The Republic of Indonesia The Republic of Indonesia Accelerating - - PowerPoint PPT Presentation

The Republic of Indonesia The Republic of Indonesia

Accelerating Momentum

January 2008

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• f future results. Any securities, financial instruments or strategies mentioned herein may not be suitable for all investors. A

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Summary Terms of the Offering Summary Terms of the Offering

The Republic of Indonesia Moody s: Ba3 (stable) S&P: BB- (stable) Fitch: BB- (positive) Reg S / 144A US$ benchmark Fixed Rate Senior Unsecured Notes 10 years and / or 30 years General funding purposes Singapore Stock Exchange New York Barclays Capital, HSBC, Lehman Brothers Issuer Ratings Format Offering Size Maturity Use of Proceeds Listing Instrument

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Governing Law Bookrunners

Table of Contents Table of Contents

Economic Performance Monetary Policy Fiscal Policy Government Debt Profile

Section 1 Section 2 Section 3 Section 4

Economic Performance

Section 1

Accelerating Economic Growth Accelerating Economic Growth

Indonesia: Real GDP Growth

6.1% 5.9% 5.8% 5.0% 5.0% 5.0% 5.9% 6.1% 6.0% 6.3% 6.5% 6.4% 6.3% 7.0% 6.8% 6.7% 5.8% 5.7% 5.4% 6.6% 6.6% 6.5% 7.0% 6.9% 0% 1% 2% 3% 4% 5% 6% 7% 8% 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07E 2007E GDP Growth Non Oil & Gas Growth Source: Ministry of Finance, IMF World Outlook Oct 2007

1.

Newly Industrialized Asian Economies is composed of 4 areas: Hong Kong SAR, Korea, Singapore, Taiwan Province of China

2.

ASEAN-4 consists of Indonesia, Malaysia, Philippines and Thailand

3.

Real GDP growth for the first nine months of 2007 compared to the first nine months of 2006

4.

Ministry of Finance estimates

5.

Assumed GDP growth based on Revised 2007 Budget

2

Economic growth is powered by non-oil & gas sectors and is expected to exceed growth projections for ASEAN-4 (1), newly industrialized Asia (2), and the world average

2005 FY: 5.68% 2006 FY: 5.48% 9 Months 2007 (3): 6.3%

(4) (5)

ASEAN-4: 5.6% World: 5.2% Newly Industrialized Asia: 4.9%

Solid Growth Supported by Strength in Consumption, Exports and Investment

Private consumption growth has exceeded pre-crisis levels while investment growth is supported by favorable climate

Source: Ministry of Finance

1.

Preliminary

2.

Real growth for the first nine months of 2007 compared to the first nine months of 2006

3

Sources of Economic Growth

4.0% 17.1% 3.2% 2.9% 9.2% 4.9% 7.9% 8.8% 6.6% 10.8% 16.4% 9.6% 7.6% 4.7% 8.0% 0% 3% 6% 9% 12% 15% 18% Private Consumption Government Consumption Investment Exports Imports Growth 2005 2006 2007

Investment climate has been enhanced by the New Investment Law, which key features are:

Equal treatment for both domestic and foreign investors Abolishment of requirement for gradual divestment by foreign investors Extension of validity of land titles Right to appoint foreign management Prohibition of nationalization without indemnification at market value Unrestricted repatriation of profits and capital

(1) (1) (2)

Growth Driven by Non-oil & Gas Sectors

Economic Growth by Major Sectors

4

Manufacturing is the single largest sector and growth outlook is supported by

Infrastructure spending Pro-industry policies

Double-digit growth in transportation and telecommunication supported by infrastructure development and consumption

3.7% 4.3% 5.0% 7.4% 12.2% 7.9% 0% 3% 6% 9% 12% 15% Agriculture Mining & Quarrying Manufacturing Trading, Hotel, Restaurant Transportation & Communications Finance 2005 2006 2007 Sector as a % of GDP (3) 14.5% 8.8% 27.3% 17.0% 7.0% 9.3%

Growth is broad based but highlighted by strengths in infrastructure and telecom

(1) (1) (2)

Source: Ministry of Finance

1.

Preliminary

2.

Real growth for the first nine months of 2007 compared to the first nine months of 2006

3.

