Synergy for Progressive Reforms October 2016 0 About Investor - - PowerPoint PPT Presentation

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Republic of Indonesia

October 2016

Synergy for Progressive Reforms

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Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial market investors. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among

• thers: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry
• f State Owned Enterprises, Ministry of Energy and Mineral Resources and Financial Services Authority.

IRU also convenes an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit – Republic of Indonesia Contact: Wiwit Widyastuti K. (International Department - Bank Indonesia, Phone: +6221 2981 8279) Dalyono (Fiscal Policy Office – Ministry of Finance) Farid Arif Wibowo (Directorate General of Budget Financing and Risk Management- Ministry of Finance) E-mail: contactIRU-DL@bi.go.id

About Investor Relations Unit of the Republic of Indonesia

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Overview

Institutional And Governance Effectiveness: Accelerated Reforms Agenda with Institutional Improvement Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Management Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector Economic Factor: Strong and Stable Growth Prospects Remain Intact External Factor: Improved External Resiliency

1 2 3 4 5

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Accelerated Reforms Agenda with Institutional Improvement Institutional and Government Effectiveness:

1

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Positive Global Perception

52 25 46 40 38 15 25 35 45 55 2010 2011 2012 2013 2014 2015 Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption

1. Source: World Bank; 2. Source: Transparency International; 3. Source: World Economic Forum

World Governance Indicators1 Ease of Doing Business1 Global Competitiveness Index3 Corruption Perception Index2

Higher rank is better

Higher score is better 36 38* 35 45 20 25 30 35 40 45 50 55 2010 2011 2012 2013 2014 2015 Indonesia India Brazil Philippines Turkey * Both India and Brazil shared the same score (38) in 2015 Higher rank is better 41 39 81 57 55 30 45 60 75 90 2009 2010 2011 2012 2013 2014 2015 2016 Indonesia India Brazil Phillipines Turkey Higher rank is better 91 130 123 99 69 50 70 90 110 130 150 2008 2009 2010 2011 2012 2013 2014 2015 2016 Indonesia India Brazil Philippines Turkey * Both ‘Rule of Law’ and ‘Regulatory Quality’ shared the same score (40) in 2015

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Indonesia Remains the Investment Destination of Choice

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

1. Source: Indonesia Investment Coordinating Board (BKPM); 2. Source: IMF World Economic Outlook, Database October 2016, * actual figures; 3. The Economist – Asia Business Outlook Survey 2016; 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (27th Annual Survey);

IDR tn

2016E Total Investment / GDP (%)

Indonesia Enjoys Large Investments Relative to Peers within the Region2 JBIC: Amongst ASEAN countries, Indonesia is the most preferred place for business investment (December 2015)4 The Economist: Indonesia among the top 3 destination for attracting investors in Asia (January 2016)3

18,9 22,9 23,6 24,8 27,1 28,3 29,0 30,1 32,2 32,7 37,2 48,0 58,2 69,3 0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 Taiwan Hong Kong South Korea Singapore Australia Japan Thailand Vietnam Myanmar Malaysia Philippines Indonesia China India % of surveyed who plan to increase investment in each country 155.3 55.6 99.7 2013 2014 2015 2016

Rising Direct Investments1

17,96 31,66 34,65 26,15 23,74 24,42 5 10 15 20 25 30 35 Brazil India* Indonesia Malaysia Philippines Thailand 40 80 120 160 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 FDI DDI TOTAL

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National Strategic Development Plan (Nawa Cita)

Human Development

Education Health Housing Character

Priority Sector Development

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

Equitable Development

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

Security & Order Politic & Democracy Governance

The 3 Dimensions on Economic Development Necessary Condition

Legal Certainty & Law Enforcement

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Improving Investment Climate:

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

BKPM

• Arrive at OSS at BKPM directly from the airport
• Consult with Director of Investment Service
• Submit the required documents & data

Requirement for utilizing 3-hour Investment Lisencing Service:

No requirements for investment in infrastructure sector

9 documents obtained

Wait at the lounge while documents are processed by BKPM, in-house notary, ministries, & other government institutions Obtain eight documents & letter of land availability within three hours to start the business

• RPTKA / Employment plan
• IMTA / Working permit
• Investment license
• Certificate of incorporation
• NPWP / Tax Registration Number
• TDP / Company Registration
• APIP / Import identification
• NIK / Customs registration
• Letter of land availability

Until October 2016, 130 companies have utilized the “3 hours services”

Certainty to start a business Certainty to Import capital goods Certainty to work Accurate land information

1. Minimum investment of IDR 100 billion (USD 8 million) and/or employing 1,000 local workers. 2. Application must be submitted directly by at least one candidate

• f the proposed company stakeholder

2 documents needed

• ID Card
• And/or Deed of Establishment (Indonesian company) or Article
• f Association (Foreign company)
• Containing workflow from raw material production to the

finished products

Investor identitiy as the prospective shareholders Flowchart of business activities workflow

Source: Investment Coordinating Board (BKPM)

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Improving Investment Climate:

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

Direct Construction (KLIK)

No Requirements

• No minimum investments or workers is

required.

• Available for 14 selected industrial parks.
• Construction permits can be obtained in parallel

with construction process.

Investors can directly start their project construction before

• btaining construction permits. This service is supported by

both Central and Regional Governments which become the first step to synergize between central and local licensing

Obtain investment licence at OSS

at national or regional level.

• Survey a land within selected

industrial parks.

• Acquire the land for your industry.
• Start the construction of your project.

No other permits are required.

• Apply for building construction permit &

environmental permit, in parallel with construction process.

Priority Investment Service

Source: Investment Coordinating Board (BKPM)

Until September 2016, 66 projects have utilized the “KLIK services”

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Improving Investment Realization (Q3-2016)

Source: Investment Coordinating Board (BKPM), compared to Q3-2015 period

Rp140.3 T Rp155.3 T Rp92.5 T Rp99.7 T Rp47.8 T Rp55.6 T 373,560 276,023

10.7% 26.1% 7.8% 16.3%

Q3-2015 Q3-2016 Q3-2015 Q3-2016 Q3-2015 Q3-2016 Q3-2015 Q3-2016

*

* person

Decreasing

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FDI Realization by Sectors (Q3-2016)

Mining Chemical and Pharmaceutical Industry Transport Equip and Other Transport Industry Metal, Machinery and Electronic Industry

Source: Investment Coordinating Board (BKPM), compared to Q3-2015 period

US$569.75 mn US$663.85 mn US$688.41 mn US$764.06 mn US$1,231.41 mn US$632.24 mn

Food Industry

50.3%

US$694.39 mn

Food Crops

24.4% 70.1% 15.8% 30.8% 3.2% 37.7%

Investment Realization

Electricity, Gas and Water Supply

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30 Priority Projects Within the Pipeline

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

• 1. National Capital Integrated Coastal

Development (NCICD) Tahap A (Rp2.4 tn)

• 2. Trans-Sumatera Toll Road (>Rp81.2 tn)
• 3. Makasar-Parepare Railway (Rp9.4 tn)
• 4. SHIA Express Railway (Rp24 tn)
• 5. MRT Jakarta (Rp25 tn)
• 6. LRT Jabodetabek (Rp20.6 tn)
• 7. LRT Palembang (Rp12.5 tn)
• 8. Kuala Tanjung Int’l Hub Port (Rp30 tn)
• 9. Manado-Bitung Toll Road (Rp8.9 tn)

10.Balikpapan-Samarinda Toll Road (Rp9.9 tn) 11.Batang 2.000 MW Power Plant (Rp40 tn)

• 1. Palapa Ring Broadband (Rp8.1 tn)
• 1. 1.000MW Indramayu Power Plant (Rp20 tn)
• 2. 500 kV Central-West Java Transmission Line

(Rp7.64 tn)

• 3. 2x50MW Karangkates Power Plant (Rp1.6 tn) ***
• 4. 37MW Kesamben Power Plant (Rp1.1 tn)***
• 5. 10MW Lodoyo Power Plant (Rp0,3 tn) ***
• 6. Bitung Port Development (Rp34 tn)
• 7. Kalimantan Timur Railways (Rp52 tn)
• 8. Sumsel 8 Power Plant***
• 9. High Voltage Direct Voltage Transmission

(Rp33.4 tn)*

• 1. Jakarta Sewerage System (Rp1.5 tn)**
• 2. Tuban Refinery (Rp108 tn)**
• 3. Sumatera 500 kV Transmission (Rp24.4 tn)
• 4. Panimbang-Serang Toll Road (Rp10.7 tn)
• 5. Sumsel 9, 10 Power Plant (Rp72 tn)
• 1. SPAM Semarang Barat

(Rp0.9 tn)

• 1. Existing Refinery Upgrading

Project (Cilacap, Balongan, Plaju, Dumai, dan Balikpapan) (Rp210 tn)

• 2. Patimban Port (Rp43.2 tn)
• 3. Inland Waterways/ Cikarang –

Bekasi – Laut (CBL) (Rp3.4 tn)

• 4. Bontang Refinery (Rp150 tn)

Implementation Stage Preparation Stage

*The project is cancelled by PLN ** Possibly not using PPP funding scheme *** Feasibility Study of the project will be revisited by PLN **** Part of Sumsel 9 and 10 Power Plant Package Source: KPPIP

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Significant Progress on Key Infrastructure Projects

Roads Dams Housing

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

Transportation

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

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Progress of Some Infrastructure Initiatives under SOEs

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

Description Length (km)* Investment (IDR tn)* Concession By** Status** Remarks** Completion Target**

