[PPT] - Syn yner ergized gized Reforms rms Move ve Septem ptember PowerPoint Presentation

SLIDE 1

Septem ptember er 2018 Republic blic

f

Indones esia ia

Stability bility at the he Fo Forefr efront,

nt,

Syn yner ergized gized Reforms rms Move ve

SLIDE 2

1

About ut Investo estor Re Relatio tions ns Unit

f

the Re Republ public ic

f

I Indo donesi 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

Overview 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 ernal l Facto tor: : Impro roved ed Externa ernal l Resilien lience Fiscal l Perfo rformanc nce and Flexibility xibility: : More re Fiscal al 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 ncia ial l Sector

r

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 4

In Institutio utiona nal and Go Govern rnme ment nt Eff ffect ctiv ivenes eness: s: Ac Acce celerated ted Refor

rms

ms Ag Agenda with In Institutio utiona nal Im Improveme ment nt

Sec ection tion 1

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4

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 2017 – 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 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

SLIDE 6

5 Rank Countries ies GCI Rank Change e in Rank 2017 2017-2018 2018 2016 2016-2017 2017

Singapo pore 3 2 1 Mala lays ysia ia 23 23 25 25 2 Thailand land 32 32 34 34 2 Indones nesia ia 36 36 41 41 5 Brune nei Darussalam alam 46 46 58 58 12 12 Vietna nam 55 55 60 60 5 Philip ilippines ines 56 56 57 57 1 Cambodia ia 94 94 89 89 5 Lao PDR 98 98 93 93 5

Improving ving Global bal Percep ception tion

Indone nesia sia has improved its competi titi tive vene ness among ng ASEAN AN members rs.. .... ..

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

1 2 3 4 5 6 7 8 9

Rank Countries ies Transpo port t Infastr tructu ture e Index ex Change e in Rank 2017 2017-2018 2018 2016 2016-2017 2017

Singapo pore 1 2 1 Mala lays ysia ia 14 14 11 11 3 Indones nesia ia 30 30 36 36 6 Thailand land 34 34 37 37 3 Brune nei Darussalam alam 63 63 70 70 7 Vietna nam 64 64 63 63 1 Philip ilippines ines 90 90 90 90 Cambodia ia 108 108 102 102 6 Lao PDR 109 109 110 1 1 2 3 4 5 6 7 8 9

Indo dones esia ia is inching ching its way up the compe petit titive ivenes ness ladder der, , movin

ving

g ahea ead d 5 places aces Indonesia’s transport infrastructure continues to improve supp pported rted by massive ive infrastru tructu ture project

jects

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6

BBB / Stab able Baa2 / Stable 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 Rating ing 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.”

Indo donesia esia is Now Fully ly Ra Rated as as Investm estment nt Grad ade Countr try

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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

Indo donesia esia Re Remains ains the he Investment stment Dest stin inatio 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 Investmen 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

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Natio ional nal Strategic tegic Dev evel elopme pment nt Plan an (Naw awa Cita ta)

Human Development

Educ ucation ion Healt alth Hous using ing Char aracte ter

Priority Sector Development

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

Water ter Security rity, Basic ic Infra rastru tructu ture re & Connect ectivity ivity

Equitable Development

Inter- 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

Econom 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

r & Afforda

dable le Hou

using

Fisher hermen en & Seaweed eed Cult ltiv ivation tion Fair ir Tax x System tem Manu nufact cture and d ICT Retail l and Mark rket et Financin ing g & Gov

ver

ernmen ent Budget get Vocatio ional, , Entre repr pren eneu eurs rship hip & & Labor r Marke 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 Phase e V (22 Oct t ’15) Improving industry and investment climate through tax incentives and deregulation on sharia banking

Harmo moni nizi zing ng Regulat ations ns Simp mpli lifyin ying Bureauc ucratic Proc

cess

Ensuring Law Enfo forceabi bili lity

Phase e VI (5 Nov ’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) Phase 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 millio ion/ n/year ar

70-100 units

f

new ships worth USD

700 00 millio lion

New employment

pportunity
f

2,00 000 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

Progress ess

f

t the he Economic ic Policy cy Pac ackag ages*

Initially, there are 234 regulations which need to be deregulated As of January 18th, 2018, deregulation of 219 regulations are finished (97%), 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

97% 97% 11 11

REVOK OKED ED REGULATIONS TIONS

4

ON GOIN ING DISCU SCUSSION SION

3% 3%

171 TOTAL

169

MINIST STERIAL IAL/I /INST NSTIT ITUTI UTIONAL ONAL LEVEL VEL 97%

97%

47 47 42 42

SELESAI

PRESI SIDE DENTI NTIAL

52 TOTAL

50 50 FINI

NISHED SHED

PRESIDENTIAL AL LEVE VEL

96% 96% I–XV

FINI NISHED SHED

I–XII

234 34

TOTAL INITIA TIAL REGULATIONS IONS

I–XV

I–XII

223 23

TOTAL REGULATIONS TIONS

I–XV

Based

n

the further assessment, 11 regulations has been revoked from deregulation process Total regulation subject to be deregulated: 223 regulations

Source: Coordinating Ministry for Economic Affairs *as of March 2018

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13

Othe her Progres 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 ctab able le 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 lopmen 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

Deregula ulatio 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;

Exe

xemptio mption n or suspe pens nsio ion n of VAT on the 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 depreciatio

ciation n or amortizatio tization 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 ONEE EER INDUSTRIES USTRIES 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 Allo

lowa wance 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, MEDIUM IUM ENTERP RPRIS ISES (MSM SMES) S) 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% % income come tax and 1% VAT

