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Republic blic of Indones esia ia Stability bility at the he Fo Forefr efront, ont, Syn yner ergized gized Reforms rms Move ve Septem ptember er 2018 About ut Investo estor Re Relatio tions ns Unit of the Re

  1. Indo donesia esia Re Remains ains the he Investment stment Dest stin inatio tion of C Cho hoice ice The Econo nomi mist: : Indo done nesia a round nds out the top five of Asian an econo nomi mies that t Indo done nesia a Enjo joys Large Investm tments Relat lative to Peers within n the Region 2 can look forwar ard d to increas ased d investme ment nt spendi nding ng. . (January nuary 2018) 18) 1 40 China 69.4 35 India 47.1 GDP (%) Indonesia 44.1 30 Vietnam 36.9 t / GD Singapore 30.6 25 Australia 30.1 tment tal Investmen 20 Hong Kong 28.8 Thailand 28.7 15 South Korea 28 Japan 26.6 10 Tota Philippines 24.7 30.35 31.69 32.04 33.85 33.45 33.90 25.87 25.46 25.39 24.28 25.03 26.21 21.08 22.84 24.18 26.58 26.57 27.85 5 Malaysia 24.3 Myanmar 20.2 0 Taiwan 18.2 India Indonesia Malaysia Philippines Thailand Vietnam 0 10 20 30 40 50 60 70 80 2016 2017 2018e UNCTAD: AD: Indonesia a is listed d in the top 20 host econo nomi mies based d on FDI JBIC: C: Among ng ASEAN AN countr ntries, , Indonesia a is one of the most prefe ferred d plac ace inflo lows, , 2016 16 and d 2017 17 (June ne 2018) 18) 3 for busine ness investm tment nt (Nove vembe ber 2017) 17) 4 500 China 45.7 450 India 43.9 400 2016 2017 Vietnam 38.1 350 Thailand 34.5 Billion USD 300 Indonesia 33.1 250 USA 26.1 Mexico 200 18.2 Philippines 150 10.6 (x) = 2016 ranking Myanmar 9 100 Brazil 6.3 50 Korea 6.3 0 Malaysia 5.9 Russia 4.3 Singapore 3.8 % of surveyed who consider each country has promising prospects Turkey 2.7 0 10 20 30 40 50 1. Source: The Economist – Asia Business Outlook Survey 2018 3. Source: United Nations Conference on Trade and Development (UNCTAD) – World Investment Report 2018 2. Source: IMF World Economic Outlook, Database April 2018 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (29th Annual Survey) 7

  2. Natio ional nal Strategic tegic Dev evel elopme pment nt Plan an (Naw awa Cita ta) The 3 Dimensio ions on Econom omic ic Develop opment ment Priority Sector Human Development Equitable Development Development Food Securi rity ty Educ ucation ion Inter- Incom ome Group oup Energy & Electr tric ical Securi rity ty Healt alth Inte ter-Reg Region: ion: Mari ritime time & Mari rine ne (1) Rural al Area ea, Hous using ing (2) Perip ripher hery, y, Touris urism & Indus ustr try (3) Outs tside ide Java, Char aracte ter Water ter Security rity, Basic ic (4) Easte tern rn Area ea. . Infra rastru tructu ture re & Connect ectivity ivity Necessary sary Condit ition on Legal Certainty & Governance Politic & Democracy Security & Order Law Enforcement 8

  3. Economic ic Equal alit ity Policies cies to support sustainab nable le public ic welfar are.. ... Build a fair land distribution scheme • Build a priority scale of Tanah Objek Reforma Agraria (TORA) recipient based on land gini ratio, • Agra raria ian Reform rm Econom nomic ic poverty, & land demand Developing an agricultural industry by agglomeration or cluster method • Equali ality ty Define Lahan Pertanian Pangan Berkelanjutan LP2B to prevent land usage for non-agriculture • Polici cies purposes Agric icultu ture e (Landle dless Land consolidation for agriculture • Farm rmer er) Improve research on seeds and agriculture method, off-farm infrastructure, integrated logistic • system, build seeds market, tools and machinery Data collection & law enforcement on palm oil land area, including land bank data collection • Land Building a database and arranging policy on planting non-agriculture commodities • Planta tatio ion Improve cooperative performance by encouraging SOEs and private sectors involvement • Research support, market synergies, off-takers, and supply chain on downstream business • Social Housing • Urban Poor or & Afforda dable le House financing • Hou ousing Land banks and affordable land prices • Law enforcement on spatial policies • Integrating fishing and seaweeds sectors Fisher hermen en & Seaweed eed • Improve and support aquaculture industry and fishery sector value chain • Cult ltiv ivation tion Encourage Private sector investment on seaweed sector (process and off-taker) • Develop and improve progressive tax, capital gain tax and tax on unutilized asset • Fair ir Tax x System tem supporting fiscal spending • Developing natural resources industries and value chains • Manu nufact cture and d ICT Minimize interest gap between large companies and small companies • Protect market share from integrated businesses and strong capital • Oppor portuni tunity ty Regulate and build a database on traditional/modern market, traditional and modern shops • Regulate the distances, location, and zone of the market and modern stores • Retail l and Mark rket et Compulsory mandates to maximize the usage of Local products • Fair access to the logistic system • Financin ing g & Gov over ernmen ent Improving Kredit Usaha Rakyat (KUR) scheme to support non-bankable SME • Budget get Improving procurement scheme to support SME accessibility to finance • Identified and built priority scale on sectors, sub-sectors of leading industries and profession • Vocatio ional, , Improving link and match scheme between industries and vocation Human n Resour ource ce • Entre repr pren eneu eurs rship hip & & Labor r Early childhood education • Capaci city ty Marke rket Encourage education system to be more skill, collaborative, flexibility and impact oriented instead • of degree consideration Source: Coordinating Ministry for Economic Affairs Priority 9

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

  5. Boosting ting the he Competitive petitivenes ness through ugh Lo Logisti stical al Efficienc ciency th Econo The 15 th nomic ic Policy Packag age has been launche nched Policy cy Goals Policy cy Target ets 0% 0% Import duty for 115 types of ship’s spare 1 parts and components Opportunities for national shipping to serve export and import transportation of around Strengthen the Institution 2 USD 600 millio ion/ n/year ar of the Indonesia National Single Window (INSW) 70-100 units of new worth USD 700 00 millio lion 3 ships Increase Competitiveness of Logistic Service Providers New employment opportunity of 4 2,00 000 sai ailors rs Provide Market Opportunities Improve the Regional Government’s role for Shipping Companies, 5 to 30% in development of Regional Logistics 30% Marine Insurance, and National System to control inflation and reduce Ship Maintenance Businesses post-harvest product damage up Source: Coordinating Ministry for Economic Affairs 11

  6. Progress ess of t the he Economic ic Policy cy Pac ackag ages* 234 34 I – XV I – XII Initially, there are 234 regulations which need to be TOTAL INITIA TIAL REGULATIONS IONS deregulated 11 11 I – XV I – XII Based on the further assessment, 11 regulations has been REVOK OKED ED revoked from deregulation process REGULATIONS TIONS 223 23 I – XV I – XII Total regulation subject to be deregulated: 223 TOTAL REGULATIONS TIONS regulations 219 21 97% 97% SET As of January 18 th , 2018, deregulation of 219 regulations 96% 96% PRESIDENTIAL AL LEVE VEL 52 PRESI SIDE DENTI NTIAL are finished (97%), comprising 50 regulations at 50 FINI 50 47 47 42 42 TOTAL NISHED SHED Presidential level and 169 regulations at VEL 97% SELESAI Ministerial/Institutional level MINIST STERIAL IAL/I /INST NSTIT ITUTI UTIONAL ONAL LEVEL 97% 171 169 FINI NISHED SHED TOTAL Unfinishe ished reg egula latio ions: Proposed Policy on Development 3% 3% 4 ON GOIN ING of Business and competitiveness of National Logistics DISCU SCUSSION SION Service Providers *as of March 2018 Source: Coordinating Ministry for Economic Affairs 12

  7. Othe her Progres ess on Economic ic Policy cy Pac ackag ages es Develo lopmen ment of Fair, Simplif ifie ied & & Spesial al Economic mic Zone ne (SEZ) Project ctab able le Wage Sys System 29 Provinces have set 2016 Minimum Wage Investment commitments in SEZ up to System in accordance to the Government 2017 reach 41 T, with 3 hour licenses Regulation (GR) No. 78/2015 already applied in 4 SEZ’s Administrators in 2017 Indus ustrial rial Zone Deregula ulatio ion on Logis istics ics Sect ctor 52 Bonded Logistic Center has been • The Provinces of Central Java proposed 3 launched to support various industries IZ’s : Kendal, Demak, and Ungaran • Pharmaceutical IZ in Bitung (North Sulawesi) in 2017 13

  8. Invest vestmen ment Inc ncent entives ives to Bo Boost st Industry dustry Sector or BUSINE INESS SS EXPANSIO ANSION INDUST STRIAL RIAL ZONE Tax allowa wanc nce • VAT T exem xempt ptio ion n on import or delivery of capital goods, • Exe xemptio mption n or relie lief of import t duty ty on capita ital l goods, machine chinery or • Import t Duty exemption xemption on machineries/goods/materials, • equi uipme pment nt for production purposes that can not be produced Tax Allowa lowanc nce and Tax Holid iday • domestically; Exe xemptio mption n or relie lief of import t duty ty on raw mate teria ials or auxi xilia liary • mate teria ial l for production purposes for a certain period of time and certain conditions; FREE TRAD ADE ZONES AND PORTS Exe xemptio mption n or suspe pens nsio ion n of VAT on the import t of capita ital l goods • or machine chinery or equi uipme pment nt for production purposes that have not been produced domestically for a certain period of time; Exe xemptio mption n of: Accelerate depreciatio ciation n or amortizatio tization n (part of tax allowance); Import t Duty • • and VAT • Prope perty ty tax relie lief, especially for certain business sectors in Luxu xury Goods Sale les Tax x (PPnB PnBM) • • certain regions; Custom toms duty ty • Combine with Online Single Submission (OSS) • MICRO RO, SMAL ALL, MEDIUM IUM ENTERP RPRIS ISES (MSM SMES) S) PION ONEE EER INDUSTRIES USTRIES Decr creasin ing MSME MEs Tax from 1% to 0.5% % of gross revenue Tax holid liday of corporate income tax in a certain amount and time SPECIAL ECIAL ECONOMI ONOMIC ZONE E-COM OMMERC RCE No colle lectio ction n of VAT T and Luxu xury Goods Sale les Tax (PPnB PnBM), ), • Sales from customs areas for non-sma mall ll entrep treprene neur urs through • Custom toms tax exemption xemption, • the market place will be subject to 0.5% % income come tax and 1% Tax Allo lowa wance and Tax Holid iday, • VAT Suspe pens nsio ion n of Import t Duty, • Sales from customs areas for small ll entr trepr preneurs through the • 0% Import t Duty for goods produced using local components of • market place will be subject to 0.5% % inco come me tax a certain level Source: Coordinating Ministry for Economic Affairs 14

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

  10. Enhan ancing cing Busines iness Li Licen ense se Serv rvice ice Stan andar dard Presiden identi tial al Regul ulati tion to Accelerate te Ease of Doing Busine ness ss has been launched ched Improve efficient, streamlined, Provide business licensing Overcome the barriers & integrated business license process assurance in terms to doing business in service standards of the costs and lead times Indonesia cy Goals 2 4 6 1 3 5 Policy Implement integrated Accelerate the Increase coordination & business licensing synergy between central & licensing process process regional government (single submission) nd Phase st Phase 2 nd 1 st Forming a Task Force to Business license identify & overcome the end- regulatory reforms cy Main Policy to-end licensing barriers Implementing a licensing checklist Implementation of the for Special Economic Zones (KEK), Single Submission Free Trade Zones (FTZ), Industrial system Zones & Tourist Zones Utilizing data sharing Note: 1 st and 2 nd Phase are implemented in parallel Source: Coordinating Ministry for Economic Affairs 16

  11. Impr proving ving Inv nvestment estment Clima imate Onlin ine Sing ngle le Submissi ission on (OSS SS) Has Been en Laun unched hed... ... OSS is a web-based business licensing system intended to cut the red tape involved in obtaining business permits and integrated between the central government and regional administrations Secto tors rs Lorem Ipsum Envir ironm nment ent Public lic Wor orks ks Electr tric icit ity y Indus ustr try y Health Sec ecto tor Suitable for all & Fores restr try y & Housin ing g Secto tor Secto tor category, Secto tor Secto tor Informatio ation n & Mari rine ne & Medic icine ine & Trans nsport rtat atio ion n Trade ade Secto tor Communic unicatio tion Fishery ery Secto tor Food Sector Secto tor Secto tor Other Secto tor The Advant antag age e of Using g OSS Business licenses Standardized Ellectronically can be secured in business licenses integrated under an hour are available The whole licensing Accessible at More practical process is monitored anytime and by the Task Force anywhere Source: Coordinating Ministry for Economic Affairs 17

