1

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)Subhan Noor (Debt Management Office - Ministry of Finance, Phone: +6221 381 0175)E-mail: contactIRU-DL@bi.go.id

ABOUT THE REPUBLIC OF INDONESIA INVESTOR RELATIONS UNIT

The Republic of Indonesia Investor Relations Unit (IRU) has been established as the joint effort between the 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 address concerns of investors, especially financial market investors. IRU is expected to  serve as a

single point of contact for the financial market participants.

As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is

being administrated by the International Department of Bank Indonesia. However, investor relations activities involve a coordinated

efforts which are supported by all relevant government agencies, i.e. Bank Indonesia, the Ministry of Finance, the Coordinating

Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of Industry, State Ministry of State Owned

Enterprises, State Asset Management Company, and the Central Bureau of Statistics.

IRU also holds 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. 

About Investor Relations Unit (IRU)

2

Table of Content

Executive Summary

Preserved Macroeconomic Stability

Improved International Perception and Rising Investment

Prudent Fiscal Management

Government Debt Performance

3

Wide Range of Policy Reforms to Boost Economic Growth

Executive Summary

4

Executive Summary

The economy of Indonesia slowed in 2015 in line with weaker global growth. Domestic economic growth was projected at 4.8% annually, down from the 5.0% (yoy) achieved in 2014. The slowdown was prompted by sluggish exports on the back of weaker global demand and lower commodity prices. In 2016, economic growth in Indonesia is projected in the range of 5.2-5.6% (yoy), bolstered by fiscal stimuli, primarily in the form of infrastructure projects, and tenacious consumption.

The 2015 current account was expected improve from the previous year at around 2% of GDP. Improvements in the non-oil and gas as well as oil and gas trade balances contributed to the smaller current account deficit as imports decreased significantly. This was in line with the considerably weak domestic demand and exports due to lower commodity prices and dwindling global demand.

Depreciatory pressures on the exchange rate have escalated in 2015, triggered by uncertainties in the FFR hike and Yuan depreciation. Through to November 2015, the rupiah depreciated by an average of 11.05% to a level of Rp13,351 per USD. Rupiah depreciation was precipitated by a number of externalities, including uncertainty surrounding the timing and magnitude of the FFR hike, concerns over fiscal negotiations in Greece and Yuan depreciation against a backdrop of economic moderation in China.

Inflation in 2015 was projected below 3%. Low inflation was supported by volatile foods, deflation of administered prices and controlled core inflation. In November 2015, Consumer Price Index (CPI) data recorded inflation of 0.21% (mtm), affecting all components. Consequently, CPI inflation from January-November 2015 was recorded at 2.37% (ytd) or 4.89% (yoy) on an annualised basis. Inflation in 2016 was predicted to remain within the target corridor of 4±1%.

Financial system stability remained solid, underpinned by a resilient banking system and relatively stable financial markets. Banking industry resilience endured, with credit, liquidity and market risks well mitigated. In October 2015, the Capital Adequacy Ratio (CAR) remained well above the 8% minimum threshold at 20.8%, while non-performing loans (NPL) were low and stable at 2.7% (gross) or 1.4% (net).

The BI Board of Governors agreed on 17th December 2015 to hold the BI Rate at 7.50%, while maintaining the Deposit Facility rate at 5.50% and the Lending Facility rate at 8.00%. Bank Indonesia believes that rooms for monetary easing are open, on the back of preserved macroeconomic stability, specifically end-2015 inflation that is projected to be below 3%, and current account deficit, projected at around 2% of GDP. However, with the lingering uncertainty in the global financial market, Bank Indonesia will remain vigilant in easing its monetary policy.

On the fiscal front, Indonesia will continue its prudent fiscal management in 2015 with strong commitment to fiscal consolidation. Recent policy reforms represent an essential step and integral part of structural reforms to strengthen economic fundamentals in Indonesia. The budget deficit for 2015 will be maintained below the threshold of 3.0% of GDP.

5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* Q12015

Q22015

Q32015

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

5.7 5.5

6.3 6.0

4.6

6.1 6.5

6.0 5.6

5.0 4.7 4.7 4.7

Executive Summary

GDP Growth Inflation

Fiscal BalanceBalance of Payments

6* Preliminary Figures

(%)

2010 2011 2012 2013 2014 (3.0)

(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

-

-0.7%

1.1%

1.8%

2.2% 2.2%

Fiscal Surplus / (Deficit) (% of GDP)

(%)billion USDbillion USD

Source: BPS, Bank IndonesiaSource: Bank Indonesia

Source: Bank Indonesia Source: BPS

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

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Current Account Capital & Financial Account Overall Balance

7

Source: Ministry of Finance

Debt Composition

Table of Debt to GDP Ratio

Central Government Debt to GDP Ratio (% of GDP)

Note: Using GDP at Current Market Prices [2010 Version]*) Preliminary Figures

Executive Summary

24.5% 23.1% 23.0%24.9% 24.7%

0%

5%

10%

15%

20%

25%

30%

2010 2011 2012 2013 2014*

53.7% 54.9% 55.5% 53.2% 56.7% 56.0%

46.3% 45.1% 44.5% 46.8% 43.3% 44.0%

0%

20%

40%

60%

80%

100%

120%

2010 2011 2012 2013 2014 Nov-15

Domestic Debt Foreign Debt

2015 Policy Summary

Government’s coordinated policy tools to promote growth through macroeconomic management

Capital injection to state-owned companies, as agents of development in supporting national priorities.

Optimizes Governments securities issuance from domestic sources to fulfill Budget need and uses foreign debts as complimentary.

Determines debt instrument by taken into account of market need in regard to market development and portfolio management.

Issues Retail Bond for instrument diversification and financial inclusion.

Optimizes foreign and domestic loan instrument to fulfill Budget need on capital expenditure.

Conducts active portfolio management of Government securities in order to promote market liquidity and stability.

Strengthens the function of Investor Relations Unit.

Quality of Spending

Financing and Debt Management PolicyState Revenues Optimization

Monetary Policy Mix

Bold and pre-emptive policy through BI Policy Rate, responsively adjusting to current macroeconomic condition.

Exchange rate flexibility to facilitate external adjustments.

Financial market deepening and capital flows management.

Accommodative measures of macroprudential policy.

Policy coordination with the government and financial stability forum.

Central bank cooperations, including second line of defences.

8

Fuel subsidy savings of IDR 211.3 trillion.

Reallocation of savings towards basic infrastructure (food security, connectivity and maritime) and social welfare.

Infrastructure expenditure is higher than energy subsidy.

Food security spending larger than energy subsidy.

Additional allocation for village funds.

Cashless smart cards system for better targeted subsidy.

Capital injection to SOEs.

Strategies:

Improving compliance rate.

Closing tax leakage (especially VAT Refund).

Expanding tax base (Mapping Tax Payer).

Manageable Fiscal Deficit

Fiscal deficit to be maintained below 3% of GDP

Spacious fiscal room for maneuver to anticipate global uncertainty.

Improved International Perceptionand Rising Investment

9

Mood

y’s

Jan 2015

“Indonesia’s Baa3 government bond rating is supported by narrow fiscal deficits, low government debt ratios, the large size

of the Indonesian economy and its healthy GDP growth prospects.

The stable outlook on the rating is supported by our expectation of continued policy efforts to maintain the macro-economic

balance in the face of lower prices for Indonesia’s commodity exports and possible global financial volatility in 2015.”

May 2015

“S&P outlook revision reflects S&P’s view of Indonesia's improved policy credibility stemming from initiatives to bolster

monetary and financial sector management as well as economic performance. S&P expects these actions to improve Indonesia's

growth prospects and external resilience.

The ratings on Indonesia balance the country's low per capita income and developing policy and institutional settings against

the improved credibility of its monetary policy, buoyant economic growth, and sound public finances.”

Baa3 / Stable

BB+ / Positive

Source: Moody’s, S&P, Fitch

Improving International Perception: Acknowledged by Rating Agencies

S&

PFit

ch

Investment grade

Positive Outlook

Negative Outlook

Stable Outlook

Positive Watch

Investment grade

Investment grade

10

Mar

-99

Dec

-99

Sep

-00

Jun-

01

Mar

-02

Dec

-02

Aug

-03

May

-04

Feb-

05

Nov

-05

Aug

-06

May

-07

Jan-

08

Oct

-08

Jul-0

9

Apr

-10

Jan-

11

Oct

-11

Jul-1

2

Mar

-13

Dec

-13

Sep

-14

Jun-

15

B-

B

B+

BB-

BB

BB+

BBB-

CCC+

CCC

Mar

-99

Dec

-99

Sep

-00

Jun-

01

Mar

-02

Dec

-02

Aug

-03

May

-04

Feb-

05

Nov

-05

Aug

-06

May

-07

Jan-

08

Oct

-08

Jul-0

9

Apr

-10

Jan-

11

Oct

-11

Jul-1

2

Mar

-13

Dec

-13

Sep

-14

Jun-

15

B-

B

B+

BB-

BB

BB+

BBB-

CCC+

CCC

Mar

-99

Dec

-99

Sep

-00

Jun-

01

Mar

-02

Dec

-02

Aug

-03

May

-04

Feb-

05

Nov

-05

Aug

-06

May

-07

Jan-

08

Oct

-08

Jul-0

9

Apr

-10

Jan-

11

Oct

-11

Jul-1

2

Mar

-13

Dec

-13

Sep

-14

Jun-

15

B-

B

B+

BB-

BB

BB+

BBB-

CCC+

CCC

Dec 2011 (affirmed Nov 2015)

“The recent wave of reform initiatives by the government is likely to improve the business sentiment. The series of

packages contain a number of measures with the potential in the longer run to significantly change the business

environment, which can currently be characterised as difficult. The reform agenda may signal a structural change

from a more nationalistic approach to economic policy of the recent past. Fitch expects annual real GDP growth to pick up

to 5.3% in 2016 and 5.5% in 2017 from 4.8% in 2015..”

BBB- / Stable

International institutions outlook shows some optimism though there is still downside risk for Indonesia in 2015

11

`

IMF Staff 2015 Article IV Mission to Indonesia(December

2015)

World Bank IEQ (December 2015)

“Medium-term prospects are favorable, supported by an inclusive growth-

enhancing policy agenda that also places emphasis

on stability”• Economic growth has

stabilized and is projected to reach 4.7% this year. A moderate acceleration to around 5% is forecast in 2016.

• Inflation has fallen sharply and is projected to reach 3% at end-2015. Next year, it is expected to remain within the official band (3–5%).

• CAD will narrow significantly in 2015, to an estimated 2% of GDP, and is projected to increase moderately in 2016

.Risk• Downside risk are mainly from

external factors incl. more volatile global financial conditions, a deeper-than-expected slowdown in emerging market trading partners, and further declines in commodity prices.

• Domestic risks could arise from slower-than-expected progress on implementation of key structural reforms, tax revenue and infrastructure spending.

