PowerPoint Presentation · •APIP/Import identification •NIK/Customs registration •Letter of...

April 2017

Republic of Indonesia

Building ExternalResilience of Indonesia

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

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]

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

52

25

46

4038

15

25

35

45

55

2010 2011 2012 2013 2014 2015

Voice and Accountability Political Stability/Absence of ViolenceGovernment Effectiveness Regulatory QualityRule of Law Control of Corruption

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 Indicators1

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

* Both ‘Rule of Law’ and ‘Regulatory Quality’ shared the same score (40) in 2015

37

40

35

41

20

25

30

35

40

45

50

2012 2013 2014 2015 2016

Indonesia India Brazil Philippines Turkey

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



5

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 20164. 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

42.047.6

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 among the top 10 investment destination country (January 2017)3

4

4

5

5

5

5

8

11

11

13

13

15

19

21

47

0 10 20 30 40 50

Myanmar

Vietnam

Malaysia

Philippines

France

Australia

Indonesia

Brazil

Mexico

Germany

Japan

United Kingdom

India

China

United States

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

6

BBB- / Positive

Baa3 / Positive

BB+ / Positive

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 of external vulnerability and the strength of its institutions.“

June 2016, BB+ , Positive Rating Affirmed

“The ratings on Indonesia balance the country's low per capita income plus middling fiscal and external indicators, against improved policy and institutional settings, credible monetary policy, and buoyant economic growth.”

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.’

Moody's

S & P

Fitch

Investment Grade

JCRA

R & I

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

BBB-

BB+

BB

B+

BB-

Strong Confidence on Indonesia as Reflected in Improvement of Rating Outlook

Below Investment Grade

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 (6 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

industriesPhase IX (27 Jan ’16)

Accelerating electricity generation, stabilizing meat prices and improving rural –urban logistics sector

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

protection for SMEs

Phase 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

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


11

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

Deregulation on Logistics Sector

12

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”

* Inclucing 12 projects in EMR sector

13

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

14

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”


15

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


16

(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

17

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


18

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

19

Investment Achievement in 2016: Summary

Investment Growth Workforce Absorption

Regional Investment

Sectoral Contribution (IDR tn)

Investment in New Projects

Investment Source (USD mn)

* 2016 investment target was IDR 594.8 tn

Sulawesi, Maluku & Papua recorded the highest

investment growth in 2016

2016*

612.8IDR tn

Java

11%

Kalimantan

26%

Bali & Nusa Tenggara

16%

Sumatera

39%

Sulawesi

56%Maluku & Papua

58%

Investment in outside Java reached

46.4%from total investment

in 2016

8

1.5

2.2

2.7

5.4

9.2

0 2 4 6 8 10

Others

Netherland

Hong Kong

China

Japan

Singapore

0 20 40 60 80 100

2015

2016

Primary Manufacture Infrastructure & Services

95

89

236

355.8

214.4

188

2015

545.4IDR tn 12.4%

Increased

1.4 mnof domestic workers

75.5%New projects

24.5%Expansion projects


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

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

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

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

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)

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

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)

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)

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

%

Institutions2017 GDP growth

(%YoY)

2017 Budget 5.1

Bank Indonesia 5.0-5.4

IMF 5.1

World Bank 5.3

ADB 5.1

Consensus Forecast (April 2017) 5.2

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

2011 2012 2013 2014 2015 2016* 2017* 2018*

Brazil India Indonesia Malaysia

Philippines Singapore Thailand

Favourable GDP Growth Compared to Peers2

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

%

0.04

3.83 3.27

(2.07)

(0.17)

3.75 3.30

(1.70)

(0.40)

4.01 3.13

(1.77)

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

-3.0

-1.0

1.0

3.0

5.0

7.0

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

2014 2015 2016

QoQ YoY

24

Strong and Stable GDP Performance

Contributors to GDP Growth by Sector (%, YoY)

Spatial GDP Growth

By sectors2014 2015 2016

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

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

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

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

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

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

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

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

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

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

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

Java: 58.5%

Sumatera: 22.0%

Maluku & Papua: 2.5%

Sulawesi: 6.0%

Kalimantan: 7.9%

Bali & Nusa Tenggara: 3.1%

Spatial GDP Growth Contribution

SumateraGDP GrowthQ4 2016: 4.5%

JavaGDP GrowthQ4 2016: 5.5%

KalimantanGDP GrowthQ4 2016:2.2% Sulawesi

GDP GrowthQ4 2016:6.8%

Maluku & PapuaGDP GrowthQ4 2016: 14.7%

Bali & Nusa TenggaraGDP GrowthQ4 2016: 4.9%

• After experiencing negative growth in2015, mining sector could growpositively. Mainly, due to theimprovement in commodity prices.

