Republic of Indonesia A Resilient and Progressive Economy Book... · About Investor Relations Unit of the Republic of Indonesia ... Tourism & Industry Water Security, ... Boosting

June 2017

Republic of Indonesia

A Resilient and Progressive Economy

1

About Investor Relations Unit of the Republic of Indonesia

Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of

Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian

economic policy and to address concerns of investors, especially financial market investors.

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

International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies,

among others: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of

Trade, Ministry of State Owned Enterprises, Ministry of Energy and Mineral Resources and Financial Services Authority.

IRU also convenes an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct

visit of banks/financial institutions to Bank Indonesia and other relevant government offices.

Published by Investor Relations Unit – Republic of Indonesia

Website: http://www.bi.go.id/en/iru/default.aspx

Contact: Wiwit Widyastuti (International Department - Bank Indonesia, Phone: +6221 2981 8279)

Adrianto (Fiscal Policy Office - Ministry of Finance, Phone: +6221 345 0012)

Farid Arif Wibowo (Directorate General of Budget Financing and Risk Management - Ministry of Finance, Phone: +6221 351 0714)

E-mail: [email protected]

This Presentation Book also can be downloaded from: http://www.bi.go.id/en/iru/presentation/red/Default.aspx

http://www.bi.go.id/en/iru/default.aspx

mailto:[email protected]

http://www.bi.go.id/en/iru/presentation/red/Default.aspx

2

Overview

1

2

3

4

5

6

Institutional and Governance Effectiveness: Accelerated Reforms Agenda with Institutional Improvement

Economic Factor:Strong and Stable Growth Prospects Remain Intact

External Factor: Improved External Resilience

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

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

Progressive Infrastructure Development:Strong Commitment on Acceleration of Infrastructure Provision

Institutional and Government Effectiveness:Accelerated Reforms Agenda with Institutional Improvement

Section 1

4

Positive Global Perception

1. Source: World Bank – Doing Business 2017 Report;2. Source: Transparency International – Corruption Perceptions Index 2016 Report;3. Source: World Economic Forum –The Global Competitiveness Report 2016 – 20174. Source: World Bank

World Governance Indicators4

Ease of Doing Business1

Global Competitiveness Index3

Corruption Perception Index2

Higher rank is better

Higher score is better

41

39

81

57

55

30

45

60

75

90

2009 2010 2011 2012 2013 2014 2015 2016

Indonesia India Brazil Phillipines Turkey

91

130123

99

69

50

70

90

110

130

150

2008 2009 2010 2011 2012 2013 2014 2015 2016

Indonesia India Brazil Philippines Turkey

37

40

35

41

25

30

35

40

45

50

55

2012 2013 2014 2015 2016

Indonesia India Brazil Philippines Turkey

* Both India and Brazil shared the same score (40) in 2016



52

25

4746

38

40

15

25

35

45

55

2010 2011 2012 2013 2014 2015

Voice and Accountability Political Stability/Absence of ViolenceRegulatory Quality Government EffectivenessControl of Corruption Rule of Law

5

Fitch

JCRA

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

BBB- / Positive

Baa3 / Positive

BBB- / Stable

Feb 2017, Baa3, Outlook Revised to Positive

“We changed the outlook on Indonesia's sovereign rating to positive from stable to reflect emerging signs of a reduction in structural constraints, including its level ofexternal vulnerability and the strength of its institutions.“

May 2017, BBB-, Rating Upgraded

“We raising the long-term sovereign credit to BBB- as the Indonesian authorities have taken effective expenditure and revenue measures to stabilize the public finances despite the terms of trade shock.”

Des 2016, BBB-, Outlook Revised to Positive

“Key drivers of the Positive Outlook are the build-up of a track record of macroeconomic stability in the past few years, and a strong structural reform drive since September 2015.”

BBB- / Positive

March 2017, BBB-, Outlook Revised to Positive

“JCR has changed the rating outlook from Stable to Positive, based on the recent improvement on the investment climate promoted by a series of Economic Policy Packages & the containment of private external debt brought by Bank Indonesia’s prudential regulations on external borrowing.”

BBB- / Positive

April 2017, BBB-, Outlook Revised to Positive

“Indonesia's macroeconomics stability has been maintained for several years. Its external position is also improving,. fiscal deficits have been reined in and government debt is low. In light of such factors, coupled with improved policy management, R&I has changed the rating outlook to Positive.’

BBB-

BB+

BB

B+

BB-

Investment Grade Status From Rating Agencies

Below Investment Grade

S&PR&IMoody’s

6

Indonesia Remains the Investment Destination of Choice

1. Source: The Economist – Asia Business Outlook Survey 2017 2. Source: IMF World Economic Outlook, Database April 2017

3. Source: United Nations Conference on Trade and Development (UNCTAD) – World Investment Report 20174. Source: JBIC – Outlook for Japanese Foreign Direct Investment (28th Annual Survey)

Total Inve

stm

ent / G

DP (%)

Indonesia Enjoys Large Investments Relative to Peers within the Region2

JBIC: Amongst ASEAN countries, Indonesia is the most preferred place for business investment (December 2016)4

The Economist: Indonesia among the top 3 destination for attracting investors in Asia (January 2017)1

2.5

3.1

3.5

4.8

6.8

7.2

10.1

10.6

19.3

25.9

29.4

32.7

35.8

42.0

47.6

0 5 10 15 20 25 30 35 40 45 50

Turkey

Korea

Russia

Singapore

Malaysia

Brazil

Myanmar

Philippines

USA

Mexico

Thailand

Vietnam

Indonesia

China

India

% of surveyed who consider each country has promising prospects

18

18.9

21.3

24.8

25.3

26.3

27.7

28.4

33.3

39.4

46.2

53.7

55.7

71.6

0 10 20 30 40 50 60 70 80

Taiwan

Singapore

Japan

Hong Kong

South Korea

Australia

Malaysia

Myanmar

Thailand

Phillipines

Vietnam

Indonesia

India

China

UNCTAD: Indonesia is listed as the top 5 prospective investment destination in the world (June 2017)3

32.75

34.17

25.09

20.55

22.25

27.58

31.42

34.29

26.06

23.60

22.01

26.58

31.43

34.30

25.48

25.41

24.30

27.18

0

5

10

15

20

25

30

35

40

India Indonesia Malaysia Philippines Thailand Vietnam

2015 2016 2017*

* 2017 estimation

3444

56

777

91111

2036

40

0 10 20 30 40 50

Australia (13)

Canada (18)

Singapura (18)

Vietnam (14)

Spain (25)

Philippines (9)

Mexico (7)

Germany (5)

United Kingdom (4)

Brazil (7)

Thailand (14)

Indonesia (8)

India (3)

China (2)

United States (1)

% of executives responding(x) = 2016 ranking

7

National Strategic Development Plan (Nawa Cita)

Human Development

Education

Health

Housing

Character

Priority Sector Development

Food Security

Energy & Electrical Security

Maritime & Marine

Tourism & Industry

Water Security, Basic Infrastructure & Connectivity

Equitable Development

Inter- Income Group

Inter-Region:

(1) Rural Area,

(2) Periphery,

(3) Outside Java,

(4) Eastern Area.

Security & Order Politic & Democracy Governance

The 3 Dimensions on Economic Development

Necessary Condition

Legal Certainty & Law Enforcement

8

The Economic Policy Packages

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

Phase III (7 Oct ’15)Boosting investment, spurring exports, and maintaining people‘s purchasing power

Phase IV (15 Oct ’15)Simplifying wage formula and expanding loans for small business

Phase V (22 Oct ’15)Improving industry and investment climate through tax incentives and deregulation on sharia banking

Harmonizing Regulations Simplifying Bureaucratic Process Ensuring Law Enforceability

Phase VI (5 Nov ’15)Stimulating economic activities in border areas and facilitating strategic commodities availability

Phase I (9 Sept ’15)Improving national industry competitiveness

Phase II (29 Sept ’15)Easing permit requirement and simplifying export proceeds requirement

Phase VII (7 Dec ’15)Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land certification process for individuals

Phase VIII (21 Dec ’15)Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation

industries

Phase IX (27 Jan ’16)Accelerating electricity generation, stabilizing meat prices

and improving rural–urban logistics sector

Phase X (11 Feb ’16)Revising the Negative investment List and

improving protection for SMEs

Phase XI (29 Mar ’16)Stimulating national economy through facilitation to

SMEs and industries

Phase XII (28 Apr’16)Improving Indonesia’s rank on Ease of Doing Business (EODB)

Phase XIII (24 Aug ’16)Low Cost Housing for Low-Income Communities

Phase XIV (10 Nov ’16)Roadmap for E-commerce

Source: Coordinating Ministry for Economic Affairs

Phase XV (15 Jun ’17)Development of Business and Competitiveness

of National Logistics Service Providers

9

Thematic Policy Issues on Deregulation

Next Phase of Policy Packages based on Sectoral and Thematic Issues

Six policy issues under Packages I-XIV:

improvement of

industry competitiveness

improvement of

society’spurchasing power

widening of

investment

expansion of

export

efficiency of

logistics sector

improvement of

tourism sector

Education and Vocational Training

Logistics Agrarian reform Energy

Industry, Manufacture, Tourism, Fishery & Service

sectorFood

Invention, Innovation and Creative Economy


10

Progress of the Economic Policy Packages*

Initially, there are 215 regulations which need to be deregulated

As of February 6nd, 2017, deregulation of 203 regulationsare finished (99%), comprising 49 regulations atPresidential level and 154 regulations atMinistrial/Institutional level

Unfinished regulations: Proposed Policy on E-commerceRoadmap

I–XII

203SET 99%

11REVOKEDREGULATIONS

1ON GOINGDISCUSSION 1%

154TOTAL 154

MINISTRIAL/INSTITUTIONAL LEVEL

100%

47 42SELESAI

PRESIDENTIAL50TOTAL 49 FINISHED

PRESIDENTIAL LEVEL

99%

I–XIV

FINISHED

I–XII215TOTAL INITIALREGULATIONS I–XIV

I–XII204TOTALREGULATIONS I–XIV

Based on the further assessment, 11 regulations has been revoked from deregulation process

Total regulation subject to be deregulated: 204 regulations


*as of February, 2017

11

Economic Equalization Policy


The Economic Equalization Policy announced in April 2017 embodies national economic transformation to successfully overcome the middle income trap and achieve the status of a developed country in the long-term

Land

Social Forestry The Ministry of Environment and Forestry (KLHK) will distribute access to social forest management covering an area of

211,522 ha for 48,911 families with total permits of 134 Initial focus will be on 11 villages with a total area of 15.576 ha for 9,411 households

Agrarian Reform and Transmigration Land Legalization

Transmigration land of 220,000 ha and 3,800 ha under the National Agrarian Operation Project (PRONA) is ready to be legalized from a total of 4.5 million ha, while 23,000 ha of displaced land and 707,000 ha of forest disposal are also ready to be redistributed from a total of 4.5 million ha

The Land Object of Agrarian Reform (TORA) will be expanded to several provinces, including Banten, West Java, Central Java, Riau, West Kalimantan, West Sumatra, North Sumatra, and Maluku

Affordable Housing for the Urban Poor

Committed to housing development within urban areas that are well connected to the center of activity, economic resources and public transportation for the urban poor

Core housing policies, among others, include provision of land for affordable housing (land availability), implementation of Housing Scheme for MBR (social housing), and the Housing Financing Scheme

Three Key Pillars and “Quick Win” Programs

Oppor

-tunity Targeted

Developmentof Key Sectors

Focused on addressing issues related to the tax system, development of manufacturing and IT industries and retail sector

Improve the competitiveness of the retail sector and strengthen synergies between traditional and modern retail

Human C

apital

Vocational Training and Labour Markets

Vocational and labor policies structured for capacity building of human resources, especially to align with industry needs and to support government priority programs

Policy steps will be taken by the government to draft and improve on the road map for vocational education and training, through reclassification and prioritization of business fields and positions

Job matching program that will focus on strengthening vocational programs for industries

Vocational schemes in place for the automotive, tourism and transportation sectors

12

Other Progress on Economic Policy Packages

14 Provinces have set 2016 Minimum WageSystem in accordance to the GovernmentRegulation (GR) No. 78/2015 (KepulauanRiau, Kalimantan Barat, Nusa TenggaraBarat, Sumatera Barat, Jambi, Aceh,Kalimantan Selatan, Banten, Gorontalo,Nusa Tenggara Timur, Jawa Barat, Bali,Sumatera Utara, and Bangka Belitung)

Fair, Simplified & Projectable Wage System

State-owned train manufacturer PT IndustriKereta Api (INKA) in Madiun, East Java, hasbegun its first passenger train exports byshipping 15 train wagon to Bangladesh.

Export-Oriented Business Credit (KURBE)

Development of Spesial Economic Zone (SEZ)

• Total value of facilities and incentives forSEZs amounted IDR 33.8 trillion (as ofSeptember 2016)

• 18 companies benefitted from thesimplification of fiscal incentive processwith average processing time of 13.4days (previously 2 years)

• North Sulawesi has sucessfully exportedcoconut product through SOEs’ jointprogram

• 30 Bonded Logistic Center has beenlaunched to support various industries

Deregulation on Logistics Sector

13

Improving Investment Climate…implement 3-hour investment licensing service to complement the One Stop Service (OSS)

BKPM

• Arrive at OSS at BKPM directly from the airport

• Consult with Director of Investment Service

• Submit the required documents & data

Requirement for utilizing 3-hour Investment Lisencing Service:

No requirements for investment in infrastructure sector

9 documents obtained

Wait at the lounge while documents are processed by BKPM, in-house notary, ministries, & other government institutions

Obtain eight documents & letter of land availability within three hours to start the business

• RPTKA/Employment plan• IMTA/Working permit

• Investment license• Certificate of incorporation• NPWP/Tax Registration Number• TDP/Company Registration

• APIP/Import identification• NIK/Customs registration

• Letter of land availability

Certainty to start a business

Certainty to Import capital goods

Certainty to work Accurate land information

1. Minimum investment of IDR 100 billion (USD 8 million) and/or employing 1,000 local workers.

2. Application must be submitted directly by at least one candidate of the proposed company stakeholder

2 documents needed

• ID Card• And/or Deed of Establishment (Indonesian company) orArticle of Association (Foreign company)

• Containing workflow from raw material production to thefinished products

Investor identitiy as the prospective shareholders

Flowchart of business activities workflow

Source: Investment Coordinating Board (BKPM)

Until March 2017, 313 projects* have utilized the “3 hours services”

* Including 12 projects in EMR sector

14

Improving Investment Climate…implement 3-hour investment licensing service for Energy and Mineral Resources Sector

Director arrives at central OSS, then submit required documents*

Waiting in priority lounge, while the documents processed

1 2 3

Applicant receive the requested licensing products

Note *: ESDM3J service is given if the company has fulfilled the checklist of administrative & technical requirements as regulated on MEMR Ministrial Decree No.15 of 2016

9 Types of licensing issued by ESDM3J service

No. Type of Licensing Duration for reguler service (work days)

1 Temporary Business License for Electricity

20

2 Temporary Business License for Oil/Fuel/LPG storage

32

3 Temporary Business License for Storage of Processed Products/CNG

32/40

4 Temporary Business License for LNG Storage

32

5 Temporary Business License for Oil Refinery

32

6 Temporary Business License for Processing Oil Residue Industry

32

7 Temporary Business License for Natural Gas Processing

32

8 Temporary Business License for General Trade of Oil/Fuel

40

9 Temporary Business License for General Trade of Processed Product

40


Until March 2017, 12 projects have utilized the 3 hours services for EMR Sector

15

Improving Investment Climate…implement Direct Construction Permit to attract investment in Industrial Estates

Direct Construction (KLIK)

No Requirements• No minimum investments or workers is

required. • Available for 32 selected industrial estates.• Construction permits can be obtained in

parallel with construction process.

