Republic of Synergy for Progressive Reforms September 2016

0 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 K. (International Department - Bank Indonesia, Phone: +6221 2981 8279) Dalyono (Fiscal Policy Office – Ministry of Finance) Farid Arif Wibowo (Directorate General of Budget Financing and Risk Management- Ministry of Finance) E-mail: [email protected]

1 Overview

Institutional And Governance Effectiveness: Accelerated Reforms Agenda with Institutional Improvement 1

Economic Factor: Strong and Stable Growth Prospects Remain Intact 2

External Factor: Improved External Resiliency 3

Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Management 4

Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector 5

2 Institutional and Government Effectiveness: 1 Accelerated Reforms Agenda with Institutional Improvement Improving Global Perception

Global Competitiveness Index1 World Governance Indicators2

2009 2010 2011 2012 2013 2014 2015 2016 55 55 30 53 50 39 49 41 45 45 42 40 55 35 34 60 57 30 31 25 Higher rank is better 75 20 81 2010 2011 2012 2013 2014

Higher rank is better 90 Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Indonesia India Brazil Phillipines Turkey Rule of Law Control of Corruption

Ease of Doing Business2 Corruption Perception Index3

2009 2010 2011 2012 2013 2014 2015 2016 50 55 * Both India and Brazil shared the same score (38) in 2015 55 50 70 45 45

90 40 38* 103 35 36 110 109 35 116 30 130 130 25 Higher score is better 20 150 Higher rank is better 2010 2011 2012 2013 2014 2015

Indonesia India Brazil Philippines Turkey Indonesia India Brazil Philippines Turkey

1. Source:World Economic Forum; 2. Source: World Bank; 3. Source: Transparency International 4 Indonesia Remains the Investment Destination of Choice

Rising Direct Investments1 Indonesia Enjoys Large Investments Relative to Peers within the Region2 IDR tn 35 34,0 FDI DDI TOTAL 30,7 160 151.6 30 26,5 24,7 52.2 25 120 20,7 20 18,0 80 15

40 99.4 10

E Total Investment / GDP (%) GDP / Investment E Total 5 5 0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 201 0 Brazil India Indonesia Malaysia Philippines Thailand 2013 2014 2015 2016

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

India India 69,3 40,4 Indonesia 38,8 China 58,2 China 38,8 Indonesia 48,0 Thailand 30,7 Philippines 37,2 Vietnam 27,5 Malaysia 32,7 Mexico 23,6 Myanmar 32,2 USA 16,6 Vietnam 30,1 Philippines 11,5 Thailand 29,0 Brazil 11,1 Japan 28,3 Myanmar 7,9 Australia 27,1 Malaysia 6,2 Singapore 24,8 Russia 5,5 South Korea 23,6 Singapore 4,6 Hong Kong 22,9 Korea 3,9 % of surveyed who plan to increase investment in each country % of surveyed who consider each country has promising prospects Taiwan 18,9 Turkey 3,9 0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 0 5 10 15 20 25 30 35 40 45

1. Source: Indonesia Investment Coordinating Board (BKPM); 3. The Economist – Asia Business Outlook Survey 2016; 2. Source: IMF World Economic Outlook, Database October 2015; 4. Source: JBIC – Outlook for Japanese Foreign Direct Investment (27th Annual Survey);

5 National Strategic Development Plan (Nawa Cita)

The 3 Dimensions on Economic Development

Priority Sector Equitable Development Human Development Development

Education Food Security Inter- Income Group Energy & Electrical Security Health

Maritime & Marine Inter-Region: Housing Tourism & Industry (1) Rural Area, (2) Periphery, Character Water Security, Basic (3) Outside , Infrastructure & Connectivity (4) Eastern Area.

Necessary Condition

Legal Certainty & Security & Order Politic & Democracy Governance Law Enforcement

6 Improving Investment Climate: Introduce the 3-hour investment licensing service to complement the One Stop Service (OSS)

Requirement for utilizing 3-hour Investment Lisencing Service: 1. Minimum investment of IDR 100 billion (USD 8 million) and/or employing 1,000 local workers. No requirements for investment 2. Application must be submitted directly by at least one candidate in infrastructure sector of the proposed company stakeholder

BKPM

• Arrive at OSS at BKPM directly from the airport Wait at the lounge while documents are Obtain eight documents & letter of land • Consult with Director of Investment Service processed by BKPM, in-house notary, availability within three hours to start the • Submit the required documents & data ministries, & other government institutions business

2 documents needed 9 documents obtained Certainty to Certainty to Investor identitiy as the prospective shareholders start a business Import capital goods

• ID Card • Investment license • APIP / Import identification • And/or Deed of Establishment (Indonesian company) or Article • Certificate of incorporation • NIK / Customs registration of Association (Foreign company) • NPWP / Tax Registration Number • TDP / Company Registration Flowchart of business activities workflow Certainty to work Accurate land information • Containing workflow from raw material production to the finished products • RPTKA / Employment plan • Letter of land availability • IMTA / Working permit

Until September 2016, 122 companies have utilized the “3 hours services” Source: Investment Coordinating Board (BKPM) 7 Improving Investment Climate: Introduce the 3-hour investment licensing service to complement the One Stop Service (OSS)

Priority Investment Service No Requirements • No minimum investments or workers is Direct Construction (KLIK) required. • Available for 14 selected industrial parks. Investors can directly start their project construction before obtaining construction permits. This service is supported by • Construction permits can be obtained in parallel both Central and Regional Governments which become the with construction process. first step to synergize between central and local licensing

Obtain investment licence at OSS • Survey a land within selected • Start the construction of your project. at national or regional level. industrial parks. No other permits are required. • Acquire the land for your industry. • Apply for building construction permit & environmental permit, in parallel with construction process.

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

Source: Investment Coordinating Board (BKPM)

8 Improving Investment Realization (Q2-2016)

Rp151,6 T 370,945 354.739 Rp135.1 T

* Decreasing 12.2% 4.4%

Q2-2015 Q2-2016 Q2-2015 Q2-2016 * person

Rp99.4 T Rp52.2 T

Rp92.2 T Rp42.9 T

7.8% 21.7%

Q2-2015 Q2-2016 Q2-2015 Q2-2016

Source: Investment Coordinating Board (BKPM), compared to Q2-2015 period

9 FDI Realization by Sectors (Q2-2016)

Electricity, Gas and Water Supply US$493.6 mn 283.8% Chemical and Pharmaceutical Food Industry Industry US$519.8 mn US$591.7 mn 158.4% 43.4%

Non metallic Real Estates, Industrial Estate mineral industry and Business Activities US$504.9 mn Investment US$546.3 mn 10.7% Realization 143.5%

Transport Equip and Other Metal, Machinery and Transport Industry Electronic Industry US$474.4 mn US$893.5 mn 27.3% 46.5% Mining US$714.8 mn 31.7% Source: Investment Coordinating Board (BKPM), compared to Q2-2015 period 10 30 Priority Projects Within the Pipeline

1. National Capital Integrated Coastal 1. 1.000MW Indramayu Power Plant (Rp20 T) 1. SPAM Semarang Barat Development (NCICD) Tahap A (Rp2.4 T) 2. 500 kV Central- Transmission Line (Rp900 M) 2. Trans-Sumatera Toll Road (>Rp81.2 T) (Rp7.64T) 2. Existing Refinery Upgrading 3. Makasar-Parepare Railway (Rp9.4 T) 3. 2x50MW Karangkates Power Plant (Rp1.6 T) *** Project (Cilacap, Balongan, 4. SHIA Express Railway (Rp24 T) 4. 37MW Kesamben Power Plant (Rp1.1 T)*** Plaju, Dumai, dan Balikpapan) 5. MRT Jakarta (Rp25 T) 5. 10MW Lodoyo Power Plant (Rp300 M) *** (Rp210 T) 6. LRT Jabodetabek (Rp20.6 T) 6. Bitung Port Development (Rp34 T) 3. Patimban Port (Rp43.2 T) 7. LRT Palembang (Rp12.5 T) 7. Timur Railways (Rp52 T) 4. Inland Waterways/ Cikarang – 8. Kuala Tanjung Int’l Hub Port (Rp30 T) 8. Sumsel 8 Power Plant (Rp25 T) Bekasi – Laut (CBL) (Rp3.4 T) 9. Manado-Bitung Toll Road (Rp8.9 T) 9. High Voltage Direct Voltage Transmission 5. Bontang Refinery (Rp150 T) 10.Balikpapan-Samarinda Toll Road (Rp9.9 T) (Rp33.4 T)* 11.Batang 2.000 MW Power Plant (Rp40 T)

Permit and OBC Land Construction Development Acquisition

Ready for Financial PPP Tender Close

1. Jakarta Sewerage System (Rp1.5 T)** 2. Tuban Refinery (Rp108 T)** 3. Sumatera 500 kV Transmission (Rp24.4 T) 1. Palapa Ring Broadband (Rp8.1 T) 4. Panimbang-Serang Toll Road (Rp10.7 T) 5. Sumsel 9, 10 Power Plant (Rp44 T)

Preparation Stage Implementation Stage

* The project is cancelled by PLN ** Possibly not using PPP funding scheme *** Feasibility Study of the project will be revisited by PLN

Source: KPPIP 11 Significant Progress on Key Infrastructure Projects

Roads Dams Housing

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

Transportation

Jakarta MRT Project1 Terminal 3 Ultimate Soekarno-Hatta1 New Tanjung Priok Port Project1

Komodo Airport, NTT Matahora Airport, Southeast Tual Airport, Juwata Airport, Tarakan

1 Not funded from National Budget

12 Progress of Some Infrastructure Initiatives under SOEs

Length Investment Completion Description Concession By** Status** Remarks** (km)* (Rp trillions)* Target** Land Clearing: 77,9% completed Medan-Binjai 16,7 1,6 Hutama Karya In Progress 2018 Construction: 19,2% completed Medan-Kualanamu- Land Clearing: 86,4% completed 61,7 4,1 Jasamarga Kualanamu Toll In Progress 2017 Tb. Tinggi Construction: 6% completed Pekanbaru-Kandis- Land Clearing: 22,23% completed 135 17,4 Hutama Karya In Progress 2019 Dumai Construction: 1% completed Land Clearing: 92,3% completed Palembang-Indralaya 24,5 3,3 Hutama Karya In Progress 2017 Construction: 17,7% completed Kayuagung- Sriwijaya Markmore Land Clearing: 100% completed 111,7 14,4 In Progress 2018 Palembang-Betung Persada Construction: n/a Bakauheni-Terbanggi Land Clearing: 19,8% (25,2 km) completed 155 13,3 Hutama Karya In Progress 2018 Besar Construction: 5% completed Land Clearing: 3,4% completed Cinere-Serpong 10,1 2,2 Serpong Cinere Jaya In Progress 2019 Construction: n/a Groundbreaking: October 2014 Bekasi-Cawang- 21 7,2 Waskita Karya In Progress Land Clearing: 30,1% completed 2019 Kampung Melayu Construction: 28,3% completed Land Clearing: 26,6% completed Ciawi-Sukabumi 54 7,7 Trans Jabar Toll In Progress 2019 Construction: 3% completed Land Clearing: 96% completed Soreang-Pasir Koja 10,6 1,5 Citra Marga Lintas Jabar In Progress 2016 Construction: 40,2% completed Land Clearing: 99% completed Pejagan-Pemalang 57,5 5,5 Waskita Karya In Progress 2017 Construction: Section I & II 92% completed Land Clearing: 12% completed Pemalang-Batang 39,2 4,8 Pemalang Toll Road In Progress 2018 Construction: n/a Jasa Marga Semarang Land Clearing: 20% completed Batang-Semarang 74,4 11 In Progress 2018 Batang Construction: n/a Solo-Ngawi: Construction 80% completed Solo-Ngawi-Kertosono 177,1 10 Solo Ngawi Jaya In Progress 2018 Ngawi-Kertosono: Construction 40% completed Jasamarga Pandaan Land Clearing: 64% completed (Section I) Pandaan-Malang 37,6 6 In Progress Malang Construction: 4% Land Clearing: 36,3% completed Manado-Bitung 39 9,45 Jasamarga Manado Bitung In Progress 2019 Construction: n/a Land Clearing: 86% completed Balikpapan-Samarinda 99,2 16,8 Jasamarga Balikpapan In Progress 2019 Construction: 36,3% completed Total 1.124,3 136,25 * Source: Ministry of State Owned Enterprises ** Source: Anecdotal information from various media e.g. Kompas, Media Indonesia, Liputan6, Republika, Tribunnews, Merdeka, etc 13 Energy Sector: the Progress of 35.000 MW Program

