[PPT] - Stability bility at the he Fo Forefr efront, ont, Syn yner PowerPoint Presentation

SLIDE 1

Octo tober ber 2018 Republic blic

f

Indones esia ia

Stability bility at the he Fo Forefr efront,

nt,

Syn yner ergize gize Reform rms Move ve

SLIDE 2

1

About ut Inves esto tor Relatio tions ns Unit

f

the Republic ublic

f

I Indones esia

Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial market investors. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among others: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of State Owned Enterprises, Ministry of Energy and Mineral Resources and Financial Services Authority. IRU also convenes an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit – Republic of Indonesia Website: http://www.bi.go.id/en/iru/default.aspx Contact: Wiwit Widyastuti (International Department - Bank Indonesia, Phone: +6221 2981 8279) Evy Mulyani (Fiscal Policy Office - Ministry of Finance, Phone: +6221 345 0012) I Gede Yuddy Hendranata (Directorate General of Budget Financing and Risk Management - Ministry of Finance, Phone: +62213510714) E-mail: contactIRU-DL@bi.go.id This Presentation Book also can be downloaded from: http://www.bi.go.id/en/iru/presentation/red/Default.aspx

SLIDE 3

2

What’s New in This Edition

2019 State te Budget et (201 019 Budget) et) Dome mesti stic Non Deliver erable able Forwar rward (DN DNDF) F) Tran ansa sacti ction

n

The House

f

Representatives (DPR) has approved the 2019 state budget

n

Wednesday, October 31st, 2018 Bank Indonesia has introduced Domestic Non-Deliverable Forwards (DNDF) transactions in

rder

to accelerate forex market deepening while providing alternate hedging instrument for banks and corporations (fully implemented

n

November 1st, 2018).

…page 39 …page 66, 67, 68

SLIDE 4

3

Overvie rview

1 2 3 4 5 6

Instit itutio utional nal and Governan ernance Effectiv ivene eness: Acceler lerated ted Reforms rms Agenda with Instit itutio utional nal Improvem ement ent Econo nomic ic Factor: Strong ng and Stable le Growth wth Prospec ects Remain in Intact Externa rnal l Facto tor: : Impro roved ed Externa ernal l Resilien lience Fiscal al Perfo rformanc ance and Flexibilit ibility: y: Mor

re Fiscal

l Stimulus lus with Prud udent nt Fiscal l Mana nage gement nt Moneta etary ry and Financ ncial ial Factor: : Credible ible Monet netar ary y Polic licy y Track k Record rd and Favour urable ble Financ ncial ial Sector Pro rogres gressiv ive e Infras rastr truc uctur ure Develo lopment ent: Strong ng Commitm itment ent on Acceleratio leration n

f Infras

rastr truc uctur ture e Pro rovis isio ion

SLIDE 5

In Institutio utiona nal and Go Govern rnme ment nt Eff ffect ctiv ivenes eness: s: Ac Acce celerated ted Reform rms Ag Agenda with In Institutiona utional Im Improv

vement

ment

Sec ection tion 1

SLIDE 6

5

37 37 30 32 34 36 38 40 42 44 2012 2013 2014 2015 2016 2017 Indonesia India Philipines Bulgaria Colombia

Improving ving Global bal Percep ception tion

…with recent improve vement nts

n

global al competit itive ivene ness and governan rnance ce indica cator

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

World ld Governa nanc nce Indic icator tors3 Ease of Doing ng Busin iness2 Global l Compe petitive titivene ness Index1 Corruptio uption n Perce cept ptio ion n Index4

Higher rank is better Higher score is better Higher rank is better (rankings at the time of annual report publication) 50 33 53 50 39 43 15 35 55 2010 2011 2012 2013 2014 2015 2016 Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption Higher rank is better 41 36 45 20 30 40 50 60 70 80 90 Rank nk India Indonesia Philippines Bulgaria Colombia 91 72 20 40 60 80 100 120 140 160 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Indonesia India Philippines Bulgaria Colombia

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

SLIDE 7

6

BBB / Stab able Baa2 a2 / Stab able BBB BBB- / Stable

Apr 201 2018, Baa2, , Ratin ing g Upgr grade ded “The upgrade to Baa2 is underpinned by an increasingly credible and effective policy framework conducive to macroeconomic stability. Together with a build-up of financial buffers, prudent fiscal and monetary policy strengthens Moody’s confidence that the sovereign’s resilience and capacity to respond to shocks has improved.” May 2018 18, BBB-, Stable Ratin ing g Affir firmed ed “The sovereign ratings on Indonesia are supported by the government’s relatively low debt levels and its moderate fiscal performance and external indebtedness.” Sept pt 2018, 018, BBB, Ratin ing g Affir firmed “Indonesia's ratings balance a low government debt burden and a favourable GDP growth outlook with external challenges, including a strong dependence

n external sources of financing, and several structural

indicators that remain below rating peers.”

BBB BBB / Stab able

Febr bruary 201 2018, , Ratin ing g Upgr graded ded to BBB BB, Outlook Revis ised d to Stabl ble “....the government led by President Joko Widodo has been pressing ahead with structural reforms aimed to promote sustainable growth.. First, the investment climate has significantly improved.... Second, infrastructure development has been gaining momentum... Third, the external debt owed by the private sector has been curbed since 2016... Taking those into consideration, JCR has upgraded its ratings by one notch and changed the outlook to Stable.

BBB / Stab able

March 201 018, , Ratin ing g Upgr grade ded d to BBB BBB, Outlook Revis ised ed to Stabl ble “Indonesia's economy continues its strong performance, with inflation remaining low and stable. Fiscal deficits have been reined in, and government debt is low. The economy is becoming more resilient to external shocks, reflecting small current account deficits and ample foreign reserves.”

Indones esia ia is Now Fully ly Rated as as Inves estm tment ent Grad ade Countr try

SLIDE 8

7

30.35 33.85 25.87 24.28 21.08 26.58 31.69 33.45 25.46 25.03 22.84 26.57 32.04 33.90 25.39 26.21 24.18 27.85 5 10 15 20 25 30 35 40 India Indonesia Malaysia Philippines Thailand Vietnam 2016 2017 2018e

50 100 150 200 250 300 350 400 450 500 Billion USD 2016 2017 2.7 3.8 4.3 5.9 6.3 6.3 9 10.6 18.2 26.1 33.1 34.5 38.1 43.9 45.7

10 20 30 40 50

Turkey Singapore Russia Malaysia Korea Brazil Myanmar Philippines Mexico USA Indonesia Thailand Vietnam India China

Indones esia ia Remain ains the he Investment stment Desti stinatio tion

f

C Cho hoice ice

1. Source: The Economist – Asia Business Outlook Survey 2018 2. Source: IMF World Economic Outlook, Database April 2018 3. Source: United Nations Conference on Trade and Development (UNCTAD) – World Investment Report 2018 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (29th Annual Survey)

Tota tal Investm tment t / GD GDP (%)

Indo done nesia a Enjo joys Large Investm tments Relat lative to Peers within n the Region2 JBIC: C: Among ng ASEAN AN countr ntries, , Indonesia a is one of the most prefe ferred d plac ace for busine ness investm tment nt (Nove vembe ber 2017) 17)4 The Econo nomi mist: : Indo done nesia a round nds out the top five of Asian an econo nomi mies that t can look forwar ard d to increas ased d investme ment nt spendi nding ng. . (January nuary 2018) 18)1

% of surveyed who consider each country has promising prospects

UNCTAD: AD: Indonesia a is listed d in the top 20 host econo nomi mies based d on FDI inflo lows, , 2016 16 and d 2017 17 (June ne 2018) 18)3

(x) = 2016 ranking

18.2 20.2 24.3 24.7 26.6 28 28.7 28.8 30.1 30.6 36.9 44.1 47.1 69.4 10 20 30 40 50 60 70 80 Taiwan Myanmar Malaysia Philippines Japan South Korea Thailand Hong Kong Australia Singapore Vietnam Indonesia India China

SLIDE 9

8

Natio iona nal Strategic tegic Dev evel elopmen pment Plan an (Naw awa Cita ta)

Human Development

Educ ucation ion Healt alth Hous using ing Char aracte ter

Priority Sector Development

Food Security rity Energy & Electr tric ical Securi rity ty Mari ritime time & Mari rine ne Touris urism & Indus ustr try

Water ter Security rity, Basic ic Infras rastru truct cture re & Connecti nectivity vity

Equitable Development

Inte ter- Incom

me

Group

up

Inte ter-Reg Region: ion: (1) Rural al Area ea, (2) Perip ripher hery, y, (3) Outs tside ide Java, (4) Easte tern rn Area ea. .

Security & Order Politic & Democracy Governance

The 3 Dimensio ions

n

Econom

mic

ic Develop

pment

ment Necessary sary Condit ition

n

Legal Certainty & Law Enforcement

SLIDE 10

9

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

purposes

Land consolidation for agriculture
Improve research on seeds and agriculture method, off-farm infrastructure, integrated logistic

system, build seeds market, tools and machinery

Build a fair land distribution scheme
Build a priority scale of Tanah Objek Reforma Agraria (TORA) recipient based on land gini ratio,

poverty, & land demand

Developing an agricultural industry by agglomeration or cluster method

Economic ic Equal alit ity Policies cies

to support sustainab nable le public ic welfar are.. ...

Source: Coordinating Ministry for Economic Affairs

Econo nomic ic Equali ality ty Polici cies

Human n Resour urce ce Capaci city ty

Land

Oppor portuni tunity ty Agra raria ian Reform rm Agric icultu ture e (Landle dless Farm rmer er) Planta tatio ion Urban Poor & Affordable ble Hou

using

Fisher hermen en & Seaweed eed Cult ltiv ivation tion Fair ir Tax x System tem Manufactu ture e and d ICT Retail l and Mark rket et Fina nanc ncin ing & Gove vernm nment nt Budget Voca catio iona nal, , Entre repr preneurs neurship ip & & Labor r Mark rket

Priority

SLIDE 11

10

The he Economic ic Policy cy Pac ackag ages es

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

Phase e III I (7 Oct t ’15) Financial services facilitation, export financing and elimination

f business unnecessary burden

Phase e IV (15 Oct t ’15) Social safety net and betterment of people welfare Phas ase e V (22 22 Oct t ’15) Improving industry and investment climate through tax incentives and deregulation on sharia banking

Harmo moni nizi zing ng Regulations

ns

Simp mpli lifyin ying Bureauc ucratic Proc

cess

Ensuring Law Enfo forceabi bili lity

Phase e VI (5 Nov

v ’15)

Stimulating economic activities in border areas and facilitating strategic commodities availability Phase e I (9 Sept t ’15) Improving national industry competitiveness Phase e II (29 Sept t ’15) Easing permit requirement and simplifying export proceeds requirement Phase e VII (7 De Dec ’15) Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land certification process for individuals Phase e VIII I (21 De Dec ’15) Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation industries Phase e IX (27 Jan ’16) Accelerating electricity generation, stabilizing meat prices and improving rural–urban logistics sector Phase e X (11 Feb ’16) Revising the Negative investment List and improving protection for SMEs Phase e XI (29 29 Mar r ’16) Stimulating national economy through facilitation to SMEs and industries Phase e XII II (28 28 Apr’16) Improving Indonesia’s rank on Ease of Doing Business (EODB) Phas ase e XIII I (24 Aug ’16) Low Cost Housing for Low-Income Communities Phase e XI XIV (10 Nov ’16) Roadmap for E-commerce

Source: Coordinating Ministry for Economic Affairs

Phase e XV (15 Jun ’17) Improving logistics In additio dition to the 15 Policy licy Packa kages ges, on Augu gust t 31, 2017 the Gov

ver

ernmen ent has issued ed a Pres esiden identia tial l Regulatio tion No.

.91/2017 for
r enha

hancin ing g busin ines ess licen ense e serv rvic ice standa dard

SLIDE 12

11

Boosting ting the he Competitive petitivenes ness through ugh Lo Logisti stical al Efficienc ciency

The 15th

th Econo

nomic ic Policy Packag age has been launche nched

Source: Coordinating Ministry for Economic Affairs

Policy cy Goals

Strengthen the Institution

f the Indonesia National

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

f Logistic Service

Providers

Policy cy Target ets

1 2 3 4 5

Import duty for 115 types

f

ship’s spare parts and components 0%

0%

Opportunities for national shipping to serve export and import transportation

f

around

USD 600 00 millio lion/y n/year ear

70-100 units

f

new ships worth USD

700 00 millio lion

New employment

pportunity
f

2,000 000 sai ailors rs

Improve the Regional Government’s role in development

f

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

30%

SLIDE 13

12

Progres ess

f

t the he Economic ic Policy cy Pac ackag ages es*

Initially, there are 233 regulations which need to be deregulated As of May 15th, 2018, deregulation of 219 regulations are finished (99%), comprising 50 regulations at Presidential level and 169 regulations at Ministerial/Institutional level Unfinishe ished reg egula latio ions: Proposed Policy on Development

f Business and competitiveness of National Logistics

Service Providers

I–XII

21 219

SET

99% 99% 11 11

REVOK OKED ED REGULATIONS TIONS

3

ON GOIN ING DISCU SCUSSION SION

1%

170 TOTAL

169

MINIST STERIAL IAL/I /INST NSTIT ITUTI UTIONAL ONAL LEVEL VEL 99%

99%

47 47 42 42

SELESAI

PRESI SIDE DENTI NTIAL

52 TOTAL

50 50 FINI

NISHED SHED

PRESIDE DENTIAL AL LEVEL

96% 96% I–XV

FINI NISHED SHED

I–XII

233 33

TOTAL INITIAL TIAL REGULATION TIONS

I–XV

I–XII

222 22

TOTAL REGULATION TIONS

I–XV

Based

n

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

Source: Coordinating Ministry for Economic Affairs *as of May 15, 2018

SLIDE 14

13

Other her Progress ess

n

Economic ic Policy cy Pac ackag ages es

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

Fair, Simplif ifie ied & & Project ctable able Wage Sys System

The Provinces of Central Java proposed 3

IZ’s: Kendal, Demak, and Ungaran

Pharmaceutical

IZ in Bitung (North Sulawesi) in 2017

Indus ustrial rial Zone Develo lopment ment

f

Spesial al Economic mic Zone ne (SEZ)

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

Dereg egula ulation ion

n

Logis istics ics Sect ctor

SLIDE 15

14

Invest vestmen ment Inc ncent entives ives to Bo Boost st Industry dustry Sector

r

BUSINE INESS SS EXPANSIO ANSION

Tax allowa

wanc nce

Exe

xemptio mption n or relie lief of import t duty ty on capita ital l goods, machine chinery or equi uipme pment nt for production purposes that can not be produced 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;

Exemptio

ption or suspe pensio ion of VAT on the he import t of capita ital l goods

r machine

chinery or equi uipme pment nt for production purposes that have not been produced domestically for a certain period of time;

Accelerate depre

preci ciatio tion n or amortiz tizatio tion n (part of tax allowance); and

Prope

perty ty tax relie lief, especially for certain business sectors in certain regions;

Combine with Online Single Submission (OSS)

Tax holid liday of corporate income tax in a certain amount and time

PION ONEER INDUSTRIE DUSTRIES SPECIAL ECIAL ECONOMI ONOMIC ZONE

No colle

lectio ction n of VAT T and Luxu xury Goods Sale les Tax (PPnB PnBM), ),

Custom

toms tax exemption xemption,

Tax Allowa

lowanc nce and Tax Holid iday,

Suspe

pens nsio ion n of Import t Duty,

0% Import

t Duty for goods produced using local components of a certain level

INDUST STRIAL RIAL ZONE FREE TRAD ADE ZONES AND PORTS MICRO RO, SMAL ALL, L, MEDIUM IUM ENTERPR RPRIS ISES (MSMES) E-COM OMMERC RCE

VAT

T exem xempt ptio ion n on import or delivery of capital goods,

Import

t Duty exemption xemption on machineries/goods/materials,

Tax Allowa

lowanc nce and Tax Holid iday Exe xemptio mption n of:

Import

t Duty

VAT
Luxu

xury Goods Sale les Tax x (PPnB PnBM)

Custom

toms duty ty Decr creasin ing MSME MEs Tax from 1% to 0.5% % of gross revenue

Sales from customs areas for non-sma

mall ll entrep treprene neur urs through the market place will be subject to 0.5% % inco come me tax and 1% VAT

Sales from customs areas for small

ll entre trepre prene neur urs through the market place will be subject to 0.5% % inco come me tax

Source: Coordinating Ministry for Economic Affairs

SLIDE 16

15

New Tax Holiday liday Polic licy* y*

to boost industry try sector

Taxpay payer

Pioneer Industry with minimum investment value of 1 trillion Rupiah (minimum investment value

f

500bn Rupiah for telecommunication sector) Corporate te Income me Tax (CIT) T) reductio tion rate

Conce cession n perio iod Trans nsition ition

After er Tax Holiday Not available 100% (single rate)

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

discretion 1. 500Bn – 1Tn : 5 years 2. 1Tn – 5Tn : 7 years 3. 5Tn – 15Tn : 10 years Pioneer Industry with minimum investment value

f

500bn Rupiah Applied to 8 industry groups: (i) upstream basic metal industry; (ii)

il

and gas refinery industry; (iii) organic basic chemicals industry; (iv) machinery industry; (v) plantation, forest, and fishery products processing industry; (vi) telecommunication, information and communication industry; (vii) marine transportation; and (viii) economic infrastructure Applied to 17 industry groups: (i) upstream base metal; (ii)

il

and gas refinery; (iii) petrochemical (oil, gas,

r coal

based); (iv) non-organic base chemical; (v) organic base chemical; (vi) pharmaceutical materials; (vii) semiconductor and other components; (viii) communication devices components; (ix) medical devices components; (x) machine manufacturing for industry; (xi) machine main components manufacturing; (xii) robotic components manufacturing; (xiii) ship components manufacturing; (xiv) airplane components manufacturing; (xv) train components manufacturing; (xvi) power plants; and (xvii) economic infrastructure

PROVIS VISION BEFO FORE RE AFTE TER

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

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

SLIDE 17

16

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

f

Doing Busine ness ss has been launched ched

Source: Coordinating Ministry for Economic Affairs

Policy cy Go Goals

1 2 3 4 5 6

Improve efficient, streamlined, & integrated business license service standards Accelerate the business licensing process Provide business licensing process assurance in terms

f the costs and lead times

Increase coordination & synergy between central & regional government Overcome the barriers to doing business in Indonesia Implement integrated licensing process (single submission)

Main n Policy cy

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

Business license regulatory reforms Implementation

f

the Single Submission system

1st

st Phase

2nd

nd Phase

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

SLIDE 18

17

Impr proving ving Inv nvestment estment Clima imate

Onlin ine Sing ngle le Submissi ission

n

(OSS SS) Has Been en Laun unched hed... ...