Investors can directly start their project construction beforeobtaining construction permits. This service is supported byboth Central and Regional Governments which become thefirst step to synergize between central and local licensing

Obtain investment licence at OSS at national or regional level.

• Survey a land within selected industrial estates.

• Acquire the land for your industry.

• Start the construction of your project. No other permits are required.

• Apply for building construction permit & environmental permit, in parallel with construction process.

Priority Investment Service

Until March 2017, 85 projects have utilized the “KLIK services”


16

Improving Investment Climate…Direct Construction Permit is expanded to 32 Industrial Estates (IE) throughout Indonesia

1

Banten(3 IE; 3,150 ha)

1. Modern Cikande Industrial Estate/MCIE (1,800 ha)

2. Wilmar Integrated Industrial Park/WIIP (800 ha)

3. Krakatau Industrial Estate Cilegon/KIEC (570 ha)

West Java (5 IE; 1.151 ha)

1. Bekasi Fajar Industrial Estate/BFIE (300 ha)

2. Delta Silicon 8 (158 ha)3. Karawang Internasional

Industrial City/KIIC (293 ha)

4. Suryacipta City of Industry/SCI (300 ha)

5. GT Tech Park @ Karawang (100 ha)

Central Java (3 IE; 840 ha)

1. Kendal Industrial Park/KIP (700 ha)

2. Bukit Semarang Baru/BSB (40 ha)

3. Wijayakusuma Industrial Estate/KIW (100 ha)

East Java (1 IE; 1,761 ha)

KI Java Integrated Industrialand Port Estate/JIIPE(1,761 ha)

North Sumatera (1 IE; 100 ha)

Medan Industrial Estate/KIM(100 ha)

South Sulawesi (1 IE; 3,000 ha)

Bantaeng Industrial Park/BIP(3,000 ha)

KLIK 1st Stage (14 IE)

KLIK 2nd Stage (18 IE)

1

2 3 45

63

56

7

1

2

3

4

5

6

East Java(2 IE; 341 ha)

1. IE Maspion (151 ha)2. IE Tuban (190 ha)

East Kalimantan(1 KI;133.8 ha)

IE Kariangau (133.8 ha)

Riau Island(5 IE; 556 ha)

1. Batamindo Industrial Park (61.4 ha)

2. Bintang Industrial Park II (20 ha)

3. Kabil Integrated Industrial Estate(142.5 ha)

4. Bintan Inti Industrial Estate (229.6 ha)

5. West Point Maritim Industrial Park (102.5 ha)

West Java(6 IE; 1,814.1 ha)

1. Artha Industrial Hill(315.1 ha)

2. Greenland International Industrial Center(GIIC)/Deltamas (400 ha)

3. Jababeka Tahap III(45 ha)

4. Kota Bukit Indah Ind. City (510 ha)

5. Indotaisei Kota Bukit Indah (300 ha)

6. Marunda Center (300 ha)

Central Java(1 IE; 285.7 ha)

IE Demak (285.7 ha)

2

1

Riau(1 IE; 198.9 ha)

IE Dumai (198.9 ha)

2

4

DKI Jakarta(2 IE; 129 ha)

1. Kawasan Berikat Nusantara/KBN (118.6 ha)

2. Jakarta Industrial Estate Pulagadung/JIEP (10.4 ha)

3

6

4

7

5


17

(Pusat Logistik Berikat/PLB) is afacility provided by Ministry ofFinance as part of theimplementation of the2nd Economic Policy Package.

PLB facility aims to improveefficiency and reduce the cost oftransportation and logistics inIndonesia; support the growth ofthe domestic industry, includingsmall and mediumindustries; increaseinvestment; and to makeIndonesia to become a logisticshub in Asia Pacific.

To date, 30 Bonded Logistic Center has beenlaunched to support various industries.

Improving Investment Climate…Bonded Logistic Center to Improve Indonesia’s Competitiveness

Oil and gas, and mining industry

Food & beverages industry

Auto-motive industry

Personal care/

home care industry

Textile (cotton) industry.

Small and medium industry

Synthetictextile

(chemical substances) industry.

Bonded Logistic Center

18

Improving Investment Climate …revising the Negative Investment List

1 For total project value of IDR10bn and above

Before

Cold storage Restaurants, Bars Pharmaceutical Raw Materials Manufacturing

Sports Center,Film Processing Lab, Crumb Rubber

Revision of "Partnership" category to refer to partnership with Micro, Small and Medium Enterprises

(MSMEs)

Grandfather Law: If a particular sector is tightened in future, existing foreign investor does not need to

comply with tighter stake

Key Reforms in Negative Foreign Investment List

Strengthen implementation of negative investment law through

active roles from ministries, agencies and regional governments

100% 49% 100%51%

100% 85% 100%

95%100%

33%67%

51%67%

67%55%

67%65%

67%

Distribution, Warehousing Private Museum, Catering, apparel Manufacturing, Exhibitions &

Conventions

Toll Road Operator, Telecommunication Testing Company

Consultancy for Construction1Telecommunication Provider with Integrated Services

Professional Training, Golf Course Management, Air Transport Support Services,

Travel Bureau

After Before After Before After Before After

Before After Before After Before After

Before After Before After Before After

33%

49%

Introduction of New Foreign Ownership Regulation for Strategic Sectors


19

Improving Investment Climate …improving Indonesia’s Rank on Ease of Doing Business (EODB)*

EODB 2017 Rank

EODB 2016 Rank

Change in Rank

EODB 2017 Points

EODB 2016 Points

Change in Points

Overall 91 106 15 61.52 58.51 3.01

Starting a business 151 167 16 76.43 67.51 8.92

Dealing with Construction Permit 116 113 3 65.73 65.26 0.47

Getting Electricity 49 61 12 80.92 77.60 3.32

Registering Property 118 123 5 55.72 53.24 2.48

Getting Credit 62 70 8 60.00 55.00 5.00

Protecting Minority Investors 70 69 1 56.67 56.67 0

Paying Taxes 104 115 11 69.25 64.47 4.78

Trading Across Borders 108 113 5 65.87 63.53 2.34

Enforcing Contracts 166 171 5 38.15 35.37 2.78

Resolving Insolvency 76 74 2 46.46 46.48 0.02

- Government efforts to boost business growth through deregulations and de-bureaucratization have been recognized by the improvement of EODB- Structural reforms will continue including in the budget and real sectors

Source: World Bank

* Higher rank is better, EoDB 2017 was published in October 2016

20

Improving Investment Realization (Q1-2017)

IDR tn

165.8

2013 2014 2015

Rising Direct Investments1

2016

Mining

Wood Industry

Non MetallicMineral IndustryMetal, Machinery &

Electronic Industry

US$11.9 mn

US$231.9 mn

US$255.2 mn

US$1,165.4 mn

US$838.3 mn

US$476.3 mn

Food Industry

1.6%

US$166.6 mn

61.1%

20.3%

515.9%

47.9%

43.4%

11.9%

Investment Realization

Textile Industry

US$2108.3 mn

30.2%

68.8

97.0

FDI Realization by Sectors

Source: Investment Coordinating Board (BKPM), compared to Q1-2016 period

0

20

40

60

80

100

120

140

160

180

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

FDI DDI TOTAL

2017

Rp145.4 T

Rp159.4 T

IDR96.1tnIDR97.0tn

IDR36.4tn

434,463

9.6% 15.6%

0.9% 36.4%

Q1-2016 Q1-2017

Q1-2016 Q1-2017

Q1-2016Q1-2017

Q1-2016 Q1-2017

*

* person

375,982IDR146.5tn

IDR165.8tn

13.2%Q1-2016 Q1-2017

IDR68.8tn

Trade & Reparation

Non MetallicMineral Industry

Economic Factor:Strong and Stable Growth Prospects Remain Intact

Section 2

22

Conducive Environment Underpinning Strong Growth Fundamentals

Largest Economy in South East

Asia

4th Most Populous country

in the World; 64% in

productive age

Manageable Inflation Rate

Growing Middle Income Class

From commodity-based to manufacturing and service sectors via infrastructure

development

From consumption-led to investment-led growth via a stronger manufacturing sector

and more investment initiatives

Policies to maintain purchasing power to stimulate domestic economy in the midst of weakening macroeconomic conditions

Budget reform as a part of larger economic reform

initiative

Tax base to be broadened from

one reduce dependency on commodities

Fuel subsidies significantly reduced and

spending redirected to more productive

allocation

Prudent debt management

Reform-Oriented Administration

Three main sources of financing for investment needs: State and regional

budget, State Owned Enterprises and PPP

Continuing from 2015 policy, infrastructurewill be higher than fuel subsidy

Fiscal and non-fiscal incentives to attract infrastructure investment and promote PPP

Infrastructure spending focused on basic infrastructure projects

Large and Stable

Economy

Consistent Budget Reform

New Economic Structure

High Infrastructure Investments

23

Indonesia’s Strong GDP

Growth ProspectGDP Growth Based on Expenditures (%, YoY)1

Strong GDP Growth1

By expenditure2014 2015 2016 2017

Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1

HH. consumption 5.2 5.2 5.1 5.1 5.1 5.0 5.0 5.0 4.9 5.0 5.0 5.1 5.0 5.0 5.0 4.9

Non profit HH. consumption

23.2 22.4 5.8 (0.5) 12.2 (8.1) (8.0) 6.6 8.3 (0.6) 6.4 6.7 6.6 6.7 6.6 8.0

Government consumption

6.1 (1.8) 1.2 0.9 1.2 2.9 2.6 7.1 7.1 5.3 3.4 6.2 (2.9) (4.0) (0.1) 2.7

Gross Fixed Cap. Formation

5.4 4.0 4.4 4.1 4.4 4.6 4.0 4.9 6.4 5.0 4.7 4.2 4.2 4.8 4.5 4.8

Exports 3.1 1.5 4.9 (4.4) 1.1 (0.7) (0.3) (0.9) (6.4) (2.1) (3.3) (2.2) (5.6) 4.2 (1.7) 8.0

Imports 5.1 0.4 0.2 3.0 2.1 (2.6) (7.4) (6.6) (8.7) (6.4) (5.1) (3.2) (3.7) 2.8 (2.3) 5.0

GDP 5.1 4.9 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0

%

Institutions2017 GDP growth

(%YoY)

2017 Budget 5.1

Bank Indonesia 5.0-5.4

IMF 5.1

World Bank 5.2

ADB 5.1

Consensus Forecast (June 2017) 5.2

Favourable GDP Growth Compared to Peers2

1. Source: Central Bureau of Statistics of Indonesia (BPS)2. Source: World Economic Outlook Database - April 2017; * indicates estimated figure

%QoQ YoY

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

2012 2013 2014 2015 2016 2017* 2018*

Brazil India Indonesia Malaysia

Philippines Singapore Thailand Turkey

0.04

3.83 3.27

(2.07)

(0.17)

3.75 3.30

(1.70)

(0.40)

4.01 3.13

(1.77) (0.34)

5.12 4.94 4.93 5.05 4.82 4.74 4.77 5.17 4.92 5.18 5.01 4.94 5.01

-3.0

-1.0

1.0

3.0

5.0

7.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2014 2015 2016 2017

24

Strong and Stable GDP Performance

Contributors to GDP Growth by Sector (%, YoY)

Spatial GDP Growth

By sectors2014 2015 2016 2017

Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1

Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 3.8 6.5 2.9 1.6 3.8 1.5 3.4 3.0 5.3 3.3 7.1

Mining (1.2) 0.7 0.7 1.5 0.4 0.6 (3.6) (4.4) (6.0) (3.4) 1.2 1.2 0.3 1.6 1.1 (0.5)

Industrial processing 4.5 4.9 5.0 4.2 4.6 4.1 4.2 4.6 4.4 4.3 4.7 4.6 4.5 3.4 4.3 4.2

Construction 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 7.1 6.4 6.8 5.1 5.0 4.2 5.2 6.3

Big traders, wholesale, retail 6.1 5.1 5.2 4.4 5.2 3.8 1.6 1.4 3.7 2.6 4.1 4.1 3.6 3.9 3.9 4.8

Transportation and warehousing 7.0 7.6 7.7 7.2 7.4 5.8 5.9 7.3 7.7 6.7 7.9 6.9 8.3 7.9 7.7 7.6

Information and communication 9.9 10.7 9.8 10.1 10.1 9.7 9.3 10.6 9.2 9.7 7.6 9.3 9.0 9.6 8.9 9.1

Financial service and insurance 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.4 12.8 8.6 9.3 13.6 9.0 4.2 8.9 5.7