Sector composition of GDP (at constant market prices) for the first nine months of 2007

Continued Growth in Investment Continued Growth in Investment

Quarterly Imports of Capital Goods

500 1,000 1,500 2,000 2,500 3,000 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 0% 10% 20% 30% 40% 50% 60% Value of Imports % Growth (y-o-y) % Growth US$ mn

Investment and Working Capital Credit Growth

Growth (y-o-y)

Recovery in imported capital goods and steady increase in investment credit reflect increasing investment

5

64.5% 84.5% 90.2% 0% 20% 40% 60% 80% 100% 2005 2006 2007

Realized Government Capital Expenditure

% Realization 0% 5% 10% 15% 20% 25% 30% 35%

1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07

Investment Credit Working Capital Credit Source: Ministry of Finance, Bank Indonesia

1.

Preliminary

(1)

Increasing Foreign Investment

Significant foreign portfolio inflows demonstrate resilience against the subprime mortgage crisis

Foreign Portfolio Investment

1,896 8,336 5,580 4,429 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2004 2005 2006 2007 US$mn

6

Source: Bank Indonesia

1.

Preliminary

2.

For the first nine months of 2007

(2) (1)

19% growth in net FDI inflow in the first nine months of 2007 supported by:

Increase in reinvested earnings Establishment of the Batam, Bintan and Karimun SEZs Increase in approvals for foreign investment applications Creation of tax incentives

Significant growth of over 160% in foreign portfolio investment

Key components of FPI include purchases of government bonds and Bank Indonesia certificates Inflows dropped substantially in the 3rd quarter following the subprime crisis but inflows in September recovered to levels consistent with the early part of the year

Foreign Direct Investment

4,056 5,270 6,058 10,521 2,000 4,000 6,000 8,000 10,000 12,000 2004 2005 2006 2007 US$mn

(2) (1)

Improving External Position Improving External Position

Improving Balance of Payments position with record high current account surplus, contributing to a significant increase in foreign currency reserves

Balance of Payments (1)

Source: Bank Indonesia

1.

Balance of Payments from 2004 onwards are based on the revised BOP reporting system

2.

For the first nine months of 2007

3.

Preliminary

7

Foreign Currency Reserves

US$ bn Months

5,030 3,655 309 9,189 444 14,510

• 2,000

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 2002 2003 2004 2005 2006 2007 US$mn

Current Account Balance Capital and Financial Account Overall Balance

32.0 36.3 36.3 34.7 42.6 57.0 6.6 7.1 5.5 4.0 4.5 5.7 1 2 3 4 5 6 7 8 2002 2003 2004 2005 2006 2007 10 20 30 40 50 60 International Reserves (RHS) Months of Imports and Official Debt Repayment (LHS)

(2) (3)

Record High Exports Record High Exports

Strong growth in non-oil & gas exports following solid global demand and price increases in international commodities

Composition of Exports by Major Groups

8

Indonesian Export Price Index

50 100 150 200 250 300

2002 2003 2004 2005 2006 2007

Index IDEXXPG Index (Non-oil & Gas) IDEXPEGS Index (Oil & Gas) 59.2 64.1 70.8 87.0 103.5 86.2 20 40 60 80 100 120 2002 2003 2004 2005 2006 2007 US$bn Agricultural Products Mineral Products Manufactured Products Crude Oil and Oil Products LNG, LPG and Natural Gas Total (2002 = 100) Source: Bank Indonesia, Bloomberg

1.

Preliminary

2.

Exports for the first nine months of 2007

(2) (1)

Monetary Policy

Section 2

0.0% 0.4% 0.8% 1.2% 1.6% J F M A M J J A S O N D J F M A M J J A S O N D 0.0% 5.0% 10.0% 15.0% 20.0% M-o-M (LHS) Y-o-Y (RHS)

Monetary Policy Designed to Achieve Monetary Policy Designed to Achieve Macroeconomic Stability Macroeconomic Stability

Building macroeconomic stability through inflation targeting

Monetary Policy Strategy

9 Consistent implementation of inflation targeting Maintain a prudent, measured course in monetary policy by careful monitoring of dynamics changes in the economy and coordination with the MOF Foster macroeconomic stability by intervening to avoid excessive volatility in the exchange rate to support sustainable growth Improve banking supervision and prudent regulation

Inflation

2007 Target: 6% ± 1% 2008 Target: 5% ± 1%

BI Rate Exchange Rate (USD/IDR)