Sales from customs areas for small

ll entr trepr preneurs 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 Transit nsitio ion

After Tax Holiday Not available 100% (single rate)

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

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

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 Goals

1 2 3 4 5 6

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

f the costs and lead times

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

Main Policy 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 y Secto tor Electr tric icit ity y Secto tor Public lic Wor

rks

ks & Housin ing g 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 & Communic unicatio 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- motiv ive e indus ustr try 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 indust ustry ry Defence indus ustr try Aircraft ft MRO indus ustr try

SLIDE 20

19

Impr proving ving Invest stment ment 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 Processing g 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 andf dfat 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 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 Transport

rt Support
rt Servi

vices, , 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 EODB 201 2017 Rank nk Chan hange in Rank nk EODB 201 2018 Point ints EODB 201 2017 Point ints Cha hange in Point ints

Overall all 72 72 91 91 19 66.47 61.52 4.95 Start rting ing a business 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 Registe tering ring Prop

perty

rty 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 Insol

lvency

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

Investm estment nt Re Real aliza izatio tion (Q2-201 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 Rubbe ber and Plastic tic Indust ustry Metal, tal, Machine chinery & & Ele lectroni nic c Ind ndust ustry US$ US$962.8 .8 mn US$ US$75.6 .6 mn mn US$168.6 .6 mn mn US$ US$995.3 .3 mn mn US$ US$781.1 .1 mn mn US$ US$586.3 .3 mn mn Transp nsportatio tion, n, Warehouse use, and Tele leco comm mmun unica catio tion

148.0%

US$ US$121.4 .4 mn mn

72 72.2% 30.9% 1. 1.1% 22.8% 144.6% 20.6% Invest stment nt Reali liza zatio ion

Textil xtile Indust ustry US$ US$50.7 .7 mn

33.4%

FDI Reali lizatio tion n by Secto ctors

Source: Investment Coordinating Board (BKPM), compared to Q2-2017 period

2017

Rp145.4 5.4 T Rp159.4 T IDR95.7tn tn 434 434,463 463

9.6 9.6% 15.6 .6%

12.9%

32.1%

Q1-201 016 Q1-201 017 Q2-201 017 Q2-201 018 Q1-201 016Q1-201 017 Q2-201 017 Q2-201 018

*

* * perso son 37 375,9 ,982 IDR176.3tn tn

3.1 3.1%

Q2-201 017 Q2-201 018

IDR170.9tn tn IDR80.6tn tn IDR61.0tn tn IDR109.9tn tn Trade & Repar paratio tion Non Metallic tallic Mine neral l Indust ustry 95.7 176.3

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 FDI DDI TOTAL

2018

Decreasin ing

SLIDE 23

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

Sec ection tion 2

SLIDE 24

23

Conducive cive Environment ment Unde derpin rpinning ning Strong ng Growth th Funda damenta mentals ls

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 stronger man anufac ufactur urin ing sector and more investment init itia iative ives Policie cies to main intain purchasin hasing power to stim imulate domestic ic economy in the mid idst

f weakenin

ing macr croeconomic 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 ditie 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

Reform rm-Or Orien iented 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

Large rge and d Stab able le Econo nomy Consi nsiste tent nt Budg dget t Reform

rm

New Econo nomic ic Structu ructure re High h Infras rastructu ructure re Investmen ents

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 (September 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 Breakd akdown wn

GDP Growth th by Secto ctor (%, 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 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 xpend nditur itures (%, 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 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 4.9 5.0 5.0 5.0 5.1 5.2 5.1 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 Positive tive

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 Improv

ved

Ext xternal ernal Resilie ience 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 2013 2014 2015 2016 2017 2018 OG Non-OG Total 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 50 60 70 80 90 100 110 120 130 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 2013 2014 2015 2016 2017 2018

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

Month US$bn

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 August st 201 2018: US$117 17.9 bn n (Equiv

iv. to 6.6 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

SLIDE 30

29

6.69

69 1.22 0.94

0.23
4.41

0.08

1.14
0.09
1.28
2.06
3.61

7.95 1.12 1.01 0.56 0.51 0.03

0.74
0.86
1.09
1.25

25

2.21
8.00
6.00
4.00
2.00

0.00 2.00 4.00 6.00 8.00 10.00 TRY THB EUR SGD BRL KRW MYR CNY PHP IDR INR point-to-point Average

%

*data as of Sept 27th, 2018 14,917 13,378 13,603 13,760 13,809 14,043 14,058 14,409 14,867 13,576 13,952 14,596 13,250 13,350 13,450 13,550 13,650 13,750 13,850 13,950 14,050 14,150 14,250 14,350 14,450 14,550 14,650 14,750 14,850 14,950 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul 1-Aug 1-Sep IDR/USD Monthly Average

*data as of September 27th, 2018

Exc xchan ange Ra Rate In Li Line ne with Funda damentals mentals

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 Ru Rupia piah conti tinued ed it its depr eprec ecia iati tion tr trend end, howev ever er with ith sma maller er volatil tilit

ity. Rupiah depreciation is in line with the currencies of peer

countries, spurred by broad US dollar appreciation. The Rupiah depreciated by an average of 1.05% in August 2018 and closed at a level of Rp14,905/USD on 26th September 2018. Year-to-date (ytd), the Rupiah has lost 8.97% in value against the US dollar as of 26th September 2018, faring better, however, than the Indian rupee, South African rand, Brazilian real and Turkish lira. Moving forward, Bank Indonesia will continue to implement exchange rate stabilisation measures in line with the currency’s fundamental value, while maintaining market mechanisms and financial market deepening

efforts. Such policy is aimed to contain Rupiah volatility and liquidity

adequacy in the market, to prevent risks on macroeconomic stability and financial system.

