Kementerian dan Lembaga Pemerintah

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July 2017

Republic of Indonesia

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1

About Investor Relations Unit of the Republic of Indonesia

Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial market investors.

As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among others: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of State Owned Enterprises, Ministry of Energy and Mineral Resources and Financial Services Authority.

IRU also convenes an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices.

Published by Investor Relations Unit – Republic of Indonesia Website: http://www.bi.go.id/en/iru/default.aspx

Contact: Wiwit Widyastuti (International Department - Bank Indonesia, Phone: +6221 2981 8279) Adrianto (Fiscal Policy Office - Ministry of Finance, Phone: +6221 345 0012)

I Gede Yuddy Hendranata (Directorate General of Budget Financing and Risk Management - Ministry of Finance, Phone: +62213510714)

E-mail: contactIRU-DL@bi.go.id

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2

Overview

1

2

3

4

5

6

Institutional and Governance Effectiveness: Accelerated Reforms Agenda with

Institutional Improvement

Economic Factor:

Strong and Stable Growth Prospects Remain Intact

External Factor:

Improved External Resilience

Fiscal Performance and Flexibility: More Fiscal Stimulus with

Prudent Fiscal Management

Monetary and Financial Factor:

Credible Monetary Policy Track Record and Favourable Financial Sector

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Institutional and Government Effectiveness:

Accelerated Reforms Agenda with

Institutional Improvement

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4

Positive Global Perception

1. Source: World Bank –Doing Business 2017 Report;

2. Source: Transparency International –Corruption Perceptions Index 2016 Report; 3. Source: World Economic Forum –The Global Competitiveness Report 2016 –2017 4. Source: World Bank

World Governance Indicators4

Ease of Doing Business1

Global Competitiveness Index3

Corruption Perception Index2

Higher rank is better Higher score is better

41 39

81 57 55 30

45

60

75

90

2009 2010 2011 2012 2013 2014 2015 2016

Indonesia India Brazil Phillipines Turkey 91

130 123 99 69 50

70

90

110

130

150

2008 2009 2010 2011 2012 2013 2014 2015 2016

Indonesia India Brazil Philippines Turkey

37 40

35 41

25 30 35 40 45 50 55

2012 2013 2014 2015 2016

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

Higher rank is better

52

25 47 46

38 40

15 25 35 45 55

2010 2011 2012 2013 2014 2015

Voice and Accountability Political Stability/Absence of Violence Regulatory Quality Government Effectiveness

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5 Fitch

JCRA

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

BBB- / Positive Baa3 / Positive

BBB- / Stable Feb 2017, Baa3, Outlook Revised to Positive

We changed the outlook on Indonesia's sovereign rating to positive from stable to reflect emerging signs of a reduction in structural constraints, including its level of

external .

May 2017, BBB-, Rating Upgraded

raised the long-term sovereign credit to BBB- as the Indonesian authorities have taken effective expenditure and revenue measures to stabilize the public finances despite

.

July 2017, BBB-, Positive Rating Affirmed

Indonesia's ratings balance a low government debt burden, favourable growth outlook and limited sovereign exposure to banking sector risks with weak - but strengthening - external finances compared with 'BBB' category peers and some lagging structural factors, including governance standards and a still difficult - but improving - business environment.

BBB- / Positive March 2017, BBB-, Outlook Revised to Positive

,

on the recent improvement on the investment climate promoted by a series of Economic Policy Packages & the containment of private

prudential regulations on external .

BBB- / Positive April 2017, BBB-, Outlook Revised to Positive

years. Its external position is also improving,. fiscal deficits have been reined in and government debt is low. In light of such factors, coupled with improved policy management, R&I has changed the rating outlook to

.

BBB-BB+

BB

B+

BB-Investment Grade Status From Rating Agencies

Below Investment Grade

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6

Indonesia Remains the Investment Destination of Choice

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

3. Source: United Nations Conference on Trade and Development (UNCTAD) –World Investment Report 2017 4. Source: JBIC –Outlook for Japanese Foreign Direct Investment (28th Annual Survey)

T o ta l In ve stm e n t / GD P ( % )

Indonesia Enjoys Large Investments Relative to Peers within the Region2

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

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

2,5 3,1 3,5 4,8 6,8 7,2 10,1 10,6 19,3 25,9 29,4 32,7 35,8 42,0 47,6

0 5 10 15 20 25 30 35 40 45 50

Turkey Korea Russia Singapore Malaysia Brazil Myanmar Philippines USA Mexico Thailand Vietnam Indonesia China India

% of surveyed who consider each country has promising prospects

18 18,9 21,3 24,8 25,3 26,3 27,7 28,4 33,3 39,4 46,2 53,7 55,7 71,6

0 10 20 30 40 50 60 70 80

Taiwan Singapore Japan Hong Kong South Korea Australia Malaysia Myanmar Thailand Phillipines Vietnam Indonesia India China

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

3 2 ,7 5 3 4 ,1 7 2 5 ,0 9 2 0 ,5 5 2 2 ,2 5 2 7 ,5 8 3 1 ,4 2 3 4 ,2 9 2 6 ,0 6 2 3 ,6 0 2 2 ,0 1 2 6 ,5 8 3 1 ,4 3 3 4 ,3 0 2 5 ,4 8 2 5 ,4 1 2 4 ,3 0 2 7 ,1 8 0 5 10 15 20 25 30 35 40

India Indonesia Malaysia Philippines Thailand Vietnam

2015 2016 2017*

* 2017 estimation

3 4 4 4 5 6 7 7 7 9 11 11 20 36 40

0 10 20 30 40 50

Australia (13) Canada (18) Singapura (18) Vietnam (14) Spain (25) Philippines (9) Mexico (7) Germany (5) United Kingdom (4) Brazil (7) Thailand (14) Indonesia (8) India (3) China (2) United States (1)

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7

National Strategic Development Plan (Nawa Cita)

Human Development

Education

Health

Housing

Character

Priority Sector

Development

Food Security

Energy & Electrical Security Maritime & Marine Tourism & Industry

Water Security, Basic Infrastructure & Connectivity

Equitable Development

Inter- Income Group

Inter-Region:

(1) Rural Area,

(2) Periphery,

(3) Outside Java,

(4) Eastern Area.

Security & Order

Politic & Democracy

Governance

The 3 Dimensions on Economic Development

Necessary Condition

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8

Equitable Economy Policy

Source: Coordinating Ministry for Economic Affairs

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

La

nd

Social Forestry

 The Ministry of Environment and Forestry (KLHK) will distribute access to social forest management covering an area of 211,522 ha for 48,911 families with total permits of 134

 Initial focus will be on 11 villages with a total area of 15.576 ha for 9,411 households

Agrarian Reform and Transmigration

Land Legalization

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

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

Affordable Housing for the Urban Poor

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

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

O

p

por

-t

u

ni

ty Targeted Development of Key Sectors

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

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

H

u

m

a

n

C

a

p

ita

l

Vocational Training and Labour Markets

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

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

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

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The Economic Policy Packages

,

Phase III (7 Oct

Boosting investment, spurring exports, and maintaining s purchasing power

Phase IV (15 Oct

Simplifying wage formula and expanding loans for small business

Phase V (22 Oct

Improving industry and investment climate through tax incentives and deregulation on sharia banking

Harmonizing Regulations Simplifying Bureaucratic Process Ensuring Law Enforceability