2006 2007 8,600 8,700 8,800 8,900 9,000 9,100 9,200 9,300 9,400 9,500 9,600 J F M A M J J A S O N D J F M A M J J A S O N D 2006 2007 2006 Avg. Rate: Rp 9,164 2007 Avg. Rate: Rp 9,139 6% 7% 8% 9% 10% 11% 12% 13% 14% J F M A M J J A S O N D J F M A M J J A S O N D 2006 2007 Source: Bank Indonesia

Prudent Regulations Bolster the Banking Sector Prudent Regulations Bolster the Banking Sector Performance Performance

Main Banking Indicators (%) Commercial Bank Earning Assets

Prudent Regulations Bolster the Banking Sector Performance

22.4% 19.4% 19.4% 19.3% 21.3% 20.7% 20.7% 20.0% 18% 19% 20% 21% 22% 23% 2002 2003 2004 2005 2006 1Q07 2Q07 3Q07 0.0% 3.0% 6.0% 9.0% 12.0% 15.0% Average CAR Gross NPL Net NPL Loans BI Bills Other Securities Recap Bonds Interbank 20 40 60 80 100 120 140 160 180 200 2002 2003 2004 2005 2006 1Q07 2Q07 3Q07

10

Source: Bank Indonesia US$ bn

Fiscal Policy

Section 3

Resilience Against Higher Oil Prices Resilience Against Higher Oil Prices

Effect of Oil Price on Budget, 2007 Oil Imports and Exports, 2007 Oil & Gas Imports and Exports, 2007

2.6 (3.5) (0.9) (4) (3) (2) (1) 1 2 3 US$ bn Revenue Expenditure Deficit / Surplus Assuming US$72/Bbl; compared to 2007 Budget assumption of US$60/Bbl 25.2 (18.1) 7.0 (30) (20) (10) 10 20 30 US$ bn Exports Imports Trade Balance

Historical and Futures Brent Oil Price Index

Negative Surplus

No significant impact on 2007 budget, an additional US$0.9 bn deficit was incurred

11

30 40 50 60 70 80 90 100 Jan- 07 Mar- 07 May- 07 Jul- 07 Sep- 07 Nov- 07 Jan- 08 Feb- 08 Apr- 08 Jun- 08 Aug- 08 Oct- 08 Dec- 08

US$/Bbl Source: Ministry of Finance, Bloomberg Brent futures contracts Close as of Dec 31, 2007 13.0 (18.0) (6.1) (30) (20) (10) 10 20 30 US$ bn Exports Imports Trade Balance

Government Fuel Subsidies Remain an Issue

Electricity and Fuel Subsidies Domestic fuel subsidies

2007 fuel subsidy has grown 31% over 2006 due to: Higher oil prices Higher domestic oil consumption

Electricity subsidies

2007 electricity subsidy has grown 21% due to: Higher sales ( 6.8%), energy losses ( 9.75% 10.14%), and increased use of fuel to generate electricity ( 32%) Higher fuel consumption and fuel price

3.5 6.6 7.0 9.2 0.4 0.4 1.6 3.3 4.0 3.4 10.7 0.4 2 4 6 8 10 12 2002 2003 2004 2005 2006 2007 US$ bn Fuel Electricity

12

(1)

Source: Ministry of Finance

1.

Preliminary

Highlights

Fiscal Policy Fiscal Policy 2007 State Budget 2007 State Budget

Key Assumptions

Targeted deficit at 1.5% of GDP, current realization of 1.1% of GDP Tax ratio declined slightly from 13.1% to 13.0% of GDP Spending on energy subsidies increased from 2.8% to 3.18% of GDP Budget financing to rely more on domestic sources, primarily government debt

State Budget 2007 Outcome

Revised Budget Realization GDP Growth (%) 6.3% 6.3% Inflation (%) 6.00% 6.59% Exchange Rate (US$/IDR) 9,050 9,139 3 Month SBI Rate (%) 8.0% 8.0% Crude Oil Price (US$/Bbl) 60 72 Lifting (mn Bbl/day) 0.950 0.899