  12. Improving ving Investment stment Clima imate te …Bonded Logistic Center to Improve Indonesia’s Competitiveness Bonded Logistic Center To To da date, e, 52 Bo Bond nded ed Logis gistic tic Cent nter ha has been en laun unched hed to to suppo pport variou rious indus dustries ries. (Pusat Logistik Berikat/PLB) is a facility provided by Ministry of Finance as part of the Small and Food & implementation of the medium ium bever erag ages es 1 st Economic Policy Package. indus ustr try indus ustr try Pers rsonal nal Oil il and PLB facility aims to improve care/ gas, ga s, and home care mining ng efficiency and reduce the cost of Synthetic tic indus ustr try indus ustr try transportation and logistics in textile ile Auto- (chemic ical al Indonesia; support the growth of motiv ive e substanc nces es) the domestic industry, including indus ustr try indus ustr try. y. Textile ile Heavy small and medium (cotto tton) n) Equipment nt industries; increase indus ustr try indust ustry ry investment; and to make Aircraft ft MRO Indonesia to become a logistics Defence indus ustr try indus ustr try hub in Asia Pacific. 18

  13. Impr proving ving Invest stment ment Clima imate te …revising the Negative Investment List Introduc uctio tion n of New w Foreig ign n Owne wnership ip Regula ulatio tion n for Strate tegic ic Secto ctors Sports Center, Pharmaceutical Raw Materials Cold storage ge Restaurants, , Bars Film Processing g Lab, Crumb Rubber Manufacturing After Before After Before After Before After Before 100% 100% 100% 100% 33% 85% 49% 51% Private Museum, Catering, g, apparel Toll Road Operator, Distribution, on, Wareho housing Key Reforms in Negative ive Foreig ign Manufacturing, g, Exhibitions ons & Telecom ommunication Testing Company Investment List Conve ventions ons Before After Before After Before After Revisio ion of "Partnership ip" category y to refer to partnership ip with Micro, Smal all and Mediu ium Enterpris ises 100% 67% 67% (MSME MEs) 95% 33% 51% Gran andf dfat ather Law: If a par artic icul ular ar sector is tightened in futur ure, existin ing Professiona onal Training, g, Golf Course Telecom ommunication Provide der foreig ign investor does not need to Management, , Air Transport ort Support ort Servi vices, , Consultancy for Construction on 1 with Integrated d Servi vices comply with tighter stak ake Trave vel Bureau Before After Before After Before After Strengthen implementatio ion of negative investment law throug ugh active ive roles from min inistrie ies, agencie ies 67% 67% 67% 49% 55% 65% and regio ional governments 1 For total project value of IDR10bn and above Source: Investment Coordinating Board (BKPM) 19

  14. Contin tinuou ous Improv ovement ement of Investme stment Clima imate te … anothe her leap on Indonesia’s Rank nk on Ease of Doing Busine ness ss (EODB)* EODB 201 2018 EODB 201 2017 Chan hange in EODB 201 2018 EODB 201 2017 Cha hange in Rank Rank nk Rank nk Point ints Point ints 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 49 49 11 80.92 2.95 38 38 83.87 Registe tering ring Prop operty 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 104 104 10 69.25 1.21 114 68.04 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 olvency 38 38 76 76 38 67.61 46.46 21.15 * Higher rank is better, EoDB 2018 was published in October 2017 - 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 20

  15. Investm estment nt Re Real aliza izatio tion (Q2-201 2018) 8) Direct ct Inve vestme tments nts FDI Reali lizatio tion n by Secto ctors IDR tn 200 FDI DDI TOTAL 180 176.3 Non Metallic tallic 160 Mine neral l Indust ustry 140 120 US$ US$75.6 .6 mn mn 100 Transp nsportatio tion, n, 20.6% 80 Warehouse use, and 60 Housin ing, Ind ndust ustria ial Estate tate, 95.7 40 Tele leco comm mmun unica catio tion and Offic ice Build ildin ing 20 US$ US$586.3 .3 mn mn US$962.8 US$ .8 mn 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 144.6% 148.0% 2013 2015 2016 2017 2018 2014 Trade & Repar paratio tion Textil xtile Indust ustry Invest stment nt IDR176.3tn tn US$121.4 US$ .4 mn mn Rp159.4 T US$ US$50.7 .7 mn IDR170.9tn tn 434,463 434 463 37 375,9 ,982 Reali liza zatio ion Rp145.4 5.4 T 72 72.2% 33.4% * 3.1% 3.1 9.6 9.6% 15.6 .6% Rubbe ber and Metal, tal, Machine chinery & & Plastic tic Indust ustry Ele lectroni nic c Ind ndust ustry Q2-201 017 Q2-201 018 US$168.6 .6 mn mn Q1-201 016Q1-201 017 Q1-201 016 Q1-201 017 US$ US$781.1 .1 mn mn * perso * son 22.8% 30.9% IDR80.6tn tn IDR61.0tn tn IDR109.9tn tn Mini ning ng IDR95.7tn tn US$995.3 US$ .3 mn mn Decreasin ing 1.1% 1. -12.9% 32.1% Q2-201 018 Q2-201 017 Q2-201 018 Q2-201 017 Source: Investment Coordinating Board (BKPM), compared to Q2-2017 period 21

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

  17. Conducive cive Environment ment Unde derpin rpinning ning Strong ng Growth th Funda damenta mentals ls 4th Most Tax base to be Budget reform as broad adened from Larges gest t Economy my Populous country y a a part of larger one reduc uce in South East in the World; ; economic ic reform dependency on Asia 64% in init itiat iative commodit ditie ies productiv tive e age Large rge and d Consi nsiste tent nt Fuel subsid idie ies Stab able le Risin ing g Middle e Budg dget t Reform orm signif ific ican antly y Econo nomy Manageable Class and reduc uced and Prud udent debt Inflatio tion Rate Affluen ent t spendin ing redir irected man anag agement to more produc uctive Custome mers allocat atio ion Reform rm-Or Orien iented ted Adminis inistr tratio ion Three main ain sources of finan ancin ing for From commodity-based to man anufa ufactur urin ing investment needs: Stat ate and regio ional al and servic vice sectors via infrast astruc ucture budget, Stat ate Owned Enterpris ises and PPP development New High h Contin inui uing from 2015 polic icy, infras astructur ure Econo nomic ic Infras rastructu ructure re From consum umptio ion-led to investment-led will be higher than fuel subsid idy growth via a stronger man anufac ufactur urin ing sector Structu ructure re Investmen ents and more investment init itia iative ives Infras astructur ure spendin ing focused on basic ic infras astructur ure projects Policie cies to main intain purchasin hasing power to stim imulate domestic ic economy in the mid idst Fiscal al and non-fis iscal al incentive ives to attrac act of weakenin ing macr croeconomic ic condit itio ions infras astructur ure investment and promote PPP 23

  18. Indonesia’s Strong GDP National economic growth momentum has continued to build in • Strong ng GDP Growth th 1 Indonesia, as confirmed by solid GDP growth figures for the second % QoQ YoY quarter of 2018, reaching 5.27% (yoy), the highest rate on record 7.0 since 2013. 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 In terms of expenditure, private consumption by households and non- • 5.0 profit institutions serving households (NPISH) recorded strong growth. 4.01 3.83 3.27 3.74 3.31 3.14 Household consumption stood at 5.14% (yoy), the highest since 2014. 3.0 On the other hand, NPISH consumption grew 8.71% (yoy) in the three 4.21 4.01 3.19 months to June 2018. 1.0 0.04 BI projects solid economic growth in 2018 on resilient domestic • (0.16) (0.36) (1.81)(0.30) (1.70)(0.42) -1.0 demand. Solid investment is also expected in line with ongoing (1.73) infrastructure development, thus driving private consumption gains. In (2.07) -3.0 addition, expansive government consumption and maintained Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 macroeconomic stability will continue to bolster economic momentum. 2014 2015 2016 2017 2018 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. Favo vour urable ble GDP Growth th Compar pared to Peers 2 % Growth th Prospe pect ct 9.0 8.0 Instit itutio ions 201 2018 GDP growth (%YoY) 7.0 5.3 2018 Budget 5.4 6.0 5.1 5.0 Bank Indonesia 5.0 – 5.4 4.0 IMF 5.3 3.0 2.0 World Bank 5.3 1.0 ADB 5.3 0.0 2012 2013 2014 2015 2016 2017 2018* Consensus Forecast 5.2 (September 2018) Indonesia India Philippines Bulgaria Colombia 1. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption 2. Source: World Economic Outlook Database – April 2018; * indicates estimated figure 24

  19. GDP Growth th Breakd akdown wn GDP Growth th Based on Expe xpend nditur itures (%, YoY YoY) 1 2014 14 2015 15 2016 16 2017 17 2018 18 By expen pendit diture Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot. Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Tot Q1 Q1 Q2 Q2 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 HH. Consumption Non profit HH. 23.2 22.4 5.8 (0.5) 12.2 (8.1) (8.0) 6.6 8.3 (0.6) 6.4 6.7 6.7 6.7 6.6 8.1 8.5 6.0 5.2 6.9 8.1 8.7 consumption Government 6.1 (1.8) 1.2 0.9 1.2 2.9 2.6 7.1 7.1 5.3 3.4 6.2 (3.0) (4.0) (0.1) 2.7 (1.9) 3.5 3.8 2.1 2.7 5.3 consumption Gross Fixed Cap. 5.4 4.0 4.4 4.1 4.4 4.6 4.0 4.9 6.4 5.0 4.7 4.2 4.2 4.8 4.5 4.8 5.3 7.1 7.3 6.2 7.9 5.9 Formation 3.1 1.5 4.9 (4.4) 1.1 (0.6) (0.3) (1.0) (6.4) (2.1) (3.1) (1.5) (5.8) 4.1 (1.6) 8.4 2.8 17.0 8.5 9.1 6.1 7.7 Exports 5.1 0.4 0.2 3.0 2.1 (2.6) (7.1) (6.5) (8.6) (6.2) (5.0) (3.5) (4.1) 2.7 (2.4) 4.8 0.2 15.5 11.8 8.1 12.7 15.2 Imports 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 GDP 1. Source: Central Bureau of Statistics of Indonesia (BPS), ** Including non-profit household consumption GDP Growth th by Secto ctor (%, YoY YoY) 2014 14 2015 15 2016 16 2017 17 2018 18 By sectors Q1 Q1 Q2 Q2 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 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 fishery -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 Mining and Quarrying 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 Manufacturing 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 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 Motorcycle 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 Transportation and Storage Information and 9.9 10.7 9.8 10.1 10.1 9.7 9.3 10.6 9.2 9.7 7.6 9.3 8.9 9.6 8.9 10.5 11.1 8.8 9.0 9.8 8.5 6.1 communication 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) 25

  20. 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) 26

  21. Sec ection tion 3 Ext xternal rnal Fact ctor: r: Im Improv oved Ext xternal ernal Resilie ience nce

  22. Exter ernal al Bal alan ance ce under r Contr trol l Support rted ed by A y Adequ quate ate Reser Re serves es Balance e of Payme ments Portrait it Curren ent t Account Defic icit it withi hin Safe Thres esho hold 2012: 2012: 2013: 2013: 2014: 2014: 2015 2015: 2016: 201 201 2017: US$bn US$bn CA Defic icit CA Defic icit CA Defic icit CA Defic icit CA Defic icit CA Defic icit 20 Current Account Capital and Financial Account 160 (US$24.4bn) n) (US$29.1bn) n) (US$27.5bn) n) (US$17.5bn) n) (US$16.9b 9bn) n) (US$17.3 .3bn) n) US$bn Overall Balance Reserve Asset (RHS) 8 15 6 120 4 10 119.8 9.8 0.29 2 1.63 5 0 80 -2 (8.16) 0 -4 (4.31) .31) -6 -5 (8.03) 40 -8 -10 (8.03) .03) -10 (1.79) -12 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** -15 0 2012 2013 2014 2015 2016 2017* 2018** 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 Source: Bank Indonesia Source: Bank Indonesia Substantia tial FX Reser erves es to Mitiga igate te Exter ernal Challen enges ges Trade e Balance Defic icit it in line e with h Imp mprovin ing g Economi mic Activ ivities ities 2013 2013: 2014: 2014 2015: 2017: 2016: 201 : FX Reserves s as of August st 201 2018: US$117 17.9 bn n US$bn US$bn Defic icit it Defic icit it Surplus us Surplus us Surplus us Month (Equiv iv. to 6.6 month ths s of impo ports ts + servic icin ing of government t debt) t) (US$4.10bn) n) (US$2.37bn) n) US$7.59bn US$11.83bn bn US$8.83b 3bn 3.00 130 15 14 FX Reserves (LHS) Month of Import & Debt Service (RHS) 120 2.00 13 12 110 11 1.00 10 100 9 8 0.00 90 7 6 80 -1.00 5 4 70 3 OG Non-OG Total -2.00 2 60 1 50 0 -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 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 2013 2014 2015 2016 2017 2018 * Preliminary Figure ** Very Preliminary Figure Source: Bank Indonesia Source: BPS 28