Medan-Binjai 16.7 1.6 Hutama Karya In Progress Land Clearing: 77,9% completed Construction: 19,2% completed 2018 Medan-Kualanamu-Tb. Tinggi 61.7 4.1 Jasamarga Kualanamu Toll In Progress Land Clearing: 86,4% completed Construction: 6% completed 2017 Pekanbaru-Kandis-Dumai 135 16.2 Hutama Karya In Progress Land Clearing: 22,23% completed Construction: 1% completed 2019 Palembang-Indralaya 24.5 3.3 Hutama Karya In Progress Land Clearing: 92,3% completed Construction: 17,7% completed 2017 Kayuagung-Palembang-Betung 111.7 14.4 Sriwijaya Markmore Persada In Progress Land Clearing: 100% completed Construction: n/a 2018 Bakauheni-Terbanggi Besar 155 16.8 Hutama Karya In Progress Land Clearing: 19,8% (25,2 km) completed Construction: 5% completed 2018 Cinere-Serpong 10.1 2.2 Serpong Cinere Jaya In Progress Land Clearing: 3,4% completed Construction: n/a 2019 Bekasi-Cawang-Kp. Melayu 21 7.2 Waskita Karya In Progress Groundbreaking: October 2014 Land Clearing: 30,1% completed Construction: 28,3% completed 2019 Ciawi-Sukabumi 54 7.7 Trans Jabar Toll In Progress Land Clearing: 26,6% completed Construction: 3% completed 2019 Soreang-Pasir Koja 10.6 1.5 Citra Marga Lintas Jabar In Progress Land Clearing: 96% completed Construction: 40,2% completed 2016 Pejagan-Pemalang 57.5 5.5 Waskita Karya In Progress Land Clearing: 99% completed Construction: Section I & II 92% completed 2017 Pemalang-Batang 39.2 4.8 Pemalang Toll Road In Progress Land Clearing: 12% completed Construction: n/a 2018 Batang-Semarang 74.4 11 Jasa Marga Semarang Batang In Progress Land Clearing: 20% completed Construction: n/a 2018 Solo-Ngawi-Kertosono 177.1 10 Solo Ngawi Jaya In Progress Solo-Ngawi: Construction 80% completed Ngawi-Kertosono: Construction 40% completed 2018 Pandaan-Malang 37.6 5.9 Jasamarga Pandaan Malang In Progress Land Clearing: 64% completed (Section I) Construction: 4% 2019 Manado-Bitung 39 5.1 Jasamarga Manado Bitung In Progress Land Clearing: 36,3% completed Construction: n/a 2019 Balikpapan-Samarinda 99.2 9.9 Jasamarga Balikpapan In Progress Land Clearing: 86% completed Construction: 36,3% completed 2019

Total 1,124.3 127.2

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Energy Sector: the Progress of 35.000 MW Program

No Phase MW % 1 Planning 7,640 20.83 2 Procurement 10,844 29.56 3 Power-purchase Agreement 9,790 26.69 4 Construction 8,215 22.39 5 Commercial Operation Date 195 0.53

17 Dec ‘14

Cabinet Meeting “There’s electricity crisis in Indonesia, requires construction

• f large capacity plant "

Jan ‘15

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

Jan ‘15

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

• f Purchasing Electrical Power and benchmark

prices for Electrical Power through the Direct Selection and Appointment.

16 Mar ‘15 4 May ‘15 Sept ‘16

Cabinet Meeting Progress of 35,000 MW Launching 35.000 MW by the President in Goa Beach Sanden DIY The progress so far:

Source: KPPIP

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

35,000 MW Program Distribution

Source: PLN

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The Economic Policy Packages

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

Phase III (7 Oct ’15) Financial services facilitation, export financing and elimination

• f business unnecessary burden

Phase IV (15 Oct ’15) Social safety net and betterment of people welfare Phase V (22 Oct ’15) Improving industry and investment climate through tax incentives and deregulation on sharia banking Harmonizing Regulations Simplifying Bureaucratic Process Ensuring Law Enforceability Phase VI (6 Nov ’15) Stimulating economic activities in border areas and facilitating strategic commodities availability Phase VIII (21 Dec ’15) Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation industries Phase IX (27 Jan ’16) Accelerating electricity generation, stabilizing meat prices and improving rural –urban logistics sector Phase X (11 Feb ’16) Revising Negative investment List and improving protection for SMEs Phase I (9 Sept ’15) Improving national industry competitiveness Phase II (29 Sept ’15) Easing permit requirement and simplifying export proceeds requirement Phase XI (29 Mar ’16) Stimulating national economy through facilitation to SMEs and industries Phase XII (28 Apr’16) Improving Indonesia’s rank on Ease of Doing Business (EODB) Phase VII (7 Dec ’15) Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land certification process for individuals Phase XIII (24 Aug ’16) Low Cost Housing for Low-Income Communities

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Thematic Policy Issues on Deregulation

Next Phase of Policy Packages based on Sectoral and Thematic Issues Six policy issues under Packages I-XIII:

improvement of industry competitiveness improvement of society’s purchasing power widening of investment expansion of export efficiency of logistics sector improvement of tourism sector

Education and Vocational Training Logistics Agrarian reform Energy Industry, Manufacture, Tourism, Fishery & Service sector Food Invention, Innovation and Creative Economy

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Progress of the Economic Policy Packages

204 regulation has been deregulated As

• f

21 September 2016, deregulation

• f

202 regulations are finished (99%), comprising 48 regulations at Presidential level and 154 regulations at Ministrial/Institutional level Unfinished regulation, (a) Proposed Presidential Regulation concerning Gas Buffer Enterprises (Agregator); and (b) Proposed Presidential Regulation concerning Acceleration

• n

Housing Construction Lisencing for Low-Income Communities As of 21 September 2016, from total 26 technical regulations, 24 regulations are deregulated, which left 2 regulation in process of deregulation

I–XII

202

SET

99% 204

TOTAL REGULATIONS

2

ON GOING DISCUSSION

1%

154 TOTAL

154

MINISTRIAL/INSTITUTIONAL LEVEL 100%

47 42

SELESAI

PRESIDENTIAL

50 TOTAL

48 FINISHED

PRESIDENTIAL LEVEL

96% I–XIII

FINISHED

TECHNICAL REGULATIONS

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Early Outputs: Positive Influence on Investment

1

Bonded Logistics Center (Pusat Logistik Berikat/ PLB) Total 28 BLC has been launched, including airplane maintenance industry and oil

6

Export Financing/KURBE Export of Train Wagon to Bangladesh

2

Investment Permit - 3 Hours Granted for 130 companies with investment value of

• Rp. 291 T (as of October 2016) and 77.000 additional

workforce

3

Industrial Zones (IZ)

• The Province of Central Java proposed 3 IZ’s: Kendal,

Demak, and Ungaran

• Pharmaceutical IZ in Bitung (North Sulawesi) in 2017

5

Facilities and Incentives for SEZ Total value of Rp 33.8 T (as of September 2016)

7

EoDB for SMEs Streamline/Simplify permits and procedures which shorten lead time and costs in 10 indicators

4

Wage Systems 14 Provinces have set 2016 Minimum Wage System in accordance to the Government Regulation (GR)

• No. 78/2015 (Kepri, Kalbar, NTB, Sumbar, Jambi, NAD,

Kalsel, Banten, Gorontalo, NTT, Jabar, Bali, Sumut, and Babel).

8

Simplification of Fiscal Incentive Process Used by 18 companies with average processing time

• f 13.4 days (previously 2 years)

9

SME’s Export Product Aggregator/Consolidator Launched with maiden export from North Sulawesi through SOEs’ Synergism Program

10

Revision to Negative List (PP No. 44/2016) Implemented since 24 June 2016 with participation of 527 companies with planned investment of USD 12.926 bn

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Ministry of Finance Policy Package

…comprehensive approach across sectors

Source: Ministry of Finance

Stimulus to Enhance Household Purchasing Power

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

Indonesia

Stimulus to Increase Incentive for Businesses

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

advantage on domestic industries

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

lowered to 12%, less than general SMEs credit rate

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

improvements in capital structure

• Construction of integrated logistic centers, in Cikarang (Manufacturing) and Merak (Fuels)
• Higher threshold for property luxury tax to IDR 10 billion (~US$ 714 thousand) for

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

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

government capital allocation and National Interest Account

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

airplanes, including spare parts)

Implemented

• Taxation Administrative and Regulatory Reform, including

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

• Develop more Special Industrial Zones outside Java

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

• Support economic activities in Special Economic Zones

via longer tax holiday up to 25 years

• Revision on Ease of Import for Export Destination

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

On Pipeline

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

• Preserving

foreign exchange market confidence by controlling currency volatility

• Maintaining

market confidence in tradable government securities (SBN) through purchases

• n the secondary market,

while monitoring its impact

• n

SBN availability in terms of inflow and money market liquidity.

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

• Strengthening

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

• f

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

• Strengthening

Regional Economic and Financial cooperation between Bank Indonesia and the Government

• Changing the auction mechanism of

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

• Changing the auction mechanism of

Certificates

• f

Deposit

• f

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

• Reissue Bank Indonesia Certificates

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

Strengthening foreign exchange supply and demand management

• Adjust

the frequency

• f

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

• Change the Foreign Currency

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

• Lower

the purchase limit

• f

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

• f

Tax Identification Number (NPWP)

• Expediting the bank foreign debt

approval process while adhering to prudential principles

Deepening the money market

• Providing

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

• Refining

money market regulations covering all components

• f

market development, including the instruments, players and infrastructure.

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

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Monetary Policy Package: September II

30th September 2015

Maintaining Rupiah Exchange Rate Stability

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

Strengthening Rupiah Liquidity Management

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

Strengthening Foreign Exchange Supply and Demand Management

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

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

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

exchange market.