In US$ bn Revised Realization Total Revenues & Grants 76.7 77.9 Tax Revenues 54.4 53.8 Non-tax Revenues 21.9 23.9 Grants 0.4 0.2 Total Expenditures 83.1 82.6 Central Government 55.0 54.9 Of which: Energy Subsidies 9.7 13.1 Transfer To Region 28.1 27.7 Overall Balance (Deficit) (6.4) (4.7) In US$ bn Revised Realization Domestic Financing 7.8 7.4 Domestic Bank Financing 1.2 1.0 Domestic Non-bank Financing 6.7 6.4 Privatization Proceeds and Asset Recovery 0.4 0.3 Government Bonds, Net 6.5 6.3 Infrastructure Support (0.2) (0.2) Foreign Financing, Net (1.4) (2.6) Program Loans 2.1 2.2 Project Loans 2.6 1.6 Amortization (6.1) (6.4) Total Financing 6.4 4.7

13

Source: Ministry of Finance

Fiscal prudence whilst maintaining strong growth and resilience to external factors

2008 State Budget 2008 State Budget

Targets of 2008 Budget: To expand economic growth by increasing infrastructure expenditure To lower Indonesia s total debt to 33% of GDP Projected total Government revenue (including grants) of US$85.9 bn Deficit of US$8.1 bn expected to be financed mainly from domestic sources, primarily through issuance

• f domestic bonds

Infrastructure investment for job creation and acceleration of growth

Key Assumptions Budget Highlights Official State Budget 2008

Official GDP Growth (%) 6.8% Inflation (%) 6.0% Exchange Rate (US$/IDR) 9,100.0 3 Month SBI Rate (%) 7.5% Crude Oil Price (US$/Bbl) 60.0 Crude Oil Production (mm Bbl/day) 1.034

In US$ bn Budget % of GDP Total Revenues & Grants 85.9 18.1% Tax Revenues (1) 65.1 13.7% Non-tax Revenues 20.6 4.3% Grants 0.2 0.0% Total Expenditures 93.9 19.8% Central Government 63.0 13.3% Transfer To Region 30.9 6.5% Overall Balance (Deficit) (8.1) (1.7%) In US$ bn Budget % of GDP Domestic Financing 9.9 2.1% Domestic Bank Financing 0.03 0.0% Domestic Non-bank Financing 9.9 2.1% Privatization and Asset Recovery 0.2 0.0% Government Bonds, Net 10.1 2.1% Infrastructure Support (0.4) (0.1)% Foreign Financing, Net (1.8) (0.4%) Program Loans 2.1 0.4% Project Loans 2.6 0.6% Amortization (6.6) (1.4%) Total Financing 8.1 (1.7%)

14

Source: Ministry of Finance

Impact of Oil Price, Production & Consumption on Impact of Oil Price, Production & Consumption on the 2008 State Budget the 2008 State Budget

15

Sensitivity of Budget Deficit to Oil Prices

(US$/Bbl)

Source: Ministry of Finance

In US$ mn $90 $95 $100 Oil Revenue (Tax & Non-tax) +9,967 +11,835 +13,703 Expenditure (Subsidies & Transfers) +15,165 +17,429 +19,714 Deficit w/o Policy Measures (5,198) (5,593) (6,011) Total Deficit as a % of 2008 GDP (2.8%) (2.9%) (3.0%) Deficit w/ Policy Measures (22) (132) (286) Total Deficit as a % of 2008 GDP (1.7%) (1.7%) (1.8%)

1. Usage of contingent fund in the Budget 2. Usage of unrealized expenditure in the Budget 3. Bond issuance to the oil producing (windfall) region 4. Prioritization of Government expenditures 5. Energy policy with regards to production and subsidy of oil and gas and power 6. Improvement in Pertamina and PLN efficiency 7. Tax revenue increase and dividends from SOEs 8. Additional bonds / Government securities issuance 9. Counter cyclical fiscal policy measures 9 Fiscal Policy Measures

Government is prepared to ensure fiscal prudence in the face of rising oil prices

Central Government Revenue Central Government Revenue

16

Source: Ministry of Finance

1.

Preliminary

2.