  23. Exc xchan ange Ra Rate In Li Line ne with Funda damentals mentals Move veme ment nt of Rupia iah IDR/US$ 14,917 The Ru The Rupia piah conti tinued ed it its depr eprec ecia iati tion tr trend end, howev ever er with ith sma maller er 14,950 volatil tilit ity. Rupiah depreciation is in line with the currencies of peer *data as of September 27 th , 2018 14,850 14,750 countries, spurred by broad US dollar appreciation. The Rupiah 14,867 14,596 14,650 depreciated by an average of 1.05% in August 2018 and closed at a 14,550 14,450 level of Rp14,905/USD on 26th September 2018. Year-to-date (ytd), 14,350 the Rupiah has lost 8.97% in value against the US dollar as of 26th 14,250 14,409 14,058 14,150 September 2018, faring better, however, than the Indian rupee, South 14,050 13,952 African rand, Brazilian real and Turkish lira. Moving forward, Bank 13,950 13,760 13,850 Indonesia will continue to implement exchange rate stabilisation 14,043 IDR/USD 13,603 13,750 measures in line with the currency’s fundamental value, while 13,809 13,650 Monthly Average 13,550 maintaining market mechanisms and financial market deepening 13,378 13,450 13,576 efforts. Such policy is aimed to contain Rupiah volatility and liquidity 13,350 13,250 adequacy in the market, to prevent risks on macroeconomic stability 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul 1-Aug 1-Sep and financial system. Rupia iah Exc xchang nge Rate Fared Relative latively ly Well ll Compar pared to Peers Rupia iah Exc xchang nge Rate Volatil tilty ty Sep 2018 vs Aug Aug 2018 % 98.3 .3 100 -2.21 INR -3.61 Aug-18 Sep-18 -1.25 25 90 IDR -2.06 -1.09 80 PHP -1.28 -0.86 CNY 70 -0.09 -0.74 MYR 60 -1.14 0.03 KRW *data as of Sept 27 th , 2018 50 0.08 38.2 .2 0.51 BRL 34.4 .4 -4.41 40 31.5 .5 30.3 .3 0.56 SGD -0.23 30 1.01 18.2 .2 EUR 0.94 20 12.9 .9 1.12 10.0 .0 THB 7.1 6.9 6.6 6.5 1.22 5.8 5.2 5.3 4.4 4.9 4.6 4.9 10 3.8 7.95 TRY -6.69 69 % 0 -8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00 TRY ZAR BRL INR IDR KRW MYR PHP THB SGD point-to-point Average Source: Bank Indonesia 29

  24. Bank Indonesia’s Policy licy Direct ection ion To maintain ain Rupiah ah stabilit lity and support growth Measures es To To Stabi bilize lize Rupia piah Exchange nge Rate te Measures es To Supp ppor ort t Gro rowth th 1 1 To stabilise the rupiah A pre-emptive, front- Further easing of exchange rate, while To bolster the growth of the loading and ahead-of- macroprudential consistently controlling inflation property sector which has positive the-curve policy policy within the 2018-2019 target impact to the economy response range of 3.5±1% 2 2 Dual intervention in Coordination with the Coordinating the foreign exchange To stabilise the rupiah Policy Ministry of Economic Affairs, the market and exchange rate, adjust fair coordination to Ministry of Finance, and the government securities prices in the financial markets accelerate Financial Services Authority to (Surat Berharga Negara and maintain adequate liquidity financial market accelerate financial market – SBN) market in a in the money market deepening deepening, particularly in private measured way financing for infrastructure. 3 3 Strengthening the Electronification to support social Payment system To maintain adequate liquidity monetary operations in assistance disbursement and development to in the rupiah money market the foreign exchange and financial transcation of the central support digital and interbank swap market money markets and regional government economy 4 4 Sharia economy and finance Intensive communication, To form rational expectations, development to create halal value Sharia economy especially to market thus helping to mitigate the chain, sharia financal sector and finance players, banks, rupiah overshooting its development both for commercial development businesses, and fundamental level. and social purposes, including its economists education and communication Source: Bank Indonesia 30

  25. Ampl ple Li Lines of D Defen efense se Against ainst Ext xter ernal nal Shocks cks Ampl ple Reserve ves Ample level of FX reserves to buffer against external shock  FX Reserv rve FX Reserves as of August 2018: US$117.9 billion  Swa wap p Arrang ngeme ment nt US$22.76 billion swap line with Japan currently in place  Japan Bilateral teral The size of the swap line was increased from US$12 bn in December 2013  South th Korea Renewed a 3 year KRW/IDR swap arrangement with the size of up to 10.7 tn KRW/IDR115 tn in March 2017  Australia alia Renewed a 3 year A$/IDR swap arrangement of up to A$10 bn or IDR100 tn in August 2018  Chia iang g Mai i Entitled to a maximum swap amount of US$ 22.76 bn under the ASEAN+3 (Japan, China, and Korea) FX  nal iona Initi tiati tive ve reserves pool created under the agreement Multila ltilater terali liza zation tion Regio Came into effect in 2010 with a pool of US$120 bn  (CMIM IM) ) Doubled to US$240 bn effective July 2014 Agreem eemen ent  IMF Global al bal Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem Globa  Financ ncial ial Safety ty Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL)  Net - GSFN Source: Bank Indonesia 31

  26. Solid id Policy cy Coordi dina natio tion In Managin aging Financial ancial Market kets Volati tili lity ty The enac actm tment nt of Law No. 9/201 016 6 regar arding ng Prevention ntion and Mitig tigat ation on of Financ nancial al Syste tem Crises Gov’t Securities Crisis is Mana nage gement ent Proto tocol (CMP) as a legal foundation for the government to serves Indicators: at the time of financial crisis in the form of Financi Financial al  - Yield of benchmark series; Syste tem Stabili ability ty Com ommitt ttee (KSSK) - Exchange rate; - Jakarta Composite Index; - Foreign ownership in government securities KSSK membe bers: the Ministry of Finance, Bank Policies to address the crisis at every level : Indonesia, the Financial Services Authority, and the  Deposit Insurance Corporation - Repurchase the government securities at secondary market - Postpone or stop the issuance Bond nd Stabilizatio ilization n Framew ework rk Swap facility arrangements based on international cooperation First Line of Defense Buyback fund at DG of Budget Financing and Risk Management State’s Budget Investment fund at Public Service Enhancing coordination between government Agency (BLU) (min. level Aware) institutions and continuous dialogue with market Stat ate Owned Enterprises Related SOEs (min. level Aware) participants (BUMN)’s Budget Social al Secur urity y Organ anizing zing Agency y BPJS (min. level Aware) (BPJS)’s Budget CMP Implementing Crisis Management Protocol (CMP) Second Line of Defense State General Treasury Account (Rekening KUN) (min. level Alert) State’s Budget Accumulated cash surplus (SAL) (min. Level Crisis) BSF Implementing Bond Stabilization Framework (BSF) Source: Ministry of Finance 32

  27. Strengthe engthened ned Pri rivate te Ext xter ernal nal Debt ebt Ri Risk Man anag agement ement Enco cour uragin ing Corpor orate ates Compli liance ance on Hedgin ing Ratio io & Liqui uidity ty Ratio io Debt Burden en Indicator (Exter ernal Debt/G /GDP DP) ) Rema mains Comp mparable e to Peers Rating Hedging ging Ratio* Exter ernal Debt/ bt/GDP (%) 184 ; 6,9% 292 ; 10,9% Bulgaria 64.7 Colombia 42.2 Indonesia 32.8 ≤ 3 month ths Philippines 21.6 > 3 - 6 mont nths hs India 22.4 2,388 ; 89,1% 2,496 ; 93,1% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 2019F 2018F 2017 Source: Moody’s Statistical Handbook, May 2018 Liquid idity ity Ratio* Regulatio tion on Pruden entia tial Prin incipl iple in Managing g Exter ernal Debt 340 ; 12,7% Phase 1 Phase 2 Phase 3 Regulat atio ion Key Points Jan 1,2015 – Jan 1,2016 – Jan 1, 2017 Dec 31,2015 Dec 31,2016 & beyond & Obj bjec ect of Regu gulatio ion Governs all Foreign Currency Debt Hedg dgin ing g Ratio io < 3 months 20%* 25%** 2,340 ; 87,3% > 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- Comply Not Comply Must be done Hedg dgin ing g transaction ion to meet not necessarily be done with a with a bank in hedg dge ratio io bank in Indonesia Indonesia *Data as of Q1 2018, with total population 2.680 corporates Sanctio ion As of Q IV-2015 Applied Source: Bank Indonesia Source: Bank Indonesia 33

  28. Healthy althy Ext xter ernal nal Debt ebt Compo posit sitio ion Exte xterna nal l Debt Struc uctur ture The Struc uctur ture of Exte terna nal l Debt bt is Domin inate ted by Long ng-Te Term m Debt bt Private Debt Government and Central Bank Debt Short Term External Debt Long Term External Debt 100% 100% 90% 90% 80% 80% 44.2 46.4 45.9 50.0 49.5 51.2 51.2 50.8 51.4 51.3 50.8 50.5 50.5 52.6 57.4 70% 58.6 70% 78.3 60% 78.8 79.3 78.8 79.8 60% 81.7 82.1 82.9 83.8 84.0 83.9 84.2 84.1 84.3 84.5 84.9 50% 50% 40% 40% 30% 30% 55.8 54.1 53.6 50.0 50.5 49.5 49.5 48.8 48.8 49.2 48.6 48.7 49.2 47.4 20% 42.6 20% 41.4 10% 21.2 20.7 21.7 21.2 20.2 10% 18.3 17.9 17.1 16.2 16.1 15.5 16.0 15.8 15.9 15.1 15.7 0% 0% Exte xterna nal l Debt t Rema mains ns Manageabl ble Exte xterna nal l Debt t to GDP Ratio io & Debt bt to Expo xport t Ratio io Million USD % % External Debt to Export Ratio External Debt / GDP Ratio % 400,000 20.0 External Debt External Debt Growth 200 40 36.1 17.1 34.7 34.8 34.3 34.3 18.0 32.9 350,000 31.8 35 180 16.0 29.1 27.4 300,000 26.5 30 14.0 25.0 176.1 12.0 11.5 11.3 160 250,000 168.4 167.9 166.8 25 10.3 12.0 10.2 160.4 8.8 200,000 10.0 140 20 8.0 139.5 5.9 150,000 15 5.4 5.5 120 6.0 123.1 121.8 10 100,000 3.0 4.0 114.9 113.8 100 5 50,000 2.0 101.0 80 0 0 0.0 *Provisional Figures **Very Provisional Figures Source: Bank Indonesia, External Debt Statistics of Indonesia, September 2018 34

  29. Man anag ageable eable External rnal Debt bt Profile le Short rt term non-ba bank nk corpo rporate debt (non affi filia liation) ion) repr pres esen ents ts only 9.0% of total priva vate externa rnal debt Public ic Long Term 1 Priv ivate te Bank Affil Af iliat iation US$180.8bn US$130.8bn US$18.4bn or or or 50.5% 73.8% 10.4% US$12.0bn of Total Ext. of Private Ext. of Private or or Debt Debt Ext. Debt 6.8% Exter ernal Debt of Private ate Positio tion Ext. . Debt t US$1 $177.1bn US$46.3bn US$27.9bn or or or 49.5% US$358 58.0bn bn 26 26.2% 2% 15,8% of total of Private of Private Ext. Debt Ext. Debt Ext. Debt Priv ivate te Non-Bank US$15 15.9bn 9bn Short-Term Term 1 or or 9.0% 0% Priv ivate te of Private ate Ext. . Debt t External Debt Position as of July 2018 1 Based on remaining maturity Non Af Affil iliat iation Source: External Debt Statistics of Indonesia, September 2018 35

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

  31. Integ tegrated ted Reform orm to Prov ovide ide Higher her Quality ity of Econo onomic mic Growth wth Struct ctur ural al reform rms to enhance ance potential ial growth wth and navig igate throug ugh chall lleng nges • Fair State Budget that declines poverty and income inequality Fiscal al Synergy Sy gy in reform rm to boos ost the more sustainab nable le and inclu lusiv ive • Monetary policy to support Mone netary ary & • Efficient, competitive, and Real al Secto tor growth wth macroeconomic stability Finan ancial ial innovative real sectors • Price stability and sustainable Sector tor • Job-creation current account deficit • Trade and investment • Efficient and credible policies that support growth, financial sector efficiency, and stability Source: Ministry of Finance 37

  32. Growth th Momentum ntum is Expected cted to Contin tinue ue Several al key drivers rs and strategie ies to accele lerate growt wth Strateg egies ies to Encour ourage Growth owth Key Driv iver ers Main intai tainin ning purchasing ing powe wer, r, boos osting ing domestic ic • Consumptio ion remains robust among others • demand and and support rting ing busines ess activity ity. supported by benign inflation Improve distribution channels  Increased shopping events, creative industries  Inves estment ent grows stably supported by • and festivals in tourism areas infrastructure acceleration, business climate improvement, rating upgrades, economic Incentives for manufacture  packages Developing e-commerce industry  Export and Import rt keeps improving driven by • Encourag uraging ing priv ivate te sector's r's role le in inves estment ent • increasing demand and improving prices Strengthening and deepening financial  markets Support from sever eral import rtan ant events ts such as • Making a stable investment climate through  Asian Games, Regional Elections, and IMF-WB political stability annual meeting Expand nd servic ices es sector, especially ially touris urism • Increasing foreign tourists arrival through  Risks & Challe halleng nges es cooperation with other countries by increasing the direct flight schedule Globa bal econo nomic ic uncert rtain ainties ties: China economic rebalancing Encouraging national creative industry growth  and its financial vulnerability, advanced countries policy normalization, geopolitic, and climate change 38