Debottlenecking through regulation: Average economic growth of 6.7% requires 7,000 MW / year or 35,000 1. Regulation No.1/2015 concerning electricity MW / 5 years supply cooperation and joint utilization of the Launching 35.000 MW electrical network among license holders. Cabinet Meeting by the President in (Kepmen ESDM No. 0074/2015 on Progress of Goa Beach Sanden DIY RUPTL 2015-2024) 2. Regulation No.3/2015, concerning Procedures 35,000 MW of Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection and Appointment.

17 Dec ‘14 Jan ‘15 Jan ‘15 16 Mar ‘15 4 May ‘15

Cabinet Meeting “There’s electricity crisis in The progress so far: Jun ‘16 Indonesia, requires construction of large capacity plant " 35,000 MW Program Distribution

Kalimantan Sulawesi No Phase MW % PLN: 900 MW PLN: 2,000 MW Private: 1,470 MW Papua 1 Planning 8,660 24.4 Private: 1,735 MW PLN : 220 MW Transmission: 5,604 ckt.km Transmission: 5,275 ckt.km Substation: 4,390 MVA Private: 0 MW 2 Procurement 10,254 28.8 Substation: 3,500 MVA Transmission: 364 ckt.km Sumatera Substation: 460 MVA 3 Power-purchase Agreement 12,478 35.1 PLN: 1,100 MW Private: 8,990 MW 4 Construction 4,005 11.3 Transmission: 18,729 ckt.km Substation: 35,521 MVA 5 Commercial Operation Date 170 0.5 Maluku Total 35,567 100.0 Jawa & Nusa Tenggara PLN: 260 MW Private: 12 MW PLN: 5,000 MW PLN: 670 MW Source: KPPIP Private: 13,697 MW Private: 0 MW Transmission: 653 ckt.km Transmission: 9,185 ckt.km Transmission: 2,347 ckt.km Substation: 620 MVA Substation: 66,265 MVA Substation: 1,410 MVA Source: PLN 14 The Economic Policy Packages

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

Harmonizing Regulations Simplifying Bureaucratic Process Ensuring Law Enforceability

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

15 Thematic Policy Issues on Deregulation

Six policy issues under Packages I-XIII:

improvement of improvement of widening of expansion of efficiency of improvement of

industry society’s investment export logistics sector tourism sector competitiveness purchasing power

Another 14 policy issues will be covered under future Packages:

1. Housing for Low-Income Earners (has been launched) 8. Intellectual Property Rights

2. E-commerce 9. Food Logistics Systems

3. Tourism Related Industries 10. Acceleration of Creative Economy Activities

4. Development of Fishery Industries 11. Intensification of Integrated Export Systems

5. Capital Market Arbitrage 12. Further Development of Services Sectors 6. Competition 13. Local Government’s Economic Deregulation

Restructuring of Permits and Public Services (Norms, 7. Globalization of Indonesian National Standards 14. Standards, Procedures and Criteria/NSPK)

16 Progress of the Economic Policy Packages

TOTAL REGULATIONS 204 II––XXIIIII 204 regulation has been deregulated

SET 202 99% As of 21 September 2016, deregulation of 202 regulations are finished (99%), comprising 48 regulations at Presidential level and 154 regulations at 50 PRESIDENTIALPRESIDENTIAL LEVEL Ministrial/Institutional level 47 42 48 FINISHED 96% TOTAL SELESAI 154 MINISTRIAL/INSTITUTIONAL LEVEL Unfinished regulation, (a) Proposed Presidential TOTAL 154 FINISHED 100% Regulation concerning Gas Buffer Enterprises (Agregator); and (b) Proposed Presidential Regulation ON GOING concerning Acceleration on Housing Construction 2 DISCUSSION 1% Lisencing for Low-Income Communities

As of 21 September 2016, from total 26 technical TECHNICAL REGULATIONS regulations, 24 regulations are deregulated, which left 2 regulation in process of deregulation

17 FDI Realization by Sectors (Q2-2016)

Bonded Logistics Center (Pusat Logistik Berikat/ PLB) Export Financing/KURBE 1 Launched: 12; In Progress: 16, including airplane 6 Export of Train Wagon to Bangladesh maintenance industry and oil

Investment Permit - 3 Hours EoDB for SMEs 2 Granted for 74 companies with investment value of 7 Streamline/Simplify permits and procedures which Rp. 200. 96 T (as of 20 June 2016) shorten lead time and costs in 10 indicators

Industrial Zones (IZ) Simplification of Fiscal Incentive Process . The Province of proposed 3 IZ’s: Kendal, Used by 18 companies with average processing time 3 Demak, and Ungaran 8 of 13.4 days (previously 2 years) . Pharmaceutical IZ in Bitung () in 2017

Wage Systems 14 Provinces have set 2016 Minimum Wage System in SME’s Export Product Aggregator/Consolidator accordance to the Government Regulation (GR) Launched with maiden export from North Sulawesi 4 No. 78/2015 (Kepri, Kalbar, NTB, Sumbar, , NAD, 9 through SOEs’ Synergism Program Kalsel, Banten, , NTT, Jabar, Bali, Sumut, and Babel).

Facilities and Incentives for SEZ Revision to Negative List (PP No. 44/2016) 5 42 business sectors with total value of Rp 28.7 T (as of 15 10 Implemented since 24 June 2016 with participation of 527 May 2016) companies with planned investment of USD 12.926 bn

18 Ministry of Finance Policy Package …comprehensive approach across sectors

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

Stimulus to Increase Incentive for Businesses

Implemented On Pipeline • Revision of Tax Allowance and Tax Holiday policies • Taxation Administrative and Regulatory Reform, including • Levy of luxury tax (for houses, vehicles, airplanes and firearms) to provide competitive amendment of Income Tax Law, VAT Law, General Tax advantage on domestic industries Administration Law and regulation regarding Tax • Support small business through interest rate subsidies in small business credit (KUR). Amnesty lowered to 12%, less than general SMEs credit rate • Develop more Special Industrial Zones outside Java • Implementation of 4:1 Debt-Equity ratio for tax purposes to encourage capital inflow and with special incentives (tax allowance, tax holiday and improvements in capital structure elimination of customs fee) • Construction of integrated logistic centers, in Cikarang (Manufacturing) and Merak (Fuels) • Support economic activities in Special Economic Zones • Higher threshold for property luxury tax to IDR 10 billion (~US$ 714 thousand) for via longer tax holiday up to 25 years apartments and IDR 20 billion (~US$ 1.4 million) for landed houses • Revision on Ease of Import for Export Destination • Support export financing for domestic industries through Indonesia Exim Bank via (KITE) regulations by providing free import fee facilities government capital allocation and National Interest Account and more efficient administration process • Lower tax on asset revaluation. 3% tax before Dec 31st • Remove double taxation for Real estate investment trusts (REITs) • Lower tax on dollar deposit interest, especially for exporters • Elimination of VAT levy on certain transportation industries (trains, river shipping and airplanes, including spare parts)

Source: Ministry of Finance 19 Bank Indonesia Backs the Government’s September Policy Package (9th Sept. 2015)

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

Strengthening liquidity Strengthening management Rupiah, Strengthening foreign Maintaining Deepening the inflation control through Open Market exchange supply and rupiah exchange money market and stimulating the Operations (OMO), in order demand management rate stabilization real sector from the to divert the daily liquidity to supply side longer tenors • Adjust the frequency of the auctions of Foreign Exchange (FX) swap from 2 times/week to • Strengthening coordination • Preserving foreign • Changing the auction mechanism of 1 time/week • Providing swap hedging amongst the National and exchange market Reverse Repo (RR) SBN from facilities to shore up Regional Inflation Control confidence by controlling variable rate tender into fixed rate • Change the Foreign Currency investment infrastructure Teams to accelerate currency volatility tender, adjust the pricing of RR SBN, Term Deposit (TD) auction and simultaneously implementation of the and extend the tenor by issuing RR mechanism from variable rate strengthen foreign national and regional • Maintaining market SBN 3 months tender into fixed rate tender, exchange reserve assets. inflation control roadmap. confidence in tradable pricing adjustment, and extend • Changing the auction mechanism of There are currently more government securities the tenor of up to 3 months; • Refining money market Certificates of Deposit of Bank than 430 regional inflation (SBN) through purchases regulations covering all Indonesia (SDBI) from variable rate • Lower the purchase limit of control teams throughout on the secondary market, components of market tender into fixed rate tender, adjust foreign currency by verifying the Indonesia, each having a while monitoring its impact development, including the the pricing of SDBI, and issue SDBI underlying documents from US$ regional inflation roadmap. on SBN availability in instruments, players and with 6 months tenor 100,000 to US$ 25,000 per terms of inflow and money customer per month and infrastructure. • Strengthening Regional market liquidity. • Reissue Bank Indonesia Certificates requires the use of Tax Economic and Financial (SBI) tenor of 9 months and 12 Identification Number (NPWP) cooperation between Bank months with a fixed rate tender Indonesia and the auction mechanism as well as pricing • Expediting the bank foreign debt Government adjustment approval process while adhering to prudential principles

20 Monetary Policy Package: September II 30th September 2015

Maintaining Rupiah Exchange Strengthening Rupiah Rate Stability Liquidity Management The presence of Bank Indonesia in the domestic foreign exchange Bank Indonesia reinforced rupiah liquidity management by releasing market to stabilise the rupiah exchange rate was strengthened three-month Bank Indonesia Certificates of Deposit (SDBI) along through intervention in the forward market. In addition to with two-week reverse repo tradable government securities (SBN). intervention in the spot market, Bank Indonesia also intervenes in The release of such open market operation instruments will absorb the forward market to help balance supply and demand. liquidity, prompting a shift towards longer tenor instruments, which Maintaining balance in the forward market is important to alleviate should reduce the risk of excessive use of rupiah liquidity that could pressures in the spot market. intensify pressures on the rupiah exchange rate.