Source: Bank Indonesia

Sep 2018 vs Aug Aug 2018

Rupia iah Exc xchang nge Rate Volatil tilty ty

98.3 .3 30.3 .3 31.5 .5 10.0 .0 5.8 6.9 3.8 4.4 6.5 4.6 38.2 .2 34.4 .4 18.2 .2 12.9 .9 7.1 6.6 5.2 5.3 4.9 4.9 10 20 30 40 50 60 70 80 90 100 TRY ZAR BRL INR IDR KRW MYR PHP THB SGD Aug-18 Sep-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 Stabi bilize lize Rupia piah Exchange nge 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 August 2018: US$117.9 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



Renewed a 3 year A$/IDR swap arrangement of up to A$10 bn or IDR100 tn in August 2018

Chia iang g Mai i Initi tiati tive ve Multila ltilater terali liza zation tion (CMIM IM) ) Agreem eemen ent



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



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



Doubled to US$240 bn effective July 2014

Japan



US$22.76 billion swap line with Japan currently in place



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

IMF Global 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

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

Strengthe engthened ned Pri rivate te Ext xter ernal nal Debt ebt Ri Risk Man anag agement ement

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 transaction ion 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

rate

ates Compli liance ance on Hedgin ing Ratio io & Liqui uidity ty Ratio io

Source: Bank Indonesia

Liquid idity ity Ratio* Hedging ging Ratio*

*Data as of Q1 2018, with total population 2.680 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

2,388 ; 89,1% 292 ; 10,9%

≤ 3 month ths

2,496 ; 93,1% 184 ; 6,9%

> 3

6

mont nths hs

2,340 ; 87,3% 340 ; 12,7% Comply Not Comply

SLIDE 35

34

Healthy althy Ext xter ernal nal Debt ebt Compo posit sitio ion

Exte xterna nal l Debt Struc uctur ture

Source: Bank Indonesia, External Debt Statistics of Indonesia, September 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 49.2 48.6 48.7 49.2 49.5 49.5 57.4 58.6 52.6 50.0 46.4 44.2 45.9 49.5 51.2 51.2 50.8 51.4 51.3 50.8 50.5 50.5 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 16.1 15.8 15.9 15.1 15.7 81.7 78.8 79.3 78.3 78.8 79.8 82.1 82.9 84.5 83.8 84.0 83.9 84.2 84.1 84.9 84.3 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 11.5 17.1 11.3 12.0 5.4 10.2 5.9 3.0 10.3 8.8 5.5 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

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

9.0%

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$130.8bn

r

73.8%

f Private Ext.

Debt US$18.4bn

r

10.4%

f Private
Ext. Debt

US$12.0bn

r
r

6.8%

f Private

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

r
r

9.0% 0%

f Private

ate Ext. . Debt t

Public ic Long Term 1 Priv ivate te Bank

US$27.9bn

r

15,8%

f Private
Ext. Debt

US$1 $177.1bn

r

49.5%

f total
Ext. Debt

US$46.3bn

r

26 26.2% 2%

f Private
Ext. Debt

External Debt Position as of July 2018

1 Based on remaining maturity

Source: External Debt Statistics of Indonesia, September 2018

US$358 58.0bn bn

US$180.8bn

r

50.5%

f Total Ext.

Debt

SLIDE 37

Fisca cal Perf rforma rmanc nce and Flexib xibilit ility: Mor

re

Fiscal cal Stimu mulus us with Pru rudent nt Fisca cal Pol

licy

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 Sector tor

Sy Synergy gy in reform rm to boos

st

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

Growth

wth

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

Export

and Import 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

intai tainin ning purchasing ing powe wer, r, boos

sting

ing domestic ic demand and and support rting ing busines ess 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 priv ivate te sector's r's role le in inves estment ent  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 & 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

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 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 dited Realizat ization 2017 2018 R-Bud udget Realizati ization (Audit ited) % Realizatio ization to R-Budget Budget % difference with R-Bud udget Realizat ization (a.o. Augus ust 31) % Realizat izatio ion 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 1,152.8 60.8

I. Domestic Revenue

1,546.9 1,733.0 1,654.8 95.5 1,893.5 9.3 1,147.8 60.6

1. Tax Revenue

1,285.0 1,472.7 1,343.5 91.2 1,618.1 9.9 907.5 56.1

2. Non Tax Revenue

262.0 260.2 311.2 119.6 275.4 5.8 240.3 87.3

II. Grants

9.0 3.1 11.6 374.2 1.2

61.3

5.0 417.0

B. Expendit

iture 1,864.3 2,133.3 2,007.3 94.1 2,220.7 4.1 1,303.5 58.7

I. Central Government Expenditure

1,154.0 1,367.0 1,265.3 92.6 1,454.5 6.4 802.2 55.2

1. Ministerial Spending

684.2 798.6 765.1 95.8 847.4 6.1 441.8 52.1

2. Non Ministerial Spending

469.8 568.4 500.2 88.0 607.1 6.8 360.4 59.9

II. Transfer to Region and Village Fund

710.3 766.3 742.0 96.8 766.2

0.0

501.3 65.4 C. C. Prim imar ary y Balan ance

125.6
178.0
124.4

69.9

87.3
51.0

11.6

13.3
D. Surplus

us (Defic icit it)