Source: Coordinating Ministry for Economic Affairs

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

Lorem Ipsum Suitable for all category, Envir ironm nment ent & Fores restr try Secto tor Electricit ctricity Secto tor Public lic Work rks & Housin ing Secto tor Health Sec ecto tor Indus ustr try y Secto tor Mari rine ne & Fishery ery Secto tor Medic icine ine & Food Sector Trans nsport rtat atio ion n Secto tor Trade ade Secto tor Informatio ation n & Commun unic icatio tion Secto tor Other Secto tor Secto tors rs The Advant antag age e of Using g OSS Business licenses can be secured in under an hour Standardized business licenses are available Ellectronically integrated The whole licensing process is monitored by the Task Force More practical Accessible at anytime and anywhere

SLIDE 19

18

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

f

Finance as part

f

the implementation

f

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

To 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.

Improving ving Investment stment Clima imate te

…Bonded Logistic Center to Improve Indonesia’s Competitiveness

Oil il and ga gas, s, and mining ng indus ustr try Food & bever erag ages es indus ustr try Auto- motive ive indus ustr try y Pers rsonal nal care/ home care indus ustr try Textile ile (cotto tton) n) indus ustr try Small and medium ium indus ustr try Synthetic tic textile ile (chemic ical al substanc nces es) indus ustr try. y.

Bonded Logistic Center

Heavy Equipment nt indus ustr try Defence indus ustr try Aircraft ft MRO indus ustr try

SLIDE 20

19

Improving ving Investment stment Clima imate te

…revising the Negative Investment List

1 For total project value of IDR10bn and above

Before

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

Revisio ion of "Partnership ip" category y to refer to partnership ip with Micro, Smal all and Mediu ium Enterpris ises (MSME MEs) Gran andfat ather Law: If a par artic icul ular ar sector is tightened in futur ure, existin ing foreig ign investor does not need to comply with tighter stak ake Key Reforms in Negative ive Foreig ign Investment List Strengthen implementatio ion of negative investment law throug ugh active ive roles from min inistrie ies, agencie ies and regio ional al governments

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

Distribution,

n, Wareho

housing Private Museum, Catering, g, apparel Manufacturing, g, Exhibitions

ns &

Conve ventions

ns

Toll Road Operator, Telecom

mmunication Testing Company

Consultancy for Construction

n1

Telecom

mmunication Provide

der with Integrated d Servi vices Professiona

nal Training,

g, Golf Course Management, , Air Transpor

rt Suppor
rt Services,

, Trave vel Bureau

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

Introduc uctio tion n of New w Foreig ign n Owne wnership ip Regula ulatio tion n for Strate tegic ic Secto ctors Source: Investment Coordinating Board (BKPM)

SLIDE 21

20

Contin tinuou

us

Improv

vement

ement

f

Investme stment Clima imate te

…anothe her leap

n Indonesia’s

Rank nk

n

Ease

f

Doing Busine ness ss (EODB)*

EODB 201 2018 Rank nk EODB 201 2017 Rank nk Chan hange in Rank nk EODB 201 2018 Point ints EODB 201 2017 Point ints Chan hange in Point ints

Overall all 72 72 91 91 19 66.47 61.52 4.95 Start rting ing a busines ess 144 151 7 77.93 76.43 1.5 Dealing ing with Constr truc uctio ion Permit rmit 108 108 116 8 66.08 65.73 0.35 Getting ng Electr tric icity ity 38 38 49 49 11 83.87 80.92 2.95 Registering tering Property erty 106 106 118 12 59.01 55.72 3.29 Getting ng Credit it 55 55 62 62 7 65.00 60.00 5.00 Prote tecting ting Mino nority ity Inves esto tors 43 43 70 70 33 63.33 56.67 6.66 Paying ing Taxes 114 104 104 10 68.04 69.25 1.21 Trading Across Border ers 112 108 108 4 66.59 65.87 0.72 Enforcing ing Contrac acts ts 145 166 21 47.23 38.15 9.08 Resolv lving ing Insolv lven ency 38 38 76 76 38 67.61 46.46 21.15

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

Source: World Bank * Higher rank is better, EoDB 2018 was published in October 2017

SLIDE 22

21

Inves estm tment ent Realiza izati tion (Q3-201 2018) 8)

IDR tn

2013 2014 2015

Direct ct Inve vestme tments nts

2016

Mini ning ng Housin ing, Ind ndust ustria ial Estate tate, and Offic ice Build ildin ing Food Indus ustry Ele lectric icity ty

US$ US$671.7 .7 mn US$ US$76.0 .0 mn mn US$ US$385.7 .7 mn mn US$ US$595.2 .2 mn mn US$ US$1,220.1 .1 mn mn US$ US$1,050.0 .0 mn mn Transpo portatio tion,

Warehouse use, and Tele leco comm mmun unica catio tion

130.7%

US$ US$76.6 .6 mn mn

82.0% 23 23.3% 42.5% 35.9% 22.0% 64 64.2% Invest stment nt Reali liza zatio ion

Textil xtile Indust ustry US$ US$99.0 .0 mn

66.9 66.9%

FDI Reali lizatio tion n by Secto ctors (yoy)

Source: Investment Coordinating Board (BKPM), compared to Q3-2017 period

2017

Rp145.4 5.4 T Rp159.4 9.4 T IDR89.1tn tn 434 434,463 463

9.6 9.6% 15.6 .6%

20.2%

30 30.5%

Q1-201 016 Q1-201 017 Q3-201 017 Q3-201 018 Q1-201 016Q1-201 017 Q3-201 017 Q3-201 018

*

* * perso son 37 375,9 ,982 IDR173.8tn tn

1.6

1.6%

Q3-201 017 Q3-201 018

IDR176.6tn tn IDR84.7tn tn IDR64.9tn tn IDR111.7tn tn Trade & Repar paratio tion Non Metallic tallic Mine neral l Indust ustry 89.1 173.8

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

2018

Decreasin ing Decreasin ing

SLIDE 23

Eco conomi mic Fact ctor: r: Strong and Stable Gr Growth Prospec ects Rema main In Intact ct

Sec ection tion 2

SLIDE 24

23

Conducive cive Environment ment Underpin rpinning ning Strong ng Growth th Fundam ament ental als

Larges gest t Economy my in South East Asia 4th Most Populous country y in the World; ; 64% in productiv tive e age Manageable Inflatio tion Rate Risin ing g Middle e Class and Affluen ent t Custome mers

From commodity-based to man anufa ufactur urin ing and servic vice sectors via infrast astruc ucture development From consum umptio ion-led to investment-led growth via a strong nger manufac anufactur urin ing sector and more investment init itia iative ives Policie ies to maint aintai ain n pur urchas asing ing power to stim imulat ate domestic ic economy in the mid idst

f weakenin

ing mac acroeconomic ic condit itio ions Budget reform as a a part of larger economic ic reform init itiat iative Tax base to be broad adened from

ne reduc

uce dependency on commodit itie ies Fuel subsid idie ies signif ific ican antly y reduc uced and spendin ing redir irected to more produc uctive allocat atio ion Prud udent debt man anag agement

Refor

rm-Orie

iente ted Adminis inistr tratio ion

Three main ain sources of finan ancin ing for investment needs: Stat ate and regio ional al budget, Stat ate Owned Enterpris ises and PPP Contin inui uing from 2015 polic icy, infras astructur ure will be higher than fuel subsid idy Fiscal al and non-fis iscal al incentive ives to attrac act infras astructur ure investment and promote PPP Infras astructur ure spendin ing focused on basic ic infras astructur ure projects

Larg rge e and Stable able Econo nomy Consi nsiste tent nt Budg dget t Reform

rm

New Econom nomic ic Structu ructure re High h Infras rastructu ructure re Investments

SLIDE 25

24

0.04 3.83 3.27 (2.07) (0.16) 3.74 3.31 (1.73) (0.36) 4.01 3.14 (1.81)(0.30) 4.01 3.19 (1.70)(0.42) 4.21 5.12 4.94 4.93 5.05 4.82 4.74 4.77 5.17 4.92 5.18 5.01 4.94 5.01 5.01 5.06 5.19 5.06 5.27

3.0
1.0

1.0 3.0 5.0 7.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2014 2015 2016 2017 2018 QoQ YoY

Indonesia’s Strong GDP

Growth th Prospe pect ct Strong ng GDP Growth th1

%

Instit itutio ions 201 2018 GDP growth (%YoY) 2018 Budget 5.4 Bank Indonesia 5.0 – 5.4 IMF 5.3 World Bank 5.3 ADB 5.3 Consensus Forecast (October 2018) 5.2

Favo vour urable ble GDP Growth th Compar pared to Peers2

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 %

National

economic growth momentum has continued to build in Indonesia, as confirmed by solid GDP growth figures for the second quarter of 2018, reaching 5.27% (yoy), the highest rate on record since 2013.

In terms of expenditure, private consumption by households and non-

profit institutions serving households (NPISH) recorded strong growth. Household consumption stood at 5.14% (yoy), the highest since 2014. On the other hand, NPISH consumption grew 8.71% (yoy) in the three months to June 2018.

BI

projects solid economic growth in 2018

n

resilient domestic demand. Solid investment is also expected in line with

ngoing

infrastructure development, thus driving private consumption gains. In addition, expansive government consumption and maintained macroeconomic stability will continue to bolster economic momentum. Moreover, efforts to strengthen the sectoral structure of the economy will be continued through structural reform policy, which will further help to accelerate the national economy moving forward.

5.1 5.3 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2012 2013 2014 2015 2016 2017 2018* Indonesia India Philippines Bulgaria Colombia

SLIDE 26

25

GDP Growth th Break akdown wn

GDP Growth th by Secto ector (%, YoY YoY)

By sectors 2014 14 2015 15 2016 16 2017 17 2018 18 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 Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 3.7 6.5 2.9 1.6 3.8 1.5 3.5 3.2 5.5 3.4 7.1 3.2 2.8 2.2 3.8 3.3 4.8 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 0.7 2.2 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 4.0 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 Wholesale and Retail Trade, Repair of Car and Motorcycle 6.1 5.1 5.2 4.4 5.2 3.8 1.6 1.4 3.5 2.5 4.3 4.3 3.7 3.9 4.0 4.6 3.5 5.2 4.5 4.4 4.9 5.2 Transportation and Storage 7.0 7.6 7.7 7.2 7.4 6.3 6.0 7.0 7.5 6.7 7.4 6.5 8.2 7.6 7.4 8.1 8.8 8.9 8.2 8.5 8.6 8.6 Information and communication 9.9 10.7 9.8 10.1 10.1 9.7 9.3 10.6 9.2 9.7 7.6 9.3 8.9 9.6 8.9 10.5 11.1 8.8 9.0 9.8 8.5 6.1 Financial service 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.3 12.8 8.6 9.3 13.6 9.0 4.2 8.9 6.0 5.9 6.2 3.8 5.5 4.3 3.0 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 6.2 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

Source: Central Bureau of Statistics of Indonesia (BPS) *Other services consist of 10 sectors (according to Standard National 2008)

GDP Growth th Based on Expe penditu itures es (%, YoY YoY)1

By expen pendit diture 2014 14 2015 15 2016 16 2017 17 2018 18 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

HH. Consumption

5.2 5.2 5.1 5.1 5.1 5.0 5.0 5.0 4.9 5.0 5.0 5.1 5.0 5.0 5.0 4.9 4.9 4.9 5.0 4.9 4.9 5.1 Non profit HH. consumption 23.2 22.4 5.8 (0.5) 12.2 (8.1) (8.0) 6.6 8.3 (0.6) 6.4 6.7 6.7 6.7 6.6 8.1 8.5 6.0 5.2 6.9 8.1 8.7 Government consumption 6.1 (1.8) 1.2 0.9 1.2 2.9 2.6 7.1 7.1 5.3 3.4 6.2 (3.0) (4.0) (0.1) 2.7 (1.9) 3.5 3.8 2.1 2.7 5.3 Gross Fixed Cap. Formation 5.4 4.0 4.4 4.1 4.4 4.6 4.0 4.9 6.4 5.0 4.7 4.2 4.2 4.8 4.5 4.8 5.3 7.1 7.3 6.2 7.9 5.9 Exports 3.1 1.5 4.9 (4.4) 1.1 (0.6) (0.3) (1.0) (6.4) (2.1) (3.1) (1.5) (5.8) 4.1 (1.6) 8.4 2.8 17.0 8.5 9.1 6.1 7.7 Imports 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 12.7 15.2 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 1. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption

SLIDE 27

26

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)

SLIDE 28

Ext xternal rnal Fact ctor: r: Im Improved Ext xtern ernal al Resilie ienc nce

Sec ection tion 3

SLIDE 29

28

1.63 (8.16) (1.79) 0.29 (8.03)

12
10
8
6
4
2

2 4 6 8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4*Q1** Q2** 2012 2013 2014 2015 2016 2017* 2018**

Goods Services Primary Income Secondary Income Current Account US$bn

3.00
2.00
1.00

0.00 1.00 2.00 3.00 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 2013 2014 2015 2016 2017 2018 OG Non-OG Total

Exter ernal al Bal alan ance ce under r Contr trol l Support rted ed by A y Adequ quate ate Re Reser serves es

Curren ent t Account Defic icit it withi hin Safe Thres esho hold Balance e of Payme ments Portrait it 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

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

2015: Surplus us US$7.59bn 2013 2013: Defic icit it (US$4.10bn) n) 2014 2014: Defic icit it (US$2.37bn) n) 201 2016: : Surplus us US$8.83b 3bn 2017: Surplus us US$11.83bn bn

Source: Bank Indonesia FX Reserves s as of September 201 2018: US$114.8 4.8 bn n (Equiv

iv. to 6.3 month

ths s of impo ports ts + servic icin ing of government t debt) t) US$bn

2015 2015: CA Defic icit (US$17.5bn) n) 2012: 2012: CA Defic icit (US$24.4bn) n) 2013: 2013: CA Defic icit (US$29.1bn) n) 2014: 2014: CA Defic icit (US$27.5bn) n) 201 2016: CA Defic icit (US$16.9b 9bn) n) 201 2017: CA Defic icit (US$17.3 .3bn) n)

(8.03) .03) (4.31) .31) 119.8 9.8

40 80 120 160

15
10
5

5 10 15 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1*Q2*Q3*Q4* Q1** Q2** 2012 2013 2014 2015 2016 2017* 2018**

Current Account Capital and Financial Account Overall Balance Reserve Asset (RHS)

US$bn US$bn

1

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

Month US$bn

SLIDE 30

29

2.04 5.33 7.41 2.76 5.11 3.32 3.16

4.22
5.35
11.83
3.81

2.19

23.03
0.16
0.59
2.72
3.11
4.37
5.43
6.34
7.29
10.65
10.73
13.17
13.45
33.00
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0

0.0 5.0 10.0 JPY THB MYR SGD EUR KRW CNY PHP IDR BRL INR ZAR TRY point-to-point average

%

*data as of October 22nd, 2018

Exchang ange Rate In Li Line ne with Fundam ament entals als

Move veme ment nt of Rupia iah Rupia iah Exc xchang nge Rate Fared Relative latively ly Well ll Compar pared to Peers

IDR/US$

The The Rupi piah is is under ergoin ing depr eprec ecia iati tion, albeit eit with ith contained ed vol volatility tility. The depreciation

f

Rupiah is in line with currencies

f

peer countries. On average, the Rupiah depreciated 2.07% during September 2018, and continue to slightly depreciate in October 2018. As of 22nd October 2018, the rupiah had depreciated by 10.65% (ytd), which is not as severe as that felt in Brazil, India, South Africa and Turkey. Looking ahead, Bank Indonesia will continue to stabilize the Rupiah exchange rate in line with the currency’s fundamental value, while maintaining market mechanisms, supported by financial market deepening. Such policy is focused on safeguarding the Rupiah volatility and sustaining adequate market liquidity, thus preventing risks to macroeconomic and financial system stability.