Strengthening Foreign Exchange Supply and Demand Management

• Policy to manage supply and demand on the forward market was strengthened. The policy aims to encourage forward selling transactions of foreign currencies/rupiah and clarify underlying forward buys of foreign currencies/rupiah by raising the forward selling threshold that requires an underlying document from US$1 million to US$5 million per transaction per customer and broaden the scope of underlying assets for forward sells to include domestic and offshore foreign currency term deposits. • Foreign currency Bank Indonesia securities (SBBI) were also issued to back financial market deepening efforts, especially on the foreign exchange market. • The holding period of Bank Indonesia Certificates (SBI) was reduced from 1 month to 1 week in order to attract foreign capital inflows. • Incentive was provided in the form of a reduction in the interest tax paid on term deposits for exporters depositing their FX earnings at banks in Indonesia or converting the proceeds into rupiah as requested by the government. The policy is expected to keep FX earnings in the country for longer. • BI ensured greater transparency and information availability when using FX by strengthening the FX flow report (LLD). In this case, LLD participants are obliged to report their use of FX through supplementary supporting documentation for transactions of a certain value. The regulation is pursuant to Act No. 24 of 1999 concerning the Flow FX and the Exchange Rate System, where Bank Indonesia is authorised to request information and data regarding the flow of FX from residents.

21 Economic Factor: Strong and Stable Growth Prospects 2 Remain Intact Conducive Environment Underpinning Strong Growth Fundamentals

4th Most Populous Budget reform as a Tax base to be Largest Economy in country in the part of larger broadened from one South East Asia World; 64% in economic reform reduce dependency productive age initiative on commodities

Large and Stable Consistent Budget Fuel subsidies Economy Reform significantly Manageable Inflation Growing Middle reduced and Prudent debt Rate Income Class spending redirected management to more productive allocation New Reform- Oriented Administration From commodity-based to industrialized- Three main sources of financing for IDR 5 tn natural resources-based economy via investment needs: State and regional budget, infrastructure development State Owned Enterprises and PPP New Economic High Infrastructure Continuing from 2015 policy, infrastructure From consumption-led to investment-led Structure Investments will be higher than fuel subsidy growth via a stronger manufacturing sector and more investment initiatives Infrastructure spending focused on basic infrastructure projects Policies to maintain purchasing power to stimulate domestic economy in the midst of weakening macroeconomic conditions Fiscal and non-fiscal incentives to attract infrastructure investment and promote PPP

23 Indonesia’s Strong GDP

Strong GDP Growth1 Favourable GDP Growth Compared to Peers2

% % 7,0 9,0 5,14 4,96 4,97 5,04 5,04 5,18 4,73 4,66 4,74 4,92 7,0 5,0 3,83 3,75 4,02 3,29 3,36 5,0 3,0 3,0 1,0 0,06 -0,23 -0,34 1,0

-1,0 -1,0 2011 2012 2013 2014 2015 2016* 2017* 2018* QoQ YoY -1,83 -3,0 -3,0 -2,11 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 -5,0 Brazil India Indonesia Malaysia 2014 2015 2016 Philippines Singapore Thailand

GDP Growth Based on Expenditures1 Growth Prospect

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

1. Source: Central Bureau of Statistics of Indonesia (BPS) 2. Source: World Economic Outlook Database, April 2016

24 Strong and Stable GDP Performance

Spatial GDP Growth Spatial GDP Growth Contribution

Sumatera Bali & Nusa Kalimantan Tenggara: 3.1% GDP Growth GDP Growth Maluku & Papua: 2.4% Bali & Nusa Q2 2016: 4.5% Q2 2016:1.1% Sulawesi Sulawesi: 6.1% GDP Growth Tenggara Maluku & Papua Q2 2016:8.5% GDP Growth GDP Growth Sumatera: 22.0% Kalimantan: 7.6% Q2 2016: 7.4% Q2 2016: -1.6%

Java GDP Growth Q2 2016: 5.7%

Java: 58.8%

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

2014 2015 2016 % GDP growth by sectors (YoY) (%)  Majority of growth was driven from Java Q1 Q2 Q3 Q4 Yearly Q1 Q2 Q3 Q4 Yearly Q1 Q2 15 Agriculture, forestry, and  Drop in commodity prices affected 5.2 4.9 3.6 3.3 4.2 4.0 6.9 3.3 1.6 4.0 1.8 3.2 10 fishery commodity-based regions such as Mining (1.0) 1.1 1.2 1.5 0.7 (1.3) (5.2) (5.7) (7.9) (5.1) (1.3) (0.7) 5 Sumatra, Kalimantan, Papua Industrial processing 4.5 4.8 5.0 4.2 4.6 4.0 4.1 4.5 4.4 4.2 4.6 4.7  Sulawesi, Bali, Nusa Tenggara & Java Construction 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 8.2 6.6 7.9 6.2 0 Big traders, wholesale, retail 6.1 5.0 5.2 4.5 5.2 4.1 1.7 1.4 2.8 2.5 4.0 4.0 continue to grow above the national -5 Transportation and 7.0 7.6 7.7 7.2 7.4 5.8 5.9 7.3 7.7 6.7 7.9 6.8 Q2 2015 Q2 2016 average warehousing Information and -10  Government policies continue to 9.8 10.5 9.8 10.3 10.1 10.1 9.7 10.7 9.7 10.1 8.3 8.5 communication Manufacture Service Agriculture Mining Financial service and (Financial) encourage regional growth 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.4 12.5 8.5 9.3 13.5 insurance Other1 5.4 4.7 5.9 6.5 5.7 5.1 6.5 5.0 5.9 5.6 7.9 7.9 GDP 5.1 5.0 5.0 5.0 5.0 4.7 4.7 4.7 5.0 4.8 4.9 5.2 Source: BPS

25 External Factor: 3 Improved External Resiliency A Narrower, Structurally-Stronger Current Account Deficit

Strong Balance of Payments Improving Current Account Deficit

US$bn US$bn US$bn 2011: 2012: 2013: 2014: 2015: 2016**: 20 160 CA Surplus CA Deficit CA Deficit CA Deficit CA Deficit CA Deficit US$1.7bn (US$24.4bn) (US$29.1bn) (US$27.5bn) (US$17.8bn) (US$4.7bn) 15 140 15 10 120 10 109.8

5 100 7.4Thousands 5 (2.2) 3.7 0 80 0 1.2 (4.7) -5 60 (4.7) -5 (7.6) -10 40 (1.9) -10 Current Account Capital & Financial Account -15 20 Overall Balance Reserve Assets (RHS) -15

-20 0

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

Q1* Q1* Q2* Q3* Q4*

Q2**

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

Q1* Q1* Q2* Q3* Q4* Q2** 2011 2012 2013 2014 2015* 2016** 2010 2011 2012 2013 2014 2015* 2016** Goods Services Income Secondary Inc. Current Acc. Source: Bank Indonesia Source: Bank Indonesia

Trade Balance Surplus Continues Supported by Substantial FX Reserves to Mitigate External Challenges

Jan-Aug 2016: FX Reserves as of Aug 2016: US$113.5bn US$bn 2014 2015: Surplus US$bn (Equiv. to 8.3 months of imports + servicing of government debt) Month Deficit US$1.89bn Surplus US$7.52bn US$4,4bn 140 15 2,5 FX Reserves (LHS) Month of Import & Debt Service (RHS) 2,0 120 1,5 12 100 1,0 0,5 80 9 0,0 60 -0,5 6 -1,0 40 -1,5 3 20 -2,0 Non-OG OG Total -2,5 - - 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 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 2014 2015 2016 2012 2013 2014 2015 2016

Source: BPS Source: Bank Indonesia

27 Exchange Rate In Line with Fundamentals

Stable Movement of Rupiah

IDR/US$

IDR/USD Monthly Average Quarterly Average The Rupiah depreciated by an average of 0.39% in the reporting month to a level of Rp13,163 per USD. Negative external sentiment concerning the timing of the proposed FFR hike after the minutes of the July Federal Open Market Committee (FOMC) were released precipitated rupiah depreciation. Nonetheless, the rupiah was observed to rebound 0.8% in the middle of September. The rebound was prompted by an increase in foreign capital as the * data as of 31 Aug 2016 negative sentiment surrounding FFR hike timing eased, as well as the ongoing implementation of Tax Amnesty. Source: Bank Indonesia

Rupiah Exchange Rate Relatively Well Compared to Peers

YTD 2016* vs 2015 Aug 2016* vs Jul 2016 3,98 BRL 22,75 ZAR -4,24 3,46 ZAR 7,86 JPY -1,14 2,33 KRW 0,49 MYR 5,58 1,86 BRL 0,69 KRW 5,41 1,31 EUR -0,29 0,95 THB 4,10 PHP 1,25 0,82 IDR 3,92 THB 0,45 0,71 EUR 2,08 TRY 1,07 0,43 CNY -0,66 PHP 0,72 0,31 INR Average Point-to-point 0,05 TRY -1,04 -0,23 * data as of 31 Aug 2016 MYR -0,04 -0,39 INR -1,21 * data as of 31 Aug 2016 % IDR -1,26 % -5,00 0,00 5,00 10,00 15,00 20,00 25,00 -5,00 -4,00 -3,00 -2,00 -1,00 0,00 1,00 2,00 3,00 4,00 5,00

Source: Bank Indonesia Source: Bank Indonesia

28 Lines of Defense Against External Shocks

First Line of Defence

 Ample of level of FX reserves to buffer against external shock FX Reserve  FX Reserves as of Aug 2016: US$113.5 billion

Second Line of Defence

 US$ 22.76 billion swap line with the Bank of Japan currently in place Japan  The quantum of the swap line was increased from US$12 billion in December 2013

Chiang Mai  Entitled to a maximum swap amount of US$ 22.76 billion under the ASEAN+3 (Japan, China, and Korea) FX reserves pool Initiative created under the agreement Multilateralization  Came into effect in 2010 with a pool of US$120 billion (CMIM) Agreement  Doubled to US$ 240 billion effective July 2014

BI’s Existing Bilateral Currency Swap Arrangement (BCSA)

 Agreed to renew currency swap agreement with PBOC and increase volume of funds to RMB130 billion up from RMB100 China billion  Agreement was signed in 2009 and was previously extended for a period of 3 years in 2013

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

 Exchange of local currencies between the two central banks of up to A$10 billion or IDR 100 trillion Australia  Effective as of December 15, 2015. The effective period will be three years, and could be extended by mutual consent of both sides

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

Source: Bank Indonesia

29 Comprehensive Stabilization Framework Ensures Proactive Risk Management of Financial System

Crisis Management Protocol 1 Implementing Crisis  The FKSSK, Consists of Minister of Finance, BI Governor, Head of Indonesian FSA and Head of Indonesian Deposit Insurance Corporation, Management Protocol manages the Nationwide Crisis Management Protocol (CMP) Framework as guidance and procedures for national crisis prevention and mitigation measures. 2  The nationwide CMP incorporates the Exchange Rate, Banking, Non-Bank Financial Institution, Capital Market, Government Bonds Market (SBN), Implementing Bond and Fiscal CMPs. Stabilization Framework  Coordination Meeting is conducted regularly to discuss and assess the current level of Financial System Stability and current issues related to the financial system  In 2013, FKSSK has conducted two crisis simulations: Full Dress Simulation (ministerial level) and activation of pre-emptive instrument (CMIM) at 3 Enhancing coordination technical between government  In March 2016, the Parliament has approved Financial System Crisis Prevention and Mitigation Law (UU PPKSK) which contains some key institutions and features, ie: Clear division of tasks and responsibilities between the Ministry of Finance, BI, OJK and LPS; Clarity of Systemically Important Banks continuous dialogue with (SIBs) definition based on international criteria; Application of the bail-in principle according to international best practices; and Resolution market participants mechanism in which Lender of Last Resort (LoLR) still provided by central banks to address short-term liquidity difficulties.