“The government is responding and

demonstrating intent to implement reforms. For example, it increased capital spending by an

estimated 49.8% (yoy) in real terms in the third

quarter.”• GDP growth is expected to

bottom out at 4.7% in 2015, picking up to 5.3% in 2016.

• Increased public sector spending has helped support growth, with the GDP growing at 4.7% yoy in the third quarter, the same pace as in Q1 and Q2 2015.

• The Dana Desa, or Village Fund, is set to increase substantially next year, potentially contributing to public infrastructure spending

Risk• If revenue collection remains

weak in 2016, the ongoing public infrastructure spending momentum and its growth impulse may be at risk.

Asian Development Outlook (March 2015)

“Policy reform to improve the investment climate is

expected to spur economic recovery this

year and next”• GDP growth is forecast to

recover to 5.5% this year and 6.0% in 2016

• Inflation is projected to subside to average 5.5% in 2015 and 4.0% in 2016

• Exports are expected to rise slightly this year—by 1.2% in US dollar terms—before trending higher in 2016.

• The trade surplus is projected to rise this year and the current account deficit to narrow gradually over the next 2 years. Inflows of direct and portfolio investment should keep the balance of payments in surplus.

Risk• Downside domestic risks to the

outlook are shortfalls in government revenue and slowing momentum on reform.

• External risks would be posed by unexpected weakness in the growth of major trading partners and disruption to capital flows to emerging markets triggered by the expected rise in US interest rates.

OECD Economic Forecast (June 2015)

“…activity is projected to pick up later in 2015 and strengthen further

in 2016…”

• …as public spending gathers pace, confidence recovers and the expansionary impact of the depreciation of the rupiah takes hold.

• Inflation is now moderating, in large part because of the fall in energy prices.

• Official interest rates are assumed to remain unchanged through 2015 and then fall slightly in 2016.

• The abolition of fuel subsidies has provided the necessary fiscal space for increased public infrastructure investment.

Risk• The exchange rate may

remain fragile as the external imbalance persists

Preserved Macroeconomic Stability

12

The Economy Slowed in 2015, Expected to Pick Up in 2016

13

• In line with weaker global growth, the economy of Indonesia also slowed in 2015. Accordingly, domestic economic growth was projected at 4.8% annually, down from the 5.0% (yoy) achieved in 2014.

• The slowdown was prompted by sluggish exports on the back of weaker global demand and lower commodity prices. Such conditions were more pronounced in regions reliant on natural resources. In line with the continuously weak export, limited investment growth was also recorded.

• Construction growth bucked the downward trend due to the realisation of government infrastructure projects, while non-construction growth was limited. Notwithstanding, robust household and government consumption supported economic growth.

• In 2016, economic growth in Indonesia is projected in the range of 5.2-5.6% (yoy), bolstered by fiscal stimuli, primarily in the form of infrastructure projects, and tenacious consumption.

• Meanwhile, investment is expected to increase in line with solid macroeconomic stability and the implementation of government policy packages designed to attract investment.

• In addition, government measures to boost public purchasing power coupled with effective fiscal stimuli will play a key role in terms of catalysing economic growth in 2016.

Economic Growth - Expenditure Side

S e c t o r 20132014

20142015

I II III IV I II III

Household Consumption 5.4 5.4 5.1 5.1 5.0 5.1 5.0 5.0 5.0

NPI Serving Household Consumption Expenditure

8.2 23.7 22.8 5.6 (-0.2) 12.4 (-8.3) (-7.9) 6.4

Gross Fixed Capital Formation 5.3 4.7 3.7 3.9 4.3 4.1 4.4 3.7 4.6

Government Consumption 6.9 6.1 (-1.5) 1.3 2.8 2.0 2.7 2.1 6.6

Exports of Goods and Services 4.2 3.2 1.4 4.9 (-4.5) 1.0 (-1.0) (-0.1) (-0.7)

Imports of Goods and Services 1.9 5.0 0.4 0.3 3.2 2.2 (-2.4) (-7.0) (-6.1)

GDP 5.6 5.1 5.0 4.9 5.0 5.0 4.7 4.7 4.7

Economic Growth - Supply Side

S e c t o r 20132014

20142015

I II III IV I II III

Agriculture, Forestry, and Fisheries 4.2 5.3 5.0 3.6 2.8 4.2 4.0 6.8 3.2

Mining and Quarrying 1.7 (-2.0) 1.1 0.8 2.2 0.5 (-1.5) (-6.2) (-5.6)

Manufacturing 4.5 4.5 4.8 5.0 4.2 4.6 4.0 4.3 4.3

Electricity and Gas 5.2 3.3 6.5 6.0 6.5 5.6 1.7 0.8 0.6

Water Supply, Waste Management and Recycling

4.1 3.6 3.2 2.8 2.7 3.0 2.9 6.0 7.6

Construction 6.1 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8

Wholesale and Retail Trade; Automotives 4.7 6.1 5.1 4.8 3.5 4.8 4.0 1.8 1.5

Transportation and Warehousing 8.4 8.4 8.5 8.0 7.1 8.0 6.3 6.5 7.1

Provision of Accommodation and Food & Beverage

6.8 6.5 6.4 5.9 4.9 5.9 3.6 3.9 4.5

Information and Communication 10.4 9.8 10.5 9.8 10.0 10.0 10.1 9.8 10.8

Financial Services and Insurance 9.1 3.2 4.9 1.5 10.2 4.9 7.6 2.5 10.4

Real Estate 6.5 4.7 4.9 5.1 5.3 5.0 5.3 5.0 4.8

Business Services 7.9 10.3 10.0 9.3 9.7 9.8 7.4 7.6 7.6

Administration, Defence, and Social Security 2.4 2.9 (-2.5) 2.6 6.9 2.5 4.7 6.6 1.2

Education Services 8.2 5.2 5.4 7.3 7.1 6.3 5.8 12.2 8.3

Health Services and Social Activities 7.8 7.7 8.5 9.9 6.1 8.0 7.3 8.2 6.5

Other Services 6.4 8.4 9.5 9.5 8.4 8.9 8.0 8.1 8.2

GDP 5.6 5.1 5.0 4.9 5.0 5.0 4.7 4.7 4.7

Economic Growth

Source: BPS, Bank Indonesia

Signs of Growth Pick-Up:Investment and Consumption Rebound

Indication of an improvement is reflected in the increase of motorcycle and car sales

Cement sales increase significantly

GFCF: Building (RHS)

Car Sales

Motorcycle Sales

Cement Sales

Source: CEIC Gaikindo, Astra

Non-building investment is expected remain limited due to

lower revenues from commodity exports and weak business

sentiments.

On the other hand, building investment surged as

government infrastructure projects realization improved in

the second half of 2015. The increase in building investment

is reflected in the rising cement sales.

Government consumption in 2015 is expected to be higher

than the previous year driven by increased goods

consumption.

Robust household consumptions owed to the “smoothing

behaviour” of consumers as indicated by the increased use

of savings and credit card.

Strong household consumption is also reflected in the

improving trend of motor vehicle sales.

I II III IV I II III IV I II III2013 2013 2014 2014 2015

4.6

4.8

5.0

5.2

5.4

5.6

(-10.0)

(-5.0)

0.0

5.0

10.0

15.0

GDP (LHS) Household Consumption (RHS)

Govt Consumption (RHS) Investment

Export (RHS) Import (RHS)

Spatial GDP Growth

SumateraGDP Growth2014: 4.7%

2015Q1: 3.5%2015Q2: 2.9%2015Q3: 3.0%

JavaGDP Growth2014: 5.6%

2015Q1: 5.2%2015Q2: 5.1%2015Q3: 5.2%

KalimantanGDP Growth2014: 3.2%

2015Q1: 1.1%2015Q2: 1.5%

2015Q3: -0.41%

SulawesiGDP Growth2014: 6.9%

2015Q1: 7.3%2015Q2: 8.6%2015Q3: 8.2%

Maluku & PapuaGDP Growth2014: 4.3%

2015Q1: 3.7%2015Q2: 10.2%2015Q3: 2.28%

Bali & Nusa Tenggara

GDP Growth2014: 5.9%

2015Q1: 8.9%2015Q2: 8.9%2015Q3: 11.8%

Spatial GDP Growth Contribution

Java: 58.3%

Main Contributors to GDP Growth Shifting from Commodity-based economy

In 3rd Quarter 2015, Indonesia booked 4.73% GDP growth (yoy), slight increase from 4.67% in 2nd Quarter 2015.

Majority of the growth was driven from Java island, contributed 58.3% of Indonesia’s GDP growth and at 5.2% (yoy).

Growth in Java is higher than resource-rich regions such as Sumatra and Kalimantan, given its high industrialization and larger consumption base

Indonesia continues to drive growth in resource-based industrialization to shift from commodity-based economy

2015Q3 GDP Growth: 4.73%

Source: Bank Indonesia

Source: BPS

Sumatera: 22.4%

Source: BPS

Maluku & Papua: 2.2%Sulawesi: 6.1%

Kalimantan: 8.0%

Bali & Nusa Tenggara: 3.1%

6.65.0

-6.1

-0.7

4.6

(%) (%)

Strong and Stable GDP Performance

15

16

The largest economy in South-East

Asia

A large, culturally diverse, young and vibrant

workforce

Large consumer base with fast growing spending

power

Increase in infrastructure investment to improve

overall efficiency

According to McKinsey, Indonesia is projected to be the 7th largest economy in the world by 2030

5.9% average real GDP growth over the period 2008-2013

Exports are 23.7% of GDP for the year of 2013, one of the lowest in Asia, creating low volatility in GDP

Foreign direct investment grew at an average rate of 21.1% from 2010-2013

4th most populous country in the world

66.6% of the population is of working age(1) and 68.5% were 39 years and younger as of 2012

Working population projected to grow at 0.7% compared to 0.5% CAGR for total population from 2012-2017

A high literacy rate of more than 90%

~7mn people are expected to join the middle class each year

Consumer expenditure has grown at a 12.3% CAGR from 2007-2012 and is expected to continue at a 9.1% rate from 2012-2017

Disposable incomes are projected to grow at 12.1% from 2012-2017

According to McKinsey, 135-170mn people will join the consuming class by 2030

Announced an expansion of fiscal spending on infrastructure by 19.2% CAGR from 2012 to 2014

Infrastructure investments are spread over Indonesia’s 6 economic corridors

Encompass various sectors such as seaports, roads, railways, airports, energy and many others

Government continues to align regional and national regulations to attract further private sector investors

(USD tn)

Nominal GDP – Strong Growth to Continue

Middle Class Households Annual Budgeted Capital Spending

(IDR tn)

2012 2013 Realized

2014 Realized

2015 Budget

145.1

172.4

145.8

176.1

2007 2012 2017E

21,980

39,340

60,740(‘000)

CAGR: 12.3% CAGR:

9.1%

Demographic Dividend – Young Population

2007 2012 2017E

0.43

0.88

1.13999999999996

Male Female

The fundamental long term growth drivers for Indonesia remain strong – equipped with abundant natural resources, a young and technically trained workforce and a large consumer base with a fast growing spending power