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

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

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

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

SLIDE 23

Strong and Stable Growth Prospects Remain Intact Economic Factor:

2

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23

Conducive Environment Underpinning Strong Growth Fundamentals

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

• n commodities

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

Reform-Oriented Administration

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

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

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Indonesia’s Strong GDP

Growth Prospect GDP Growth Based on Expenditures1 Strong GDP Growth1

By expenditure 2014 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Household consumption 5.3 5.1 5.1 5.1 5.0 5.0 5.0 4.9 4.9 5.0 Non profit household consumption 23.2 22.4 5.8 (0.5) (8.1) (8.0) 6.6 8.3 6.4 6.7 Government consumption 6.1 (1.8) 1.2 0.9 2.9 2.6 7.1 7.3 2.9 6.3 Investment 5.2 4.1 4.5 4.6 4.6 3.9 4.8 6.9 5.6 4.6 Exports 3.2 1.4 4.8 (4.6) (0.6) 0.0 (0.6) (6.4) (3.9) (2.7) Imports 5.0 0.4 0.3 3.2 (2.2) (7.0) (5.9) (8.1) (4.2) (3.0) GDP 5.1 5.0 5.0 5.0 4.7 4.7 4.7 5.0 4.9 5.2 QoQ YoY

%

Institutions 2016 GDP growth (%YoY) 2016 Revised Budget 5.2 Bank Indonesia 4.9 – 5.3 IMF 4.9 World Bank 5.1 ADB 5.0 Consensus Forecast (October 2016) 5.0 0,06 3,83 3,29

• 2,11
• 0,23

3,75 3,36

• 1,83
• 0,34

4,02 5,14 4,96 4,97 5,04 4,73 4,66 4,74 5,04 4,92 5,18

• 3,0
• 1,0

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

Favourable GDP Growth Compared to Peers2

1. Source: Central Bureau of Statistics of Indonesia (BPS) 2. Source: World Economic Outlook Database, October 2016; * indicates estimated figure

%

• 4,0
• 2,0

0,0 2,0 4,0 6,0 8,0 2011 2012 2013 2014 2015 2016 2017 2018 Brazil India Indonesia Malaysia Philippines Singapore Thailand * *

SLIDE 26

25

Strong and Stable GDP Performance

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



Majority of growth was driven from Java



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



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



Government policies continue to encourage regional growth

%

GDP growth by sectors (YoY) (%) 2014 2015 2016 Q1 Q2 Q3 Q4 Yearly Q1 Q2 Q3 Q4 Yearly Q1 Q2 Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 4.0 6.9 3.3 1.6 4.0 1.8 3.2 Mining (1.0) 1.1 1.2 1.5 0.7 (1.3) (5.2) (5.7) (7.9) (5.1) (1.3) (0.7) Industrial processing 4.5 4.8 5.0 4.2 4.6 4.0 4.1 4.5 4.4 4.2 4.6 4.7 Construction 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 8.2 6.6 7.9 6.2 Big traders, wholesale, retail 6.1 5.0 5.2 4.5 5.2 4.1 1.7 1.4 2.8 2.5 4.0 4.0 Transportation and warehousing 7.0 7.6 7.7 7.2 7.4 5.8 5.9 7.3 7.7 6.7 7.9 6.8 Information and communication 9.8 10.5 9.8 10.3 10.1 10.1 9.7 10.7 9.7 10.1 8.3 8.5 Financial service and insurance 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.4 12.5 8.5 9.3 13.5 Other1 5.4 4.7 5.9 6.5 5.7 5.1 6.5 5.0 5.9 5.6 7.9 7.9 GDP 5.1 5.0 5.0 5.0 5.0 4.7 4.7 4.7 5.0 4.8 4.9 5.2 Java: 58.8% Sumatera: 22.0% Maluku & Papua: 2.4% Sulawesi: 6.1% Kalimantan: 7.6% Bali & Nusa

Tenggara: 3.1%

Spatial GDP Growth Contribution

Sumatera GDP Growth Q2 2016: 4.5% Java GDP Growth Q2 2016: 5.7% Kalimantan GDP Growth Q2 2016:1.1% Sulawesi GDP Growth Q2 2016:8.5% Maluku & Papua GDP Growth Q2 2016: -1.6% Bali & Nusa Tenggara GDP Growth Q2 2016: 7.4% Source: BPS

• 10
• 5

5 10 15 Manufacture Service (Financial) Agriculture Mining Q2 2015 Q2 2016

SLIDE 27

Improved External Resiliency External Factor:

3

SLIDE 28

27

A Narrower, Structurally-Stronger Current Account Deficit

Improving Current Account Deficit Strong Balance of Payments Supported by Substantial FX Reserves to Mitigate External Challenges Trade Balance Surplus Continues

Source: Bank Indonesia Source: Bank Indonesia US$bn US$bn

109.8 7.4 (2.2) (4.7) 2011: CA Surplus US$1.7bn 2015: CA Deficit (US$17.8bn) 2012: CA Deficit (US$24.4bn) 2013: CA Deficit (US$29.1bn) 2014: CA Deficit (US$27.5bn)

US$bn

(7.6) (1.9) 3.7 1.2 (4.7)

Source: Bank Indonesia FX Reserves as of Sep 2016: US$115.7bn (Equiv. to 8.5 months of imports + servicing of government debt) Month US$bn FX Reserves (LHS) Month of Import & Debt Service (RHS)

2016**: CA Deficit (US$4.7bn) 20 40 60

80 100 120 140 160

• 20
• 15
• 10
• 5

5 10 15 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4* Q1* Q2** 2010 2011 2012 2013 2014 2015* 2016** Current Account Capital & Financial Account Overall Balance Reserve Assets (RHS)

• 15
• 10
• 5

5 10 15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4* Q1* Q2** 2011 2012 2013 2014 2015* 2016** Goods Services Income Secondary Inc. Current Acc. Source: BPS 2015: Surplus US$7.52bn 2014 Deficit US$1.89bn US$bn Jan-Sep 2016: Surplus US$5.65bn

• 3

6 9 12 15

• 20

40 60 80 100 120 140 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 2012 2013 2014 2015 2016

• 2,5
• 2,0
• 1,5
• 1,0
• 0,5

0,0 0,5 1,0 1,5 2,0 2,5 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 2014 2015 2016 Non-OG OG Total

SLIDE 29

28

Exchange Rate In Line with Fundamentals

Stable Movement of Rupiah

Source: Bank Indonesia

YTD 2016* vs 2015

Source: Bank Indonesia

Rupiah Exchange Rate Relatively Well Compared to Peers

IDR/US$

Sep 2016* vs Aug 2016

Source: Bank Indonesia IDR/USD Monthly Average Quarterly Average * data as of 30 Sept 2016 * data as of 30 Sept 2016 Average Point-to-point * data as of 30 Sept 2016

• 3,92
• 1,72
• 1,43
• 1,09

0,09 0,11 0,53 1,24 0,83 1,64 1,86 5,62

• 1,96
• 2,02
• 0,18
• 1,37

0,03

• 0,33

0,28 0,19 0,07 0,41

• 0,6
• 1,65
• 5,00
• 4,00
• 3,00
• 2,00
• 1,00

0,00 1,00 2,00 3,00 4,00 5,00 6,00 PHP MYR TRY BRL THB CNY INR KRW EUR IDR JPY ZAR %

• 3,22
• 2,45
• 0,69

2,89 3,76 4,19 5,62 6,71 13,92 21,41

• 6,00
• 3,00

0,00 3,00 6,00 9,00 12,00 15,00 18,00 21,00 24,00 PHP TRY INR EUR MYR THB IDR KRW ZAR BRL %

The rupiah appreciated by an average of 0.41% to a level of Rp13,051 per USD as of September 2016. At home, positive sentiment concerning the domestic economy, stemming from maintained macroeconomic stability together with sound implementation of the Tax Amnesty, bolstered rupiah appreciation. Externally, the rupiah appreciated as global risk surrounding the timing of the proposed FFR hike eased.

SLIDE 30

29

Lines of Defense Against External Shocks

FX Reserve



Ample of level of FX reserves to buffer against external shock



FX Reserves as of September 2016: US$115.7 billion South Korea



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



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



Effective as of December 15, 2015. The effective period will be three years, and could be extended by mutual consent of both sides

First Line of Defence Second Line of Defence BI’s Existing Bilateral Currency Swap Arrangement (BCSA)

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

Japan



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



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



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



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



Doubled to US$ 240 billion effective July 2014

Source: Bank Indonesia

SLIDE 31

30

Comprehensive Stabilization Framework Ensures Proactive Risk Management of Financial System

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

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

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

Crisis Management Protocol

Related State Owned Enterprises (min. Aware Level) State Budget SOE Budget BPJS Budget Buyback fund at the DG of BFRM and Investment fund at PSA (min Aware Level) BPJS/Social Security Organizing Agency (min. Aware Level)

Bond Stabilization Framework

1 2 3 4 5 6 Fiscal buffers to prevent crises and mitigate risks First Line of Defence Related State Owned Enterprises (min. level Alert ) State Budget SOE Budget BPJS Budget State General Treasury Account/KUN (min. level Alert) and Accumulated Cash Surplus/SAL (min. Level Crisis) BPJS/Social Security Organizing Agency (min. Alert Level) Second Line of Defence

SLIDE 32

31

Strengthened Private External Debt Risk Management

(US$bn)

Source: External Debt Statistics of Indonesia, October 2016

(%)

Source: Moody’s Statistical Handbook, May 2016

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

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

Prudent External Debt Management

External Debt / GDP (%)

Total FCY Debt: US$323.0 bn Private Sector FCY Debt: US$163.3 bn



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

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



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

23,3 27,3 34,7 33,0 29,5 50,4 22,9 26,5 32,7 36,0 37,5 55,4 0,0 10,0 20,0 30,0 40,0 50,0 60,0 India Philippines Thailand Indonesia Brazil Turkey 2015 2014

50 100 150 200 250 300 350 50 100 150 200 250 300 2005 2007 2009 2011 2013 2015* Feb 2016* Apr 2016* Jun 2016* Aug 2016** Public (Govt. & BI) Private Total (RHS) (US$bn)

SLIDE 33

32

Manageable External Debt Profile

... short term non-bank corporate debt (non affiliation) represents only 9.7% of total private external debt

External Debt Position as of August 2016

1 Based on remaining maturity

Source: External Debt Statistics of Indonesia, October 2016

Private Short-Term1 Private Non-Bank

External Debt Position Affiliation Non Affiliation

US$323.0bn

US$163.3bn

• r

50.6%

• f total
• Ext. Debt

US$47.8bn

• r

29.8%

• f Private
• Ext. Debt

US$159.7 Bn

• r

49.4%

• f Total Ext.

Debt US$115.5 Bn

• r

70.7%

• f Private Ext.