  33. More Credible dible an and Real alis istic tic Budget et …providing more certainty to all stakeholders Macroeconomic Assum umptio ion for 2018 Budget Credibl ible and realis istic tic 2018 budget, given that the 2016 and • 2017 2017 17 2018 18 2017 full year realization is relatively accurate with the Indic icator R-Budge Budget Realiz ization Budget dget budget. Economic ic growt wth (%, yoy ) 2017 realization is considerably accurate with the revised 5.2 5.1 5.4 • budget. This goes along with accurate macroeconomic Inflatio ion (%, yoy ) 4.3 3.6 3.5 indicators relative to the budget. 3-Mo Month Treasury y Bill (SPN PN) (%) 5.2 5.0 5.2 The House of Representatives has approved the 2018 budget • Exchang nge Rate e (Aver erage ge, IDR IDR/US USD) 13,400 13,384 13,400 with substantial increase in Revenues, mainly contributed by ICP (USD/ba barrel) 20.4% tax revenue increase compared to 2017 realization. 48 51.2 48 Oil il Productio ction n (thousand nd barrel el/da day) 2018 budget deficit is to be set at 2.19% of GDP, much 815 804 800 • lower compared to 2017 realization. Gas Produ ductio ction n (mil illions ns of barrels/da day) 1.15 1.14 1.20 2017 2018 2016 Descriptio ion (IDR Tril illio ion) Audit dited Realizati ization % Realizatio ization % difference Realizat ization % Realizat izatio ion R-Bud udget Budget Realizat ization (Audit ited) to R-Budget with R-Bud udget (a.o. Augus ust 31) 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 1,893.5 9.3 1,147.8 60.6 1,733.0 1,654.8 95.5 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 1,454.5 6.4 802.2 55.2 1,367.0 1,265.3 92.6 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 710.3 766.2 -0.0 501.3 65.4 766.3 742.0 96.8 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 -2.19 -1.01 -2.92 -2.51 E. Finan ancin ing 334.5 397.2 366.6 92.3 325.9 -18.0 265.6 81.5 Source: Ministry of Finance 39

  34. 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 Central Govern ernmen ent Spendin ing Rp.847,4 Rp. 7,4 T Line ne Mini nistries • Improving planning with performance 20 2016 based, and integrated with development priority Rp1,154.0 T 2015 • Operational spending efficiency • Monitoring and evaluation Rp1,183.3 T • Early procurement process 2018 Rp.607,1 Rp. 7,1 T Non Line ne Mini nistries Rp Rp1,454 454.5 5 T 2017 Rp1,259.6 T Non Energy ergy Subsidy idy Energ nergy Subs bsid idy Inter eres est paymen ent Subsid idy as % of Total Spending ing Better ter targetin eting Integr egrati tion with h Cost effi ficienc iency 4.00 energy gy subsidy • Subsidy for the 3.35 3.35 • Controlling Energy Non-Energy 3.50 poorest family and • Synergy with cost of there is no plan to social assistance 3.00 financing eliminate the subsidy, programs and nding ng 2.50 • Deepening rather making it well- transfer to regions % Spendi government 2.00 targeted. • Staple good price bond market 1.50 • Targeted for the poor. management 1.03 0.86 • Controlling 0.67 Electricity subsidy is 1.00 0.64 • Improving debt burden targeted to the agriculture 0.50 subscribers of 450 VA 0.54 0.59 0.49 0.49 productivity 0.58 0.42 - and 900 VA 2013 2014 2015 2016 2017 2018 • Database improvement • Inflation management Source: Ministry of Finance 40

  35. 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 Tax Revenue nue (in IDR trilli lion) n) Tax Improve vement nt Effort rts Autom tomati tic Exchan hange ge of Informatio ation Tax x revenu venue e incre reased ed by 20.4 .4% in 2018 compa pared ed to 2017 (AEoI oI) Expanding tax base • Ratio io to GDP (%) - RHS a Prevent tax evasion (Base Erosion • Profit Shifting) 1800 15% 13.1% 1600 11.6% 13% 11.6% Data ata and d Informa mati tion System tem of Tax 10.9% 10.7% 1400 Up to date and integrated (e-filing, 11% e-form and e-faktur). 1200 9% 1000 1,618.1 7% 800 1,343.6 Tax x Com omplia pliance 1,285.0 1,240.4 1,146.9 5% Sustainable compliance though e- 600 service, mobile tax unit, Small/Micro 3% 400 Tax Office, and outbound call. 1% 200 0 -1% Tax x incen entive tive 2014 2015 2016 2017 2018 Budget Tax holiday and tax allowance • Review on tax exemption • Oil &Gas Income 38.1 In Trill llio ion Rupiah ah Tax Revenue Human Resou ource e and d 1,424.0 Non-Oil & Gas Regu gula lation tion Income 2018 Allocatio tion: n: 1,618.1 Improving services and Customs and Excise 1,385.9 2017 Realiza izatio tion: : 1,343.6 organization effectivity 194.1 a Tax ratio derived from tax revenue + revenue from natural resources/GDP Source: Ministry of Finance 41

  36. Non-Tax ax Reven enue ue Effici cienc ncy and Effect ctive ivene ness on Natural al Resour urce ces Manag agement nt and Public ic Service vice Improvemen ment Non-Tax ax Revenue nue (in IDR trillion) n) Improving ing Regula latio tion Revise Non-Tax Revenue Law and Yearly Growth • Ratio tio of non-tax tax revenu venue e to Tota tal l Government Regulation on Non-Tax types Reven enue 450 30% 25.7% and tariff. 400 25% 398.6 18.4% 350 14.5% 17.0% 300 20% 16.8% Improving ing Monito nitoring ing on Manag agem ement nt 311.9 250 275.4 15% 262.0 255.6 200 Deposit revenue as its record • 150 10% Collection of Accounts Receivable • 100 5% Follow up the audit results • 50 0 0% 2014 2015 2016 2017 2018 Budget Non-Tax Revenue nue Optimiza izatio tion Improve efficiency and effectivity of natural • Non Non-Ta Tax x Reven enue e 2018 Brea eakdo kdown (in IDR resource administration trillio illion) In Trill illio ion Rupia piah Improve SOEs performance • 23.3 Improve efficiency of Non-Tax Revenue • 2018 Allocatio tion: 275.4 operation 2017 Realiza izatio tion: : 311.9 83.8 Revise contracts  cost recovery efficiency • 43.3 Non-Tax Revenue nue 2018 : 275.4 Discover new potentials • Other Non-Tax Revenue Improving ing Public lic Serv rvic ices es Oil and Gas Revenue Transparency and easing • State Asset Revenue IT Utilization 44.7 • Public Service Agencies Revenue Improvement on non-tax revenue • Non-Oil and Gas Revenue administration 80.3 Source: Ministry of Finance 42

  37. 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 (Rp Trilllion) Prio iori rity y Secto tor Poverty y and Gap Infras rastruc tructur ure State Appara ratus tus and Defense e of Securi rity ty Communit unity y Servic ices es & Democracy & acy 283.7 1) 410.7 2) 34 34.8 3) 365. 36 5.8 4) 220 20.8 5) 1) 3) 4) 5) 2) Social protec ectio tion program Road Constructio tion Agric iculture Imp mproved ed Defen ense se (PKH) • Increased food bureaucrati tic 865 km The achievement 2018: 10,0 mio families Rp17,3 T production and reform m for better of MEF phase 2 2017: 6,0 mio families Rp12,7 T construction of quality of public and the infrastructure Irriga igatio tion services development of facilities Constructio tion defense industry • Development of Expansio sion of Non-Ca Cash h Food 781 km horticulture Assista tance (BPNT) Prosper perit ity y of Securit ity y 2018: 10,0 mio families Rp13,5 T the apparatu tus Elec ectr trif ific icatio tion 2017: 1,4 mio families Rp1,6 T Maintenance of Tourism m and pensioner ers Ratio security, order, • Development of 10 and criminal tourist destinations 95,15 % Health th servic ices  PBI I • Increased tourists investigation Increa ease e budget t for 2018: 92,4 mio people Rp25,5T • Tourism promotion Building g Flats ts the food allowance e 2017: 92,4 mio people Rp25,5T of mi milita itary / polic ice e 13.405 unit Demo mocracy foreces es  Fishe hery Regional Rp5 mio from Educatio tion Sma mart Indonesia esia Program m • Increased elections 2018, Rp55.000 tp 2018: 19,7 thousand students Rp10,8 T competitiveness of and Rp60.000/person/day 2017: 19,7 thousand students Rp10,7 T processed fishery preparations for products Bidik Misi: 401,5 thousand students Rp4,1 T national • Fishing boats Imp mproved system m elections 2019 2017: 339,4 thousand students Rp3,5 T support 1048 units and retir ireme ment t • Environmental benefi fits ts of state sustainability emp mployee 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 43

  38. Investm estments ts in Huma man Cap apital tal Has as Been een Ra Rampe ped Up 20% of national nal budget is alloca cated for educa catio ion and anothe her 5% for healt lth Budg udget t for Educ ucatio tion n Program Budget t for Health lth Progra gram IDR tn IDR IDR tn 500 125 444.1 111.0 419.8 450 104.9 390.1 400 370.4 92.3 100 353.4 350 300 75 65.9 59.7 250 50 200 150 25 100 50 0 0 2014 Real 2015 Real 2016 Real 2017 Outlook 2018 Budget 2014 Real 2015 Real 2016 Real 2017 Outlook 2018 Budget Targets ts of Educatio tion Progr gram in 2018 Targets ts of Health Progr gram in 2018 Indones esia ia Sma mart Bidik ikmi misi si School Indones esia ia Healthy thy Provis isio ion of Health th Immu mmunizatio ion Program Scholarship ship Rehabil bilita itatio tion Program Facil ilities ities Basic & complete 19.7 million students 401.5 thousand college 92.4 million people immunization for 92.5% of 49 hospitals/health centers 61.2 thousand rooms students 0-11 months old infants School Operatio tional Drug and Food Fami mily Plan Program m Teache her Allowance Assista tance e (BOS OS) Certific tificatio tion (KB) • Non Civil Servants : 435.9 thousand teachers • Civil Servants : 257.2 thousand teachers • Local Civil Servants : 1.2 million teachers 56 million students 1.8 million people 74 thousand certifications 44

  39. Impr proved ved Budget Alloca cation tion Towar wards ds Local al Governm ernment ent …promoting better alloca cation of budget spending ing to local al governm rnment nt Trans nsfer er to Regio ions/Villa Village ge Funds 2018 Transfe 2018 fer r to Regions ns and Villag lage e Funds (Budge get) t) Special ial Autonomy y & Villag age Fun und (IDR60.0 tn tn) D.I Yogyak akar arta - DIY (IDR21.1 tn tn) 2013 2017 2018 2014 2015 2016 IDRtn Audit ited Audit ited Audit ited Audit ited Realizat ization Budget Reformulated to (1) Special Autonomy & Fund for Give more weight on DIY keeps increasing from year Transfer to 513.3 573.7 602.4 663.6 682.2 706.2 the poor population. (2) to year Region Improving inequality between villages Village Fund - - 20.8 46.7 59.8 60.0 3% 3% 1% 1% Total al Regional al Incentive Regional al 513.3 573.7 623.2 710.3 766.3 766.2 Fund nd (IDR8. 8.5 5 tn tn) 8% 8% Tran ansfer Incentive ive Fund allocation has been increased to Indonesia continues its improvement of regional transfer, esp. • enhance local government performance village fund, to spur growth throughout regions and public service delivery Allocation for both Transfer to Region and Village Fund has • 24% 24% been increasing substantially Special ial Tran ansfer Fund The increased allocation indicates the Government’s • (IDR185.9 tn tn) 64% 64% commitment to support development in regions Special ial Tran ansfer Fund allocation is A minimum 25% of general transfer fund must be earmarked • based on each General al Tran ansfer Fund (IDR490.7 tn tn) for public service infrastructure regions’ proposal and national Minimum of 25% (IDR122.7 tn) priorities earmarked for public service facility development acceleration. It provides revenue sharing fund to promote equal opportunity for natural resource producers & high tax earners Source: Ministry of Finance 45

  40. 2017 Achiev ievem ement ents of S State te Budget et Value ue creatio ion on various us project cts and count ntry ry developmen ment 15.5% 101.7% 118 18.5% 7.4% 23.0% 27.8% • Tax revenue growth vs. • Non-tax revenue over • Growth of realized • Growth of transfer • Revenue of customs • Capital expenditure 2017 revised Budget, a to village vs. 2016, 2016 (excluding Tax government spending and excise over 2017 growth vs. 2016, a growth of 17.7% vs 99.6% over 2017 Amnesty and Asset vs. 2016 revised Budget, a 92.8% over 2017 2016 revised Budget Revaluation) 7.4% increase vs. revised Budget. 2016 Local Gover ernment ment Achi hievements ements Centr tral Gover ernmen ent Milest stones es Infr frast structu ture: e: • 794 km road development Brid idges: 3,749 m bridge • 9,072 m bridge development in development, 291 m • 3 airports completed maintenance, and • 618.3 km railways 2,916m improvement Clas assroom: 1,351 new classrooms, 11,006 Roads: 1,033 km in rehabilitation, 11,758 development, 1,503 km rural library collection Educati tion: maintenance, 9,789 km • Distributed Indonesian Smart Card to 19.8 improvement million students Tuition: Reduced tuition Tu • School Operational Benefit for 8.0 million costs for 46.6 million • Scholarship for 364.4 students students and 5.6 million kindergarten- Welfare: Increased welfare aged children and work ethics of 1.7 Medic ical: Improved million civil teachers in rural Health thcare and Socia ial Sec ecurity: ty: facilities in 347 areas and compensated • Distribution of Indonesian Health Card to hospitals and 3,873 41,000 teachers in special 92.1 million people clinics regions Rural al: 107,9 village roads, 89,200 health clinics, 178,800 toilets, and 107,700 connected clean water and 25,903 Ha irrigated lands Source: Ministry of Finance 46