4 Specific policies in place Bond Stabilization Framework in the 2014 budget law to address crisis DMO Budget Buyback Funds Buyback of government bonds by the DMO from the state budget

Related SOEs Potential purchase of government bonds by State Owned Enterprises in primary 5 SOE Budget (min. Alert level) market (min. Aware Level) and in secondary market (min. Alert Level) Swap facility arrangements based on KUN Potential purchase of government bonds by the Treasury Office using the State’s international cooperation (State’s General Cash) General Cash (KUN) (min. Alert level) Other Gov’t PIP Investment Funds 6 Potential purchase of government bonds by the Indonesia Investment Agency Chiang Mai Initiative Budget (min. Alert Level) Multilateralization SAL Purchase of government bonds using the accumulated cash surplus (SAL). (min. Crisis Level) Parliament approval is required

Fiscal buffers to prevent crises and mitigate risks

1 Deferred drawdown option facilities up to US$5bn

2 Specific articles in the 2014 State Budget Law that provide flexibility for Government to take quick mitigation action if necessary,30 with Parliament approval that has to be given within 24 hours

30 Strengthened Private External Debt Risk Management

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

(US$bn) External Debt / GDP (%) Total FCY Debt: 300 Public (Govt. & BI) Private Total (RHS) 350 55,4 US$324.2 bn Turkey 50,4 250 300 37,5 Brazil 29,5 Private Sector 250 200 FCY Debt: US$164.5 bn Indonesia 36,0 200 33,0 150 32,7 150 Thailand 34,7 100 100 26,5 Philippines 27,3 50 50 22,9 2015 2014 India 23,3 0 0 (%) 2005 2007 2009 2011 2013 2015* Feb 2016* Apr 2016* Jun 0,0 10,0 20,0 30,0 40,0 50,0 60,0 2016** Source: External Debt Statistics of Indonesia, September 2016 Source: Moody’s Statistical Handbook, May 2016

Prudent External Debt Management Phase 1 Phase 2 Phase 3 Regulation Key Points Jan 1,2015 – Jan 1,2016 – Jan 1, 2017 and Dec 31,2015 Dec 31,2016 beyond  Oct 2014, introduced prudential principles in managing external debt for the nonbank corporation to mitigate risk emerging from external debt activity. Object of Regulation Governs all Foreign Currency Debt Corporations holding external debt required to fulfil: Hedging Ratio  Minimum hedging ratio in order to mitigate currency risk < 3 months 20% * 25%**

 Minimum forex liquidity ratio to mitigate liquidity risk > 3 – 6 months 20%* 25%**  Minimum credit rating to mitigate overleverage risk Liquidity Ratio ( < 3 months) 50% 70%  Regulation update in Dec 2014 including among others: broadening the coverage of components of FX Assets and Liabilities, extension of credit Credit Rating Not applicable Minimum rating of BB- rating’s status validity period Hedging transaction to meet not necessarily be done with a bank in Must be done with hedge ratio Indonesia a bank in Indonesia

Sanction As of Q IV-2015 Applied

31 Manageable External Debt Profile ... short term non-bank corporate debt (non affiliation) represents only 10.4% of total private external debt

Public Long Term 1 Private Bank

Affiliation US$159.7 Bn US$115.5 Bn US$19.9 Bn or or or 49.3% 70.2% 12.1% US$11.9 Bn of Total Ext. of Private Ext. of Private or Debt Debt Ext. Debt 7.3% External Debt of Private Position Ext. Debt

US$164.5bn US$48.9bn or US$28.9bn or or US$324.2bn 50.7% 29.8% 17.6% of total of Private of Private Ext. Debt Ext. Debt Ext. Debt

Private Non-Bank US$17.0 Bn 1 Short-Term or 10.4% Private of Private Ext. Debt External Debt Position as of July 2016 1 Based on remaining maturity Non Affiliation Source: External Debt Statistics of Indonesia, September 2016

32 Fiscal Performance and Flexibility: 4 More Fiscal Stimulus with Prudent Fiscal Policy The Government Has Prepared Policies to Support Growth …and ensure sustainable and equitable economic growth

• Sustainable revenue sources • Higher spending productivity (shift away from commodity-based • Well targeted subsidy scheme FISCAL POLICY revenues) • Empowerment of local governments • Broaden tax coverage • Prudent deficit & debt management

STRUCTURAL • Maintain purchasing power REFORM POLICY POLICY PACKAGES • Improve investment climate) (Real Sector)

• Prudent monetary policy MONETARY POLICY • Appropriate macro-prudential policy (Bank Indonesia) • Exchange rate management to reduce volatility

34 Budget Reform as a Part of Larger Economic Reform Initiative …to support sustainable and equitable economic growth

Objective: Creating a Sustainable and Equitable Economic Growth for Indonesia

I. Shift from commodity-based revenues I. Higher spending productivity I. Secure budget financing II. Broaden tax coverage II. Better targeted subsidy scheme II. Effective utilization of domestic and III. Improve tax compliance and prevent III. Empowerment of local governments international funding sources leakages III. Financing schemes to support IV. Strengthen taxation institution infrastructure development program

Implemented: Initiatives: Initiatives:  Reinventing policy  Improve government procurement  Maintain manageable budget deficit  e-Invoice regulation  Improve bilateral and multilateral financing  Compliance risk management  Continue targeted subsidy reform sources, including BSA and DDOs  Adjustment of non-taxable income (electricity, seed, fertilizer, interest (KUR))  Increase financing instruments threshold  Larger budgetary allocations for:  Increase capital injection to SOEs to  ICT improvement in Tax Office  Infrastructure projects include SOEs in infrastructure  Social welfare development Initiatives:  Cashless smart cards  Tax Amnesty  Rural transfer  Tax Administrative Reform  Regulatory Reform (tax provisions &

procedures (UU KUP), non tax revenue Sustainable Financing Sustainable

(UU PNBP) Spending of Quality Revenue Optimization Revenue  Development of

Semi-Autonomous Tax Office

PillarI PillarII PillarIII

Challenges

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

Source: Ministry of Finance

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

The Virtuous Cycle of Purchasing Power Stimuli Increase non-taxable income limit  Consumption is still the largest contributor to Indonesia’s GDP Ease of land Fuel price and certification electricity and licensing adjustment for street vendors  Private consumption has been a key factor driving Indonesia’s economic growth in recent years

Rural 2 months transfer for addition of  The government has designed stimulus program to maintain and productive rice subsidy enhance purchasing power for households spending Maintaining program Purchasingu Power  The government has increased non-taxable income level and adjusted wage policy to ensure that the lowest income bracket Stabilized Boosting price for housing has the greatest support meat development products

 Funds are targeted at not only to improve basic village infrastructure but also to create jobs through labor intensive Predictable Elimination of luxury goods labour tax for consumer goods projects as well as other job creation programs wages

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

Licensing Incentives Tax Incentives Business and Infrastructure Incentives Other Incentives

Permit & Income tax relief for Incentives for Simplification of Accelerating Water One map policy licensing labor intensive footwear and import licensing for infrastructure management simplfication industries apparel industries drugs and raw food development and regulation

Relaxation of Tax incentives Dwelling time Oil refinery Aviation Downstream Debt To Expansion of coverage entry visa for REITS optimization development sector industries equity ratio and interest subsidy policies incentives for MSME

Special Tax incentives Integrated CPO Support for Village-city Acceleration Relaxation of economic on property logistics zones fund export-oriented logistics of power negative foreign zones industries improvement infrastructure investment list

37 ‘The Big Bang” Policy on Relaxation of Foreign Investment …promoting competition and growth from investments

Introduction of New Foreign Ownership Regulation for Strategic Sectors

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

49% 100% 49% 100% 51% 100% 85% 100%

Toll Road Operator, Distribution, Warehousing Private Museum, Catering, apparel Key Reforms in Negative Foreign Telecommunication Testing Company Manufacturing, Exhibitions & Investment List Conventions Before After Before After Before After Revision of "Partnership" category to refer to partnership with Micro, Small and Medium Enterprises 100% 67% 67% (MSMEs) 95% 33% 51%

Grandfather Law: If a particular sector is tightened in future, existing Professional Training, Golf Course foreign investor does not need to Telecommunication Provider Management, Air Transport Support Services, Consultancy for Construction1 with Integrated Services comply with tighter stake Travel Bureau Before After Before After Before After

Strengthen implementation of negative investment law through active roles from ministries, 51% 67% 55% 67% 67% agencies and regional governments 65%

1 For total project value of IDR10bn and above

38 Prevention and Resolution for Financial System Crisis …regulation acting as the basis of policymaking and coordination among financial system stability committee (KSSK) members

Key Summary Task of KSSK

 Indonesia House of Representatives recently passed the bill on prevention and resolution of financial crisis in Indonesia

 The regulation emphasizes on: Monitoring and maintaining financial system stability Strengthening the role, function, and coordination among the 4 financial authorities (Ministry of Finance, Bank Indonesia, OJK, LPS) in the crisis prevention and resolution

Financial crisis prevention by strengthening the regulatory and supervisory functions of banking especially against systematically important banks

Strengthening the resolution of systemic bank issues by prioritizing bail-in principle Resolution for financial system crisis

BI provides Short-Term Liquidity Loans (PLJP) to banks which are solvent and has sufficient collateral

Implementation of the action plan (recovery plan) by OJK and early intervention by LPS in the event of a systemic bank experiencing solvency issues

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

Source: Ministry of Finance, Bank Indonesia

39 The Scheme of Tax Amnesty Transmission …expected to be strongly affecting the economy trajectory in both short and long run

Accelerating Economic Growth through Asset Repatriation, via several transmissions as follows:

Increase domestic liquidity Improve the stability of IDR currency

Create lower interest rate Support investment growth

Expanding Tax Base through Reliable, Integrated and Comprehensive Database

Rp Increasing More Sustainable Tax Collection in Both Short and Long Term Rp Rp Long Term : Short Term: Better Tax Collection based on Collection from Amnesty Fee Better Tax Database

40 Tax Amnesty as Policy Breakthrough ...easing taxpayers to declare, repatriate, and reinvest their additional wealth in domestic market