Debt US$19.1 Bn

• r

11.7%

• f Private
• Ext. Debt

US$13.0 Bn

• r

8.0%

• f Private
• Ext. Debt

US$15.8 Bn

• r

9.7%

• f Private
• Ext. Debt

US$28.8bn

• r

17.6%

• f Private
• Ext. Debt

Public Long Term 1 Private Bank

SLIDE 34

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

4

SLIDE 35

34

The Authorities Has Prepared Policies to Support Growth

…and ensure sustainable and equitable economic growth

• Sustainable revenue sources

(shift away from commodity-based revenues)

• Broaden tax coverage
• Higher spending productivity
• Well targeted subsidy scheme
• Empowerment of local governments
• Prudent deficit & debt management
• Maintain purchasing power
• Improve investment climate)
• Prudent monetary policy
• Appropriate macro-prudential policy
• Exchange rate management to reduce volatility

POLICY PACKAGES

MONETARY POLICY (Bank Indonesia) FISCAL POLICY STRUCTURAL REFORM POLICY (Real Sector)

SLIDE 36

35

Budget Reform as a Part of Larger Economic Reform Initiative

…to support sustainable and equitable economic growth

Challenges

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

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

I. Shift from commodity-based revenues

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

leakages

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

I. Secure budget financing

• II. Effective utilization of domestic and

international funding sources

• III. Financing schemes to support

infrastructure development program Implemented:



Reinventing policy



e-Invoice



Compliance risk management



Adjustment of non-taxable income threshold



ICT improvement in Tax Office Initiatives:



Tax Amnesty



Tax Administrative Reform



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



Development of Semi-Autonomous Tax Office Initiatives:



Improve government procurement regulation



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



Larger budgetary allocations for:

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

Initiatives:



Maintain manageable budget deficit



Improve bilateral and multilateral financing sources, including BSA and DDOs



Increase financing instruments



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

SLIDE 37

36

Long Term Strategies to Achieve Sustainable Growth

…stimuli to maintain purchasing power

The Virtuous Cycle of Purchasing Power Stimuli

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

economic growth in recent years

 The government has designed stimulus program to maintain and

enhance purchasing power for households

 The government has increased non-taxable income level and

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

 Funds are targeted at not only to improve basic village

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

u

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

Maintaining Purchasing Power

Increase non-taxable income limit Stabilized price for meat products

SLIDE 38

37

Long Term Strategies to Achieve Sustainable Growth

…stimuli to promote investments

Licensing Incentives Tax Incentives Other Incentives Business and Infrastructure Incentives

Tax incentives

• n property

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

• f power

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

• ptimization

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

SLIDE 39

38

‘The Big Bang” Policy on Relaxation of Foreign Investment

…promoting competition and growth from investments

Introduction of New Foreign Ownership Regulation for Strategic Sectors

1 For total project value of IDR10bn and above

Before

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

49%

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

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

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

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

SLIDE 40

39

Prevention and Resolution for Financial System Crisis

…regulation acting as the basis of policymaking and coordination among financial system stability committee (KSSK) members

Source: Ministry of Finance, Bank Indonesia

Key Summary Task of KSSK

Strengthening the role, function, and coordination among the 4 financial authorities (Ministry of Finance, Bank Indonesia, OJK, LPS) in the crisis prevention and resolution Financial crisis prevention by strengthening the regulatory and supervisory functions of banking especially against systematically important banks Strengthening the resolution of systemic bank issues by prioritizing bail-in principle BI provides Short-Term Liquidity Loans (PLJP) to banks which are solvent and has sufficient collateral Implementation of the action plan (recovery plan) by OJK and early intervention by LPS in the event of a systemic bank experiencing solvency issues 

Indonesia House of Representatives recently passed the bill on prevention and resolution

• f financial crisis in Indonesia



The regulation emphasizes on:

Monitoring and maintaining financial system stability Resolution for financial system crisis Resolution for systemically important banks

In financial distress, the president has full authority to take decisions for crisis handling Immunity and Legal Protection for KSSK members (Ministry of Finance, Bank Indonesia, OJK, LPS)

SLIDE 41

40

Tax Amnesty as Policy Breakthrough

...easing taxpayers to declare, repatriate, and reinvest their additional wealth in domestic market

NET ASSET

Additional Asset Value Liabilities related with Additional Asset

• Assets located in Indonesia; or
• Assets located overseas and

repatriated; 1 Jul – 30 Sep 16 1 Okt – 31 Des 16 1 Jan – 31 Mar 17

• Assets located overseas and not

repatriated

• Government securities;
• Bonds issued by State Owned Companies;
• Bonds issued by Government-owned

financing companies;

• Financial investments in designated banks;
• Bonds issued by private companies and

registered with the Financial Services Authority (OJK);

• Investment in government infrastructure

projects;

• Investment in other government priority

projects;

• Any other form of lawful investments.

Investment instruments options for repatriated assets

• SME’s special tariff (sales turnover

up to IDR 4,8 billion/year)

Recognized as government revenue REDEMPTION RATE AMNESTY FEE

Calculation of Tax Amnesty Fee

2% 3% 5% 4% 6% 10

%

0,5

%

2%

1 Jul – 30 Sep 16 1 Okt – 31 Des 16 1 Jan – 31 Mar 17

declared assets worth > IDR 10 bio declared assets worth up to IDR 10 bio

Tax Amnesty Program Update* Type Value (IDR bn) Redemption 94,095.83 Repatriation 142,679.98 Foreign Declaration 982,952.28 Domestic Declaration 2,753,728.39 Total Declaration 3,879,360.64

*as of October, 28th, 2016; based on SPH (Surat Pernyataan Harta/Asset Declaration Letter) Source: DG Tax, Ministry of Finance

SLIDE 42

41

One of the Most Succesful Tax Amnesty in the World

...proving the huge potential on Indonesia tax base

• Indiv. Non MSME
• Indiv. MSME
• Corp. Non MSME
• Corp. MSME

0,04% 0,12% 0,24% 0,35% 0,62% 0,76% 0,0% 0,1% 0,2% 0,3% 0,4% 0,5% 0,6% 0,7% 0,8% Austalia Spain Italy India Chile Indonesia 0% 2% 2% 4% 8% 23% 0% 5% 10% 15% 20% 25% Australia India Spain Italy Chile Indonesia

% of GDP Penalty as % of GDP Source: Ministry of Finance, Deutsche Bank Calculation

7.14 0.03 0.23

7.4

186.52 10.33 71.52

268.4

5.71 0.19 0.71

6.6

Tax Amnesty Revenue Realization, Based on Tax Payment Slip (US$ bn) Tax Amnesty Revenue Realization, Based on Tax Declaration Letter (US$ bn) Realization Of Asset Declaration From Tax Amnesty (US$ bn) Repatriation Onshore Declaration Offshore Declaration Tax Arrears Payment Redemption (TPS) Preliminary Evidence Payment Declared Assets Revenue From Tax Amnesty

SLIDE 43

42

Worldwide Declaration and Repatriation

(in IDR tn)

Belgium

Declaration

10.15

Repatriation

0.6

USA

Declaration

17.33

Repatriation

0.73

Cayman Island Declaration

52,54

Repatriation

16.51

Virgin Island Declaration

72.57

Repatriation

2.49 Singapore

Declaration

643.2

Repatriation

78.69 Australia

Declaration

32.91

Repatriation

1.22 Malaysia

Declaration

7.61

Repatriation

0.61 Hongkong

Declaration

38.39

Repatriation

14.05 China

Declaration

13.68

Repatriation

5.56

SLIDE 44

43

2015 Budget Realization

Indicators

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

A.

Revenue 1,505 85.4% (46)

I.

Domestic revenue 1,494 85.0% (51)

• 1. Tax revenue

1,240 83.3% 94

• 2. Non tax revenue

254 94.3% (145)

II.

Grant 10 314.9% 5

B.

Government spending 1,797 90.5% 19

I.

Central government 1,174 88.9% (30)

• 1. Personnel, operational & capital

spending 725 91.1% 148

• 2. Subsidies, interest payment & others

449 85.7% (178)

II.

Inter-governmental transfers 623 93.7% 49

• 1. Transfer to regional & local

governments 602 93.5% 29

• 2. Rural transfer

21 100.0% 21

C.

Primary balance (136) 203.8% (43)

D.

Surplus/deficit (292) 131.3% (65) % deficit to GDP (2.5%) (0.3%)

E.

Financing 318 143.0% 69

I.

Domestic financing 308 126.9% 47

II.

Foreign financing (net) 10 (51.9%) 23 Surplus/(deficit) financing 26 4

Source: Ministry of Finance

1 As of Dec 31st 2015



Pressures on macroeconomic indicators in 2015 due to:

• Global economic slowdown
• Drop in commodities prices



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



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



The improved budget structure has created a base for acceleration

• f economic development in the midst of global uncertainty



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



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

SLIDE 45

44

2016 Revised, Outlook and 2017 Budget

...adjustment on macroeconomic assumption as well as revenue target and efficient spending

Description (IDR tn) 2016 2017 R-Budget Outlook Budget

A.

REVENUE 1,786.2 1,582.9 1,737.6

I.

Domestic Revenue 1,784.2 1,580.9 1,737.6

• 1. Tax Revenue

1,539.2 1,320.2 1,495.9

• 2. Non Tax Revenue

245.1 260.7 240.4

• II. Grant

2.0 2,0 1.4

B.

GOVERNMENT SPENDING 2,082.9 1,898.6 2,070.5

I.

Central Government 1,306.7 1,195.3 1,310.4

• 1. Ministerial Spending

767.8 672.0 758.4

• 2. Non Ministerial Spending

538.9 523.3 552.1

II.

Intergovernmental Transfer 776.3 703.3 760.1

• 1. Regional Transfer

729.3 659.1 700.0

• 2. Rural Transfer

47.0 44.2 60.0

C.

PRIMARY BALANCE (105.5) (126.4) (111.4)

D.

BUDGET SURPLUS/(DEFICIT) (296.7) (315.7) (332.8) % deficit to GDP (2.35) (2.50) (2.41)

E.

FINANCING 296.7 315.7 332.8

I.

Debt Financing 371.6 387.8 389

• II. Investment Financing

(94.0) (91.5) (49.1)

• III. Loan Disbursement

0.5 0.7 (6.4)

• IV. Insurance Liabilities

(0.7) (0.7) (0.9)

V.