Phase VI (5 Nov

Stimulating economic activities in border areas and facilitating strategic commodities availability

Phase I (9 Sept

Improving national industry competitiveness Phase II (29 Sept

Easing permit requirement and simplifying export proceeds requirement

Phase VII (7 Dec

Stimulating business activities in labor-intensive

industries nation-wide through incentives in the form of accelerating land certification process for individuals

Phase VIII (21 Dec Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation industries Phase IX (27 Jan Accelerating electricity generation, stabilizing meat prices

and improving rural–urban logistics sector Phase X (11 Feb Revising the Negative investment List and

improving protection for SMEs Phase XI (29 Mar Stimulating national economy through facilitation to

SMEs and industries Phase XII (28 Apr

Phase XIII (24 Aug 6) Low Cost Housing for Low-Income Communities

Phase XI 6)

Roadmap for E-commerce

Phase XV (15 Jun 7) Development of Business and Competitiveness

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Boosting the Competitiveness through Logistical Efficiency

..15th Economy Policy Package has been launched

Policy Goals and Benefits

Strengthen the Institution of the Indonesia National

Single Window (INSW)

Provide Market Opportunities for Shipping Companies, Marine Insurance, and National

Ship Maintenance Businesses

Increase Competitivenes of Logistic Service

Providers

Policy Targets

1

2

3

4

5

Import

parts and components

0%

Opportunities for national shipping to serve export and import transportation of around

USD 600 million/year

70-100 units of new

ships worth

USD 700 million

New employment opportunity of

2,000 sailors

in development of Regional Logistics System to control inflation and reduce

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Thematic Policy Issues on Deregulation

Next Phase of Policy Packages based on Sectoral and Thematic Issues

Six policy issues under Packages I-XV:

improvement of

industry competitiveness

improvement of

purchasing power widening of

investment

expansion of

export efficiency of

logistics sector

improvement of

tourism sector

Education and

Vocational Training

Logistics

Agrarian reform

Energy

Industry, Manufacture,

Tourism, Fishery & Service

sector

Food

Invention, Innovation and

Creative Economy

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Progress of the Economic Policy Packages*

Initially, there are 233 regulations which need to be deregulated

As of July 3rd_{, 2017, deregulation of 215 regulations are}

finished (97%), comprising 50 regulations at Presidential level and 165 regulations at Ministrial/Institutional level

Unfinished regulations: Proposed Policy on Development of Business and competitiveness of National Logistics Service Providers

I

–

XII

215

SET

97%

11

REVOKED REGULATIONS

7

ON GOING

DISCUSSION

3%

170

TOTAL

165

MINISTRIAL/INSTITUTIONAL LEVEL

97%

47 42

SELESAI PRESIDENTIAL

52

TOTAL

50

_FINISHED

PRESIDENTIAL LEVEL

96%

I

–

XV

FINISHED

I

–

XII

233

TOTAL INITIAL

REGULATIONS

I

–

XV

I

–

XII

222

TOTAL

REGULATIONS

I

–

XV

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

Total regulation subject to be deregulated: 222 regulations

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13

Other Progress on Economic Policy Packages

14 Provinces have set 2016 Minimum Wage System in accordance to the Government Regulation (GR) No. 78/2015 (Kepulauan Riau, Kalimantan Barat, Nusa Tenggara Barat, Sumatera Barat, Jambi, Aceh, Kalimantan Selatan, Banten, Gorontalo, Nusa Tenggara Timur, Jawa Barat, Bali, Sumatera Utara, and Bangka Belitung)

Fair, Simplified &

Projectable Wage System

State-owned train manufacturer PT Industri Kereta Api (INKA) in Madiun, East Java, has begun its first passenger train exports by shipping 15 train wagon to Bangladesh.

Export-Oriented

Business Credit (KURBE)

Development of

Spesial Economic Zone (SEZ)

• Total value of facilities and incentives for SEZs amounted IDR 33.8 trillion (as of September 2016)

• 18 companies benefitted from the

simplification of fiscal incentive process with average processing time of 13.4 days (previously 2 years)

• North Sulawesi has sucessfully exported coconut product through joint program

• 30 Bonded Logistic Center has been launched to support various industries

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Improving Investment Climate

…

-hour investment licensing service to complement the One Stop Service (OSS)

BKPM

• Arrive at OSS at BKPM directly from the airport

• Consult with Director of Investment Service

• Submit the required documents & data

Requirement for utilizing 3-hour Investment Lisencing Service:

No requirements for investment in infrastructure sector

9

documents obtained

Wait at the lounge while documents are

processed by BKPM, in-house notary, ministries, & other government institutions

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

• RPTKA/Employment plan

• IMTA/Working permit

• Investment license

• Certificate of incorporation

• NPWP/Tax Registration Number

• TDP/Company Registration

•APIP/Import identification

•NIK/Customs registration

• Letter of land availability

Certainty to

start a business Import capital goodsCertainty to

Certainty to work Accurate land information

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

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

2

documents needed

• ID Card

• And/or Deed of Establishment (Indonesian company) or Article of Association (Foreign company)

• Containing workflow from raw material production to the finished products

Investor identitiy as the prospective shareholders

Flowchart of business activities workflow

Source: Investment Coordinating Board (BKPM)

Until March 2017, 313 projects* have

3 hours services

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15

Improving Investment Climate

…

-hour investment licensing service for Energy and Mineral Resources Sector

Director arrives at central OSS, then submit required documents*

Waiting in priority lounge, while the documents processed

1

2

3

Applicant receive the requested licensing products

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

9 Types of licensing issued by ESDM3J service

No. Type of Licensing Duration for reguler

service (work days)

1 Temporary Business License for Electricity

20 2 Temporary Business License for

Oil/Fuel/LPG storage

Storage of Processed Products/CNG

32/40 4 Temporary Business License for LNG

Storage

32 5 Temporary Business License for Oil

Refinery

Processing Oil Residue Industry

Natural Gas Processing

General Trade of Oil/Fuel

General Trade of Processed Product

40

Source: Investment Coordinating Board (BKPM)

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16

Improving Investment Climate

…

implement Direct Construction Permit to attract investment in Industrial Estates

Direct Construction (KLIK)

No Requirements

•

No minimum investments or workers is

required.

•

Available for 32 selected industrial estates.

•

Construction permits can be obtained in

parallel with construction process.

Investors can directly start their project construction before obtaining construction permits. This service is supported by both Central and Regional Governments which become the first step to synergize between central and local licensing

Obtain investment licence at OSS at national or regional level.

• Survey a land within selected industrial estates.

• Acquire the land for your industry.