Conducive Environment Underpinning Growth Fundamentals

Globally Competitive and a Top Investment Destination

17

Source: Global Competitiveness Index 2015-2016, WEF

(1) Countries with sovereign ratings in the Baa1-Baa3 category and population larger than 40 million

(2) Rank among 134 countries

(3) Rank among 140 countries

Indonesia’s stage of development is categorized as efficiency-driven with a strong and well balanced performance across all 12 pillars of competitiveness

Source: The Economist – Asia Economic Outlook Survey 2015, January 2015

Indonesia is in the Top 40 of the Global Competitiveness Index (“GCI”)

JBIC: Amongst ASEAN countries, Indonesia is the most preferred place for business investment

The Economist: Indonesia has taken over India in #2 Investment Destination in Asia since 2014

Source: Japan Bank for International Cooperation (“JBIC”) FY2014 Survey Report on Overseas Business Operations by Japanese Manufacturing Companies

(1) Total number of companies that responded was 499

No.(1) Country 2008(2) 2015(3)

Institutions Infrastructure Macro-economic

Environtment

Health and primary

education

Higher education and

training

Goods market

efficiency

Labor market

efficiency Financial market

development Technological

readiness Market

size Business

sophistication Innovation

Score Score Score Score Score Score Score Score Score Score Score Score

1 Spain 29 33 3.9 5.9 4.0 6.2 5.1 4.3 4.0 3.8 5.6 5.4 4.5 3.7

2 Thailand 34 32 3.7 4.6 5.7 5.8 4.6 4.7 4.2 4.4 4.2 5.2 4.4 3.4

3 Indonesia 55 37 4.1 4.2 5.5 5.6 4.5 4.4 3.7 4.2 3.5 5.7 4.3 3.9

4 Turkey 63 51 3.8 4.4 4.7 5.7 4.6 4.5 3.5 3.9 4.1 5.4 4.1 3.4

5 Italy 49 43 3.4 5.4 4.1 6.3 4.8 4.3 3.5 3.2 4.9 5.6 4.8 3.9

6 South Africa 45 49 4.4 4.1 4.5 4.2 4.1 4.6 3.8 5.0 4.6 4.9 4.4 3.7

7 Mexico 60 57 3.3 4.2 4.9 5.7 4.0 4.2 3.8 4.2 3.8 5.7 4.2 3.4

8 Brazil 64 75 3.2 3.9 4.0 5.1 3.8 3.7 3.7 4.0 4.4 5.8 4.1 3.2

9 Philippines 71 47 3.8 3.4 5.7 5.5 4.5 4.2 4.1 4.2 3.9 4.9 4.3 3.5

TaiwanJapan

MyanmarSouth KoreaHong Kong

AustraliaPhilippines

ThailandSingapore

VietnamMalaysia

IndiaIndonesia

China

0 10 20 30 40 50 60 70 80

18.324.3

29.630.3

31.332.2

33.336.2

41.241.3

42.157.9

59.971

% of surveyed who plan to invest in each country

Rank

2013 2014 Country / RegionNo. of

Companies(1) Percentage Share (%)

2   1   India   229   45.91   2   Indonesia   228   45.74   3  China   218   43.73   4  Thailand   176   35.35   5  Vietnam   155   31.17   6  Mexico   101   20.26   7  Brazil   83   16.6

10   8  USA   66   13.29   9  Russia   60   12.08   10  Myanmar   55   11.0

Strong Investment Underpinned by Competitivenessand Stability

Investment Realization Progress Q3-2015

Investment Realization in Quarter III 2015 is Rp140.3 T, increases around 3.8% from Quarter II 2015 (Rp 135.1 T) or increases around 17.0% from Quarter III 2014 (Rp 119.9 T). The value of investment is based on investment realization report from DDI and FDI companies (Oil and Gas, Banking, Non-Bank Financial Institution, Insurance, Leasing and Home Industry are excluded).

Investment realization in January – September 2015 is Rp400.0 T, increases around 16.7% from that in January – September 2014 (Rp 342.7 T).

Foreign Direct Investment realization in Quarter III 2015 based on sectors (five leading sectors) are: Electricity, Gas, and Water Supply (US$ 1064.94 million); Mining (US$ 907.74 million); Real Estates, Industrial Estates, and Office Building (US$ 820.08 million); Metal, Machinery, and Electronic Industry (US$ 723.92 million); and Chemical and Pharmaceutical Industry (US$ 578.24 million).

Source: BKPM

Source: BKPM*) 2015 Investment Target, BKPM’s Strategic Planning 2015-2019**) Achievements January-September 2015 towards 2015 target

FDI by Sectors (Millions USD)

18

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 20150

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1,6461,094 1,053 872 1,136 1,046 908

590

611 507 619644

286 573

7781,287

482 593534

201421

51521

133 37105

186

511

468

999345

486

413

578

399

460684

929765

610

724

606

422 574

460582

373

526

685

560 559

505395

777

710

161

189296

221297

174

2141,436 1,154

197283

2,160

374

496

711 762

1,442 896

1,070 1,187

564442

129

1,065

Mining Other Primary Sector Food Industry Paper and Printing Industry Chemical and Pharmaceutical Industry Metal, Machinery, and Electronic Industry Transport Equip. and Other Transport Industry Other Secondary Sector Electricity, Gas, and Water Supply Trade and ReparationTransportation, Warehouse, and Telecommunication Other Tertiary Sector

QI-201

4

QII-201

4

QIII-201

4

Jan-Sep 201

4

QI-201

5

QII-201

5

QIII-201

5

Jan-Sep 201

5

Tar-get 2015*

Achievement**

QI-201

4

QII-201

4

QIII-201

4

Jan-Sep 201

4

QI-201

5

QII-201

5

QIII-201

5

Jan-Sep 201

5

Tar-get 2015*

Achievement**

FDI

72 78 78.3 228.3

82.1 92.2 92.5 266.8

343.7

0.776

DDI

34.6 38.2 41.6 114.4

42.5 42.9 47.8 133.2

175.8

0.758

TOTAL

106.6

116.2

119.9

342.7

124.6

135.1

140.3

400 519.5

0.77

50.0

150.0

250.0

350.0

450.0

550.0

Tril

lio

n R

p

19

Java is Still the Main Investment Destination

Realized Foreign Direct Investment (Jan – Sep 2015)

Realized Domestic Direct Investment (Jan – Sep 2015)

Source: BKPM

Source: BKPM

DDI and FDI by Economic Corridor Q3-2015 (Million USD)

Source: BKPM

Based on Economic Corridor, in January – September 2015 period the highest realization of DDI and FDI is located in Java Corridor. The further ranks of realization of the DDI is in Sumatera, Kalimantan, Sulawesi, Bali and Nusa Tenggara, also Maluku and Papua Corridor. The further ranks of realization of the FDI is also in Kalimantan, Sumatera, Sulawesi, Bali and Nusa Tenggara, as well as Maluku and Papua Corridor.

Sumatera Java Bali & Nusa Tenggara

Kalimantan Sulawesi Maluku & Papua

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2,825

11,441

1,005

3,898

985 1,184

USD

Mill

ion

Sumatera Java Bali & Nusa Tenggara

Kalimantan Sulawesi Maluku & Papua

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

30,555

76,344

1,492

16,2357,559

1,104

Rp B

illio

n

Feb

Mar Ap

rM

ay Jun Jul

Aug

Sep

Oct

Nov De

cJa

nFe

bM

ar Apr

May Jun Jul

Aug

Sep

Oct

Nov De

cJa

nFe

bM

ar Apr

May Jun Jul

Aug

Sep

Oct

Nov De

cJa

nFe

bM

ar Apr

May Jun Jul

Aug

Sep

Oct

Nov De

cJa

nFe

bM

ar Apr

May Jun Jul

Aug

Sep

Oct

Nov De

cJa

nFe

bM

ar Apr

May Jun Jul

Aug

Sep

Oct

Nov

2011 2012 2013 2014 2015

0

5

10

15

20

4.89

4.774.845.61

CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy)

Inflation Remains Under Control

Disaggregation of Inflation

Source: BPS, Bank Indonesia

• Consumer Price Index (CPI) of November 2015 shows inflation of 0.21% (mtm), with all components contribute to this month’s inflation. Therefore, CPI inflation from January to 2015 (year to date/ytd) is recorded 2.37% (ytd), reaching 4.89% (yoy).

• Inflation of volatile food is recorded 0.35% (mtm) or 4.84% (yoy). Such inflation primarily comes from rice, purebred chicken meat and purebred chicken eggs. Meanwhile, this month’s core inflation is recorded lower than usual, namely 0.16% (mtm) or 4.77% (yoy). On the other hand, inflation of administered prices is recorded 0.20% (mtm) or 5.61% (yoy), primarily attributable to cigarettes, airfare and toll road tariff.

• Based on the development of inflation until November 2015 and supported by strengthened policy coordination on the central and regional levels to control inflation, Bank Indonesia is confident that price stability for 2015 is well attained as inflation stays at the lower limit of the target 4±1%.

Consensus Forecast on Inflation

Source: Consensus Forecast20

CPI Nov-2015

mtm : 0.21%

yoy : 4.89%

ytd : 2.37%

(%)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22015 2016 2017

0

1

2

3

4

5

6

7

8

6.57.1 7.1

4.9 5.1 4.8 4.8 4.7 5 5

6.57.1 7.1

4.7 4.5 4.3 4.44.8

5.6 5.5

CF Sep 2015 CF Dec 2015(%)

Improvement in Trade Balance Contributes to Smaller Current Account Deficit

• Improvements in the non-oil and gas as well as oil and gas trade balances contributed to the smaller current account deficit as imports decreased significantly.

• This was in line with the considerably weak domestic demand and exports due to lower commodity prices and dwindling global demand.

• From January to November 2015, non-oil trade balance recorded a surplus of 13.28 billion US dollars, higher than the surplus occurring in the same period last year which amounted to 10.10 billion US dollars.

• Meanwhile, oil and gas trade balance recorded a smaller deficit, from 12.66 billion US dollars in the same period a year earlier to just 5.47 billion US dollars in 2015.

• Cumulatively, up to November 2015, the trade balance recorded a surplus of 7.81 billion US dollars, which is significantly better than the previous year’s deficit of 2.56 billion US dollars for the same period.

Trade Balance November 2015

21

International Reserves• Indonesia’s official reserve assets position as of end November

2015 stood at US$100.2 billion, decreased slightly from the reserve position at the end of October 2015 which was registered at US$100.7 billion.

• The development was contributed by foreign exchange receipts, including from oil and gas revenues and the withdrawal of government borrowing, which are sufficient to cover the use of foreign exchange for Government foreign debt payments and to stabilize Rupiah exchange in accordance with its fundamentals.

• With these developments, official reserve assets at the end of November 2015 can adequately cover 7.1 months of imports or 6.9 months of imports and servicing of Government external debt repayment, well above the international standards of reserves adequacy at 3 months of imports.