Other Financing 19.3 19.3 0.3

Macroeconomic Assumption 2016 Revised, Outlook and 2017 Budget

Indicator 2016 2017 R-budget Outlook Budget Economic growth (%, yoy) 5.2 5.0 5.1 Inflation (%, yoy) 4.0 3.2 4.0 3-Month T-Bills (%) 5.5 5.4 5.3 Exchange Rate (Rp/US$) 13,500 13,300 13,300 ICP (US$/barrel) 40 40 45 Oil Lifting (thousand barrel/day) 820 820 815 Gas Lifting (thousand barrel

• il equivalent/day)

1,150 1,150 1,150

SLIDE 46

45

Efforts in Preserving 2016 Revised Budget Credibility

...spending adjustment that in line with revenue shortfall projection

• To control central government spending, government regulate Presidential Instruction Ref. 8/2016
• Government suspends transfer to regions and village fund through MoF Decree Ref. 125/PMK.07/2016
• Revenue projections are made to be the baseline of 2017 budget proposal and subject to change due

to certain condition

SHORTFALL PROJECTION

State Revenue IDR 203.3 tn Taxation Revenue IDR 219 tn Adjustment from: a)Global and domestic slowdown; b)Commodity prices decline (oil, coal, and CPO)

LINE MINISTRIES SPENDING SAVING

IDR 64.7 tn (outside natural saving)

• Maintaining priority programs to keep

rolling

• Budget cut to the less productive

spendings

• Budget cut is directed to activities that

have not yet been contracted

• Budget cut is directed to not urgent

activities and/or can be carried forward to the next year

TRANSFER TO THE REGIONS & VILLAGE FUNDS SAVING

IDR 72.9 tn

• Carry over of revenue sharing for

regions that have fiscal capacity and abundant cash accumulation

• Postpontment of selected General

Allocation Fund

• Natural savings of Specific Allocation

Fund

• Village Fund saving

Maintaining credibility to keep deficit< 3% More realistic budget posture Preserving idomestic business climate. 2016 fiscal consolidation as the basis calculation for a more realistic and credible 2017 Proposed Budget

2016 R-BUDGET ADJUSTMENT OBJECTIVES

STATE REVENUE STATE EXPENDITURE

SLIDE 47

46

2016 Revised Budget Outlook

...maintaining credibility in the state budget management

Description (in Rp Trillion) 2016 R-Budget Outlook* Δ Outlook – R Budget A. State Revenue 1.786,2 1.582,9 (203,3) I. Domestic Revenue 1.784,2 1.580,9 (203,3)

• 1. Taxation Revenue

1.539,2 1.320,2 (219,0)

• Domestic Tax

1.503,3 1.285,3 (218,0)

• a. Income Tax

855,8 673,5 (182,4)

• b. VAT

474,2 416,3 (57,9)

• d. Other

173,2 171,2 (2,0)

• International Trade Tax

35,9 34,9 (1,0)

• 2. Non tax Revenue

245,1 260,7 15,6 II. Grants 2,0 2,0 (0,0) B. State Expenditure 2.082,9 1.898,6 (184,3) I. Central Government Expenditure 1.306,7 1.195,3 (111,4)

• 1. Line Ministries

767,8 672,0 (95,8)

• 2. Non Line Ministries

538,9 523,3 (15,6) II. Transfer to The Region & Village Fund 776,3 703,3 (73,0)

• 1. Transfer to the Region

729,3 659,1 (70,1)

• 2. Village Fund

47,0 44,2 (2,8) C. Primary Balance (105,5) (126,4) (20,9) D. Surplus/(Deficit) of Budget (296,7) (315,7) (19,0) % of GDP (2,35) (2,50) E. Financing 296,7 315,7 19,0 I. Debt Financing 371,6 387,8 16,3

• Government Securities (Net)

364,9 382,3 17,4 II. Other Financing (74,8) (72,2) 2,7

SLIDE 48

47

2016 Budget Realization as of September 2016

...moderating deficit as the result of tax amnesty collection

2015 2016 R-Budget 30-Sep % d-Budget R-Budget 30-Sep % R-Budget

• A. STATE REVENUE

1.761,6 990,3 56,2 1.786,2 1.081,2 60,5

• I. DOMESTIC REVENUE

1.758,3 989,2 56,3 1.784,2 1.080,0 60,5

• 1. Taxation Revenue

1.489,3 800,9 53,8 1.539,2 896,1 58,2

• 2. Non Tax Revenue

269,1 188,3 70 245,1 183,8 75,0

• II. GRANT

3,3 1,1 33,9 2,0 1,2 62,3

• B. STATE EXPENDITURE

1.984,1 1.249,00 62,9 2.082,9 1.305,5 62,7

• I. CENTRAL GOVERNMENT EXPENDITURE

1.319,5 737,7 55,9 1.306,7 767,7 58,8

• 1. Line Ministries

795,5 384,7 48,4 767,8 428,6 55,8

• 2. Non Line Ministries

524,1 353 67,4 538,9 339,1 62,9

• II. TRANSFER TO THE REGION & VILLAGE FUND

664,6 511,2 76,9 776,3 537,8 69,3

• 1. Transfer to the Region

643,8 494,6 76,8 729,3 501,0 68,7

• 2. Village Fund

20,8 16,6 80 47,0 36,8 78,2

• C. PRIMARY BALANCE
• 66,8
• 135,9

203,5

• 105,5
• 77,7

73,6

• D. SURPLUS/(DEFICIT) OF BUDGET
• 222,5
• 258,7

116,2

• 296,7
• 224,3

75,6 % of GDP

• 1,9
• 2,24
• 2,35
• 1,79
• E. FINANCING (I + II)

222,5 297,4 133,7 296,7 391,9 132,1

• I. DOMESTIC FINANCING

242,5 263,8 108,8 299,3 405,1 135,4

• II. FOREIGN FINANCING (net)
• 20,0

33,6

• 168,0
• 2,5
• 13,2

0,0 FINANCING SURPLUS/(DEFICIT) 0,0 38,8 167,6

SLIDE 49

48

Financing Policy 2016

Description (IDR tn) 2016 2016 Budget R-Budget I. Domestic Financing

272.8 299.3

1. Domestic Banking

5.5 25.4

2. Domestic Non-Banking

267.3 273.9

II. Foreign Banking

0.4

• 2.53

1. Foreign Outstanding Loan (Gross)

75.1 72.9

• a. Program Loan

36.8 35.8

• b. Project-Based Loan

38.3 37.2

2. Standby Loan Agreement (SLA)

• 5.9
• 5.8

3. Foreign Debt Principal Repayment

• 68.8
• 69.7

TOTAL

273.2 296.7

(0,73) (1,14) (1,86) (2,33) (2,25) (1,90) (2,35)

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

2010 2011 2012 2013 2014 2016 Budget 2016 R-Budget

% IDR tn

Deficit % to PDB

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

(ALM)

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

income class Debt Financing Non Debt Financing

SLIDE 50

49

Budget Financing Breakdown in 2016

Debt (Gross) IDR729.03tn

Redemption IDR316.51tn Budget Financing IDR344.39tn Non-Debt Financing IDR69.01tn

Breakdown of Budget Financing IDR tn US$ bn Government Debt (net)

407.79 31.37

Government Securities (net)

407.89 31.38

Issuance

654.42 50.35

Redemption & Cash Management

(243.54) (18.04)

Debt Portfolio Management

(3.00) (0.23)

Domestic Loans (net)

3.25 0.25

Withdrawal

3.58 0.28

Redemption

(0.33) (0.02)

Foreign Loans (net)

(3.35) (0.26)

Withdrawal

71.02 5.46

Redemption

(74.37) (5.72)

Source: Ministry of Finance. USD/IDR: 12,998 (as of end of September 2016)

SLIDE 51

50

Government Securities – Financing Plan for 2016

Instruments Revised Budget Indicative Target (IDR bn) Indicative Target (US$ mm)

Government Securities (Net) 407,886 31,381 Redemption 215,089 16,548 Cash Management 27,874 2,144 Buyback 3,000 231 Gov’t Securities Conversion 573 44 Government Securities (Gross) 654,422 50,348 Composition Domestic 78% Auction 63% Non-Auction 15% International Bond 22%

Government Issuance Targets International Bonds

• Issuance of international bonds

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

• ut the domestic market
• Provides benchmark for

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

• Target maximum 27% of

issuance via international bonds

Source: Ministry of Finance

Domestic Bonds

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

Front Loading Issuance For Budget Financing

• Pre-funding to optimize cost ahead of potential Fed rate hikes
• Anticipate developments in global environment
• Our target is to front load 74% of the annual budget in 1H16

Government Debt Outstanding (as of end of August 2016)

IDR tn US$ bn Total government debt outstanding 3,444 265.0 Loan 743 57.2 Securities 2,701 207.8 Debt Securities 72% Sukuk 28%

US$/IDR: 12,998 (as of end of Sept, 2016)

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

SLIDE 52

51

Disciplined and Sophisticated Debt Portfolio Management

Stable Debt to GDP Ratio Over the Years Weighted Average Debt Maturity of ~9.2 Years (As of Sep. 2016)**

US$ bn

Remarkable Debt Reduction Initiative Over the Past 10 Years

Change in Debt to GDP Ratio (2006 – 2016) (%) Source: IMF World Economic Outlook Database, October 2016

Well Diversified Across Different Currencies

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

(1)

9,32 9,70 9,60 9,73 9,40 9,19 9,0 9,3 9,5 9,8 10,0 2011 2012 2013 2014 2015 Sep-16** 55% 56% 53% 57% 56% 58% 22% 24% 29% 29% 31% 29% 17% 14% 12% 9% 8% 8% 3% 3% 3% 3% 3% 4% 3% 3% 3% 2% 2% 2% 0% 20% 40% 60% 80% 100% 2011 2012 2013 2014 2015 Sep-16 IDR USD JPY EUR Others*** Years 131 141 136 155 175 209 69 64 58 54 55 56 23.1% 23.0% 24.9% 24.7% 27.4% 27.7% 0,0 5,0 10,0 15,0 20,0 25,0 30,0 50 100 150 200 250 300 2011 2012 2013 2014 2015 2016* Securities (LHS) Loans (LHS) Govt Debt / GDP (%) (RHS) * Revised Budget 2016 Figure, ** Using GDP assumption in 2016 R-Budget, ***SDR, AUD, and other