• Java, as a major growth contributor,maintained its high growth, while otherregions improved

• Government tries to promote more valueadded, as well as labor intensivesectors, to achieve higher growth, byproviding various incentives, includinginvestment relaxation, fiscal incentives,and easiness in doing business.

External Factor:Improved External Resilience

Section 3

26

-12

-8

-4

0

4

8

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

2012 2013 2014 2015 2016**

Goods Service Income Secondary Inc. Current Account

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

(6.3)

(1.6)

5.1

0.9

(1.8)

Source: Bank Indonesia

FX Reserves as of Mar 2017: US$121.8bn (Equiv. to 8.6 months of imports + servicing of government debt)

MonthUS$bn

2016**:CA Deficit(US$16.3bn)

116.4

6.64.5

(1.8)

Source: BPS

US$bn

* Preliminary Figure ** Very Preliminary Figure

2.02

1.23

(0.78)

-

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

2012 2013 2014 2015 2016 2017

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*

2012 2013 2014 2015 2016**

Thousa

nds

Current Account Capital & Financial AccountOverall Balance Reserve Assets (RHS)

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

-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

2012 2013 2014 2015 2016 2017

Non-OG OG Total

2017: Surplus

US$3.92bn*

27

Exchange Rate In Line with Fundamentals

Stable Movement of Rupiah

Throughout the first quarter of 2017, the rupiahappreciated 1.09% (ytd) to close at Rp13,326/USD.Rupiah appreciation was driven by an influx of non-resident capital due to attractive domestic investmentassets as well as sounder global factors. Foreign capitalinflows were primarily drawn to stocks and governmentdebt securities (SUN).

Rupiah Exchange Rate Fared Relatively Well Compared to Peers


IDR/US$

Quarterly Averagedata as of March 31st, 2017

IDR/USD

YTD 2017* vs 2016 Mar vs Feb 2017

7.81

2.43

4.27

4.74

4.31

1.27

1.37

1.09

-1.20

-3.10

0.63

11.12

10.83

0.32

0.48

-3.92

-6.74

-0.32

-5.01

-18.18

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

KRW

ZAR

BRL

INR

THB

EUR

MYR

IDR

PHP

TRY

Average Point to Point

2.17

-0.16

-0.68

-0.36

-0.05

-0.55

0.09

0.37

-0.14

0.70

0.33

1.74

-2.90

-0.56

-0.37

-0.29

0.08

0.14

0.34

0.53

0.84

1.06

1.55

2.84

-4.00 -3.00 -2.00 -1.00 0.00 1.00 2.00 3.00 4.00

ZAR

TRY

BRL

CNY

IDR

PHP

MYR

EUR

JPY

KRW

THB

INR

Point to Point Average

*data as of March 31st, 2017


Monthly Average

28

Ample Lines of Defense Against External Shocks

Ample level of FX reserves to buffer against external shock

FX Reserves as of March 2017: US$121.8 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 BUMNs (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 BUMNs (min. level Alert)

Social Security Organizing Agency (BPJS)’s Budget

BPJS (min. level Alert)

Bond Stabilization Framework

Source: Ministry of FInance

30

Strengthened Private External Debt Risk Management

(US$bn)

Source: External Debt Statistics of Indonesia, April 2017 Source: Moody’s Statistical Handbook, November 2016

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)

23.3

27.3

34.7

33.0

29.5

50.4

23.4

26.5

33.3

36.0

37.5

55.4

21.4

25.8

36.4

34.7

39.3

55.5

0.0 10.0 20.0 30.0 40.0 50.0 60.0

India

Philippines

Thailand

Indonesia

Brazil

Turkey

2016F 2015 2014

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

Encouraging Corporates Compliance

(%)

2,267160

Q4-2016 (∑n = 2,427)

Comply Not Comply

(6.6%)(93.4%)

2,168 259

Q4-2016 (∑n = 2,427)