  41. Indonesia’s Tax Amnesty Program – A Succes ess Story ry With more than 965, 965,900 taxpayers rs particip cipating ing in the program Tax Amne nesty ty Resul ult (as of the end nd of March ch 31 st st , 2017) Repatriation Preliminary 3% Evidence Payment SMEs 1% 2% Tax Arrears Companies ​Offshore 147.1 .1 Payment 12% 1.7 Declaration 14% 85.59 21% 18.8 .8 594.9 .99 1,036 Individual SMEs 18% 861.8 .81 3,323.3 .36 ​Onshore 3,698 114.2 4.2 Declaration Individuals 76% Redemption 68% Money 85% Reven enue Compo posit ition n of Partic icipa ipants Asset Declared IDR 134. 4.8t 8tn n (~1. 1.1% 1% GDP) P) Based ed on Asset et Declared ed IDR 4,881tn (~39.4% of GDP) Redemp mption tion Mone ney Assets ts Decla clared 39.3 39.3 1.10 % of GDP % of GDP 0.62 0.58 8.3 0.20 5.2 0.17 0.15 3.9 3.6 0.12 2.1 0.04 0.04 0.3 Germany Belgium Italy Chile Indonesia India South Spain Australia India Spain Chile Indonesia Italy South Australia (2004) (2004) (2009) (2015) (2016) (1997) Africa (2012) (2014) (1997) (2012) (2015) (2016) (2009) Africa (2014) (2003) (2003) Source: Ministry of Finance 47

  42. Finan ancing cing Policy cy 2018: 8: Gener neral al Objective jective & P Policy cy To meet financing needs at efficient cost and tolerable risk To support the General al development of Policy cy deep, active, and liquid market To enhance public accountability as part of transparent Government debt Cost control management and debt risk Source: Ministry of Finance 48

  43. 2018 Finan ancing cing Need eds Fulfill lled from Governm rnment nt Securit uritie ies IDR 730.2 tn tn (92%) and Loan IDR6 R63.1 tn tn (8%) Domestic GS IDR591.0 tn Deficit it Domestic Debt Rp325,9 T IDR595.5 tn Debt t matu ture res (75%) Rp394,1 T (include clude Domestic Loan Rp10,1 T of IDR4.5 tn Priva ivate te Placem acemen ent) Inves estme tment t Financing Lendin ding g Financin ing g Rp6,7T Needs Rp65,7T IDR793.3 tn Foreign Other er Denominated financin ing g Bonds (Rp0,2T) T) (JPY, EUR, USD) IDR139.3 tn Gov over ernmen ent t Foreign Debt Guarant ntee IDR197.8 tn Obliga igati tion (25%) Rp1,1T Foreign Loan (Program & Project) IDR58.5 tn Source: Ministry of Finance 49

  44. Indica cative tive Finan ancing cing Plan an for 2018 Creating ing prudent nt and sustainab inable le fiscal al manag agement nt Gove vernm nment t Se Secur uriti ties to Meet t Stat tate Bud udget Fin inanci cing Dome mest stic ic Bonds Indic icativ tive Budget Targe get* Weekly auct uction: Instrum uments nts IDR tn tn USD bn bn Conventional securities 25x 25x Budget et Defic icit it (2.19%) 325.9 24.3 Islamic securities 24x 24x Gover ernment ment Sec ecuritie ties (Net) et) 407.2 30. 30.4 Non-Auct uction Gover ernment ment Sec ecuritie ties (Gross ss) 822.2 61.4 .4 Retail bonds (ORI, Retail Sukuk, Online Savings Bond Retail, Savings Sukuk) Private Placement Based on request Compo mpositi tion Tar arget avg. tenor mat aturity for Government Secur uritie ies (SB SBN) N) Issua uance Domestic Bond 80-83% 7-8 year years 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  25.0% - 30.0% 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% Government Debt Securities Government Sukuk *exchange rate assumption in 2018 budget: IDR13,400/USD Source: Ministry of Finance 50

  45. Discipl sciplined ined an and Soph phist istica icated ted Debt ebt Port rtfolio lio Man anag ageme ement nt Stable ble Debt bt to GDP Ratio Ove ver the Years Defic icit it Produc uctivity tivity** Government Debt / GDP (%) US$ bn 6.8 5.3 5.5 5.1 350 35.0 30.3 3.4 29.4 2.7 2.1 2.1 28.3 1.6 1.2 27.5 300 30.0 24.9 24.7 55.8 54.9 250 25.0 54.7 (0.1) (0.4) (0.6) 200 54.7 20.0 (1.6) (2.2) (2.9) (2.8) 54.5 (3.3) (3.7) 58.6 (4.8) 150 15.0 (5.3) (5.8) (6.1) (7.1) 240.8 235.8 207.0 100 10.0 174.7 155.2 136.3 India Brazil Japan UK USA S Africa Malaysia Australia Italy Indonesia Turkey Thailand 50 5.0 - - 2013 2014 2015 2016 2017 Aug'18 GDP Growh Fiscal Deficit (% GDP) Bond Loan Debt to GDP Ratio (RHS) Source: MOF, World Economic Outlook Source: Ministry of Finance Weig ighte ted Ave verage Debt bt Matur urity ity of ~8. 8.6 Years Well ll Dive versif ifie ied Across Different nt Currenc ncie ies % of Yearly y Issuance ce Years 1% 2% 1% 2% 3% 3% 10.0 100% 9.8 4% 3% 4% 9.7 3% 3% 3% 6% 9.8 7% 8% 9% 12% 14% 9.6 9.4 80% 29% 9.4 30% 31% 29% 9.1 24% 29% 9.2 60% 9.0 8.7 8.8 8.6 40% 8.6 60% 8.4 58% 57% 56% 56% 53% 20% 8.2 8.0 7.8 0% 2013 2014 2015 2016 2017 Aug18 2012 2013 2014 2015 2016 2017 IDR USD JPY EUR Others*** Source: Ministry of Finance Source: Ministry of Finance *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. 51

  46. 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 Exch change Rate te Risks ks Declin clinin ing Inte terest t Rate te Risks ks FX Debt to GDP ratio (%) FX Debt to total debt ratio (%) % % Variable rate ratio [%] Refixing proportion [%] 25 23.2 46.8 50 44.5 21.0 43.4 20.7 20.6 42.6 42.6 45 41.3 19.2 20 17.5 40 16.0 35 14.8 13.7 15 30 12.1 10.6 10.5 25 10 20 12.9 12.2 12.1 12.1 15 11.7 10.7 5 10 5 0 0 2013 2014 2015 2016 2017 Aug18 2013 2014 2015 2016 2017 Aug18 Debt bt Maturity ity Profile ile Upcomin ing Maturitie ities (Nex Next 5 Years) IDR tn tn % in < 1 year (%) in < 3 year (%) in < 5 year (%) 500 45.0 40.9 39.3 450 40.0 Other Currencies IDR Denominated 36.0 34.7 400 33.9 33.3 35.0 153 350 30.0 26.4 300 25.0 22.7 25.0 21.7 21.4 250 154 163 156 20.1 123 134 20.0 200 120 101 104 15.0 150 285 24 11.2 154 9.9 29 8.6 8.4 50 100 23 14 7.7 10.0 7 32 165 170 6.5 163 161 160 20 136 137 126 132 116 100 28 35 27 50 24 31 97 99 92 5.0 84 2 77 34 81 2 51 2 29 29 26 23 28 21 15 0 7 7 5 0.0 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2013 2014 2015 2016 2017 Aug18 Note: using GDP assumption IDR14,395.07 as mentioned in APBN Kita Source: Ministry of Finance 52

  47. Holders ers of Trad adab able le Centr ntral al Gover ernme nment nt Secu curi rities ies More Balance nce Ownership rship In Terms of Holders rs and Tenors rs Hold lders of of Tradable Gov’t Domestic Debt Securities Foreig eign Own wnership p of Gov’t Domestic Debt Secu ecuritie ities by Tenor 100% 32.5% 38.2% 35.6% 37.6% 36.0% 37.5% 37.0% 38.1% 39.8% 80% 42.8% 44.5% 44.7% 60% 33.8% 30.8% 39.8% 36.1% 38.1% 38.2% 37.8% 39.9% 37.5% 37.6% 36.8% 40% 32.5% 35.6% 37.2% 37.4% 32.0% 33.6% 20% 39.0% 17.3% 17.8% 33.7% 12.9% 21.0% 15.2% 31.0% 26.2% 23.9% 23.4% 22.5% 11.8% 5.4% 5.1% 3.7% 5.3% 1.1% 1.3% 5.0% 5.0% 4.6% 3.5% 5.2% 3.2% 0% Dec 13 Dec 14 Dec-15 Dec-16 Dec-17 31-Aug-18 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Aug-18 0-1 ≥ 1-2 Foreign Holders Domestic Non-Banks Domestic Banks ≥ 2-5 ≥ 5-10 ≥ 10 %Foreign Ownership of Total Source: Ministry of Finance 53

  48. Owner ersh ship ip of IDR R Tra rada dable ble Cen entr tral al Governm rnment t Securities urities (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 193.90 16.03% 221.45 15.15% 325.52 18.36% 348.86 16.61% 400.63 17.52 % Fund Foreig ign n Hold lders 461. 1.35 35 38.1 .13% 3% 558. 8.52 52 38.2 .21% 1% 665. 5.81 81 37.5 .55% 5% 836. 6.15 15 39.8 .82% 2% 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% 1) Non Resident consists of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company and Pension Fund. 2) Others such as Securities Company, Corporation, and Foundation. *) Including the Government Securities used in monetary operation with Bank Indonesia. **) net, excluding Government Securities used in monetary operation with Banks. Source: Ministry of Finance 54

  49. Sec ection tion 5 Monetar ary and Finan anci cial al Fact ctor: r: Credible Cr Monetary ary Policy cy Track ck Reco cord and an Fav avour ourab able le Financ ancial ial Sect ctor or

  50. Bank Indonesia’s Policy Mi Mix 2018 To Maint ntain in Macroe oeco cono nomi mic and Fina nanc ncial ial Sy Syste tem Stabili lity ty Implementing Macro prudential  Consistent policy rate,  Intermediation Ratio (RIM) accelerate reduction of lending 2 Implementing Macro prudential Liquidity rate  1 Buffer (MLB) Stabilize exchange rate  consistent with fundamentals Macro- prude udentia ntial Moneta etary ry Accelerate implementation of  Polic licy Polic licy reserve requirement averaging Electronification: Social  3 program, e-payment for Government Financial technology  Paymen ent Coordina inatio ion National Payment Gateway  Sy System with other er (NPG) Polic licy Authorit ities ies 4 Controlling inflation: TPIP, TPID 5  Structural reforms: Government  Financ ncia ial Marke rket Financial deepening & stability:  Deepening ning KSSK (Financial System Stability Developing market instruments for financing  Committee), OJK (Financial infrastructure Services Authority) Developing financial market infrastructures  Source: Bank Indonesia 56

  51. Ban ank Indo donesia esia Policy cy Mix: x: Septem ptembe ber 2018 th and th Septe The e BI Board ard of Gov over ernors ors agr gree eed on 26 26 th d 27 th tember er 2018 18 to raise ise the e BI 7-da day Revers rse e Repo o Rate te by 25 bps to 5.75 75%, , while le also o raisin ising the e Dep epos osit 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. Consistent with efforts Strengthens the Rupiah Monitors prevailing to lower the current stability, by raising the Strengthens economic developments, account deficit within a policy rate and coordination with such as the current manageable threshold Raises the implementing Domestic the Government account deficit, while maintaining the BI 7-day Non-Deliverable Forwards and other relevant exchange rates, financial attractiveness of the Repo Rate (DNDF) transactions in authorities to system stability and domestic financial by 25 bps order to accelerate maintain inflation, as follow-up markets, thus further to 5.75%. forex market deepening economic stability measures to maintain strengthens Indonesia’s while providing alternate and bolster macroeconomic and external resilience hedging instrument for external resilience. financial system despite widespread banks and corporations. stability. global uncertainty. Source: Bank Indonesia 57

  52. Princi ciple les of Average ge Re Reserve erve Re Requi uireme rement nt Ra Ratios os Improve vement ent Consid ider eratio tions for r the Average rage Reserv rve Requir irem ement ent Effect ective ive Substa tance Old Old New Dat ate Ratio ios Impro rovem emen ent t a. Additional rupiah 16 th July Improvement in average reserve requirement is a • average reserve Fixed RR: 5% Fixed RR: 4.5% follow up to the monetary policy operational requirement for Average RR: 1.5% Average RR: 2% 2018 framework reform implemented by Bank Indonesia conventional RR: 6.5% RR: 6.5% since 2016. commercial banks Monetary policy operational framework reform • 16 th July b. Annulment of started in August 2016 as BI7DRR replaced BI Rate 2.5% (from 1.5% demand deposit 0% 2018 as policy rate. This was then strengthened in 1st RR) renumeration July 2017, by the implementation of the average reserve requirement in rupiah for conventional c. Implementation of commercial banks at 1.5% out of the total 6.5% of foreign exchange Fixed RR: 8% Fixed RR: 6% 1 st GDP reserve requirement in Rupiah. The average reserve Average RR: 0% Average RR: 2% October reformulation is also backed by various efforts in requirement for RR: 8% RR: 8%* 2018 financial market deepening. conventional commercial banks The current improvement aims to elevate flexibility in • banking liquidity management, enhance banking d. Implementation of 1 st intermediation function, and support efforts in Fixed RR: 5% Fixed RR: 3% average reserve October financial market deepening. This multiple targets will Average RR: 0% Average RR: 2% requirement for 2018 in turn improve the effectiveness of monetary policy RR: 5% RR: 5%* Islamic banks transmission in maintaining economic stability. * Complemented by harmonisation feature to align with the average reserve requirement in rupiah feature for conventional commercial banks (e.g. Calculation period, lag period, and Maintenance period of 2 weeks) Source: Bank Indonesia 58