• 35,3
• 31,9
• 29,0
• 11,2

2,8 11,0 11,4 18,9 29,9 32,9 34,6 40,8 64,9 70,1 117,0

• 60,0

0,0 60,0 120,0 180,0 240,0 300,0 Philippines Turkey Indonesia India Germany Poland Thailand Brazil Italy Colombia Japan Malaysia South Africa United States United Kingdom Chile Australia

SLIDE 53

52

Well Balanced Maturity Profile With Strong Resilience Against External Shocks

Declining Interest Rate Risks Debt Maturity Profile

%

Declining Exchange Rate Risks

%

Upcoming Maturities (Next 5 Years)

% IDR tn

Source: Ministry of Finance 18,8 16,2 16,0 14,8 13,7 12,3 25,9 22,5 23,2 21,0 20,7 17,9 5 10 15 20 25 30 2011 2012 2013 2014 2015 Sep-2016** Variable Rate Ratio¹ Refixing Rate²

46 123 159 146 99 133 86 93 168 45 126 55 53 100 29 112 46 52 97 5 64 22 22 7 15 26 23 20 25 23 92 109 134 109 123 102 102 84 112 85 25 44 19 18 16 16 15 11 28 4 23 28 1 1 1 30 21 27 27 18

50 100 150 200 250 300

2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046- 2055

IDR-Denominated Other Currencies 10,4 10,2 11,7 10,7 12,2 11,5 45,1 44,4 46,7 43,4 44,5 42,0 10 20 30 40 50 2011 2012 2013 2014 2015 Sep-2016** FX Debt to GDP Ratio* FX Debt to Total Debt Ratio 8,2 7,2 8,6 7,7 8,4 6,9 22,7 21,5 21,8 20,1 21,4 23,1 34,6 32,4 33,4 33,9 34,7 37,0 10 20 30 40 2011 2012 2013 2014 2015 Sep-2016** In < 1 year In < 3 year In < 5 year

1 Variable Rate Ratio is defined as ratio between debt instruments with variable rate divided by total debt instruments (variable + fixed rates) 2 Refixing Rate ratio is defined as ratio between debt instruments with variable rate + debt instruments with fixed rate maturing in 1 year divided by total debt instruments (variable + fixed rates)

**Using GDP assumption in 2016 R-Budget; **Preliminary figures;

SLIDE 54

53

2011 2012 2013 2014 Jun-15 Dec-15 Jan-16 Apr-16 Jun-16 Sep-16 Loan Government Securities

Profile of Total Central Government Debt

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

(%)

Foreign Holders of Government IDR Bonds – Composition September 2016

USD bn

%

209.41 199.48 204.51 194.55 214.88 224.60 229.70 248.30 255.14

(%)

259.50 74.13 68.82 70.04 75.81 75.73 76.14 77.16 65.66 77.99 78.41 25.87 34.34 31.18 29.96 24.27 23.86 24.19 22.84 22.01 21.59

11,87 7,84 5,2 4,65 3,23 3,04 3,28 2,69 3,02 24,97 19,32 18,29 18,96 13,1 13,44 12,45 13,73 20,9 63,16 72,84 76,5 76,39 83,66 83,52 84,27 83,57 76,08 30,80 32,98 32,54 38,13 38,21 38,94 38,59 39,10 39,16 20 40 60 80 100 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Mar-16 Jun-16 Sep-16 0-1 1-5 >5 Foreign Ownership to Total

30,80 32,98 32,54 38,13 38,12 38,98 38,28 39,39 38,87 39,16 32,58 30,49 33,76 30,83 37,85 30,48 34,05 32,49 35,02 39,77 36,63 36,53 33,70 31,04 23,95 30,53 27,63 28,12 26,11 21,07 20 40 60 80 100 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Feb-16 May-16 Jul-16 Aug-16 Sep-16 Foreign Holder Domestic Non Banks Domestic Banks

SLIDE 55

54

Ownership of IDR Tradable Central Government Securities

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

(IDR tn)

Description Banks* 375.55 31.04% 350.07 23.95% 442.76 29.81% 460.39 30.53% 451.00 28.63% 462.62 28.70% 361.54 21.95% 368.63 21.07% Govt Institutions (Bank Indonesia**) 41.63 3.44% 148.91 10.19% 56.41 3.80% 47.04 3.12% 52.70 3.35% 54.37 3.37% 150.13 9.12% 158.66 9.07% Bank Indonesia (gross) 150.18 10.11% 150.58 9.99% 149.98 9.52% 149.49 9.28% 149.07 9.05% 148.62 8.50% GS use for Monetary Operation 93.77 6.31% 103.54 6.87% 97.28 6.18% 95.13 5.90%

• 1.05
• 0.06%
• 10.05
• 0.57%

Non-Banks 792.78 65.52% 962.86 65.87% 985.99 66.39% 1000.37 66.35% 1071.42 68.02% 1094.70 67.92% 1135.18 68.93% 1222.09 69.86% Mutual Funds 45.79 3.78% 61.60 4.21% 61.48 4.14% 62.71 4.16% 67.57 4.29% 73.02 4.53% 76.44 4.64% 78.51 4.49% Insurance Company 150.60 12.45% 171.62 11.74% 173.26 11.67% 179.03 11.87% 192.29 12.21% 203.41 12.62% 214.47 13.02% 227.38 13.00% Foreign Holders 461.35 38.13% 558.52 38.21% 578.32 38.94% 587.78 38.98% 606.08 38.48% 626.17 38.85% 643.99 39.10% 684.98 39.16% Foreign Govt's&Central Banks 103.42 8.55% 110.32 7.55% 110.98 7.47% 112.31 7.45% 112.31 7.13% 112.49 6.98% 118.53 7.20% 118.45 6.77% Pension Fund 43.30 3.58% 49.83 3.41% 52.24 3.52% 54.47 3.61% 56.15 3.57% 57.41 3.56% 64.67 3.93% 81.75 4.67% Individual 30.41 2.51% 42.53 2.91% 41.42 2.79% 35.33 2.34% 65.85 4.18% 49.19 3.05% 48.90 2.97% 46.56 2.66% Others 60.51 5.00% 78.50 5.37% 78.99 5.32% 81.05 5.38% 83.47 5.30% 85.50 5.31% 86.72 5.27% 102.90 5.88% Total 1,209.96 100% 1,461.85 100% 1,485.16 100% 1,507.81 100% 1,575.12 100% 1,611.69 100% 1,646.85 100% 1,749.38 100% Dec-14 Jan-16 Feb-16 Dec-15 Jun-16 Mar-16 Sep-16 Apr-16

SLIDE 56

55

Government Securities Realization

Note:

• Issuance Government Securities Conversion

572,581

• Matured Government Securities Conversion

360,814 Nett Issuance Government Securities Conversion 211,767

(IDR mn, as of end of September 2016; budget deficit: 2.7%) Revised Budget 2016 Widening Budget Deficit 2.7%

Realization (a.o. September 30, 2016) % Realization to Revised Budget 2016

Government Securities Net 364,866,887 407,885,860 388,017,485 95.13% Government Securities Maturing in 2016 and Buyback 246,535,735 246,535,735 197,649,869 80.17% Issuance Need for 2016 611,402,622 654,421,595 585,667,354 89.49% Government Debt Securities (GDS) 415,393,702 Domestic GDS 306,354,982

• Coupon GDS

224,350,000

• Conventional T-Bills

46,190,000

• Private Placement*

31,895,977

• Retail Bonds

3,919,005 International Bonds 109,038,720

• USD GMTN

48,643,000

• Euro GMTN

44,975,610

• Samurai Bonds

12,760,910

• Domestic USD Bonds

2,659,200 Government Islamic Debt Securities 170,273,652 Domestic Government Islamic Debt Securities 136,866,152

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

95,446,000

• Retail Sukuk

34,085,122

• Private Placement

7,335,030 Global Sukuk 33,407,500

SLIDE 57

56

Indonesia Infrastructure Projects and Financing Schemes

Financing Breakdown (2015 – 2019)

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

~ US$142.4bn

SOE (22.2%) PPP (36.5%)

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

Establishment of PPP Unit

• Champion project preparation and acceleration of the PPP agenda

in Indonesia Broad Objective Core Mandates

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

Transaction Advisor

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

approvals for projects Additional Mandates

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

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

• Central & Regional

Budget (Special Allocation Fund & Rural Transfer)

• Mainly to support

basic infrastructure projects:

‒ Food Security:

Irrigation, dams etc.

‒ Maritime:

Seaports, shipyards etc.

‒ Connectivity:

Village roads, public transportation etc.

• Certain infrastructure projects to be funded and operated

through a partnership between the Indonesian government and private sector companies

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

Manado-Bitung

‒ Railway projects such as an Express Line into Soekarno-

Hatta International Airport

‒ Water supply such as West Semarang water supply project

• Government to support the PPP via initiatives:

‒ Land Fund: Modification and simplification of land

acquisition process

‒ Project Development Facility (PDF) through PT Sarana

Multi Infrastructure

‒ Indonesia Infrastructure Guarantee Fund (IIGF): A

mutual government guarantee scheme for infrastructure risks

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

financial constraints

‒ Infrastructure Fund: To offer long term financing for

infrastructure projects

‒ Availability Payment (AP): To allow availability of

infrastructure services provided by PPP companies

• Government to inject

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

• Key focus areas:

‒ Infrastructure and

maritime development

‒ Transportation and

connectivity

‒ Food security

• Medium term

infrastructure developments in focus:

‒ Water Supply ‒ Airports ‒ Seaports ‒ Electricity and power

plants

‒ Housing ‒ Mining

SLIDE 58

57

Alternative Source of Infrastructure Financing

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



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



Mainly to support basic infrastructure projects:

►

Food Security: Irrigation, dams etc.

►

Maritime: Seaports, shipyards etc.

►

Connectivity: Village roads, public transportation etc.