Comply Not Comply

(89.3%) (10.7%)

> 3 – 6 months< 3 months

0

50

100

150

200

250

300

350

0

50

100

150

200

250

300

2007 2009 2011 2013 2015* Feb

2016*

Apr

2016*

Jun

2016*

Aug

2016*

Oct

2016*

Dec

2016*

Feb

2017**

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

Total Ext. Debt: US$322bn

Private Sector Ext. Debt:US$160bn


31

Manageable External Debt Profile...short term non-bank corporate debt (non affiliation) represents only 9.4% of total private external debt

Private

Short-Term1

Private Non-Bank

External DebtPosition

Affiliation

Non Affiliation

US$161.9bnor

50.3%of Total Ext.

Debt

US$113.3bnor

71.0%of Private Ext.

Debt

US$20.5bnor

12.8%of Private Ext. Debt

US$10.9bnor


US$14.9bnor


Public Long Term 1 Private Bank

US$25.9bnor


US$159.7bnor

49.7%of total Ext. Debt

US$46.4bnor


External Debt Position as of February 20171 Based on remaining maturity

Source: External Debt Statistics of Indonesia, April 2017

US$321.7bn

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 support

economic stability• Accommodative 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 to 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

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

1,146.9

1,240.4

1,284.9

99.2

248.9

255.6

1,498.9

800

900

1000

1100

1200

1300

1400

1500

1600

2014 2015 2016 2017

Realization Outlook

19.5%

8.2%

29.9%

3.4%

3.6%

24.1%

(2.6%)

16.7%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

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

3,687.2

1,031.8

146.6

Onshore Declaration

Offshore Declaration

Repatriation

Revenue

IDR 134.8tn

~1.1% of GDP

Asset

declared

IDR 4,865.6tn

~39.3% of

GDP

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

• Total assets declared in the tax amnesty program as of March 31, 2017 amounted to an equivalent of 39.3% of 2016 GDP

• Tax reform results positive impact to the broadening the tax base, as well as restoring trust between taxpayers and tax authority

• Referring to research from an independent body, Indonesia’s tax amnesty is the most successful tax program in the world (based on revenue and declared assets)

CountryRepatriation Declaration Total

PortionIDR tn IDR tn (Rep + Dec) IDR tn

Singapore 83.25 741.56 824.81 70.0%

Virgin Islands 6.48 75.37 81.85 6.9%

Hong Kong 16.28 56.93 73.20 6.2%

Cayman Isl. 16.51 52.72 69.22 5.9%

Australia 1.42 41.20 42.62 3.6%

Tax Amnesty Result1 Declaration & Repatriation (Country of Origin)

Compliance Rate in Submitting Annual Tax Report

Source: Ministry of Finance

Note: Figures in IDR trillion1 Data as of 31 March 2017. End of tax amnesty period III

114.2

1.7

18.8

Redemption Money

Preliminary Evidence Payment

Tax Arrears Payment

39

More Comprehensive Tax Reform...expected to positively impact the trajectory of the economy in both the short and long term

Tax Amnesty as the Milestone of Tax Reform

Optimizing the tax amnesty momentum

(last period – until March 2017– and post program benefits)

1. Intensive communication for the last period up to March 2017

2. Encouraging SMEs participation by allowing them apply the program collectively

3. Optimizing new database from tax amnesty participants

4. Improving law enforcement (through audit and investigation)

658.7

619.9

723.3

873.9

980.5

1077.3

1146.9

1240.4

1283.6

1495.9

13.3%

11.1%

11.2%

11.8%

11.9% 11.9%11.4%

10.7% 10.3% 11.0%

0%

2%

4%

6%

8%

10%

12%

14%

0

200

400

600

800

1000

1200

1400

1600

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Human Resources

To Improve Tax Ratio in 2017

Tax (IDR tn) Tax Ratio to PDB (RHS)

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

• Improvement on public data access for individual data management

• Enhancement of data management

40

Revenue and Expenditure Profile by Region…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: 3149.6Realization: 2528.7

AirportTarget: 3Realization: 3

Bridge (km)Target: 12.9Realization: 10.6

Railway (km)Target: 114.9Achievement: 114.9

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

Management of Contingent Liabilities

Government Guarantee Program and Portfolios 2008 - Present

• Central Government Guarantees are carefully provided to meet various item of infrastructure programs