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

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

Priority Investment Service

Until May 2017, 90

services

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…

Construction Permit is expanded to 32 Industrial Estates (IE) throughout Indonesia

1

Banten (3 IE; 3,150 ha)

1. Modern Cikande Industrial Estate/MCIE (1,800 ha) 2. Wilmar Integrated

Industrial Park/WIIP (800 ha)

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

West Java (5 IE; 1.151 ha)

1. Bekasi Fajar Industrial Estate/BFIE (300 ha) 2. Delta Silicon 8 (158 ha) 3. Karawang Internasional Industrial City/KIIC (293 ha)

4. Suryacipta City of Industry/SCI (300 ha) 5. GT Tech Park @

Karawang (100 ha)

Central Java (3 IE; 840 ha)

1. Kendal Industrial Park/KIP (700 ha)

2. Bukit Semarang Baru/BSB (40 ha)

3. Wijayakusuma Industrial Estate/KIW (100 ha)

East Java (1 IE; 1,761 ha)

KI Java Integrated Industrial and Port Estate/JIIPE

(1,761 ha) North Sumatera

(1 IE; 100 ha)

Medan Industrial Estate/KIM (100 ha)

South Sulawesi (1 IE; 3,000 ha)

Bantaeng Industrial Park/BIP (3,000 ha)

KLIK 1

st

Stage (14 IE)

KLIK 2

nd

Stage (18 IE)

1

2 3 ₄

5 6 3 5 6 7

1

2

3

4

5

6

East Java (2 IE; 341 ha)

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

East Kalimantan (1 KI;133.8 ha)

IE Kariangau (133.8 ha)

Riau Island (5 IE; 556 ha)

1. Batamindo Industrial Park (61.4 ha)

2. Bintang Industrial Park II (20 ha) 3. Kabil Integrated

Industrial Estate (142.5 ha)

4. Bintan Inti Industrial Estate (229.6 ha) 5. West Point Maritim

Industrial Park (102.5 ha)

West Java (6 IE; 1,814.1 ha)

1. Artha Industrial Hill (315.1 ha)

2. Greenland International Industrial Center

(GIIC)/Deltamas (400 ha)

3. Jababeka Tahap III (45 ha)

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

5. Indotaisei Kota Bukit Indah (300 ha)

6. Marunda Center (300 ha)

Central Java (1 IE; 285.7 ha)

IE Demak (285.7 ha) 2

1

Riau (1 IE; 198.9 ha)

IE Dumai (198.9 ha)

2

4

DKI Jakarta (2 IE; 129 ha)

1. Kawasan Berikat Nusantara/KBN (118.6 ha)

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

3

6

4

7

5

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18

(Pusat Logistik Berikat/PLB) is a

facility provided by Ministry of

Finance

as

part

of

the

implementation

of

the

2

nd

Economic Policy Package.

PLB

facility

aims

to

improve

efficiency and reduce the cost of

transportation and logistics in

Indonesia; support the growth of

the domestic industry, including

small

and

medium

industries;

increase

investment;

and

to

make

Indonesia to become a logistics

hub in Asia Pacific.

To date, 30 Bonded Logistic Center has been

launched to support various industries.

…

Oil and

gas, and

mining

industry

Food &

beverages

industry

Auto-motive

industry

Personal

care/

home care

industry

Textile

(cotton)

industry.

Small and

medium

industry

Synthetic

textile

(chemical

substances)

industry.

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19

…

1 _{For total project value of IDR10bn and above}

Before

Cold storage Restaurants, Bars Pharmaceutical Raw Materials

Manufacturing Sports Center,

Film Processing Lab, Crumb Rubber

Revision of "Partnership" category to refer to partnership with Micro,

Small and Medium Enterprises (MSMEs)

Grandfather Law: If a particular sector is tightened in future, existing

foreign investor does not need to comply with tighter stake Key Reforms in Negative Foreign

Investment List

Strengthen implementation of negative investment law through active roles from ministries, agencies

and regional governments

100% _49% 100% _51% 100% _85% 100%

95% 100% 33% 67% 51% 67%

67% _55% 67%

65% 67%

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

Conventions Toll Road Operator,

Telecommunication Testing Company

Consultancy for Construction1 Telecommunication Provider _{with Integrated Services} Professional Training, Golf Course

Management, Air Transport Support Services, Travel Bureau

After Before After Before After Before After

Before After Before After Before After

33%

49%

Introduction of New Foreign Ownership Regulation for Strategic Sectors

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20

Improving Investment Climate

…

Rank on Ease of Doing Business (EODB)*

EODB 2017

Rank

EODB 2016

Rank

Change in

Rank

EODB 2017

Points

EODB 2016

Points

Change in

Points

Overall 91 106 15 61.52 58.51 3.01

Starting a business 151 167 16 76.43 67.51 8.92

Dealing with Construction Permit 116 113 3 65.73 65.26 0.47

Getting Electricity 49 61 12 80.92 77.60 3.32

Registering Property 118 123 5 55.72 53.24 2.48

Getting Credit 62 70 8 60.00 55.00 5.00

Protecting Minority Investors 70 69 1 56.67 56.67 0

Paying Taxes 104 115 11 69.25 64.47 4.78

Trading Across Borders 108 113 5 65.87 63.53 2.34

Enforcing Contracts 166 171 5 38.15 35.37 2.78

Resolving Insolvency 76 74 2 46.46 46.48 0.02

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

Source: World Bank

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21

Improving Investment Realization (Q2-2017)

IDR tn

2013 2014 2015

Rising Direct Investments

2016

Mining

Wood Industry

Rubber and Plastic Industry Metal, Machinery &

Electronic Industry

US$100.6 mn US$62.7 mn

US$137.3 mn

US$1006.3 mn US$1131.2 mn

US$705.3 mn Food Industry

35.7%

US$437.1 mn

102.7%

26.6%

40.8%

1.5%

6.8%

87.6%

Investment

Realization

Textile Industry US$76.1 mn

20.9%

FDI Realization by Sectors

Source: Investment Coordinating Board (BKPM), compared to Q2-2016 period

2017

Rp145.4 T

Rp159.4 T

IDR99.4tn

IDR109.9tn

IDR52.2tn 434,463

9.6%

15.6%

10.6%

16.9%

Q1-2016 Q1-2017

Q2-2016 Q2-2017

Q1-2016Q1-2017

Q2-2016 Q2-2017

*

* person 375,982 IDR151.6tn

IDR170.9tn

12.7%

Q2-2016 Q2-2017

IDR61tn

Trade & Reparation

Non Metallic Mineral Industry

110

61

171

0 20 40 60 80 100 120 140 160 180

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

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Economic Factor:

Strong and Stable Growth Prospects

Remain Intact

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23

Conducive Environment

Underpinning Strong Growth Fundamentals

Largest Economy in South East

Asia

4th Most Populous country

in the World; 64% in productive age

Manageable Inflation Rate

Growing Middle Income Class

From commodity-based to manufacturing and service sectors via infrastructure

development

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

and more investment initiatives

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

Budget reform as a part of larger economic reform

initiative

Tax base to be broadened from

one reduce dependency on

commodities

Fuel subsidies significantly reduced and spending redirected to more productive

allocation

Prudent debt management

Reform-Oriented Administration

Three main sources of financing for investment needs: State and regional budget, State Owned Enterprises and PPP

Continuing from 2015 policy, infrastructure will be higher than fuel subsidy

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

Infrastructure spending focused on basic infrastructure projects

Large and

Stable

Economy

Consistent

Budget Reform

New

Economic

Structure

High

Infrastructure

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24 Growth Prospect

GDP Growth Based on Expenditures (%, YoY)1

Strong GDP Growth1

By expenditure 2014 2015 2016 2017

Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 HH. consumption 5.2 5.2 5.1 5.1 5.1 5.0 5.0 5.0 4.9 5.0 5.0 5.1 5.0 5.0 5.0 4.9 Non profit HH.

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

consumption 6.1 (1.8) 1.2 0.9 1.2 2.9 2.6 7.1 7.1 5.3 3.4 6.2 (2.9) (4.0) (0.1) 2.7 Gross Fixed Cap.