Other Services 8.4 9.5 9.5 8.4 8.9 8.0 8.1 8.1 8.2 8.1 7.9 7.9 7.7 7.7 7.8 8.0

GDP 5.1 4.9 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0

Java: 58.5%

Sumatera: 22.0%

Maluku & Papua: 2.5%

Sulawesi: 5.9%

Kalimantan: 8.3%

Bali & Nusa Tenggara: 3.0%

Spatial GDP Growth Contribution

SumateraGDP GrowthQ1 2017: 4.1%

JavaGDP GrowthQ1 2017: 5.7%

KalimantanGDP GrowthQ1 2017:4.9% Sulawesi

GDP GrowthQ1 2017:6.9%

Maluku & PapuaGDP GrowthQ1 2017: 4.2%

Bali & Nusa TenggaraGDP GrowthQ1 2017: 2.4%

External Factor:Improved External Resilience

Section 3

26

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5

2012 2013 2014 2015 2016 2017

Non-OG OG Total

A Narrower, Structurally-Stronger Current Account Deficit

Improving Current Account DeficitStrong Balance of Payments

Supported by Substantial FX Reserves to Mitigate External ChallengesTrade Balance Surplus Continues

Source: Bank IndonesiaSource: Bank Indonesia

US$bn US$bn 2015:CA Deficit(US$17.5bn)

2012:CA Deficit(US$24.4bn)



US$bn

(7.5)

(1.4)

5.7

0.8

(2.4)

Source: Bank Indonesia

FX Reserves as of May 2017: US$124.9bn (Equiv. to 8.6 months of imports + servicing of government debt)

MonthUS$bn

2016*:CA Deficit(US$16.9bn)

Source: BPS

* Preliminary Figure ** Very Preliminary Figure

1.03

0.47

(0.55)

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

0

40

80

120

160

-20

-10

0

10

20

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1*

2012 2013 2014 2015 2016* 2017**

Current Account Capital & Financial Account

Overall Balance Reserve Assets (RHS) -12

-8

-4

0

4

8

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1*

2012 2013 2014 2015 2016* 2017**

Goods Service Income Secondary Inc. Current Account

121.8

7.9

4.5

(2.4)

US$bn 2015:Surplus

US$7.59bn

2012:Deficit

(US$1.79bn)

2013:Deficit

(US$4.10bn)

2014:Deficit

(US$2.37bn)

2016: Surplus

US$8.83bn

2017: Surplus

US$5.89bn*

-

3

6

9

12

15

-

20

40

60

80

100

120

140

1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5

2012 2013 2014 2015 2016 2017

27

13,018

13,315

13,412

13,247

13,36113,338

13,348

13,34513,32113,304

13,312

13,323

12,900

13,000

13,100

13,200

13,300

13,400

13,500

13,600

1-O

ct

12-O

ct

23-O

ct

3-N

ov

14-N

ov

25-N

ov

6-D

ec

17-D

ec

28-D

ec

8-Jan

19-Jan

30-Jan

10-Feb

21-Feb

4-M

ar

15-M

ar

26-M

ar

6-Apr

17-Apr

28-Apr

9-M

ay

20-M

ay

31-M

ay

IDR / USD Monthly Average Quarterly Average

Exchange Rate In Line with Fundamentals

Stable Movement of Rupiah

Point-to-point, the rupiah strengthened 0.05%(ptp) to close at a level of Rp13,323/USD. Therupiah stability is supported by large foreigncapital inflows and a deeper financial market inIndonesia. Looking forward, foreign capitalinflows, both in FDI and portfolio investment, areexpected to continue along with governmentstructural reform and investor confidence in thenational economic outlook.

Rupiah Exchange Rate Fared Relatively Well Compared to Peers


IDR/US$

*data as of May 31st, 2017

YTD 2017* vs 2016 May vs Apr 2017

*data as of May 31st, 2017 *data as of May 31st, 2017% %3.23

2.56

2.08

1.80

0.56

0.32

0.14

0.09

0.05

-0.03

-0.13

-1.68

-2.18

2.84

0.61

1.39

2.24

1.61

1.04

-0.41

1.11

1.60

0.57

0.05

0.62

-1.56

-3.00 -2.00 -1.00 0.00 1.00 2.00 3.00 4.00

EUR

TRY

MYR

ZAR

KRW

SGD

INR

CNY

THB

PHP

IDR

JPY

BRL

Point to Point Average

10.65

10.40

1.74

1.40

1.18

-0.23

-3.02

-4.89

-6.04

-17.41

5.07

0.87

5.30

7.70

5.25

1.13

6.21

-0.44

4.79

-0.18

-20.00 -15.00 -10.00 -5.00 0.00 5.00 10.00 15.00

ZAR

BRL

INR

KRW

THB

IDR

EUR

PHP

MYR

TRY

Average Point to Point

28

Ample Lines of Defense Against External Shocks

Ample level of FX reserves to buffer against external shock

FX Reserves as of May 2017: US$124.95 billion

South Korea Renewed a 3 year KRW/IDR swap arrangement with the size of up to 10.7 tn KRW/IDR115 tn in March 2017

Australia Established a 3 year A$/IDR swap arrangement with the size of up to A$10 bn or IDR100 tn in Dec. 2015

Chiang Mai Initiative

Multilateralization (CMIM)

Agreement

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

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

Doubled to US$240 bn effective July 2014

Japan US$22.76 billion swap line with Japan currently in place

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

IMF Global Financial Safety

Net - GSFN

Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem

Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL)

Bilateral

Regional

Global

FX Reserve

Ample Reserves

Swap Arrangement


29

Measures to Manage External Volatility

Pre-emptive Measures

Implementing Crisis Management Protocol (CMP)

Implementing Bond Stabilization Framework (BSF)

Enhancing coordination between government institutions and continuous dialogue with market participants

Specific policies in place to address crises enacted in 2017 budget law

Swap facility arrangements based on international cooperation

Crisis Management Protocol

Indicators to determine crisis level of Government Securities Market condition (normal, aware, alert, crisis)

Several market indicators that are monitored daily:

- Yield of benchmark series;- Exchange rate;- Jakarta Composite Index;- Foreign ownership in government securities

Policies to address the crisis at every level :

‐ Repurchase the government securities at secondary market

‐ Postpone or stop the issuance

First Line of Defense

State’s Budget

Buyback fund at DG of Budget Financing and Risk Management

Investment fund at Public Service Agency (BLU) (min. level Aware)

State Owned Enterprises’s Budget

Related SoE (min. level Aware)

Social Security Organizing Agency (BPJS)’s Budget

BPJS (min. level Aware)

Second Line of Defense

State’s Budget

State General Treasury Account (Rekening KUN) (min. level Alert)

Accumulated cash surplus (SAL) (min. Level Crisis)

State Owned Enterprises’s Budget

Related SoE (min. level Alert)

Social Security Organizing Agency (BPJS)’s Budget

BPJS (min. level Alert)

Bond Stabilization Framework

Source: Ministry of Finance

30

2,182

263(89.2%)(10.8%)

Q4-2016 (Total = 2,445)

2,283

162(93.4%)

(6.6%)

Q4-2016 (Total = 2,445)

0

50

100

150

200

250

300

350

0

50

100

150

200

250

300

2012 2014 Jan

2016*

Mar

2016*

May

2016*

Jul

2016*

Sep

2016*

Nov

2016*

Jan

2017*

Mar

2017*

Public (Govt. & BI) Private Total (RHS)

Strengthened Private External Debt Risk Management

(US$bn)

Source: External Debt Statistics of Indonesia, June 2017 Source: Moody’s Statistical Handbook, May 2017

Regulation Key PointsPhase 1

Jan 1,2015 –Dec 31,2015

Phase 2Jan 1,2016 –Dec 31,2016

Phase 3Jan 1, 2017 and beyond

Object of Regulation Governs all Foreign Currency Debt

Hedging Ratio

< 3 months 20%* 25%**

> 3 – 6 months 20%* 25%**

Liquidity Ratio ( < 3 months) 50% 70%

Credit Rating Not applicable Minimum rating of BB-

Hedging transaction to meet hedge ratio

not necessarily be done with a bank in Indonesia

Must be done with a bank in

Indonesia

Sanction As of Q IV-2015 Applied

External Debt / GDP (%)(US$bn)

Debt Burden Indicator (External Debt / GDP) Remains Comparable to PeersDespite Increasing Trend of External Debt

Encouraging Corporates Compliance

(%)

> 3 – 6 months< 3 months

Total Ext. Debt: US$328bn

Private Sector Ext. Debt:US$160bn


0 5 10 15 20 25 30 35 40 45 50

India

Philippines

Thailand

Indonesia

Brazil

Turkey

2016 2015

31

Manageable External Debt Profile...short term non-bank corporate debt (non affiliation) represents only 8.5% of total private external debt

Private

Short-Term1

Private Non-Bank

External DebtPosition

Affiliation

Non Affiliation

US$116.4bnor

72.6%of Private Ext.

Debt

US$19.6bnor

12.2%of Private Ext. Debt

US$10.6bnor


US$13.7bnor


Public Long Term 1 Private Bank

US$24.2bnor


US$160.3bnor

48.8%of total Ext. Debt

US$43.9bnor


External Debt Position as of April 20171 Based on remaining maturity

Source: External Debt Statistics of Indonesia, June 2017

US$328.2bn

US$167.9bnor

51.2%of Total Ext.

Debt

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

Section 4

33

Integrated Reform to Provide Higher Quality of Economic Growth...synergy between authorities to drive economy navigating the challenges

• Productive and realistic budget• Credible budget execution

• Policy to maintain consumption and improve investment climate

• Economic policy packages

• Inflation management • Monetary policy to ensure

macroeconomic and financial system stability

• Macro-prudential policies

Fiscal

Real SectorMonetary & Financial Sector

Synergy in reform to boost the more sustainable

and inclusive growth


34

Long Term Strategies to Achieve Sustainable Growth…stimuli to maintain purchasing power

Consumption is still the largest contributor to Indonesia’s

GDP

Private consumption has been a key factor driving

Indonesia’s economic growth in recent years

The government has designed stimulus program to

maintain and enhance purchasing power for households

The government has increased non-taxable income level

and adjusted wage policy to ensure that the lowest

income bracket has the greatest support

Funds are targeted at not only to improve basic village

infrastructure but also to create jobs through labor

intensive projects as well as other job creation programs

u

Fuel price and electricity adjustment

Predictable labourwages

Boosting housing

development

Elimination of luxury goods tax for consumer

goods

2 months addition of rice subsidy program

Rural transfer for productive spending

Ease of land certification and licensing for street vendors

Maintaining Purchasing

Power

Increase non-taxable income limit

Stabilized price for meat

products

The Virtuous Cycle of Purchasing Power Stimuli

35

Long Term Strategies to Achieve Sustainable Growth…stimuli to promote investments

Licensing Incentives Tax Incentives Other IncentivesBusiness and Infrastructure Incentives

Tax incentives on property

Special economic zones

Relaxation of negative foreign investment list

Integratedlogistics zones

CPOfund

Support forexport-oriented

industries

Village-citylogistics

improvement

Accelerationof power

infrastructure

Income tax relief for labor intensive industries

Permit & licensing

simplfication

One map policy

Incentives forfootwear and

apparel industries

Simplification ofimport licensing fordrugs and raw food

Acceleratinginfrastructuredevelopment

Water management

and regulation

Tax incentives for REITS

Relaxation of entry visa policies

Expansion of coverage and

interest subsidy for MSME

Dwelling timeoptimization

Oil refinerydevelopment

Aviationsector

incentives

Downstreamindustries

Debt Toequity ratio

http://www.freepik.com/free-photos-vectors/cargo

36

Building a Credible and Realistic Budget…providing more certainty to all stakeholders

1: Unaudited Source: Ministry of Finance

INDICATOR2016 2017

Realization1 APBN

Economic growth (%, yoy) 5.0 5.1

Inflation (%, yoy) 3.0 4.0

3-Month Treasury Bill (SPN) (%) 5.7 5.3

Exchange Rate (Rp/US$) 13,305 13,300

ICP (US$/barrel) 40 45

Oil Production (thousand barrel/day) 829 815

Gas Production (thousand barrel oil equivalent/day) 1,184 1,150

• Credible and realistic budget with 2016 outlook numberused as a base for formulating the 2017 State Budget

• Tax revenue grew 3.5%, between 2015 and 2016, whichincludes the contribution of IDR 109.5 trillion from taxamnesty

• Improved efficiency in government expenditure

• Discipline in managing budget deficit

Description (IDR Trillion)

2016 2017

RevisedBudget

Outlook Realization1% realization to revised budget

% realization to outlook

State budget% growth of

2017 budget to 2016 realization

A. Revenues and grants 1,786.2 1,582.9 1,555.2 87.1% 98.3% 1,750.3 12.5%

I. Domestic revenue 1,784.2 1,580.9 1,547.0 86.7% 97.9% 1,748.9 13.1%

1. Tax revenue 1,539.2 1,320.2 1,284.9 83.5% 97.3% 1,498.9 16.7%

2. Non tax revenue 245.1 260.7 262.0 106.9% 100.5% 250.0 -4.6%

II. Grants 2.0 2.0 8.2 410.0% 410.0% 1.4 -82.9%

B. Expenditure 2,082.9 1,898.6 1,860.7 89.3% 98.0% 2,080.5 11.8%

I. Total Central government expenditure 1,306.7 1,195.3 1,150.2 88.0% 96.2% 1,315.5 14.4%

1. Ministerial spending 767.8 672.0 680.8 88.7% 101.3% 763.6 12.2%

2. Non ministerial spending 538.9 523.3 469.4 87.1% 89.7% 552.0 17.6%

II. Transfer to region and village Fund 776.3 703.3 710.4 91.5% 101.0% 764.9 7.7%

1. Regional transfer 729.3 659.1 663.7 91.0% 100.7% 704.9 6.2%

2. Village fund 47.0 44.2 46.7 99.4% 105.7% 60.0 28.5%

C. Primary balance -105.5 -126.4 -122.7 116.3% 97.1% -109.0 -11.2%

D. Surplus (deficit) -296.7 -315.7 -305.4 102.9% 96.7% -330.2 8.1%

% of GDP -2.35% -2.50% -2.46% 104.7% 98.4% -2.41% -2.0%

E. Financing 296.7 315.7 330.6 111.4% 104.7% 330.2 -0.1%

37

1,146.9

1,240.4

1,283.6

99.2

248.9

255.6

1,498.9

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

2014 2015 2016 2017

Realization Outlook

A More Realistic 2017 Tax Revenue Target…taxation policies are directed at expanding the tax base and increase compliance

897.7

1,011.2

1,069

90.8

233.5 249.9

1,271.7

600

700

800

900

1000

1100

1200

1300

1400

2014 2015 2016 2017

Realization Outlook

19.5%

8.2%

29.9%

3.4%

3.5%

24.1%

(2.6%)