• Until Sept 2016, total guarantee committed are USD16,24 bn (eq. IDR211,1 tn) for 6th programs, and outstanding/exposure were USD5,59 bn (eq. IDR72,6 tn)

48

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


49

Budget Financing Breakdown in 2017

Breakdown of Budget Financing IDR tn US$ bn

Government Debt (net) 384.69 28.36

Government Securities (net) 399.99 29.49

Issuance 684.84 50.49

Redemption & Cash Management

(281.84) (20.78)

Debt Portfolio Management (3.00) (0.22)

Domestic Loans (net) 1.49 0.11

Withdrawal 2.50 0.19

Redemption (1.01) (0.07)

Foreign Loans (net) (16.79) (1.24)

Withdrawal 48.29 3.56

Redemption (65.08) (4.80)

Debt (Gross)

IDR735.6tn

Redemption

IDR350.9tn

Budget Financing

IDR330.2tn

Non-Debt Financing

IDR54.5tn


50

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

Government Issuance Targets International Bonds

• Issuance of international bonds as a complement to avoid crowding out the domestic market consists of USD, YEN or EURO global bonds;

• International bond issuance can be maximized up to 25% 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 64.4% from

gross issuance target

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

46.9% from gross issuancce target

Debt Securities

71%

Sukuk29%

ATM for Government Securities (SBN): 7-9 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%


51

Disciplined and Sophisticated Debt Portfolio Management

Stable Debt to GDP Ratio Over the Years

Weighted Average Debt Maturity of ~9.0 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

(1)

Years

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

9.79.6

9.7

9.4

9.0 9.0

8.0

8.3

8.5

8.8

9.0

9.3

9.5

9.8

10.0

2012 2013 2014 2015 2016 Mar-17

56% 53% 57% 56% 58% 58%

24% 29% 29% 31% 30% 30%

14% 12% 9% 8% 7% 7%3% 3% 3% 3% 4% 3%3% 3% 2% 2% 1% 1%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015 2016 Mar-17

IDR USD JPY EUR Others***

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

52

Well Balanced Maturity Profile With Strong Resilience Against External Shocks

Declining Interest Rate Risks

Debt Maturity Profile

%

Declining Exchange Rate Risks

%

Upcoming Maturities (Next 5 Years)

%IDR tn

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.

69

109 134

111

124

127

103

87 115

87

71

45

21

20

17

17

16

12 29

5 23 28

2 1 1

31

21 28

27

115

192

184

116 139

101

97

168

45 126

91

53

100

29

121

57

52

97

5

79

22 22

7

15 26

23

20 26

0 0

0

50

100

150

200

250

300

2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045

IDR-Denominated Other Currencies

16.2 16.014.8

13.712.3 11.5

22.5 23.2

21.0 20.7

17.819.5

0

5

10

15

20

25

2012 2013 2014 2015 2016* Mar-17

Variable Rate Ratio¹ Refixing Rate²

10.2 11.7 10.7 12.2 11.7 11.1

44.446.7

43.4 44.541.8 41.7

0

10

20

30

40

50

2012 2013 2014 2015 2016* Mar-17

FX Debt to GDP Ratio** FX Debt to Total Debt Ratio

7.28.6 7.7 8.4

6.68.9

21.5 21.820.1 21.4

23.0 23.7

32.4 33.4 33.9 34.736.5 36.6

0

10

20

30

40

2012 2013 2014 2015 2016* Mar-17

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


53

Profile of Total Central Government Debt

Foreign Ownership of Government Securities at Longer Tenors

Holders of Government IDR Bonds – Composition March 2017

Government Debt Outstanding

209.41199.48 204.51 194.55 229.40 255.14 265.98USD bn 268.91

(%)

(%)

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

Loan Government Securities

30.80 32.98 32.54 38.13 38.12 38.48 39.10 39.16 37.5 37.85 37.47 38.24

32.58 30.49 33.7630.83

37.85 32.8938.94 39.77 39.9 34.89 34.5 35.53

36.63 36.53 33.70 31.0423.95 28.63 21.95 21.07 22.5 27.27 28.03 26.22

0.00

20.00

40.00

60.00

80.00

100.00

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

Foreign Holder Domestic Non Banks Domestic Banks

11.87 7.84 5.2 4.65 3.23 2.69 3.5 3.4 5.2 5.2

24.9719.32 18.29 18.96

13.1 13.7323.1 19.8 19.1 18.6

63.16 72.84 76.5 76.3983.66 83.57 73.4 76.8 76.7 76.1

30.8032.98 32.54

38.13 38.21 39.10 37.55 37.8 37.538.2

0

20

40

60

80

100

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

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

(%)