Calculation of Tax Amnesty Fee

NET ASSET REDEMPTION RATE AMNESTY FEE

• Assets located in Indonesia; or Liabilities • Assets located overseas and related repatriated; Recognized as Additional with government Asset % 1 Jul – 30 Sep 16 Additional 2 Value revenue Asset 3% 1 Okt – 31 Des 16 5% 1 Jan – 31 Mar 17 • Assets located overseas and not Tax Amnesty Program Update* repatriated Investment instruments options Value for repatriated assets Type 4% 1 Jul – 30 Sep 16 (IDR mn) • Government securities; • Bonds issued by State Owned Companies; 6% 1 Okt – 31 Des 16 Redemption 54,274.86 • Bonds issued by Government-owned financing companies; % 1 Jan – 31 Mar 17 • Financial investments in designated banks; 10 Repatriation 127,606.24 • Bonds issued by private companies and • SME’s special tariff (sales turnover registered with the Financial Services Foreign Declaration 666,034.19 Authority (OJK); up to IDR 4,8 billion/year)

• Investment in government infrastructure % projects; 0,5 declared assets worth up to IDR 10 bio Domestic Declaration 1,720,298.00 • Investment in other government priority % projects; 2 declared assets worth > IDR 10 bio Total Declaration 2,513,938.42 • Any other form of lawful investments. *as of September, 28th, 2016 Source: DG Tax, Ministry of Finance

41 2015 Budget Realization

2015 Indicators Revised Budget Realization1 Economic growth (%, YoY) 5.7 4.8  Pressures on macroeconomic indicators in 2015 due to: Inflation rate (%, YoY) 5.0 3.4 3-month-SPN (Treasury bills, %) 6.2 6.0  Global economic slowdown Exchange rate (US$/IDR,Average) 12,500 13,392  Drop in commodities prices Indonesia crude price (US$/bbl) 60 50 Oil lifting (thousand bbl/day) 825 779 Gas lifting (thousand bbl/day oil equivalent) 1,221 1,195  Non-oil & gas tax revenue went up by 12.6%  Slow down in manufacturing and mining sector led to lower tax 2015 Description Realization Δ 2015 – revenue collected in these sectors % to (IDRtn) 2014 Per 31 Dec Budget  The improved budget structure has created a base for acceleration (IDRtn) of economic development in the midst of global uncertainty A. Revenue 1,505 85.4% (46) I. Domestic revenue 1,494 85.0% (51)  Capital expenditure in 2015 reached IDR209tn (41.8% increase 1. Tax revenue 1,240 83.3% 94 from 2014 realization) 2. Non tax revenue 254 94.3% (145) II. Grant 10 314.9% 5  Rural transfer initiatives, started in 2015, amounted to IDR20.8tn B. Government spending 1,797 90.5% 19 as of December 2015, have been entirely distributed I. Central government 1,174 88.9% (30) 1. Personnel, operational & capital spending 725 91.1% 148 Source: Ministry of Finance 2. Subsidies, interest payment & others 449 85.7% (178) 1 As of Dec 31st 2015 II. Inter-governmental transfers 623 93.7% 49 1. Transfer to regional & local governments 602 93.5% 29 2. Rural transfer 21 100.0% 21 C. Primary balance (136) 203.8% (43) D. Surplus/deficit (292) 131.3% (65) % deficit to GDP (2.5%) (0.3%) E. Financing 318 143.0% 69 I. Domestic financing 308 126.9% 47 II. Foreign financing (net) 10 (51.9%) 23 Surplus/(deficit) financing 26 4 42 2016 Revised Budget ...adjustment on macroeconomic assumption as well as revenue target and efficient spending

Macroeconomic Assumption 2016 Revised Budget Breakdown

2016 2016 Indicators Description Difference R-Budget 1H Real. (IDR tn) Budget R-Budget (IDR tn) GDP Growth 5.2 5,0 A. REVENUE 1.822,5 1.786,2 (36,3) (%, yoy) I. Domestic Revenue 1.820,5 1.784,2 (36,3) Inflation Rate 1. Tax Revenue 1.546,7 1.539,2 (7,5) 4.0 3,45 (%, yoy) 2. Non Tax Revenue 273,8 245,1 (28,8) II. Grant 2,0 2,0 - 3 Months T-Bills 5.5 5,7 B. GOVERNMENT SPENDING 2.095,7 2.082,9 (12,8) (%) I. Central Government 1.325,6 1.306,7 (18,9) USD/IDR 1. Ministerial Spending 784,1 767,8 (16,3) 13,500 13.420 (average) 2. Non Ministerial Spending 541,4 538,9 (2,5) II. Intergovernmental Transfer 770,2 776,3 6,1 Indonesia Crude Price 40 36 1. Regional Transfer 723,2 729,3 6,1 (USD/Barrel) 2. Rural Transfer 47,0 47,0 - Oil Lifting C. PRIMARY BALANCE (88,2) (105,5) (17,3) 820 817 (thousand barrel/day) D. BUDGET SURPLUS/(DEFICIT) (273,2) (296,7) (23,5) % deficit to GDP (2,20) (2,35) (0,2) Gas Lifting E. FINANCING 273,2 296,7 23,5 (equiv. to thousand oil 1,150 1.201 I. Domestic Financing 272,8 299,3 26,5 barrel/day) II. Foreign Financing (Net) 0,4 (2,5) (2,9)

43 2016 Revised Budget Realization as of June 2016

2016 Description Revised Realization (IDR tn) % to Budget Budget 1H 2016 A. REVENUE 1.786,2 634,7 35,5 I. Domestic Revenue 1.784,2 634,1 35,5 1. Tax Revenue 1.539,2 522,0 33,9 2. Non Tax Revenue 245,1 112,1 45,7 II. Grant 2,0 0,6 28,6 B. GOVERNMENT SPENDING 2.082,9 865,4 41,5 I. Central Government 1.306,7 481,3 36,8 1. Ministerial Spending 767,8 262,8 34,2 2. Non Ministerial Spending 538,9 218,5 40,6 II. Intergovernmental Transfer 776,3 384,0 49,5 1. Regional Transfer 729,3 357,2 49,0 2. Rural Transfer 47,0 26,8 57,1 C. PRIMARY BALANCE (105,5) (143,3) 135,9 D. BUDGET SURPLUS/(DEFICIT) (296,7) (230,7) 77,7 % deficit to GDP (2,35) (1,83) E. FINANCING 296,7 276,6 93,2 I. Domestic Financing 299,3 300,9 100,5 II. Foreign Financing (Net) (2,5) (24,3) 972,0

44 Significant Progress of Government Spending Profile Reform …as the commitment to accelerate productive spending

The Productive Spending Pattern Has Improved, Especially for Capital Spending

(IDR tn) (IDR tn)

100 Jun-15 Jun-16 94,6 50 90,1 Real. R-Budget 15 Real. R-Budget 16 44,4 % to R-Budget 15 % to R-Budget 16 80 72,3 40

60 50,7 30 27,2 26,9 42,2 44,4 40 19,52 20 18 16,7 26,9 22,9 10,2 10,60 20 10 8,6 5,4 3,9 1,5 1,3 0 0,1 0 Subsidi Bansos Barang Modal Subsidy Social Goods Capital Jan Feb Mar Apr Mei Jun Support

Source: PKAPBN, Staff Calculation

 Higher capital spending and growing construction sector led to a sustainable investment growth in Indonesian GDP

 Government commitment to improve spending profile is pictured in 2016 central government realization

45 Financing Policy 2016

2016 2016 Debt Financing Description (IDR tn) Budget R-Budget • Manageable Debt-to-GDP ratio I. Domestic Financing 272.8 299.3 • Financial inclusion & market deepening 1. Domestic Banking 5.5 25.4 • Debt issuance for productive activity • Selective external loan (infrastructure and energy sector) 2. Domestic Non-Banking 267.3 273.9 • Loan as an alternative instrument for financing II. Foreign Banking 0.4 -2.53 • Active debt management and Asset Liabilities Management 1. Foreign Outstanding Loan (Gross) 75.1 72.9 (ALM) a. Program Loan 36.8 35.8

b. Project-Based Loan 38.3 37.2

2. Standby Loan Agreement (SLA) -5.9 -5.8

3. Foreign Debt Principal Repayment -68.8 -69.7

TOTAL 273.2 296.7

IDR tn 2016 2016 % 2010 2011 2012 2013 2014 Budget R-Budget 0 0,0 Non Debt Financing (50) • Sharpen PMN recipients and purposes (100) (0,73) (1,0) • Provide government guarantee for infrastructure project (1,14) (150) Deficit • Support accessibility for education and housing for low % to PDB (200) (2,0) income class (1,86) (1,90) (2,35) (250) (2,33) (2,25)

(300) (3,0)

46 Budget Financing Breakdown in 2016

Breakdown of Budget Financing IDR tn US$ bn

Redemption Government Debt (net) 365.73 27.50 IDR316.51tn Government Securities (net) 364.87 27.43

Issuance 611.40 45.97

Redemption & Cash Management (243.54) (18.31)

Debt Portfolio Management (3.00) (0.23) Debt (Gross) Domestic Loans (net) 3.39 0.25 IDR682.24tn Withdrawal 3.71 0.28

Non-Debt Budget Redemption (0.32) (0.02) Financing Financing IDR69.01tn IDR296.72tn Foreign Loans (net) (2.53) (0.19)

Withdrawal 67.13 5.05

Redemption (69.65) (5.24)

Source: Ministry of Finance. USD/IDR: 13,300 (as of end of August, 2016)

47 Government Securities – Financing Plan for 2016

Revised Budget Domestic Bonds Instruments Indicative Target Indicative Target (IDR bn) (US$ mm) Weekly Auction: Government Securities (Net) 364,867 27,434 Conventional securities 23 x Redemption 215,089 16,172 Islamic securities 23 x Cash Management 27,874 2,096 ATM for Government Securities (SBN) by auction Buyback 3,000 226 9-11 years Gov’t Securities Conversion 573 43 Non-Auction: Government Securities 611,403 45,970 (Gross) Sukuk Retail (Q1), SBR1 (Q2), Sukuk Retail bonds Composition Tabungan2 (Q3), and ORI3 (Q4) Domestic 77% Private Placement Based on request Auction 58% Non-Auction 18% Front Loading Issuance For Budget Financing International Bond 23% • Pre-funding to optimize cost ahead of potential Fed rate hikes Government Issuance Targets International Bonds • Anticipate developments in global environment • Issuance of international bonds Sukuk • Our target is to front load 74% of the annual budget in 1H16 27% as a complement to diversify investor base in domestic Government Debt Outstanding (as of end of August 2016) market and to avoid crowding out the domestic market IDR tn US$ bn Total government debt outstanding 3,438 258.5 • Provides benchmark for Loan 754 56.7 Indonesia corporate issuances, Securities 2,684 201.8 Debt consisting of USD, JPY and Securities EUR denominated bonds US$/IDR: 13,300 (as of end of Aug, 2016) 1 73% • Target maximum 27% of SBR: “Savings Bond Ritel” or Retail Savings Bond 2 Sukuk Tabungan means Sukuk Savings Bond issuance via international bonds 3 ORI: “Obligasi Negara Ritel” or Indonesian Retail Bond

Source: Ministry of Finance

48 Disciplined and Sophisticated Debt Portfolio Management

Stable Debt to GDP Ratio Over the Years Remarkable Debt Reduction Initiative Over the Past 10 Years