Source: Bank Indonesia

YTD 2018 vs 201 017

Rupia iah Exc xchang nge Rate Volatil tilty ty

15,185 13,378 13,603 13,760 13,809 14,043 14,058 14,409 14,561 14,869 13,576 13,952 14,601 15,163 13,250 13,450 13,650 13,850 14,050 14,250 14,450 14,650 14,850 15,050 15,250 15,450 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul 1-Aug 1-Sep 1-Oct

IDR/USD Monthly Average Quarterly Average *data as of October 22nd, 2018

38.4 .4 18.3 .3 40.5 .5 12.2 .2 6.8 7.5 6.0 5.6 5.2 4.9 40.0 .0 39.3 .3 27.9 .9 12.2 .2 10.2 .2 10.0 .0 9.5 6.6 3.7 2.1

10

20 30 40 50 60 TRY BRL ZAR INR IDR KRW THB SGD PHP MYR Sep-18 Oct-18

%

SLIDE 31

30

Bank Indonesia’s Policy licy Direct ection ion

To maintain ain Rupiah ah stabilit lity and support growth

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

4 3 2

Measures es To To Stabilize lize Rupia piah h Excha hange ge Rate te Measures es To Supp ppor

rt

t Gro rowth th

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

4 3 2 1 1

Source: Bank Indonesia

SLIDE 32

31

Ampl ple Li Lines of D Defen efense se Against ainst Ext xter ernal nal Shocks cks



Ample level of FX reserves to buffer against external shock



FX Reserves as of September 2018: US$114.8 billion

South th Korea



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

Australia alia



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

Chia iang Mai i Initia tiative tive Multila ltilatera terali liza zation tion (CMIM IM) ) Agreement nt



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



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



Doubled to US$240 bn effective July 2014

Japan



US$22.76 billion swap line with Japan currently in place



As of October 14th, 2018, the facility available in USD and JPY



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

IMF Global al Financ ncial ial Safety ty Net

GSFN



Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem



Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL)

Bilateral teral Regio iona nal Globa bal FX Reserv rve

Ampl ple Reserve ves Swa wap p Arrang ngeme ment nt

Source: Bank Indonesia

ASEAN N Swap p Arra rangem gemen ent (ASA)



Entitled to a maximum swap amount of USD600 million under ASA



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



Doubled to USD2 billion in 2005

SLIDE 33

32

Solid id Policy cy Coordi dina natio tion

In Managin aging Financial ancial Market kets Volati tili lity ty

Source: Ministry of Finance First Line of Defense State’s Budget Buyback fund at DG of Budget Financing and Risk Management Investment fund at Public Service Agency (BLU) (min. level Aware) Stat ate Owned Enterprises (BUMN)’s Budget Related SOEs (min. level Aware) Social al Secur urity y Organ anizing zing Agency y (BPJS)’s Budget BPJS (min. level Aware) Second Line of Defense State’s Budget

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

Gov’t Securities Crisis is Mana nage gement ent Proto tocol (CMP)

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

Bond nd Stabilizatio ilization n Framew ework rk

The enac actm tment nt of Law No. 9/201 016 6 regar arding ng Prevention ntion and Mitig tigat ation

n of Financ

nancial al Syste tem Crises as a legal foundation for the government to serves at the time of financial crisis in the form of Financi Financial al Syste tem Stabili ability ty Com

mmitt

ttee (KSSK) KSSK membe bers: the Ministry of Finance, Bank Indonesia, the Financial Services Authority, and the Deposit Insurance Corporation Swap facility arrangements based on international cooperation Enhancing coordination between government institutions and continuous dialogue with market participants Implementing Crisis Management Protocol (CMP)

CMP

Implementing Bond Stabilization Framework (BSF)

BSF

SLIDE 34

33

Streng engthened hened Pri rivate te Exter erna nal Deb ebt Risk Man anag agem ement ent

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

Obj bjec ect of Regu gulatio ion Governs all Foreign Currency Debt Hedg dgin ing g Ratio io < 3 months 20%* 25%** > 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- Hedg dgin ing g transactio ction n to meet hedg dge ratio io not necessarily be done with a bank in Indonesia Must be done with a bank in Indonesia Sanctio ion As of Q IV-2015 Applied Exter ernal Debt/ bt/GDP (%)

Debt Burden en Indicator (Exter ernal Debt/G /GDP DP) ) Rema mains Comp mparable e to Peers Rating

Enco cour uragin ing Corpor porate tes Compli lianc nce on Hedgin ing Ratio io & Liqui uidity ty Ratio io

Source: Bank Indonesia

Liquid idity ity Ratio* Hedging ging Ratio*

*Data as of Q2 2018, with total population 2.727 corporates

Regulatio tion on Pruden entia tial Prin incipl iple in Managing g Exter ernal Debt

Source: Bank Indonesia 22.4 21.6 32.8 42.2 64.7 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 India Philippines Indonesia Colombia Bulgaria 2019F 2018F 2017

Source: Moody’s Statistical Handbook, May 2018

2,432 ; 89.2% 295 ; 10.8%

≤ 3 m mont nths hs

2,542 ; 93.2% 185 ; 6.8%

> 3

6

mont nths hs

2,377 ; 87.2% 350 ; 12.8%

Comply Not Comply

SLIDE 35

34

Healthy althy Exter erna nal Deb ebt Composit sitio ion

Exte xterna nal l Debt Struc uctur ture

Source: Bank Indonesia, External Debt Statistics of Indonesia, October 2018 *Provisional Figures **Very Provisional Figures

The Struc uctur ture of Exte terna nal l Debt bt is Domin inate ted by Long ng-Te Term m Debt bt 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

42.6 41.4 47.4 50.0 53.6 55.8 54.1 50.5 48.8 48.8 49.3 48.6 48.7 49.3 49.6 49.6 49.7 57.4 58.6 52.6 50.0 46.4 44.2 45.9 49.5 51.2 51.2 50.7 51.4 51.3 50.7 50.4 50.4 50.3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Private Debt Government and Central Bank Debt 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 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 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Short Term External Debt Long Term External Debt 121.8 114.9 101.0 113.8 123.1 139.5 168.4 176.1 167.9 166.8 160.4 31.8 26.5 25.0 27.4 29.1 32.9 36.1 34.3 34.7 34.8 34.3 5 10 15 20 25 30 35 40 80 100 120 140 160 180 200 % % External Debt to Export Ratio External Debt / GDP Ratio (rhs) 11.5 17.1 11.3 12.0 5.4 10.2 5.9 3.0 10.3 9.0 5.6 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 % Million USD External Debt External Debt Growth (rhs)

SLIDE 36

35

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

nly

8.9%

f

total priva vate externa rnal debt

Priv ivate te Short-Term Term1 Priv ivate te Non-Bank Exter ernal Debt Positio tion

Af Affil iliat iation Non Af Affil iliat iation

US$132.2bn

r

73.7%

f Private Ext.

Debt US$19.0bn

r

10.6%

f Private
Ext. Debt

US$12.3bn

r
r

6.8%

f Private

ate Ext. . Debt t US$15 15.9bn 9bn

r
r

8.9% 9%

f Private

ate Ext. . Debt t

Public ic Long Term 1 Priv ivate te Bank

US$28.2bn

r

15,7%

f Private
Ext. Debt

US$179.4bn

r

49.7%

f total
Ext. Debt

US$47.2bn

r

26 26.3%

f Private
Ext. Debt

External Debt Position as of August 2018

1 Based on remaining maturity

Source: External Debt Statistics of Indonesia, October 2018

US$360 60.7bn bn

US$181.3bn

r

50.3%

f Total Ext.

Debt

SLIDE 37

Fisca cal Perf rforma rmanc nce and Flexib xibilit ility: More Fiscal cal Stimu mulus us with Pru rudent nt Fisca cal Policy cy

Sec ection tion 4

SLIDE 38

37

Integ tegrated ted Reform

rm

to Prov

vide

ide Higher her Quality ity

f

Econo

nomic

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

Efficient,

competitive, and innovative real sectors

Job-creation
Trade

and investment policies that support growth, efficiency, and stability

Monetary

policy to support macroeconomic stability

Price

stability and sustainable current account deficit

Efficient

and credible financial sector Fiscal al Real al Secto tor Mone netary ary & Finan ancial ial Secto ctor

Synergy gy in reform rm to boost the more sustainab nable le and inclu lusiv ive growth wth

Source: Ministry of Finance

SLIDE 39

38

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

urage

Grow

wth

th Key Driv iver ers

Consumptio

ion remains robust among

thers

supported by benign inflation

Inves

estment ent grows stably supported by infrastructure acceleration, business climate improvement, rating upgrades, economic packages

Expor
rt

and Impor

rt

keeps improving driven by increasing demand and improving prices

Support

from sever eral import rtan ant events ts such as Asian Games, Regional Elections, and IMF-WB annual meeting

Main

intainin taining g purchasing ing powe wer, r, boosting ing domes estic ic demand nd and suppor

rting

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

Encourag
uraging

ing priva ivate te sector

r's rol
le in investment

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

Expand

nd servic ices es sector, especially ially touris urism  Increasing foreign tourists arrival through cooperation with other countries by increasing the direct flight schedule  Encouraging national creative industry growth

Risks ks & Challe halleng nges es

Globa bal econo nomic ic uncert rtain ainties ties: China economic rebalancing and its financial vulnerability, advanced countries policy normalization, geopolitic, and climate change

SLIDE 40

39

2019 State Bu Budget et (AP APBN BN 2019) 9)

Healthie hier, r, More Equit itable able, Self-Suf Sufficie icient nt

Healt althier hier

Deficit

1.84%

f

GDP, the lowest since 2013

Towards

positive primary balance

Debt

to GDP ratio below 30%

f

GDP

More equit uitab able le

Strengthening

decentralization (increasing fiscal transfer to regions)

Strengthening

scisl protection programs

Focusing
n

human capital quality improvement (inter-generational fairness)

Self lf suffic icie ient nt

Increasing

tax revenue

Increasing

the share

f

local currency bond issuance

Domestic

financial deepening

Driving

export

Macroecono economic ic Assum umption ption Growth

wth

5.3% Infla latio tion 3.5% 3 mont nths hs T-bil ills ls 5.3% Exchan hange Rate te 14.500/US$ ICP 70/barrel Oil Lifting ing 775 barrel/day Gas as Lifting ing 1.250 barrel/day Dev evelop lopmen ent Target Unempl ploy

yment

nt 4.8% – 5.2% Pov

ver

erty ty 8.5 – 9.5 Gini ni ratio tio 0.38 – 0.39 HDI 71.98 REVENU NUE Rp2,165.1 T  Tax Rp1,786.4 T  Non Tax Rp378.3 T  Gran ant Rp0.4T EXPEND NDITURE ITURE Rp2,461.1 T  Cen entr tral al Gov

ver

ernmen ent Rp1,634.3T  Tran ansfer er to Region gion Rp756.8 T  Villag lage Fund nd Rp70.0 T

Deficit it Rp296.0 T (1.84%

f

GDP) Primary imary Balance ce (Rp20.1 T) Debt Finan ancing ing Rp359.3 T Inves estment ent Rp75.9T

Source: Ministry of Finance

SLIDE 41

40

More Credible dible an and Real alis istic tic Budget et

…providing more certainty to all stakeholders

Indic icator 2017 17

2017

2018 18 R-Budge Budget Realiz ization Budget dget Economic ic growt wth (%, yoy)

5.2 5.1 5.4

Inflatio ion (%, yoy)

4.3 3.6 3.5

3-Mo Month Treasury y Bill (SPN PN) (%)

5.2 5.0 5.2

Exchang nge Rate e (Aver erage ge, IDR/US USD)

13,400 13,384 13,400

ICP (USD/ba barrel)

48 51.2 48

Oil il Productio ction n (thousand nd barrel el/da day)

815 804 800

Gas Produ ductio ction n (mil illions ns of barrels/da day)

1.15 1.14 1.20 Macroeconomic Assum umptio ion for 2018 Budget

Source: Ministry of Finance

Credibl

ible and realis istic tic 2018 budget, given that the 2016 and 2017 full year realization is relatively accurate with the budget.

2017 realization is considerably

accurate with the revised budget. This goes along with accurate macroeconomic indicators relative to the budget.

The House of Representatives has approved the 2018 budget

with substantial increase in Revenues, mainly contributed by 20.4% tax revenue increase compared to 2017 realization.

2018 budget deficit is to be set at 2.19% of GDP, much

lower compared to 2017 realization.

Descriptio ion (IDR Tril illio ion) 2016 Audit ited Realizat ization 2017 2018 R-Budg udget Realiza ization (Aud udit ited) % Realiza izatio ion n to to R-Budget Budget % differenc nce with R-Bud udget Realiza ization (a.o. Sept 30) % Realiza izatio ion n to Budget A. A. Revenue ues and Gran ants 1,555.9 1,736.1 1,666.4 96.0 1,894.7 9.1 1,312.3 69.3

I. Domestic Revenue

1,546.9 1,733.0 1,654.8 95.5 1,893.5 9.3 1,305.9 69.0

1. Tax Revenue

1,285.0 1,472.7 1,343.5 91.2 1,618.1 9.9 1,024.5 56.1

2. Non Tax Revenue

262.0 260.2 311.2 119.6 275.4 5.8 281.4 102.2

II. Grants

9.0 3.1 11.6 374.2 1.2

61.3

6.4 538.5

B. Expendit

iture 1,864.3 2,133.3 2,007.3 94.1 2,220.7 4.1 1,512.6 68.1

I. Central Government Expenditure

1,154.0 1,367.0 1,265.3 92.6 1,454.5 6.4 938.8 64.5

1. Ministerial Spending

684.2 798.6 765.1 95.8 847.4 6.1 511.5 60.4

2. Non Ministerial Spending

469.8 568.4 500.2 88.0 607.1 6.8 427.3 70.4

II. Transfer to Region and Village Fund

710.3 766.3 742.0 96.8 766.2

0.0

573.8 74.9 C. C. Prim imar ary y Balan ance

125.6
178.0
124.4

69.9

87.3
51.0
2.4

2.7

D. Surplus

us (Defic icit it)

308.3
397.2
340.9

85.8

325.9
18.0
200.2

% of GDP

2.49
2.92
2.51
2.19
1.35
E. Finan

ancin ing 334.5 397.2 366.6 92.3 325.9

18.0

292.8 89.8

SLIDE 42

41

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

2015 Rp1,183.3 T 2016 Rp1,154.0 T 2017 Rp1,259.6 T

2018 Rp Rp1,454 454.5 5 T

Central Govern ernmen ent Spendin ing

3.35 3.35 1.03 0.86 0.67 0.64 0.49 0.49 0.58 0.54 0.59 0.42

0.50

1.00 1.50 2.00 2.50 3.00 3.50 4.00 2013 2014 2015 2016 2017 2018 % Spendi nding ng Energy Non-Energy

Line ne Mini nistries Non Line ne Mini nistries

Rp. Rp.847,4 7,4 T Rp. Rp.607,1 7,1 T

Better ter targetin eting

Subsidy for the

poorest family and there is no plan to eliminate the subsidy, rather making it well- targeted.

Targeted for the poor.

