als under predetermined conditions. Source: Bank Indonesia 71

  65. Ban ank Ind ndonesia onesia Policy icy Mix: 201 015 – 201 017 2015 2015 2017 2017 2016 2016 BI 7-day RR Rate cut of BI Rate cut of 25bps (Feb) Policy Rate cuts of 150bps • 1. 1. Monetary y Polic icy •  25bps to 4.50% (Aug) Moving from BI Rate (12  Further BI 7-day RR Rate month) to BI 7-day Reverse • Polic icy Rate cut of 25 bps to 4.25% Repo Rate (Aug) (Sept) Reser erve e Lowering RR by 50bps to Further lowering RR by • Implementation of RR • • Requir ireme ement 7.5% (Nov) 100bps to 6.5% (Feb) Averaging (Aug): RR fixed 5%; RR Averaging 1.5% Market-based exchange rate stability consistent with fundamental  2. 2. Excha hange ge Rate Dual intervention in the FX market and purchases of government bonds from secondary market in  Polic icy time of distress (capital reversal) or large mis-alignment Relaxation of LTV for Further relaxation of LTV for •  Initiative to issue  property and automotive property loans (Sept) macroprudential regulation 3. 3. Macropr pruden entia tial loans (June) Strengthening systemic  on Financing to Funding Polic icy surveillance & Crisis Ratio (FFR) Management Protocol (April) Obligation to use IDR in E-money for social transfer   National Payment Gateway  4. 4. Payme ment domestic transaction (Nov) (June) System em Polic icy (March) Financial Technology  Modernized cash  Non-cash movement (FinTech) Office (Nov)  management underway (GNNT) New Rupiah issuance (Dec)  Source: Bank Indonesia 72

  66. Stab able le Monetary tary Environment ment Despite spite Chal alleng lenges es Well ll Mainta ntain ined Inflatio lation Ensur ured Price ce Stability bility Streng ngth thene ned Monet netary Polic icy Frame mewo work (%) (%) 19 August 2016 16 CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) 8.00 The New 18 Monetary LF Rate: 7.00 Operation ion LF Rate: 6.75 75 7.00 Framewo work 13 BI Rate: 6.50 BI 7Day RR Rate: 6.00 6.00 DF Rate: 5.25 5.00 8 4.48 4.00 3.16 3 2.94 2.74 3.00 -2 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 2013 2014 2015 2016 2017 2018 Rupia iah Exc xchang nge Rate Rema main ins Compar parable ble to Peers Pick ck Up in Credit Growth th YTD 2018 vs 201 017 %,yo yoy -30.57 TRY 20 -23.99 Total Growth Working Capital Loans -14.03 ZAR 1.39 18 Investment Loans Consumption Loans -12.51 BRL -12.03 16 -11.67 13.8 .8 INR -4.40 14 12.7 .7 -8.25 IDR -5.80 11.8 .8 12 -6.52 EUR 4.78 11.7 .7 10 -6.38 CNY 2.69 -6.21 8 PHP -4.31 point-to-point average -5.89 KRW 6 3.05 -3.56 MYR 4 7.05 -3.29 SGD 2.55 2 -1.26 THB Data as of November 14 th , 2018 5.13 0 -1.09 JPY 1.82 % 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 -35.0 -30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 2015 2016 2017 2018 Source: Bank Indonesia 73

  67. 5 Meas asur ures es to Control ol Inflatio tion On January ary 22 nd nd , 2018 the National nal Infla latio tion Contr trol Coordin inatio tion Center has agreed ed on five strateg egic ic measures es to contr ntrol infla latio ion in 201 2018 within in the target et corr rrid idor of 3.5 ± 1%, while le also setting ng the infla latio tion targets ets at 3.5 ± 1% 1% for 2019 and 3 ± 1% % for 2020 and 2021. Stren ength gthening ning coordin inatio tion betwee een centr tral and regio ional al governm ernments nts as well as Bank Indones nesia ia Dampening ning the second nd-round und Stren ength gthening ing quality ity effect of aminis ister tered ed pric ice contr trol of governm ernmen ent adjus usmen ents ts polic icies ies. 3 Main intai tainin ning volatile tile food od (VF) infla lation tion 2 4 Stren ength gthening ning the Bank at 4-5% Indones nesia ia polic icy mix to mainta tain in macroec econo nomic ic 1. Ensuring food production 1 5 stabilit lity 2. Strengthening the government’s food stock 3. Improving production management through corporate/cooperative farming 4. Improving rice miling yield & rice quality 5. Distributing subsidised rice for low- income households & non cash food assistance in time 6. Developing an accurate database on rice production 7. Synergizing between farmers & Source: Bank Indonesia downstream industries 74