  53. Pri rincipl iples of 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) Consider sideratio ions for Macr croprudential ial Instr trument ments Macr cropr prudenti tial Intermedia mediatio ion Ratio io (MIR) IR) and Macr cropr prudenti tial Liquid idit ity Buff ffer (MLB) B) 1 2 3 4 Striving to stimulate the bank The policy is expected to This The regulation is intermediation function and stimulate the bank macroprudential effective for liquidity management, Bank intermediation function to the policy instrument is conventional Indonesia issued Bank Indonesia real sector congruent with countercyclical and commercial banks from 16 th July Regulation (PBI) No. sectoral capacity and the can be adjusted in 2018 and for 20/4/PBI/2018 and Board of economic growth target in line with prevailing sharia banks from 1 st Governors Regulation (PADG) No. compliance with prudential economic and October 2018. 20/11/PADG/2018 concerning principles, while also financial dynamics. the Macroprudential overcoming the issue of Intermediation Ratio (MIR) and liquidity procyclicality. Macroprudential Liquidity Buffer (MLB) for Conventional Commercial Banks, Sharia Banks and Sharia Business Units. Source: Bank Indonesia 59

  54. Pri rincipl iples of Mac acropr prudential dential Inter termedia mediatio tion Ra Ratio (MIR) MIR Shar aria ia (Shar Sharia ia Banks nks and Sharia aria Regu gula lation ion MIR (Con onven entio tional al Com ommer ercial ial Bank) nk) Busine iness Units) ts) 1 MIR Accounting Formula Credit + Owned Bond Financing + Owned Sharia Bond Deposit + Issued Bond Deposit + Issued Sharia Bond 2 Rate and Parameters Ceiling 92% Ceiling 92%   Floor 80% Floor 80%   Minimum Capital Adequacy Requirement Minimum Capital Adequacy Requirement 14%   14% For Sharia business units, the Minimum Capital  Upper disincentive parameter 0.2 Adequacy Requirement is the same as that of the  parent conventional commercial bank Lower disincentive parameter 0.1  Upper disincentive parameter 0.2  Lower disincentive parameter 0.1  3 Scope of credit/financing Credit: rupiah and foreign currency Financing: rupiah and foreign currency   and deposits to calculate Deposits in rupiah and a foreign currency: Deposits in rupiah and a foreign currency: (i)   MIR / MIR Sharia (i) demand deposits, (ii) savings deposits; wadiah savings; and (ii) unrestricted investment and (iii) term deposits, excluding interbank funds, excluding interbank funds funds 4 Source of Data Monthly Commercial Bank Reports Monthly Sharia Bank Reports 5 Criteria for securities held Corporate bonds and/or corporate sukuk Corporate bonds and/or corporate sukuk  Issued by a nonbank corporation and by a resident  Offered to the public through a public offering  Equivalent to investment grade rating affirmed by a rating agency  Administrated by an authorised securities institution  60

  55. Pri rincipl iples of Mac acropr prudential dential Inter termedia mediatio tion Ra Ratio (MIR) Regu gula lation ion MIR (Con onven entio tional al Com ommer ercial ial Bank) nk) MIR Shar aria ia (Shar Sharia ia Banks ks and Shar aria ia Busine iness Units) ts) 6 Percentage of the 100% securities held 7 Criteria for securities medium-term notes (MTN), floating rate notes sharia-compliant medium-term notes (MTN)   issued (FRN) and/or bonds other than subordinated and/or sukuk other than subordinated sukuk bonds Issued by a nonbank corporation and by a resident  Offered to the public through a public offering  Equivalent to investment grade rating affirmed by a rating agency  Administrated by an authorised securities institution  8 Securities Reporting Offline delivery mechanism (email) 9 Scope of deposits to Average daily total deposits in rupiah at all Average daily total deposits in rupiah at all   meet DD MIR /DD MIR branch offices in Indonesia branch offices and sharia business units in Sharia Indonesia Including rupiah liabilities to a resident and  non-resident third-party nonbank, consisting Including rupiah liabilities to a resident and non-  of: (i) demand deposits, (ii) savings deposits; resident third-party nonbank, consisting of: (i) (iii) term deposits, and (iv) other liabilities wadiah savings; (ii) unrestricted investment funds, and (iii) other liabilities 10 Relaxation of DD Bank Indonesia may relax the provisions of the DD MIR/Sharia DD MIR based on credit/financing  MIR/Sharia DD MIR disbursement and fund accumulation The provisions may be relaxed based on a request from a conventional commercial bank, Sharia  bank or Sharia business unit or a recommendation from the Financial Services Authority (OJK) Conventional commercial banks, Sharia banks or Sharia business units that receive the relaxed  policy are exempt from sanctions 61

  56. Pri rincipl iples of Mac acropr prudential dential Li Liqu quidi idity ty Buffer er (MLB) LB) Regu gula lation ion MLB (Con onven entiona ional Commercial ial Bank nk) MLB Sharia aria (Sha haria ria Bank nks) 1 Rate 4% of rupiah deposits (including Sharia Business Units 4% of rupiah deposits deposits) 2 Components Securities denominated in rupiah held by a Sharia-complaint securities denominated in   conventional commercial bank that may be used rupiah held by an Sharia bank that may be for monetary operations (including SBI/SDBI/SBN); used for sharia-compliant monetary operations and (including SBIS/SBSN) Sharia-complaint securities denominated in rupiah  held by an Sharia business unit that may be used for sharia-compliant monetary operations (including SBIS/SBSN) 3 Calculation Formula Percentage of rupiah securities held by a conventional Percentage of sharia-compliant rupiah securities commercial bank to rupiah deposits held by an Sharia bank to rupiah deposits 4 Flexibility Under certain conditions, the securities used to meet Under certain conditions, the securities used to the MLB may be used for repo transactions to Bank meet the sharia MLB may be used for repo Indonesia for open market operations, totalling no transactions to Bank Indonesia for open market more than 2% of rupiah deposits operations, totalling no more than 2% of rupiah deposits 5 Sources of Data on Monthly Commercial Bank Reports Monthly Sharia Bank Reports   Deposits Rupiah deposits to calculate MLB are the average Rupiah deposits to calculate sharia MLB are   daily total deposits at all branches in Indonesia the average daily total deposits at all branches in Indonesia Rupiah deposits include: (i) demand deposits, (ii)  savings deposits; (iii) term deposits, and (iv) other Rupiah deposits include: (i) wadiah savings; (ii)  liabilities unrestricted investment funds, and (iii) other liabilities 62

  57. Relaxing ing the Loan-to to-Value lue (LTV) and Financi ncing-to to-Val alue ue (FTV) Ratios os The LTV/FTV TV relaxa axati tion on is conducte ducted while taking into to accoun count aspect pects of pruden dential al and consumer mer prot otec ection on 2. Relaxing the amount of loan/financing facility through indent 1. Increasing opportunities of first time buyers to fulfill their housing mechanism to a maximum of 5 facilities without taking needs through housing loan, specifically by adjusting the LTV ratio account of the orders for property loan and the FTV ratio for property financing for the 1st facility, 2nd facility, etc., making the largest LTV ratio for 3. Adjusting the arrangement of stages and amount of property property credit and FTV ratio for property financing as shown in the loan/financing disbursement of indent property: table below. “ - “= The LTV rate depends on each bank’s risk management Source: Bank Indonesia 63

  58. Relaxing ing the Loan-to to-Value lue (LTV) and Financi ncing-to to-Val alue ue (FTV) Ratios os Prudent ntial ial aspect cts of Relaxin xing the Loan-to to-Value alue (LTV) V) and Financi ncing ng-to to-Value alue (FTV) V) Ratios 1. The requirements of the LTV ratio for property credit and FTV ratio for property financing are as follows: i. The net ratio of NPL to total credit or NPF to total financing must not exceed 5%; and ii. The gross ratio of property NPL to total property credit or property NPF to total financing must not exceed 5%. 2. Banks must make sure that there is no loan transfer to another borrower at the same bank or different bank for tenors of less than 1 year. The requirements are valid for banks that will disburse pre-order property loan/financing. 3. Banks are required to comply with prudential principles when disbursing loans. 4. Gradual loan liquidation is only allowed for developers that comply with bank’s risk management policy (e.g.the business feasibility of the developer). 5. Banks are required to ensure that transactions to disburse loans (including down payment) and gradual liquidation must be processed through the debitor and developer/seller’s bank account. LTV / FTV Exemptio ions ns Central government or local government loan / financing programs are exempt from this regulation. Source: Bank Indonesia 64

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

  60. Stabl able Monetary tary Environment ment Despite spite Chal alleng lenges es Well ll Mainta ntain ined Inflatio lation Ensur ured Price ce Stability bility Streng ngth thene ned Monet netary Polic icy Frame mewo work 19 August 2016 16 (%) (%) CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) 8.00 The New 18 Monetary LF Rate: 7.00 Operation ion 7.00 Framewo work LF Rate: 6.25 25 13 BI Rate: 6.50 6.00 BI 7Day RR Rate: 5.50 50 8 DF Rate: 4.75 5.00 4.97 3.20 3 2.90 4.00 2.55 -2 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 Rupia iah Exc xchang nge Rate Rema main ins Compar parable ble to Peers Pick ck Up in Credit Growth th Sept 2018 vs Aug Aug 2018 %,yo yoy 20 -2.21 INR -3.61 Total Growth Working Capital Loans -1.25 18 IDR Investment Loans Consumption Loans -2.06 -1.09 16 PHP -1.28 -0.86 14 CNY -0.09 11.6 .6 -0.74 MYR 12 -1.14 11.5 .5 0.03 11.3 .3 KRW 10 0.08 *data as of Sept 27 th , 2018 10.7 .7 0.51 BRL 8 -4.41 41 0.56 SGD 6 -0.23 1.01 EUR 4 0.94 1.12 THB 2 1.22 7.95 TRY % 0 -6.69 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 -8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00 point-to-point Average 2015 2016 2017 2018 Source: Bank Indonesia 66

  61. 5 Meas asur ures es to Control ol Inflatio tion On January ary 22 nd nd , 2018 the National nal Infla latio tion Contr trol Coordin inatio tion Center has agreed ed on five strateg egic ic measures es to contr ntrol infla latio ion in 201 2018 within in the target et corr rrid idor of 3.5 ± 1%, while le also setting ng the infla latio tion targets ets at 3.5 ± 1% 1% for 2019 and 3 ± 1% % for 2020 and 2021. Stren ength gthening ning coordin inatio tion betwee een centr tral and regio ional al governm ernments nts as well as Bank Indo done nesia ia Dampenin ning the second nd-round und Stren ength gthening ing quality ity effect of aminis ister tered ed pric ice contr trol of governm ernmen ent adjus usmen ents ts polic icies ies. 3 Main intainin taining volatile tile food (VF) infla latio tion 2 4 Stren ength gthening ning the Bank at 4-5% Indones nesia ia polic icy mix to mainta tain in macroec econo nomic ic 1. Ensuring food production 1 5 stabilit lity 2. Strengthening the government’s food stock 3. Improving production management through corporate/cooperative farming 4. Improving rice miling yield & rice quality 5. Distributing subsidised rice for low- income households & non cash food assistance in time 6. Developing an accurate database on rice production 7. Synergizing between farmers & Source: Bank Indonesia downstream industries 67

  62. 4 Strategies gies to Ac Achi hieve ve the Infl flation tion Target 2018-20 2019 Target et 2020 20 20-20 2021 Target et Achieving inflation at 3,5%±1% Achieving inflation at 3,0%±1% Maintaining core inflation Maintaining core inflation • • Maintaining volatile food stability at 4-5% Maintaining volatile food inflation less than 4% • • Controlling administered price inflation Controlling administered price inflation • • 4 Strateg egies ies 1. Price Afford rdabilit bility 2. Supply Availa lability bility 3. Well Managed Distr tribu ibution ion 4. Effectiv tive Communi nication ion Strengthening production, Encouraging Government trade Improving Strengthening Stabilizing Managing Strengthening Improving data food reserves cooperation trade central-regional the price demand side institution quality and food between infrastructure coordination export-import regions management Source: Bank Indonesia 68

  63. Impr proving ving the Effectiveness ectiveness of 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 ogram. Refor ormula ulatio ion of Moneta etary ry Polic licy Operatio iona nal Framew ework rk Implem emen enta tatio tion of Money ney Implem emen enta tatio tion of Reserve Implemen ementa tatio tion of BI 7 Mark rket et Deepen ening ing Requir iremen ent (RR) Day Revers erse Repo Rate Progr gram am Averag aging ing Enhancement of monetary policy Enhancement of banking liquidity Enhancement of instruments signal management and transactions Source: Bank Indonesia 69