16.8%25.9%

38.7%

8.2%

6.0%

30.4%

5.7%

(3.6%)

19.0%

Target to target growthRealization to target growth Realization to Realization growth

IDR tnIDR tn

Increasing the tax base and compliance

i.e. through IT and database improvement

Providing tax incentives to support competitiveness and investment climate

Improving tax regulation i.e. through the amendment of

laws

Using excises to control consumption of certain goods and minimize negative externality

Optimizing international tax arrangement to enforce transparency

2017 Main Taxation Policies

Non-Oil and Gas Tax CollectionTax Collection Target (All sources including Oil & Gas)


38

Update on Tax Amnesty Realization... Successful tax amnesty program relative to other countries


Tax Amnesty Result (As of March 31st, 2017)

Redemption Money Assets Declared

114.2

18.8

1.7

Preliminary Evidence Payment

1%

Redemption Money85%

Tax Arrears Payment14%

Revenue

IDR 134.8tn (~1.1% GDP)

3,686.9

1,031.7

147.1

Onshore Declaration

76%

Offshore Declaration

21%

Repatriation3%

Asset Declared

IDR 4,865.7tn (~39.3% of GDP)

3,323.36

861.81

594.99

85.59

Individuals 68%

Individual SMEs18%

Companies12%

SMEs2%

Composition of Participants

Based on Asset Declared

0.040.15

0.20

0.62

1.10

0.58

0.170.12

0.04

Germany

(2004)

Belgium

(2004)

Italy

(2009)

Chile

(2015)

Indonesia

(2016)

India

(1997)

South

Africa

(2003)

Spain

(2012)

Australia

(2014)

% o

f GDP

2.13.9

8.3

39.3

5.23.6

0.3

India(1997)

Spain(2012)

Chile(2015)

Indonesia(2016)

Italy(2009)

SouthAfrica(2003)

Australia(2014)

% o

f GDP

39

Indonesian Tax Amnesty: A Success Story…more than 965,000 taxpayers participated in the program, creating a larger tax database

56.2%

59.2%60.4%

62.3%

49%

54%

59%

64%

0

10

20

30

40

2013 2014 2015 2016

Registered Taxpayers

Registered Taxpayers – Tax Report Required

Submitted Tax Report

Compliance Rate = Submitted Tax Report/Registered Taxpayers-Tax Report Required

Expected Tax Revenue / GDP Increase (%) Declaration & Repatriation (Country of Origin)

Compliance Rate in Submitting Annual Tax Report


13.3

11.110.5

11.2 11.4 11.310.8 10.7 10.9

11.5

0

2

4

6

8

10

12

14

2008 2009 2010 2011 2012 2013 2014 2015 2016

Unaudited

2017

Budget

Human Resources

BusinessProcess

• Improvement of the humanresources and organizationcapacity and capability

• The establishment on taxreform task force team

• Discipline on Plan-Do-Check-Action to monitor collection

• Stronger law enforcement• Authorization to gather 3rd

party data (banking)• Implementation of

Automatic Exchange of Information

• Simplification of tax registration

Regulation

• General Provision and Administration of Taxation Law

• VAT Law• Income Tax Law• Stamp Duty Law

IT Support

• Improvement of IT and communication system

• Increased accessibility of public data for individual data management

• Enhancement of data management

40

Regional Revenue and Expenditure Profile…effective expenditure policy as a tool to promote equality across Indonesia

SUMATERA

Revenue 141.1

a. Tax 66.9

b. Custom & Excise 6.8

c. Non Tax Revenue 70.4

Expenditure 232.3

a. Transfer to Region 176.1

b. Ministerial Spending

56.2

Nett (88.2)

JAVA

Revenue 1.143.2

a. Tax 884.9



Expenditure 302.8



101

Nett 840.4

BALI & NUSRA

Revenue 15.5

a. Tax 11.7



Expenditure 56.4


b. Ministerial Spending 17.0

Nett (40.9)

KALIMANTAN

Revenue 86.0

a. Tax 32.0



Expenditure 93.9



20.3

Nett (7.9)

SULAWESI

Revenue 19.7

a. Tax 16.6



Expenditure 104.5



Nett (84.8)

PAPUA & MALUKU

Revenue 18.4

a. Tax 10.7



Expenditure 89.6



Nett (71.3)

Notes:1. Average data 2014 - 20162. Revenue amount collected from certain region for central government budget3. Expenditure amount spent for certain region from central government budget4. Figure in IDR trillion


41

Commitment to Continue Strengthening Productive Spending...reallocating budget to productive activities

416.1

104.0

77.3

387.3

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

2011 2012 2013 2014 2015 2016 2017

Education Health Energy Subsidy Infrastructure

CONTINUING THE REFORM

INITIAL REFORM

% to total budget allocation for su

bsidy

• Focus on productive spending to support growth momentumand improve basic services

• Preserving infrastructure acceleration and social welfarespending to improve equality, and maintain consumptiongrowth

• Targeted energy subsidy in the form of 3 Kg LPG subsidiesand electricity subsidy and increased non energy subsidyallocation

• Continue the improvement of intergovernmental transfer,esp. village fund, to spur growth through regions

Budget Re-allocation Budget allocation for subsidy

48.3%

51.7%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2012 2013 2014 2015 2016 2017 Budget

Energy Non Energy

IDR tn


42

Managing Priority Projects with 2016 Budget Consolidation…the Government managed to accelerate infrastructure development

Infrastructure Realization Infrastructure Development Achievement in 2016

Food Security Realization

0

100

200

300

400

Budget Realization Budget Realization

Ministerial Spending Non Ministerial Spending Regional Transfer Financing

290.3256.2

317.2

267.0

2015: 88.3% of budget 2016: 84.2% of budget

IDR tn

0

50

100

150

200



2015: 87.6% of budget 2016: 84.2% of budget

IDR tn

125.9110.3 117.9

99.3

Road Development (km)Target: 3,149.6Realization: 2,528.0

AirportTarget: 15 (up to 2019)Realization: 3

Bridge (km)Target: 12.9Realization: 10.5

Railway (km)Target: 154.3Achievement: 33.01

DamTarget: 37Achievement: 37

Irrigation (km)Target: 4,889Achievement: 1,025


43

Education and Health Spending Well Delivered in 2016…investment to improve the quality of human capital in the long term

Education Expenditure Health Expenditure

Immunization for 0 – 11 months old infantRealization: 4,006,979 infantsTarget 4,001,210 infants

University scholarship for poor student (Bidikmisi)

Realization: 331.9 thousand college students

Target: 306 thousand college students

Health Insurance Subsidy (PBI)Realization: 91.9 million peopleTarget 92.4 million people

School Operational Assistance (BOS)

Realization: 8.0 million students

Target: 8.2 million students

Vaccine availability in Community Health Centre (Puskesmas)

Realization: 81.5%

Target 92.5%

School Rehabilitation

Realization: 30,300 rooms

Target: 27,200 rooms

Malaria EradicationRealization: 247 citiesTarget 245 cities

Indonesia Smart Card (KIP)Realization: 19.4 million students

Target: 19.5 million students Accredited Regional Hospital

Realization: 201 hospitalsTarget n/a

0

100

200

300

400

500

600



0

20

40

60

80

100

120



2016: 89.0% of budget

408.5 390.2 416.6370.5

2015: 89.6% of budget

2016: 88.6% of budgetIDR tn

74.867.0

104.1

92.32015: 95.5% of budget

IDR tn


44

Better Targeting of Subsidy Policy in 2017...more budget allocated to non energy subsidy and priority programs to improve basic services

BidikmisiScholarship

0

50

100

150

200

250

300

350

400

450

2009 2010 2011 2012 2013 2014 2015 2016 2017

APBN

IDR tn

416.1

2.7 2.83.0

2.7 2.83.3

3.8

5.0 5.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0

50

100

150

200

2009 2010 2011 2012 2013 2014 2015 2016 2017

APBN

APBNP % of APBNP

IDR tn %

Basic & complete immunization for 92% of 0-11 months old infants

Immunization

94.4 million people

Health Insurance Subsidy (PBI)

Stunting prevention to 29.6% of children below 2

years old

Stunting Prevention

700 regencies

Community Health Centre (Puskesmas)

6.7 million people

Family Plan Program (KB)

Budget for Education Program Budget for Health Program

360.5 thousandscollege students

19.5 million students

Indonesia Smart Card (KIP)

101,100 teachers10,200 lecturers

Certification

School Rehabilitation

41,128 rooms8.5 million students

School Operational Assistance (BOS)

107 Colleges/Universities

Operational Assistancefor Colleges

45

Budget Allocation Between Central & Local Government Improves…promoting better quality of budget spending from local government

65.85%

22.67%

0.98%

2.65%

7.85%

Gradually increases Village

Fund, with average allocation for

each village is IDR800.5 mn.

Village Fund (IDR60.0 tn)

Improving efficiency and effectiveness of Special Autonomy & Special Region of Yogyakarta Fund.(Papua IDR5.6 tn; West Papua IDR2.4 tn; Aceh IDR8.0 tn; DTI Papua & West Papua IDR3.5 tn)

Special Autonomy & Special Region Yogyakarta (IDR20.3 tn)

Incentive Fund (IDR7.5 tn)

Minimum 25% (IDR125.9 tn) of General Transfer

Fund has to be used for public service facility

development acceleration

General Transfer Fund (IDR503.6 tn)

Physical Special Transfer Fund allocation is based on regions’ proposal and national priorities

Special Transfer Fund (IDR173.4 tn)

Incentive Fund allocation is increased (317 regions being rewarded, The lowest incentive is Rp7,5 billion, The highest incentive is Rp65,3 billion)

• Implementation of policy to allocate spending to regions

• 2017 budget has higher allocation of Transfer to Region / Village Fund compared to the Ministerial Spending

• Minimum 25% of general transfer fund has to be used for public service infrastructure

2017 Transfer to Regions and Village Funds Transfer to Regions/Village Funds & Ministerial Spending

IDRtn 2013 2014 2015 20162017 Budget

Transfer to Region 513.3 573.7 602.4 663.7 704.9

Village Fund - - 20.8 46.7 60.0

Total Intergovernmental Transfer

513.3 573.7 623.1 710.4 764.9

Ministerial Spending 582.9 577.2 732.1 680.8 763.6


46

Policy of Infrastructure Spending and Transfer to Regions…developing the nation through targeted spending

In 2017, minimum 25% of general transfer fund has to be used for public service infrastructure

Kalimantan

2016 : 2,889.92017 : 3,641.6

2016 : 597.92017 : 634.5

2016 : 2,694.42017 : 4,117.1

2016 : 606.22017 : 1,042.6

2016 : 3,749.12017 : 3.686.3

2016 : 1,680.22017 : 1,941.7

Sumatera

2016 : 3,895.42017 : 3,545.7

2016 : 1,044.82017 : 1,320.4

2016 : 3,229.42017 : 3,257.8

2016 : 461,12017 : 1,147.5

2016 : 661.32017 : 1,207.3

2016 : 101.1 2017 : 308.2

Java

76

86

114.2

145.5

168.5

154.1

256.1

317.1

387.3

8.1 8.3 8.89.8 10.2

8.7

14.215.2

18.6

0

5

10

15

20

0

100

200

300

400

500

2009 2010 2011 2012 2013 2014 2015 2016 2017

%IDR tnAnggaran Infrastruktur

% thd Belanja Negara (RHS)

Infrastructure budget

% of total state expenditure (RHS)Maluku & Papua

Sulawesi

Bali & Nusa Tenggara

Infrastructure Budget Allocation 2017 Infrastructure Budget Allocation (IDR billion) and

2016 realization

2017 Construction Target

Road DevelopmentTarget: 815 km

AirportTarget: 13

BridgeTarget: 9,399 m

RailwaysTarget: 550 km

SeaportTarget: 55 locations

Bus stationTarget: 3 locations


http://www.freepik.com/free-photos-vectors/cargo

47

Financing Policy 2017: General Objective & Policy

To conduct active debt

portfolio

To manage debt-to-GDP ratio

To o

ptimize

the use

of

external

and

domestic

loans T

o

optim

ize

curre

ncy

mix o

f issu

ance

General Policy

To support market development

To enhance public accountability as part of transparent Government debt management

To meet financing needs at optimum cost and tolerable

risk


48

Budget Financing Breakdown in 2017

Debt (Gross)

IDR735.6tn

Redemption

IDR350.9tn

Budget Financing

IDR330.2tn

Non-Debt Financing

IDR54.5tn

USD/IDR: 13,321 as of 31 Mar 2017

Note: Subject to change in market conditions and other factors

Breakdown of budget financing IDR tn USD bn

Government debt (net) 384.7 28.9

Government securities (net) 400.0 30.0

Domestic loans (net) 1.5 0.1

Foreign loans (net) -16.8 -1.3


49

Government Securities: Indicative Financing Plan for 2017…prudent and sustainable fiscal management

Government Issuance Targets International Bonds

• Issuance of internationalbonds as a complement toavoid crowding out thedomestic market;

• Consists of USD, YEN orEURO global bonds;

• International bond issuancecan be maximized up to25% from gross target,depends on financing need

Domestic Bonds

Weekly Auction:

Conventional securities 24 x

Islamic securities 24 x

Non-Auction:

Retail bonds

Private Placement Based on request

Front Loading Issuance For Budget Financing

• Pre-funding to optimize cost ahead of potential Fed rate hike

• Anticipate developments in global environment

• Government Securities target for 1st semester 2017 is 57.4% from

gross issuance target

• Government Securities target in Rupiah for 1st semester 2017 is

42.7% from gross issuancce target

Debt Securities

71%

Sukuk29%

Average Tenor Maturity (ATM) for Government Securities: 6-8 years

InstrumentsIndicative Target (IDR tn)

2017 Budget

Government Securities (Net) 399,993

Redemption 162,842

Cash Management 119,000

Buyback 3,000

Government Securities (Gross) 684,835

Composition

Domestic 79%

Auction 93%

Non-Auction 7%

International Bond 21%


50

Disciplined and Sophisticated Debt Portfolio Management

Stable Debt to GDP Ratio Over the Years

Weighted Average Debt Maturity of ~8.9 Years**

US$ bn

Remarkable Debt Reduction Initiative Over the Past 10 Years

Change in Debt to GDP Ratio (2006 – 2016) (%)

Source: IMF World Economic Outlook Database, April 2017

Well Diversified Across Different Currencies

% of Yearly Issuance

Government Debt / GDP (%)


Source: Ministry of Finance Source: Ministry of Finance

* Based on 2016 realization, ** Using GDP assumption in 2016 R-Budget, ***SDR, AUD, and other

131 141 136 155 175207

69 64 5854

55

54

23.1% 23.0% 24.9% 24.7%27.4%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

0

50

100

150

200

250

300

2011 2012 2013 2014 2015 2016*

Securities (LHS) Loans (LHS) Govt Debt / GDP (%) (RHS)

28.3%

324.2

312.7

182.1

117.5

82.1

67.3

61.0

39.8

33.1

29.8

18.9

7.8

-9.8

-22.3

-34.6-34.9

-100.0 -50.0 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0

Chile

Australia

UAE

UK

China

USA

South Africa

Malaysia

Colombia

Japan

Brazil

Thailand

India

Indonesia

Philippines

Turkey

56% 53% 57% 55% 58% 59%

24% 29% 29% 32% 31% 29%

14% 12% 9% 8% 7% 7%3% 3%3% 3% 4% 4%

3% 3% 2% 2% 1% 1%

2012 2013 2014 2015 2016 May-2017

IDR USD JPY EUR Other

9.79.6

9.7

9.4

9.08.9

2012 2013 2014 2015 2016 May-2017

Years

51

Well Balanced Maturity Profile With Strong Resilience Against External Shocks

Declining Interest Rate Risks

Debt Maturity Profile

Declining Exchange Rate Risks

Upcoming Maturities (Next 5 Years)

IDR tn

1 Variable Rate Ratio is defined as ratio between debt instruments with variable rate divided by total debt instruments (variable + fixed rates)2 Refixing Rate ratio is defined as ratio between debt instruments with variable rate + debt instruments with fixed rate maturing in 1 year divided by total debt instruments (variable + fixed rates)*Preliminary Figures **Using GDP assumption in 2017 Budget.