  68. 4 Strategies gies to Ac Achi hieve ve the Infl flation tion Target 2018-20 2019 Target et 2020 20 20-20 2021 Target et Achieving inflation at 3,5%±1% Achieving inflation at 3,0%±1% Maintaining core inflation Maintaining core inflation • • Maintaining volatile food stability at 4-5% Maintaining volatile food inflation less than 4% • • Controlling administered price inflation Controlling administered price inflation • • 4 Strateg egies ies 1. Price Afford rdabilit ability 2. Supply y Availa lability bility 3. Well Managed Distr tribu ibution ion 4. Effectiv tive Communi nication ion Strengthening production, Encouraging Government trade Improving Strengthening Stabilizing Managing Strengthening Improving data food reserves cooperation trade central-regional the price demand side institution quality and food between infrastructure coordination export-import regions management Source: Bank Indonesia 75

  69. Improving ving the Effect ectivene iveness ss of Moneta tary ry Polic icy Tran ansm smissio ission Bank k Indo dones esia ia has instit tituted ted a Refor ormula latio ion of Moneta etary ry Policy licy Opera ratio tions Fra ramew ework k whic ich h consis ists ts of 3 pill llars; ; (1 (1) imple plement ntatio tion n of BI 7da day Rever erse e Repo po Rate; e; (2 (2) implem plemen entatio tation of reser erve e requir irem emen ent t aver eragin ging; g; and (3) ) contin inue e to implem plemen ent t money ey marke rket t deepen penin ing g prog ogram. Reformula rmulatio ion of Mon onetary tary Pol olic icy Operatio iona nal Framewo work rk Implem emen enta tatio tion of Money ney Implem emen enta tatio tion of Reserve Implem emen enta tatio tion of BI 7 Mark rket et Deepen ening ing Requir iremen ent (RR) Day Revers erse Repo Rate Progr gram am Averaging ing Enhancement of monetary policy Enhancement of banking liquidity Enhancement of instruments signal management and transactions Source: Bank Indonesia 76

  70. Enhan anceme cement nt of Monetary tary Oper eratio tions ns Fram amew ework ork PREVIOUS IOUS JIBOR BOR Can be traded among contributor banks for 10 • minutes. Up to the amount of Rp10 billion. • Up to 1-month tenor. • CURR RREN ENT JIBOR BOR (as per June 1 st , 2016) Can be traded among contributor banks for 20 • minutes. Up to a total of Rp20 billion. • Up to 3-month tenor. • Source: Bank Indonesia 77

  71. Finan ancial cial Inter ermedia mediatio tion Perf rform rman ance ce Remains ains Positive tive Bankin king g inter ermedia ediatio tion is expec ected ed to grow ow by 10-12% by the end of 2018. In the domes estic tic capit pital l marke rkets ts, capit pital l rais isin ing g by cor orpor poratio tions (partic rticula larly ly cor orpor porate te bond d issuance) e) remain ins rela latively tively stro rong. g. Financ ncin ing distrib tribute uted by multif tifin inanc nce compan panies continu tinues to The growth th of bank k lend nding ng continu tinues to impr prove (12.6 .69% % yoy as improve ve (6.0 .06% yoy as of Sep ep-18 18) of Sep-18) 18) IDR tn yoy % yoy Financing Growth (rhs) IDR tn Bank Loans YoY Growth (rhs) 450 10% 5,500 14% 435.72 12.69% 12% 8% 5120 425 5,000 10% 6.06% 6% 8% 400 4,500 4% 6% 4% 375 4,000 2% 2% 350 0% 3,500 0% Capita ital l raisin ing by corpor poratio tions ns decr creases due ue to the increasing ng marke ket t Gross premi mium um reve venu nues in the dome mestic tic insur uranc nce indust ustry are also volatili tility ty in 2018, but the issua uanc nce of corpor porate te bond nds is still ill relativ latively ly continu tinuousl usly growing wing strong ng IDR Tn IDR tn IPO equity Rights Issue Corporate Bonds & Sukuk 180 450 400 160 320 350 140 300 120 98.16 250 100 200 80 150 60 100 40 25.61 14.04 50 20 0 0 2012 2013 2014 2015 2016 2017 Jan-Sep18 2012 2013 2014 2015 2016 2017 Jan-Sept 2018 Source: Financial Service Authority (OJK) 78

  72. Finan ancial cial Institutio titutions ns Remain ain Robust Dom omes estic tic financial instit titutio tions exhib hibit it a gener erall lly robust t condition dition. Capit pital l adeq equacy is main inta tain ined ed well ll abov ove e the minim imum requir irem emen ents ts. . Prof ofita itability ility and d lever erage ge are re main intain tained ed at a suffic icien ient t level vel. . Risk-based ed capita tal (RBC) C) of the insurance e industr try also rema mains high gh, CAR of the e banking g secto tor rema mains at a high h level el. As of Sept pt-18, CAR & well above the mi minimu mum m thres esho hold (120%) %) Tier-1 Capit Tier ital was 23.03% & 21.29%, respec pectiv tively 550% 350% % CAR Tier 1 24.0 23.03 315% 320% 23.0 500% 22.0 290% 21.29 450% 21.0 260% 430% 20.0 400% 230% 19.0 18.0 350% 200% Gearin ing g ratio of mu multifi finance comp mpanies es is 3.03 time mes, provid idin ing g amp mple Profita itabil ility ty of the e banking g secto tor is relativ tivel ely stable room f m for future e growth 5.0 % Net Interest Margin Return on Assets 6.0 4.5 5.14 5.0 4.0 3.5 4.0 3.03 3.0 2.5 3.0 2.5 2.0 2.0 1.0 1.5 0.0 1.0 Source: Financial Service Authority (OJK) 79