Billion USD

Source: BPS, Bank Indonesia

Source: Bank Indonesia

2011 2012 2013 2014 2015

Non Oil & Gas Oil & Gas Total

Continued Pressure on Emerging Market’s Currency

Movement of Rupiah

• Through to November 2015, the rupiah depreciated by an average of 11.05% to a level of Rp13,351/USD. Rupiah depreciation was precipitated by a number of external factors including uncertainty of the FFR hike, concerns over fiscal negotiations in Greece and Yuan depreciation. On the home front, factors included stronger demand for foreign currency for debt repayments and seasonal dividend payments as well as concerns over domestic economic moderation.

• Nevertheless, the rupiah appreciated in October and November 2015 and became more stable as positive sentiments abound, particularly regarding EMs growth and domestic economic outlook as the Government introduced a series of policy packages and Bank Indonesia unveiled a set of measures to stabilize the currency.

• Rupiah volatility in 2015 is lower than the average volatility of currencies in the region.

22Source: Bank Indonesia

Source: Bank Indonesia

IDR/USD

*data as of 15 Dec 2015

Source: Bank Indonesia

EUR

ZAR

INR

PHP

MYR

KRW

THB

IDR

TRY

BRL

-6.00 -5.00 -4.00 -3.00 -2.00 -1.00 0.00 1.00 2.00 3.00 4.00

-4.64

-4.61

-1.66

-1.46

-1.31

-0.74

-0.32

0.79

1.69

2.88

-4.07

-3.92

-2.10

-0.76

0.97

-1.50

-0.66

-1.07

0.08

-0.30

point-to-point AverageNov 2015 vs Oct 2015

%* data as of 30 Nov 2015 PHP

INR

KRW

THB

IDR

EUR

MYR

ZAR

TRY

BRL

-35.0 -30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0

-5.3

-5.4

-5.8

-8.3

-10.5

-14.9

-17.9

-19.6

-20.1

-31.3

-2.1

-4.5

-6.6

-4.7

-11.1

-19.4

-15.5

-13.7

-19.1

-28.2Average Point to Point

%* data as of 30 Nov 2015

YTD 2015* vs 2014

Monetary Policy Stance

BI Rate

Source: Bank Indonesia

• The BI Board of Governors agreed on 17th December 2015 to hold the BI Rate at 7.50%, while maintaining the Deposit Facility rate at 5.50% and the Lending Facility rate at 8.00%.

• Bank Indonesia believes that rooms for monetary easing are open, on the back of preserved macroeconomic stability, specifically end-2015 inflation that is projected to be below 3%, and current account deficit, projected at around 2% of GDP.

• In the short term, Bank Indonesia will monitor global financial market development post-Federal Funds Rate (FFR) hike as well as conditions of the domestic economy.

• Additionally, Bank Indonesia will strengthen coordination with the Government to control inflation, stimulate growth and accelerate structural reforms, thereby buoying economic growth while maintaining macroeconomic and financial system stability.

23

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 102013 2014 2015

83

84

85

86

87

88

89

90

91

92

93

88.6

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 102013 2014 2015

0.0

1.0

2.0

3.0

4.0

5.0

0

5

10

15

20

2520.8

Capital Adequacy Ratio (CAR) (RHS) Gross Non-Performing Loan (NPL)

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 2013 2014 2015

0%

5%

10%

15%

20%

25%

30%

35%

40%Total Growth Working Capital loans Investment LoansConsumption Loans

Solid Financial System Stability

• Financial system stability remained solid, underpinned by a resilient banking system and relatively stable financial markets. Banking industry resilience endured, with credit, liquidity and market risks well mitigated.

• In October 2015, the Capital Adequacy Ratio (CAR) remained well above the 8% minimum threshold at 20.8%, while non-performing loans (NPL) were low and stable at 2.7% (gross) or 1.4% (net).

• In terms of the intermediation function, credit growth was recorded at 10.4% (yoy), lower than that posted in the same period last year, along with the economic slowdown. Deposit growth was recorded at 9.0% (yoy) in October 2015.

• Looking forward, credit growth is predicted to increase in the range of 12-14% in 2016 in line with an increase in economic activity and the looser macroprudential policy stance adopted by Bank Indonesia, accompanied by the reduction to the primary reserve requirement.

CAR Comfortably High, NPL Favorably Low

Slowdown in Loan Growth

Loan-to-Deposit Ratio Well Maintained Within the Target Range

24

(YoY)

9.110.2

10.4

12.6

Source: Bank Indonesia

Loan-to-Deposit Ratio (%)

Source: Bank IndonesiaSource: Bank Indonesia

2.7%

(%) (%)

Prudent Fiscal Management

25

26

Fiscal Stimulus

Budget Optimization

Long Run Policies

Budget Reforms

New

Ch

alle

ng

es

Structural Challenges

Global Volatility

Sustainable and Equitable

Economic Growth

Support Navigation Through Global

Uncertainties

Revenue Optimization

Quality of Spending

Sustainable Financing

Maintain Purchasing Power

Fiscal Incentives for Business Sector

Other Policies

Short Run Policies

Coordinated Short Run and Long Run Policies

26

27

Three Key Pillars to a Sustainable and Equitable Growth

Objective: Creating a sustainable and equitable economic growth for Indonesia

Pill

ar I

Rev

enue

Opt

imiz

atio

n

Pill

ar II

Qua

lity

of S

pend

ing

Pill

ar II

I Sus

tain

able

Fin

anci

ng

I. Shift from commodity-based revenues

II. Broaden tax coverageIII. Improve tax compliance

and prevent leakagesIV. Strengthen Taxation

institution

I. Higher spending productivity

II. Enhanced subsidy scheme

III. Empowerment of local governments

I. Secure budget financingII. Effective utilization of

domestic and international funding sources

III. Financing schemes to support infrastructure development program

Initiatives:• Reinventing Policy • e-Invoice• Compliance Risk

Management• Tax Amnesty• Tax Administrative Reform • Regulatory Reform• Adjustment of non-taxable

income threshold • Development of Semi-

Autonomous Tax Office

Initiatives:• Improve Government

procurement regulation.• Continue Fuel Subsidy

Reform (re-allocate energy subsidy to productive spending) and maintain targeted subsidy scheme.

• Budgetary allocations for:• Infrastructure Projects• Social Welfare, and• Cashless smart cards• Village fund

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

27

Reduction of Poverty Through Conditional Cash Transfers

The government will distribute “Family Welfare Card”, “Indonesia Smart Card” and “Indonesia Health Card” to 15.5 million poor families which are 25% of the population with the lowest socio-economic status

For the first stage, Family Welfare Card and non-cash assistance through the Financial Services Digital, Indonesia Smart Card and Indonesia Healthy Card will be distributed to 1 million of the 15.5 million families living in 19 districts / cities in 10 provinces across Indonesia

Program Indonesia Sehat(Healthy Indonesia Program) – Free health insurance and medical benefits

Organizers :Social Security Agency (BPJS)

Service Coverage :Up to village level health units (“Posyandu”)

Beneficiaries :

Disadvantaged communities who have had “BPJS PBI card” plus groups with social welfare issues (PMKS)

Benefits : Treatment and prevention

Program Indonesia Pintar(Indonesian Smart Program) – Education subsidies for the poor and families near the poverty threshold

Beneficiaries : Less capable students, PMKS school-age children, street children, child labor in Indonesia

Distribution of Funds

: Savings / savings in a post office or a designated bank may be withdrawn or to be kept

Benefits : SD / MI amounting to IDR225,000 / student / semester

SMP / MTs of IDR375.000 / student / semester

SMA / SMK IDR500,000 / student / semester

Program Keluarga Sejahtera(Family Welfare Program) Bi-monthly credits for eligible families to offset increasing costs of living

Beneficiaries : Underprivileged families throughout Indonesia. Extended to include orphanage, nursing homes, and other social institutions

Distribution of Funds

: Savings / savings in a post office or a designated bank may be withdrawn or be kept

Benefits : IDR200,000 / family / month

Current administration has a renewed focus on reducing poverty – this will be achieved via conditional cash transfers

29

Allocation of Energy Subsidy Spending to Education, Infrastructure and Regional Development for Sustainable Economic Growth

2011 2012 2013 2014 2015 2016P0

100

200

300

400

500

600

700

800

900

408.5 424.8

290.3 313.5

664.6

782.2

137.8 121.0

Education Infrastructure Regional Energy

IDR Tn

2015 BudgetEnergy Subsidy Spending: IDR 137.8 TnInfrastructure Spending: IDR 290.3 Tn

2016 Proposed BudgetEnergy Subsidy Spending: IDR 121.0 TnInfrastructure Spending: IDR 313.5 Tn

Source: Ministry of Finance

Central Government Expenditure: Continue budget efficiency

framework

Subsidy Policies

• Fuel Subsidy Policy: Continue “Fixed Subsidy” scheme to

Diesel and “Price Subsidy” for Kerosene and 3 kg LPG

• Electricity Subsidy Policy: Switch to direct subsidy scheme

given to small households (450 VA and part of 900 VA)

• Food Subsidy: Rice for targeted household (15.5 million

households)

• Subsidy for Fertilizer: Production price close to economic price

targeted volume of 9.55 million ton, with retail price to be

adjusted to close price gap

• Interest Subsidy for SME credit: For selected sectors such as

agriculture, fishery, manufacturing and trade and including for

migrant worker

Regional Transfer Policy

• Formulate Transfer Fund nomenclature

• Enhance Special Transfer Fund (DTK)

• Optimize the implementation of reward and punishment to

regional Government

Village Fund Policy

• Significantly Increase allocation compared to 2015

• To support growth equality and empowerment in village area

2016 Budget Key Policies

Energy

-47.6%

Education

+27.5%

Infrastructure

+76.2%

Health

+75.4%

2016 Budget Allocation Plan Compared to 2015 Revised Budget

Budget Re-Allocation to Sustainable Economic Growth

29

30

Assumptions:

Period

2014 2015 2016ProposedBudgetRealized

Revised Budget

LatestRealization

Growth (%) 5.0 5.7 4.71 5.3

Inflation (%) 8.4 5.0YoY 6.832

4.7YTD 2.242

Exchange Rate (USD/IDR, Average) 11,878 12,500EOP

13,5343

13,900YTD

13,3033

3-month-SPN (Treasury Bills) 5.8 6.2 5.92 5.5

Indonesia Crude Price (ICP) (USD / bbl) 97.0 60.0 52.22 50.0

Oil Lifting (thousand bbl / day) 793.5 825 756.64 830

Gas Lifting (thousand bbl / day oil equivalent)

1,224 1,221 1,1754 1,1552015 Budget Key Focus 2016 Budget Key Focus

• Quality of SpendingFuel subsidy savings of IDR 211.3 TnRe-allocation of savings to basic infrastructure (food security, connectivity and maritime) and social welfare

Additional allocation for village funds

Capital injection to SOEs

• Revenue OptimizationImproving tax compliance rate, closing tax leakage and expanding tax base