44

110

135

112

123

128

103

88 116

88

71

46

21

20

18

17

16 12

29

5 23 28 2 1

1

31

21 28

27 39

101

201 189

116 140

107

98 168

45 126

100

53

100

29

124

66

52 97

5 90

22 22 7 15 26

23

20 28

0

50

100

150

200

250

300

350

2017 2021 2025 2029 2033 2037 2041 2045

IDR denomination Other currency

16.2 16.014.8

13.712.3

11.3

22.5 23.2

21.0 20.7

17.819.3

2012 2013 2014 2015 2016 May-2017

(%)

Variable Rate Ratio (%) Refixing Rate (%)

10.2 11.7 10.7 12.2 11.7 11.1

44.446.7

43.4 44.541.8 40.9

2012 2013 2014 2015 2016 May-2017

(%)

FX Debt to GDP Ratio (%) FX Debt to Total Debt Ratio (%)

7.2 8.6 7.7 8.46.6

9.1

21.5 21.820.1 21.4

23.0 23.3

32.4 33.4 33.9 34.736.5

38.6

2012 2013 2014 2015 2016 May-2017

(%)

In < 1 year In < 3 year In < 5 year

52

2011 2012 2013 2014 2015 Jun-16 Dec-16 Jan-17 Mar-17 May-17

Loan Government Securities

Profile of Total Central Government Debt

Foreign Ownership of Government Securities at Longer Tenors

Holders of Government IDR Bonds – Composition May 2017

Government Debt Outstanding

209.41199.48 204.51 194.55 229.40 255.14 265.98USD bn 273.97

(%)

(%)

(%)

275.65258.03

74.1365.66 68.82 70.04 76.16 77.99 79.33 79.83 80.1778.86

25.8734.34 31.18 29.66 23.84 22.01 20.67 20.17 19.8321.14


11.87 7.84 5.2 4.65 3.23 2.69 3.5 3.4 5.2 5.8

24.9719.32

18.29 18.9613.1 13.73

23.1 19.8 18.6 21.5

63.16 72.84 76.5 76.39 83.66 83.57 73.4 76.8 76.1 72.7

30.8032.98 32.54

38.13 38.21 39.10 37.55 37.8 38.2 39.1

0

20

40

60

80

100

2011 2012 2013 2014 2015 Jun-16 Dec-16 Jan-17 Mar-17 May-17

0-1 1-5 >5 Foreign Ownership to Total

30.80 32.98 32.54 38.13 38.12 38.94 39.10 37.5 37.85 37.47 38.24 39.0 39.1

32.58 30.49 33.7630.83

37.85 31.2538.94 39.9 34.89 34.5 35.53 35.0 34.6

36.63 36.53 33.70 31.0423.95 29.81

21.95 22.5 27.27 28.03 26.22 26.0 26.3

0

20

40

60

80

100

2011 2012 2013 2014 2015 Jan-16 Jun-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17

Foreign Holder Domestic Non Banks Domestic Banks

53

Ownership of IDR Tradable Central Government Securities

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

(IDR tn)

Description Dec-14 Dec-15 Jun-16 Dec-16 May-17

Banks* 375.55 31.04% 350.07 23.95% 361.54 21.95% 399.46 22.53% 507.99 26.30%

Govt Institutions (Bank Indonesia**)

41.63 3.44% 148.91 10.19% 150.13 9.12% 134.25 7.57% 63.46 3.29%

Bank Indonesia (gross) 149.07 9.05% 157.88 8.90% 179.92 9.32%

GS used for Monetary Operation

-1.05 -0.06% 23.63 1.33% 116.47 6.03%

Non-Banks 792.78 65.52% 962.86 65.87% 1,135.18 68.93% 1,239.57 69.90% 1,360.09 70.41%

Mutual Funds 45.79 3.78% 61.60 4.21% 76.44 4.64% 85.66 4.83% 90.51 4.69%

Insurance Company 150.60 12.45% 171.62 11.74% 214.47 13.02% 238.24 13.43% 252.77 13.09%

Foreign Holders 461.35 38.13% 558.52 38.21% 643.99 39.10% 665.81 37.55% 756.15 39.15%

Foreign Govt's & Central Banks

103.42 8.55% 110.32 7.55% 118.53 7.20% 120.84 6.81% 132.37 6.85%

Pension Fund 43.30 3.58% 49.83 3.41% 64.67 3.93% 87.28 4.92% 88.90 4.60%

Individual 30.41 2.51% 42.53 2.91% 48.90 2.97% 57.75 3.26% 61.55 3.19%

Others 60.51 5.00% 78.50 5.37% 86.72 5.27% 104.84 5.91% 110.21 5.71%

Total 1,209.96 100% 1,461.85 100% 1,646.85 100% 1,773.28 100% 1,931.53 100%


54

Government Securities Realization

(IDR mn)

*Adjusted with issuance related to cash management realizationBudget 2017

Budget Realization (a.o. May 31st, 2017)

% Realization to Budget 2017

Government Securities Net 399,992,586 232,670,929 58.17%

Government Securities Maturing in 2017 and Buyback 284,842,264 129,920,341 45.61%

Issuance Need for 2017* 684,834,850 362,591,270 52.95%

Government Debt Securities (GDS) 244,042,003

Domestic GDS 184,130,000

-Coupon GDS 88,080,000

-Conventional T-Bills 96,050,000

-Private Placement -

-Retail Bonds -

International Bonds 59,912,003

-USD GMTN 47,197,500

-Euro GMTN -

-Samurai Bonds** 11,988,495

-Domestic USD Bonds 726,008

Government Islamic Debt Securities 118,549,267

Domestic Government Islamic Debt Securities 78,580,267

- IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) 62,542,957

- Retail Sukuk 14,037,310

- Private Placement 2,000,000

Global Sukuk 39,969,000


55

Positive Response of Government Securities Issuance in 2016

Global Conventional Bond Global Sukuk Euro-Denominated Bonds Samurai Bonds

Tenure 10 yr 30 yr 5 yr 10yr 7 yr 12 yr 3 yr 5 yr

Pricing Date December 8th, 2015 March 29th, 2016 June 14th, 2016 June 21st, 2016

Nominal US$ 2.25 bn US$ 1.25 bn US$0.75 bn US$1.75 bn EUR 1.5 bn EUR 1.5 bn JPY62 bn JPY38 bn

Coupon Rate 4.75% 5.95% 3.40% 4.55% 2.625% 3.750% 0.83% 1.16%

Yield 4.80% 6.00% 3.40% 4.55% 2.772% 3.906% 0.83% 1.16%

Incoming Bid US$8.1 bn US$8.6 bn EUR 8.4 bn JPY100 bn

• The average incoming bids in 2016 was

IDR18.81tn/auction, higher than 2015

(IDR14.05tn/auction);

• The average awarded bids in 2016 was

IDR9.44tn/auction, higher than 2015

(IDR6.75tn/auction);

• Bid to cover ratio of government securities issuance

in 2016 was 1.99 times (2015 was 2.08 times).

IDR bn

Increasing Incoming Bids in 2016’s Government Securities Issuance

Incoming Bid 2016 Bid to Cover Ratio 2016 (RHS)Awarded Bid 2016


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

Section 5

57

Bank Indonesia Policy Mix: June 2017

Holds the BI 7-day Repo Rate at4.75%

Expects credit and deposit growth

accelerate to 10-12% and 9-11% respectively in

2017, congruent with the expected economic gains and ongoing

impact of previous monetary and macroprudentialpolicy easing

Continues to strengthen policy coordination with central government and

regional administrations to control inflation, primarily to handle soaring volatile food

prices during the holy fasting month and Eid-ul-Fitr

Continues to stabilise Rupiah exchange rates in line with the

currency’s fundamental value, while maintaining

market mechanisms

Predicts 2017 domestic economic growth in the

5.0-5.4% range, supported by accelerating exports

and investment performance as well as

resilient household consumption

The BI Board of Governors agreed on 15 June 2017 to hold the BI 7-days Repo Rate at 4.75%, as well as the Deposit Facility at 4.00% and Lending Facility at 5.50%

Monitors closely various global risks, including further FFR hikes and the Fed’s

plan to shed its large balance sheet as well

as geopolitical tensions in various regions of the world

58

Bank Indonesia Policy Mix: 2015-2017

14 Jan 2016• Cut BI Rate 25 bps to 7.25%, DF & LF Rate at 5.25% & 7.75%

• BI lower its monetary operation rates even further, ranging from 25bps to 45bps (O/N to 1Y)

19 Jan – 15 Jun 2017

Held BI 7-day RR Rate at 4.75%,

DF Rate at 4.00% and LF Rate at

5.5 %

20 Oct 2016Cut BI 7-day RR Rate to

4.75%, DF and LF Rate to 4.00% and

5.50%

19 Aug 2016• Held BI 7-day RR Rateand DF Rate at 5.25%and 4.5%

• Cut LF Rate to 6.00%.

16 Jun 2016• Cut BI Rate 25 bps to 6.5%, DF & LF Rate at 4.5% & 7.0% respectively

• Relaxed the loan-to-value ratio (LTV) and financing-to-value ratio (FTV) on housing loans/financing

• Relaxed partially prepaid loans/financing

• Raised the floor on the Reserve Requirement - Loan to Funding Ratio (RR-LFR) from 78% to 80%, with the ceiling maintained at 92%. The change was effective on Aug. 2016

18 Mar 2016Cut BI Rate 25 bps to

6.75%, DF & LF Rate at 4.75% & 7.25%

17 Nov –15 Dec 2016Held BI 7-day RR Rate at 4.75%, DF

Rate at 4.00% and LF Rate at 5.5 %

22 Sep 2016Cut BI 7-day RR Rate to

5.0%, DF and LF Rate to 4.25% and

5.75%.

21 Jul 2016• Held BI Rate at 6.5%, & maintained BI 7-day RR Rate, DF & LF Rate at 5.25%, 4.5% & 7.00% respectively.

• BI continued to conduct financial market deepening by introducing new investment & hedging products in the financial market, strengthenedmonetary management strategies, & encouraged the real sector to make optimal use of repatriation funds to support the implementation of the 2016 Tax Amnesty Law

21 April 2016• Held BI Rate at 6.75%, and maintained DF & LF Rate at 4.75% & 7.25% respectively.

• Reformulated policy rate from BI Rate into the 7 day (Reverse) Repo Rate to improve the effectiveness of monetary policy transmission. The change was effective on Aug. 19th 2016

18 Feb 2016• Cut BI Rate 25 bps to 7%, DF & LF Rate at 5% & 7.5%

• BI lower the rupiah denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from Mar. 16th 2016

17 Nov 2015Lowering IDR Primary RR by 50bps from

8.0% to 7.5%. Effective since 1 Dec 2015

26 Jun 2015• RR-LDR

RR-LFR• Accomodate

banks SMEs loan in RR calculation

18 Jun 2015• Increase the Loan-to-Value (LTV) ratio

• Reduce down payments for automotive loans

59

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17

LF Rate BI Rate BI-7Day RR Rate DF Rate

Stable Monetary Environment Despite Challenges

Rupiah Exchange Rate Remains Comparable to Peers

YTD 2017* vs. 2016

Downward Trend of Inflation Ensured Price Stability Strengthened Monetary Policy Framework


Credit Growth Supported by Macroprudential Policy

(%)

LF Rate: 7.00

LF Rate: 5.50

BI Rate: 6.50

BI 7Day RR Rate:4.75

DF Rate: 4.50

DF Rate: 4.00

19 August 2016

The New MonetaryOperation Framework

(YoY)

3.203.264.33

9.14

%*data as of May 31st, 2017

-2

3

8

13

18

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5

2014 2015 2016 2017

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

10.65

10.40

1.74

1.40

1.18

-0.23

-3.02

-4.89

-6.04

-17.41

5.07

0.87

5.30

7.70

5.25

1.13

6.21

-0.44

4.79

-0.18

-20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0

ZAR

BRL

INR

KRW

THB

IDR

EUR

PHP

MYR

TRY

Average Point to Point

0%

5%

10%

15%

20%

25%

30%

35%

40%

1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3

2013 2014 2015 2016 2017

Total Growth Working Capital loans

Investment Loans Consumption Loans

8.49.39.5

10.1

60

6 Measures to Control Inflation in 2017

On January 25th, 2017, the Government and Bank Indonesia agreed on six strategic measures to control inflation in 2017 within the targetcorridor of 4±1% (as well as in 2018 at 3.5±1%), while also setting the inflation targets for 2019-2021 at 3.5±1%, 3±1% and 3±1%respectively.