  73. Adequa quate te Li Liquidit uidity; ; Man anag ageable eable Cred edit it Risks ks Banks Ba ks are re equippe ipped with th suffic icien ient li liquid id assets ts. In Insurance in industry try als lso demonstr trates tes an an en enha hanced ed level level of of in inves estme tment ade dequacy rati tio. The non-per perfor ormin ing loa oan/financing ratio tio is is main inta tain ined belo low the thre resho hold. The ratio of liquid id assets s to deposits sits in the banking g secto tor is Inves estm tmen ent t adequacy ratio in the insurance e industr try y is ma maintained ed ma manageable above 100% % Liquid Assets to Non-Core Deposits (lhs) % % 140 30 210 * Liquid Assets to Deposit (rhs) 130 190 26 188.58 120 21.72 170 22 110 150 100 18 103.54 90 130 14 124.75 80 110 10 70 90 60 6 *The spike in this ratio was due a change in calculation methods. As of Sept-18, the e gross & net NPL L ratios of the banking g secto tor were e NPF ratio of the mu multifi finance industr try is 3.17% as of Sept-18, well below 2.66% & 1.17% respec pectiv tivel ely, ma maintained ed below the e thres eshol hold the 5% thres esho hold % NPL Net NPL Gross 4.0% 3.5 3.5% 3.17% 3.0 2.66 3.0% 2.5 2.5% 2.0 2.0% 1.5 1.17 1.5% 1.0 1.0% 0.5% 0.5 0.0% 0.0 Source: Financial Service Authority (OJK) 80

  74. Man anag ageable eable Mar arket et Risks Amids idst the the in incre reasin ing marke rket vo volatilit tility, the the risk pr profile ile of of fin inancial in instit titution tions re remain ins manage geable le. Ne Net open open pos positi ition on of of the the bankin king sect ector or is is main intain tained ed at at a lo low level, level, while hile th the in inves vestme tment value of of do domes estic tic in instit tituti tion onal inves vesto tors rs (mutual funds ds, in insure rers rs, and pen pension ion funds ds) is is still ll rela latively tively stable le. Despite market fluctuations, mutual funds’ net asset value (NAV) Net open n positio ition n in the bankin king secto ctor is kept pt far below low the still ll exh xhibi ibits ts positiv itive performa manc nce maxi ximu mum m limit it (20%) %) % IDR Tn NAV Mutual Funds IDX (rhs) 5 6,800 530 6,600 500 4 6,400 470 6,200 440 3 6,000 410 5,800 380 1.68 2 5,600 350 5,400 320 1 5,200 290 260 5,000 0 Multif tifinanc inance companies’ exposures to foreign debt have generally been The inve vestme tment nt value lue of insur urers and pension nsion fund nds is relativ latively ly stabl ble mitig igate ated throug ough hedging ing measur ures amids idst t market volatility tility IDR Tn IDR Tn Domestic Debt Foreign Debt IDR tn Insurance Pension Funds (rhs) 1,100 300 180 181 1043 1,050 160 275 1,000 140 950 250 120 254.4 900 100 101 225 850 80 800 200 60 Source: Financial Service Authority (OJK) 81

  75. Cap apital ital Mar arket ets Perf rform rman ance ce Star arts ts to Improve ve The globa obal l econom onomy and financia ial l markets kets gener erated ed som ome e pres essures es on the domes estic tic capit pital l marke rkets ts. . Howev ever er, recen ently tly the vola latil tility ity has decre reased ed and the markets kets are re back k to a stren engtheni gthening g trend. d. The year ar-to to- date correction of the Indonesia’s equity index is relatively moderate derate compar ared ed to some e othe her emergin rging g market ets Both th the equi uity ty and debt bt marke ket t indic ices demo monst nstrate te an improve veme ment nt Stock ck Index ex Perfo formance ce 21 Novem ember er 2018 18 vs 29 Desem embe ber 2017 17 Comp Bond Index Comp Stock Index (rhs) 260 7,000 WORLD -5.65 THAI -7.78 KOREA -15.84 240 6,500 INDO -6.41 HKN -13.19 SIN -10.70 PHIL -15.11 220 6,000 CHIN -19.83 MAL -5.65 JPN -5.52 200 5,500 EURO -8.53 AS -1.03 RUS 11.77 BRAZ 14.22 180 5,000 TURK -19.62 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 -25 -21 -17 -13 -9 -5 -1 3 7 11 15 % Nonresid ident nt inflow lows in the dome mestic tic capit pital l marke ket t has incr creased, in gove vernm nment nt debt bt marke ket t and equi uity ty marke ket as well ll Governm nment nt bond nd yields tend nds to decr crease IDR Tn 5-yr Yield 10-yr Yield 20-yr Yield IDR (rhs) Yield (%) Gov't Debt Securities Equity 15,500 40 10 15,000 9 14,500 20 14,000 8 0 13,500 7 13,000 -20 6 12,500 -40 5 12,000 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Source: Bloomberg, IBPA, Indonesia Stock Exchange, Ministry of Finance *as data 21 November 2018 82