308.3
397.2
340.9

85.8

325.9
18.0
150.7

% of GDP

2.49
2.92
2.51
2.19
1.01
E. Finan

ancin ing 334.5 397.2 366.6 92.3 325.9

18.0

265.6 81.5

SLIDE 41

40

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 spending ing

2015 Rp1,183.3 T 20 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 Energy ergy 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 42

41

Increasing easing Tax ax Revenue ue Over er The Yea ears rs

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 tomati tic Exchan hange ge of Informatio ation (AEoI

I)
Expanding tax base
Prevent tax evasion (Base Erosion

Profit Shifting) Data ata and d Informa mati 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 Allocatio tion: n: 1,618.1

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 43

42

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 Trill illio ion Rupia piah

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 trillio illion) Ratio tio of non-tax tax revenu venue e to Tota tal l Reven enue

SLIDE 44

43

Increasing easing Qual alit ity of Spending 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 PBI I

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

Poverty 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 rastruc tructur ure

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

State Appara ratus tus and Communit unity y Servic ices es

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 system m and retir ireme ment t benefi fits ts of state emp mployee Elec ectr 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. 5.84)

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 20.85)

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 45

44

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 Budget t for Health lth Progra gram

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 46

45

Impr proved ved Budget Alloca cation tion Towar wards ds Local al Governm ernment 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 nd (IDR8. 8.5 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 (IDR185.9 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 (Budge get) t) Trans nsfer er to Regio ions/Villa Village ge Funds

IDRtn 2013 Audit ited 2014 Audit ited 2015 Audit ited 2016 Audit ited 2017 Realizat ization 2018 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 47

46

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 tion:

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 tral Gover ernmen ent 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 48

47

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 39.3 5.2 3.6 0.3

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

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

Onshore Declaration 76% Offshore Declaration 21%

Repatriation 3%

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

SLIDE 49

48

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 50

49

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 (include clude Rp10,1 T of Priva ivate te Placem acemen ent) Inves estme tment t Financin ing g Rp65,7T Gov

ver

ernmen ent t Guarant ntee Obliga igati tion Rp1,1T Other er financin ing g (Rp0,2T) T) Lendin ding g Rp6,7T

Source: Ministry of Finance

SLIDE 51

50

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 year years

Instrum uments nts Indic icativ tive Budget Targe get*

IDR tn tn USD bn bn Budget et Defic icit it (2.19%) 325.9 24.3 Gover ernment ment Sec ecuritie ties (Net) et) 407.2 30. 30.4 Gover ernment ment Sec ecuritie ties (Gross ss) 822.2 61.4 .4

Compo mpositi tion

Domestic Bond 80-83% International Bond 17-20% Issuance Targets gets for Gover ernmen ent t Debt bt Sec ecurit itie ies s and Sukuk uk Inter ternatio tional Bonds (USD, SD, Sukuk USD D EUR, JPY-deno enomina 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 Financing  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 52

51

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)

Discipl sciplined ined an and Soph phist istica icated ted Debt ebt Port rtfolio lio Man anag ageme ement nt

Weig ighte ted Ave verage Debt bt Matur urity ity of ~8. 8.6 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 Years

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. 136.3 155.2 174.7 207.0 235.8 240.8 58.6 54.5 54.7 54.7 54.9 55.8 24.9 24.7 27.5 28.3 29.4 30.3

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 Aug'18 Bond Loan Debt to GDP Ratio (RHS) 9.7 9.8 9.4 9.1 8.7 8.6 7.8 8.0 8.2 8.4 8.6 8.8 9.0 9.2 9.4 9.6 9.8 10.0 2013 2014 2015 2016 2017 Aug18 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***

SLIDE 53

52

Well ll Bal alan anced ced Maturi rity ty Profile le With th Strong ng Resilie silience nce Again ainst st Exter ernal al Shocks cks

Declin clinin ing Inte terest t Rate te Risks ks Debt bt Maturity ity Profile ile Declin clinin ing Exch change Rate te Risks ks Upcomin ing Maturitie ities (Nex 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 10.6 10.5 23.2 21.0 20.7 17.5 19.2 20.6 5 10 15 20 25 2013 2014 2015 2016 2017 Aug18 Variable rate ratio [%] Refixing proportion [%] 11.7 10.7 12.2 12.1 12.1 12.9 46.8 43.4 44.5 42.6 41.3 42.6 5 10 15 20 25 30 35 40 45 50 2013 2014 2015 2016 2017 Aug18 FX Debt to GDP ratio (%) FX Debt to total debt ratio (%) 8.6 7.7 8.4 6.5 9.9 11.2 21.7 20.1 21.4 22.7 25.0 26.4 33.3 33.9 34.7 36.0 39.3 40.9 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 2013 2014 2015 2016 2017 Aug18 in < 1 year (%) in < 3 year (%) in < 5 year (%) 84 285 163 165 161 160 170 51 126 136 132 100 29 137 92 77 97 5 99 29 81 7 15 26 23 21 28 7 50 153 134 154 156 163 123 154 104 101 120 29 28 24 23 20 14 34 7 27 32 2 2 2 35 24 31 116 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 54

53

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 eign Own wnership p of Gov’t Domestic Debt Secu ecuritie ities by Tenor Hold lders of

f Tradable Gov’t Domestic Debt Securities

Source: Ministry of Finance

33.7% 31.0% 23.9% 22.5% 23.4% 26.2% 33.8% 30.8% 37.8% 39.9% 36.8% 36.1% 32.5% 38.1% 38.2% 37.5% 39.8% 37.6% Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Aug-18 Foreign Holders Domestic Non-Banks Domestic Banks 5.2% 4.6% 3.2% 3.5% 5.0% 5.0% 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 31-Aug-18 0-1 ≥1-2 ≥2-5 ≥5-10 ≥10 %Foreign Ownership of Total