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

  65. 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 of 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. The growth th of financ ncin ing dis istrib tributed uted by multif tifin inanc nce compan panie ies grows ws Bank nk lend ndin ing growth wth was in an improvi ving ng trend nd in Seme meste ter I – moderate tely ly and starts ts to improve 2018, whic ich continu tinues in July % yoy IDR tn IDR tn 5,500 11.34% 12% Bank Loans YoY Growth (rhs) Financing Growth (rhs) yoy 450 10% 10% 429 4,976 5,000 8% 425 8% 6% 4,500 6% 400 5.53% 4% 4% 4,000 375 2% 2% 350 0% 3,500 0% Capita ital l raisin ing throug ugh rights ts issue ues and corpor porate te bond nd issua uanc nce Gross premi mium um reve venu nues in the insur uranc nce ind ndust ustry continu tinuousl usly rema main ined strong ng in Jan-Aug Aug 2018 grow, w, provid vidin ing additio itiona nal l liqui uidity ity to the marke ket IDR tn 450 IDR Tn 180 400 IPO equity Rights Issue Corporate Bonds & Sukuk 160 350 140 300 252 120 250 100 82.53 200 80 150 60 100 40 23.2 12.6 50 20 0 0 2012 2013 2014 2015 2016 2017 Jan-Jul18 2012 2013 2014 2015 2016 2017 Jan-Aug 2018 Source: Financial Service Authority (OJK) 71

  66. Finan ancia cial Institutio titutions ns Re Remain ain Ro Robust Dom omes estic tic financial instit titutio tions exhib hibit it a gener erall lly sou ound 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 ofita itability ility and d lever erage ge are re main intain tained ed at a suffic icien ient t level vel. . Risk-based ed capita tal (RBC) C) of the insurance e industr try also rema mained ed high gh, CAR of the e banking g secto tor rema mains at a high h level el. As of Jul-18 18, CAR & well above the mi minimu mum m thres esho hold (120%) %) Tier Tier-1 Capit ital was 22.56% & & 20.92%, respec pectiv tively % 550% 350% CAR Tier 1 Life Insurance General Insurance (rhs) 24.0 23.5 320% 500% 22.56 23.0 311% 22.5 290% 22.0 450% 21.5 457% 20.92 21.0 260% 20.5 400% 20.0 230% 19.5 19.0 350% 200% 18.5 Gearin ing g ratio of mu multifi finance comp mpanies es was at 3.09 time mes, provid idin ing g Profita itabil ility ty of the e banking g secto tor was relativ tivel ely stable amp mple room m for future e growth % 5.0 Net Interest Margin Return on Assets 6.0 5.12 4.5 5.0 4.0 4.0 3.5 3.09 3.0 3.0 2.46 2.5 2.0 2.0 1.0 1.5 1.0 0.0 Source: Financial Service Authority (OJK) 72

  67. 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 of in inves estmen tment ade adequacy acy rati atio. The non-pe performin ing loa oan/financing (NPL/NP /NPF) F) ratio tio is is main inta tain ined ed below ow the thres esho hold ld. The ratio of liquid id assets to deposits its in the banking g secto tor mo moderates es Inves estmen tment t adequacy ratio in the insurance e industr try y was ma maintained ed above 100% in line with h recen ent t outflows, s, but is ma maintained ed well above the e thres esho hold % % % 140 30 210 Liquid Assets to Non-Core Deposits (lhs) Liquid Assets to Deposit (rhs) * 130 26 190 185 120 21.00 22 170 110 100 18 150 100.10 90 130 14 124 80 110 Life Insurance General Insurance 10 70 90 60 6 *The spike in this ratio was due a change in calculation methods. As of Jul-18 18, the gross & net NPL L ratios of the banking g sector were NPF ratio of the mu multifi finance industr try was 3.18% as of Jul-18, 18, 2.73% & & 1.26% respe pectiv tively, ma maintained below the thres eshol hold maintained ma ed well below the 5% thres esho hold 4.0% 3.5 % NPL Net NPL Gross 3.5% 3.18% 3.0 2.73 3.0% 2.5 2.5% 2.0 2.0% 1.26 1.5 1.5% 1.0 1.0% 0.5 0.5% 0.0% 0.0 Source: Financial Service Authority (OJK) 73

  68. 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 of fin inan ancial al in insti tituti tution ons re remain ains man anage ageable able. Net Net open open pos osit ition on of of the the ban ankin king sect ector or was main intain ined ed at at a lo low level, level, whil hile the the in inves vestme tment va valu lue of of 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 Mutual funds’ net asset value (NAV) continued to grow with th a lowe wer positio ition n in the bankin king secto ctor is kept pt far below low the maxi ximu mum m limit it leve vel l of volatil tility ity (20%) %) IDR Tn NAV Mutual Funds IDX (rhs) 5% 6,800 530 6,600 500 6,400 4 470 6,200 440 3 6,000 410 5,800 1.78 380 2 5,600 350 5,400 320 1 5,200 290 260 5,000 0 Multif tifin inanc nce companies’ exposures to foreign debt had gene nerall lly been n The inve vestme tment nt value lue of insur urers & pens nsio ion n fund nds is relative latively ly mitig igate ted through hed edgin ing measures stable ble albe beit it bein ing expose posed to the spike ked volatility latility IDR Tn IDR tn IDR Tn Domestic Debt Foreign Debt Insurance Pension Funds (rhs) 1,100 300 184 180 1,030 1,050 160 275 1,000 140 950 250 120 255 900 100 95 225 850 80 60 800 200 Source: Financial Service Authority (OJK) 74

  69. Volatility tility in the he Global bal Mar arkets ets Continues inues Recen ent t devel elopm pmen ents ts in the globa obal l econo onomy and d financia ial l mark rkets ets gener erated ted som ome e pres essure res on the dom omes estic tic capit pital l markets kets. . Never verthele theless, the over verall ll market ket stability ility rem emain ins intact tact. The IDX Composite posite Index expe xperie ienc nced pressur ures, as also experienc nced The volatility latility in the dome mestic tic marke ket t is still ill observe ved, but now tend nds by other emerg mergin ing marke ket t equi uity ty indice ces to ease Comp Bond Index Comp Stock Index (rhs) Stock Index Performance 19 September 2018 vs 29 Desember 2017 260 7,000 WORLD 3.27 THAI -0.22 KOREA -6.45 240 6,500 INDO -7.59 HKN -8.40 SIN 229.78 -6.65 PHIL -15.62 220 6,000 CHIN -17.43 5,873.60 MAL 0.22 JPN 3.99 200 5,500 EURO -5.37 AS 6.18 RUS 14.31 BRAZ 2.50 180 5,000 TURK -17.19 % -20 -16 -12 -8 -4 0 4 8 12 16 Recent t outflo lows in the e domestic tic marke kets ts are mainly ly trigg iggered by exte ternal l factors Governm nment nt bond nd yields once ce spike iked, but now w tend nd to stabil biliz ize IDR Tn Yield (%) 15,500 Gov't Debt Securities Equity 10 5-yr Yield 10-yr Yield 20-yr Yield IDR (rhs) 40 15,000 9 14,500 20 8 14,000 0 7 13,500 (20.2) -20 6 13,000 (3.9) 5 12,500 -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 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 Source: Bloomberg, IBPA, Indonesia Stock Exchange, Ministry of Finance *as data 19 September 2018 75

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

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

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

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

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

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

  76. Strong nger er Funda damen mentals tals Fac acing ng the he Headw adwinds inds Inflatio lation n Rate te (%) %) IDR Move veme ment nt (%) Foreig ign n Reserve ves (USD bn) Significa cantly ly higher er than 1998 98 & 2008, 08, ample to cover er Inflation controll lled ed within the target et range IDR depr precia ciated ed year-to to-da date e in Septem ember 201 2018 6.6 6 months of import and external al debt repay payment 1998 -197 197 1998 82.4 .4 1998 17.4 .4 2008 -35 35 2008 2008 12.1 .1 50.2 .2 26-Sep-18 -8.97 97 (ytd) 3.20 (yoy) 3. 117.9 7.9 Sep-15 Sep-15 August ‘ 18 6.8 August ‘ 18 More Liqui uid Marke ket (%) %) Non-Pe Performi ming ng Loan/NPL PL (% (%) Over ernigh ght interbank nk money market rate NPL lev evel el (gross) s) is below the maximum thres eshold ld of 5% is rela latively ly lower er 62 62 1998 30 30 2008 3.8 10.5 .5 5.7 4.13 13 July ‘18 Aug-15 2.7 .7 2.8 Q2 2018 1998 2008 Jul-15 Exte xterna nal l Debt t (Pub ubli lic c & Exte xterna nal l Debt/GD t/GDP Governm nment nt Debt bt/G /GDP Priva vate te) to FX Reserve ve Ratio io Sligh ghtly ly high gher er than 2008, 08, but Significa cantly ly lower er than 1998 98 crisi sis Consisten ently ly well-maintained ned below 30% significa cantly ly lower er than 1998 98 3.1x 8.6x 27.4% 100.0% 116.8% 3.0x 33.2% 29.8% 34.3% 2008 1998 98 2008 08 1998 1998 2008 Q2 - 201 2018 Q2 - 201 2018 Q2 - 201 018 82

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

  78. Sec ection tion 6 Progress ssiv ive In Infr frastruc ructu ture Developmen ent: Strong Co Comm mmitme ment on Ac Acce celeratio tion of In Infr frastruc ructur ture Provisio ion

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

  80. Some of 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 Pres esid iden ential tial Reg. No. 20/2018 on Use of Foreign ign Labor – released on March 2018 This regulation aims at simpl plif ifying ng the permi mit t applic licatio tion n proce cess for foreig ign n worke kers, hence making the process more efficient and faster, in order to rise foreign direct investment in Indonesia Pres esid iden ential tial Reg. No. 56/2017 on Socia ial Impact ct Handlin ling in Land Acquis isit itio ion Proce cess for PSN – released on June 2017 This Presidential Reg. allows the Exe xecu cuting ting Agenc ncy to pay land nd acqui uisitio tion n compe pensatio nsation n to the impacte ted commu muni nity ty who does not have offic icia ial l rights ts over the land nd requi uired for PSN. N. This regulation helps to solve the land acquisition problem due to community objection over the land use. MoF No. 60/2017 on Procedur edures es for the Provis isio ion of Central al Governm ernment ent Guarant antee ee for the Acceler leratio tion of the Natio iona nal Strategic egic Proje jects cts Implem ementa entatio ion – released on 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 ope and gene neral al requ quir ireme ments nts and proce cedur ures to propos ose and grant ant guar arante antees, as well ll as alloc oc 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 on Natio ional al Spatia ial Plan (RTRWN) WN) – released on April 2017 The issuance of RTRWN can resolve spatial planning mismatch in the implementation of infrastructure projects listed in the 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 on of spatia tial l utiliz lizati ation on; ; so that at the proce cess of obtaini ining ng project ct permi missio ion n can be done ne. MoF No. 21/2017 on Procedur edures es for Land Acquis isitio ition for Natio iona nal Strateg egic ic Projects ts and Asset Manag agem ement ent of Land Acquis isitio ition by State Asset Manag agem ement ent Agency cy – released on February 2017 The implementing regulation of Presidential Reg. No. 102/2016 on Financing of Land Acquisition for the Development of Public Interest in the Framework of the National Strategic Implementation. This regulation becomes the legal basis for the financing of the procurement of National Strategic and Priority Projects by BLU LMAN. Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 86

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

  82. 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  Law No No. 2/2012 was was succes essfull lly applied plied in in: Regulation No. 71 of 2012 on Land Acquisition Implementation for Developing Public Facilities, which has been revised into the Presidential Regulation No. 30 1. 1. Pale Pa lembang ng – In Indr dralaya sect ection ion of of the the Tr Trans of 2015. The Amendment to the Regulation allows a Business Entity to allocate Sumatera Toll ll Roa oad Project oject funding for a land acquisition which can be reimbursed by the Government 2. 2. Java va Nor orth th Line Dou ouble le Track ack Rail il Projec oject following the completion of land acquisition process. With this Regulation, the land acquisition process is expected not to be delayed by the unallocated budget or the delay on the budget disbursement. Land Procurem rement t Proces ess s as Stipula lated ted in Law No. 2 of 2012 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 88

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

  84. 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 Governm ernmen ent Reg. No. 13/2017 on Natio ional al Spatia ial Plan (RTRWN) WN) 1 The issuance of RTRWN can resolve spatial planning mismatch in the implementation of infrastructure projects listed in the annex of Government Reg. No. 13/2017. A number of breakthroughs were developed, and one of them is that the Minister of Agrarian and Spatial can issue a recommendation of spatial utilization; so that the process of obtaining project permission can be done. MoF oF No. 60/2017 on Proc ocedur dures for the Prov ovis isio ion of Central Governm rnment nt Guarant ntee for the Acceler leratio tion of the National nal Strate tegic gic Proje jects Implem emen enta tatio tion 2 The supporting regulation for Presidential Reg. No. 3/2016 on the Acceleration of the National Strategic Projects Implementation. This regulation regulates the scope and general requirements and procedures to propose and grant guarantees, as well as allocate state budget obligation on government guarantees to all PSN. The guarantee provision is expected to increase the feasibility and trust of investors to participate in the implementation of PSN. Presid identia tial Reg. No. 56/2017 on Socia ial Impact Handl dlin ing in Land Acquis isit itio ion Proc ocess for PSN 3 This Presidential Reg. allows the Executing Agency to pay land acquisition compensation to the impacted community who does not have official rights over the land required for PSN. This regulation helps to solve the land acquisition problem due to community objection over the land use. MoF No. 21/2017 on Procedur edures es for Land Acquis isitio ition for Natio iona nal Strateg egic ic Projects ts and Asset 4 Management nt of Land Acquis isition ition by State Asset Management nt Agency The implementing regulation of Presidential Reg. No.102/2016 on Financing of Land Acquisition for the Development of Public Interest in the Framework of the National Strategic Implementation. This regulation becomes the legal basis for the financing of the procurement of National Strategic and Priority Projects by BLU LMAN Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 90