Formation 5.4 4.0 4.4 4.1 4.4 4.6 4.0 4.9 6.4 5.0 4.7 4.2 4.2 4.8 4.5 4.8 Exports 3.1 1.5 4.9 (4.4) 1.1 (0.7) (0.3) (0.9) (6.4) (2.1) (3.3) (2.2) (5.6) 4.2 (1.7) 8.0 Imports 5.1 0.4 0.2 3.0 2.1 (2.6) (7.4) (6.6) (8.7) (6.4) (5.1) (3.2) (3.7) 2.8 (2.3) 5.0 GDP 5.1 4.9 4.9 5.0 5.0 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0 %

Institutions 2017 GDP growth _(%YoY)

2017 R-Budget Plan 5.2

Bank Indonesia 5.0-5.4

IMF 5.1

World Bank 5.2

ADB 5.1

Consensus Forecast (July 2017) 5.2

Favourable GDP Growth Compared to Peers2

1. Source: Central Bureau of Statistics of Indonesia (BPS)

2. Source: World Economic Outlook Database - April 2017; * indicates estimated figure

%

QoQ YoY

-5,0 -3,0 -1,0 1,0 3,0 5,0 7,0 9,0

2012 2013 2014 2015 2016 2017* 2018*

Brazil India Indonesia Malaysia

Philippines Singapore Thailand Turkey 0,04

3,83 3,27

(2,07) (0,17)

3,75 _3,30

(1,70) (0,40)

4,01 3,13

(1,77) (0,34) 5,12 4,94 4,93 5,05 4,82 4,74 4,77 5,17 4,92 5,18 5,01 4,94 5,01

-3,0 -1,0 1,0 3,0 5,0 7,0

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

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25

Strong and Stable GDP Performance

Contributors to GDP Growth by Sector (%, YoY) Spatial GDP Growth

By sectors 2014 2015 2016 2017

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

Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 3.8 6.5 2.9 1.6 3.8 1.5 3.4 3.0 5.3 3.3 7.1 Mining (1.2) 0.7 0.7 1.5 0.4 0.6 (3.6) (4.4) (6.0) (3.4) 1.2 1.2 0.3 1.6 1.1 (0.5) Industrial processing 4.5 4.9 5.0 4.2 4.6 4.1 4.2 4.6 4.4 4.3 4.7 4.6 4.5 3.4 4.3 4.2

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

Big traders, wholesale, retail 6.1 5.1 5.2 4.4 5.2 3.8 1.6 1.4 3.7 2.6 4.1 4.1 3.6 3.9 3.9 4.8 Transportation and warehousing 7.0 7.6 7.7 7.2 7.4 5.8 5.9 7.3 7.7 6.7 7.9 6.9 8.3 7.9 7.7 7.6 Information and communication 9.9 10.7 9.8 10.1 10.1 9.7 9.3 10.6 9.2 9.7 7.6 9.3 9.0 9.6 8.9 9.1

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

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

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

Java: 58.5% Sumatera: 22.0% Maluku & Papua: 2.5% Sulawesi: 5.9%

Kalimantan: 8.3%

Bali & Nusa Tenggara: 3.0% Spatial GDP Growth Contribution

Sumatera GDP Growth Q1 2017: 4.1%

Java GDP Growth Q1 2017: 5.7%

Kalimantan GDP Growth

Q1 2017:4.9% Sulawesi GDP Growth

Q1 2017:6.9% Maluku & Papua_{GDP Growth} Q1 2017: 4.2% Bali & Nusa

(27)

External Factor:

Improved External Resilience

(28)

27 -0,33 1,96 1,63 -3,0 -2,0 -1,0 0,0 1,0 2,0 3,0

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

2012 2013 2014 2015 2016 2017

OG Non-OG Total

3 6 9 12 15 20 40 60 80 100 120 140

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

2012 2013 2014 2015 2016 2017

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

Month

A Narrower, Structurally-Stronger Current Account Deficit

Improving Current Account Deficit Strong Balance of Payments

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

Source: Bank Indonesia Source: Bank Indonesia

US$bn US$bn _{CA Deficit}2015:

(US$17.5bn) 2012: CA Deficit (US$24.4bn) 2013: CA Deficit (US$29.1bn) 2014: CA Deficit (US$27.5bn) US$bn (7.5) (1.4) 5.7 0.8 (2.4)

Source: Bank Indonesia

FX Reserves as of June 2017: US$123.09bn

(Equiv. to 8.5 months of imports + servicing of government debt)

US$bn

2016*: CA Deficit (US$16.9bn)

Source: BPS

* Preliminary Figure ** Very Preliminary Figure

0 40 80 120 160 -20 -10 0 10 20

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

2012 2013 2014 2015 2016* 2017**

Current Account Capital & Financial Account

Overall Balance Reserve Assets (RHS) -12

-8 -4 0 4 8

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

2012 2013 2014 2015 2016* 2017**

Goods Service Income Secondary Inc. Current Account

121.8

7.9 4.5

(2.4)

US$bn _Surplus2015:

(29)

28 2,85 1,55 1,37 1,30 1,15 1,13 0,92 0,8 0,17 0,00 -0,12 -0,38 -2,70 0,33 1,59 0,33 0,20 -1,43 0,55 -0,27 0,51 -0,04 -0,11 -1,29 -2,14 -2,45

-3,5 -2,5 -1,5 -0,5 0,5 1,5 2,5 3,5

ZAR EUR THB TRY JPY CNY MYR SGD IDR INR PHP KRW BRL

Point to Point Average

Exchange Rate In Line with Fundamentals

Stable Movement of Rupiah

Point-to-point, the rupiah strengthened 1.08% (ptp) to close at a level of Rp13,328/USD. The appreciation was bolstered by the ongoing FX sales by corporations and a considerably large influx of foreign capital into the domestic market, and also in line with the appreciation in the regional currencies.

Rupiah Exchange Rate Fared Relatively Well Compared to Peers

Source: Bank Indonesia

IDR/US$

*data as of June 30th_{, 2017}

YTD 2017* vs 2016 June vs May 2017

*data as of June 30th_{, 2017} _% _{*data as of June 30}th_{, 2017} _%

11,17 9,60 2,14 1,62 1,60 -0,19 -2,19 -4,88 -5,57 -16,85 5,09 -1,60 5,18 5,61 5,39 1,08 7,96 -1,72 4,51 0,08

-20,0 -15,0 -10,0 -5,0 0,0 5,0 10,0 15,0 ZAR BRL INR THB KRW IDR EUR PHP MYR TRY

Point to Point Average

13328 13361 13338 13345 13304 13321 13298 13348 13309 13.200 13.250 13.300 13.350 13.400 13.450 13.500 3-Jan 11-Jan 19-Jan 27-Jan 4-Feb 12-Feb 20-Feb 28-Feb 8-Ma r 16-Ma r 24-Ma r 1-Ap r 9-Ap r 17-Ap r 25-Ap r 3-Ma y 11-Ma y 19-Ma y 27-Ma y 4-Jun 12-Jun 20-Jun

(30)

29

Ample Lines of Defense Against External Shocks

 Ample level of FX reserves to buffer against external shock

 FX Reserves as of June 2017: US$123.09 billion

South Korea  Renewed a 3 year KRW/IDR swap arrangement with the size of up to 10.7 tn KRW/IDR115 tn in March 2017 Australia  Established a 3 year A$/IDR swap arrangement with the size of up to A$10 bn or IDR100 tn in Dec. 2015