US$ bn Government Debt / GDP (%) Change in Debt to GDP Ratio (2005 – 2015) (%) -80,0 -30,0 20,0 70,0 120,0 170,0 220,0 270,0 300 27.4% 27.7% 30,0 23.1% 23.0% 24.9% 24.7% Turkey -38,1 250 25,0 Philippines -37,2 56 Indonesia -36,1 200 55 20,0 India -16,9 54 Germany 6,0 69 64 58 150 15,0 Brazil 7,5 Poland 9,9 Colombia 100 209 10,0 29,0 Italy 155 175 30,1 131 141 136 Japan 33,1 50 5,0 Malaysia 38,8 South Africa 50,7 0 0,0 United States 63,1 2011 2012 2013 2014 2015 2016* United Kingdom 115,2 Chile 143,8 Securities (LHS) Loans (LHS) Govt Debt / GDP (%) (RHS) Australia 238,1 Source: Ministry of Finance Source: IMF World Economic Outlook Database, April 2016 Weighted Average Debt Maturity of ~9.3 Years (As of August 2016)** Well Diversified Across Different Currencies

Years % of Yearly Issuance 3% 2% 2% 10,0 100% 3% 3% 2% 3% 3% 3% 3% 3% 4% 9% 17% 14% 12% 8% 8% 9,73 80% 9,8 9,70 29% 31% 29% 9,60 22% 24% 29% 60% 9,5 9,40 40% 9,32 55% 56% 53% 57% 56% 57% 9,3 9,19 20% (1) 0% 9,0 2011 2012 2013 2014 2015 AugJun-16-16 2011 2012 2013 2014 2015 Aug-16** IDR USD JPY EUR Others*** Source: Ministry of Finance Source: Ministry of Finance * Revised Budget 2016 Figures, **Using GDP assumption in R-Budget 2016,*** SDR, AUD, and other

49 Well Balanced Maturity Profile With Strong Resilience Against External Shocks

Declining Interest Rate Risks Declining Exchange Rate Risks

% % FX Debt to GDP Ratio* FX Debt to Total Debt Ratio Variable Rate Ratio¹ Refixing Rate² 30 46,7 25,9 50 45,1 44,4 43,4 44,5 42,8 25 22,5 23,2 21,0 20,7 40 18,8 20 18,4 16,2 16,0 14,8 30 13,7 15 12,4 20 10 12,2 10,4 10,2 11,7 10,7 11,7 5 10

0 0 2011 2012 2013 2014 2015 Aug-2016** 2011 2012 2013 2014 2015 Aug-2016**

Debt Maturity Profile Upcoming Maturities (Next 5 Years)

IDR tn % 300 In < 1 year In < 3 year In < 5 year IDR-Denominated Other Currencies 40,0 37,4 250 34,6 33,9 34,7

32,4 33,4 133

200 83 30,0 109

122 23,1

22,7 21,5 21,8 21,4 91 150 84 20,1

108 20,0

101

101

10 18

100 15

111

29 168 154 8,2 8,6 8,4

43 7,2 7,7 7,2 146

4 10,0

24

125

15

15 115

50 113

31

97

22

93

93

100

88

27

1

21

76 1

17

28

28

69

53

53

52

47

46

45

1

29

27

26

22

22

22

21

20

18

7 15 0 5 0,0 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046- 2011 2012 2013 2014 2015 Aug-2016** 2060

Source: Ministry of Finance 1 Variable Rate Ratio is defined as ratio between debt instruments with variable rate divided by total debt instruments (variable + fixed rates) 2 Refixing Rate ratio is defined as ratio between debt instruments with variable rate + debt instruments with fixed rate maturing in 1 year divided by total debt instruments (variable + fixed rates) *Using GDP assumption in 2016 R-Budget; **Preliminary figures; 50 Profile of Total Central Government Debt

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

USD bn 199.48 204.51 194.55 209.41 214.88 224.60 229.70 248.30 255.14 258.50 (%) 100

80 63,16 72,84 76,5 76,39 83,66 83,52 84,27 83,57 75,25 65.66 68.82 70.04 74.13 75.81 75.73 76.14 76.95 77.99 78.23 65.66 68.82 70.04 74.13 75.81 75.73 76.14 77.16 77.99 78.07 % 60

38,13 38,21 38,94 38,59 39,10 38,87 40 30,80 32,98 32,54

24,97 20 19,32 34.34 31.18 29.96 25.87 24.19 24.27 23.86 22.84 22.01 21.93 18,29 18,96 21,33 13,1 13,44 12,45 13,73 11,87 7,84 0 5,2 4,65 3,23 3,04 3,28 2,69 3,43 2011 2012 2013 2014 Jun-15 Dec-15 Jan-16 Apr-16 Jun-16 Aug-16 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Mar-16 Jun-16 Aug-16

Loan Government Securities 0-1 1-5 >5 Foreign Ownership to Total (RHS) Foreign Holders of Government IDR Bonds – Composition August 2016

100 21,95 29,81 28,63 28,70 27,63 26,11 80 36,63 33,70

60 38,94 35,02 (%) 31,25 32,89 32,44 34,05 32,58 33,76 40

20 38,94 38,48 38,85 38,28 39,10 38,87 30,80 32,54

0 Dec-11 Dec-13 Jan-16 Mar-16 Apr-16 May-16 Jun-16 Aug-16

Foreign Holder Domestic Non Banks Domestic Banks

51 Ownership of IDR Tradable Central Government Securities

(IDR tn) Description Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Apr-16 Jun-16 Aug-16 Banks* 299.66 36.73% 335.43 33.70% 375.55 23.95% 442.76 29.81% 462.62 28.70% 361.54 21.95% 448.71 26.11% Govt Institutions (Bank Indonesia**) - 0.00% 44.44 4.47% 41.63 10.19% 56.41 3.80% 54.37 3.37% 150.13 9.12% 80.52 4.68% Bank Indonesia (gross) 150.18 10.11% 149.49 9.28% 149.07 9.05% 148.87 8.66% GS use for Monetary Operation 93.77 6.31% 95.13 5.90% -1.05 -0.06% 68.35 3.98% Non-Banks 517.53 63.21% 615.38 61.83% 792.78 65.87% 985.99 66.39% 1094.70 67.92% 1135.18 68.93% 1189.50 69.21% Mutual Funds 43.19 5.28% 42.50 4.27% 45.79 4.21% 61.48 4.14% 73.02 4.53% 76.44 4.64% 79.17 4.61% Insurance Company 83.42 10.21% 129.55 13.02% 150.60 11.74% 173.26 11.67% 203.41 12.62% 214.47 13.02% 219.54 12.77% Foreign Holders 270.52 32.98% 323.83 32.54% 461.35 38.21% 578.32 38.94% 626.17 38.85% 643.99 39.10% 668.09 38.87% Foreign Govt's&Central Banks 50.06 6.13% 78.39 7.88% 103.42 7.55% 110.98 7.47% 112.49 6.98% 118.53 7.20% 117.59 6.84% Pension Fund 56.46 6.91% 39.47 3.97% 43.30 3.41% 52.24 3.52% 57.41 3.56% 64.67 3.93% 74.07 4.31% Individual 32.48 3.26% 30.41 2.91% 41.42 2.79% 49.19 3.05% 48.90 2.97% 47.40 2.76% Others 63.64 7.79% 46.68 4.69% 60.51 5.37% 78.99 5.32% 85.50 5.31% 86.72 5.27% 101.23 5.89% Total 817.19 100% 995.25 100% 1,209.96 100% 1,485.16 100% 1,611.69 100% 1,646.85 100% 1,718.73 100%

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.

52 Government Securities Realization

(IDR mn, as of end of August 2016)

Realization Revised Budget % Realization to Budget 2016 (a.o. end of August 2016 Budget 2016 2016)

Government Securities Net 327,224,357 364,866,887 368,973,542 101.13% Government Securities Maturing in 2016 and Buyback 228,499,399 246,535,735 177,858,690 72.14% Issuance Need for 2016 555,723,756 611,402,622 546,832,232 89.44% Government Debt Securities (GDS) 389,393,702 Domestic GDS 280,354,982 -Coupon GDS 201,200,000 -Conventional T-Bills 43,340,000 -Private Placement* 31,895,977 -Retail Bonds 3,919,005 International Bonds 109,038,720 -USD GMTN 48,643,000 -Euro GMTN 44,975,610 -Samurai Bonds 12,760,910 -Domestic GDS 2,659,200 Government Islamic Debt Securities 157,438,530 Domestic Government Islamic Debt Securities 124,031,030 - IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) 89,731,030 - Retail Sukuk 31,500,000 - Private Placement 2,800,000 Global Sukuk 33,407,500

Note:*Including the issuance of Government Securities Conversion - Issuance Government Securities Conversion 572,581 572,581 - Issuance Government Securities Conversion 572,581 572,581 - Matured Government Securities Conversion 572,581 360,814 - Matured Government Securities Conversion 572,581 360,814 Nett Issuance Government Securities Conversion - 211,767 Nett Issuance Government Securities Conversion 211,767

53 Indonesia Infrastructure Projects and Financing Schemes

Financing Breakdown (2015 – 2019) Establishment of PPP Unit

Govt & Broad • Champion project preparation and acceleration of the PPP agenda Objective in Indonesia Local ~ US$142.4bn Budget Core • Improve quality of project selection under KKPPI – OBC criteria Total (41.3%) Mandates • Support project preparation through PDF support and use a high quality Financing Transaction Advisor SOE Needs: ~ US$76.7bn • Act on behalf the Minister of Finance in providing government support (22.2%) approvals for projects ~ US$345.1 Alternative bn Financing Financing Additional • Coordinate all public finance instruments Gap PPP Scheme Mandates • Provide input for PPP Policy Development and Regulations ~ US$126.0bn (36.5%) • Implement capacity building program to GCA • One stop shop for PPP promotion & Information

State Owned Enterprise Sea Port Budget Public Private Partnership New Sea Ports 24 & Private Sector

Sea port developments 59 • Central & Regional • Certain infrastructure projects to be funded and operated • Government to inject Budget (Special through a partnership between the Indonesian government capital into SOEs – Allocation Fund & and private sector companies intention is that through a Roads New Roads 2,650 km Rural Transfer) ‒ Projects Ready for Auction under PPP Scheme: multiplier effect, more • Mainly to support ‒ Toll roads projects such as Balikpapan-Samarinda and infrastructure projects can be developed Highway 1,000 km basic infrastructure Manado-Bitung projects: ‒ Railway projects such as an Express Line into Soekarno- • Key focus areas: 46,770 ‒ Food Security: Hatta International Airport ‒ Infrastructure and Road maintenance km Irrigation, dams ‒ Water supply such as West Semarang water supply project maritime development etc. • Government to support the PPP via initiatives: ‒ Transportation and Bus Corridors 2 ‒ Maritime: ‒ Land Fund: Modification and simplification of land connectivity Seaports, acquisition process ‒ Food security shipyards etc. ‒ Project Development Facility (PDF) through PT Sarana • Medium term Railway Lines 2,159 km Railways ‒ Connectivity: Multi Infrastructure infrastructure Village roads, ‒ Indonesia Infrastructure Guarantee Fund (IIGF): A developments in focus: public Intra City Rail Lines 1,099 km mutual government guarantee scheme for infrastructure ‒ Water Supply transportation etc. risks ‒ Airports ‒ Viability Gap Fund (VGF) for PPP projects with near-term ‒ Seaports Airport New Airports 15 financial constraints ‒ Electricity and power ‒ Infrastructure Fund: To offer long term financing for plants infrastructure projects ‒ Housing Airplanes for new routes 20 ‒ Availability Payment (AP): To allow availability of ‒ Mining infrastructure services provided by PPP companies 54 Alternative Source of Infrastructure Financing