  76. Strate tegic gic Policies cies in Finan ancial cial Secto ctor Supporting rting inno nova vation tions in digital ital Supporting rting infrast struc ructur ture financi ncing ng and financ nance deepeni ning ng the capital ital mark market Enhan hancin ing variab riabil ilit ity of finan inancing ing instr trum umen ents ts  Perpetual bonds, green bonds, municipal bonds Issuing the guiding principles for the  Investment products for mortgage providers of digital financial services, including for registering, licensing, and the Simpl plif ific ication ion of issuan uance proces ocess in crowdfunding scheme the capita tal mark rket et  Simplifying issuance process of debt securities and sukuk for professional investors Directing financial institutions to synergize with the fintech sector or to establish a fintech business line Expand nding ing the investo estor base Expanding the access of domestic retail  investors to the capital market Promoting the participation of local financial  Promoting the role of fintech lending in institutions through the establishment of local supporting government programs, including securities companies in online retail sales of government debt securities Stren engt gthen enin ing the role of NBFIs Is in infrastructu ructure develop lopment nt  The provision of credit guarantee products by credit guarantee companies & insurers Source: Financial Service Authority (OJK) 83

  77. Strate tegic gic Policies cies in Finan ancial cial Secto ctor Enhancing Enhan financ nancial ial liter terac acy & inc inclus lusio ion OJK OJK has as als lso built uilt a str trong foun oundation for or fina inancial inclu inclusio ion pr prog ograms, to to en ensure access ess to to fin financial produ oducts & & serv ervic ices es by In Indo donesia ians of all social al clas asses. . Suc uch init initia iatives also lso in include the the en enhancement of fina inancial lite teracy and nd fina inancial con onsumer pr prot otection. Promoting the Developing Developing Strengthening establishment financial Enhancing the micro-credit the role of of Islamic education products with role of the Financial Access microfinance models utilizing additional “Investment Acceleration institutions various delivery business support Alert Taskforce ” Taskforce (TPAKD) (“ Bank Wakaf channels (“ KUR Klaster ”) in local areas Mikro ”) The he resu esult lt of of OJK’s 201 016 natio tiona nal survey rvey dem emonstrated an impr provement in fina nancia ial lite teracy & & inclusion ion amon ong Ind ndon onesia ians compa pared to tha hat of of 201 013, but ther here is sti till ll room om for furth ther er impr provement. 21.8% 29.7% 59.7% 67.8% Financ ncial l Financ ncial l 2013 2016 2013 2016 Lite teracy Inclu lusion Source: Financial Service Authority (OJK), June 2017 84

  78. A A Compr preh ehens ensive ive Finan ancial cial Dee eepen pening ing Program am … strateg tegy to tackle challenges in deepening Indonesia’s financial markets In Apr-2016 2016, the Minis ister ter of Finance, e, the Gov over ernor r of Bank k Indo dones esia ia, and d the Chair irman of the Board d of Com ommis issio ioner ers of of the Financia ial l Serv rvic ices es Author thority ity launched hed a Coo oordin dinatio ion For orum for or Devel velopm pmen ent t Financin ing g thro rough gh Financia ial l Marke rket t (FK-PP PPPK). PK). The he thre ree autho thoriti ities es have ve agr greed eed to for ormula late e “The Natio tional l Stra rategy tegy of Financia ial l Marke rket t Devel velopm pmen ent ” Vision: To Establish Deep, Liquid, Efficient, Inclusive, and Safe Financial Market Mission: Financial Market as Sources of National Development Financing TARGET KEY PERFORMANCE INDICATOR STRATEGIC ACTION PLAN 1 2 3 POLICY COORDINATION, ECONOMIC FUNDING & MARKET INFRASTRUCTURE 3 Pilars HARMONIZATION & RISK MANAGEMENT DEVELOPMENT EDUCATION Bond Stock Structure Product Money Syariah FX Market 6 Markets Market Market Market Market Market Fund Market Regulatory 7 Elements Infrastructure Framework of Financial Instrument Market Coordination & Benchmark Rate & Ecosystem Education Standardization Intermediaries Source: Bank Indonesia 85