Those measures are needed to address several onerous domestic and external challenges that demand vigilance and early mitigations.The external challenges mainly stem from rising international commodity prices, while the domestic challenges stem from ongoingenergy reform through adjustments of electricity tariffs for 900VA subscribers as well as fuel prices as the global oil prices continues torise. The current aforementioned reform is warranted to ensure equitable development and to create more healthy fiscal space.

Maintaining volatile food (VF) inflation at 4-5% by:1 2 3

4 5 6

Strengthening infrastructure for food

logistics in local areas, particularly warehousing for

storage

Developing a commodity flow data system, specifically for food commodity

Utilising fiscal instruments and

incentives to extend the local government’s role in price stability

Dampening the second-round effect of Administered Price adjustments

Introducing Administered Price Sequencing

Establishing the National Inflation Control Team

Strengthening central and local government coordination

Through Eighth National TPID Coordination Meeting in July 2017

Strengthening the Bank Indonesia policy mix to maintain macroeconomic stability

Through Presidential Decree to strengthen the National Inflation Task Force (TPI) and Regional Inflation Task Forces (TPID)

Strengthening interregional cooperation

Encouraging diverse food consumption in the

community, especially of fresh chillies and alliums,

by fostering product innovation in the

processed foods industry

Accelerating connectivity infrastructure development

Improving planting patterns

Example: Controlling transportation fares

Including the planned conversion of several direct subsidies to cash transfers (fertilizer, rice for the poor and 3kg LPG)

3kg

61

Improving the Effectiveness of Monetary Policy Transmission

Bank Indonesia has instituted a Reformulation of Monetary Policy Operations Framework which consists of 3 pillars; (1) implementation of BI 7day Reverse Repo Rate; (2) implementation of reserve requirement averaging; and

(3) continue to implement money market deepening program.

Enhancement of monetary policy signal

Enhancement of banking liquidity management

Implementation of BI 7 Day Reverse

Repo Rate

Implementation of Reserve

Requirement (RR) Averaging

Reformulation of Monetary Policy Operational Framework


Enhancement of instruments

and transactions

Implementation of Money Market

Deepening Program

62

Enhancement of Monetary Operations Framework...positive results thus far

• Can be traded among contributor banks for 10 minutes.

• Up to the amount of Rp10 billion.• Up to 1-month tenor.

• Can be traded among contributor banks for 20 minutes.

• Up to a total of Rp20 billion.• Up to 3-month tenor.

CURRENT JIBOR (as per June 1st, 2016)

PREVIOUS JIBOR

O/N 1W 2W 3W 1M 3M 6M 12M

JIBOR IBMM Repo FX Swap MO

IBMM: Interbank Money Market MO: Monetary Operation

Domestic Money Market Yield Curve (2nd week of June 2017)


Domestic money market yield curve tend to converge

Monetary operation term structure is being referred by money market rates

63

Introducing Reserve Requirement (RR) Averaging

The Purpose of RR Averaging

Previously, RR ratio is set at 6.5% (fixed) of the TPF (Third Party Fund) and to be maintain on daily basis. From 1 July 2017, the fulfilment method of RR has been adjusted to daily RR of 5% of TPF and average RR of 1.5% of TPF within

a fixed period

1 2 3

To provide flexibility in liquidity management

in order to increase bank efficiency

To function as an interest rate buffer in order to reduce

interest rate volatility in the money market

$

To provide space for liquidity placement

in order to boost financial market deepening


64

Financial Intermediation Improves in Early 2017

The growth of banking loans improved in early 2017, and is expected to further expand by 9-12% this year. In the domestic capitalmarkets, capital raising by corporations (particularly right issues and corporate bond issuance) remained strong.

Source: Financial Service Authority (OJK)

The growth of financing distributed by multifinance companies in April 2017 was still in an increasing trend

Gross premium revenue in the domestic insurance industry also demonstrated a continuous growth

Capital raising through rights issues & corporate bond issuance in Jan-May 2017 increased from the same period last year

The growth of banking loans was 9.47% (yoy) in April 2017

IDR tn

IDR tn

IDR m

nIDR tn

1.2

12.9

46.1

0

20

40

60

80

100

2012 2013 2014 2015 Jan-May

2016

Jan-May

2017

IPO Equity Rights Issue Corporate Bonds & Sukuk

116

0

50

100

150

200

250

300

350

400

2012 2013 2014 2015 2016 Jan-Apr 17

9.47%

0%

5%

10%

15%

20%

25%

0

1,000

2,000

3,000

4,000

5,000

2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17

Bank Loans YoY Growth (rhs)

8.76%

-5%

5%

15%

25%

35%

-50

50

150

250

350

450

2012 2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17

Financing YoY Growth (rhs)

65

5.38

2.48

0

1

2

3

4

5

6

2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17

Net Interest Margin Return on Assets

Financial Institutions Remain Robust and Less Vulnerable

Banking sector’s capital adequacy ratio (CAR) was maintained at a high level. As of April 2017, CAR & Tier 1 Capital was 22.79% & 21.06% respectively

Risk-based capital (RBC) of the insurance industry also remains high, well above the minimum threshold (120%)

Gearing ratio of multifinance companies was 2.99 times (well below the maximum requirement of 10 times), providing ample room for future growthProfitability of the banking sector is relatively stable

Domestic financial institutions show generally robust condition. Capital adequacy is maintained well above the minimum requirements.Profitability and leverage are maintained at a sufficient level. Further, gearing (debt-to-equity) ratio of multifinance companies providesample room for future growth.


%

22.7921.06

0

5

10

15

20

25

2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17

%CAR Tier-1 Capital

2.99

1

2

3

4

2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17

508%

275%

150%

180%

210%

240%

270%

300%

400%

450%

500%

550%

600%

650%

700%

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

RBC - Life Insurance RBC - General Insurance (rhs)

66

98.92

20.57

6

10

14

18

22

26

60

70

80

90

100

110

5-O

ct

19-O

ct

2-N

ov

16-N

ov

30-N

ov

14-D

ec

28-D

ec

11-Jan

25-Jan

8-Feb

22-Feb

8-M

ar

22-M

ar

5-Apr

19-Apr

3-M

ay

17-M

ay

31-M

ay

Liquid Assets to Non-Core Deposits (lhs)

Liquid Assets to Deposit (rhs)

Adequate Liquidity, Manageable Credit Risks

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

The ratio of liquid assets to deposits in the banking sector was well maintained at a high level.

As of April 2017, the gross & net NPL ratios of the banking sector were 3.07% & 1.36% respectively, maintained below the threshold

NPF ratio in the multifinance industry was 3.24% as of April 2017, maintained well below the 5% threshold

Investment adequacy ratio in the insurance industry is maintained above 100%


%%

%

116.70

122.70

90

100

110

120

130

140

Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17

Life Insurance General Insurance

3.24

0%

1%

2%

3%

4%

2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17

1.36

3.07

0

1

2

3

4

2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17

NPL Net NPL Gross

%

67

Manageable Market Risk Amidst Fluctuations

Being exposed to market fluctuations, financial institutions demonstrated resiliency in dealing with such risks. Net open position ofthe banking sector remains low, while the investment value of domestic institutional investors (mutual funds, insurers, and pensionfunds) continues to increase.

Net open position in the banking sector was kept far below the maximum limit (20%)

The investment value of insurers & pension funds remained in an increasing trend

Multifinance companies’ exposures to foreign debt have generally been mitigated through hedging measures

The movement of mutual funds’ net asset value (NAV) is in line with that of market index, but with much lower volatility


IDR tn

IDR tn

% IDR tn

IDR tn IDR tn

1.89

0

1

2

3

4

5

2013 2014 2015 2016 Jan-17 Feb-17 Mar-17 Apr-17

4,600

5,000

5,400

5,800

260

300

340

380

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

NAV of Mutual Funds (lhs) IDX Stock Composite Index (rhs)

853

242

100

150

200

250

300

650

750

850

950

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

Investment of Insurers Investment of Pension Funds (rhs)

156

85

60

90

120

150

180

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

Domestic Debt Foreign Debt

68

Capital Market Demonstrate Strengthening Trend

Amidst the unfavorable global environment, the domestic capital markets continues a strengthening trend, supported by nonresidentcapital inflows.

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

Both the stock & bond markets are in a strengthening trend in June 2017, with a low level of volatility

Despite FFR hike, the equity and government debt markets still attract nonresident inflows

The IDX Stock Composite Index continues to strengthen and is among the best-performing indices in the region (as of June 16th, 2017, ytd)

In line with the stabilizing IDR and improving domestic prospects, the government bond yields continued to decline

IDR tn

6

7

8

9

10

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Yield (%)

5-yr Yield 10-yr Yield 20-yr Yield

26.35

2.32

-18.11

8.21

5.97

4.34

9.11

0.63

15.23

12.17

16.48

8.06

16.55

2.18

9.82

(22.0) (17.0) (12.0) (7.0) (2.0) 3.0 8.0 13.0 18.0 23.0 28.0

Turkey

Brazil

Russia

U.S.

Europe

Japan

Malaysia

China

Philippines

Singapore

Hong Kong

Indonesia

Korea

Thailand

World

%

-40

-20

0

20

40

60

80

100

2015

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Gov't Debt Securities Equity

4200

4700

5200

5700

6200

180

190

200

210

220

230

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Comp Bond Index Comp Stock Index (rhs)

69

Maintaining Financial System Stability…maintaining resilience in confronting possible shocks and enhancing financial system stability

Strengthening financial sector supervision

Assessment on the soundness of financial institutions Liquidity coverage ratio for banks Regulations on risk management for financial

institutions Minimum capital requirement for banks Enhancement of GCG for financial institutions and

publicly-listed companies

Strengthening & structuring financial sector based on international standards

Risk-based supervision for all financial sectors Regulations on domestic systemically-important banks

and capital surcharge Enhancement of crisis management protocol and

interagency coordination

Financial conglomerates account for 75.5% of the total assets of financial sector…

Improving the integrated regulation & supervision framework…

Such improvement has become even more important due to the dominance of financial conglomerates in the domestic financial sector.

OJK has issued regulations on GCG, risk management, and minimum capital requirements for financial conglomerates. These will be followed by regulations on liquidity management, capital management, and intragroup transaction exposures.


Financial Conglomerates 75.5%

Others24.5%

70

A Comprehensive Financial Deepening Program...strategy to tackle challenges in deepening Indonesia’s financial markets


Financial Market Deepening Program

First Priority:Continuous Basis

Market Development Coordination

Monitoring, match making, and solution:• Repo

• Hedging

Money MarketEncourage well-functioning money market (deep and efficient, risk mitigation, and market integrity), through:• Bank Indonesia Regulation (PBI) on Negotiable Certificate of Deposit (NCD)

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

• Bank Indonesia Regulation (PBI) on Commercial PaperAlternative sources of financing for non-bank corporations, as well as an investment outlet for investors

FX Market• Development roadmap of Indonesia CCP in OTC Derivatives

To support FX market development and reduce market segmentation.• Establish Local Currency Settlement Framework

Reducing dependency on USD payment for international trade.• Encourage product development to increase hedging Supply in domestic market

To provide hedging instrument alternative for corporations to manage their risk exposure

• Corporate Bonds

• Government Bonds

• Medium term notes

• Other instruments

• Infrastructure (ETP, etc)

Supporting Regulations

Money Broker Certification of Dealer and Code of ConductStrengthening JISDOR

• Increase the governance of money broker• Revitalize role of money broker in financial

market

• Obligation on certification for dealers• Obligation to honor code of conduct

• Dealers’ training for certification

• Strengthening the credibility of JISDOR• Extend the usage of JISDOR

Inter-agency Cooperation

On April 2016, the Minister of Finance, the Governor of Bank Indonesia, and the Chairman of the Board of Commissioners of the Financial Services Authority have launched a Coordination Forum for the Development Financing through Financial Market (FK-PPPK). The three authorities have agreed to formulate “The National Strategy to Develop Indonesian Financial

Market Towards 2025” which is expected to be concluded by the end of 2017/early 2018.

71

Progress on General Market Repo Agreement (GMRA)

4 Banks 74 Banks

4 Banks 47 Banks

IDR 0.0 IDR 1.0 – 4.6 tn

Signing

Transaction

Daily Volume

January 2016 March 2017


72

Continuous Program on Capital Market Deepening…continuously strengthened, including through capital market deepening initiatives

The utilization of capital markets by domestic corporations (including financial institutions) demonstrates an increasing trend

Strengthening market infrastructure

Expansion of Single Investor Identification (SID) coverage Development of electronic trading platform (ETP) in the

debt market Development of integrated investment management

system Enhancement of the clearing and settlement process Enhancement of capital market data warehouse

Enhancing the supply-side

Simplification of public-offering requirements & procedures

Development of financial market products (mutual funds, private equity funds, REITs, ABS)

Development of municipal bonds Cross-border offering (harmonizing regulations with

ASEAN Disclosure Standards established by ACMF)

Enhancing the demand-side

Expansion of the domestic investor base (conducting investor education programs)

Expansion of mutual fund distribution channels, including the marketing methods of securities companies

Strengthening governance

Development of market players’ capacity Enhancement of GCG for publicly-listed companies Development of repo regulations and infrastructure


73

Macroprudential Policy Mix to Support Growth

Effective from August 29th, 2016, Bank Indonesia relaxed the Loan to Value Ratio (LTV) and Financing to Value Ratio (FTV) on

housing loans at 85-90% for the first mortgage lending facility, 80-85% for the second mortgage lending facility, and 75-80%

for the third mortgage lending facility.

Housing Loans and Financing Based on Murabahah and Istishna Contracts

Property type (m2)

Lending/Financing Facility

First Second Third

House

>70 m2 85% 80% 75%

22 - 70 m2 - 85% 80%

<21 m2 - - -

Apartment

>70 m2 85% 80% 75%

22 - 70 m2 90% 85% 80%

<21 m2 - 85% 80%

Home Shop/Office

- 85% 80%

Housing Financing Based on MMQ and IMBT Contracts

Property type (m2)

Lending/Financing Facility

First Second Third

House

>70 m2 90% 85% 80%

22 - 70 m2 - 90% 85%

<21 m2 - - -

Apartment

>70 m2 90% 85% 80%

22 - 70 m2 90% 85% 80%

<21 m2 - 85% 80%

Home Shop/Office

- 85% 80%

The relaxation is only applicable to banks with nett NPL for total loan below 5% and gross NPL for property loan/financing below 5%.