SLIDE 55

54

Owner ersh ship ip of IDR R Tra rada dable ble Cen entr tral al Governm rnment t Securities urities

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 August ugust-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% 491.61 1.61 23.41% .41% 596.71 6.71 26.24 .24%

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% 108. 8.63 63 4.78 78%

Bank Indonesia (gross)

157.88 8.90% 179.84 8.56% 206.20 9.07%

GS used for Monetary Operation

23.63 1.33% 38.01 1.81% 97.57 4.29%

Non-Banks nks

792. 2.78 78 65.5 .52% 2% 962. 2.86 86 65.8 .87% 7% 1,239 39.5 .57 69.9 .90% 0% 1,466 66.3 .33 69.8 .83% 3% 1,568 68.3 .37 68.9 .98%

Mutual Funds

45.79 3.78% 61.60 4.21% 85.66 4.83% 104.00 4.95% 115.26 5.07%

Insurance Company and Pension Fund

193.90 16.03% 221.45 15.15% 325.52 18.36% 348.86 16.61% 400.63 17.52%

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% 855. 5.79 79 37.6 .64% Foreign Govt's & Central Banks 103.42 8.55% 110.32 7.55% 120.84 6.81% 146.88 6.99% 162.46 7.14%

Individual

30.41 2.51% 42.53 2.91% 57.75 3.26% 59.84 2.85% 63.81 2.81%

Others

60.51 5.00% 78.50 5.37% 104.84 5.91% 117.48 5.60% 132.88 5.84%

Total

1,209.96 100.00% 1,461.85 100.00% 1,773.28 100.00% 2,099.77 100.00% 2,273.71 100 100.00%

Source: Ministry of Finance

SLIDE 56

Monetar ary and Finan anci cial al Fact ctor: r: Cr Credible Monetary ary Policy cy Track ck Reco cord an and Fav avour

urab

able le Financ ancial ial Sect ctor

r

Sec ection tion 5

SLIDE 57

56

Bank Indonesia’s Policy Mi Mix 2018

To Maint ntain in Macroe

eco

cono nomi mic and Fina nanc ncial ial Sy Syste tem Stabili 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 ncia ial Marke rket Deepening ning Macro- prude udentia ntial Polic licy Paymen ent Sy System Polic licy

1 2 3 4 5

SLIDE 58

57

Ban ank Indo donesia esia Policy cy Mix: x: Septem ptembe ber 2018

The e BI Board ard of Gov

ver

ernors

rs agr

gree eed on 26 26th

th and

d 27th

th Septe

tember er 2018 18 to raise ise the e BI 7-da day Revers rse e Repo

Rate

te by 25 bps to 5.75 75%, , while le also

raisin

ising the e Dep epos

sit

it Facility lity (DF) F) and d Lendin ding Facility ility (LF) ) rates by 25 bps to 5.00% 00% and d 6.50 50% res espectiv ectively. ely.

Strengthens coordination with the Government and other relevant authorities to maintain economic stability and bolster external resilience. Strengthens the Rupiah stability, by raising the policy rate and implementing Domestic Non-Deliverable Forwards (DNDF) transactions in

rder to accelerate

forex market deepening while providing alternate hedging instrument for banks and corporations. Consistent with efforts to lower the current account deficit within a manageable threshold while maintaining the attractiveness of the domestic financial markets, thus further strengthens Indonesia’s external resilience despite widespread global uncertainty. Raises the BI 7-day Repo Rate by 25 bps to 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 59

58

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 Dat ate 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 Ratio ios Impro rovem emen ent t

Source: Bank Indonesia

SLIDE 60

59

Pri rincipl iples

f

Mac acropr prudential dential Inter termedia mediatio tion Ra Ratio (MIR) R) an and Mac acropru rudentia dential Li Liqu quidity idity 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 61

60

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 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 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 (Shar Sharia ia Banks ks and Shar aria ia Busine 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 63

62

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 64

63

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 prot

tec

ection

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 65

64

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 66

65

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 67

66

3.00 4.00 5.00 6.00 7.00 8.00

Stabl able 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

Sept 2018 vs Aug Aug 2018

11.3 .3 11.6 .6 10.7 .7 11.5 .5 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

6.69

1.22 0.94

0.23
4.41

41 0.08

1.14
0.09
1.28
2.06
3.61

7.95 1.12 1.01 0.56 0.51 0.03

0.74
0.86
1.09
1.25
2.21
8.00
6.00
4.00
2.00

0.00 2.00 4.00 6.00 8.00 10.00 TRY THB EUR SGD BRL KRW MYR CNY PHP IDR INR point-to-point Average

%

*data as of Sept 27th, 2018 3.20 2.90 4.97 2.55

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 2013 2014 2015 2016 2017 2018 (%) CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy)

SLIDE 68

67

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

Dampenin ning the second nd-round und effect

f

aminis ister tered ed pric ice adjus usmen ents ts Main intainin taining volatile tile food (VF) infla latio 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 Indo done 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 69

68

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 bility 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 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 70

69

Impr proving ving the Effectiveness ectiveness

f

Moneta tary ry Polic icy Tran ansmissio smission

Bank nk Indones nesia ia has instit tituted ted a Reformulat latio ion n of Moneta netary ry Policy licy Operat ratio ions ns Fra ramework k which ich cons nsis ists ts of 3 pill llars; ; (1 (1) implem plemen entatio tation 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 Implemen ementa tatio tion

f

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

f

Reserve Requir iremen ent (RR) Averag aging ing Refor

rmula

ulatio ion

f

Moneta etary ry Polic licy Operatio iona nal Framew ework 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 71

70

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 72

71

Positi tive ve Develo velopm pment nt in Finan ancial cial Inter termedia mediation tion

Bank lendin ing growth th in the first rst half

f

2018 demonstrate tes a nota table le improvem emen ent. . In the domesti tic capita tal market ets, capita tal raising sing by corporatio ions (partic icula larly ly through right ht issues es and corporate bond issuan ance ce) remain ins strong.