  79. Contin tinuou ous Program am on Cap apital ital Mar arket et Dee eepen pening ing …continuously strengthened, including through capital market deepening initiative ives Enhan hancin ing the supply ly-side ide Stren engt gthen enin ing mark rket infras astructu ructure  Simplification of public-offering requirements and  Expansion of Single Investor Identification (SID) coverage procedures  Development of electronic trading platform (ETP) in the  Development of debt market debt market  Development of mutual fund industry  Development of Integrated Investment Management  Development of other products, including those to System (S-INVEST) support infrastructure development (private equity  Enhancing the clearing and settlement process funds, REITs, ABS)  Enhancement of capital market data warehouse  Development of Islamic capital market  Development of Extensible Business Reporting Language  Development of municipal bonds (XBRL) for issuers Enhan hancin ing the deman and-side ide Stren engt gthen enin ing govern rnance nce Enhancing the role of the domestic institutional  Development of market players’ capacity  investors (insurers & pension funds) in capital  Enhancement of GCG for publicly-listed companies markets  Development of repo regulations and infrastructure Development of the domestic investor base  (conducting investor education programs) Expansion of distribution channels of market  products Source: Financial Service Authority (OJK) 86

  80. BI’s Roles in Supporting Distribution of Non -Cash Cash Socia ial As Assis istan tance ce (NC NCSA) A) BI supports ports govern rnment nt ’s progr gram am of shif iftin ting social ial assist istan ance to tar arget eted ed non cash social cial assis ista tance ce disburs rsement throug ough the electr ctronic ic payment syst stem em. In the futur ure, electr ectron onic ic mechan hanism ism disb sburs rsem ement nt will be also applied ied to LPG subsidy. idy. NCSA Prog ograms Pilot ot Project oject Family ly Hope Progr ogram Smart rt Indones esia ia (Progr gram am Keluar arga ga Progr gram am (Progr gram am Harapan an -PKH KH) Indones nesia ia Pintar tar-PIP IP) Grad adual Implem lemen entatio tion 2016-2020 9876543210 XXYYZZ 12345678 Full Non Cash Implem lemen entatio tion Food Assistanc nce (Bantua uan Pangan Non Tunai – BPNT) LPG Subsid idy Inter erconnecte cted & inter eroper erable le payment system em Source: Bank Indonesia 87

  81. Progr ogress ss of NCSA Progr ograms ams Famil ily Hope Program am Non Cash Food Assis ista tanc nce (Program am Keluar uarga ga Harapa apan - (Bantu ntuan an Pangan gan Non Tunai nai - PKH) H) BPNT) • BPNT is a poverty alleviation and social • The Family Hope Program (PKH) is a program protection program that is managed by the that provides cash to very poor households. central government. It provides subsidized rice Rp 1,89 million /year will be granted for each and eggs to low-income households. Rp 110 household. PKH will be granted every February, thousand/month will be granted for each May, August, and November. household as BPNT that can be used in certain stores which called e-warong. • As of December 2017, PKH has been distributed to 6,0 million households on non- • As of December 2017, BPNT was distributed to cash basis. 1,2 million households in 44 cities. • PKH is expanded to 10 million households in 514 regencies/cities in 2018. • BPNT is expanded to 10 million households in 217 regencies/cities on the 25th of each month in 2018. Source: Bank Indonesia 88

  82. Strong nger er Fundam amen entals tals Fac acing ng the he Headw adwind inds Inflation lation Rate te (%) %) IDR Move veme ment nt (%) Foreig ign n Reserve ves (USD bn) Significa cantly ly higher er than 1998 98 & 2008, 08, ample to cover er Inflation controll lled ed within the target et range IDR depr precia ciated ed year-to to-da date e in November 201 2018 6.2 2 months of import and external al debt repay payment 1998 -197 197 1998 82.4 .4 1998 17.4 .4 2008 -35 35 2008 2008 12.1 .1 50.2 .2 (ytd) 3.16 6 (yoy) 14-Nov-18 115.2 5.2 Sep-15 -8.25 25 Sep-15 Oct ‘ 18 6.8 Oct ‘ 18 More Liqui uid Marke ket (%) %) Non-Perfor orming ming Loan/NPL PL (% (%) Over ernigh ght interbank nk money market rate NPL lev evel el (gross) s) is below the maximum thres eshold ld of 5% is rela latively ly lower er 62 62 1998 30 30 2008 3.8 10.5 .5 5.7 5.39 39 September ‘18 Aug-15 2.7 .7 2.8 Sept 2018 1998 2008 Jul-15 Exte ternal l Debt t (Publi blic & Exte ternal l Debt/G t/GDP Governm nment nt Debt bt/G /GDP Priva vate te) to FX Reserve ve Ratio io Sligh ghtly ly high gher er than 2008, 08, but Significa cantly ly lower er than 1998 98 crisi sis Consisten ently ly well-maintained ned significa cantly ly lower er than 1998 98 8.6x 3.1x 27.4% 100.0% 116.8% 3.1x 33.2% 30.5% 34.5% 1998 2008 2008 1998 1998 2008 Q3 - 201 2018 Q3 - 201 2018 Q3 - 201 018 89