Chiang Mai Initiative Multilateralization

(CMIM) Agreement

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

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

 Doubled to US$240 bn effective July 2014

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

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

IMF Global Financial Safety

Net - GSFN

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

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

B

ila

teral

R

e

g

io

na

l

G

lo

ba

l

FX Reserve

Ample Reserves

Swap Arrangement

(31)

30

Measures to Manage External Volatility

Pre-emptive Measures

 Implementing Crisis Management Protocol (CMP)

 Implementing Bond Stabilization Framework (BSF)

 Enhancing coordination between government institutions and continuous dialogue with market participants

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

 Swap facility arrangements based on international cooperation

Crisis Management Protocol

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

 Several market indicators that are monitored daily: - Yield of benchmark series;

- Exchange rate;

- Jakarta Composite Index;

- Foreign ownership in government securities

 Policies to address the crisis at every level :

‐Repurchase the government securities at secondary market

‐Postpone or stop the issuance

First Line of Defense

Buyback fund at DG of Budget Financing and Risk Management Investment fund at Public Service Agency (BLU) (min. level Aware) State Owned

Budget Related SoE (min. level Aware) Social Security

Organizing Agency BPJS (min. level Aware)

Second Line of Defense

State General Treasury Account (Rekening KUN) (min. level Alert) Accumulated cash surplus (SAL) (min. Level Crisis)

State Owned

Budget Related SoE (min. level Alert) Social Security

Organizing Agency BPJS (min. level Alert)

Bond Stabilization Framework

(32)

31

Comply Not Comply

2,257

(93.3%) 161 (6.7%)

Comply Not Comply

2,170 (89.7%) 248 (10.3%) 0 50 100 150 200 250 300 350 400 0 50 100 150 200 250 300

2013 2015 Feb 2016* Apr 2016* Jun 2016* Aug 2016* Oct 2016* Dec 2016* Feb 2017* Apr 2017* Public (Govt. & BI) Private Total (RHS)

Strengthened Private External Debt Risk Management

(US$bn)

Source: External Debt Statistics of Indonesia, July 2017 : , May 2017

Regulation Key Points

Phase 1 Jan 1,2015 – Dec 31,2015

Phase 2 Jan 1,2016 – Dec 31,2016

Phase 3 Jan 1, 2017 and beyond

Object of Regulation Governs all Foreign Currency Debt

Hedging Ratio

< 3 months 20%* 25%**

> 3 – 6 months 20%* 25%**

Liquidity Ratio ( < 3 months) 50% 70%

Credit Rating Not applicable Minimum rating of

BB-Hedging transaction to meet hedge ratio

not necessarily be done with a bank in Indonesia

Must be done with a bank in

Indonesia

Sanction As of Q IV-2015 Applied

External Debt / GDP (%)

(US$bn)

Debt Burden Indicator (External Debt / GDP) Remains Comparable to Peers Private External Debt is Stabilizing and Trending Down

Encouraging Corporates Compliance on Hedging Ratio

(%)

> 3 – 6 months < 3 months

Total Ext. Debt: US$334bn

Private Sector Ext. Debt: US$165bn

Source: Bank Indonesia * Provisional Figures

26,2 26,5 33,3 36,1 37,4 46,1 26 24,6 36,4 34,1 34 47,1

0 5 10 15 20 25 30 35 40 45 50

India Philippines Thailand Indonesia Brazil Turkey 2016 2015

(33)

32

Manageable External Debt Profile

...short term non-bank corporate debt (non affiliation) represents only 8.9% of total private external debt

Private

Short-Term1

Private Non-Bank External Debt

Position

Affiliation

Non Affiliation

US$118.8bn or 71.9% of Private Ext.

Debt

US$19.9bn or 12.0% of Private

Ext. Debt

Public Long Term1 _{Private Bank}

Ext. Debt

US$165.2bn or 49.5% of total Ext. Debt

Ext. Debt

External Debt Position as of May 2017 1 _{Based on remaining maturity}

Source: External Debt Statistics of Indonesia, July 2017 US$333.6bn

US$168.4bn or 50.5% of Total Ext.

(34)

Fiscal Performance and Flexibility:

More Fiscal Stimulus with Prudent Fiscal Policy

(35)

34

Integrated Reform to Provide Higher Quality of Economic Growth

...synergy between authorities to drive economy navigating the challenges

•

Productive and realistic budget

•

Credible budget execution

•

Policy to maintain

consumption and improve

investment climate

•

Economic policy packages

•

Inflation management

•

Monetary policy to ensure

macroeconomic and

financial system stability

•

Macro-prudential policies

Fiscal

Real Sector

Monetary &

Financial

Sector

Synergy in reform to boost the more

sustainable and inclusive

growth

(36)

35

Long Term Strategies to Achieve Sustainable Growth

…

stimuli to maintain purchasing power

 Consumption is still the largest contributor GDP

 Private consumption has been a key factor driving

years

 The government has designed stimulus program to

maintain and enhance purchasing power for households

 The government has increased non-taxable income level

and adjusted wage policy to ensure that the lowest income bracket has the greatest support

 Funds are targeted at not only to improve basic village infrastructure but also to create jobs through labor intensive projects as well as other job creation programs

u

Fuel price and electricity adjustment

Predictable labour wages

Boosting housing development

Elimination of luxury goods tax for consumer

goods

2 months addition of rice subsidy

program Rural

transfer for productive

spending

Ease of land certification and licensing

for street vendors

Maintaining

Purchasing

Power

Increase non-taxable income limit

Stabilized price for

(37)

36

Long Term Strategies to Achieve Sustainable Growth

…

stimuli to promote investments

Licensing Incentives Tax Incentives Business and Infrastructure Incentives Other Incentives

Tax incentives on property Special

economic zones

Relaxation of negative foreign

investment list Integrated

logistics zones

CPO

fund _{export-oriented}Support for industries

Village-city logistics improvement

Acceleration of power infrastructure Income tax relief

for labor intensive industries Permit &

licensing simplfication

One map policy Incentives for

footwear and apparel industries

Simplification of import licensing for drugs and raw food

Accelerating infrastructure

development

Water management

and regulation

Tax incentives for REITS Relaxation of

entry visa policies

Expansion of coverage and interest subsidy for

MSME Dwelling time

optimization

Oil refinery development

Aviation sector incentives

Downstream industries

(38)

37

Building a Credible and Realistic Budget

…

Indicator 2016 2017

Realization¹ Budget June Real. R-Budget4

Economic growth (%, yoy) 5.02 5.1 5.012 _5.2

Inflation (%, yoy) 3.02 4.0 4.37 4.3

3-Month Treasury Bill (SPN) (%) 5.7 5.3 5.1 5.2

Exchange Rate (Average, IDR/USD, Avg. YTD) 13,307 13,300 13,331 13,400

ICP (USD/barrel) 40 45 48.9 50.0

Oil Production (thousand barrel/day) 829 815 784.23 _815.0

Gas Production (thousand barrel oil equivalent/day) 1,180 1,150 1,0943 _1,150

3. Data as of May 2017

4. Approved by Budget Committee of Parliament

Macroeconomic Assumption for 2017 R- Budget

Source: Ministry of Finance

1. Audited

2. Q1 GDP Growth

• Credible and realistic budget with 2016 outlook numbers used as the basis for the 2017 State Budget