273.97258.03

74.1365.66 68.82 70.04 76.16 77.99 79.33 79.37 79.8378.86

25.8734.34 31.18 29.66 23.84 22.01 20.67 20.63 20.1721.14


54

Ownership of IDR Tradable Central Government Securities

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

(IDR tn)

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

Banks* 375.55 31.04% 350.07 23.95% 361.54 21.95% 399.46 22.53% 495.92 26.22%

Govt Institutions (Bank Indonesia**)

41.63 3.44% 148.91 10.19% 150.13 9.12% 134.25 7.57% 70.57 3.73%

Bank Indonesia (gross) 149.07 9.05% 157.88 8.90% 176.46 9.33%

GS used for Monetary Operation

-1.05 -0.06% 23.63 1.33% 105.88 5.60%

Non-Banks 792.78 65.52% 962.86 65.87% 1135.18 68.93% 1239.57 69.90% 1324.55 70.04%

Mutual Funds 45.79 3.78% 61.60 4.21% 76.44 4.64% 85.66 4.83% 89.32 4.72%

Insurance Company 150.60 12.45% 171.62 11.74% 214.47 13.02% 238.24 13.43% 249.52 13.19%

Foreign Holders 461.35 38.13% 558.52 38.21% 643.99 39.10% 665.81 37.55% 723.22 38.24%

Foreign Govt's & Central Banks

103.42 8.55% 110.32 7.55% 118.53 7.20% 120.84 6.81% 24.32 6.57%

Pension Fund 43.30 3.58% 49.83 3.41% 64.67 3.93% 87.28 4.92% 86.49 4.57%

Individual 30.41 2.51% 42.53 2.91% 48.90 2.97% 57.75 3.26% 66.20 3.50%

Others 60.51 5.00% 78.50 5.37% 86.72 5.27% 104.84 5.91% 109.80 5.81%

Total 1,209.96 100% 1,461.85 100% 1,646.85 100% 1,773.28 100% 1,891.04 100%


55

Government Securities Realization

(IDR mn)

*Adjusted with issuance related to cash management realizationBudget 2017

Budget Realization (a.o. March 31, 2017)

% Realization to Budget 2017

Government Securities Net 399,992,586 189,799,299 47.45%

Government Securities Maturing in 2017 and Buyback 284,842,264 75,974,968 26.67%

Issuance Need for 2017* 684,834,850 265,774,267 38.81%

Government Debt Securities (GDS) 169,327,500

Domestic GDS 122,130,000

-Coupon GDS 53,730,000

-Conventional T-Bills 68,400,000

-Private Placement -

-Retail Bonds -

International Bonds 47,197,500

-USD GMTN 47,197,500

-Euro GMTN -

-Samurai Bonds -

-Domestic USD Bonds -

Government Islamic Debt Securities 96,446,767

Domestic Government Islamic Debt Securities 56,477,767

- IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) 40,440,457

- Retail Sukuk 14,037,310

- Private Placement 2,000,000

Global Sukuk 39,969,000


56

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 5 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

58

Bank Indonesia Policy Mix: April 2017

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

Projects credit growth in the 10-12% range and deposit growth at around 9-11% in 2017, consistent with expectations

of stronger economic growth and the ongoing impact of existing monetary and macroprudentialpolicy easing

Continues to strengthen policy coordination with the

Government to control inflation primarily in the face of administered prices (AP) adjustments as part of the

Government’s ongoing energy reforms, coupled with the expected seasonal spike of inflationary pressures during the approach to the holy

fasting month

Continues to stabilise rupiah exchange rates in line with the

currency’s fundamental value, while maintaining

market mechanisms

Predicts economic growth to accelerate in the

second quarter of 2017, supported by stronger investment and export

performance, backed with the rise of commodity prices and stronger

demand due to the global economic recovery, while

consumption should remain relatively stable

The BI Board of Governors agreed on 20 April 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%