Electricity subsidy is targeted to the subscribers of 450 VA and 900 VA

Database improvement
Inflation management

Energ nergy Subs bsid idy Non Ener ergy gy Subsidy idy Inter eres est paymen ent

Cost effi ficienc iency

Controlling

cost of financing

Deepening

government bond market

Controlling

debt burden

Improving planning with performance

based, and integrated with development priority

Operational spending efficiency
Monitoring and evaluation
Early procurement process

Integr egrati tion with h energy gy subsidy

Synergy with

social assistance programs and transfer to regions

Staple good price

management

Improving

agriculture productivity

Subsid idy as %

f

Total Spending ing

Source: Ministry of Finance

SLIDE 43

42

Increasing easing Tax ax Reven enue ue Over er The Years

Future policie ies will be direct cted at expand nding ing the tax base and incr creas asing ing compli liance ance

Source: Ministry of Finance

Autom tomatic tic Excha hange ge of Informatio tion (AEoI

I)
Expanding tax base
Prevent tax evasion (Base Erosion

Profit Shifting) Data ta and d Informatio tion System tem of Tax Up to date and integrated (e-filing, e-form and e-faktur). Tax x Com

mplia

pliance Sustainable compliance though e- service, mobile tax unit, Small/Micro Tax Office, and outbound call. Tax x incen entive tive

Tax holiday and tax allowance
Review on tax exemption

Human Resou

urce

e and d Regu gula lation tion Improving services and

rganization effectivity

Tax Improve vement nt Effort rts Tax Revenue nue (in IDR trilli lion) n)

1,146.9 1,240.4 1,285.0 1,343.6 1,618.1 13.1% 11.6% 10.9% 10.7% 11.6%

1%

1% 3% 5% 7% 9% 11% 13% 15%

200 400 600 800 1000 1200 1400 1600 1800 2014 2015 2016 2017 2018 Budget

Ratio io to GDP (%) - RHSa

2018 Alloc

cation:

tion: 1,618.1 8.1

Tax Revenue 1,424.0 Oil &Gas Income 38.1 Non-Oil & Gas Income 1,385.9 Customs and Excise 194.1

2017 Realiza izatio tion: : 1,343.6 In Trill llio ion Rupiah ah

Tax x revenu venue e incre reased ed by 20.4 .4% in 2018 compa pared ed to 2017

aTax ratio derived from tax revenue + revenue from natural resources/GDP

SLIDE 44

43

Non-Tax ax Reven enue ue

Effici cienc ncy and Effect ctive ivene ness

n

Natural al Resour urce ces Manag agement nt and Public ic Service vice Improvemen ment

Source: Ministry of Finance

Improving ing Regula latio tion

Revise

Non-Tax Revenue Law and Government Regulation

n

Non-Tax types and tariff. Improving ing Monito nitoring ing

n

Manag agem ement nt

Deposit

revenue as its record

Collection
f

Accounts Receivable

Follow

up the audit results Non-Tax Revenue nue Optimiza izatio tion

Improve

efficiency and effectivity of natural resource administration

Improve

SOEs performance

Improve

efficiency

f

Non-Tax Revenue

peration
Revise

contracts  cost recovery efficiency

Discover

new potentials Improving ing Public lic Serv rvic ices es

Transparency

and easing

IT

Utilization

Improvement
n

non-tax revenue administration 2017 Realiza izatio tion: : 311.9

In Trillio illion Rupia iah

2018 Allocatio tion: 275.4 Non-Tax Revenue nue 2018 : 275.4

398.6 255.6 262.0 311.9 275.4 25.7% 17.0% 16.8% 18.4% 14.5% 0% 5% 10% 15% 20% 25% 30% 50 100 150 200 250 300 350 400 450 2014 2015 2016 2017 2018 Budget

Non-Tax ax Revenue nue (in IDR trillion)

n)

83.8 80.3 44.7 43.3 23.3 Other Non-Tax Revenue Oil and Gas Revenue State Asset Revenue Public Service Agencies Revenue Non-Oil and Gas Revenue

Yearly Growth

Non Non-Ta Tax x Reven enue e 2018 Brea eakdo kdown (in IDR trill illio ion) Ratio tio of non-ta tax reve venu nue to Tota tal l Reven enue

SLIDE 45

44

Increasing easing Qual alit ity of Spe pendin ding

Reinf nforcing ng Alloca catio ion, n, Distrib ibut utio ion, and Stabili iliza zatio ion funct ctio ions ns

Social protec ectio tion program (PKH)

2018: 10,0 mio families Rp17,3 T 2017: 6,0 mio families Rp12,7 T

Expansio sion of Non-Ca Cash h Food Assista tance (BPNT)

2018: 10,0 mio families Rp13,5 T 2017: 1,4 mio families Rp1,6 T

Health th servic ices es PBI I

2018: 92,4 mio people Rp25,5T 2017: 92,4 mio people Rp25,5T

Pover erty y and Gap

Agric iculture

Increased food

production and construction of infrastructure facilities

Development of

horticulture

Prio iori rity y Secto tor

Tourism m

Development of 10

tourist destinations

Increased tourists
Tourism promotion

Road Constructio tion 865 km

Infras rastr truc uctur ure

Irriga igatio tion Constructio tion 781 km Prosper perit ity y of the apparatu tus and pensioner ers

State Appara aratus tus and Commun unit ity y Servic ices

Increa ease e budget t for the food allowance e

f mi

milita itary / polic ice e foreces es  Rp5 mio from Rp55.000 tp Rp60.000/person/day Educatio tion Sma mart Indonesia esia Program m

2018: 19,7 thousand students Rp10,8 T 2017: 19,7 thousand students Rp10,7 T Bidik Misi: 401,5 thousand students Rp4,1 T 2017: 339,4 thousand students Rp3,5 T

Building g Flats ts 13.405 unit Fishe hery

Increased

competitiveness of processed fishery products

Fishing boats

support 1048 units

Environmental

sustainability

Imp mproved ed system m and retir ireme ement t benefi fits ts of state emp mployee ee Electr trif ific icatio tion Ratio 95,15 % Imp mproved ed bureaucrati tic reform m for better quality of public services

283.71)

1)

410.72)

2)

34 34.83)

3)

36 365.84)

4)

Defen ense se The achievement

f MEF phase 2

and the development of defense industry

Defense e of Securi rity ty & & Democracy acy

220.85)

5)

Securit ity y Maintenance of security, order, and criminal investigation Demo mocracy Regional elections 2018, and preparations for national elections 2019

(Rp Trilllion)

1) Include Village Fund (Dana Desa) and subsidy (exclude tax subsidy) 2) Temporary number 3) Ministerial allocations; KKP and Ministry of Tourism 4) Including pensioners and local gov’t apparatus 5) Ministry of Defense allocation, National Police, Election Commission, and Election Supervisory Board

Source: Ministry of Finance

SLIDE 46

45

Investm estments ts in Huma man Cap apital tal Has as Been een Ra Rampe ped Up

20%

f

national nal budget is alloca cated for educa catio ion and anothe her 5% for healt lth

Bidik ikmi misi si Scholarship ship

353.4 390.1 370.4 419.8 444.1

50 100 150 200 250 300 350 400 450 500

2014 Real 2015 Real 2016 Real 2017 Outlook 2018 Budget

IDR IDR tn

59.7 65.9 92.3 104.9 111.0

25 50 75 100 125

2014 Real 2015 Real 2016 Real 2017 Outlook 2018 Budget

IDR tn

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

Immu mmunizatio ion

92.4 million people

Indones esia ia Healthy thy Program

49 hospitals/health centers

Provis isio ion of Health th Facil ilities ities

74 thousand certifications

Drug and Food Certific tificatio tion

1.8 million people

Fami mily Plan Program m (KB)

Budg udget t for Educ ucatio tion n Program Budg udget t for Healt lth Program

Indones esia ia Sma mart Program

19.7 million students

Targets ts

f

Educatio tion Progr gram in 2018

School Rehabil bilita itatio tion School Operatio tional Assista tance e (BOS OS) Teache her Allowance

56 million students 401.5 thousand college students 61.2 thousand rooms

Non Civil Servants

: 435.9 thousand teachers

Civil Servants

: 257.2 thousand teachers

Local Civil Servants : 1.2 million teachers

Targets ts

f

Health Progr gram in 2018

SLIDE 47

46

Impr proved ved Budg dget Allo loca cation tion Towar wards ds Local al Gover ernm nmen ent

…promoting better alloca cation

f

budget spending ing to local al governm rnment nt

64% 64% 24% 24% 1% 1% 3% 3% 8% 8%

Reformulated to (1) Give more weight on the poor population. (2) Improving inequality between villages Villag age Fun und (IDR60.0 tn tn) Special Autonomy & Fund for DIY keeps increasing from year to year Special ial Autonomy y & D.I Yogyak akar arta - DIY (IDR21.1 tn tn) Regional al Incentive Fund (IDR8.5 tn tn) Minimum of 25% (IDR122.7 tn) earmarked for public service facility development acceleration. It provides revenue sharing fund to promote equal opportunity for natural resource producers & high tax earners General al Tran ansfer Fund (IDR490.7 tn tn) Special ial Tran ansfer Fund allocation is based on each regions’ proposal and national priorities Special ial Tran ansfer Fund (IDR18 185. 5.9 9 tn tn) Incentive ive Fund allocation has been increased to enhance local government performance and public service delivery

Indonesia

continues its improvement

f

regional transfer, esp. village fund, to spur growth throughout regions

Allocation

for both Transfer to Region and Village Fund has been increasing substantially

The

increased allocation indicates the Government’s commitment to support development in regions

A

minimum 25%

f

general transfer fund must be earmarked for public service infrastructure 2018 2018 Transfe fer r to Regions ns and Villag lage e Funds ds (Budge dget) t) Trans nsfer er to Regio ions/Villa Village ge Funds

IDRtn 2013 13 Audit ited 2014 14 Audit ited 2015 15 Audit ited 2016 16 Audit ited 2017 17 Realizat ization 2018 18 Budget Transfer to Region 513.3 573.7 602.4 663.6 682.2 706.2 Village Fund

20.8

46.7 59.8 60.0 Total al Regional al Tran ansfer 513.3 573.7 623.2 710.3 766.3 766.2 Source: Ministry of Finance

SLIDE 48

47

2017 Achiev ievem ement ents

f

S State te Budget et

Value ue creatio ion

n

various us project cts and count ntry ry developmen ment

Health thcare and Socia ial Sec ecurity: ty:

Distribution of Indonesian Health Card to

92.1 million people

Educati ucation: n:

Distributed Indonesian Smart Card to 19.8

million students

School Operational Benefit for 8.0 million
Scholarship for 364.4 students

Infr frast structu ture: e:

794 km road development
9,072 m bridge development
3 airports completed
618.3 km railways

Local Gover ernment ment Achi hievements ements Centr ntral Government Milest stones es

15.5% 101.7% 118 18.5% 7.4% 23.0% 27.8%

Tax revenue growth vs.

2016 (excluding Tax Amnesty and Asset Revaluation)

Revenue of customs

and excise over 2017 revised Budget, a 7.4% increase vs. 2016

Non-tax revenue over

2017 revised Budget, a growth of 17.7% vs 2016

Growth of realized

government spending

vs. 2016
Capital expenditure

growth vs. 2016, a 92.8% over 2017 revised Budget.

Growth of transfer

to village vs. 2016, 99.6% over 2017 revised Budget Roads: 1,033 km in development, 1,503 km maintenance, 9,789 km improvement Brid idges: 3,749 m bridge in development, 291 m maintenance, and 2,916m improvement Clas assroom: 1,351 new classrooms, 11,006 rehabilitation, 11,758 rural library collection Medic ical: Improved facilities in 347 hospitals and 3,873 clinics Tu Tuition: Reduced tuition costs for 46.6 million students and 5.6 million kindergarten- aged children Welfare: Increased welfare and work ethics of 1.7 million civil teachers in rural areas and compensated 41,000 teachers in special 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

SLIDE 49

48

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 31st

st, 2017)

Redemp mption tion Mone ney Assets ts Decla clared

114.2 4.2 18.8 .8

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

Reven enue IDR 134. 4.8t 8tn n (~1. 1.1% 1% GDP) P)

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

Compo posit ition n of Partic icipa ipants Based ed on Asset et Declared ed

0.04 0.15 0.20 0.62 1.10 0.58 0.17 0.12 0.04 Germany (2004) Belgium (2004) Italy (2009) Chile (2015) Indonesia (2016) India (1997) South Africa (2003) Spain (2012) Australia (2014) % of GDP 2.1 3.9 8.3 39.3 5.2 3.6 0.3 0.3

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

% of GDP 3,698 1,036 147.1 .1

Onshore Declaration 76% Offshore Declaration 21%

Repatriation 3%

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

SLIDE 50

49

Finan ancing cing Policy cy 2018: 8: Gener neral al Objective jective & P Policy cy

To support the development

f

deep, active, and liquid market To enhance public accountability as part

f

transparent Government debt management To meet financing needs at efficient cost and tolerable risk

General al Policy cy

Cost control and debt risk

Source: Ministry of Finance

SLIDE 51

50

Domestic Debt IDR595.5 tn (75%) Foreign Debt IDR197.8 tn (25%)

Domestic GS IDR591.0 tn Domestic Loan IDR4.5 tn Foreign Denominated Bonds (JPY, EUR, USD) IDR139.3 tn Foreign Loan (Program & Project) IDR58.5 tn

Financing Needs IDR793.3 tn

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%)

Deficit it Rp325,9 T Debt t matu ture res Rp394,1 T (inclu lude de Rp10,1 T of Priva ivate te Placem emen ent) Inves estme tment t Financin ing g Rp65,7T Gov

ver

ernmen ent t Guarantee tee Obliga igatio tion Rp1,1T Other er financin ing g (Rp0,2T) T) Lendin ding g Rp6,7T

Source: Ministry of Finance

SLIDE 52

51

Government Debt Securities Government Sukuk

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

Weekly auct uction: Conventional securities 25x 25x Islamic securities 24x 24x Non-Auct uction Retail bonds (ORI, Retail Sukuk, Online Savings Bond Retail, Savings Sukuk) Private Placement Based on request Tar arget avg. tenor mat aturity for Government Secur uritie ies (SB SBN) N) Issua uance 7-8 ye year ars

Instrum uments nts Indic icativ tive Budg udget Target*

IDR tn tn USD bn bn Budget et Defic icit it (2.19%) 325.9 24.3 Gover ernment ment Sec ecuritie ties (Net) t) 407.2 30. 30.4 Gover vernmen ment t Sec ecuritie ties (Gros

ss)

822.2 61.4 .4

Compo positi tion

Domestic Bond 80-83% 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  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% 25.0% - 30.0%

*exchange rate assumption in 2018 budget: IDR13,400/USD

Source: Ministry of Finance

SLIDE 53

52

Discip scipline lined an and Sophist istica icated ted Deb ebt Port rtfolio lio Man anag agem ement ent

Weig ighte ted Ave verage Debt bt Matur urity ity of ~8. 8.5 Years Defic icit it Produc uctivity tivity**

Source: MOF, World Economic Outlook

Well ll Dive versif ifie ied Across Different nt Currenc ncie ies

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

Stable ble Debt bt to GDP Ratio Ove ver the Years

US$ bn Government Debt / GDP (%) *using GDP assumption IDR14,395.07 as mentioned in APBN Kita **GDP growth and fiscal deficit numbers are average of 2012-2016 (5 years), ***SDR, AUD, and other. 56% 53% 57% 56% 58% 60% 24% 29% 29% 31% 30% 29% 14% 12% 9% 8% 7% 6% 3% 3% 3% 3% 4% 4% 3% 3% 2% 2% 1% 1% 0% 20% 40% 60% 80% 100% 2012 2013 2014 2015 2016 2017 IDR USD JPY EUR Others*** 136.3 155.2 174.7 207.0 239.8 240.7 58.6 54.5 54.7 54.7 55.1 55.1 24.9% 24.7% 27.4% 28.3% 29.4% 30.5% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 50 100 150 200 250 300 350 2013 2014 2015 2016 2017 2018 *) Bond Loan Debt/GDP Ratio (RHS) 9.7 9.8 9.4 9.1 8.6 8.5 2013 2014 2015 2016 2017 Sep 2018 ATM (in years) 6.8 (0.4) 1.2 2.1 2.1 1.6 5.1 2.7 (0.6) 5.3 5.5 3.4 (7.1) (6.1) (5.8) (5.3) (4.8) (3.7) (3.3) (2.9) (2.8) (2.2) (1.6) (0.1) India Brazil Japan UK USA S Africa Malaysia Australia Italy Indonesia Turkey Thailand GDP Growh Fiscal Deficit (% GDP)

SLIDE 54

53

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 Inte terest t Rate te Risks ks Debt bt Matur urity ity Profile ile Declin clinin ing Exch change Rate te Risks ks Upco comi ming ng Matur uritie ities (Ne Next 5 Years)