• Financing PolicyLower fiscal deficit from 2.2% to 1.9%

• General Revenue and Expenditure PoliciesContinue Tax Extensification and Intensification program and improve tax compliance Drive priority program to improve growth quality such as the 20% allocation for education, maintain 5% health allocation and increase regional and village fund allocation

• Subsidy Policies – More Targeted ProgramTargeted subsidy scheme and direct subsidy to small households Food & fertilizers subsidy and expand financing program for SMEs

• Continue to drive key development projects: Develop infrastructure for Food Security and ConnectivityImprove the service and sustainability of national health, labor insurance program and sustainable social protection program

• Financing Policies: Fiscal deficit at 2.1% and Debt/GDP at 26%

Notes: 1. As of 2nd Quarter 2015, 2. As of September 2015, 3. Up to 16 October 2015, 4. Average Dec 2014 – Aug 2015

Key Macroeconomic Assumptions

Source: Ministry of Finance, Bappenas

31

• The realization of income, expenditure, and financing in Semester II is expected to increase, an improvement from semester I;

• The financing gap will be covered with sources of financing that is considered safe, has low risk, and low cost

Items (IDR tn)

2014 2015 2016

Revised Budget

1st Semester Realizatio

n

% of Revised Budget

Revised Budget

1st Semester Projectio

n

% of Revised Budget

2nd Semester Prognosi

s

% of Revised Budget

Outlook Budget

A. State revenue and grants 1635.4 712.7 43.6% 1,761.6 697.4 39.6% 952.3 54.1% 1649.8 1822.5

I. Domestic revenue 1633.1 711.7 43.6% 1,758.3 697.2 39.7% 949.2 54.0% 1646.4 1820.5

1.Tax revenue 1246.1 537.5 43.3% 1,489.3 555.2 37.3% 811.8 54.5% 1367.0 1546.7

2.Non tax revenue 386.9 172.2 44.5% 269.1 142.0 52.8% 137.4 51.1% 279.4 273.8

II. Grants 2.3 1.0 42.8% 3.3 0.2 5.8% 3.1 94.2% 3.3 2.0

B. State expenditure 1876.9 759.9 40.5% 1,984.1 773.9 39.0% 1135.9 57.3% 1909.8 2095.7

I. Central gov. expenditure 1280.4 468.7 36.6% 1,319.5 436.1 33.1% 809.4 61.3% 1245.5 1325.6

1. Ministries/Agencies Spending 602.3 178.9 29.7% 795.5 208.5 26.2% 521.6 65.6% 730.1 784.1

2. Non-Ministries/Agencies Spending

678.1 289.8 42.7% 524.1 227.6 43.4% 287.9 54.9% 515.5 541.4

II. Transfer to region 596.5 291.2 48.8% 664.6 337.7 50.8% 326.5 49.1% 664.2 770.2

C. Primary balance(1) -106.0 17.9 -16.8% -66.8 -2.2 3.3% -100.4 150.4% -102.6 -88.2

D. Overall balance (A - B) -241.5 -47.2 19.6% -222.5 -76.4 34.4% -183.6 82.5% -260.0 -273.2

% deficit to GDP -2.4 -0.5 -  -1.9 -0.7 -  -1.6 -  -2.2 -2.15

E. Financing 241.5 138.8 57.5% 222.5 194.0 87.2% 66.0 29.7% 260.0 273.2

I. Domestic financing 254.9 162.2 63.6% 242.5 215.6 88.9% 28.1 11.6% 243.7 272.8

II. Foreign financing -13.4 -23.4 174.0% -20.0 -21.6 10.8% 37.9 -189.4% 163.0 0.4

Excess/Shortage Financing 0.0 91.6 0.0% 0.0 117.6  - -117.6  - - - 

Budget deficit expected to remain within safe and manageable threshold

31

Projection of Revised Budget 2015 Realization and 2016’s Budget

32 32

Strategic Policy of 2016 Budget in Summary

Controlled expansion at 2.15% GDP Deficit

1

Efficient bureucratic system for Holiday Allowance (THR) and 13th Salaty

2

5% Healthcare Budget3

Significant infrastructure budget4

Subsidy to the right recipient6

Support the healthcare social security program

7

Fasten efforts to reduce income gap (expansion of PKH)

8

Support Fiscal Desentralization (Village Fund & Reallocation of DK/TP)

9

1 Million home program10

20% Education Budget5

33 33

General policies to achieve taxation target includes:a. Optimize tax revenue by maintaining conducive investment

climate;b. Maintain national economic stability and protect purchasing

power;c. Improve national competitiveness and industry value-add; andd. Control consumption of excisable goods.

TAX CUSTOMS & DUTIES

INTENSIFIED EFFORTS TO EXPAND TAX REVENUESBreakdown

2015 2016

Revised Budget Budget

1. Tax Revenue 1,489,255.5 1,546,664.6

a. Domestic Tax Revenue 1,439,998.6 1,506,577.5

1) Income Tax 679,370.1 757,230.1

- Non-Oil & Gas Income Tax 629,835.3 715,788.6

- Oil & Gas Income Tax 49,534.8 41,441.5

2) VAT 576,469.2 571,732.7

3) Land & Building Tax 26,689.9 19,408.0

4) Duties 145,739.9 146,439.9

5) Other Taxes 11,729.5 11,766.8

b. Tax from International Trade 49,256.9 40,087.1

1) Import Duty 37,203.9 37,203.9

2) Export Duty 12,053.0 2,883.2

2016 Tax Revenue Strategy

Optimize examination Efforts

i.e. focus on primary sectors in each regional office, transfer pricing and fraud

Extend and Intensify services to Tax Payers

i.e. data matching, optimize IT system, e-tax invoice, regulation Reform

Year 2016 as the Year of Law Enforcement

i.e. through active tax billing, examination and investigation

Improving audit performanceRevise target of audit object.

Boost supervision, action and investigation efforts

Increase operations to monitor distribution of excisable goods

34 34

• Government Expenditure consistently grow at 12% on average

• From 2015-2016 Regional Transfer and Village Funds (15.8% yoy) grew significantly faster than Central Government Spending (0.46% yoy)

Ministries/Agencies Budget(Billion Rupiah)

Min. of Public Works andHousing

104,1

Min. of Defence 99,5

National Police 73

Min. of Health 63,5

Min. of Religious Affairs 57,1

Min. of Basic Education 49,2

Min. of Transportation 48,5

Min. of Higher Education and Research

40,6

Min. of Finance 39,3

Min. of Agriculture 31,5

Other Ministries 177,9

Total 784,1

Top 10 Ministries/Agencieswith the Highest Budget

Allocation

Government Expenditure 2016

Regional Transfer

Central Government Spending

Revised Budget2015

Budget2016

35

• Increase the allocation to the Regional Transfer and the Village Fund budget to closely match with Ministries and Agencies spending

• Improve the quality of budgeting and Regional Revenue Sharing Fund (Dana Bagi Hasil-DBH) distribution

• Reformulation of General Allocation Fund (Dana Alokasi Umum-DAU) in order to improve the distribution of financial capability among regions (as equalization grant)

• Reformulation and strengthening Special Allocation Fund (Dana Alokasi Khusus-DAK) to support the implementation and achievement of national priorities

• Reformulation of Regional Incentive Fund (Dana Insentif Daerah-DID) to provide a greater appreciation for the area that performs well in financial management, economy and welfare areas

• Improving the management quality for Special Autonomy Fund and Special Fund for Yogyakarta as a Special Region

• Improve the allocation of up to 6% in accordance Road Map Village Fund from 2015 to 2019, to in compliance with mandate from Government fullfil the mandate in Law No.6/2014 on Villages

35

Transfer to Region and Village Fund Policy

Description2015 2016

Revised Budget Budget

A. Transfer to Region 643,8 723,2

1. Balancing Fund 521,8 700,4

a. General Transfer Fund 463 491,5

1) Profit Sharing Fund 110,1 106,1

2) General Allocation Fund 352,9 385,4

b. Special Transfer Fund 58,8 208,9

1) Physical Purpose Allocation Fund n/a 85,5

2) Non-physical Purpose Allocation Fund n/a 123,5

2. Region Intensive Fund n/a 5

3. Special Autonomy Region and DIY Fund 17,6 17,8

4. Other Transfer Fund 104,4 n/a

B. Village Fund 20,8 47

TOTAL 664,6 770,2

(IDR Trillion)

36

• Improve the quality of state investment plan to increase SOEs’ value-add as agents of development in infrastructure, food sufficiency and maritime;

• Maintain Government debt ratio at a sustainable level;

• Open access to development and investment funding to the general public through Retail Bond Issuance;

• Optimize Public Services Agency (BLU) funds to finance development projects, including expanding MSMEs’ access, affordable housing and education;

• Prioritize Private Public Program (PPP) to support infrastructure development;

• Extend loans to fasten infrastructure development projects; and

• Support programs to increase access to education and housing for low income population.

Description2015 2016

Revised Budget Budget

I. Domestic Financing 242,5 272,8

1. Domestic Banking 4,8 5,5

2. Domestic Non-Banking 237,7 267,3

II. Foreign Banking -20,0 0,4

1. Foreign Outstanding Loan (Gross) 48,6 75,1

a. Program Loan 7,5 36,8

b. Project-Based Loan 41,1 38,3

2. Standby Loan Agreement (SLA) 4,5 -5,9

3. Foreign Debt Principal Repayment 64,2 -68,8

TOTAL 222,5 273,2

Financing Policy 2016

Investment Climate Improvement:

One Stop Service (OSS) by BKPM

Conducted by electronically integrated system on investment information and licensing. Implementation of OSS in BKPM comes with online tracking system.

National Single Window for Investment (NSWi) or the Electronic Invesment Licensing Service System (SPIPISE) was created to facilitate further OSS services. NSWi as an electronic basis for investment so that investors can obtain a variety of online licensing and non-licensing service.

Land Acquisition Bill

Provide certainty in Land Procuring for Public Infrastructure Project. The law sets a finite deadline to resolve all legal issues in the event of objections to any land acquisition for infrastructure projects.