  83. Outlo look ok of Domestic stic Economy Remain ains Robust st ...d ...domes mestic ic econo nomic ic growt wth is predict icted to be highe her in 201 2018 2018 Econo 201 nomic ic Outlo tlook ok  Economic growth in 2018 is projected in the 5.0-5.4% range, on sound investment and consumption performance, strong building and non-building investment, backed by infrastructure development and investment in the manufacturing industry.  Inflation is predicted to remain within the target range for 2018, namely 3.5 ± 1%, with the current account deficit is expected to remain under control and within a safe threshold that is not exceed 3.0% of GDP in line with domestic economic improvements.  Credit growth is predicted to grow in the 10.0 -12.0% range, in line with the domestic economy ganing momentum dan ongoing consolidation in the corporate and banking sectors. Econom nomic ic Growth Infl flation ion CAD AD (% (% of of GDP) Credit it Growth 2017 17 5.07 5. 07% 3.61% 1.7% 8.2 .2% % Realization alization 2018 18 5.0 – 5. 5.4 % 3.5 ± 1% <3.0% .0% 10 10.0 .0-12 12.0% .0% Source : Bank Indonesia 90

  84. Sec ection tion 6 Prog ogress ssiv ive In Infr fras astruc ructu ture De Develop opment ment: Strong Co Comm mmitme ment on Acce Ac celeratio tion of In Infr frastruc ructur ture Provisio ion

  85. The he Governm rnment ent has as Enac acte ted Var arious us Reform rms to Accel eler erate te Infrast astru ructur cture Provisio ion Regu gula latory ory Reform orms Fiscal al Reform orms Instit titut utio iona nal Reform orms Viability ility Gap p Fundin ding (VGF) KPPIP IP Dire rect ct Lendin ing Increase project financial feasibility by KPPIP is actively involved in accelerating Allow guarantee for direct lending to SOE contributing up to 49% of the construction delivery of priority infrastructure projects to accelerate financial close process for cost (MoF Reg. No. 223/2012) infrastructure projects (Presidential Reg. No. PT. Sara rana Multi lti Infra rastr truktu ktur 82/2015) Availa ilability ility Paymen ent Merging between PT. SMI and Gov’t Land nd Acquis isiti ition Issuance of regulatory framework to allow Investment Center (PIP) to become an annuity payment by the Government during infrastructure funding company Stipulate land acquisition acceleration concession period to concessionaire since based on Law No. 2/2012 (Presidential Reg. project operation based on infrastructure Indones nesia ia Infras. . Guara rantee tee Fund d (IIGF IGF) No. 148/2015) and land acquisition fee service availability (MoF Reg. No. 190/2015 payment for impacted community IIGF has the potential to provide project for Central Gov’r and MoHA Reg. No. (Presidential Reg. No.56/2017) guarantee for non-PPP projects 96/2016 for Regional Gov’t.) Econo onomy Packa kages ges PPP Unit Land d Revo volv lvin ing g Fund Conduct deregulation for issues hindering Provide facilities to help GCA on preparing A revolving-fund sourced from State Budget, infrastructure delivery and develop a task PPP project (PDF/TA) to accelerate land acquisition (MoF Reg. No. force under CMEA to ensure the 220/2010) BLU LMAN effectiveness of economic packages implementation Risk-sha harin ing g Guidel elin ines es The State Asset Management Agency (BLU LMAN) is mandated to provide land fund for IIGF has issued risk allocation and mitigation National Strategic Projects to ensure timely guidelines for PPP project land acquisition process Tax x Incen entives tives (Tax x Holida liday) Indo dones esia ia Infrastru tructu ture re Guarantee tee Fund d (IIGF IGF) MoF Reg. No.35/2018 allowed 100% Tax Holiday for 17 Pioneering Industries for 5 – IIGF has the potential to provide project 20 years depending on the investment value guarantee for non-PPP projects Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 92