• Q1 2017 realization has been on track with the budget, relative to Q1 2016

• Tax revenue in 2016 grew 3.6%, which includes IDR 103.1 trn from the tax amnesty program, which has further increased to IDR 134.8 trn as of Q1 2017

• Budget prioritizes efficiency in terms of operational spending, without compromising capital spending

• Exemplifies discipline in maintaining budget deficit at reasonable levels

Description (IDR Trillion)

2016 2017

Audited

Realization Budget R-Budget

∆ R-Budget to

Budget 1H Realization

% Realization to Budget

A. Revenues and Grants 1,555.9 1,750.3 1,736.1 (14.2) 718.2 41.0%

I. Domestic Revenue 1,546.9 1,748.9 1,733.0 (15.9) 718.0 41.0%

1. Tax Revenue 1,284.9 1,498.9 1,472.7 (26.2) 571.9 38.2%

2. Non Tax Revenue 262.0 250.0 260.2 10.2 146.1 58.4%

II. Grants 9.0 1.4 3.1 1.7 0.2 15.5%

B. Expenditure 1,864.3 2,080.5 2,133.3 52.8 893.3 42.9%

I. Central Government Expenditure 1,154.0 1,315.5 1,367.0 51.5 498.6 37.9%

1. Ministerial Spending 684.2 763.6 773.1 9.5 263.9 34.6%

2. Non Ministerial Spending 469.8 552.0 593.9 41.9 234.6 42.5%

II. Transfer to Region and Village Fund 710.3 764.9 766.3 1.4 394.8 51.6%

1. Regional Transfer 663.6 704.9 706.3 1.4 360.4 51.1%

2. Village Fund 46.7 60.0 60.0 - 34.4 7.3%

C. Primary Balance (125.6) (109.0) (178.0) (69.0) (68.2) 62.6%

D. Surplus (Deficit) (308.3) (330.2) (397.2) (67.0) (175.1) 53.0%

% of GDP (2.49) (2.41) (2.92) (0.51) (1.29)

(39)

38

A More Realistic 2017 Tax Revenue Target

…

Target

1,472.7

IDR 26,2 trillion lower than 2017 budget

R-Budget 2017:

2014:

1,146.8

2015:

1,240.5

2016:

1,285.0

Budget 2017:

1,498.9

8,2

3,6

6,8

16,0

IDR 41,8

T

IDR 1.241,8 T

IDR 189,1 T

↑ IDR 5,8 T (16,2%)

↓ IDR 2,1 T (-1,1%)

Tax Collection Growth (yoy, %) Comparison between 2017 R-Budget with 2017 Budget

Tax Revenue (in IDR Trillion)

• Tax collection in 1H2017 has been higher by 9.6% than 1H2016

• Tax collection growth target has been adjusted from 16.0% to 14.6% in order to be more credible

• Optimization of post tax amnesty program and tax treaty, tax audit, as well as law enforcement are expected to support tax collection

14,6

(40)

39

–

A Success Story

With more than 965,000 taxpayers participating in the program

Tax Amnesty Result (as of the end of March 31st_{, 2017)}

Redemption Money Assets Declared

114,2 18,8 1,7 Preliminary Evidence Payment 1% Redemption Money 85% Tax Arrears Payment 14% Revenue IDR 134.8tn (~1.1% GDP)

3.323,36 861,81 594,99 85,59 Individuals 68% Individual SMEs 18% Companies 12% SMEs 2%

Composition of Participants Based on Asset Declared

(41)

40

Comprehensive Tax Reform to Improve and Sustain Revenue Collection

Focused on expanding taxpayer database, improving business processes, revising regulations

and strengthening support system

56.2%

59.2% 60.4%

62.3%

49% 54% 59% 64%

0 10 20 30 40

2013 2014 2015 2016

Registered Taxpayers

Registered Taxpayers – Tax Report Required Submitted Tax Report

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

Expected Tax Revenue / GDP Increase (%) Ongoing Comprehensive Tax Reform on 4 Pillars

Compliance Rate in Submitting Annual Tax Report

Human

Resources

Business

Process

• Improvement of the human

resources and

organizational capacity and capabilities

• Establishment of tax reform task force team

• Discipline in terms of Plan-Do-Check-Action to monitor tax collection

• Stronger law enforcement

• Authorization to gather 3rd

party data (banking)

• Implementation of Automatic Exchange of Information

• Simplification of tax registration

Regulation

• General Provision and Tax Procedures

• VAT Law

• Income Tax Law

• Stamp Duty Law

IT Support

• Improvement of IT and communication system

• Increased accessibility of public data for individual data management

• Enhancement of data management

11,2 11,4 11,3 10,8 10,7 _10,4 11,5

0 5 10 15

(42)

41

Regional Revenue and Expenditure Profile

…

expenditure policy as a tool to promote equality across Indonesia

SUMATERA

Revenue 141.1

a. Tax 66.9

b. Custom & Excise 6.8

c. Non Tax Revenue 70.4

Expenditure 232.3

a. Transfer to Region 176.1

b. Ministerial

Spending 56.2

Nett (88.2)

JAVA

Revenue 1.143.2

a. Tax 884.9

Expenditure 302.8

b. Ministerial

Spending 101

Nett 840.4

BALI & NUSRA

Revenue 15.5

a. Tax 11.7

Expenditure 56.4

b. Ministerial Spending 17.0

Nett (40.9)

KALIMANTAN

Revenue 86.0

a. Tax 32.0

Expenditure 93.9

b. Ministerial

Spending 20.3

Nett (7.9)

SULAWESI

Revenue 19.7

a. Tax 16.6

Expenditure 104.5

Nett (84.8)

PAPUA & MALUKU

Revenue 18.4

a. Tax 10.7

Expenditure 89.6

Nett (71.3)

Notes:

1. Average data 2014 - 2016

2. Revenue  amount collected from certain region for central government budget 3. Expenditure  amount spent for certain region from central government budget

(43)

42

Maintaining Productive and Effective Spending

Policies

Continue the efficiency of operational expense and increase the priority expenditures

Ministerial Spending

798.6 T

↑

IDR 35.0 T from 2017 Budget

Operational

Expense

Efficiency

↓

16.0 T

Additional

Priority

Spending

↑

48.2 T

UN Mission to Center Africa

Preparation for Regional Election and 2019 General Election

Land Certification

Asian Games 2018

Development program of agriculture and horticulture

Non Ministerial Spending

568.4 T

↑

IDR 17.4 from 2017 Budget

%

219.2 T

Interest Payment

↓ Rp2,0 T from 2017 Budget

Energy Subsidy

89.9T

↑ Rp12,5 T from 2017 Budget

Non Energy Subsidy

79.0T

↓ Rp3.7 T from 2017 Budget

(44)

43

2016 Budget Realization Did Not Impede Priority Projects

Although deficit was capped at manageable level, infrastructure development continued to

accelerate

Infrastructure Realization1 _{Infrastructure Development Achievement in 2016}

Food Security Realization

0 100 200 300 400

Budget Realization Budget Realization

Ministerial Spending Non Ministerial Spending Regional Transfer Financing

290.3

256.2

317.2

267.0

2015: 88.2% of budget 2016: 84.9% of budget

IDR tn

0 50 100 150 200

2015: 87.5% of budget 2016: 84.3% of budget

IDR tn

125.9

110.3 117.9

99.3

Road Development (km) Target: 3,149.6

Realization: 2,528.7

Airport

Target: 15 (up to 2019) Realization: 3

Bridge (km) Target: 12.9 Realization: 10.6

Railway2 _(km)