The rationale is to stimulate domestic demand in order to drive domestic economic growth momentum while maintaining compliance to

prudential principles.


74

Financial Sector: Fostering Domestic Growth…boosting domestic economic activities and supporting the national economic development

Funding of infrastructure & priority economic sectors

Enhancement of NBFI ownership in government bonds

Private equity funds for infrastructure financing Asset-backed securities specifically designed for

secondary mortgage financing Insurance for farmers and fishermen

Capacity building of financial institutions

Strengthening the capital of financial institutions to increase their financing capacity

Expansion of the business lines of multifinancecompanies

Capital requirements for rural banks based on their operational zones

Development of financial products & services

Expansion of the distribution channels for financial products & services

Development of sustainable finance regulations Utilization of KYC information from third parties Facilitating access to capital market as a source of

funding (e.g. simplification of public offering procedures)

Capital market deepening initiatives

Development of Islamic financial sector

Strengthening the capital of Islamic financial institutions

Spin-off of the Islamic business units of commercial banks

Development of Islamic financial product regulations (sukuk, mutual funds, asset-backed securities)

Continuous education & socialization on Islamic financial products & services


75

Stronger Fundamentals Facing the Headwinds

-197

-35

5.62

1998

2008

Sep 16

82.4

12.1

6.8

1998

2008

Sep-15

30.0

3.8

2.8

1998

2008

Aug-15

17.4

50.2

1998

2008

Sep-15

Inflation Rate (%) IDR Movement (%)

Non-Performing Loan/NPL (%)

Government Debt/GDP

Foreign Reserves (USD bn)

100.0%1998

27.4%2008

28.3%

2016

8.6x

1998

3.1x

2008 2.7x

Q1-2017

116.8%

199833.2%

200834.1%

Q1-2017

More Liquid Market (%)

External Debt (Public & Private) to FX Reserve Ratio

External Debt/GDP

Inflation controlled within the target range IDR still appreciated in early 2017

NPL level is below the maximum threshold of 5%

Consistently well-maintained below 30%

Significantly higher than 1998 & 2008, ample to cover 8.6 months of import and external debt repayment

Significantly lower than 1998 crisisSlightly higher than 2008, but significantly lower than 1998

May 17 124.95May 17 4.33 (yoy)

Apr 17 3.1

62

10.55.7

1998 2008 Jul-15

Overnight interbank money market rate is relatively lower

May 17

4.35

1.1 (ytd)May 17

76

Outlook of Domestic Economy Remains Robust...domestic economic growth is predicted to be higher in 2017

2017 Economic Outlook

Economy to grow in the range of 5.0-5.4% (yoy) in 2017, supported by accelerating exports and investment performance as well as

resilient household consumption.

Inflation is predicted to be within the 2017 inflation target of 4±1%, with the current account deficit projected below 2.5% of GDP

Credit is projected to grow 10-12% in line with expectations of expected economic gains and ongoing impact of previous monetary and

macroprudential policy easing.

2016(Realization)

Economic Growth

5.02%

Inflation

3.02%

CAD (% of GDP)

1.8%

Credit Growth

7.9%

2017 5.0-5.4% 4.0±1% <2.5% 10-12%

Global Domestic

Opportunities • Improving global economic growth• Acceleration of world trade volume

• Improving domestic economic growth• Healthy level of current account deficit

Challenges • Further FFR hikes• Fed’s plan to shed its large balance sheet• Geopolitical tensions in various regions of the world

• Pressures on administered prices inflation• Ongoing consolidation in the corporate and banking

sectors

2017 Economic Opportunities & Challenges

Source : Bank Indonesia

Progressive Infrastructure Development:Strong Commitment on Acceleration of Infrastructure Provision

Section 6

78

The Government has Enacted Various Reforms to Accelerate Infrastructure Provision

Fiscal Reforms Institutional Reforms Regulatory Reforms

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

Viability Gap Funding (VGF) KPPIP Direct Lending

Issuance of MoF Reg. No. 223/2012. To increase project financial feasibility by contributing up to 49% of the construction cost

Availability Payment

Land Revolving Fund

Risk-sharing Guidelines

Issuance of regulatory framework for annuity payment scheme by the Government (MoF Reg. No. 190/2015 for Central Gov’r and MoHA Reg. No. 96/2016 for Regional Gov’t.) during the concession period after the project operational by private sector in order to make the project bankable

Issuance of MoF Reg. No. 220/2010. A revolving-fund sourced from State Budget, to accelerate land acquisition

IIGF has issues risk allocation and mitigation guidelines for PPP project

KPPIP is actively involved in accelerating delivery of priority infrastructure projects

PT. Sarana Multi Infrastruktur

Merging between PT. SMI and Gov’t Investment Center (PIP) to become an infrastructure funding company

Indonesia Infrastructure Guarantee Fund (IIGF)

IIGF has the potential to provide project guarantee for non-PPP projects

PPP Unit

Provide facilities to help GCA on preparing PPP project (PDF/TA)

BLU LMAN

The State Asset Management Agency is mandated to provide land fund for National Strategic Projects to ensure timely land acquisition process

Issuance of Presidential Reg. No. 82/2015.Allow guarantee for direct lending to SOE to accelerate financial close process for infrastructure projects

Land Acquisition

Issuance of Presidential Reg. No. 148/2015.To stipulate land acquisition acceleration based on Law No. 2/2012

Economy Packages

Conduct deregulation for issues hindering infrastructure delivery and develop a task force under CMEA to ensure the effectiveness of economic packages implementation

79

Reforms Along the Project’s Life Cycle...to encourage and accelerate infrastructure project using PPP scheme

Government of Indonesia

Project Development Facility (PDF)

Viability Funding

Gap (VGF)

Guarantee Fund

Tax FacilitiesAvailability Payment

Land Acquisition

Preparation Bidding Process Construction

Project development facility contributing to assist GCA on PPP project preparation (PDF&TA)

Managing entity:KPPIP, PT SMI PT IIF, and Ministry of Finance

A facility with contribution to construction cost to increase project financial viability

Managing Entitiy:Ministry of Finance based on GCA proposal

Gov’t. commitment:49% max. Per project cost

Guaranteeing Govt. contractual obligations under infrastructure concession agreements and Mof Regulation No 130/PMK. 08/2016 re: Govt guarantee for electricity project acceleration

Managing entity:IIGF and MoF

Govt’s comitment:US$ 450 mn

MoF Reg. No. 159/PMK. 010/2015 re: tax holiday for pioneer sector, such as base metal, oil refinery, basic petrochemical, machinery, renewable energy, & telco equipment industries. Sector will be further expanded

Managing entitiy:Ministry of Finance

A scheme in which concessionaires receive sum of money periodically from central or regional government after the completion of an asset.MoF Regulation, and MoHARegulation on Availability Payment has been ratified.

Managing entity:Ministry of Finance & Ministry of Home Affairs

A facility to support land acquisition for infrastructure projects particularly projects that involve private sector

Managing enitiy:Ministry of Finance, Ministry of Agrarian and Land Spatial/BPN and BLU-LMAN

Gov’t. commitment:US$ 12 mn (2016)


80

Efforts to Accelerate Infrastructure Provision

Regulation improvement to accelerate land procurement process

The Government of Indonesia issued Law No. 2 of 2012 on Land Acquisition for Public Interest, with a purpose to provide certaintyabout the land acquisition duration for the Government Contracting Agencies and the Investors. The Law sets an estimated 583days maximum time to complete the land acquisition process.

For its implementation, the Law No. 2 of 2012 was supported by the PresidentialRegulation No. 71 of 2012 on Land Acquisition Implementation for DevelopingPublic Facilities, which has been revised into the Presidential Regulation No. 30of 2015. The Amendment to the Regulation allows a Business Entity to allocatefunding for a land acquisition which can be reimbursed by the Governmentfollowing the completion of land acquisition process. With this Regulation, theland acquisition process is expected not to be delayed by the unallocatedbudget or the delay on the budget disbursement.

Land Procurement Process as Stipulated in Law No. 2 of 2012

Law No. 2/2012 was successfully applied in:

1. Palembang – Indralaya section of the TransSumatera Toll Road Project

2. Java North Line Double Track Rail Project


81

Efforts to Accelerate Infrastructure Provision…the establishment of Indonesia Asset Management Agency (LMAN)


On December 12th, 2016, Indonesia Asset Management Agency (Lembaga Manajemen Aset Negara/LMAN) has been launchedto optimize the use of state assets. LMAN should plan for funding and utilization of land banks as well as pay compensationfor land acquisition to support the government’s infrastructure development program

Mandate

1. Government Regulation No.27/2014 on the Management of State/Region Property

2. Finance Minister Regulation No.219/PMK/2015 on the Governance and Organization of State Asset Management

3. Finance Minister Regulation No.1319/KMK.05/2015 on the Appointment of Indonesia Asset Management Agency as Government Agency to Implement Financial Management of Public Service Agency

Legal Basis1. Property Management

2. Land Funding for National Strategic Project

1. Asset of ex-Pertamina: LNG Badak Bontang, LNG Arun, and Tarogong Land

2. Asset of ex-Indonesian Bank Restructuring Agency (BPPN)

Other portfolio: Asset of ex-Asset Management Company (PPA) and ex-Contractor Cooperation Contract (KKKS)

Portfolio Assets

82

Progress on 225 National Strategic Projects

SECTORS

LOCATIONS

1. Sumatera 46

2. Java 89

3. Kalimantan 24

4. Bali & Nusa Tenggara

16

4. Sulawesi 28

6. Maluku & Papua 13

7. National 10

9%

43%

6%

35%

7%

* Projects are taken out becausethose projects doesn’t fulfil PSN basic,strategic and/or operational criterias

20 projects are completed

96 projects are under construction

12 projects are during transaction

81 projects are in preparation

16 projects are taken out*

RoadCommuni-cation

National Borders

Economic Zones

52 3 7 25

Housing EnergyFisheries/Maritim

e

WaterSupply

Airport

3 7 3 10 17

Seaport Railway Dams Smelter Power

13 19 60 6 1

Progress of National Strategic Projects (as of February 2017)

The Estimated Investment Cost of National Strategic Projects

Private(IDR1,778 tn)

SOE(IDR813 tn)

StateBudget

(IDR360 tn)

IDR2,952 tn

Notes:• The investment cost was calculated for 164 NSP.

• Excluding cost of NSP that finished construction, under review, and have not finished their estimation of construction cost

• Including the costs for the 35,000 MW Program


83

Progress on 30 Priority Projects

1. Balikpapan-Samarinda Toll Road2. Manado-Bitung Toll Road3. Panimbang-Serang Toll Road4. Trans-Sumatera Toll Road (8 Sections)5. SHIA Express Railway6. MRT Jakarta South-North Line7. Makassar-Parepare Railway8. Kuala Tanjung International Port Hub9. Bitung International Port Hub10. Karangkates IV & V (2x250MW)

Hydro-Electric Plant11. Kesamben (37MW) Hydro-Electric Plant12. Lodoyo (10MW) Hydro-Electric Plant

13. Inland Waterways Cikarang-Bekasi-Laut (CBL)14. Light Rail Transit (LRT) South Sumatera15. Integrated LRT Jakarta-Depok-Bogor-Bekasi16. National Capital Integrated Coastal Development

(NCICD) Phase A17. Jakarta Sewerage System18. West Semarang Water Supply System19. High Voltage Direct Current (HVDC)20. Sumatera 500 kV Transmission Line

21. Central-West Java 500 kV Transmission Line22. Batang, Central Java Powerplant23. Indramayu Powerplant24. Mine to Mouth Powerplant South Sumatera 8-1025. Bontang Refinery26. Revitalization of the Existing Refineries

(Balikpapan, Cilacap, Balongan, Dumai, Plaju)27. New Port Development in West Java (North Part)28. Tuban Refinery29. Palapa Ring Broadband30. East Kalimantan Railway

Transaction

Preparation

Reassessed

8

5

9

18

1713

23

25

26

27

28

30

16

10

1

3

2

4

6

7

4

44

44

44

15

14

20

2122

29

29

29

29 29

29

29

29

2929

1112

19

24

Construction

From the National Strategic Projects, the Government has selected a list of 30 Priority Project to be the focus ofinfrastructure delivery in the beginning of 2016.


84

Progress on 30 Priority Projects

Recent MilestonesProgress of 30 Priority Projects (as of May 2017)

Funding Scheme of 30 Priority Projects

13 projects are in construction

4 projects are in transaction

12 projects are in preparation

5 projects are reassessed

Private(IDR770 tn)

SOE(IDR325 tn)

StateBudget

(IDR255 tn)

Environment Permit was published. This is a part of the requirements for applying external loan through ODA scheme.

KA Andal (environmental impact) decree is going to be published soon by the Ministry of Environment and Forestry.

Governor regulation No. 53/2017 regarding the assignment to PT. MRT Jakarta was published.

All stakeholders are already agreed on PPP as the financing scheme of the project.

15 projects reassessed include HVDC; Mine Mouth South Sumatera 8,9,10 Plant; Karangkates IV & V, Kesamben and Lodoyo Plants.

Patimban Port:

Cilacap Refinery Revitalization:

Jakarta MRT (South-North Line):

West Semarang Water Supply System:


17%

30%

10%

43%

85

Energy Sector: the Progress of 35.000 MW Program

No Phase MW %

1 Planning 5,824 16.32

2 Procurement 8,810 24.68

3 Power-purchase Agreement 9,793 27.44

4 Construction 10,561 29.59

5 Commercial Operation Date 706 1.98

17 Dec ‘14

Cabinet Meeting“There’s electricity crisis in

Indonesia, requires construction of large capacity plant "

Jan ‘15

Average economic growth of 6.7% requires 7,000 MW / year or

35,000 MW / 5 years

(Kepmen ESDM No. 0074/2015 onRUPTL 2015-2024)

Jan ‘15

Debottlenecking through regulation:

1. Regulation No.1/2015 concerning electricitysupply cooperation & joint utilization of theelectrical network among license holders.

2. Regulation No.3/2015, concerningProcedures of Purchasing Electrical Powerand benchmark prices for Electrical Powerthrough the Direct Selection & Appointment.