Scenario 1 Scenario 2 Infrastructure Financing Needs Baseline 2015 – 2019 Infrastructure Plan (Full (Partial 2015 - 2019 (Baseline) Scenario) Scenario) New Roads – 2,650 km Roads 1,274 851 637 Highway – 1,000 km Rail System 278 222 140 Road Maintainance – 46,770 km Urban Transportation 155 115 75 Bus Corridors – 2 Sea Transportation 563 424 282 Ferry and Other Waster Transportation 91 80 60 New Sea Ports – 24 Air Transportation 182 165 100 Sea Port Development – 59 Pioneer Cargo Ships Electricity 1,080 762 714 Other Energy dan Gas 535 420 268 New Airports – 15 Waer Resources 1,091 845 645 Airport Infrastructure Water and Sanitation 666 450 330 Development Public Housing 384 247 180 Airplanes – 20 Information and Communication Rail lines – 2,159 km 242 200 130 Intra City Rail Lines – 1,099 km Technology Total 6,541 4,781 3,561

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

 Central & Regional Budget (Special Allocation Fund & Rural  Government to inject capital to SOEs – with leveraging process a Transfer) es multiplier effect, more infrastructure projects can be developed  Mainly to support basic infrastructure projects:  Key focus areas:

► Food Security: Irrigation, dams etc. ► For commercial and/or complex projects

State State

Owned Budget

► Maritime: Seaports, shipyards etc.  Medium term infrastructure developments focus: electricity and Enterpris ► Connectivity: Village roads, public transportation etc. power plants, toll road

 Government support for PPP :  Projects Ready for Auction under PPP Scheme:

► Land Fund: Modification and simplification of land acquisition process ► Toll roads projects such as Balikpapan-Samarinda, Manado- ► Project Development Facility (PDF) through PT Sarana Multi Infrastructure Bitung

► Indonesia Infrastructure Guarantee Fund (IIGF) ► Railway projects such as Halim-Soetta Airport Express Railway

Sector And Private And

Partnership ► Viability Gap Fund (VGF) ► Water supply such as West Semarang water supply project Public Private Private Public ► Infrastructure Fund & Availability Payment (AP)

55 Government Guarantee for Basic Infrastructure Development

Budget Allocation for Claims on Government Guarantee (1) Guarantee Program based on Guarantee Classification

(US$ mm) Guaranteed No. of Value Outstanding as Program Currency 79,5 Party Letters (bn) of 2015 (bn) 3,8 73,0 US$ 4.0 2.7 69,6 A Credit Guarantee 47 68,5 3,7 IDR 36,007.0 19,138.9 1,1 0,2 63,9 Acceleration of coal- 11 US$ 4.0 2.7 3,8 fired power plant 0,1 ● PLN 53,4 24,5 project (10,000 MW) – 25 IDR 35,678.7 18,975.7 stage 1 48,0 4,5 0,8 2,7 0.1 Acceleration of drinking ● PDAM 11 IDR 328.3 163.2 water supply project 75,8 67,3 69,2 US$ 8.2 – 60,0 B Investment Guarantee 10 IDR – – 47,2 46,3 45,0 Acceleration of coal- fired power plant ● IPP 9 US$ 5.0 – project (10,000 MW) – stage 2

Government partnership with 2010 2011 2012 2013 2014 Revised 2016 ● Enterprise Private 1 US$ 3.2 – Budget Infrastructure (IDR bn equivalent) 2015 Guarantee Agency

US$ 12.1 2.7 1,000.0 889.0 623.3 611.2 913.7 792.0 593.9 Total 57 IDR 36,007.0 19,138.9 50.0 15.0 10.0 35.0 2.2 1.8 0.9 – – – 59.2 48.2 49.7 323.2 In 2016, Government will add credit guarantee program (i) infrastructure financing through direct loans from international financial institutions (ii) acceleration of toll Electricity Development Clean Water Program PPP & Electricity Dev. Project road construction in Sumatera

Source: Ministry of Finance

1 USD/IDR exchange rate of 13,200

56 Financing the Acceleration of Infrastructure Development

• Acceleration of public infrastructure development is partly translated into programs to increase private participation and SOEs involvement in the development of public infrastructure. • Ministry of Finance provide a number of financial facilities to attract more private participation as well as to increase the capacity of SOEs in developing public infrastructure.

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

• Government guarantees to SOEs’ loans from IFIs for • Project Development Facility (PDF) the Development Infrastructure Projects • Viability Gap Fund (VGF) • Government guarantees to SOEs’ loans for the • Government Guarantees (provided directly by MoF or development of Sumatra Toll Roads through IIIGF) • Business Viability Guarantee Letter for PT. PLN power • Availability Payment scheme projects • Credit guarantees for Regional Water Companies

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

Guarantees Amount of Guarantees (IDR mn) Outstanding Exposures (IDR mn) Number of Guarantees Fast Track Project 1 87,871.54 50,821.29 36 PDAM 328.30 181.32 11 PPP 42,176.00 6,608.98 1 FTP 2 66,982.93 16,538.24 10 SOE Direct Lending 14,498.00 1,581.60 2 Sumatra Toll Roads 1,721.34 - 2 Total 213,578.10 75,731.42 62

57 PPP Projects

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

Project cost No. Project Name Financial Facility from MoF Status (IDR) 1. Central Java Power Plant Project 40 T Guarantee (MoF and IIGF) Financial close on 6 June 2016 2. Umbulan Water Project 2.1 T PDF, VGF and IIGF Guarantee PPP agreement signed on 21 July 2016 3. Bandar Water Project 900 B PDF, VGF and IIGF Guarantee Feasibility study in progress 4. Palapa Ring Project – West Package 1.28 T IIGF Guarantee and AP Financial Close on 11 August 2016 5. Palapa Ring Project – Central Package 1.38 T IIGF Guarantee and AP Credit agreement signed on 29 August 2016 6. Palapa Ring Project – East Package 5.13 T IIGF Guarantee and AP Winning bidder awarded on 25 July 2016 7. Minemouth Coal Power Project 9 & 10 80 T Co-guarantee (MoF and IIGF) Bid submission delayed 8. Batang – Semarang Toll Road Project 11 T IIGF Guarantee PPP & guarantee contracts signed on 27/04/2016 9. Manado – Bitung Toll Road Project 5.1 T IIGF Guarantee PPP & guarantee contracts signed on 08/06/2016 10. Balikpapan – Samarinda Toll Road Project 9.9 T IIGF Guarantee PPP & guarantee contracts signed on 08/06/2016 11. Pandaan – Malang Toll Road Project 5.9 T IIGF Guarantee PPP & guarantee contracts signed on 08/06/2016 12. Serpong – Balaraja Toll Road Project 6 T - PPP contracts signed on 08/06/2016 13. Pirngadi Regional Hospital Project 546 B PDF and AP Market sounding preparation 14. Bontang Oil Refinery 120 T PDF OBC development 15. Jakarta-Cikampek Toll Road Project 16.4 T Co guarantee (IIGF and MoF) RfP Final on 16 September 2016 16. Krian-Legundi-Manyar Toll Road Project 9.12 T Co guarantee (IIGF and MoF) RfP Final on 16 September 2016 17. Cileunyi-Sumedang-Dawuan Toll Road Project 5.7 T Co guarantee (IIGF and MoF) In-principal co-guarantee approval letter has signed by Ministry of Finance on 19 September 2016 PDF : Project Development Facility VGF : Viability Gap Fund IIGF : Indonesia Infrastructure Guarantee Fund AP : Availability Payment 58 Non-PPP Projects

• To increase SOEs’ capacity in financing infrastructure development, the government not only provided additional capital placement PMN) but also developed some financial facilities including government guarantees. • One of the new facilities is the guarantee on direct lending of SOEs to International Financial Institutions for the development of infrastructure projects. So far, this type of guarantee has been provided as follow::

Project cost No. Project Name Lender SOE Status (IDR mn.) 1. Sumatra Power Transmission and Distribution 600 ADB PT. PLN Guarantee is effective 2. Sumatra Power Distrubution 500 World Bank PT. PLN Guarantee is issued but still ineffective 3. The Enhancement of Electricity Grid 330 IDB PT. PLN Proposal has been submitted

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

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

59 Policy Updates on Infrastructure Financing (as of June 2016)

1 PPP Projects: MoF regulation on the Availability Payment Scheme is currently drafted and under discussion in the MoF

A new ammendment of MoF regulation on the provision of infrastructure guarantees is currently being reviewed by the MoF legal bureau.

2 On Government guarantees of direct lending Presidential regulaton and MoF regulation for the legal basis of Guarantees to SOE Direct Lending have been issued

On the implementation of Presidential regulation number 3/2016 on National Strategic Projects 3 and Presidential Regulation number 4/2016 on Power Infrastructure Projects

An MoF regulation on the government guarantee provision to support both Presidential Regulations is currently being drafted.

60 Efforts to Accelerate Infrastructure Provision

Improvement on PPP Regulation . By taking into account the growth of PPP project potential, the Government of Indonesia has revised the Presidential Regulation No. 67 of 2005 on PPP and its amendments by issuing the new Presidential Regulation No. 38 of 2015 on PPP on 20 March 2015. . This new Presidential Regulation addresses the constraints which contributes to delays in PPP implementation, such as: PPP for the social infrastructure; a low quality of pre-feasibility studies; gaps of quality in assets that were partly constructed by the Government; unattractive investment return scheme; and weak Ministries/Institutions commitment for PPP projects.

The Ministry of National Development Planning has issued the Ministerial Regulation No. 4 of 2015 on the implementation Procedures for a Public-Private Partnership in Infrastructure Provision. This Ministerial Regulation is a derivative regulation to supplement the Presidential Regulation No. 38 of 2015 on PPP. Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

61 Efforts to Accelerate Infrastructure Provision (continued)

Regulation improvement to accelerate land procurement process . The Government of Indonesia issued Law No. 2 of 2012 on Land Acquisition for Public Interest, with a purpose to provide certainty about the land acquisition duration for the Government Contracting Agencies and the Investors. The Law sets an estimated 583 days maximum time to complete the land acquisition process. . For its implementation, the Law No. 2 of 2012 was supported by the Presidential Regulation No. 71 of 2012 on Land Acquisition Implementation for Developing Public Facilities, which has been revised into the Presidential Regulation No. 30 of 2015. The Amendment to the Regulation allows a Business Entity to allocate funding for a land acquisition which can be reimbursed by the Government following the completion of land acquisition process. With this Regulation, the land acquisition process is expected not to be delayed by the unallocated budget or the delay on the budget disbursement.