IDR tn tn

Note: using GDP assumption IDR14,395.07 as mentioned in APBN Kita

Source: Ministry of Finance

16.0 14.8 13.7 12.1 10.7 10.6 23.2 21.0 20.7 17.5 19.5 20.8 2013 2014 2015 2016 2017 Sep 2018 Variable rate ratio [%] Refixing [%] 11.7 10.7 12.2 12.1 11.7 12.8 46.8 43.4 44.5 42.6 40.4 42.4 2013 2014 2015 2016 2017 Sep 2018 FX Debt to GDP ratio (%) FX Debt to total debt ratio (%) 8.6 7.7 8.4 6.5 10.1 11.3 21.7 20.1 21.4 22.7 25.4 26.3 33.3 33.9 34.7 36.0 39.8 40.8 2013 2014 2015 2016 2017 Sep 2018 in 1 year (%) in 3 year (%) in 5 year (%) 73 294 172 165 162 165 175 51 126 137 133 108 29 139 92 79 97 5 100 29 83 7 15 26 23 21 28 9 41 154 136 155 158 165 125 156 105 102 121 30 28 25 23 20 14 34 7 27 32 2 2 2 35 24 31 118 50 100 150 200 250 300 350 400 450 500 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 Other Currencies IDR Denominated

SLIDE 55

54

Holders ers

f

Trad adab able le Centr ntral al Gover ernme nment nt Secu curi rities ies

More Balance nce Ownership rship In Terms

f

Holders rs and Tenors rs

Foreig ign n Owne wnership p of Gov’t Domestic Debt Secu curitie ities by Teno nor Hold lders of

f Tradable Gov’t Domestic Debt Securities

Source: Ministry of Finance

33.7% 31.0% 23.9% 22.5% 23.4% 26.9% 33.8% 30.8% 37.8% 39.9% 36.8% 36.2% 32.5% 38.1% 38.2% 37.5% 39.8% 36.9% Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Sep-18 Foreign Holders Domestic Non-Banks Domestic Banks 5.2% 4.6% 3.2% 3.5% 5.0% 4.7% 5.4% 3.7% 1.3% 5.3% 5.1% 1.1% 12.9% 15.2% 11.8% 17.8% 17.3% 21.0% 32.0% 33.6% 39.0% 37.4% 35.6% 37.2% 44.5% 42.8% 44.7% 36.0% 37.0% 35.6% 32.5% 38.1% 38.2% 37.5% 39.8% 37.6% 0% 20% 40% 60% 80% 100% Dec 13 Dec 14 Dec-15 Dec-16 Dec-17 28-Sep-18 0-1 ≥1-2 ≥2-5 ≥5-10 ≥10 %Foreign Ownership of Total

SLIDE 56

55

Owner ersh ship ip of IDR Tra radab able le Cen entr tral al Governm rnment ent Securit urities ies

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

(IDR DR tn) Descr criptio iption Dec-14 14 Dec-15 15 Dec-16 16 Dec-17 17 Sept ptembe mber-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% 621. 1.35 35 26.9 .94%

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% 111. 1.39 39 4.83 83%

Bank Indonesia (gross)

157.88 8.90% 179.84 8.56% 218.04 9.45%

GS used for Monetary Operation

23.63 1.33% 38.01 1.81% 106.65 4.62%

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% 1,573 73.9 .90 68.2 .23%

Mutual Funds

45.79 3.78% 61.60 4.21% 85.66 4.83% 104.00 4.95% 117.78 5.11%

Insurance Company and Pension Fund

193.90 16.03% 221.45 15.15% 325.52 18.36% 348.86 16.61% 407.13 17.65%

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% 850. 0.85 85 36.8 .89% Foreign Govt's & Central Banks 103.42 8.55% 110.32 7.55% 120.84 6.81% 146.88 6.99% 161.01 6.98%

Individual

30.41 2.51% 42.53 2.91% 57.75 3.26% 59.84 2.85% 64.32 2.79%

Others

60.51 5.00% 78.50 5.37% 104.84 5.91% 117.48 5.60% 133.81 5.80%

Total

1,209.96 100.00% 1,461.85 100.00% 1,773.28 100.00% 2,099.77 100.00% 2,306.64 100 100.00%

Source: Ministry of Finance

SLIDE 57

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

Sec ection tion 5

SLIDE 58

57

Bank Indonesia’s Policy Mi Mix 2018

To Mainta tain in Macroe

eco

conomic and Finan ancial cial Sy Syste tem Stabi bili lity ty

Source: Bank Indonesia

 Implementing Macro prudential Intermediation Ratio (RIM)  Implementing Macro prudential Liquidity Buffer (MLB)  Electronification: Social program, e-payment for Government  Financial technology  National Payment Gateway (NPG)  Developing market instruments for financing infrastructure  Developing financial market infrastructures  Controlling inflation: TPIP, TPID  Structural reforms: Government  Financial deepening & stability: KSSK (Financial System Stability Committee), OJK (Financial Services Authority)  Consistent policy rate, accelerate reduction of lending rate  Stabilize exchange rate consistent with fundamentals  Accelerate implementation of reserve requirement averaging

Moneta etary ry Polic licy Coordina inatio ion with

ther

er Authorit ities ies Financ ncial ial Marke arket Deepening ning Macro- prude udentia ntial Polic licy Paymen ent Sy System Polic licy

1 2 3 4 5

SLIDE 59

58

Ban ank Indones esia ia Policy cy Mix: Octo tober ber 2018

The e BI Board ard of Gov

ver

ernors

rs agr

gree eed on 22 22nd

nd and

d 23rd

rd Octob

ber

r 2018 18 to hold ld the e BI 7-Day Revers rse e Repo

Rate

te at 5.75 75%, , while ile also maint intainin ining g the e Depos posit it Facility ility (DF) F) and d Lend nding ing Facility lity (LF) ) rate tes at at 5.00 00% and d 6.50 50%, , res espec pectiv tively. y.

Always strengthens policy coordination with the Government and other relevant authorities in

rder to maintain

economic stability and reinforce external resilience, including stimulating exports and lowering imports, which will reduce the current account deficit to 2.5% of GDP projected in 2019. Constantly implements a monetary operations strategy oriented towards maintaining adequate liquidity in the Rupiah market and foreign exchange market, while also effectively commencing the Domestic Non- Deliverable Forwards (DNDF) on 1st November 2018. Consistent with ongoing efforts to reduce the current account deficit within a manageable threshold, while maintaining the attractiveness of domestic financial markets, thereby bolstering external resilience in Indonesia against a backdrop of persistently high global uncertainty. Holds the BI 7-Day Reverse Repo Rate at 5.75%. Monitors prevailing economic developments, such as the current account deficit, exchange rates, financial system stability and inflation, as follow-up measures to maintain macroeconomic and financial system stability.

Source: Bank Indonesia

SLIDE 60

59

Princi ciple les

f

Average ge Re Reserve erve Re Requi uireme rement nt Ra Ratios

s Improve

vement ent

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

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

Improvement

in average reserve requirement is a follow up to the monetary policy

perational

framework reform implemented by Bank Indonesia since 2016.

Monetary

policy

perational

framework reform started in August 2016 as BI7DRR replaced BI Rate as policy rate. This was then strengthened in 1st July 2017, by the implementation

f

the average reserve requirement in rupiah for conventional commercial banks at 1.5% out of the total 6.5% of GDP reserve requirement in Rupiah. The reformulation is also backed by various efforts in financial market deepening.

The current improvement aims to elevate flexibility in

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

Consid ider eratio tions for r the Average rage Reserv rve Requir irem ement ent Ratios ios Impro rovement t

Source: Bank Indonesia

SLIDE 61

60

Pri rincip iples les

f

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)

Striving to stimulate the bank intermediation function and liquidity management, Bank Indonesia issued Bank Indonesia Regulation (PBI) No. 20/4/PBI/2018 and Board

f

Governors Regulation (PADG) No. 20/11/PADG/2018 concerning the Macroprudential Intermediation Ratio (MIR) and Macroprudential Liquidity Buffer (MLB) for Conventional Commercial Banks, Sharia Banks and Sharia Business Units. The policy is expected to stimulate the bank intermediation function to the real sector congruent with sectoral capacity and the economic growth target in compliance with prudential principles, while also

vercoming

the issue

f

liquidity procyclicality. The regulation is effective for conventional commercial banks from 16th July 2018 and for sharia banks from 1st October 2018.

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

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

Source: Bank Indonesia

SLIDE 62

61

Pri rincipl iples

f

Mac acropr prudential dential Inter termedia mediatio tion Ra Ratio (MIR)

Regu gula lation ion MIR (Con

nven

entio tional al Com

mmer

ercial ial Bank) nk) MIR Shar aria ia (Sha haria ria Banks nks and Sharia aria Busine iness Units) ts)

1 MIR Accounting Formula Credit + Owned Bond Deposit + Issued Bond Financing + Owned Sharia Bond Deposit + Issued Sharia Bond 2 Rate and Parameters  Ceiling 92%  Floor 80%  Minimum Capital Adequacy Requirement 14%  Upper disincentive parameter 0.2  Lower disincentive parameter 0.1  Ceiling 92%  Floor 80%  Minimum Capital Adequacy Requirement 14%  For Sharia business units, the Minimum Capital Adequacy Requirement is the same as that of the parent conventional commercial bank  Upper disincentive parameter 0.2  Lower disincentive parameter 0.1 3 Scope of credit/financing and deposits to calculate MIR / MIR Sharia  Credit: rupiah and foreign currency  Deposits in rupiah and a foreign currency: (i) demand deposits, (ii) savings deposits; and (iii) term deposits, excluding interbank funds  Financing: rupiah and foreign currency  Deposits in rupiah and a foreign currency: (i) wadiah savings; and (ii) unrestricted investment funds, excluding interbank funds 4 Source of Data Monthly Commercial Bank Reports Monthly Sharia Bank Reports 5 Criteria for securities held  Corporate bonds and/or corporate sukuk Corporate bonds and/or corporate sukuk  Issued by a nonbank corporation and by a resident  Offered to the public through a public offering  Equivalent to investment grade rating affirmed by a rating agency  Administrated by an authorised securities institution

SLIDE 63

62

Pri rincipl iples

f

Mac acropr prudential dential Inter termedia mediatio tion Ra Ratio (MIR)

Regu gula lation ion MIR (Con

nven

entio tional al Com

mmer

ercial ial Bank) nk) MIR Shar aria ia (Shar Sharia ia Banks nks and Sharia aria Busin iness Units) ts)

6 Percentage

f

the securities held 100% 7 Criteria for securities issued  medium-term notes (MTN), floating rate notes (FRN) and/or bonds other than subordinated bonds  sharia-compliant medium-term notes (MTN) and/or sukuk other than subordinated sukuk  Issued by a nonbank corporation and by a resident  Offered to the public through a public offering  Equivalent to investment grade rating affirmed by a rating agency  Administrated by an authorised securities institution 8 Securities Reporting Offline delivery mechanism (email) 9 Scope of deposits to meet DD MIR /DD MIR Sharia  Average daily total deposits in rupiah at all branch offices in Indonesia  Including rupiah liabilities to a resident and non-resident third-party nonbank, consisting

f: (i) demand deposits, (ii) savings deposits;

(iii) term deposits, and (iv) other liabilities  Average daily total deposits in rupiah at all branch

ffices

and sharia business units in Indonesia  Including rupiah liabilities to a resident and non- resident third-party nonbank, consisting

f:

(i) wadiah savings; (ii) unrestricted investment funds, and (iii) other liabilities 10 Relaxation of DD MIR/Sharia DD MIR  Bank Indonesia may relax the provisions of the DD MIR/Sharia DD MIR based on credit/financing disbursement and fund accumulation  The provisions may be relaxed based on a request from a conventional commercial bank, Sharia bank or Sharia business unit or a recommendation from the Financial Services Authority (OJK)  Conventional commercial banks, Sharia banks or Sharia business units that receive the relaxed policy are exempt from sanctions

SLIDE 64

63

Pri rincipl iples

f

Mac acropr prudential dential Li Liqu quidi idity ty Buffer er (MLB) LB)

Regu gula lation ion MLB (Con

nven

entiona ional Commercial ial Bank nk) MLB Sharia aria (Sha haria ria Bank nks)

1 Rate 4% of rupiah deposits (including Sharia Business Units deposits) 4% of rupiah deposits 2 Components  Securities denominated in rupiah held by a conventional commercial bank that may be used for monetary operations (including SBI/SDBI/SBN); and  Sharia-complaint securities denominated in rupiah held by an Sharia business unit that may be used for sharia-compliant monetary operations (including SBIS/SBSN)  Sharia-complaint securities denominated in rupiah held by an Sharia bank that may be used for sharia-compliant monetary operations (including SBIS/SBSN) 3 Calculation Formula Percentage of rupiah securities held by a conventional commercial bank to rupiah deposits Percentage of sharia-compliant rupiah securities held by an Sharia bank to rupiah deposits 4 Flexibility Under certain conditions, the securities used to meet the MLB may be used for repo transactions to Bank Indonesia for

pen

market

perations,

totalling no more than 2% of rupiah deposits Under certain conditions, the securities used to meet the sharia MLB may be used for repo transactions to Bank Indonesia for open market

perations, totalling no more than 2% of rupiah

deposits 5 Sources

f

Data

n

Deposits  Monthly Commercial Bank Reports  Rupiah deposits to calculate MLB are the average daily total deposits at all branches in Indonesia  Rupiah deposits include: (i) demand deposits, (ii) savings deposits; (iii) term deposits, and (iv) other liabilities  Monthly Sharia Bank Reports  Rupiah deposits to calculate sharia MLB are the average daily total deposits at all branches in Indonesia  Rupiah deposits include: (i) wadiah savings; (ii) unrestricted investment funds, and (iii)

ther

liabilities

SLIDE 65

64

Relaxing ing the Loan-to to-Value lue (LTV) and Financi ncing-to to-Val alue ue (FTV) Ratios

s

The LTV/FTV TV relaxa axati tion

n

is conducte ducted while taking into to accoun count aspect pects

f

pruden dential al and consumer mer protect

tection
n
1. Increasing opportunities of first time buyers to fulfill their housing

needs through housing loan, specifically by adjusting the LTV ratio for property loan and the FTV ratio for property financing for the 1st facility, 2nd facility, etc., making the largest LTV ratio for property credit and FTV ratio for property financing as shown in the table below.

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

2. Relaxing the amount of loan/financing facility through indent

mechanism to a maximum of 5 facilities without taking account of the orders

3. Adjusting the arrangement of stages and amount of property

loan/financing disbursement of indent property:

Source: Bank Indonesia

SLIDE 66

65

Prudent ntial ial aspect cts

f

Relaxin xing the Loan-to to-Value alue (LTV) V) and Financi ncing ng-to to-Value alue (FTV) V) Ratios

1. The requirements

f

the LTV ratio for property credit and FTV ratio for property financing are as follows: i. The net ratio

f

NPL to total credit

r

NPF to total financing must not exceed 5%; and ii. The gross ratio

f

property NPL to total property credit

r

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

r

different bank for tenors

f

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

nly

allowed for developers that comply with bank’s risk management policy (e.g.the business feasibility

f

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

r local

government loan / financing programs are exempt from this regulation.

Relaxing ing the Loan-to to-Value lue (LTV) and Financi ncing-to to-Val alue ue (FTV) Ratios

s

Source: Bank Indonesia

SLIDE 67

66

Pri rincip iples les

f

Domes estic tic Non Del eliv iver erable able Forw rwar ard (DND NDF) F) Tran ansac actio tion

Purpos poses

1. To support the effort

f

stabilizing the Rupiah exchange rate through the additional

f

alternative hedging instruments 2. To support the development and deepening

f

the domestic financial market 3. To increase the confidence

f

exporters, importers, and investors in conducting economic and investment activities through the flexibility

f

hedging transactions against Rupiah currency risk

General Provis vision ions

 Domestic ic Non-Deliv liverable le Forwar ard Tran ansaction action (DND NDF Tran ansaction) action)

Plain vanilla derivatif transaction

f

foreign exchange against rupiah in the form

f

forward transaction with fixing mechanism in the domestic market

 Forwar ard Tran ansactio tions ns

Forward Transactions are sell/purchase foreign currencies againts rupiah whereas the delivery

f

funds shall be performed in more than 2 days after the transaction date

 Fixing ing Mecha hanis nism

Transaction settlement mechanism without full movement

f

funds by calculating the difference between rate

n

the transaction date and reference rate in JISDOR

n

a specified future time agreed in the contract (fixing date)

 Other her Def efin inition itions

The definition

f

derivative transaction

f

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

Source: Bank Indonesia

SLIDE 68

67

Pri rincip iples les

f

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:

Bank – Customer Bank – Foreign Party

Bank – Bank

Tran ansaction action betwe tween en:

Can

nly

be performed to hedge rupiah exchange rate risk.