Source: Financial Service Authority (OJK)

The growth th of financ ncin ing dis istrib tributed uted by multif tifin inanc nce compan panie ies grows ws moderate tely ly and starts ts to improve Gross premi mium um reve venu nues in the insur uranc nce ind ndust ustry continu tinuousl usly grow, w, provid vidin ing additio itiona nal l liqui uidity ity to the marke ket Capita ital l raisin ing throug ugh rights ts issue ues and corpor porate te bond nd issua uanc nce rema main ined strong ng in Jan-Aug Aug 2018 Bank nk lend ndin ing growth wth was in an improvi ving ng trend nd in Seme meste ter I – 2018, whic ich continu tinues in July

252 50 100 150 200 250 300 350 400 450 2012 2013 2014 2015 2016 2017 Jan-Jul18 IDR tn 429 5.53% 0% 2% 4% 6% 8% 10% 350 375 400 425 450 yoy IDR tn Financing Growth (rhs) 12.6 23.2 82.53 20 40 60 80 100 120 140 160 180 2012 2013 2014 2015 2016 2017 Jan-Aug 2018 IDR Tn IPO equity Rights Issue Corporate Bonds & Sukuk 4,976 11.34% 0% 2% 4% 6% 8% 10% 12% 3,500 4,000 4,500 5,000 5,500 IDR tn % yoy Bank Loans YoY Growth (rhs)

SLIDE 73

72

Finan ancia cial Institutio titutions ns Re Remain ain Ro Robust

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

el. As of Jul-18

18, CAR & Tier Tier-1 Capit ital was 22.56% & & 20.92%, 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 3.09 time mes, provid idin ing g amp mple room 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 exhib hibit it a gener erall lly sou

und

d conditi ndition.

n. Capita

pital l adequacy cy is main inta tained well ll abo bove the minim imum req equire iremen ents ts. . Prof

fita

itability ility and d lever erage ge are re main intain tained ed at a suffic icien ient t level vel. .

Source: Financial Service Authority (OJK) 3.09 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 457% 311% 200% 230% 260% 290% 320% 350% 350% 400% 450% 500% 550% Life Insurance General Insurance (rhs) 22.56 20.92 18.5 19.0 19.5 20.0 20.5 21.0 21.5 22.0 22.5 23.0 23.5 24.0 % CAR Tier 1 5.12 2.46 0.0 1.0 2.0 3.0 4.0 5.0 6.0 % Net Interest Margin Return on Assets

SLIDE 74

73

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

Ade dequa quate te Li Liquidity uidity, Man anag ageable eable Cred edit it Ri Risks ks

Ban Banks ks are re eq equip ipped ed wi with th suffic icien ient li liquid id assets

ets. In

Insuran ance in industry try al also de demo monstr trates ates an an en enhan hanced ed level level of

f in

inves estmen tment ade adequacy acy rati atio. The non-pe performin ing loa

an/financing (NPL/NP

/NPF) F) ratio tio is is main inta tain ined ed below

w the thres

esho hold ld.

The ratio of liquid id assets to deposits its in the banking g secto tor mo moderates es in line with h recen ent t outflows, s, but is ma maintained ed well above the e thres esho hold As of Jul-18 18, the gross & net NPL L ratios of the banking g sector were 2.73% & & 1.26% respe pectiv tively, ma maintained below the thres eshol hold NPF ratio of the mu multifi finance industr try was 3.18% as of Jul-18, 18, ma maintained ed well below the 5% thres esho hold Inves estmen tment 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.

*

3.18% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 100.10 21.00 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) 1.26 2.73 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 % NPL Net NPL Gross

SLIDE 75

74

Re Resilient ilient Amidst dst Increa ease sed Mar arket et Volatility tility

Amids midst the the in incre reas asin ing market rket vol volatilit atility, y, the the risk profile ile of

f fin

inan ancial al in insti tituti tution

ns re

remain ains man anage ageable

able. Net

Net open

pen pos
sit

ition

n of
f the

the ban ankin 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 still ll rela lativ ivel ely stable le. Amid idst t the incr creasin ing volatility latility of the IDR exc xchang nge rate, net open n positio ition n in the bankin king secto ctor is kept pt far below low the maxi ximu mum m limit it (20%) %) The inve vestme tment nt value lue of insur urers & pens nsio ion n fund nds is relative latively ly stable ble albe beit it bein ing expose posed to the spike ked volatility latility Multif tifin inanc nce companies’ exposures to foreign debt had gene nerall lly been n mitig igate ted through hed edgin ing measures Mutual funds’ net asset value (NAV) continued to grow with th a lowe wer leve vel l of volatil tility ity

Source: Financial Service Authority (OJK) 184 95 60 80 100 120 140 160 180 IDR tn Domestic Debt Foreign Debt 5,000 5,200 5,400 5,600 5,800 6,000 6,200 6,400 6,600 6,800 260 290 320 350 380 410 440 470 500 530 IDR Tn NAV Mutual Funds IDX (rhs) 1.78 1 2 3 4 5% 1,030 255 200 225 250 275 300 800 850 900 950 1,000 1,050 1,100 IDR Tn IDR Tn Insurance Pension Funds (rhs)

SLIDE 76

75

Volatility tility in the he Global bal Mar arkets ets Continues inues

Recen ent t devel elopm pmen ents ts in the globa

bal

l econo

nomy and

d financia ial l mark rkets ets gener erated ted som

me

e pres essure res on the dom

mes

estic tic capit pital l markets kets. . Never verthele theless, the over verall ll market ket stability ility rem emain ins intact tact.