Target: 114.9 Achievement: 114.9

Dam Target: 37 Achievement: 37

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

(45)

44

Education and Health Spending Well Delivered in 2016

Investment to improve social welfare in the longer term

Education Expenditure Health Expenditure

Immunization for infants between 0 – 11 months Realization: 4 million infants Target 4 million infants University scholarships for

underprivileged students (Bidikmisi) Realization: 324 thousand college students

Target: 332 thousand college students

Health Insurance Subsidy (PBI)

Realization: 91.1 million people

Target 92.4 million people School Operational

Assistance (BOS) Realization: 8.0 million students

Target: 8.2 million students

Vaccine availability in Community Health Centre (Puskesmas)

Realization: 81.5% Target 80.0%

School Rehabilitation Realization: 28,400 rooms Target: 30,300 rooms

Malaria Eradication Realization: 247 cities Target 245 cities Indonesia Smart Card (KIP)

Realization: 20.7 million students

Target: 19.5 million

students Accredited Regional Hospital

Realization: 201 hospitals Target 190 hospitals

0 100 200 300 400 500 600

0 20 40 60 80 100 120

2016: 88.9% of budget

408.5 _390.2 416.6

370.5

2015: 88.1% of budget

2016: 88.6% of budget

IDR tn

74.8

67.0

104.1

92.3 2015: 95.5% of budget

IDR tn

(46)

45

Better Targeting of Subsidy Policy in 2017

...more budget allocated to non energy subsidy and priority programs to improve basic services

Bidikmisi Scholarship

0 50 100 150 200 250 300 350 400 450

2009 2010 2011 2012 2013 2014 2015 2016 2017

Budget

IDR tn

416.1

2,7 2,8 3,0 2,7 2,8 3,3

3,8

5,0 5,0

0,0 1,0 2,0 3,0 4,0 5,0 6,0

0 50 100 150 200

2009 2010 2011 2012 2013 2014 2015 2016 2017 Budget Budget % of R-Budget

IDR tn %

Basic & complete immunization for 92% of

0-11 months old infants

Immunization

94.4 million people

Health Insurance Subsidy (PBI)

Stunting prevention to 29.6% of children below 2

years old

Stunting Prevention

700 regencies

Community Health Centre (Puskesmas)

6.7 million people

Family Plan Program (KB)

Budget for Education Program Budget for Health Program

360.5 thousands college students 19.5 million students

Indonesia Smart Card (KIP)

101,100 teachers 10,200 lecturers

Certification

School Rehabilitation

41,128 rooms 8.5 million students

School Operational Assistance (BOS)

107

Colleges/Universities

(47)

46

Improved Budget Allocation Between Central & Local Government

…

allocation of budget spending to local government

65.85% 22.67%

0.98%

2.65% 7.85%

Gradually increasing Village Fund allocation

Average allocation of IDR800.5 million per village Village Fund (IDR60.0 tn)

Improving efficiency and effectiveness of Special Autonomy & DIY Fund.

Special Autonomy & D.I Yogyakarta - DIY (IDR20.2 tn)

Incentive Fund (IDR7.5 tn)

Minimum of 25% (IDR125.9 tn) earmarked for public service facility development acceleration. It provides revenue sharing fund to promote equal opportunity for natural resource producers & high tax earners General Transfer Fund (IDR494.0 tn) Special Transfer

Fund allocation is based on each

and national priorities

Special Transfer Fund (IDR184.6 tn)

Incentive Fund allocation has been increased (317 regions were awarded an incentive ranging

between IDR 7.5bn and IDR 65. 3bn)

• Implementation of policy to allocate spending to regions

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

2017 Transfer to Regions and Village Funds (R-Budget) Transfer to Regions/Village Funds & Ministerial Spending

IDRtn _Audited2013 2014

Audited

2015 Audited

2016 Audited

2017 Budget

2017 R-Budget

Transfer to

Region 513.3 573.7 602.4 663.6 704.9 697.7

Village Fund _- _- _20.8 _46.7 _60.0 _58,2

Total

Intergovernmental

Transfer 513.3 573.7 623.2 710.3 764.9 755.9

Ministerial

Spending 582.9 577.2 732.1 677.6 763.6 769.2

(48)

47

Policy of Infrastructure Spending and Transfer to Regions

…

the nation through targeted spending

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

Kalimantan

2016 : 2,889.9 2017 : 3,641.6

2016 : 597.9 2017 : 634.5

2016 : 2,694.4 2017 : 4,117.1

2016 : 606.2 2017 : 1,042.6 2016 : 3,749.1 2017 : 3.686.3

2016 : 1,680.2 2017 : 1,941.7

Sumatera

2016 : 3,895.4 2017 : 3,545.7

2016 : 1,044.8 2017 : 1,320.4 2016 : 3,229.4 2017 : 3,257.8

2016 : 461,1 2017 : 1,147.5

2016 : 661.3 2017 : 1,207.3

2016 : 101.1 2017 : 308.2

Java

76 86 11

4

.2

1

4

5

.5

168,5 154,1 256,1 317,1 387,3

8,1 8,3 8,8 9,8

10,2

8,7

14,2 15,2

18,6

0 5 10 15 20

0 100 200 300 400 500

2009 2010 2011 2012 2013 2014 2015 2016 2017 % IDR tn

Anggaran Infrastruktur % thd Belanja Negara (RHS)

Infrastructure budget

% of total state expenditure (RHS) Maluku & Papua

Sulawesi

Bali & Nusa Tenggara

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

2016 realization

2017 Construction Target

Road Development Target: 815 km

Airport Target: 13

Bridge

Target: 9,399 m

Railways

Target: 550 km

Seaport

Target: 55 locations

Bus station

Target: 3 locations

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48

Financing Policy 2017: General Objective & Policy

To conduct

active debt portfolio

To manage debt-to-GDP ratio

To

optimize

the us

e

of

external a

n

d

do

m

es

tic

lo

a

n

s To

optimize

cu

rr

en

cy

m

ix

of

is

su

a

n

ce

General

Policy

To support market

development

To enhance public

accountability as

part of transparent

Government debt

management

To meet financing

needs at optimum

cost and tolerable

risk

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49

Budget Financing Breakdown in 2017

Debt (Gross) IDR735.6tn (eq. USD 55.2bn)

Redemption IDR350.9tn (eq. USD 26.3bn)

Budget Financing IDR330.2tn

(eq. USD 24.8bn) Non-Debt

Financing IDR54.5tn (eq. USD

4.1bn)

USD/IDR: 13,323 as of 31 May 2017 Note: Subject to change in market conditions and other factors

Breakdown of budget financing IDR tn USD bn Government debt (net) 384.7 28.9 Government securities (net) 400.0 30.0

Domestic loans (net) 1.5 0.1

Foreign loans (net) -16.8 -1.3

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50

Government Securities: Indicative Financing Plan for 2017

…

and sustainable fiscal management

Government Issuance Targets International Bonds

• Issuance of international bonds as a complement to avoid crowding out the domestic market;

• Consists of USD, YEN or EURO global bonds;

• International bond issuance can be maximized up to 25% from gross target, depends on financing need

Domestic Bonds Weekly Auction:

Conventional securities 24 x

Islamic securities 24 x

Non-Auction:

Retail bonds

Private Placement Based on request

Front Loading Issuance For Budget Financing

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

•Anticipate developments in global environment

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

gross issuance target

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

42.7% from gross issuancce target

Debt Securities

71%

Sukuk 29%

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

Composition

Domestic 79%

Auction 93%

Non-Auction 7%

International Bond 21%

Source: Ministry of Finance Instruments

Budget

Indicative Target (IDR trn)

Indicative Target (USD bn)*

Government Securities (Net) 399.99 30.03

Government Securities (Gross) 684.83 51.42

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51

Sound Government Debt Portfolio Management

Portfolio management characterized by stable debt/GDP ratio and well-diversified debt

Stable Debt to GDP Ratio Over the Years

Weighted Average Debt Maturity of ~8.9 Years** (As of June 2017)

US$ bn

Remarkable Debt Reduction Initiative Over the Past 10 Years

Change in Debt to GDP Ratio (2007– 2017) (%)

Source: IMF World Economic Outlook Database, April 2017

Well Diversified Across Different Currencies

% of Yearly Issuance Government Debt / GDP (%)

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

140,76 136,27 155,24 174,7

206,95 220,98 63,76 _56,61 54,47

54,74

54,37 54,65 23 24,9 24,7

27,4 28,3 28,1

0 5 10 15 20 25 30 0 50 100 150 200 250 300

2012 2013 2014 2015 2016* May 2017 Securities (LHS) Loans (LHS) Gross Debt/GDP (%) (RHS)

9,7 9,6 9,7 9,4 9,0 8,9 8,0 8,3 8,5 8,8 9,0 9,3 9,5 9,8 10,0

2012 2013 2014 2015 2016 Jun-17

Years

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

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

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

3% _3% 4% 4%

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

2012 2013 2014 2015 2016 Jun-17

IDR USD JPY EUR Others***

113,56 93,46 55,08 52,33 40,31 27,32 16,18 -2,75 -8,43 -12,88 -21,94 -27,07

-40,00 10,00 60,00 110,00

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52

Well Balanced Maturity Profile With Strong Resilience

Against External Shocks

Declining Interest Rate Risks

Debt Maturity Profile

Declining Exchange Rate Risks

Upcoming Maturities (Next 5 Years) IDR tn

1_{Variable Rate Ratio is defined as ratio between debt instruments with variable rate divided by total debt instruments (variable + fixed rates)}

2_{Refixing Rate ratio is defined as ratio between debt instruments with variable rate + debt instruments with fixed rate maturing in 1 year divided by total debt instruments (variable + fixed rates)}

*Preliminary Figures **Using GDP assumption in 2017 Budget.

16,2 16,0 14,8 _13,7 12,3 11,2 22,5 23,2 21,0 20,7 17,8 19,3 0 5 10 15 20 25

2012 2013 2014 2015 2016* Jun-17

Variable Rate Ratio¹ Refixing Rate²

%

10,2 11,7 10,7 12,2 11,7 11,0

44,4 46,7 _43,4 44,5

41,8 _40,8 0 10 20 30 40 50

2012 2013 2014 2015 2016* Jun-17

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

%

101

201 189

116 140 ₁₀₇ 98

168 45 126 100 53 100 29 124

66 ₅₂ 97

5

90

22 22 7 15 26 23 20 28 ₀

44 110 135 112 123 128 103 88 116 88 71 46 21 20 18 17 16 12 29 5 23 28 2 1

1 31 ₂₁ 28

27 39 0 50 100 150 200 250 300

2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 IDR-Denominated Other Currencies

2046-2055

7,2 8,6 7,7 8,4 _6,6 9,1

21,5 21,8 _20,1 21,4 23,0 23,5

32,4 33,4 33,9 34,7

36,5 39,1 0,0 10,0 20,0 30,0 40,0 50,0

2012 2013 2014 2015 2016* Jun-17 In < 1 year In < 3 year In < 5 year

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53

Profile of Total Central Government Debt

Foreign Ownership of Government Securities at Longer Tenors

Holders of Government IDR Bonds – Composition June 2017 Government Debt Outstanding

(%

)

(%)

Source: Ministry of Finance 34,34 _31,18 _29,96

25,87 24,19 23,84 22,01 21,14 20,67 19,62 65,66 _68,82 _70,04

74,13 75,81 76,16 77,99 78,86 79,33 80,38 199,48 204,51 194,55 209,41 214,88 229,40 255,14 258,03 265,98 278,29

0 50 100 150 200 250 300

0 10 20 30 40 50 60 70 80 90 100

2011 2012 2013 2014 2014 2015 Jun-16 Des-16 Jan-17 Jun-17

Loan (LHS) Government Securities (LHS) Total (RHS)

(%) USD bn

11,9 _7,8

5,2 4,6 3,2 2,7 3,5 3,4 5,2 5,4 25,0

19,3 _18,3 _18,9

13,1 13,7 23,1 19,8 18,6 22,5 63,2 _72,8 _76,5 _76,4 _83,7 _83,6 _73,4 _76,8 _76,1 _72,1

30,8 _33,0 32,5 38,1 38,2 39,1 37,5 37,8 38,2 39,5

0 20 40 60 80 100

2011 2012 2013 2014 2015 Jun-16 Des-16 Jan-17 Mar-17 Jun-17

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

30,8 33,0 32,5 38,1 38,2 38,9 39,1 37,5 37,8 37,5 38,2 39,0 39,1 39,5

32,6 30,5 33,8 30,8

37,9 _31,3 38,9 39,9 _34,9 _34,5 35,5 35,0 34,6 40,1

36,63 36,53 33,70 31,04 23,95 29,81 21,95 22,5 27,27 28,03 26,22 26 26 20,4

0 20 40 60 80 100

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

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54

Ownership of IDR Tradable Central Government Securities

1) Non Resident consists of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company and Pension Fund. 2) Others such as Securities Company, Corporation, and Foundation.

*) Including the Government Securities used in monetary operation with Bank Indonesia. **) net, excluding Government Securities used in monetary operation with Banks.

(IDR tn)

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

Banks* 375.55 31.04% 350.07 23.95% 361.54 21.95% 399.46 22.53% 399.19 20.45%

Govt Institutions (Bank

Indonesia**) 41.63 3.44% 148.91 10.19% 150.13 9.12% 134.25 7.57% 175.89 9.01%

Bank Indonesia (gross) 149.07 9.05% 157.88 8.90% 180.28 9.23%

GS used for Monetary

Operation -1.05 -0.06% 23.63 1.33% 4.39 0.22%

Non-Banks 792.78 65.52% 962.86 65.87% 1135.18 68.93% 1239.57 69.90% 1377.15 70.54%

Mutual Funds 45.79 3.78% 61.60 4.21% 76.44 4.64% 85.66 4.83% 91.56 4.69%

Insurance Company 150.60 12.45% 171.62 11.74% 214.47 13.02% 238.24 13.43% 254.21 13.02%

Foreign Holders 461.35 38.13% 558.52 38.21% 643.99 39.10% 665.81 37.55% 770.55 39.47%

Foreign Govt's&Central

Banks 103.42 8.55% 110.32 7.55% 118.53 7.20% 120.84 6.81% 131.94 6.76%

Pension Fund 43.30 3.58% 49.83 3.41%

64.67 3.93% 8