1. Must

have Under erly lyin ing Tran ansa sact ctio ions:

Inclu ludin ing all l fol

llo

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) Exclu ludin ding g fol

llo

lowin ing g activit tivities ies: a. Bank Indonesia certificates; b. Placement of funds with bank; c. Unwithdrawn credit facilities; d. Documents of foreign currencies sales againts rupiah; e. Money transfer by fund transfer companies f. Intercompany loan g. Money changer activities.

2. Nominal

f

DNDF Transactions ≤ Nominal

f

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

Source: Bank Indonesia

SLIDE 69

68

Pri rincip iples les

f

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
ver

and early termination are not allowed Roll

ver

er and early rly termina

nation

n for

DNDF NDF is prohib hibited ited However, unwind can be done by

pening

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 Cus usto tomer er / / Foreig eign Party rty

Bank Overseas seas Bank

Hedging

Notes: Customer A conduct DNDF transactions with Bank B, and so Bank B can conduct DNDF transactions with

verseas

Bank for the purpose

f

cover hedge.

Cover Hedging

Source: Bank Indonesia

SLIDE 70

69

Ban ank Ind ndonesia

nesia

Policy icy Mix: 201 015 – 201 017

Further relaxation of LTV for

property loans (Sept)

Strengthening systemic

surveillance & Crisis Management Protocol (April)

E-money for social transfer

(Nov)

Financial Technology

(FinTech) Office (Nov)

New Rupiah issuance (Dec)
Obligation to use IDR in

domestic transaction (March)

Non-cash movement

(GNNT)

Market-based exchange rate stability consistent with fundamental
Dual intervention in the FX market and purchases of government bonds from secondary market in

time of distress (capital reversal) or large mis-alignment

BI 7-day RR Rate cut of

25bps to 4.50% (Aug)

Further BI 7-day RR Rate

cut of 25 bps to 4.25% (Sept)

Further lowering RR by

100bps to 6.5% (Feb)

Lowering RR by 50bps to

7.5% (Nov)

Policy Rate cuts of 150bps
Moving from BI Rate (12

month) to BI 7-day Reverse Repo Rate (Aug) 1. 1. Monetary y Polic icy Polic icy Rate Reser erve e Requir ireme ement 2. 2. Excha hange ge Rate Polic icy 3. 3. Macropr pruden entia tial Polic icy

Relaxation of LTV for

property and automotive loans (June)

BI Rate cut of 25bps (Feb)
Implementation of RR

Averaging (Aug): RR fixed 5%; RR Averaging 1.5%

Initiative to issue

macroprudential regulation

n Financing to Funding

Ratio (FFR) 4. 4. Payme ment System em Polic icy

National Payment Gateway

(June)

Modernized cash

management underway 2015 2015 2016 2016 2017 2017

Source: Bank Indonesia

SLIDE 71

70

3.00 4.00 5.00 6.00 7.00 8.00

Stab able le Monetary tary Environment ment Despite spite Chal alleng lenges es

Rupia iah Exc xchang nge Rate Rema main ins Compar parable ble to Peers Well ll Mainta ntain ined Inflatio lation Ensur ured Price ce Stability bility Streng ngth thene ned Monet netary Polic icy Frame mewo work Pick ck Up in Credit Growth th

BI 7Day RR Rate: 5.50 50

(%)

LF Rate: 7.00 LF Rate: 6.25 25 BI Rate: 6.50 DF Rate: 4.75

19 August 2016 16

The New Monetary Operation ion Framewo work Source: Bank Indonesia 2.88 2.82 3.75 2.40

2

3 8 13 18 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 2013 2014 2015 2016 2017 2018 (%) CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy)

12.1 .1 12.9 .9 11.4 .4 11.4 .4 2 4 6 8 10 12 14 16 18 20 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 2015 2016 2017 2018 %,yo yoy Total Growth Working Capital Loans Investment Loans Consumption Loans

2.04 5.33 7.41 2.76 5.11 3.32 3.16

4.22
5.35
11.83
3.81

2.19

23.03
0.16
0.59
2.72
3.11
4.37
5.43
6.34
7.29
10.65
10.73
13.17
13.45
33.00
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0

0.0 5.0 10.0 JPY THB MYR SGD EUR KRW CNY PHP IDR BRL INR ZAR TRY point-to-point average

%

*data as of October 22nd, 2018

YTD 2018 vs 201 017

SLIDE 72

71

5 Meas asur ures es to Control

l

Inflatio tion

On January ary 22nd

nd,

2018 the National nal Infla latio tion Contr trol Coordin inatio tion Center has agreed ed

n

five strateg egic ic measures es to contr ntrol infla latio ion in 201 2018 within in the target et corr rrid idor

f

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.

Source: Bank Indonesia

1 2 3 4 5

Dampening ning the second nd-round und effect

f

aminis ister tered ed pric ice adjus usmen ents ts Main intai tainin ning volatile tile food

d

(VF) infla lation tion at 4-5% Stren ength gthening ing quality ity contr trol

f

governm ernmen ent polic icies ies. 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 Stren ength gthening ning the Bank Indones nesia ia polic icy mix to mainta tain in macroec econo nomic ic stabilit lity

1. Ensuring food production 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 & downstream industries

SLIDE 73

72

4 Strategies gies to Ac Achi hieve ve the Infl flation tion Target

Achieving inflation at 3,5%±1%

Maintaining

core inflation

Maintaining

volatile food stability at 4-5%

Controlling

administered price inflation

2018-20 2019 Target et

Stabilizing the price

1. Price Afford

rdabilit ability Achieving inflation at 3,0%±1%

Maintaining

core inflation

Maintaining

volatile food inflation less than 4%

Controlling

administered price inflation

20 2020 20-20 2021 Target et

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

2. Supply

y Availa lability bility

Strengthening institution Encouraging trade cooperation between regions

3. Well Managed Distr

tribu ibution ion

Improving trade infrastructure Improving data quality

4. Effectiv

tive Communi nication ion

Strengthening central-regional coordination

Source: Bank Indonesia

4 Strateg egies ies

SLIDE 74

73

Improving ving the Effect ectivene iveness ss

f

Moneta tary ry Polic icy Tran ansm smissio ission

Bank k Indo dones esia ia has instit tituted ted a Refor

rmula

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

gram.

Enhancement

f

monetary policy signal Enhancement

f

banking liquidity management Implem emen enta tatio tion

f

BI 7 Day Revers erse Repo Rate Implem emen enta tatio tion

f

Reserve Requir iremen ent (RR) Averaging ing Reformula rmulatio ion

f

Mon

netary

tary Pol

lic

icy Operatio iona nal Framewo work rk Enhancement

f

instruments and transactions Implem emen enta tatio tion

f

Money ney Mark rket et Deepen ening ing Progr gram am

Source: Bank Indonesia

SLIDE 75

74

Enhan anceme cement nt

f

Monetary tary Oper eratio tions ns Fram amew ework

rk
Can be traded among contributor banks for 10

minutes.

Up to the amount of Rp10 billion.
Up to 1-month tenor.
Can be traded among contributor banks for 20

minutes.

Up to a total of Rp20 billion.
Up to 3-month tenor.

CURR RREN ENT JIBOR BOR (as per June 1st, 2016) PREVIOUS IOUS JIBOR BOR

Source: Bank Indonesia

SLIDE 76

75

Interme ermedia diatio tion Perf rform rman ance ce Remain ains Positive tive

The growth

f

bank lendin ing has demonstr strated ed an incr creasin asing tren end since early ly 2018, expected ed to grow by 10-12% by the end

f

this year. . Meanwhile ile, capital al raisin ing in the capital al market et (partic icula larly ly through corporate bond issuan suance ce) remain ins strong. g.

Source: Financial Service Authority (OJK)

Financ ncin ing distrib tribute uted by multif tifin inanc nce compan panies starts ts to improve ve Gross premi mium um reve venu nues in the dome mestic tic insur uranc nce indust ustry are also continu tinuousl usly growing wing Capita ital l raisin ing in the capit pital l marke ket, t, particu ticular larly ly throug ugh corpor porate te bond nds issua uanc nce, rema main ins strong ng in 2018 Bank nk lend ndin ing growth wth exh xhibi ibits ts a streng ngth theni ning ng trend nd in 2018

5032 12.12% 0% 2% 4% 6% 8% 10% 12% 14% 3,500 4,000 4,500 5,000 5,500 IDR tn % yoy Bank Loans YoY Growth (rhs) 14 25.61 98.16 20 40 60 80 100 120 140 160 180 2012 2013 2014 2015 2016 2017 Jan-Sept 2018 IDR Tn IPO equity Rights Issue Corporate Bonds & Sukuk 432 5.82% 0% 3% 5% 8% 10% 13% 350 375 400 425 450 yoy IDR Tn 286 50 100 150 200 250 300 350 400 450 2012 2013 2014 2015 2016 2017 Jan-Agus18 IDR Tn

SLIDE 77

76

Finan ancial cial Institutio titutions ns Remain ain Robust

CAR of the e banking g secto tor rema mains at a high h level

el. As of Aug-18

18, CAR & Tier Tier-1 Capit ital was 23.01% & & 21.24%, respec pectiv tively Risk-based ed capita tal (RBC) C) of the insurance e industr try also rema mained ed high gh, well above the mi minimu mum m thres esho hold (120%) %) Gearin ing g ratio of mu multifi finance comp mpanies es was at 3.01 time mes, provid idin ing g amp mple room f m for future e growth Profita itabil ility ty of the e banking g secto tor was relativ tivel ely stable

Dom

mes

estic tic financial instit titutio tions demonstra trate te a gener erall lly sou

und

d condition dition. . Capit pital l adeq equacy is main inta tain ined ed well ll abov

ve

e the minim imum req equire remen ents ts. . Pro rofitabi itability ity and lever verage ge are re main inta tain ined ed at a sufficien ient level el.

Source: Financial Service Authority (OJK) 23.01 21.24 18.0 19.0 20.0 21.0 22.0 23.0 24.0 % CAR Tier 1 5.14 2.47 0.0 1.0 2.0 3.0 4.0 5.0 6.0 % Net Interest Margin Return on Assets 434% 309% 200% 230% 260% 290% 320% 350% 350% 400% 450% 500% 550% Life Insurance General Insurance (rhs) 3.01 1.0 1.5 2.0 2.5 3.0 3.5

SLIDE 78

77

124 185 90 110 130 150 170 190 210 % Life Insurance General Insurance

Ample le Li Liqu quidity idity; Well ll-ma maintained intained Asse set Qual ality ity

The The liq liquidity idity rati tios

s in

in the the bankin king sect ector are re re relatively tively stable le amids idst re recen ent vo vola latil tility ity in in the the fin inancial marke

rket. In

Insurance in industry try also demons

nstra

trates tes an an stable le level el of

f inves

vestm tment adeq equacy ratio

tio. The non-perf

performin ing loa

an/fin

inancin ing ratio tio is is main inta tain ined ed belo low the thres esho hold ld.

The ratio of liquid id assets s to deposits sits in the banking g secto tor is relativ tivel ely stable As of Aug-18 18, the e gross & net NPL L ratios of the banking g secto tor were e 2.74% & & 1.20% respec pectiv tivel ely, ma maintained ed below the e thres eshol hold NPF ratio of the mu multifi finance industr try was 3.11% as of Aug-18, ma maintained ed well below the 5% thresho eshold Inves estm tmen ent t adequacy ratio in the insurance e industr try y was ma maintained ed above 100%

Source: Financial Service Authority (OJK)

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

*

6 10 14 18 22 26 30 60 70 80 90 100 110 120 130 140 % % Liquid Assets to Non-Core Deposits (lhs) Liquid Assets to Deposit (rhs) 1.2 2.74 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 % NPL Net NPL Gross 3.11% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

SLIDE 79

78

Well ll-mit mitiga igated ted Mar arket et Risks

Amids idst the the in incre reasin ing marke rket vo volatilit tility, the the risk pr profile ile of

f fin

inancial in instit titution tions re remain ins manage geable

le. Ne

Net open

pen pos

positi ition

n of
f the

the bankin king sect ector

r was main

intain ined ed at at a lo low level, level, whil hile the the in inves vestme tment va valu lue of

f do

domes estic tic in instit titution ional in inves vestors rs (mutual funds ds, in insure rers, and pensio ion funds ds) was was rela latively tively stable le. Amid idst t the depre preci ciating ting Rupia iah, net t open n positio ition n in the bankin king sect ctor was kept pt far below low the maxim imum um limit it (20%) %) The inve vestme tment nt value lue of insur urers & pens nsio ion n fund nds was relativ latively ly stabl ble Multif tifinanc inance companies’ exposures to foreign debt had gene nerall lly been n mitig igate ated throug

ugh hedging

ing measur ures Mutual funds’ net asset value (NAV) was relativ latively ly stabl ble amid idst t the fluctuating ctuating marke ket, t, with th a low leve vel l of volatility atility

Source: Financial Service Authority (OJK) 1.48 1 2 3 4 % 1,037 254 200 225 250 275 300 800 850 900 950 1,000 1,050 1,100 IDR Tn IDR Tn Insurance Pension Funds (rhs) 5,000 5,200 5,400 5,600 5,800 6,000 6,200 6,400 6,600 6,800 260 290 320 350 380 410 440 470 500 530 IDR Tn NAV Mutual Funds IDX (rhs) 179 99 60 80 100 120 140 160 180 IDR tn Domestic Debt Foreign Debt

SLIDE 80

79

Cap apital ital Mar arket ets Affect ected ed by Global bal Dyn ynam amics ics

Recen ent t devel elopm pmen ents ts in the globa

bal

l econo

nomy and

d financia ial l mark rkets ets have ve gener erated ted som

me

e pres essures es on the domes estic tic capit pital l markets kets. . How

weve

ever, the over erall ll marke rket t stability ility is still ll main inta tain ined. ed.

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

The volatility latility in the dome mestic tic marke ket t is still ill observe ved, but now tend nds to ease Rece cent nt nonresid ident nt outflow lows in the dome mestic tic marke kets ts exh xhibit bit an easing ng trend nd The IDX Composi site e Index dex experien erienced ed some e press ssures, res, but its s correc rrectio ion is relativ ativel ely moder derate ate compar ared ed to some e other her emer ergi ging g market ets Governm nment nt bond nd yields tend nd to increase in line ne with th the increased polic icy inte terest t rate te

*as data 19 September 2018

Stock Index Performance 19 October 2018 vs 29 Desember 2017

15.90

9.74 12.25 2.67

7.84
1.02
3.60
22.88
16.44
10.00
14.57
8.16
12.61
4.90
1.86
27
23
19
15
11
7
3

1 5 9 13 TURK BRAZ RUS AS EURO JPN MAL CHIN PHIL SIN HKN INDO KOREA THAI WORLD

%

40
20

20 40 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 IDR Tn Gov't Debt Securities Equity 5,000 5,500 6,000 6,500 7,000 180 200 220 240 260 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 Comp Bond Index Comp Stock Index (rhs) 12,000 12,500 13,000 13,500 14,000 14,500 15,000 15,500 5 6 7 8 9 10 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 Yield (%) 5-yr Yield 10-yr Yield 20-yr Yield IDR (rhs)

SLIDE 81

80

Strate tegic gic Policies cies in Finan ancial cial Secto ctor

Source: Financial Service Authority (OJK)

Supporting rting infrast struc ructur ture financi ncing ng and deepeni ning ng the capital ital mark market

Enhan hancin ing variab riabil ilit ity

f

finan inancing ing instr trum umen ents ts

Perpetual

bonds, green bonds, municipal bonds

Investment

products for mortgage

Simpl plif ific ication ion

f

issuan uance proces

cess

in the capita tal mark rket et

Simplifying

issuance process

f

debt securities and sukuk for professional investors

Expand nding ing the investo estor base

Expanding

the access

f

domestic retail investors to the capital market

Promoting

the participation

f

local financial institutions through the establishment

f

local securities companies

Stren engt gthen enin ing the role

f

NBFIs Is in infrastructu ructure develop lopment nt

The provision of credit guarantee

products by credit guarantee companies & insurers

Supporting rting inno nova vation tions in digital ital financ nance

Issuing the guiding principles for the providers

f

digital financial services, including for registering, licensing, and the crowdfunding scheme Directing financial institutions to synergize with the fintech sector

r to

establish a fintech business line Promoting the role

f

fintech lending in supporting government programs, including in

nline

retail sales

f

government debt securities

SLIDE 82

81

Strate tegic gic Policies cies in Finan ancial cial Secto ctor

Enhan Enhancing financ nancial ial liter terac acy & inc inclus lusio ion

Source: Financial Service Authority (OJK), June 2017

OJK OJK has as als lso built uilt a str trong foun

undation

for

r

fina inancial inclu inclusio ion pr prog

grams,

to to en ensure access ess to to fin financial produ

ducts

& & serv ervic ices es by In Indo donesia ians

f

all social al clas asses. . Suc uch init initia iatives also lso in include the the en enhancement

f

fina inancial lite teracy and nd fina inancial con

nsumer pr

prot

tection.