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 Recent t outflo lows in the e domestic tic marke kets ts are mainly ly trigg iggered by exte ternal l factors The IDX Composite posite Index expe xperie ienc nced pressur ures, as also experienc nced by other emerg mergin ing marke ket t equi uity ty indice ces Governm nment nt bond nd yields once ce spike iked, but now w tend nd to stabil biliz ize

*as data 19 September 2018

Stock Index Performance 19 September 2018 vs 29 Desember 2017 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 Yield (%) 5-yr Yield 10-yr Yield 20-yr Yield IDR (rhs) 229.78 5,873.60 5,000 5,500 6,000 6,500 7,000 180 200 220 240 260 Comp Bond Index Comp Stock Index (rhs) (20.2) (3.9)

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 IDR Tn Gov't Debt Securities Equity

17.19

2.50 14.31 6.18

5.37

3.99 0.22

17.43
15.62
6.65
8.40
7.59
6.45
0.22

3.27

20
16
12
8
4

4 8 12 16 TURK BRAZ RUS AS EURO JPN MAL CHIN PHIL SIN HKN INDO KOREA THAI WORLD

%

SLIDE 77

76

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 78

77

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

OJ 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 fin inanci cial con consumer pr prot

tection.

Developing financial education models utilizing various delivery channels Enhancing the role

f

the “Investment Alert Taskforce” The he res esult lt

f
f

OJK’s 201 016 nationa tional surv urvey ey dem emonstrated an improveme ment 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 79

78

A A Compr preh ehens ensive ive Finan ancial cial Dee eepen pening ing Program am …strateg

tegy to tackle challenges in deepening Indonesia’s financial markets

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 Fina

nanc ncia 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 80

79

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 81

80

BI’s Roles in Supporting Distribution

f

Non-Cas Cash Socia ial As Assist istance ance (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 ial assis ista tance nce disb sburs rsem emen ent throug

ugh

the electr tronic nic payme ment nt 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 SA Prog

grams

Family ly Hope Progr gram am (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 Panga gan Non Tunai – BPNT)

2016-2020

Pilot

t

Project

ject

Gradu adual Implem lemen entatio tion

Inter erconnecte cted & inter eroper erable le payment syste tem

LPG Subsid idy

Full Imple lementation ion

XXYYZZ 12345678

9876543210

Source: Bank Indonesia

SLIDE 82

81

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 83

82

Strong nger er Funda damen mentals tals Fac acing ng the he Headw adwinds 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

Inflatio lation n Rate te (%) %) IDR Move veme ment nt (%) Non-Pe Performi ming ng Loan/NPL PL (% (%) Governm nment nt Debt bt/G /GDP Foreig ign n Reserve ves (USD bn)

100.0% 1998 27.4% 2008 08 29.8% Q2 - 201 2018 8.6x 1998 98 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 xterna nal l Debt t (Pub ubli lic c & Priva vate te) to FX Reserve ve Ratio io Exte xterna nal l Debt/GD 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 6.6 6 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 August ‘18 117.9 7.9

August ‘18

3. 3.20 (yoy)

July ‘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

Q2 2018

4.13 13 (ytd)

8.97

97

35

35

197

197 26-Sep-18 2008 1998

SLIDE 84

83

Outlo look

k
f

Dome mesti 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 85

Progress ssiv ive In Infr frastruc ructu ture Developmen ent: Strong Co Comm mmitme ment

n

Ac Acce celeratio tion

f

In Infr frastruc ructur ture Provisio ion

Sec ection tion 6

SLIDE 86

85

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)

Viabi ability lity Gap ap Fundin ding (VGF) KPPIP IP Dire rect t Lendin ding 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 Indo dones esia 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 d 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 87

86

Some

f

Most Recent ent Reforms

Policy cy reform rms are aiming ng to create te a more conducive ucive invest stmen ment clima mate for infras astruc ructur ure delivery very

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 ct Handlin ling in Land Acquis isit itio ion Proce cess 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.

N. 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 egic Proje jects cts Implem ementa entatio ion – released

n

May 2017

The supporting regulation for Presidential Reg. No. 3/2016 on the Acceleration of the National Strategic Projects Implementat ion. This is regulation ulation regulate ulates the scope

pe and gene

neral al requ quir ireme ments nts and proce cedur ures to propos

se and grant

ant guar arante antees, as well ll as alloc

c

ate te state te budget t oblig ligatio ation n on gove vernme nment nt guar arante antees 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.