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

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

62 Monetary and Financial Factor: Credible Monetary Policy Track Record 5 and Favourable Financial Sector Bank Indonesia Policy Mix: 2015 - 2016

16 June 2016 14 January 2016 • Cut BI Rate 25 bps to 6.5% 26 June 2015 • Cut BI Rate 25 bps to 18 March 2016 • Cut DF & LF Rate at 4.5% & 7.0% respectively Reserve 7.25% 19 August 2016 • Cut BI Rate 25 • Relaxed the loan-to-value ratio (LTV) and Requirement Policy: • Cut DF & LF Rate at • Held BI 7-day RR Rate bps to 6.75% financing-to-value ratio (FTV) on housing • RR-LDR RR-LFR 5.25% & 7.75% resp. and DF Rate at 5.25% • Cut DF & LF Rate loans/financing • Accomodate banks • BI lowered its monetary and 4.5% at 4.75% & 7.25% • Relaxed partially prepaid loans/financing SMEs loan in RR operation rates even • Cut LF Rate to 6.00%. respectively • Raised the floor on the Reserve Requirement - calculation further, ranging from 25bps Loan to Funding Ratio (RR-LFR) from 78% to to 45bps (O/N to 1Y) 80%, with the ceiling maintained at 92%. The change was effective on August 2016.

21 July 2016 18 February 2016 21 April 2016 • Held BI Rate at 6.5%, and maintained BI 7- • Cut BI Rate 25 bps to • Held BI Rate at 6.75%, and day RR Rate, DF & LF Rate at 5.25%, 4.5% 7% & 7.00% respectively. 17 November 2015 maintained DF & LF Rate at 4.75% & 22 September 2016 • Cut DF & LF Rate at 5% • BI continued to conduct financial market Lowered IDR 7.25% respectively. • Lowered BI 7-day RR & 7.5% resp. deepening by introducing new investment Primary RR by • Reformulated policy rate from BI Rate to 5.0% • BI lowered the rupiah and hedging products in the financial 50bps from 8.0% to Rate into the 7 day (Reverse) Repo • Lowered DF and LF denominated primary market, strengthened monetary 7.5%. Effective Rate to improve the effectiveness of Rate to 4.25% and reserve requirement by management strategies, and encouraged since 1 Dec 2015 monetary policy transmission. The 5.75% 1%, from 7.5% to 6.5%, change was effective on August 19th the real sector to make optimal use of effective from 16th 2016 repatriation funds to support the March 2016 implementation of the 2016 Tax Amnesty Law

64 Bank Indonesia Policy Mix: September 2016

The BI Board of Governors agreed on 22nd September 2016 to lower the BI 7-days Repo Rate to 5.00%, as well as the Deposit Facility at 4.25% and cut the Lending Facility rates to 5.75%

Remains vigilant towards global developments, specifically the Convinces that Continues to coordinate uncerteinty of US economy and monetary and with the Government in expected adjustment of the Fed Maintains exchange macroprudential Lower the BI 7- preparing policy measures Fund Rate (FFR), undermined rate stability in line policy easing will day Repo Rate to ensure an optimal impact economic growth in Europe, with the currency’s catalyse credit growth to 5.00% of the recently enacted Tax potential economic moderation in fundamental value in order to stimulate Amnesty on the national China and the continuation of the economic growth economy international commodity prices moving forward rebound

65 Enhancement of Monetary Operations Framework

BI rate as reference rate BI rate BI 7-day repo rate • BI Rate reflects monetary policy stance as a tool to anchor economic OMO term structure agent’ inflation expectations • BI Rate is used as a benchmark BI RATE 12 months interest rate for transactions in 7 day financial markets and eventually to (equivalent) influence general interest rate • BI Rate effectively affect banking interest rate Character Challenges: Transmission of monetary policy is less effective Transactional • Excess liquidity due to massive Non-Transactional (Central Bank) capital inflows post 2008 global financial crisis draw down overnight interbank rates around DF Rate. CHALLENGES Transmission Meanwhile, the BI rate is currently around 9-12 months OM instrument. Not optimally Stronger relationship • The shallow financial markets also reflected in money to the money market inhibit the transmission of monetary market interest rates interest rates policy.

Enhancement of monetary operations Financial Deepening framework Cost of being illiquid is too Cost of being illiquid is lower, Bank Indonesia will enhance the high, does not support monetary operations framework that is financial deepening support financial ENHANCEMENT supported by the deepening of the deepening financial markets in order to strengthen the transmission of monetary policy.

66 Stable Monetary Environment Despite Challenges

Strengthened Monetary Policy Managed Core Inflation Over The Past Few Months

(%) 19 August 2016 (%) CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy)

8,00 The New 19 Monetary 7,50 Operation LF Rate: 7.00 7,00 Framework 14 BI Rate: 6.50 6,50

6,00 LF Rate: 9 5.75 5,50 BI 7Day RR Rate: 5.28 5,00 5.00 4 3.32 DF Rate: 4.50 2.79 4,50 DF Rate: 4.50 (0.91)

4,00 -1

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

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 1

11 11 11 11 11

LF Rate BI Rate BI-7Day RR Rate DF Rate 2011 2012 2013 2014 2015 2016

Credit Growth Supported by Macroprudential Policy Rupiah Exchange Rate Remains Comparable to Peers

YoY % YTD 20162 vs. 2015 Total Growth Working Capital loans Investment Loans Consumption Loans 40% BRL 22,75 35% ZAR 7,86

30% MYR 5,58

25% KRW 5,41 THB 4,10 20% IDR 3,92 15% 10.4% EUR 2,08 10% 8.2% 7.7% PHP 0,72 5% 6.1% TRY -1,04 0% % INR * data as of 31 Aug 2016 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 -1,21 2013 2014 2015 2016 -5,00 0,00 5,00 10,00 15,00 20,00 25,00

Source: Bank Indonesia 67 Financial Intermediaries Development

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

After four consecutive years of declining growth (2012-2015), there is The growth of financing distributed by multifinance companies a slight improvement in banking loan growth in 2016 demonstrates an improvement as well, after contracting in 2015

Capital raising through IPOs, rights issues, and corporate bond Gross premium revenue in the domestic insurance industry also issuance in the capital market is relatively stable demonstrates a positive development in 2016

Source: OJK 68 Financial Institutions Remain Robust and Less Vulnerable

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

Risk-based capital (RBC) of the insurance industry also remains Banking sector’s capital adequacy ratio (CAR) is maintained high high, well above the minimum threshold

Gearing ratio of multifinance companies is well below the maximum Profitability of the banking sector is relatively stable requirement, providing ample room for future growth

Source: OJK 69 Adequate Liquidity, Manageable Credit Risks

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

The ratio of liquid assets to deposits in the banking sector is well Investment adequacy ratio in the insurance industry is maintained maintained at a high level above 100%

Non-performing loan (NPL) in the banking sector remains at a low level. NPF ratio in the multifinance industry is 2.2%, maintained below the The gross & net NPL ratio are 3.2% & 1.5% respectively 5% threshold

Source: OJK 70 Manageable Market Risk Amidst Fluctuations

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

Net open position in the banking sector is kept far below the The movement of mutual funds’ net asset value (NAV) is in line with maximum requirement (20%) the market index, but with much lower volatility

Amidst the fluctuating market in recent periods, the investment Multifinance companies’ exposures to foreign debt have generally been value of insurers & pension funds continues to expand mitigated through hedging measures

Source: OJK 71 Capital Market Demonstrate Strengthening Trend

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

The IDX Composite Index demonstrated a positive growth and listed Both the stock & bond indices demonstrated a strengthening index in among the best-performing indices (ytd) in the region 2016, supported by favorable domestic environment

Despite uncertain external factor, favorable domestic environment In line with the stabilizing IDR and improving domestic prospects, the attracts nonresident inflow especially in Q3 government bond yield continues to decline

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

Housing Loans and Financing Housing Financing Based on MMQ and IMBT Contracts Based on Murabahah and Istishna Contracts

Property Lending/Financing Facility Property Lending/Financing Facility 2 2 type (m ) First Second Third type (m ) First Second Third House House >70 m2 85% 80% 75% >70 m2 90% 85% 80% 22 - 70 m2 - 85% 80% 22 - 70 m2 - 90% 85% <21 m2 - - - <21 m2 - - - Apartment Apartment >70 m2 85% 80% 75% >70 m2 90% 85% 80% 22 - 70 m2 90% 85% 80% 22 - 70 m2 90% 85% 80% <21 m2 - 85% 80% <21 m2 - 85% 80% Home Home - 85% 80% - 85% 80% Shop/Office Shop/Office 73 A Comprehensive Financial Deepening Program ...strategy to tackle challenges in deepening Indonesia’s financial markets

Financial Market Deepening Program

First Priority: Market Development Coordination Continuous Basis Money Market • Bank Indonesia Regulation (PBI) on Money Market Encourage well-functioning money market (deep and efficient, risk mitigation, and market integrity), • Bank Indonesia Regulation (PBI) on Negotiable Certificate of Deposit (NCD) Enriching money market instruments, encourage banks to raise long term funding, and acts as an alternative investment for Monitoring, match investors • Corporate Bonds making, and solution: • Bank Indonesia Regulation (PBI) on Commercial Paper • Government • Repo Alternative sources of financing for non-bank corporations, as well as an investment outlet for investors Bonds • Hedging • Other instruments FX Market • Swap Link Deposit a combination of foreign currency deposits with FX Swap against the rupiah. • Dual Currency Deposit a combination of assets (deposits) and derivatives (FX Options).

Supporting Regulations

Strengthening JIBOR Market Code of Conduct Certification of Dealer

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

Inter-agency Cooperation

Signing of MoU on April 8th, 2016, between MoF, BI, and The Signing of this MoU is driven by the need for: OJK on Coordination in the Context of Financial Markets • Sufficient development financing, Development and Deepening to Support National • Financial markets deepening, and Development Financing • Good coordination among related institutions

Source: Bank Indonesia

74 Stronger Fundamentals Facing the Headwinds

Inflation Rate IDR Depreciation Foreign Reserves Inflation controlled under the revised Significantly higher than 1998 & 2008, ample to cover 7.3 Depreciation rate lower than 1998 & 2009 Budget target months of import and external debt repayment

1998 82,4 1998 197,0 1998 17,4

2008 12,1 2008 35,0 2008 50,2

AugSep-15 16 6,82.79 (yoy) Sep-15Aug 16 3.9215,5 (ytd) AugSep-15 16 113.5

Non-Performing Loan (NPL) More Liquid Market Overnight interbank money market rate NPL level is below the maximum threshold of 5% is relatively lower 62 1998 30,0

2008 3,8 10,5 4.75,7

JulAgu-15 16 32,8.2 1998 2008 Jul-15Aug 16

External Debt (Public & Government Debt/GDP External Debt/GDP Private) to FX Reserve Ratio Continue to decline and allocated to Slightly higher than 2008, but Significantly lower than 1998 crisis productive sectors significantly lower than 1998

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

Q2-2016 Q2-2016 Q2-2016

75 Outlook of Domestic Economy Improves ...domestic economic growth is predicted to be higher in 2016

2016 Economic Outlook

 Economic growth expected to increase, supported by fiscal stimulus linked specifically to accelerated infrastructure project development. Private investment is expected to increase as a result of government policy packages and measurable monetary easing

 Inflation projected at the midpoint of the 4±1% inflation target, with the current account deficit is projected below 3% of GDP

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

Economic Growth Inflation CAD (% GDP) Credit Growth

2015 4.79% 3.35% 2.06% 10.45%

2016 4.9-5.3% 4.0±1% 2-2.5% 7-9%

76