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

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

  87. Progress ess on 223 23 Proje jects ts an and 3 Program ams PSN The Estima timated ted Inves estme tment nt Value ue for 22 223 3 Projects ects + 3 3 Program ams PSN 1 5 S Secto tors rs with Highest Invest stment nt Value State State Budget Budget Tota tal Investm estment nt US$ 31.7 Bn Bn 10% Value lue 2 Energy SOEs/RSOEs 11 Projects US$ 307.4 7.4 US$ 94.3 Bn Bn SOEs/ US$ 89.8 Bn RSOEs Private 31% Billio lion Private 59% US$ 181.4 Bn Bn Electr tric icit ity 1 Program 1 Exclude 7 projects which investment value are still unknown US$ 76.7 Bn Exchange rate : US$ 1 = IDR 13,500 Prog ogress ess of Nationa ional l Strat rateg egic ic Project ojects + 3 Prog ogram ams (per er June ne 2018 18) 2 Roads ads 2 projects already completed 69 Projects 44 projects and 1 electricity program are in US$ 49.7 Bn 1% 1% construction and partial-operation phase 20% 20% 24% 24% 29 projects are in construction and will start operating in 2018 Railwa lways ys 52 projects are in construction and will start 16 Projects 3% 3% operating in 2019 US$ 29.2 Bn 13% 13% 37 projects are in construction and will start operating after 2019 16% 16% SEZs and IEs 6 projects in transaction 31 Projects 23% 23% US$ 31 Bn 53 projects and 1 Airplane Industry Program in preparation 2 ) Excluding the economic equality program that will be reported separately 93 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

  88. Progress ess on 3 37 Pri riori rity ty Proje jects cts From the revise ised Nationa ional Str trate tegic gic Projec ojects ts, the he Gov overnm rnment nt has as sele lecte ted a list st of 37 Priorit iority Projec oject to be the he focus us of of infrastr tructu ture provis ision. ion. 26. Tuban Oil Refinery 1. Balikpapan-Samarinda Toll Road 13. LRT of DKI Jakarta 27. RDMP/Revitalization of the Existing Refineries 2. Manado-Bitung Toll Road 14. Kuala Tanjung International Hub Seaport (Balikpapan, Cilacap, Balongan, Dumai, Plaju) 3. Panimbang-Serang Toll Road 15. Bitung International Hub Seaport 28. Abadi WK Masela Field 4. 15 Segments of Trans – Sumatera Toll 16. Patimban Port 29. Unilization Field Has Jambaran-Tiung Biru Road 17. Inland Waterways Cikarang-Bekasi-Laut (CBL) 30. Indonesian Deepwater Development (IDD) 5. Probolinggo – Banyuwangi Toll Road 18. Palapa Ring Broadband 31. Tangguh LNG Train 3 Development 6. Yogyakarta – Bawean Toll Road 19. Batang, Central Java Power Plant (CJPP) 32. West Semarang Drinking Water Supply System 7. SHIA Express Railway 20. Central – West Java Transmission Line 500 kV 33. Jakarta Sewerage System 8. MRT Jakarta South-North Line 21. Indramayu Coal-fired Power Plant 34. National Capital Integrated Coastal 9. Makassar-Parepare Railway 22. Sumatera 500 kV Transmission (4 Provinces) Development (NCICD) Phase A 10. Light Rail Transit (LRT) of Jakarta- 23. Mulut Tambang Coal-fired Power Plant (6 35. Jatiluhur Drinking Water Supply Depok-Bogor-Bekasi Provinces) 36. Lampung Drinking Water Supply 11. LRT of South Sumatera 24. PLTGU (16 Provinces) 37. Waste to Energy Program in 8 cities 12. East Kalimantan Railway 25. Bontang Oil Refinery Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 94

  89. Progress ess on 37 Pri riori rity ty Proje jects cts Prog ogres ess of 37 Prio iori rity Project ojects (per er June e 2018) Recen ent t Miles esto tones es Palapa Ring West package has been fully operasional since April 2018. 20 projects are in construction 32% 32% Yogyakar arta-Ba Bawen en Toll Road 5 projects are in transaction Outline Business Case has been done on December 2017. 54% 54% 12 projects are in preparation 14% 14% West Semaran ang Water er Supply ly Sy System: On March 2018, pre-qualification stage has resulted 4 shortlisted bidders Fundin ding g Schem eme e of 37 Prio iority ity Project ojects Mass Rapid Tran ansit sit (MRT) Jakarta South-Nort North Total Investment Value Allocation of repayment liability on additional-loan for Phase I US$ 181.6 Billion and Phase II has been decided in the KPPIP Ministerial meeting – 10% 10% 49% will be borne by Central Government and 51% will be borne Provincial Government of DKI Jakarta. US$92.4 billion from Private/ PPP Patimb mban an Port US$71.8 billion from SOE/ Loan Agreement has been signed on 15 November 51% 51% Regional SOE 2017. US$17.5 billion State/ 39% 39% Regional Budget (including G-to-G loan) Exchange rate : US$ 1 = IDR 13,500 Note: This data is still going to be verified by The Executive Office of President (KSP) Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) and Indonesia’s National Government Internal Auditor (BPKP) 95

  90. Energy gy Secto ctor: r: the he Progress ess of 35.000 000 MW Program am Debottl tlen enec eckin ing g through gh regulatio tion: Average economi mic growth th of 6.7% % 1. Regulation No.1/2015 concerning electricity requir ires es 7,000 MW / year or Launchin hing g 35.000 MW supply cooperation & joint utilization of the 35,000 MW / 5 y years by the President in Cabinet t Meeting ing electrical network among license holders. Goa Beach Sanden (Kepmen ESDM No. 0074/2015 on Progress of DIY 2. Regulation No.3/2015, concerning RUPTL 2015-2024) 35,000 MW Procedures of Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection & Appointment. Jan ‘15 17 Dec ‘14 Jan ‘15 16 Mar ‘15 4 May ‘15 Cabinet t Meeting ing June‘1 7 The progres ess so far: “There’s electricity crisis in Indonesia, requires construction of large capacity plant " 35,000 MW Prog ogram Distrib tributio tion No No Phase MW MW % Sulawesi si Kalima imanta tan PLN: 2,000 MW PLN: 900 MW Papua 1 Operating 2,278 6 Private: 1,470 MW Private: 1,735 MW PLN : 220 MW Transmission: 5,275 ckt.km Transmission: 5,604 ckt.km Private: 0 MW 2 Construction 16,523 47 Substation: 4,390 MVA Substation: 3,500 MVA Transmission: 364 ckt.km Substation: 460 MVA 3 Signed Power-purchase Agreement 13,481 38 Sumate tera PLN: 1,100 MW 4 Procurement 2,130 6 Private: 8,990 MW Transmission: 18,729 ckt.km 5 Planning 1,007 3 Substation: 35,521 MVA Maluku Nusa Tenggara Note : Progress of 35,000 MW Electricity Program as of June 2018 PLN: 260 MW Jawa & Bali PLN: 670 MW Private: 12 MW PLN: 5,000 MW Private: 0 MW Transmission: 653 ckt.km Private: 13,697 MW Transmission: 2,347 ckt.km Substation: 620 MVA Transmission: 9,185 ckt.km Substation: 1,410 MVA Substation: 66,265 MVA Source: PLN Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 96

  91. Accel eleratio tion of 35.000 000 MW Program am 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 Local l Con onten tent t Gov over ernmen ent t Supp ppor ort t (outs tside ide Guara rantee) tee) Provision of Primary Energy Obligation on the usage of local content • Gov over ernm nmen ent Provision of Renewable Energy through an open book system, price • Simplicity of Permits and non-Licensing guideline, reverse engineering or other • methods to maximise the local content. Spatial Planning • Land acquisition • Assign ignmen ent Resolution on Legal Matters • PT PLN Prov ovis isio ion of Electri tricity ity 1 2A 2A 2B 2B SJKU* U* EPC C Power erpla plant t PLN Subsidi idiar ary Indepen ependen ent Minis istry try of and d Transmis issio ion (Joint oint Ventu ture) e) Power er Prod oducer er Finance Stren ength gthen Equity ty Stren ength gthen PLN ‘s Balanc nce Sheet PT PLN ’s divident Loan from Equity Injection by allocation independent lenders the Government Refin inancin ing Hedgin ging Bond issuance Asset Direct Company *)SJKU= Surat Jaminan by PT PLN Revaluation Lending Tax Holiday Finan ancia ial l Asset et Optim imiz izatio ion Kelayakan Usaha / Direct Other types Business Viability of funding Lending Guarantee Letter Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 97

  92. Sign gnificant ificant Progress ess on Infrast I astructu ructure Proje jects cts Roads Impr prov ovin ing g Monitor itorin ing g System tem on Infrastru tructu ture e Project ojects 1 KPPIP developed an integrated IT System for monitoring of national strategic and priority projects, providing database on projects’ latest status which can be effectively utilized for monitoring and decision-making purposes. Databas ase Platform rm data outlook Trans-Sumatr tra Toll Road Merah h Putih ih Bridge idge, Ambon Project information that is efficient and Dams Drinki king Wate ter Processin ing such as map, track, functional using a existing study and user-friendly latest project status. framework. Umbulan Drinkin king Water Provi visio sion System, East t Java Jatige igede de Dam (Operatio tional) Transp nsportatio tion An integr grated ted IT Record decisions related system with to projects and Jakarta ta MRT Project 2 Terminal 3 Ultima imate te Soeka karno-Hatta tta 2 monitoring capacity synchronize ize the for stakeholders, so implementation schedule that they can have that can be utilized by real time data ta. stakeholders. 1 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 2 Not funded from National Budget Nop Golia iat t Dekai, i, Papua 98 New Tanjung Priok k Port t Project 2

  93. Infras astr tructur cture Projects ts an and Finan ancing cing Sche hemes mes Promoti tion of Infras astruc ructur ture Develo lopmen ment to Acce celerate te Econo nomic mic Growth th Esta tabli blishment shment of PPP PPP Unit Infrast structure e Devel elopme pment t is a Key Priority ity Infras astructur ure Development in order to:  Broad ad Champion project preparation and acceleration of the PPP  1. Accelerate growth particularly in rural areas Objective agenda in Indonesia 2. Support industrial development and tourism Improve quality of project selection under KPPIP – OBC criteria  3. Reduce unemployment and poverty Core Support project preparation through PDF support and highly  Infras astructur ure fundraisin aising needs: $357.9 bn bn (or equivalent to IDR4,796.2 tn)  Manda dates qualified transaction advisors Act on behalf the Minister of Finance in providing government 245 Natio ional Strategy y Projects under National Medium Term Plan for 2015 –   support and approvals for projects 2019 with an estimated total cost of IDR 4,197 tn (USD 313 bn) Coordinate all public finance instruments 37 prio iorit ity infrastruct uctur ure projects with an estimated cost of IDR 2,490 tn (USD   Addit itio ional al Provide input for PPP Policy program Development and Regulations 180 billion)  Man andates Implement capacity building for Govt. Contracting Agency (GCAs)  Majority of 37 priority projects are expected to commence commercial operation  One stop shop for PPP promotion & Information  by 2018 - 2022 Budget get Public Priv ivate te Partn tner ershi ship SOE E & Priv ivate te Sec ecto tor Central & regio ional budget Certain in infrastruct ucture projects to to be funded and operat ated throug ugh a Governme ment to to inject capital al into SOEs:    (special allocatio ion fun und & par artnership ip between the Indonesian an government and the priva vate sector Intended multiplier effect to develop more – Projects ready for auction under the PPP Scheme: rur ural tran ansfer) infrastructure projects Key focus cus ar areas: as: Primarily to to support bas asic ic – Toll roads projects such as Balikpapan-Samarinda and Manado-Bitung   – Railway projects such as an express line into Soekarno-Hatta infrastruct ucture projects: – Infrastructure and maritime development International Airport Food secur urity: – Transportation and connectivity – – Water supply projects such as the West Semarang Project – Food security Irrigation, dams etc. Var ario ious government nt sup upport for PPP: PPP:  Mediu ium m term infrastruct cture develop velopments to Mar aritime: Seaports,  – Project Development Facilit ity y (PDF): Helps Government – focus cus on: shipyards etc. Contracting Agencies (GCAs) in project preparation and – Water Supply Connectivi vity: y: Village – transaction roads, public – Airports Viab iabil ility y Gap ap Fund: improves financial viability of PPP projects – transportation etc. – Seaports Government Gua uaran antees: Supports PPP projects’ bankability by – providing sovereign guarantees – Electricity and power plants Infrastruct ucture Fin inan ancing Fund: Provided through PT SMI and IIGF – Housing – Avai ailab ability Payment (AP): GCA pays private partner based of availability – Mining – of infrastructure services Note: OBC: Outline Business Case; PDF: Project Development Facility; GCA: Government Contracting Activity Source : Ministry of Finance; Bappenas; KPPIP: “Komite Kebijakan Percepatan Penyediaan Infrastruktur” or National Committee for the Acceleration of Infrastructure Delivery 99

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