16 Mar ‘15 4 May ‘15

March ‘17

Cabinet MeetingProgress of 35,000 MW

Launching 35.000 MW by the President in Goa Beach Sanden

DIY

The progress so far:

Source: KPPIP

SulawesiPLN: 2,000 MWPrivate: 1,470 MWTransmission: 5,275 ckt.kmSubstation: 4,390 MVA

MalukuPLN: 260 MWPrivate: 12 MWTransmission: 653 ckt.kmSubstation: 620 MVA

PapuaPLN : 220 MWPrivate: 0 MWTransmission: 364 ckt.kmSubstation: 460 MVA

KalimantanPLN: 900 MWPrivate: 1,735 MWTransmission: 5,604 ckt.kmSubstation: 3,500 MVA

Nusa TenggaraPLN: 670 MWPrivate: 0 MWTransmission: 2,347 ckt.kmSubstation: 1,410 MVA

SumateraPLN: 1,100 MWPrivate: 8,990 MWTransmission: 18,729 ckt.kmSubstation: 35,521 MVA

Jawa & BaliPLN: 5,000 MWPrivate: 13,697 MWTransmission: 9,185 ckt.kmSubstation: 66,265 MVA

35,000 MW Program Distribution

Source: PLN

86

Acceleration of 35.000 MW Program

Government

PT PLN

EPC Powerplant and Transmission

PLN Subsidiary(Joint Venture)

IndependentPower Producer

Strengthen Equity

2B1

Government Support (outside Guarantee)• Provision of Primary Energy• Provision of Renewable Energy• Simplicity of Permits and non-Licensing• Spatial Planning• Land acquisition• Resolution on Legal Matters

Local Content Obligation on the usage of local content through an open book system, price guideline, reverse engineering or other methods to maximise the local content.

2A

Assignment

SJKU* Ministry of Finance

Strengthen PLN‘s Balance Sheet

*)SJKU=Surat Jaminan Kelayakan Usaha/ Business Viability Guarantee Letter

The Government has issued Presidential Regulation No. 4/2016 on Electricity Infrastructure Acceleration to accelerate power projects

Provision of Electricity

Refinancing Hedging

Financial Asset OptimizationDirect Lending

Direct Lending

Bond issuance by PT PLN

Company Tax Holiday

PT PLN’s divident allocation

Loan from independent lenders

Asset Revaluation

Other typesof funding

Equity Injection by the Government


87

Significant Progress on Infrastructure Projects

DatabaseProject information such as map, track, existing study and

latest project status.

An integrated IT system with

monitoring capacity for stakeholders, so that they can have

real time data.

Platform data outlook that is efficient and functional using a user-friendly framework.

Record decisions related to projects and synchronize the implementation schedule that can be utilized by stakeholders.

KPPIP developed an integrated IT System for monitoring ofnational strategic and priority projects, providing database onprojects’ latest status which can be effectively utilized formonitoring and decision-making purposes.

Improving Monitoring System on Infrastructure Projects1Roads

Trans-Sumatra Toll Road Merah Putih Bridge, Ambon

Dams

Jatigede Dam (Operational)

Transportation

Jakarta MRT Project2

Drinking Water Processing

Umbulan Drinking Water Provision System, East Java

1 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)2 Not funded from National Budget

Terminal 3 Ultimate Soekarno-Hatta2

New Tanjung Priok Port Project2 Nop Goliat Dekai, Papua

88

Existing Iron Ore Refinery Facility

No. Company ProductOre Input

Capacity (ton)Concentrate Input Capacity

(ton)Investment(USD mn)

Progress Completion Date

1 PT DPS Steel 1.100.000 220.000 40 100% 2011

2 PT MJISSponge iron, slab, billet

3.300.000 660.000 150 100% 2013

No. Company ProductOre Input

Capacity (ton)Concentrate Input Capacity (ton)

Investment (USD mn)


1 PT SILO Sponge iron 6.300.000 4.939.200 170 92% 2017

2 PT SBP Pig iron 240.000 50.000 120 35% 2017

3 PT MIS Pig iron 1.200.000 900.000 73 54% 2018

4 PT MMP Pig iron 6.300.000 5.400.000 86.570 83% 2018

5 PT RS Sponge iron 3.000.000 600.000 4.394 5% 2018

6 PT QEP Sponge iron 2.000.000 400.000 8.417 8% 2018

7 PT JMI Pig Iron 3.000.000 600.000 73 6% 2019

Completed but not operating

No. Company Product Input Capacity (ton)Investment (US$ mn)


1PT Indonesia Chemical

AluminaChemical Grade Alumina 1,000,000 0,49 100% 2013

2 PT Well Harvest Winning Smelter Grade Alumina 1,000,000 1,1Phase 1 : 100% Phase 2 : 0%

2016 (Phase 1)2017 (Phase 2)

Upcoming Iron Ore Refinery Facility

Existing Alumina and Bauxite Refinery Facility

Completed and operating

Investment in Iron Ore, Alumina and Bauxite Smelter

89

Investment in Nickel Smelter

90

Financing Needs and Schemes

90


145.9

SOE Private

234.8 88.8

Financing Needs

Gov’t Budget

Financing Gap

399.6 164.8

*(USD bn)

41,3%

58,7%

22,2%

36,5%

100%

• Government Budget is used for basic infrastructure projects, mainly for projects that are economically feasible but financially are not.

• SOE scheme is used for projects managed under SOEs (electricity, toll roads, oil, etc.) to leverage public funding channeled through capital injections (PMN) and empower SOEs

• PPP scheme is mainly targeted for projects that are both economically and financially feasible.

• The government may provide financial support to make certain projects financially feasible.

• The government may appoint certain SOEs to assign specific infrastructure projects

• To support the infrastructure provision through the SOEs, the government provide a number of financial facilities, such as:• Capital Injection (PMN)• Lending• Credit Guarantees• Guarantees for SOE Direct Lending• Business Viability Guarantees

Infrastructure Financing Need 2015-2019 General criteria for financing schemes

Financial Facilities Provided to SOEs Infrastructure Projects

PPP scheme and facilities provided to PPP Projects

91

Management of Contingent Liabilities

Credit Guarantee

PPP Guarantee

Business Viability

Guarantee

Power (Electricity) – Full credit guarantee for PLN’s default on its payment obligation (FTP 1 10,000 MW, 35GW)

Water – 70% guarantee of PDAM’s principal payment obligation

Infrastructure - Full credit guarantee on SOE’s default (for lending from international financial institution) & guarantee for PT SMI (local infrastructure financing)

Toll road – Full credit guarantee on Hutama Karya’s payment obligation (Sumatra Toll Road Development)

Power (Electricity) – Guarantee on the viability of PLN to fulfill Purchase Contract Electricity & guarantee against political risk

Infrastructure – Guarantee on the obligation of Government related entities in accordance to the Agreement

No.Central Government Guarantee

for Infrastructure ProgramsGuarantee Documents

Committed Guarantee Amount

(USD bn)1

Exposure/Outstanding (USD bn)1

1Coal Power Plant 10,000MW Fast Track Program (FTP 1)

36 6,98 3,47

2 Clean Water Supply Program 10 0,02 0,01

3Direct Lending from International Financial Institution to SOEs

2 1,10 0,23

4 Sumatra Toll Road Development 3 0,20 0,07

5Renewable energy, Coals & Gas Power Plant 10,000 MW (FTP 2)

12 11,91 1,47

6 Public-Private Partnerships (PPP) 5 5,81 0,83

Total 68 26,03 6,08

As % of GDP 2.8% 0.7%

For the period 2017 – 2020, the Maximum Guarantee Limit is set at 6% of GDP

In compliance with the guarantee limit, with projected 2020 GDP of IDR 18,000tn (eq. USD 1,349bn), the capacity for guarantee issuance during 2017-2020 is IDR 1,083tn (eq. USD 81bn) – cumulative

1. USD/IDR: 13,360 as of 14 Mar 2017

Government Guarantee Program and Portfolios 2008 - Present Guarantee Program Based on Guarantee Classification

92

Government Financial Facilities for PPP Projects

Financial Facilities to Attract More Private Participation

Those financial facilities were instrumental in supporting the execution of PPP projects, indicated by the signing of financial close

of the following PPP projects:

Viability Gap Fund (VGF)

Project Development Facility (PDF)

Government Guarantees (directly by MoF or through IIGF)

Financing from PT. SMI and PT. IIF

Availability Payment Schemes

More Funding Schemes are on the Pipelines

Project Financing funded by the private sector through the granting of concessions for an operating asset owned by the Government/SOE (based on the policy of the Government) to the private sector to be operated & managed.

Project Financing funded by any source of funds other than Government’s budget, e.g. long term management funds (insurance, repatriated funds from tax amnesty, pension funds, etc.), private equity investors and infrastructure funds. Supported & facilitated by National Development Planning Ministry/Bappenas.

• Asset is owned by public sector• Operating asset, not greenfield project• Records positive cash flow for the last

several years• Predicted revenue

• Asset is owned by private sector• Greenfield / brownfield / operating projects

Scheme Characteristics

Scheme Characteristics

LCS(Limited

Concession Scheme)

PINA(Non-Government

Budget Infrastructure Financing)

93

Progress of PPP Infrastructure Projects

No Project NameProject Cost

(IDR tn)Financial Facilities Status

1 Central Java Power Plant 40 Guarantee (MoF & IIGF) FC on June 6th, 2016; Construction 23%

2 Palapa Ring – West Package 1.28 PDF, IIGF Guarantee & AP FC on August 11th, 2016; COD target: February 2018

3 Palapa Ring – Central Package 1.38 PDF, IIGF Guarantee & AP FC on September 29th, 2016; COD target: March 2018

4 Palapa Ring – East Package 5.13 PDF, IIGF Guarantee & AP FC on March 29th, 2017; COD target: September 2018

5 Umbulan Water 2.1 PDF, VGF & IIGF Guarantee FC on August 30th, 2016

Successful Projects Reaching Financial Close in 2016 and 2017

No Project NameProject Cost

(IDR tn)Financial Facilities Status

1 Batang–Semarang Toll Road 11 IIGF Guarantee PPP & guarantee contracts signed on April 27th, 2016

2 Manado–Bitung Toll Road 5.1 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016

3 Samarinda–Balikpapan Toll Road 9.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016

4 Pandaan–Malang Toll Road 5.9 IIGF Guarantee PPP & guarantee contracts signed on June 8th, 2016

5 Serpong–Balaraja Toll Road 6.0 - PPP contracts signed on June 8th, 2016

6 Jakarta–Cikampek Toll Road 14.8 Co guarantee (MoF & IIGF) PPP & guarantee contracts both signed on December 5th, 2016 and February 22nd, 2017

7 Krian–Legundi-Krian Toll Road 9.0 Co guarantee (MoF & IIGF) PPP & guarantee contracts both signed on December 5th, 2016 and February 22nd, 2017

8 Serang–Panimbang Toll Road 5.3 Co guarantee (MoF & IIGF) PPP & guarantee contracts signed on February 22nd, 2017

9 Cileunyi–Sumedang-Dawuan Toll Road

8.2 Co guarantee (MoF & IIGF) PPP & guarantee contracts signed on February 22nd, 2017

Signed PPP Projects in 2016 and 2017

94

New Guarantee Schemes for Non-PPP Projects

The Government had issued Presidential Regulation No 82/2015 and Ministry of Finance Regulation No 189/2015 to provideguarantee for SOE Direct Lending from IFIs for the Development of Infrastructure Projects.

Guarantee on SOE Direct Lending from International Financial Institutions (IFIs)

Guarantee for Regional Infrastructure Financing Provision

State finance soundness Fiscal sustainabiliyBest practice of fiscal risk

management

The objective of this guarantee is to provide credit enhancement in terms of low interest rate and long tenor financing, with 3 main principles:

The Government had issuedMinistry of Finance Regulation No174 of 2016 to provide guaranteeto PT SMI on the assignment ofregional infrastructure financingprovision, by loan to localgovernments that is transferredfrom PIP to PT SMI, and new loanchanneled by PT SMI to the localgovernment.

Based on Government RegulationNo. 95/2015 and Ministry ofFinance Regulation No. 232/2015,Minister of Finance assigns PT SMI(Sarana Multi Infrastruktur) to carryout functions in providing loan tolocal government, as previouslycarried out by PIP (GovernmentInvestment Center).

The objective is to give stimulus tothe acceleration of localinfrastructure development throughthe ease of access to infrastructurefinancing and to boost localeconomic growth, as well as toprovide alternative financingschemes in order to meet localinfrastructure development needsand to reduce reliance onstate/local budget.

95

Progress of SOE’s Projects

Progress of Projects Benefiting from Guarantees on SOE Loans

No SectionsLength(Km)

Project Cost (IDR bn)

Status (as of March 10th, 2017)

1 Medan-Binjai 17 2.74 Construction progress: 54.18%Land Acquisition: 89.91%

2 Palembang-Indralaya 22 3.30 Construction progress: 52.68%Land Acquisition: 97.68%

3 Bakauheni-Terbanggibesar 140 16.79 Construction progress: 23.88%Land Acquisition: 78.14%

4 Pekanbaru-Dumai 131 16.21 Construction progress: 41.02%Preparation for DED

5 Terbanggibesar-Pematangpanggang 100 11.86 Preparation

6 Pematangpanggang-Kayuagung 85 10.08 Preparation

7 Kisaran-Tebingtinggi 60 6.99 Survey and Planning

8 Palembang-Tanjungapiapi 90 14.29 Survey and Planning

The Government issued government guarantees to loans of PT. Hutama Karya in the development of Trans-Sumatera Toll Road, ascomprise as follow:

96

Progress of SOE’s Projects

Progress of Projects Benefiting from Guarantees on SOE Direct Lending

No Project NameProject Cost (IDR mn)

Lender SOE Status

1 Sumatera Power Transmission and Distribution

600 ADB PT. PLN Guarantee is effective

2 Sumatera Power Distribution 500 World Bank PT. PLN Guarantee is effective

3 The Enhancement of Electricity Grid 330 IDB PT. PLN Preparation of guarantee issuance (recommendation to the Minister of Minister for Approval)

Other Guarantees That Have Been Provided to SOE Projects

No ProgramGuarantee Commited

(IDR bn)SOE Number of Guarantees

1 Fast Track Program 1 6.98 PT. PLN 36

2 Fast Track Program 2 11.91 PT. PLN 12

3 Clean Water Supply Program 0.02 PDAM 10