  86. Some of Most Recent ent Reform rms Policy cy reform rms are aiming ng to create te a more conducive ucive invest stmen ment clima mate for infras astruc ructur ure delive very ry Pres esid iden ential tial Reg. No. 20/2018 on Use of Foreign ign Labor – released on March 2018 This regulation aims at simpl plif ifying ng the permi mit t applic licatio tion n proce cess for foreig ign n worke kers, hence making the process more efficient and faster, in order to rise foreign direct investment in Indonesia Pres esid iden ential tial Reg. No. 56/2017 on Socia ial Impact Handlin ling in Land Acquis isit itio ion Proces ess for PSN – released on June 2017 This Presidential Reg. allows the Exe xecu cuting ting Agenc ncy to pay land nd acqui uisitio tion n compe pensatio nsation n to the impacte ted commu muni nity ty who does not have offic icia ial l rights ts over the land nd requi uired for PSN SN. . This regulation helps to solve the land acquisition problem due to community objection over the land use. MoF No. 60/2017 on Procedur edures es for the Provis isio ion of Central al Governm ernment ent Guarant antee ee for the Acceler leratio tion of the Natio iona nal Strategic ic Proje ojects ts Implementa ntatio ion – released on May 2017 The supporting regulation for Presidential Reg. No. 3/2016 on the Acceleration of the National Strategic Projects Implementation. This is regula ulatio tion n regula ulate tes the scope pe and gene neral l requi uireme ments nts and proce cedur ures to propose and grant nt guarante ntees, as well ll as allocate te state te budget t oblig ligatio tion n on gove vernm nment nt guarante ntees to all l PSN. N. The guarantee provision is expected to increase the feasibility and trust of investors to participate in the implementation of PSN. Governm ernmen ent Reg. No. 13/2017 on Natio ional al Spatia ial Plan (RTRWN) WN) – released on April 2017 The issuance of RTRWN can resolve spatial planning mismatch in the implementation of infrastructure projects listed in the annex of Government Reg. No. 13/2017. A number of breakthroughs were developed, and one of them is that the Mini niste ter of Agraria ian n and Spatia tial l can issue a reco comm mmend ndatio tion n of spatia tial l utiliz lizatio tion; n; so that t the proce cess of obtain ining ng project ct permi missio ion n can be done ne. MoF No. 21/2017 on Procedur edures es for Land Acquis isitio ition for Natio iona nal Strateg egic ic Projects ts and Asset Manag agem ement ent of Land Acquis isitio ition by State Asset Manag agem ement ent Agency – released on February 2017 The implementing regulation of Presidential Reg. No. 102/2016 on Financing of Land Acquisition for the Development of Public Interest in the Framework of the National Strategic Implementation. This regulation becomes the legal basis for the financing of the procurement of National Strategic and Priority Projects by BLU LMAN. Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 93

  87. Reforms Along the Project’s Life Cycle ...to enco cour urag age and accele lerate te infras astruc ructur ure project ct using ng PPP scheme me Governm rnment nt of Indone nesia sia Project oject Viab abil ilit ity Guar uarant ntee Availa ailabil ilit ity Land nd Dev evelop lopme ment Fundin ding Tax Facilities lities Fund Payme ment Acquis uisition ition Facility lity (PDF) PDF) Gap (VGF) F) Preparation Bidding Process Construction A facility with Guaranteeing A scheme in which contribution to Govt. concessionaires MoF Reg. No. contractual construction receive sum of A facility to support 159/PMK. obligations cost to money periodically land acquisition for 010/2015 re: tax under increase infrastructure Project from central or holiday for pioneer infrastructure development project regional projects particularly sector, such as concession financial projects that involve facility contributing government after base metal, oil agreements and to assist GCA on viability the completion of private sector refinery, basic Mof Regulation PPP project an asset. petrochemical, No 130/PMK. Managing Managing enitiy: preparation MoF Regulation, 08/2016 re: machinery, (PDF&TA) Entitiy: and MoHA Ministry of Finance, Govt guarantee renewable energy, Ministry of Ministry of Agrarian Regulation on for electricity & telco equipment Managing entity: Finance based Availability and Land project industries. Sector KPPIP, PT SMI PT on GCA Payment has been Spatial/BPN and acceleration will be further proposal BLU-LMAN IIF, and Ministry of ratified. expanded Managing entity: Finance IIGF and MoF Gov ’ t. Gov ’ t. commitment: Managing entity: Managing entitiy: commitment: Ministry of Finance US$ 12 mn (2016) Govt’s Ministry of Finance 49% max. Per & Ministry of comitment: project cost US$ 450 mn Home Affairs Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 94

  88. Effort rts to Accel eler erate te Infras astru tructu cture Provisio sion Regu gula latio ion improveme ement to to accel elerate land procu curemen ment proce cess ss The Government of Indonesia issued Law No. 2 of 2012 on Land Acquisition for Public Interest, with a purpose to provide certainty  about the land acquisition duration for the Government Contracting Agencies and the Investors. The Law sets an estimated 583 days maximum time to complete the land acquisition process. For its implementation, the Law No. 2 of 2012 was supported by the Presidential  Law No No. 2/2012 was was succes essfull lly applied plied in in: Regulation No. 71 of 2012 on Land Acquisition Implementation for Developing Public Facilities, which has been revised into the Presidential Regulation No. 30 1. 1. Pa Pale lembang – In Indr dralaya sect ection ion of of the the Tr Trans of 2015. The Amendment to the Regulation allows a Business Entity to allocate Sumater era Toll ll Roa oad Project oject funding for a land acquisition which can be reimbursed by the Government 2. 2. Java va Nor orth th Line Dou ouble le Track Rail il Project oject 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 Procurem rement t Proces ess s as Stipula lated ted in Law No. 2 of 2012 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 95