Remains vigilant towards several global risks, including the

Federal Reserve’s plan to reduce its overall

balance sheet and the impact on global

financial markets, the FFR hike plans, and recent geopolitical

conditions in several regions

59

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 – 20 Apr 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

60

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

Source: LHBU, HARTIS, Bloomberg

Domestic Money Market Yield Curve (Dec. 30th, 2015) Domestic Money Market Yield Curve (May 26th, 2016)

Monetary operation term structure is being referred by money market rates…Domestic money market yield curve tend to converge

Domestic Money Market Yield Curve (Dec. 28th, 2016) Domestic Money Market Yield Curve (Jan. 13rd, 2017)

OM: Monetary Operation PUAB: Interbank Money Market

61

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

...JIBOR has been strengthened as a market reference

STRENGTHENED THE ROLE OF JIBOR AS REFERENCE RATE by regulatory

enhancement.

1

ACCELERATED MARKET REPO TRANSACTIONS by promoting GMRA

2REDUCED SEGMENTATION AND IMPROVE THE

CAPACITY OF MARKET TRANSACTIONS by encouraging banks to open more access to

counterparties

3

• Can be traded among contributor banks for 10 minutes.

• Up to the amount of Rp10 billion.

• Up to 1-month tenor.

PREVIOUS JIBOR

• Can be traded among banks contributor for 20 minutes.

• Up to a total of Rp20 billion.

• Up to 3-month tenor.

CURRENT JIBOR

as per June 1, 2016

62

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

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

8.9%

7.6%

8.6%

10.0%

7.81

2.43

4.27

4.74

4.31

1.27

1.37

1.09

-1.20

-3.10

0.63

11.12

10.83

0.32

0.48

-3.92

-6.74

-0.32

-5.01

-18.18

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

KRW

ZAR

BRL

INR

THB

EUR

MYR

IDR

PHP

TRY

Average Point to Point


(%)

-2

3

8

13

18

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

2014 2015 2016 2017

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

2.89

5.503.613.30

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

2013 2014 2015 2016 2017

Total Growth Working Capital loans Investment Loans Consumption Loans

(YoY)

63

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

64

Financial Intermediaries Development

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 February 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 the capital market continued to increase in the first quarter of 2017

The growth of banking loans was 8.57% (yoy) in February 2017, increasing from that of the previous year

IDR tn

IDR tn

IDR m

nIDR tn

65

Financial Institutions Remain Robust and Less Vulnerable

Banking sector’s capital adequacy ratio (CAR) was maintained at a high level. As of Feb-17, CAR & Tier 1 Capital was 23.18% & 21.55% respectively

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

Gearing ratio of multifinance companies was 2.97 times (well below the maximum requirement of 10 times), providing ample room for future growthProfitability of the banking sector is relatively stable

Financial performance of domestic financial institutions generally remains robust. Capital adequacy is well above the minimumrequirements. Profitability and leverage are maintained at a sufficient level. Further, gearing (debt-to-equity) ratio of multifinancecompanies provides ample room for future growth.


%

66

Adequate Liquidity, Manageable Credit Risks

Banks are found to possess adequate liquid assets to anticipate depositors’ withdrawal. Insurance industry also demonstrates anenhanced level 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 Feb-17, the gross & net NPL ratios of the banking sector were 3.16% & 1.38% respectively, maintained below the threshold

NPF ratio in the multifinance industry was 3.03% as of Feb-17, maintained well below the 5% threshold

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


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

68

Capital Market Demonstrate Strengthening Trend

The domestic capital markets continued to demonstrate a strengthening trend, amidst uncertainties in the global economy andfinancial markets. This strengthening trend was accompanied by significant nonresident inflows in the government debt market.

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

Both the stock & bond indices are relatively stable in early 2017, supported by the improving domestic economic prospect

Outflow pressure in the equity market tended to ease, while the government debt market still attracted nonresident inflow

The IDX Stock Composite Index demonstrated a positive growth in early 2017

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

IDR tn

as of April 13rd, 2017

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

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


72

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.