Special Economic Zone Fiscal Incentive

• Companies entitled for tax holiday or tax allowance• Exemption for import duties, VAT and excise

Revision of investment negative list

In the effort to increase investment in Indonesia and to execute the ASEAN Economic Community (AEC), the Government of Indonesia had done amendments to the provision list of business fields closed and open with certain requirements in the field of investment (Investment Negative List /DNI)

Revision of Investment negative list

One Stop Services (OSS) center as an integrated services to provide quick, simple, transparent, integrated license services

Land acquisition bill and revision of government regulation on procurement

Special Economic Zone Fiscal Incentive

…Direct investment needs to be further improved to help finance the current account deficit

Investment is Still Showing a Positive Development

General Strategy for Debt Financing 2016

38

DEBT POLICY IN 2016 BUDGET

1. Manageable Debt-to-GDP

ratio 2. Financial inclusion &

market deepening

3. Debt issuance for productive

activity4. Selective external loan (infrastructure and energy

sector)

5. Loan as an

alternative instrument

for financing

6. Active debt

management and ALM

Government Budget FY 2016

39

In trillion IDR, where applicable

Description 2016 BudgetA. Total Revenue 1,822.5

I. Domestic Revenue 1,820.5

1. Taxation 1,546.7

2. Non-Taxation 273.8

II. Grant 2.0

B. Government Spending 2,095.7

I. Central Government Spending 1,325.6

1. Ministerial Spending 784.1

2. Non-Ministerial Spending 541.4

II. Fund Transfer and Village Fund 770.2

C. Primary Balance (88.2)

D. Deficit (273.2)

Deficit to GDP (2.1%)

E. Financing 273.2

I. Domestic 272.8

a. Domestic Banks 5.5

b. Domestic Non-Banks 267.3

1. Government Securities (net) 327.2

2. Capital Injection (48.4)

II. Foreign 0.4

Surplus (Deficit) Funding

Government Securities Financing (Gross) 2015

40

Domestic Bonds

International Bonds Issuance (USD, EUR, JPY-denominated)

Weekly Auction:

Conventional securities: 23 x

Islamic securities: 23 x

Non-Auction:

Retail bonds: SR (Q1), SBR (Q2), Sukuk Tabungan (Q3), and ORI (Q4)

Private Placement Based on request

• Issuance of International Bonds as complement to avoid crowding out in domestic market and provide benchmark for corporate issuance, consists of USD, YEN or EURO global bonds.

• Maximum issuance international bond 30% from target gross.

Issuance targets for GDS, Sukuk and ATM target

• Government Debt Securities (SUN): 76 %;

• Sukuk: 24%

• ATM for Goverrnment Securities (SBN) by auction: 10-12 year.

Instruments

Indicative Target (IDR tn)

Preliminary Budget

Government Securities (Net) 327,224

Redemption 187,202

Cash Management 15,000

Buyback 3,000

Government Securities (Gross) 532,426

Composition

Domestic 76%

- Auction 66%

- Non-Auction 10%

International Bond 24%

Improved Government Debt Position

41

42

Global Financial Crisis

Eurozone sovereign debt crisis

Yield of Benchmark Series[In Percentage]

As of Nov 30, 2015

Secondary Market Performance of Central Government Bonds

*Adjusted by changes in Cash Management & Debt Switch

Government Securities Realization

39

*(Million IDR)

Budget 2015*Revised Budget

2015*Realization

(a.o.Nov 27, 2015)*

% Realization to

Revised Budget

2015

Government Securities Net 277.049.800 345.545.531 343.665.677 99,46%

Government Securities Maturing in 2015 and Buyback 153.612.324 154.017.324 149.697.065 97,19%

Issuance Need 2015* 430.662.124 499.562.855 493.362.741 98,76%

Government Debt Securities (GDS) 375.401.563

Domestic GDS 288.832.874

-Coupon GDS 195.010.000

-Conventional T-Bills 50.300.000

-Private Placement 16.084.119

-Retail Bonds 27.438.755

International Bonds 86.568.689

-USD GMTN 50.372.939

-Euro GMTN 18.473.050

-Samurai Bonds 11.054.200

-Domestic GDS 6.668.500

Government Islamic Debt Securities 117.961.178

Domestic Government Islamic Debt Securities 91.539.178

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

Sukuk) 59.990.000

- Retail Sukuk 21.965.035

- Private Placement 9.584.143

Global Sukuk 26.422.000

* Based on projection of deficit 2,78%

44Source: Ministry of Finance

[USD billion]

Outstanding of Total Central Government Debt

62,25 66,69 65,02 68,65 68,51 63,76 58,28 54,18 53,23 51,98 53,90

85,26 82,78 104,20

118,39 130,97 140,75

136,27 155,23 160,5 162,9

168,3

-

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014 March-15 Jun-15 Nop-15

Loan Government Securities

[in percentage]

Year 2007 2008 2009 2010 2011 2012 2013 2014 March-15 Jun-15 Nop-15

Loan 42% 45% 38% 37% 34% 31% 30% 26% 25% 24% 24%Government Securities 58% 55% 62% 63% 66% 69% 70% 74% 75% 76% 76%Total Central Government Debt

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Total Debt Maturity Profile as of End of October, 2015

45

Maturity Profile of Central Government by Currencies (in trillion IDR)

Maturity Profile of Central Government by Instruments (in trillion IDR)

Source: Ministry of Finance

46

Holders of Tradable Gov’t Domestic Debt Securities Foreign Ownership of Gov’t Domestic Debt Securities by

Tenor

Source: Ministry of Finance

More Balance Ownership In Terms Of Holders And Tenors

Holders of Tradable Central Government Securities

36,63% 36,53% 33,70% 31,04% 27,21% 28,91% 28,79%

32,58% 30,49% 33,76%30,83% 33,16% 33,99% 33,06%

30,80% 32,98%32,54%

38,13% 39,63% 37,10% 38,15%

Dec-11 Dec-12 Dec-13 Dec-14 Jun-15 Oct-15 Nov-15

Foreign Holders Domestic Non-Banks Domestic Banks

47Source: Ministry of Finance

Profile of Central Government Debt Securities

GOVERNMENT DEBT SECURITIES (GDS) Dec-12 Dec-13 Dec-14 Nov-15

1. Domestic Tradable GDS IDR 757.231 IDR 908.078 IDR 1.099.257 IDR 1.279.750

a. Zero Coupon IDR 24.083 IDR 34.050 IDR 39.950 IDR 42.050

1. Government Treasury Bills IDR 22.820 IDR 34.050 IDR 39.950 IDR 42.0502. Zero Coupon Bond IDR 1.263 IDR - IDR - IDR -

b. Government Domestic Bonds IDR 733.148 IDR 874.028 IDR 1.059.307 IDR 1.237.700

1. Fixed Rate *) +) IDR 610.393 IDR 751.273 IDR 945.964 IDR 1.140.9562. Variable Rate *) IDR 122.755 IDR 122.755 IDR 113.344 IDR 96.743

2. Promissory Notes to Bank Indonesia **) ***) IDR 240.144 IDR 234.870 IDR 229.054 IDR 223.864

3. SPNNT IDR - IDR 12.148

4 Retail Saving Bonds IDR 2.391 IDR 2.391

5 Total GDS (1+2+3+4) IDR 997.376 IDR 1.142.948 IDR 1.330.702 IDR 1.518.152

5. Total Government International Bonds *)USD 22.950 USD 27.140 USD 29.190 USD 32.690

155.000¥ 155.000¥ 155.000¥ 255.000¥ 1.000€ 2.250€

6. TOTAL GOV'T DEBT SECURITIES (3+(4*Exchange Rate Assumption)) IDR 997.376 IDR 1.142.948 IDR 1.361.994 IDR 2.032.270

GOVERNMENT ISLAMIC DEBT SECURITIES (GIDS)

a. Domestic Tradable GIDS IDR 63.035 IDR 87.174 IDR 110.704 IDR 158.183

a. Fixed Rate *)++) IDR 62.840 IDR 78.541 IDR 99.969 IDR 148.668

b. Zero Coupon IDR 195 IDR 8.633 IDR 10.735 IDR 9.515

b. Domestic Non Tradable GIDS

IDR 35.783 IDR 31.533 IDR 33.197 IDR 41.781

c. Government International Islamic Bonds

1. Fixed Rate *) USD 2.650 USD 4.150 USD 5.000 USD 7.000

7. TOTAL GOV'T DEBT SECURITIES (6+(8*Exchange Rate Assumption)) IDR 88.660 IDR 137.758 IDR 172.904 IDR 296.844

8. TOTAL GOVERNMENT SECURITIES IDR 1.121.819 IDR 1.312.239 IDR 1.568.095 IDR 2.329.114

Notes:- Nominal in billion rupiah (domestic bonds), million USD & million JPY (international bonds)- *) Tradable- **) Non-Tradable- +) Including ORI (IDR Billion)) IDR 34.153 IDR 43.882 IDR 54.098 IDR 54.098- ++) Including Sukuk Ritel/SR (IDR Billion) IDR 28.989 IDR 35.924 IDR 47.906 IDR 69.871- Exchange Rate Assumption (IDR/USD1) IDR 9.670 IDR 12.189 IDR 12.440 IDR 13.840- Exchange Rate Assumption (IDR/JPY1) IDR 111,97 IDR 116,17 IDR 104,25 IDR 112,74- Exchange Rate Assumption (IDR/EUR1) IDR 15.133 IDR 14.640

48

Debt Switch Program

Buyback Program

[in billion IDR]

Debt Switch & Cash Buyback Program

Source: Ministry of Finance

Maturity Profile of Tradable Central Government Securities as of the end of November, 2015

49Source: Ministry of Finance

[IDR Tn]

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045

Total 2,72 185, 115, 162, 160, 111, 138, 124, 105, 208, 125, 56,0 47,7 53,1 99,1 29,1 41,8 47,0 52,5 97,5 27,8 23,0 44,1 50,9 8,36 16,7 23,7 54,3 43,0 43,9 27,6

SBSN 1,72 51,7 30,2 48,8 35,2 17,2 16,5 31,8 15,5 38,1 46,9 2,35 2,59 2,86 7,01 5,65 3,83 4,22 4,65 5,13 5,66 10,3 6,88 7,58 8,36 9,22 10,1 11,2 12,3 - -

PBS - 19,6 - 13,5 1,0 14,4 - 1,2 - - - - 3,8 - - - - - - - - - 10,1 - - 7,5 - - 9,9 - -

RIEUR - - - - - - 14,6 - - - 18,3 - - - - - - - - - - - - - - - - - - - -

RIJPY - - - 2,5 3,9 9,3 - 6,8 - - 6,2 - - - - - - - - - - - - - - - - - - - -

IB - 12,5 28,2 26,3 27,7 27,7 34,6 27,7 34,6 27,7 27,7 - - - - - - - - - 22,1 - 20,8 27,7 - - - 31,1 20,8 27,7 27,7

ORI - 20,2 21,2 27,4 - - - - - - - - - - - - - - - - - - - - - - - - - - -

VR - 17,7 13,1 17,9 22,7 25,3 - - - - - - - - - - - - - - - - - - - - - - - - -

FR - 22,4 22,6 26,3 70,1 17,9 73,1 56,6 55,4 143, 26,0 53,7 41,4 50,3 92,1 23,5 38,0 42,8 47,9 92,4 - 12,7 6,4 15,7 - - 13,6 12,0 - 16,3 -

0

20

40

60

80

100

120

140

160

180

200

trill

ion

rupi

ah

Maturity Profile of Tradable Government Securities as of November 30, 2015 (in trilion IDR)

Daily Transaction & Offshore Ownership

50

Average Daily Transaction Govt’ Bonds Net Buyer (Seller) Non Resident

Source: Ministry of Finance

[IDR Tn]

as of the end of

October, 2015

Average daily trading [IDR Tn]