Assumed based on state Budget 2008

Central Government Sources of Revenue

32.1 39.7 44.8 50.7 69.6 77.7 85.7 10 20 30 40 50 60 70 80 90 2002 2003 2004 2005 2006 2007 2008E US$ bn Tax Non-tax

Tax and Customs Reform Historical and Projected Tax Ratio

11.3% 11.8% 12.2% 12.7% 12.3% 13.0% 13.6% 10% 11% 12% 13% 14% 2002 2003 2004 2005 2006 2007 2008E % of GDP

Apply the new tax administration law Improve tax and custom administration through modernization of tax offices Improve tax compliance, tax audit and speed up VAT refund process Provide tax and import duty incentives Free Trade Agreements (FTA), Economic Partnership Agreements (EPA) and National Single Window (NSW)

(1) (1) (2) (2)

Central Government Expenditure Central Government Expenditure

Central Government Expenditure by Function (1)

17

Source: Ministry of Finance Budget 2007 1 Beginning 2005, certain categories in Government expenditure have been reclassified. Current expenditures and development expenditures have been merged. 2 Preliminary 3 Assumed based on state Budget 2008

Reallocation of Government Expenditure

34.6 44.0 47.6 52.5 73.3 82.6 94.1 10 20 30 40 50 60 70 80 90 100 2002 2003 2004 2005 2006 2007 2008E US$ bn

Material Capital Interest Payments Subsidies Transfers to Regions Others

Realization of Transfer to Regions

30.9 27.7 24.7 15.4 14.4 14.0 10.5 5 10 15 20 25 30 35 2002 2003 2004 2005 2006 2007 2008E US$ bn 6.4 5.2 5.6 5.8 7.1 11.2 3.4 3.0 2 4 6 8 10 12 2005 2006 2007 2008E US$ bn Capital Expenditure Material Expenditure

(2) (2) (3) (2) (3) (3)

Commitment Towards Privatization Commitment Towards Privatization

Privatization Proceeds

18

Source: Ministry of Finance, State Budget 2004 to 2008 1 Preliminary 2 Assumed based on state Budget 2008 0.0 20.0 215.7 295.4 0.0 43.7 0.0 259.5 352.3 164.8 391.7 25.9 56.9 0.0 100 200 300 400 2004 2005 2006 2007 2008E US$ mn Gross Privatization Proceeds Government Equity Injection Net to Budget

(1) (2)

Up till 2005, privatization proceeds were wholly used as a source of budget deficit financing Now, privatization is not just a source of budget deficit financing, but a means for improving corporate governance and is instrumental in disciplining the SOEs and improving their performance From 2008, the government will no longer inject capital into SOEs in order to encourage SOEs to rely on independent financial resources and increase equity participation from the private sector

Privatization is one of the main themes in the roadmap for Indonesian SOEs

Government Debt Profile

Section 4

Effective Debt Management Strategy Effective Debt Management Strategy

Indonesia practices a disciplined approach to sovereign debt management

Source: Ministry of Finance

19

Portfolio Management Prudent Rules Domestic Bond Market Development External Loan Financing

Prioritise debt securities issuance in domestic market for deficit financing & debt refinancing Diversify debt instruments to widen investor base Develop market infrastructure to support efficient price discovery mechanism Meet Millennium Development Goals (MDGs), (E.g. poverty reduction) Finance cost recovery projects Enhance project readiness criteria Issue benchmark bonds

• n regular basis (E.g. 5,

7, 10, 15 and 20 years) Aggressively conduct debt switching to extend duration Buyback bonds to reduce outstanding debt and stabilize market Diversify funding sources (e.g., Sukuk)

To minimize cost of debt within manageable risk Objective

Effective Coordination amongst Fiscal, Monetary and Capital Market Authorities

Issuance of Government Securities to Fund the Issuance of Government Securities to Fund the Deficit Deficit

Government securities are the major source of financing for the budget deficit, debt refinancing and infrastructure support

Budget Deficit Financing

Source: Ministry of Finance

1.

Preliminary

2.

Assumed based on Proposed State Budget 2008 0.8% 1.1% 1.6% 2.1% 0.5% 1.7% 0.9% 1.1% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 2005 2006 2007 2008 Budget Deficit, % of GDP Government Securities - Net, % of GDP % of GDP

(1) (2)

20

Effective Debt Management Effective Debt Management

Indonesia s debt-to-GDP and debt service ratio is improving

Central Government Debt to GDP Ratio Central Government Debt Service Ratio

26.1% 26.8% 33.2% 25.8% 24.7% 34.8% 0% 10% 20% 30% 40% 2002 2003 2004 2005 2006 2007

62% 36% 32% 28% 24% 21% 19% 27% 23% 18% 16% 55% 47% 39% 69% 36% 33% 29%

0% 20% 40% 60% 80% 2002 2003 2004 2005 2006 2007 Total Debt to GDP Ratio Domestic Debt to GDP Ratio External Debt to GDP Ratio Source: Ministry of Finance

1.