Govern ernmen ment

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 an nex 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 Spati atial al can issue a reco comm mmend ndati ation

n of spatia

tial l utiliz lizati ation

n;

; so that at the proce cess of obtaini 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 cy – 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 88

87

Reforms Along the Project’s Life Cycle

...to enco cour urag age and accele lerate te infras astruc ructur ure project ct using ng PPP scheme me Governm rnment nt

f

Indone nesia sia

Proje

ject

ct Dev evelop lopmen ent Facility lity (PDF) PDF) Viab abil ilit ity Fundin ding Gap (VGF) F) Guar uarant ntee Fund Tax Facilitie lities Availab ailabil ilit ity Payment yment 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 89

88

Effort rts to Accel elerate te Infras astructu tructure 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 ng – In Indr dralaya sect ection ion of

f the

the Tr Trans Sumatera Toll ll Roa

ad Project
ject

2. 2. Java va Nor

rth

th Line Dou

uble

le Track ack Rail il Projec

ject

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

SLIDE 90

89

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 uisi siti tion Budgeting 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 91

90

New ew Fundam ament ental al Regu gula latio tions ns Hav ave Been een Initia 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

F No. 60/2017
n

Proc

cedur

dures for the Prov

vis

isio ion

f

Central Governm rnment nt Guarant ntee 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

Presid identia tial

Reg. No. 56/2017
n

Socia ial Impact Handl dlin ing in Land Acquis isit itio ion Proc

cess

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 Management nt

f

Land Acquis isition ition by State Asset Management nt 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 92

91

Under Presidentia idential Reg.

g. No.56

56/2 /201 018, , PSN list has as been en revise sed into 223 23 Proje jects cts an and 3 Program ams

projects

26 26

Projects

53 53

Projects

18 18

Projects

12 12

Projects

Sulawesi esi

US$22.8 B

Kalim imanta ntan

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$0.7 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

Projec ject Progr gram am

PSN includ udes es 15 s sectors

rs

at projec ect level el and 3 sectors

rs

at program am level el

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

Projects

SLIDE 93

92

PSN may ay receiv ive privil ileg eges es as stipula pulated ted in the Presiden sidential 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 94

93

Progress ess

n

223 23 Proje jects 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 June ne 2018 18)2

The Estima timated ted Inves estme tment nt Value ue for 22 223 3 Projects ects + 3 3 Program 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 Secto tors rs with Highest 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

2 projects already completed 29 projects are in construction and will start

perating in 2018

44 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% 20% 20% 13% 13% 23% 23% 16% 16% 3% 3% 24% 24% 6 projects in transaction 53 projects and 1 Airplane Industry Program in preparation

SLIDE 95

94

Progress ess

n

3 37 Pri riori rity ty Proje jects cts

From the revise ised Nationa ional Str trate tegic gic Projec

jects

ts, the he Gov

vernm

rnment nt has as sele lecte ted a list st

f

37 Priorit iority Projec

ject

to be the he focus us

f
f

infrastr tructu 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 96

95

Progress ess

n

37 Pri riori rity ty Proje jects 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 Semaran ang Water er 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-Ba Bawen en Toll Road

SLIDE 97

96

Energy gy Secto ctor: r: the he Progress ess

f

35.000 000 MW Program am

No No Phase MW MW % 1 Operating 2,278 6 2 Construction 16,523 47 3 Signed Power-purchase Agreement 13,481 38 4 Procurement 2,130 6 5 Planning 1,007 3

17 Dec ‘14

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

f large capacity plant "

Jan ‘15

Average economi mic growth th of 6.7% % requir ires es 7,000 MW / year or 35,000 MW / 5 y 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 Launchin 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 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 June 2018

SLIDE 98

97

Accel eleratio tion

f

35.000 000 MW Program am

Gov

ver

ernm nmen ent PT PLN

EPC C Power erpla plant t and d Transmis issio ion PLN Subsidi idiar ary (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 Governm rnment nt has issued Preside ident ntia ial l Regulat latio ion n No. . 4/2 /2016 on Elect ctricit icity Infrastru truct cture Accele lerat ratio ion n to accel celerat rate power proj roject ects Prov

vis

isio ion of Electri tricity ity Refin inancin ing Hedgin ging Finan ancia 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 99

98

Sign gnificant ificant Progress ess

n

I Infrast astructu ructure Proje jects cts

Databas ase Project information such as map, track, existing study and latest project status. An integr grated 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)

Transp nsportatio tion

Jakarta ta MRT Project2

Drinki king Wate ter Processin 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 Golia iat t Dekai, i, Papua

SLIDE 100

99

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 Manda dates  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 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 nt 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

 Governme ment to to inject capital al into SOEs: Intended multiplier effect to develop more infrastructure projects  Key focus cus ar areas: as: – Infrastructure and maritime development – Transportation and connectivity – Food security  Mediu ium m term infrastruct cture develop velopments to focus cus 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 101

100

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 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 Governm nment nt Guarantee tee Program

Credit it Guarantee ee PPP PPP Guarantee

Busin iness Viab abil ilit ity y Guar arant antee (BVG) G)  Power (Elect ctricit icity) – Full credit guarantee for PLN’s debt payment obligation under FTP 1 10,000 MW and 35GW  Celan Water – Guarantee for 70% of PDAM’s debt principal payment obligations  Infrastructure - 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 Transportation (Light Rail Transit 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 102

101

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:

Viabilit 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 Infrastruc tructur ure Financ ncing) ing)

Source: Ministry of Finance

SLIDE 103

102

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 Project 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 ed PPP Proje jects in 2016 and 2017

Source: Ministry of Finance, as of July 2017

SLIDE 104

103

New Guar aran antee tee Schem hemes for Non-PPP PP Proje jects cts

The Government had issued Pr Presiden identi tial Regula ulation tion No No 82 82/2015 and Minis inistry try of

f Fina

inanc nce Regula ulation 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

Gov Govern rnmen ent Regu egulation tion 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 acc accele elerat ation 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.