3,55 2,98 4,39 5,88 5,73 5,31

7,91 10,91 11,11

9,18 6,39

9,37 12,33

8,21 10,90

8,89 7,52 9,07

0,41 0,15

0,22 0,16 0,38 0,41

0,76

1,14 0,81

0,77

0,62

0,50

0,53

0,83

0,77

0,72 0,52

0,68

0,27 0,30

0,34 1,54

3,45

6,70

8,80

7,45 7,19

4,84

4,65 3,39

6,48 10,94

12,57 12,87

17,69 15,61

-

5,00

10,00

15,00

20,00

25,00

30,00

2008

20

09

2010

20

11

2012

20

13

2014

Jan'1

5Fe

b'15

Mar

'15Ap

r'15

Mei'

15Ju

n'15

Jul'1

5Ag

ust'1

5Se

p'15

Okt'1

5No

p'15

Triliu

n

OUTRIGHT REPO BANK REPO BI

2,68

8,44

(0,88)

17,97

4,22

(19,98)

2,81

(1,76)

10,13

23,98

6,08

(0,37)

4,82

16,49 15,77 16,10

20,15

6,43

14,67 15,95

13,17 12,49

21,34

(19,84)

39,48

6,84

(3,59)

4,10 6,31

23,04

(3,90)

(7,96)

(2,30)

5,39 8,38

-0,08

-0,06

-0,04

-0,02

0

0,02

0,04

0,06

0,08

0,1

(30,00)

(20,00)

(10,00)

0,00

10,00

20,00

30,00

40,00

50,00

Jan-13

Mar

-13Ma

y-13

Jul-13

Sep-13

Nov

-13Jan

-14Ma

r-14

May

-14Jul

-14Sep

-14No

v-14

Jan-15

Mar

-15Ma

y-15

Jul-15

Sep-15

Nov

-15

Capital Inflows [LHS] capital inflows over foreign [RHS]

51Source: Ministry of Finance

(in trillion Rp)

Ownership of IDR Tradable Central Government Securities

`

Banks 217,27 33,88% 265,03 36,63% 299,66 36,73% 335,43 33,70% 375,55 31,04% 372,66 29,95% 369,11 27,21% 413,99 28,79%

Govt Institutions (Bank Indonesia*) 17,42 2,72% 7,84 1,08% 3,07 0,37% 44,44 4,47% 41,63 3,44% 38,37 3,08% 80,58 5,94% 67,09 4,67%

Non-Banks 406,53 63,40% 450,75 62,29% 517,53 63,09% 615,38 61,83% 792,78 65,52% 833,42 66,97% 906,74 66,85% 956,85 66,54%

Mutual Funds 51,16 7,98% 47,22 6,53% 43,19 5,27% 42,50 4,27% 45,79 3,78% 47,16 3,79% 56,28 4,15% 59,47 4,14%

Insurance Company 79,30 12,37% 93,09 12,86% 83,42 10,17% 129,55 13,02% 150,60 12,45% 149,95 12,05% 161,81 11,93% 170,86 11,88%

Foreign Holders 195,76 30,53% 222,86 30,80% 270,52 32,98% 323,83 32,54% 461,35 38,13% 500,83 40,25% 537,53 39,63% 548,52 38,15%

Foreign Govt's&Central Banks** 50,06 6,10% 78,39 7,88% 103,42 8,55% 104,66 8,41% 102,34 7,54% 109,49 7,61%

Pension Fund 36,75 5,73% 34,39 4,75% 56,46 6,88% 39,47 3,97% 43,30 3,58% 43,00 3,46% 46,32 3,42% 48,69 3,39%

Securities Company 0,13 0,02% 0,14 0,02% 0,30 0,04% 0,88 0,09% 0,81 0,07% 0,65 0,05% 0,74 0,05% 0,15 0,01%

Individual 32,48 3,26% 30,41 2,51% 28,35 2,28% 32,23 2,38% 52,40 3,64%

Others 43,43 6,77% 53,05 7,33% 63,64 7,76% 46,68 4,69% 60,51 5,00% 63,49 5,10% 71,82 5,29% 76,76 5,34%

Total 641,21 100% 723,61 100% 820,27 100% 995,25 100% 1.209,96 100% 1.244,45 100% 1.356,43 100% 1.437,93 100%1) Including ownership of SBSN (government sukuk).2) Foreign are consisted of Private Banking, Fund/Asset Management, Securities, Insurance, Pension Fund.3) Others are consisted of Corporation, Individual, Foundation.*) Since February 8th, 2008, repo transaction of Government Securities to Bank Indonesia was included.**) Since November 21, 2014, foreign government(s) was included to the same category as foreign central bank(s).

Dec-13Dec-12Dec-10 Dec-11 Dec-14 Jan-15 Jun-15 Nov-15

Wide Range of Policy Reforms to Boost Economic Growth

52

53

ECONOMIC POLICY PACKAGE 9 SEPTEMBER 2015

To propel the real sector in order to provide the foundation for economic growth

Encourage the competitiveness

of national industry

through deregulation and de-bureaucratization as well as law

enforcement and business certainty

Accelerate the national

strategic projects

through simplification of permits, land provision, accelerate the flow of goods and services, as well as

break down barriers

Boost investment in the property

sector

encourage housing projects, particularly for low-income

earners

• Amended 89 out of 134 regulations• Drafting 2 Presidential Decree, 2

Presidential Instruction, 63 Minister Regulation and 5 other regulations

Economic Policy Package

54

Short Run Policy Package I, II, and III…to navigate uncertain global environment and to stimulate

domestic economic growth

Stimulus Package I: 9 Sep 2015

Cut Red Tapes

Accelerate Strategic National Projects

Boost Low Income Housing

• Rewriting 89 out of 154 regulations• Deregulation policies such as relaxing visa

requirements, gas price adjustment for certain industries and enhancing cooperative function

• Simplification to obtain business licenses and implementation of e-services

• Simplifying spatial license & land accommodation• Accelerating goods & service procurement for the

government• Discretion in legal issue barriers• Strengthen the role of regional heads to accelerate

national strategic project completion

• Promoting housing construction for low income citizens

• Expanding opportunity for investments in property sector

Stimulus Package II: 29 Sep 2015

Simpler Permit Requirements

Tax Incentives

Integrated Logistics Facilities

• Ease bureaucracy for investments via 3-hour permit issuance program

• Faster process for tax allowance and holiday for qualified investments to 25 days and 45 days, respectively

• Streamline permit requirements in forestry sector from 14 to 9

• Elimination of VAT for transport industries (train, shipping and air transport inc. spare parts)

• Reducing tax rate on deposits from export proceeds. 1-month deposit tax 10%, 3-month 7.5%, 6-month 2.5% and more than 6-month 0%

• Facility incentive on integrated logistic center• Two facilities slated to be operational by end of 2015;

Cikarang (Manufacturing) and Merak (Fuels)

54Source: Coordinating Ministry of Economic Affairs

55

Short Run Policy Package I, II, and III…to navigate uncertain global environment and to stimulate

domestic economic growth

55Source: Coordinating Ministry of Economic Affairs

Stimulus Package III: 7 Oct 2015

Lower Fuel and Electricity Prices

• Lower retail fuel costs (jet fuel, LPG and retail fuel)• Decrease gas price for factories and qualified

industries• Lower industrial electricity prices

• 3-hour turnaround for land availability• Faster approval time for building, leasehold, use

right and land permits

Land Permit Simplification for Investment Activities

Broadening of Small Business Credit Recipients

• Expanding criteria for allowed recipients to include salaried workers

Stimulus Package IV: 15 Oct 2015

Fair, Simplified and Projectable Wage System

• Setting Provincial Minimum Wage regulation• Formula for setting minimum wage to ensure simplified,

stable and projectable yearly wage adjustments

• Government provides subsidy on small business credit to stimulate credit growth in banking sector and affordability to applicants

• Expanding criteria for small business credit to include:• Micro, Small and Medium enterprises in productive

sectors (farming, fishery, manufacturing, creative business, trading and services)

• Overseas Indonesian workers with occupation in formal sectors

• Family members of salaried workers• Ex-Overseas Indonesian workers • Overseas Indonesian workers with terminated

contract

Ease and Affordability of Small Business Credit

56

Short Run Policy Package I, II, and III…to navigate uncertain global environment and to stimulate

domestic economic growth

56Source: Coordinating Ministry of Economic Affairs

Lower Asset Revaluation Tax

• Revaluation tax originally set at 10%• Under new incentive, tax rates are cut according to

periods, detailed below:• Revaluation period until 31 Dec 2015: tax rate at 3%• Revaluation period until 30 Jun 2016: tax rate at 4%• Revaluation period until 31 Dec 2016: tax rate at 6%

• Eliminating double taxation system for Real Estate Investment Trusts (REITs)

• Encourage Indonesian property and infrastructure companies to issue REITs in Indonesia

Eliminating Double Taxation for REITs

Propel Rural Economies through Development in Special Economic Zones (SEZs)

• Tax holiday (reduce income tax) and tax allowance (reduce net income and accelerate depreciation.

• No charges on value-added tax and luxury goods tax• Import duty tariff require Certificate of Origin• Foreigners allowed to have property• Reduce tax on development and amusement in tourist areas• Establish wage boards and specialized tripartite agencies• Grant 30 days visitor visa which are extendable for 5 times• SEZ administrator able to provide land services• SEZ administrator able to issue principles and business

permits • Accelerating licensing process a max. of 3 hours

• Drafting government regulations (RPP) on water resources utilization

• Drafting RPP on water supply systems (SPAM)• Ensure that private entities do not dominate the whole SPAM

subsystem• Private water supplier to meet their needs on its own.

Sustainable and Equitable Water Supply to the Community

Simplifying Import Licensing for Pharmaceutical Raw Materials

• Simplifying the licensing process to only 5.7 hours• Target 100% paperless

Stimulus Package VI: 5 Nov 2015Stimulus Package V: 23 Oct 2015

57

Short Run Policy Package I, II, and III…to navigate uncertain global environment and to stimulate

domestic economic growth

57Source: Coordinating Ministry of Economic Affairs

Stimulus Package VII: 4 Dec 2015

Acceleration of Land Certification Process

• Increasing numbers of certified surveyor, especially from non-civil servant.

• Speed up the time needed to land registration announcement, from 60-30 days to 14 days

• Shifting land registration process to electronic system• Giving communal rights for indigeneous peoples and

people who lives in plantation/forest area

• Releasing Government Regulation (PP) which facilitate income tax (PPh) for the labor works in labor intensive industry for 2 years

• Giving tax facilities for various footwear industries throughout provinces in Indonesia

Tax Incentive for Labor Intensive Industry

Stimulus Package VIII: 21 Dec 2015

One Map Policy

• All government office will use only thematic map in 1:50.000 scale in order to accelerate the settlement of land using problem and to solve the country’s borderline problem

• New refinery will be constructed in Tuban and Bontang, to support the existing refinery in Cilacap, Balikpapan, Balongan and Dumai.