  89. Effort rts to Accel eler erate te Infras astru tructu cture Provisio sion …the establishment of I ndone nesia ia Asset Manag agemen ment Agency ncy (LMAN) AN) Governm rnment nt has establi blished shed State Asset Manag agemen ment Unit (LMA MAN) N) as a solution to accele lerate te the land acquisi uisitio ion throug ugh the provisi sion of land acquis uisit itio ion fund Land Acqui uisiti tion on Budget eting ng LMAN at a Glance ce Scheme me 1. LMAN was established in December 2015 through the issuance of MoF Reg. 1. Unutilized fund can be allocated for 219/2015 concerning State Assets the following year Management 2. Non-project-specific land acquisition 2. In 2016, BLU LMAN was mandated to fund allocation. Unused allocated provide land acquisition fund as a support fund can flexibly be made available to Ministry of Public Works due to US$ for the other project 1,081 Mio shortage of fund to acquire land for priority toll roads 3. Land acquisition fund for PSN projects 3. The scope of support is broaden for all is managed under one agency National Strategic Projects through the issuance of MoF Reg. 21/2017 concerning land acquisition financing guideline for This LMAN initiative ive provides ides better PSN flexibi bili lity ty, coordina inatio ion and 4. In January 2018, LMAN has disbursed up manag agement nt of land acquis uisit itio ion to US$ 881.48 Million (IDR 11.9 Trillion) fund provisi sion for National nal Strategic ic through bridging finance scheme for 27 toll road projects, and planned to start the Project cts (PSN) implementation of direct payment scheme Source: Ministry of Finance 96

  90. New ew Fundam ament ental al Regu gula latio tions ns Hav ave Been een Initi tiate ted in 2017 to accele lerate te infras astruc ructur ture project cts delivery ry Governm ernmen ent Reg. No. 13/2017 on Natio ional al Spatia ial Plan (RTRWN) WN) 1 The issuance of RTRWN can resolve spatial planning mismatch in the implementation of infrastructure projects listed in the annex of Government Reg. No. 13/2017. A number of breakthroughs were developed, and one of them is that the Minister of Agrarian and Spatial can issue a recommendation of spatial utilization; so that the process of obtaining project permission can be done. MoF No. 60/2017 on Procedur edures es for the Provis isio ion of Central al Governm ernment ent Guarant antee ee for the Acceler leratio tion of the National nal Strate tegic gic Proje jects Implem emen enta tatio tion 2 The supporting regulation for Presidential Reg. No. 3/2016 on the Acceleration of the National Strategic Projects Implementation. This regulation regulates the scope and general requirements and procedures to propose and grant guarantees, as well as allocate state budget obligation on government guarantees to all PSN. The guarantee provision is expected to increase the feasibility and trust of investors to participate in the implementation of PSN. Pres esid iden ential tial Reg. No. 56/2017 on Socia ial Impact Handlin ling in Land Acquis isit itio ion Proces ess for PSN 3 This Presidential Reg. allows the Executing Agency to pay land acquisition compensation to the impacted community who does not have official rights over the land required for PSN. This regulation helps to solve the land acquisition problem due to community objection over the land use. MoF No. 21/2017 on Procedur edures es for Land Acquis isitio ition for Natio iona nal Strateg egic ic Projects ts and Asset 4 Manag agem ement nt of Land Acquis isitio ition by State Asset Manag agem ement ent Agency The implementing regulation of Presidential Reg. No.102/2016 on Financing of Land Acquisition for the Development of Public Interest in the Framework of the National Strategic Implementation. This regulation becomes the legal basis for the financing of the procurement of National Strategic and Priority Projects by BLU LMAN Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 97

  91. Under Presidentia idential Reg. g. No.56 56/2 /201 018, , PSN list has as been en revise sed into 223 23 Proje jects cts an and 3 Program ams 26 26 53 53 18 18 Projects 12 12 Projects Projects Projects Sulawesi esi Kalima imantan tan Suma matra US$22.8 B Maluku & Papu pua US$35.6 B US$40.4 B US$34.4 B 89 89 3 Programs Projects Natio ional projects Projects 1 2 Projects Java US$99.7 B 13 13 US$73.8 B Projects Bali i & Nusa a Tenggar ara Exchange rate: US$ 1 = IDR 13,500 US$0 $0.7 7 B PSN includes udes 15 s sectors rs at project ct level and 3 sectors rs at program am level Proje ject Progr gram am Electricity 1 Program SEZs & IEs Clean Water & Railway Road Dams Airports Ports Energy 29 Projects Sanitation 69 Projects 51 Projects 16 Projects 7 Projects 10 Projects 11 Projects Aeroplane Industry 8 Projects 1 Program Economic Equality Fisheries/Farming Sea Dike Irigation Smelter Technology Education Housing 1 Program 1 Projects 6 Projects 6 Projects 4 Projects 3 Projects 1 Projects 1 Projects Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 98

  92. PSN may ay receive ive pri rivil vileg eges es as stipula pulated ted in the Presid sident entia ial Reg. . No. o. 3/20 2016 j.o j.o. . the Presid sidential ential Reg. . No. o. 58/2 /2017 Acceleration of Non- Determination of National State Budget Strategic Projects Projects Settlement of Permit & Non- 12 01 01 Legal Issues permit Completion 02 11 Accelerate Goods and Spatial Planning Service Procurement 03 10 10 09 04 Problems and Land clearing Hindrance Completion acceleration 08 05 07 06 Local Content SOE’s Assignment Utilization Projects Monitoring Government Additional Facilities via KPPIP IT System Guarantee Provision Existing Facilities Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 99

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