Preliminary

2.

Ratio of external debt as at September 30, 2006 over GDP for the period September 30, 2007 to September 30, 2007

21

% of Revenue

(1) (1) (2) (1) (1) (1)

Composition of Debt Composition of Debt

Debt Composition, Sep 2007 By Currency, Sep 2007

54% 53% 50% 50% 53% 54% 46% 47% 50% 50% 47% 46% 0% 25% 50% 75% 100% 2002 2003 2004 2005 2006 2007E Domestic Debt External Debt IDR 54% USD 17% EUR 7% Others 4% GBP 1% JPY 17%

By Maturity and Interest Rate, Sep 2007

In US$ bn Interest Type Total Tenor Fixed Variable Nominal % Short term: up to 3 years 17,716 9,927 27,643 19.23% Medium term: 4 to 10 years 30,062 12,898 42,960 29.89% Long term: more than 10 years 56,002 17,127 73,129 50.88% Total 103,779 39,953 143,732 100.00%

22

Debt is balanced between domestic and external sources with a majority of debt being either Rp denominated or long-dated

Source: Ministry of Finance

Holders of Government Securities Holders of Government Securities

Holders of Domestic Government Securities

Source: Ministry of Finance

23

72% 75% 66% 59% 25% 17% 21% 24% 3% 8% 13% 16% 28 33 38 43 48 53

Dec-04 Dec-05 Dec-06 Dec-07

Banks Non-Banks Foreign Holders

Composition of Foreign Holders of Government Securities by Maturity

0-2 yrs 11% >10 yrs 42% 5-10 yrs 25% 2-5 yrs 22% US$ bn

Total: US$8.3 bn As of December 28, 2007

15.8% 15.0% 15.7% 13.4% 14.9% 15.3% 14.3% 14.0% 14.3% 7.6% 8.7%9.0%9.3% 9.9%9.6% 7.7% 8.4%8.6%9.1%9.2%9.6%9.6% 10.0% 10.5% 10.5% 10.7% 13.4% 10.4% 10.2% 10.1% 10.0% 9.9% 9.8%

• 1

2 3 4 5 6 7 8 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 . 2037 US$bn 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

Dec 2001 eoy 2003 eoy 2005 28 Dec'07 Yield Curve as of 31 Aug'05 (RHS) Yield Curve as of 31 Dec '06 (RHS) Yield Curve as of 28Dec'07 (RHS)

24

Yield

Maturity Profile of Tradable Domestic Government Maturity Profile of Tradable Domestic Government Securities Securities

Maturity profile has been improving over time towards a more balanced structure

Source: Ministry of Finance Unbalanced maturity profile at the end of 2001 had been restructured with re-profiling programs in Q4 2002 and Q1 2003

Indonesia Indonesia s Credit Rating History s Credit Rating History

Prudent government debt securities management helped the improvement of Indonesia s sovereign credit rating

25

Source: Ministry of Finance CCC- CCC+ B BB- BB+ BBB SD/DDD R/C CC CCC B- B+ BB BBB- Ca Caa2 B3 B1 Ba2 Baa3 Baa1 BBB+ C Caa3 Caa1 B2 Ba3 Ba1 Baa2 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 S&P's Fitch's Moody's (RHS)

Credit Rating History

Oct 07 upgrade to Ba3 (stable) by Moody s Economic Crisis in 1998 Banks Recapitalization Continuous fiscal adjustment, improving liquidity and structural improvements in real economy Diminished likelihood that the Government will seek additional debt rescheduling Gradually improving external liquidity, macroeconomic stability and improved political conditions Sound record of fiscal management on the success of Government efforts to improve the investment climate

Final Remarks

Demonstrated resilience against the recent external shocks due to the sub- prime crisis and the escalating oil price 2007 budget deficit was 1.1% of GDP; lower than target of 1.5% of GDP Higher macroeconomic growth expected by government based on continued strong household demand, an increase in exports and acceleration of investment in infrastructure projects On track to achieve 6.3% GDP growth in 2007 Assumed GDP growth of 6.8% in Budget 2008 In order to minimize the impact that higher oil prices have had on the fiscal deficit, the Government expects to maintain a prudent approach to fiscal policy

26