Developing financial education models utilizing various delivery channels Enhancing the role

f

the “Investment Alert Taskforce” The he resu esult lt

f
f

OJK’s 201 016 natio tiona nal survey rvey dem emonstrated an impr provement in fina nancia ial lite teracy & & inclusion ion amon

ng

Ind ndon

nesia

ians compa pared to tha hat

f
f

201 013, but ther here is sti till ll room

m

for furth ther er impr provement.

Financ ncial l Lite teracy Financ ncial l Inclu lusion

21.8% 29.7%

2013 2016

59.7% 67.8%

2013 2016

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

f

Islamic microfinance institutions (“Bank Wakaf Mikro”) Strengthening the role

f

Financial Access Acceleration Taskforce (TPAKD) in local areas

SLIDE 83

82

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

Source: Bank Indonesia

In Apr-2016 2016, the Minis ister ter of Finance, e, the Gov

ver

ernor r of Bank k Indo dones esia ia, and d the Chair irman of the Board d of Com

mmis

issio ioner ers of

f the Financia

ial l Serv rvic ices es Author thority ity launched hed a Coo

ordin

dinatio ion For

rum for
r 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

rmula

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

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

Mission: Financial Market as Sources of National Development Financing

1 2 3

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

3 Pilars 6 Markets 7 Elements

f

Financial Market Ecosystem

TARGET KEY PERFORMANCE INDICATOR STRATEGIC ACTION PLAN

SLIDE 84

83

Contin tinuou

us

Program am

n

Cap apital ital Mar arket et Dee eepen pening ing

…continuously strengthened, including through capital market deepening initiative ives

Stren engt gthen enin ing mark rket infras astructu ructure

Expansion
f

Single Investor Identification (SID) coverage

Development
f

electronic trading platform (ETP) in the debt market

Development
f

Integrated Investment Management System (S-INVEST)

Enhancing

the clearing and settlement process

Enhancement
f

capital market data warehouse

Development
f

Extensible Business Reporting Language (XBRL) for issuers

Enhan hancin ing the supply ly-side ide

Simplification
f

public-offering requirements and procedures

Development
f

debt market

Development
f

mutual fund industry

Development
f
ther

products, including those to support infrastructure development (private equity funds, REITs, ABS)

Development
f

Islamic capital market

Development
f

municipal bonds

Enhan hancin ing the deman and-side ide Stren engt gthen enin ing govern rnance nce

Development of market players’ capacity
Enhancement of GCG for publicly-listed companies
Development of repo regulations and infrastructure

Source: Financial Service Authority (OJK)

Enhancing

the role

f

the domestic institutional investors (insurers & pension funds) in capital markets

Development
f

the domestic investor base (conducting investor education programs)

Expansion
f

distribution channels

f

market products

SLIDE 85

84

BI’s Roles in Supporting Distribution

f

Non-Cash Cash Socia ial As Assis istan tance ce (NC NCSA) A)

BI supports ports govern rnment nt’s progr gram am

f shif

iftin ting social ial assist istan ance to tar arget eted ed non cash social cial assis ista tance ce disburs rsement throug

ugh

the electr ctronic ic payment syst stem

em. In

the futur ure, electr ectron

nic

ic mechan hanism ism disb sburs rsem ement nt will be also applied ied to LPG subsidy. idy. NCSA Prog

grams

Family ly Hope Progr

gram

(Progr gram am Keluar arga ga Harapan an

PKH

KH) Smart rt Indones esia ia Progr gram am (Progr gram am Indones nesia ia Pintar tar-PIP IP) Non Cash Food Assistanc nce (Bantua uan Pangan Non Tunai – BPNT)

2016-2020

Pilot

t

Project

ject

Grad adual Implem lemen entatio tion

Inter erconnecte cted & inter eroper erable le payment system em

LPG Subsid idy

Full Implem lemen entatio tion

XXYYZZ 12345678

9876543210

Source: Bank Indonesia

SLIDE 86

85

Progr

gress

ss

f

NCSA Progr

grams

ams

Famil ily Hope Program am (Program am Keluar uarga ga Harapa apan

PKH)

H) Non Cash Food Assis ista tanc nce (Bantu ntuan an Pangan gan Non Tunai nai - BPNT)

The

Family Hope Program (PKH) is a program that provides cash to very poor households. Rp 1,89 million /year will be granted for each

household. PKH

will be granted every February, May, August, and November.

As
f

December 2017, PKH has been distributed to 6,0 million households on non- cash basis.

PKH is expanded to 10 million households in

514 regencies/cities in 2018.

BPNT

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

As of December 2017, BPNT was distributed to

1,2 million households in 44 cities.

BPNT

is expanded to 10 million households in 217 regencies/cities on the 25th of each month in 2018.

Source: Bank Indonesia

SLIDE 87

86

Strong nger er Fundam amen entals tals Fac acing ng the he Headw adwind inds

82.4 .4 12.1 .1 6.8 1998 2008 Sep-15 30 30 3.8 2.8 1998 2008 Aug-15 17.4 .4 50.2 .2 1998 2008 Sep-15

Inflation lation Rate te (%) %) IDR Move veme ment nt (%) Non-Perfor

rming

ming Loan/NPL PL (% (%) Governm nment nt Debt bt/G /GDP Foreig ign n Reserve ves (USD bn)

100.0% 1998 27.4% 2008 29.8% Q2 - 201 2018 8.6x 1998 3.1x 2008 3.0x Q2 - 201 2018 116.8% 1998 33.2% 2008 34.3% Q2 - 201 018

More Liqui uid Marke ket (%) %) Exte ternal l Debt t (Publi blic & Priva vate te) to FX Reserve ve Ratio io Exte ternal l Debt/G t/GDP

Inflation controll lled ed within the target et range IDR depr precia ciated ed year-to to-da date e in Septem ember 201 2018 NPL lev evel el (gross) s) is below the maximum thres eshold ld of 5% Consisten ently ly well-maintained ned below 30% Significa cantly ly higher er than 1998 98 & 2008, 08, ample to cover er 6.3 3 months of import and external al debt repay payment Significa cantly ly lower er than 1998 98 crisi sis Sligh ghtly ly high gher er than 2008, 08, but significa cantly ly lower er than 1998 98 Sept ‘18 114.8 4.8

Sept ‘18

2.88 8 (yoy)

August ‘18 2.7 .7 62 62 10.5 .5 5.7 1998 2008 Jul-15

Over ernigh ght interbank nk money market rate is rela latively ly lower er

Sept 2018

5.39 39 (ytd)

10.65

.65

35

35

197

197 22-Oct-18 2008 1998

SLIDE 88

87

Outlo look

k
f

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

201 2018 Econo nomic ic Outlo tlook

k

 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

ngoing consolidation in the corporate and banking sectors.

Econom nomic ic Growth Infl flation ion CAD AD (% (% of

f GDP)

Credit it Growth

2017 17 Realization alization 5. 5.07 07% 3.61% 1.7% 8.2 .2% %

Source : Bank Indonesia

2018 18 5.0–5. 5.4 % 3.5±1% <3.0% .0% 10 10.0 .0-12 12.0% .0%

SLIDE 89

Prog

gress

ssiv ive In Infr fras astruc ructu ture De Develop

pment

ment: Strong Co Comm mmitme ment

n

Ac Acce celeratio tion

f

In Infr frastruc ructur ture Provisio ion

Sec ection tion 6

SLIDE 90

89

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

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

Fiscal al Reform

rms

Instit titut utio iona nal Reform

rms

Regu gula latory

ry

Reform

rms

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

Viability ility Gap p Fundin ding (VGF) KPPIP IP Dire rect ct Lendin ing Increase project financial feasibility by contributing up to 49% of the construction cost (MoF Reg. No. 223/2012) Availa ilability ility Paymen ent Land d Revo volv lvin ing g Fund Issuance of regulatory framework to allow annuity payment by the Government during concession period to concessionaire since project operation based on infrastructure service availability (MoF Reg. No. 190/2015 for Central Gov’r and MoHA Reg. No. 96/2016 for Regional Gov’t.) A revolving-fund sourced from State Budget, to accelerate land acquisition (MoF Reg. No. 220/2010) KPPIP is actively involved in accelerating delivery of priority infrastructure projects

PT. Sara

rana Multi lti Infra rastr truktu ktur Merging between PT. SMI and Gov’t Investment Center (PIP) to become an infrastructure funding company Indones nesia ia Infras. . Guara rantee tee Fund d (IIGF IGF) PPP Unit Provide facilities to help GCA on preparing PPP project (PDF/TA) BLU LMAN The State Asset Management Agency (BLU LMAN) is mandated to provide land fund for National Strategic Projects to ensure timely land acquisition process Allow guarantee for direct lending to SOE to accelerate financial close process for infrastructure projects (Presidential Reg. No. 82/2015) Land nd Acquis isiti ition Stipulate land acquisition acceleration based on Law No. 2/2012 (Presidential Reg.

No. 148/2015) and land acquisition fee

payment for impacted community (Presidential Reg. No.56/2017) Econo

nomy Packa

kages ges Conduct deregulation for issues hindering infrastructure delivery and develop a task force under CMEA to ensure the effectiveness of economic packages implementation Risk-sha harin ing g Guidel elin ines es IIGF has issued risk allocation and mitigation guidelines for PPP project Tax x Incen entives tives (Tax x Holida liday) MoF Reg. No.35/2018 allowed 100% Tax Holiday for 17 Pioneering Industries for 5 – 20 years depending on the investment value Indo dones esia ia Infrastru tructu ture re Guarantee tee Fund d (IIGF IGF) IIGF has the potential to provide project guarantee for non-PPP projects

SLIDE 91

90

Some

f

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

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

Pres esid iden ential tial

Reg. No. 20/2018
n

Use

f

Foreign ign Labor – released

n

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
n

Socia ial Impact Handlin ling in Land Acquis isit itio ion Proces ess for PSN – released

n

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

bjection over the land use.

MoF No. 60/2017

n

Procedur edures es for the Provis isio ion

f

Central al Governm ernment ent Guarant antee ee for the Acceler leratio tion

f

the Natio iona nal Strategic ic Proje

jects

ts Implementa ntatio ion – released

n

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
n

Natio ional al Spatia ial Plan (RTRWN) WN) – released

n

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

n

Procedur edures es for Land Acquis isitio ition for Natio iona nal Strateg egic ic Projects ts and Asset Manag agem ement ent

f

Land Acquis isitio ition by State Asset Manag agem ement ent Agency – released

n

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.

SLIDE 92

91

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

f

Indone nesia sia

Project

ject

Dev evelop lopme ment Facility lity (PDF) PDF) Viab abil ilit ity Fundin ding Gap (VGF) F) Guar uarant ntee Fund Tax Facilities lities Availa ailabil ilit ity Payme ment Land nd Acquis uisition ition Preparation Bidding Process Construction

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

n GCA

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

Guaranteeing Govt. contractual

bligations

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

MoF Reg. No. 159/PMK. 010/2015 re: tax holiday for pioneer sector, such as base metal, oil refinery, basic petrochemical, machinery, renewable energy, & telco equipment

industries. Sector

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

SLIDE 93

92

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

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

f 2015. The Amendment to the Regulation allows a Business Entity to allocate

funding for a land acquisition which can be reimbursed by the Government following the completion of land acquisition process. With this Regulation, the land acquisition process is expected not to be delayed by the unallocated budget or the delay on the budget disbursement.

Land Procurem rement t Proces ess s as Stipula lated ted in Law No. 2 of 2012

Law No

No. 2/2012 was

was succes essfull lly applied plied in in: 1. 1. Pa Pale lembang – In Indr dralaya sect ection ion of

f the

the Tr Trans Sumater era Toll ll Roa

ad Project
ject

2. 2. Java va Nor

rth

th Line Dou

uble

le Track Rail il Project

ject

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

SLIDE 94

93

Effort rts to Accel eler erate te Infras astru tructu cture Provisio sion

…the establishment

f

Indone nesia ia Asset Manag agemen ment Agency ncy (LMAN) AN)

Source: Ministry of Finance

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

f

land acquis uisit itio ion fund

1. Unutilized fund can be allocated for the following year 2. Non-project-specific land acquisition fund

allocation. Unused

allocated fund can flexibly be made available for the other project 3. Land acquisition fund for PSN projects is managed under

ne

agency

1. LMAN

was established in December 2015 through the issuance

f

MoF Reg. 219/2015 concerning State Assets Management

2. In

2016, BLU LMAN was mandated to provide land acquisition fund as a support to Ministry

f

Public Works due to US$ 1,081 Mio shortage

f

fund to acquire land for priority toll roads

3. The

scope

f

support is broaden for all National Strategic Projects through the issuance

f

MoF Reg. 21/2017 concerning land acquisition financing guideline for PSN

4. In

January 2018, LMAN has disbursed up to US$ 881.48 Million (IDR 11.9 Trillion) through bridging finance scheme for 27 toll road projects, and planned to start the implementation

f

direct payment scheme

Land Acqui uisiti tion

n

Budget eting ng Scheme me LMAN at a Glance ce This LMAN initiative ive provides ides better flexibi bili lity ty, coordina inatio ion and manag agement nt

f

land acquis uisit itio ion fund provisi sion for National nal Strategic ic Project cts (PSN)

SLIDE 95

94

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

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

1

Governm ernmen ent

Reg. No. 13/2017
n

Natio ional al Spatia ial Plan (RTRWN) WN) The issuance

f

RTRWN can resolve spatial planning mismatch in the implementation

f

infrastructure projects listed in the annex

f

Government

Reg. No. 13/2017. A

number

f

breakthroughs were developed, and

ne
f

them is that the Minister

f Agrarian

and Spatial can issue a recommendation

f

spatial utilization; so that the process

f
btaining

project permission can be done.

2

MoF No. 60/2017

n

Procedur edures es for the Provis isio ion

f

Central al Governm ernment ent Guarant antee ee for the Acceler leratio tion

f

the National nal Strate tegic gic Proje jects Implem emen enta tatio tion The supporting regulation for Presidential

Reg. No. 3/2016
n

the Acceleration

f

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

bligation
n

government guarantees to all

PSN. The

guarantee provision is expected to increase the feasibility and trust

f

investors to participate in the implementation

f

PSN.

3

Pres esid iden ential tial

Reg. No. 56/2017
n

Socia ial Impact Handlin ling in Land Acquis isit itio ion Proces ess for PSN This Presidential

Reg. allows

the Executing Agency to pay land acquisition compensation to the impacted community who does not have

fficial

rights

ver

the land required for

PSN. This

regulation helps to solve the land acquisition problem due to community

bjection
ver

the land use.

4

MoF No. 21/2017

n

Procedur edures es for Land Acquis isitio ition for Natio iona nal Strateg egic ic Projects ts and Asset Manag agem ement nt

f

Land Acquis isitio ition by State Asset Manag agem ement ent Agency The implementing regulation

f

Presidential

Reg. No.102/2016
n

Financing

f

Land Acquisition for the Development

f

Public Interest in the Framework

f

the National Strategic

Implementation. This

regulation becomes the legal basis for the financing

f the

procurement

f

National Strategic and Priority Projects by BLU LMAN

SLIDE 96

95

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

projects

26 26

Projects

53 53

Projects

18 18

Projects

12 12

Projects

Sulawesi esi

US$22.8 B

Kalima imantan tan

US$35.6 B

Suma matra

US$40.4 B

Maluku & Papu pua

US$34.4 B

89 89 3

Programs

Projects

Natio ional

Projects

1 2

Projects

Java

US$73.8 B US$99.7 B

13 13

Bali i & Nusa a Tenggar ara US$0 $0.7 7 B

Exchange rate: US$ 1 = IDR 13,500

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

Proje ject Progr gram am

PSN includes udes 15 s sectors rs at project ct level and 3 sectors rs at program am level

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

Projects

SLIDE 97

96

PSN may ay receive ive pri rivil vileg eges es as stipula pulated ted in the Presid sident entia ial Reg. . No.

. 3/20

2016 j.o j.o. . the Presid sidential ential Reg. . No.