73

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


74

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%

Q4-2016

8.6x

1998

3.1x

2008 2.7x

Q4-2016

116.8%

199833.2%

200834.0%

Q4-2016

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

Mar 17 121.8Mar 17 3.61 (yoy)

Feb 17 3.2

62

10.55.7

1998 2008 Jul-15

Overnight interbank money market rate is relatively lower

Mar 17

4.31

1.1 (ytd)Mar 17

75

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

2017 Economic Outlook

Economic recovery is expected to continue, driven by exports and investments as financing increases from bank loans and non-bank

financing. Meanwhile, household consumption is predicted to remain stable

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 stronger economic growth and the ongoing impact of previous monetary

and macroprudential policy easing

2016(Realization)

Economic Growth

5.02%

Inflation

3.02%

CAD (% 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• Increasing global commodity prices, oil and non-oil

• Improving domestic economic growth• Relatively low current account deficit

Challenges • Increasing global inflation• US Policy: Fiscal expansion & tightening monetary policy,

trade protectionist, relaxation of financial regulation.• Geopolitical risks, especially populism in Europe.

• Pressures on exchange rate from global factors.• Pressures on inflation from administered prices• Effectiveness of monetary transmission through

bank lending and interest rate.

2017 Economic Opportunities & Challenges

Source : Bank Indonesia

Progressive Infrastructure Development:Strong Commitment on Acceleration of Infrastructure Provision

Section 6

77

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

78

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)


79

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


80

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

81

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


82

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 Supply19. 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 Sumatera Selatan 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.


83

Progress on 30 Priority Projects

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

Funding Scheme of 30 Priority Projects

3%

40%

40%

17%12 projects are in construction

1 project is under construction

12 projects are in preparation

5 projects are reassessed

Private(IDR769 tn)

SOE(IDR324 tn)

StateBudget

(IDR245 tn)

KA-ANDAL (environment impact) assessment process is completed after fulfilling administrative pre-requirements including letter from Spatial Planning Director General, Seaport Transport Director General and project’s inclusion in National Port Masterplan.

Integrated Pre-FS/OBC has been finalized to integrate port development plan and supporting infrastructure.

All Spatial Planning issues have been resolved and location determination for all location has been done.

COD is postponed until 2023, in order to adjust the completion of New Duri 500kV Transmission to Muara Enim

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

Patimban Port:

Kuala Tanjung International Hub Port:

Central-West Java Transmission Line:

Sumsel 8 Mine Mouth Coal Fired Power Plant:


84

Energy Sector: the Progress of 35.000 MW Program

No Phase MW %

1 Planning 5,824 16.31

2 Procurement 10,560 29.57

3 Power-purchase Agreement 8,478 23.74

4 Construction 10,141 28.40

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

Feb ‘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

85

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


86

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

87

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

88

Investment in Nickel Smelter

89

Infrastructure Financing

89


124.6

SOE Private

200.4 75.8

Financing

Needs

Gov’t

Budget

Financing

Gap

341.4 141.0

(USD bn)*

41,25%

58,75%

22,23%

36,52%

100%

Infrastructure Financing Need 2015-2019 General criteria for financing schemes

• Government Budget is used for basic infrastructure projects, mainly for projects that are economically feasible but financially 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 can provide financial facilites to support PPP & SOE schemes

*) USD/IDR = 13,343 (as of Jan 31st, 2017)

PPP scheme and facilities provided to PPP Projects

• 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

Financial Facilities Provided to Infrastructure SOEs

90

Government Financial Facilities for PPP Projects

Financial Facilities from Ministry of Finance 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

No Project Name Project Cost (IDR tn) Financial Facilities Status

1 Central Java Power Plant 40 Government Guarantee (MoF & IIGF) Financial Close on June 6th, 2016

2 Palapa Ring – West Package 1.28 IIGF Guarantee & Availability Payment Financial Close on August 11th, 2016

3 Palapa Ring – Central Package 1.38 IIGF Guarantee & Availability Payment Financial Close on August 29th, 2016

4 Umbulan Water 2.1 PDF, VGF & IIGF Guarantee Financial Close on August 30th, 2016

More Funding Schemes are in the Pipelines

LCS(Limited

Concession Scheme)

PINA(Non-

Government Budget

Infrastructure Financing)

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

91

New Guarantee Schemes for Non-PPP Projects

Progress of projects benefiting from guarantees on SOE direct lending:

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

No Project NameProject Cost (IDR mn)

Lender SOE Status

1 Sumatera Power Transmissionand Distribution

600 ADB PT. PLN Guarantee is effective

2 Sumatera Power Distribution

500 World Bank

PT. PLN Guarantee is effective

State finance soundness

Fiscal sustainabiliy

Best 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.

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