Refinery Construction

Incentive for Aircraft Maintenance Companies

• 0% of import duty will be applied for 21 tariff post regarding aircraft sparepart and maintenance components

58

Short Run Policy Package Progress*

PackageTotal Deregulation

Target In Study Process Implemented Remarks

I 154 12 112 78 has been signed, 34 not yet

II 15 - 15 N/A

III 8 7 1 N/A

IV 10 2 8 N/A

V 5 2 8 N/A

VI 5 - 5 N/A

VII N/A N/A N/A N/A

* as of 4 December 2015Source: Coordinating Ministry of Economic Affairs

5959

Stimulus to Enhance Household Purchasing Power• Increase non-taxable income threshold to IDR 36.0 million (~USD 2,570) from IDR 24.3 million (~USD 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 (~USD 286 – 357 million) in additional income and provides additional 800 thousand – 1 million workforce across Indonesia

Source: Ministry of Finance

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 (~USD 714 thousand) for

apartments and IDR 20 billion (~USD 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

Ministry of Finance Policy Package…comprehensive approach across sectors

60

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

01Strengthening inflation control and stimulating the real sector from the supply side.

02Maintaining rupiah exchange rate stabilisation.

03Strengthening liquidity management Rupiah, through Open Market Operations (OMO), in order to divert the daily liquidity to longer tenors

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 of Deposit of 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

Preserving foreign exchange market confidence by controlling currency volatility

Maintaining market confidence in tradeable government securities (SBN) through purchases on the secondary market, while monitoring its impact on SBN availability in terms of inflow and money market liquidity.

Monetary Policy Package: September I 9th September 2015

61

04Strengthening foreign exchange supply and demand management

Adjust the frequency of 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 of foreign currency by verifying the underlying documents from US$ 100,000 to US$ 25,000 per customer per month and requires the use of Tax Identification Number (NPWP)

05Deepening 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 of market development, including the instruments, players and infrastructure.

Expediting the bank foreign debt approval process while adhering to prudential principles

Monetary Policy Package: September I (continued)9th September 2015

62

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 of 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.

Monetary Policy Package: September II30th September 2015

63 63

As part of national efforts to reverse the recent economic slowdown, OJK has issued a series of financial sector policies. Such measures are directed to, among others, to maintain the level of household/private consumption and to support the Government’s infrastructure development.

Banking sector: measure are focused on increasing bank loans to MSMEs and housing financing

– Adjustment of risk weighting for certain types of loans

– Relaxation of requirements for debt restructuring Capital market sector: Measures are focused on

supporting financing for housing and infrastructure, as well as developing SMEs through financing from the capital market

– Development & expansion of investment products

– Development of municipal bonds– Unlocking opportunities for SMEs to go public

NBFI sector: Measures are focused on fostering the growth of multifinance companies and microfinance institutions

– Relaxation of regulations on NPF in multifinance companies

– Development of microfinance institutions– Establishment of a rating agency for MSMEs

Relaxation of regulations on business trust

Preparation of agricultural insurance scheme

Revitalization of venture capital, especially to finance start-up businesses

Establishment of financing industry consortium, especially to provide financing for creative industry, export-oriented businesses, and MSMEs

Empowerment of the Indonesia Export Financing Agency (LPEI)

Implementation of one-project concept in assessing quality of loans

July 2015 October 2015

Encourage individual foreign currency account opening for foreign residents– Opening an account up to

$50,000 only need to present a passport

– Opening an account with over than $50,000 will be subject to simple customer due diligence process - passport and other supporting documents

September 2015

Financial Sector Policy Packages to Boost Growth

Source: Financial Service Authority (OJK)

64

Yuan devaluation

Package I

Package II

Package III

Rupiah Curr (Rp/1US$)

Source: Bloomberg

Composite Index BEI

Source: Bloomberg

Market Participants began to welcome the Indonesian economic recovery efforts in addition to dynamic external conditions

Market’s Positive Signal to Policy Package

64

65

PPP Unit under Ministry of Finance will facilitate project development of PPP projects, by providing facilities such as Project Development Facilities (PDF), technical assistance, arrangement of guarantee with IIGF, and infrastructure

funding with PT SMI and PT IIF. PPP Unit will also help capacity development for PPP and promotion of PPP projects

Minister has approved the establishment of PPP unit, and the funding arrangement with donor and regulatory framework are under progress.

KPPIP (The Committee for Accelerated Infrastructure Delivery) is a central government body that will coordinate the delivery of the government’s priority infrastructure projects, which consists of key government ministries related to

infrastructure delivery, such as the CMEA, MoF, BAPPENAS and the BPN.

KPPIP has established 22 priority projects for 2015 to be implemented.

Establishment of PT SMI (Sarana Multi Infrastruktur), PT IIF (Indonesia Infrastructure Finance) to provide long-term financing

Reform of National Land Agency (BPN), including establishment of special deputy for land acquisition acceleration and dedicated team for priority infrastructure projects, development of SOPs for every BPN activities etc.

To ensure sound implementation, some institutional reforms and new institutions have been established.

National Land Agency (BPN) Reforms

Establishment of PPP unit under MOF

Increased Fiscal Contribution by GoI

through PT SMI, PT IIF, and IIGF

Establishment of KPPIP

The government is also in the process of establishing more institutions to further accelerate infrastructure delivery

INSTITUTIONAL REFORMS

Initiatives to accelerate infrastructure development through reforms (1/2)

66

• The best example of a successful implementation of the law is the city of Bojonegoro, where the civil society was socialized early to the law and where the land appraisal and compensation amount were attractive.

• Outcome: the overall land acquisition process for the Java North Line Double Track Rail project took less than 2 years.

Neutral decision making regarding community rejection

BPN as central agency in implementation of land acquisition

More detailed regulation on implementation of land acquisition

One of the major reforms is the New Land Law No.2/2012:

Law No. 2 /2012 regarding Land Acquisition for Public Interest

Presidential Regulation (PR) no 38/2015 regarding PPP

Presidential Regulation (PR) no 39/2014 regarding the New Negative List of Investment

The new law will ease land acquisition bottlenecks and disputes for infrastructure projects such as road, railway, station, port, airport, etc. The law regulates procedures of land acquisition, funding for land acquisition land appraisal, amount and types of compensations, objections and dispute settlements. The new President Reg. No. 30/2015 stipulates the role of private investors in contributing to land acquisition process.

Government has revised the original regulation on PPP (Presidential Regulation no 67/2005) three times to accommodate more concerns regarding PPP development in Indonesia. For example, the revision accommodates foreign companies/investors in procurement of PPP projects, criteria and compensation for unsolicited project proposal, the need for fiscal support from Ministry of Finance.

Government has revised the previous Negative list of investment to encourage more foreign businesses to take part in infrastructure development. For example, in transport sector, foreign ownership of seaport facility increased from 49% to 95% during PPP concession period. The government also allows 100% foreign ownership of power plant >10MW during PPP concession period (previously 95%).

Better Land Appraisal Team Appointment

Less bureaucratic land right revocation process

Successful case of the implementation of the New Law

New

Law

no

2 / 2

012

REGULATORY REFORMS

Minister of Energy & Mineral Resources Reg. No. 3/2015 regarding Procedure for Power Purchase

This regulation allows for power purchase from mine mouth coal power plant, coal power plants, gas/micro gas power plants, and hydro power plants can be done with direct selection and direct appointment with the purpose to accelerate procurement process.

Initiatives to accelerate infrastructure development through reforms (2/2)

67

8. SHIA Express Railway (Rp 24T)

9. West Semarang Water Supply (Rp 765 M)

10.Balikpapan – Samarinda Toll Road (Rp 11,4T)

11. Manado – Bitung Toll Road (Rp 4,3T)

OBC Develop

ment

Ready for PPP Tender

Permit and Land

Acquisition

Financial Close*

Construction**

1. New oil refinery (Rp 75 -140T)

2. Jakarta Sewerage System Zona 1 (Rp 7T)

3. Airport Revitalization (brownfield)

4. Kuala Tanjung Int. Hub. Seaport (Rp 30T)

5. Bitung Int. Hub. Seaport (Rp 34T)

6. Panimbang – Serang Toll Road

7. Upgrading existing refineries (Cilacap, Dumai, Plaju, Balongan, Balikpapan)

12. HVDC (Rp 20T)

13. Indramayu Power Plant (Rp 20T)

14. Sumatera Transmission (Rp 35T)

15. MRT Jakarta South - North (Rp 25T)

16. Sumsel 9, 10 Power Plants

17. Central and West Java 500 kV Transmission Line

19. 4 sections of Trans Sumatera toll road (Rp 30T)

20.Makassar – Pare Pare Railway (Rp 6,4T)

21.Water to Energy – Development of Hydro Power Plants Karangkates IV&V, Kesamben, and Lodoyo

22.NCICD Phase A (Rp 20T)

18. Sumsel 8 (One package with Sumsel 8, 9, 10 with total investment value of Rp 54T)

19. Batang Power Plant/Central Java Power Plant (Rp 40T), Target: October 2015

22 Priority Projects Within the Pipeline

68

No.PROGRESS

(%)Progress Status

Total Mining Permit

(July 2015)

Total No. of

Smelter

1. 6 – 10 Environmental Impact Analysis (AMDAL)

12 9

2. 11 - 30 Ground Breaking and Initial Construction Plant

18 15

3. 31-50 Mid-Plant Construction Phase

18 13

4. 51-80 Final Phase of Construction

9 9

5. 81-100 On Commissioning / Production Phase

28 25

Total 85 71

1. Processing & refinery facility plan based on progress 2. Processing & refinery facility plan based on commodities

No. CommoditiesTotal

Mining Permit

Total No. of Facilities

1. Nickel 42 35

2. Bauxite 11 6

3. Iron 8 8

4. Mangan 3 3

5. Zircon 13 11

6. Lead and Zinc 4 4

7. Kaolin and Zeolite

4 4

Total 85 71

Note:Total Mining Permit cooperating with smelter companies may change

Mining Sector: Progress of Processing and Refinery Facility (1/3)

69

Nickel Smelter (Operational)

Company Name: Indoferro (Cilegon-Banten)

Iron Smelter (Operational)

Company Name : Delta Prima Steel (Tanah Laut-South Kalimantan)

Steel Smelter (Operational)

Company Name : Krakatau Posco (Cilegon-Banten)

Company Name : Indotama Ferro Alloy (Purwakarta-West Java)

Mangan Smelter (Operational)

Mining Sector: Progress of Processing and Refinery Facility (2/3)

70

Nickel Refining Facility (NPI) Still On Progress

Company Name: Bintang Delapan Group (Morowali-Central Sulawesi)

Mining Sector: Progress of Processing and Refinery Facility (3/3)

71

Cabinet MeetingProgress of 35,000 MW

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

Cabinet Meeting“There’s electricity crisis in Indonesia, requires construction of large capacity plant "

17 Dec ‘14

16 Mar ‘15

4 May ‘15Jan ‘15

Launching 35.000 MW by the President in Goa Beach Sanden DIY.

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

Energy Sector: 35,000 MW Program has been launched