Budget



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



Key focus areas:

►

For commercial and/or complex projects



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

State Owned Enterprises

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

Infrastructure Financing Needs 2015 - 2019 Scenario 1 (Full Scenario) Scenario 2 (Partial Scenario) Baseline (Baseline)

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



Government support for PPP :

►

Land Fund: Modification and simplification of land acquisition process

►

Project Development Facility (PDF) through PT Sarana Multi Infrastructure

►

Indonesia Infrastructure Guarantee Fund (IIGF)

►

Viability Gap Fund (VGF)

►

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



Projects Ready for Auction under PPP Scheme:

►

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

►

Railway projects such as Halim-Soetta Airport Express Railway

►

Water supply such as West Semarang water supply project

SLIDE 59

58

Government Guarantee for Basic Infrastructure Development

1 USD/IDR exchange rate of 13,200

Guarantee Program based on Guarantee Classification

In 2016, Government will add credit guarantee program (i) infrastructure financing through direct loans from international financial institutions (ii) acceleration of toll road construction in Sumatera 75,8 67,3 47,2 46,3 69,2 60,0 45,0 3,8 1,1 0,8 2,7 0,2 0,1 0.1 4,5 3,7 3,8 24,5 79,5 68,5 48,0 53,4 73,0 63,9 69,6 2010 2011 2012 2013 2014 Revised Budget 2015 2016

Electricity Development Clean Water Program PPP & Electricity Dev. Project

Budget Allocation for Claims on Government Guarantee (1)

Program Guaranteed Party

• No. of

Letters Currency Value (bn) Outstanding as

• f 2015 (bn)

A Credit Guarantee 47 US$ 4.0 2.7 IDR 36,007.0 19,138.9

• Acceleration of coal-

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

• Acceleration of drinking

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

• Acceleration of coal-

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

• Government

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

Source: Ministry of Finance (US$ mm)

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

(IDR bn equivalent)

SLIDE 60

59

Financing the Acceleration of Infrastructure Development

• Acceleration of public infrastructure development is partly translated into programs to increase private participation and SOEs involvement

in the development of public infrastructure.

• Ministry of Finance provide a number of financial facilities to attract more private participation as well as to increase the capacity of SOEs

in developing public infrastructure.

Guarantees Amount of Guarantees (IDR mn) Outstanding Exposures (IDR mn) Number of Guarantees Fast Track Project 1 87,871.54 50,821.29 36 PDAM 328.30 181.32 11 PPP 42,176.00 6,608.98 1 FTP 2 66,982.93 16,538.24 10 SOE Direct Lending 14,498.00 1,581.60 2 Sumatra Toll Roads 1,721.34

• 2

Total 213,578.10 75,731.42 62

Financial Facilities for PPP Projects Financial Facilities for Non-PPP Projects

• Project Development Facility (PDF)
• Viability Gap Fund (VGF)
• Government Guarantees (provided directly by MoF or

through IIIGF)

• Availability Payment scheme
• Government guarantees to SOEs’ loans from IFIs for

the Development Infrastructure Projects

• Government guarantees to SOEs’ loans for the

development of Sumatra Toll Roads

• Business Viability Guarantee Letter for PT. PLN power

projects

• Credit guarantees for Regional Water Companies

So far, the government has provided a number of guarantees to PPP and non-PPP projects as well as developed close monitoring to maintain the fiscal sustainability. The issued guarantees are currently as follows:

SLIDE 61

60

PPP Projects

No. Project Name Project cost (IDR) Financial Facility from MoF Status 1. Central Java Power Plant Project 40 T Guarantee (MoF and IIGF) Financial close on 6 June 2016 2. Umbulan Water Project 2.1 T PDF, VGF and IIGF Guarantee PPP agreement signed on 21 July 2016 3. Bandar Lampung Water Project 900 B PDF, VGF and IIGF Guarantee Feasibility study in progress 4. Palapa Ring Project – West Package 1.28 T IIGF Guarantee and AP Financial Close on 11 August 2016 5. Palapa Ring Project – Central Package 1.38 T IIGF Guarantee and AP Financial Close on 29 September 2016 6. Palapa Ring Project – East Package 5.13 T IIGF Guarantee and AP PPP & guarantee contracts signed on 29 September 2016 7. Minemouth Coal Power Project 9 & 10 80 T Co-guarantee (MoF and IIGF) Bid submission delayed 8. Batang – Semarang Toll Road Project 11 T IIGF Guarantee PPP & guarantee contracts signed on 27 April 2016 9. Manado – Bitung Toll Road Project 5.1 T IIGF Guarantee PPP & guarantee contracts signed on 8 June 2016 10. Balikpapan – Samarinda Toll Road Project 9.9 T IIGF Guarantee PPP & guarantee contracts signed on 8 June 2016 11. Pandaan – Malang Toll Road Project 5.9 T IIGF Guarantee PPP & guarantee contracts signed on 8 June 2016 12. Serpong – Balaraja Toll Road Project 6 T

• PPP contracts signed on 8 June 2016

13. Pirngadi Regional Hospital Project 546 B PDF and AP Market sounding preparation 14. Bontang Oil Refinery 120 T PDF OBC development 15. Jakarta-Cikampek Toll Road Project 16.4 T Co guarantee (IIGF and MoF) RfP Final on 16 September 2016 16. Krian-Legundi-Manyar Toll Road Project 9.12 T Co guarantee (IIGF and MoF) RfP Final on 16 September 2016 17. Cileunyi-Sumedang-Dawuan Toll Road Project 5.7 T Co guarantee (IIGF and MoF) In-principal co-guarantee approval letter has signed by Ministry of Finance on 19 September 2016 PDF : Project Development Facility VGF : Viability Gap Fund IIGF : Indonesia Infrastructure Guarantee Fund AP : Availability Payment

With new PPP unit in the Ministry of Finance and some facilities are already in place, some PPP projects already reached the stage of financial close while more projects are expected to reach that stage in the next few months

SLIDE 62

61

Non-PPP Projects

No. Project Name Project cost (IDR mn.) Lender SOE Status 1. Sumatera Power Transmission and Distribution 600 ADB

• PT. PLN

Guarantee is effective 2. Sumatera Power Distrubution 500 World Bank

• PT. PLN

Guarantee is issued but still ineffective 3. The Enhancement of Electricity Grid 330 IDB

• PT. PLN

Proposal has been submitted No. Section Project cost (IDR bn.) Status 1. Medan – Binjai (17 km) 1,604 Financial close 2. Palembang - Indralaya (22 km) 3,301 Financial close 3. Bakauheni – Terbanggi Besar (140 km) 16,795 Finding financing 4. Pekanbaru – Dumai (131 km) 16,210 Finding financing 5. Terbanggi Besar – Pematang Panggang (100 km) 11,871 Pre-FS updating 6. Pematang Panggang – Kayu Agung (85 km) 10,121 Pre-FS updating 7. Kisaran – Tebing Tinggi (60 km) 6,991 Pre-FS updating 8. Palembang – Tanjung Api-api (90 km) 14,289 Pre-FS updating

• To increase SOEs’ capacity in financing infrastructure development, the government not only provided additional capital placement PMN)

but also developed some financial facilities including government guarantees.

• One of the new facilities is the guarantee on direct lending of SOEs to International Financial Institutions for the development of

infrastructure projects. So far, this type of guarantee has been provided as follow:

• The government have also issued government guarantees to loans of PT. Hutama Karya in the development of Sumatra Toll Road,

which comprise as follow:

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62

Policy Updates on Infrastructure Financing (as of June 2016)

PPP Projects: On Government guarantees of direct lending On the implementation of Presidential regulation number 3/2016 on National Strategic Projects and Presidential Regulation number 4/2016 on Power Infrastructure Projects

MoF regulation on the Availability Payment Scheme is currently drafted and under discussion in the MoF A new ammendment of MoF regulation on the provision of infrastructure guarantees is currently being reviewed by the MoF legal bureau. An MoF regulation on the government guarantee provision to support both Presidential Regulations is currently being drafted. Presidential regulaton and MoF regulation for the legal basis of Guarantees to SOE Direct Lending have been issued

1 2 3

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63

Efforts to Accelerate Infrastructure Provision

Improvement on PPP Regulation

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

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

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

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64

Efforts to Accelerate Infrastructure Provision (continued)

Regulation improvement to accelerate land procurement process

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

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

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

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

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

SLIDE 66

Credible Monetary Policy Track Record and Favourable Financial Sector Monetary and Financial Factor:

5

SLIDE 67

66

Bank Indonesia Policy Mix: 2015 - 2016

18 March 2016

• Cut BI Rate 25 bps to

6.75%

• Cut DF & LF Rate at 4.75%

& 7.25% respectively 18 February 2016

• Cut BI Rate 25 bps to

7%

• Cut DF & LF Rate at 5%

& 7.5% resp.

• BI lowered the rupiah

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

• Cut BI Rate 25 bps to 6.5%
• Cut DF & LF Rate at 4.5% & 7.0%

respectively

• Relaxed the loan-to-value ratio (LTV) and

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

• Relaxed partially prepaid loans/financing
• Raised the floor on the Reserve

Requirement - Loan to Funding Ratio (RR- LFR) from 78% to 80%, with the ceiling maintained at 92%. The change was effective on August 2016. 21 April 2016

• Held BI Rate at 6.75%, and

maintained DF & LF Rate at 4.75% & 7.25% respectively.

• Reformulated policy rate from BI

Rate into the 7 day (Reverse) Repo Rate to improve the effectiveness of monetary policy transmission. The change was effective on August 19th 2016 14 January 2016

• Cut BI Rate 25 bps to

7.25%

• Cut DF & LF Rate at

5.25% & 7.75% resp.

• BI lowered its monetary
• peration rates even

further, ranging from 25bps to 45bps (O/N to 1Y) 19 August 2016

• Held BI 7-day RR

Rate and DF Rate at 5.25% and 4.5%

• Cut LF Rate to

6.00%. 21 July 2016

• Held BI Rate at 6.5%, and maintained BI 7-

day RR Rate, DF & LF Rate at 5.25%, 4.5% & 7.00% respectively.