. 58/2

/2017

01 01 02 03

Determination of National Strategic Projects

04 05 06 07 08 09 10 10 11 12

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

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

SLIDE 98

97

Progres ess

n

223 23 Projects ts an and 3 Program ams PSN

Prog

gress

ess of Nationa ional l Strat rateg egic ic Project

jects + 3 Prog
gram

ams (per er Septe tember er 2018 18)2 The Estimated timated Inves estme tment nt Value ue for 223 Projec ects ts + 3 Programs ams PSN1

1Exclude 7 projects which investment value are still unknown

Exchange rate : US$ 1 = IDR 13,500

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

2) Excluding the economic equality program that will be reported separately

State Budget 10% SOEs/ RSOEs 31% Private 59%

Tota tal Investm estment nt Value lue2

US$ 307.4 7.4 Billio lion

State Budget US$ 31.7 Bn Bn SOEs/RSOEs US$ 94.3 Bn Bn Private US$ 181.4 Bn Bn

5 S 5 Secto tors rs with Highes est Invest stment nt Value

Energy 11 Projects US$ 89.8 Bn Electr tric icit ity 1 Program US$ 76.7 Bn Roads ads 69 Projects US$ 49.7 Bn Railwa lways ys 16 Projects US$ 29.2 Bn SEZs and IEs 31 Projects US$ 31 Bn

3 projects already completed 23 projects are in construction and will start

perating in 2018

51 projects and 1 electricity program are in construction and partial-operation phase 52 projects are in construction and will start

perating in 2019

37 projects are in construction and will start

perating after 2019

1% 1% 23% 23% 10% 10% 23% 23% 17% 17% 3% 3% 23% 23% 6 projects in transaction 51 projects and 1 Airplane Industry Program in preparation

SLIDE 99

98

In 2016

Septemb

mber er 2018, 33 PSN has been Comple pleted ed with Total al Inve vestment stment Value lue

f

Rp Rp 96.9 .9 Trillion llion

21 Soreang – Pasirkoja Toll Road, West Java 22 Mojokerto – Surabaya Toll Road, East Java 23 Tanjung Priok Access Road, DKI Jakarta 24 Raden Inten II Airport, Lampung 25 Jangkrik and North East Jangkrik Field 26 Nanga Badau National Border, West Kalimantan 1 Gempol – Pandaan Toll Road 2 Sentani Airport, Jayapura, Papua 3 Juwata Airport, Tarakan, North Kalimantan 4 Fatmawati Soekarno Airport, Bengkulu 5 Mutiara Airport, Palu 6 Matahora Airport, Wakatobi 7 Labuan Bajo Airport, Komodo Island 8 Development of Soekarno Hatta Airport (Include Terminal 3), Banten 9 Kalibaru Port, Jakarta 10 Belawan-Sei Mengkei Gas Pipe (75 mmscfd), North Sumatera 11 Entikong National Border, West Kalimantan 12 Mota’ain National Border, East Nusa Tenggara 13 Motamassin National Border, East Nusa Tenggara 14 Skouw National Border, Jayapura, Papua 15 Paya Seunara Dam, Sabang, Aceh 16 Rajui Dam, Pidie, Aceh 17 Jatigede Dam, Sumedang, West Java 18 Bajulmati Dam, Banyuwangi, East Java 19 Nipah Dam, Madura, East Java 20 Titab Dam,Buleleng, Bali 31 Prabumulih – Kertapati Railway 32 Raknamo Dam 33 Tanju Dam 27 Aruk National Border, West Kalimantan 28 Wini National Border, East Nusa Tenggara 29 Teritip Dam 30 Pembangunan Saluran Suplesi Daerah Irigasi Umpu Sistem (Way Besai), Lampung

2016 2017

Jan

Sep

2018

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

SLIDE 100

99

Progres ess

n

3 37 Pri riori rity ty Projects cts

From the revise ised Nationa ional Str trate tegic gic Projects

jects,

the he Gov

vern

rnment nt has as sele lecte ted a list

f

37 Priorit iority Project

ject

to be the he focus us

f
f

infrastru tructur ture provis ision. ion.

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

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

SLIDE 101

100

Progres ess

n

37 Pri riori rity ty Projects cts

Recen ent t Miles esto tones es Prog

gres

ess of 37 Prio iori rity Project

jects (per

er June e 2018) Fundin ding g Schem eme e of 37 Prio iority ity Project

jects

20 projects are in construction 5 projects are in transaction 12 projects are in preparation

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

Patimb mban an Port

West Semarang Water Supply ly Sy System:

Mass Rapid Tran ansit sit (MRT) Jakarta South-Nort North

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

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

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

Exchange rate : US$ 1 = IDR 13,500

Total Investment Value US$ 181.6 Billion

West package has been fully operasional since April 2018.

Palapa Ring

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

32% 32% 14% 14% 54% 54% Outline Business Case has been done on December 2017.

Yogyakar arta-Bawen Toll Road

SLIDE 102

101

Energy gy Secto ctor: r: the he Progres ess

f

35.000 000 MW Program am

No No Phase MW MW % 1 Operating 2,614 7 2 Construction 18,457 52 3 Signed Power-purchase Agreement 11,117 32 4 Procurement 2,153 6 5 Planning 958 3 17 Dec ‘14

Cabinet t Meeting ing “There’s electricity crisis in Indonesia, requires construction

f large capacity plant "

Jan ‘15

Aver erage ge economi mic growth th of 6.7% % requir ires s 7,000 MW / year or 35,000 MW / 5 years (Kepmen ESDM No. 0074/2015 on RUPTL 2015-2024)

Jan ‘15

Debottl tlen enec eckin ing g through gh regulatio tion:

1. Regulation No.1/2015 concerning electricity

supply cooperation & joint utilization of the electrical network among license holders.

2. Regulation

No.3/2015, concerning Procedures

f

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

16 Mar ‘15 4 May ‘15 June‘17

Cabinet t Meeting ing Progress of 35,000 MW Launchi hing g 35.000 MW by the President in Goa Beach Sanden DIY The progres ess so far:

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

35,000 MW Prog

gram Distrib

tributio tion

Source: PLN

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

Note : Progress of 35,000 MW Electricity Program as of September 2018

SLIDE 103

102

Accel eler eratio tion

f

35.00 000 MW Program am

Gov

ver

ernm nmen ent PT PLN

EPC C Power erpla plant t and d Transmis issio ion PLN Subsidia idiary (Joint

int Ventu

ture) e) Indepen ependen ent Power er Prod

ducer

er

Stren ength gthen Equity ty 2B 2B 1

Gov

ver

ernmen ent t Supp ppor

rt

t (outs tside ide Guara rantee) tee)

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

Local l Con

nten

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

2A 2A

Assign ignmen ent SJKU* U* Minis istry try of Finance

Stren ength gthen PLN‘s Balanc nce Sheet

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

ver

ernmen ent t has issued ed Pres esiden identia tial l Regu gula latio ion No.

. 4/2016 on Electr

tric icity ity Infrastru tructu ture e Accel eler eratio tion to accel eler erate te power er proj roject ects Prov

vis

isio ion of Electri tricity ity Refin inancin ing Hedgin ging Financia ial l Asset et Optim imiz izatio ion Direct Lending Direct Lending Bond issuance by PT PLN Company Tax Holiday PT PLN’s divident allocation Loan from independent lenders Asset Revaluation Other types

f funding

Equity Injection by the Government

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

SLIDE 104

103

Sign gnificant ificant Progres ess

n

I Infras astr tructu ucture Projects cts

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

utlook

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

KPPIP developed an integrated IT System for monitoring

f

national strategic and priority projects, providing database on projects’ latest status which can be effectively utilized for monitoring and decision-making purposes. Impr prov

vin

ing g Monitor itorin ing g System tem on Infrastru tructu ture e Project

jects1

Roads

Trans-Sumatr tra Toll Road Merah h Putih ih Bridge idge, Ambon

Dams

Jatige igede de Dam (Operatio tional)

Transpo portatio tion

Jakarta rta MRT Project2

Drinki nking ng Wate ter Proce cessin ing

Umbulan Drinkin king Water Provi visio sion System, East t Java

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

Terminal 3 Ultima imate te Soeka karno-Hatta tta2 New Tanjung Priok k Port t Project2 Nop Go Golia iat t Dekai, i, Papua

SLIDE 105

104

Infras astr tructur cture Projects ts an and Finan ancing cing Sche hemes mes

Promoti tion

f

Infras astruc ructur ture Develo lopmen ment to Acce celerate te Econo nomic mic Growth th

Esta tabli blishment shment of PPP PPP Unit

Broad ad Objective  Champion project preparation and acceleration of the PPP agenda in Indonesia Core Mandates  Improve quality of project selection under KPPIP – OBC criteria  Support project preparation through PDF support and highly qualified transaction advisors  Act on behalf the Minister of Finance in providing government support and approvals for projects Addit itio ional al Man andates  Coordinate all public finance instruments  Provide input for PPP Policy program Development and Regulations  Implement capacity building for Govt. Contracting Agency (GCAs)  One stop shop for PPP promotion & Information

Budget get Public Priv ivate te Partn tner ershi ship SOE E & Priv ivate te Sec ecto tor

 Central & regio ional budget (special allocatio ion fun und & rur ural tran ansfer)  Primarily to to support bas asic ic infrastruct ucture projects: – Food secur urity: Irrigation, dams etc. – Mar aritime: Seaports, shipyards etc. – Connectivi vity: y: Village roads, public transportation etc.  Certain in infrastruct ucture projects to be funded and operat ated throug ugh a par artnership ip between the Indonesian an government and the priva vate sector – Projects ready for auction under the PPP Scheme: – Toll roads projects such as Balikpapan-Samarinda and Manado-Bitung – Railway projects such as an express line into Soekarno-Hatta International Airport – Water supply projects such as the West Semarang Project  Var ario ious government sup upport for PPP: PPP: – Project Development Facilit ity y (PDF): Helps Government Contracting Agencies (GCAs) in project preparation and transaction – Viab iabil ility y Gap ap Fund: improves financial viability of PPP projects – Government Gua uaran antees: Supports PPP projects’ bankability by providing sovereign guarantees – Infrastruct ucture Fin inan ancing Fund: Provided through PT SMI and IIGF – Avai ailab ability Payment (AP): GCA pays private partner based of availability

f infrastructure services

 Government to to inject capital al into SOEs: Intended multiplier effect to develop more infrastructure projects  Key focus us ar areas: as: – Infrastructure and maritime development – Transportation and connectivity – Food security  Mediu ium term infrastruct ucture deve velopments to focus us on: – Water Supply – Airports – Seaports – Electricity and power plants – Housing – Mining

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

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

Infrast structure e Devel elopme pment t is a Key Priority ity

SLIDE 106

105

Gover ernment ment Guar aran antee tee For Bas asic ic Infras astr tructu ucture Devel velopment pment

Reflect cts strong ng commit itment nt to national nal developmen ment plannin ning

Source: Ministry of Finance No. Central al Government Guar aran antee for Infrast astruc ucture Programs Exposur ure/ Outstanding (USD D bn bn) 1 Coal Power Plant 10,000 MW Fast Track Program (FTP 1) 2.49 2 Clean Water Supply Program 0.01 3 Direct Lending from International Financial Institution to SOEs 0.56 4 Sumatra Toll Road 0.48 5 Renewable energy, Coals & Gas Power Plant 10,000 MW (FTP 2) 1.59 6 Public-Private Partnerships (PPP) 1.42 7 Regional Infrastructure Financing 0.09 8 Light Rail Transit (LRT) Jakarta Bogor Depok Bekasi

Total

al 6. 6.63 63

Conting tingent nt Liabili bilitie ties from m Governm nment nt Guarante ntees Go Governme nment nt Guarantee tee Program

Credit it Guarantee ee PPP PPP Guarantee ee

Busin iness Viab abil ilit ity y Guar aran antee (BVG) VG)  Power (Electric icit ity) – Full credit guarantee for PLN’s debt payment obligation under FTP 1 10,000 MW and 35GW  Celan an Water – Guarantee for 70% of PDAM’s debt principal payment obligations  Infras astructur ure - Full credit guarantee on SOE’s borrowing from international financial institution & guarantee for PT SMI’s local infrastructure financing  Toll road ad – Full credit guarantee for PT Hutama Karya’s debt payment obligation (Sumatra Toll Road Development)  Public ic Tran ansportat ation (Light Rail Tran ansit it) – Full credit guarantee for PT Kereta Api Indonesia’s debt payment obligations for the development of LRT Jabodebek  Power (Electric icit ity) – Guarantee for PT PLN’s

bligations under Power Purchase Agreements

with IPPs (off-take and political risk) under FTP-2 10.000MW and 35GW programs*  Infras astructur ure – Guarantee for Government-related entities obligations (line ministries, local governments, SOEs, local SOEs) under PPP contracts/agreements  From 2008 to Q1-2018, the Government has issued 75 guarantee documents with total value of USD28.84 billion, 5 of which (worth USD0.05 billion) have expired.  The Maximum Guarantee Limit for the period 2018 – 2021 is set at 6% of GDP.  The space for guarantee issuance for the period 2018-2021 is approximately IDR 1,200 trillion (cumulative). As of end of March 2018; currency conversion of IDR 13,756/USD1 (March 29, 2018)

Politi tical Risk Guarantee ee

 Infras astructur ure – Guarantee against infrastructure risks for National Strategic Projects (Presidential Decree No.58/2017) which are not covered by

ther type of guarantees

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

SLIDE 107

106

Gover ernment ment Finan ancia cial Fac acilities ilities for PPP Proje jects cts

Financ ncial ial Facilit ilities ies to Attrac act More Priv ivate te Part rtic icip ipatio tion

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

f the following PPP projects:

Viability ility Gap Fund (VGF) Proje ject Develo lopment ent Facilit ility (PDF) Governm ernmen ent Guarante ntees es (dir irec ectly ly by MoF or through gh IIGF) Financ ncing ing from PT

PT. SMI

and

PT. IIF

Availabilit lability Paymen ent Schemes es More Fundin ing Schemes es are

n

the Pipelines lines

Project Financing funded by the priv ivate te secto tor through the granting of concessions for an

perating asset owned by the

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

perated & managed.

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

Asset is owned by public sector
Operating asset, not greenfield project
Records positive cash flow for the last

several years

Predicted revenue
Asset is owned by private sector
Greenfield / brownfield / operating projects

Sche heme me Character teristic istics Sche heme me Character teristic istics

LCS (Limited ited Concessio ion Scheme) e) PINA (Non-Gov Governm ernment nt Budget et Infras astr truc uctur ure Financ ncing) ing)

Source: Ministry of Finance

SLIDE 108

107

Progress ess

f

P PPP Infrast astru ructur cture Proje jects ts

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

Succes essful ful Proje jects ts Reaching ing Finan ancial ial Close in 2016 and 2017

No No Projec ect Name me Projec ect Cost (IDR R tn tn) Financia ial Facil ilities ities Status 1 Batang–Semarang Toll Road 11 IIGF Guarantee PPP & guarantee contracts signed on April 27th, 2016 2 Manado–Bitung Toll Road 5.1 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 3 Samarinda–Balikpapan Toll Road 9.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 4 Pandaan–Malang Toll Road 5.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016 5 Serpong–Balaraja Toll Road 6.0

PPP contracts signed on June 8th, 2016

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

Signed PPP PP Proje

jects

in 2016 and 2017

Source: Ministry of Finance, as of July 2017

SLIDE 109

108

New Guar aran antee tee Sche hemes mes for Non-PPP PP Projects cts

The Government had issued Pres esid identi ential al Re Regula ulatio tion No No 82 82/2015 and Minis inistr try of

f Fina

inanc nce Re Regula gulatio tion No No 189/2015 to provide guarantee for SOE Direct Lending from IFIs for the Development of Infrastructure Projects. Guarant antee ee

n

SOE Direc ect Lending ing from Interna rnatio tional nal Financ ancial ial Institut tutio ions ns (IFIs Is) Guarant antee ee for Regio ional al Infrastr tructur ture Financ ncin ing Provis isio ion State finan ance soundnes ness Fiscal al sustainabiliy nabiliy Best practic tice

f

fiscal al risk managem ement ent The

bjective
f

this guarantee is to provid ide credit edit enhanc ncem emen ent in terms

f

low inter erest rate and long tenor finan ancing ing, with 3 main prin incip iples les:

The Government had issued Min inis istry try

f
f

Fin inance Regu egulati tion

n

No No 174 174 of

f 2016

2016 to provide guarantee to PT SMI

n

the assignment

f

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

n

Gove Govern rnme ment Regu egulation ation No No. 95 95/2015 2015 and Min inis istry try

f
f

Fin inance Reg egulation tion No No. 232 232/2015 2015, Minister of Finance assigns PT SMI (Sarana Multi Infrastruktur) to carry

ut functions in providing loan to

local government, as previously carried

ut

by PIP (Government Investment Center). The objective is to give give sti timulus to to the the accel eleration ion

f
f

lo local in infrastr tructure re dev devel elop

pmen

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

rder

to meet local infrastructure development needs and to reduce reliance

n

state/local budget.