• BI continued to conduct financial market

deepening by introducing new investment and hedging products in the financial market, strengthened monetary management strategies, and encouraged the real sector to make optimal use of repatriation funds to support the implementation of the 2016 Tax Amnesty Law 17 November 2015 Lowered IDR Primary RR by 50bps from 8.0% to 7.5%. Effective since 1 Dec 2015 22 September 2016

• Lowered BI 7-day RR

Rate to 5.0%

• Lowered DF and LF

Rate to 4.25% and 5.75% 20 October 2016

• Lowered BI 7-day RR

Rate to 4.75%

• Lowered DF and LF Rate

to 4.00% and 5.50%

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67

Bank Indonesia Policy Mix: October 2016

The BI Board of Governors agreed on 20 October 2016 to lower the BI 7-days Repo Rate to 4.75%, as well as the Deposit Facility at 4.00% and cut the Lending Facility rates to 5.50% Lower the BI 7- day Repo Rate to 4.75% Convinces that monetary and macroprudential policy easing will catalyse credit growth in order to stimulate economic growth moving forward Remains vigilant towards global developments, specifically downward correction on US growth, as well as expected adjustment of the Federal Funds Rate (FFR), Europe’s labour market improvements that led to stronger growth than previously expected, stronger economic growth in India and the continuation of the international commodity prices improvement Continues to coordinate with the Government in ensuring that inflation control, growth stimulus strenghtening, and implementation of structural reform, are well underway to support sustainable economic growth Maintains exchange rate stability in line with the currency’s fundamental value

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68

Enhancement of Monetary Operations Framework

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

BI RATE

• BI

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

• BI Rate is used as a benchmark

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

• BI

Rate effectively affect banking interest rate

• Excess

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

• The shallow financial markets also

inhibit the transmission of monetary policy.

CHALLENGES ENHANCEMENT

BI rate as reference rate Challenges: Transmission of monetary policy is less effective Enhancement of monetary operations framework 12 months (equivalent) 7 day Non-Transactional Transactional (Central Bank) Not optimally reflected in money market interest rates Stronger relationship to the money market interest rates Cost of being illiquid is lower, support financial deepening BI rate BI 7-day repo rate OMO term structure Character Transmission Financial Deepening Cost of being illiquid is too high, does not support financial deepening

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69

Stable Monetary Environment Despite Challenges

Source: Bank Indonesia

Rupiah Exchange Rate Remains Comparable to Peers

YTD 2016* vs. 2015

Strengthened Monetary Policy

(%)

Credit Growth Supported by Macroprudential Policy Managed Core Inflation Over The Past Few Months

3.07 (0.36)

(%)

• 1

4 9 14 19 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 2011 2012 2013 2014 2015 2016 CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy)

8.2% 4.7% 6.8% 9.4% 0% 5% 10% 15% 20% 25% 30% 35% 40% 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 2013 2014 2015 2016 Total Growth Working Capital loans Investment Loans Consumption Loans YoY

• 3,22
• 2,45
• 0,69

2,89 3,76 4,19 5,62 6,71 13,92 21,41

• 6,00
• 3,00

0,00 3,00 6,00 9,00 12,00 15,00 18,00 21,00 24,00 PHP TRY INR EUR MYR THB IDR KRW ZAR BRL %

* data as of 30 Sept 2016

3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Okt-16 LF Rate BI Rate BI-7Day RR Rate DF Rate

LF Rate: 7.00 LF Rate: 5.50 BI Rate: 6.50 BI 7Day RR Rate: 4.75 DF Rate: 4.50 DF Rate: 4.25

19 August 2016

The New Monetary Operation Framework 3.21 6.51

SLIDE 71

70

Financial Intermediaries Development

The has been an improvement in the growths of bank loan & multifinance financing, in line with the improving growth in H2-2016. Capital raising from the capital market is relatively stable amidst the fluctuating market. Meanwhile, gross premium in the insurance industry is continuously expanding.

Source: OJK

The growth of financing distributed by multifinance companies demonstrates an improvement as well, after contracting in 2015 Gross premium revenue in the domestic insurance industry also demonstrates a positive development in 2016 Capital raising through IPOs, rights issues, and corporate bond issuance in the capital market is relatively stable After four consecutive years of declining growth (2012-2015), there is a slight improvement in banking loan growth in 2016

IDR tn IDR tn IDR tn IDR mn

SLIDE 72

71

Financial Institutions Remain Robust and Less Vulnerable

Source: OJK

Banking sector’s capital adequacy ratio (CAR) is maintained high Risk-based capital (RBC) of the insurance industry also remains high, well above the minimum threshold Gearing ratio of multifinance companies is well below the maximum requirement, providing ample room for future growth Profitability of the banking sector is relatively stable

Financial performance of domestic financial institutions generally remains robust. Capital adequacy is well above the minimum

• requirements. Profitability and leverage are maintained at a sufficient level. Further, gearing (debt-to-equity) ratio of multifinance

companies provides ample room for future growth.

% %

SLIDE 73

72

Adequate Liquidity, Manageable Credit Risks

Source: OJK

Banks are found to possess adequate liquid assets to anticipate depositors’ withdrawal. Insurance industry also demonstrates an enhanced level of investment adequacy ratio. The non-performing loan/financing (NPF/NPL) ratio is also maintained below the threshold.

The ratio of liquid assets to deposits in the banking sector is well maintained at a high level Non-performing loan (NPL) in the banking sector remains at a low level. The gross & net NPL ratio are 3.2% & 1.5% respectively NPF ratio in the multifinance industry is 2.2%, maintained below the 5% threshold Investment adequacy ratio in the insurance industry is maintained above 100%

% % %

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73

Manageable Market Risk Amidst Fluctuations

Source: OJK

Being exposed to fluctuations in the securities market and IDR exchange rate, financial institutions demonstrated resilience in dealing with such risks. Net open position of the banking sector remains low, while the investment value of domestic institutional investors (mutual funds, insurers, and pension funds) continues to expand. Multifinance companies’ exposures to the exchange risks have generally been mitigated through hedging measures.

Net open position in the banking sector is kept far below the maximum requirement (20%) Amidst the fluctuating market in recent periods, the investment value of insurers & pension funds continues to expand Multifinance companies’ exposures to foreign debt have generally been mitigated through hedging measures The movement of mutual funds’ net asset value (NAV) is in line with the market index, but with much lower volatility

IDR tn IDR tn IDR tn IDR tn IDR tn

SLIDE 75

74

Capital Market Demonstrate Strengthening Trend

Volatility in the domestic capital market tends to ease in 2016. The market indices are back to a strengthening trend, accompanied by significant nonresident capital inflows. In the government bond market, 2016 also witnessed a remarkable decline in the bond yields.

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

Both the stock & bond indices demonstrated a strengthening index in 2016, supported by favorable domestic environment In line with the stabilizing IDR and improving domestic prospects, the government bond yield continues to decline Despite uncertain external factor, favorable domestic environment attracts nonresident inflow especially in Q3 The IDX Composite Index demonstrated a positive growth and listed among the best-performing indices (ytd) in the region

Yield (%) IDR tn

SLIDE 76

75

Macroprudential Policy Mix to Support Growth

Effective from August 29th, 2016, Bank Indonesia relaxed the Loan to Value Ratio (LTV) and Financing to Value Ratio (FTV) on housing loans at 85-90% for the first mortgage lending facility, 80-85% for the second mortgage lending facility, and 75-80% for the third mortgage lending facility.

Housing Loans and Financing Based on Murabahah and Istishna Contracts

Property type (m2) Lending/Financing Facility First Second Third House >70 m2 85% 80% 75% 22 - 70 m2

• 85%

80% <21 m2

• Apartment

>70 m2 85% 80% 75% 22 - 70 m2 90% 85% 80% <21 m2

• 85%

80% Home Shop/Office

• 85%

80%

Housing Financing Based on MMQ and IMBT Contracts

Property type (m2) Lending/Financing Facility First Second Third House >70 m2 90% 85% 80% 22 - 70 m2

• 90%

85% <21 m2

• Apartment

>70 m2 90% 85% 80% 22 - 70 m2 90% 85% 80% <21 m2

• 85%

80% Home Shop/Office

• 85%

80% The relaxation is only applicable to banks with nett NPL for total loan below 5% and gross NPL for property loan/financing below 5%. The rationale is to stimulate domestic demand in order to drive domestic economic growth momentum while maintaining compliance to prudential principles.

SLIDE 77

76

A Comprehensive Financial Deepening Program

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

Source: Bank Indonesia

Financial Market Deepening Program

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

• Repo
• Hedging

Money Market

• Bank Indonesia Regulation (PBI) on Money Market

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

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

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

• Bank Indonesia Regulation (PBI) on Commercial Paper

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

• Swap Link Deposit

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

• Dual Currency Deposit

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

• Corporate Bonds
• Government

Bonds

• Other instruments

Supporting Regulations

Market Code of Conduct Certification of Dealer Strengthening JIBOR

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

Inter-agency Cooperation

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

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

SLIDE 78

77

Stronger Fundamentals Facing the Headwinds

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

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

100.0% 1998 27.4% 2008 18.0% Q2-2016 8.6x 1998 3.1x 2008 2.9x Q2-2016 116.8% 1998 33.2% 2008 36.8% Q2-2016

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

Inflation controlled under the revised Budget target Depreciation rate lower than 1998 & 2009 NPL level is below the maximum threshold of 5% Continue to decline and allocated to productive sectors Significantly higher than 1998 & 2008, ample to cover 8.5 months of import and external debt repayment Significantly lower than 1998 crisis Slightly higher than 2008, but significantly lower than 1998

Sep 16

5.62 (ytd)

Sep 16

115.7

Sep 16

3.07 (yoy)

Aug 16

3.2

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

Overnight interbank money market rate is relatively lower

Sep 16

4.95

SLIDE 79

78

Outlook of Domestic Economy Improves

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

2016 Economic Outlook

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

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

monetary easing

 Inflation projected at the midpoint of the 4±1% inflation target, with the current account deficit is projected below

3% of GDP

 Credit is projected to grow 7-9% in line with looser monetary and macroprudential policy mix as well as acceleration of

fiscal stimulus

2015 2016 4.79%

Economic Growth

4.9-5.3%

Inflation

3.35% 4.0±1%

CAD (% GDP)

2.06% <2%

Credit Growth

10.45% 7-9%