The Republic of Indonesia Recent Economic Developments

Transcription

1 The Republic of Indonesia Recent Economic Developments March 2014

2 About Investor Relations Unit (IRU) ABOUT THE REPUBLIC OF INDONESIA INVESTOR RELATIONS UNIT The Republic of Indonesia Investor Relations Unit (IRU) has been established as the join effort between the Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia in The main objective of IRU is to actively communicating Indonesian economic policy and address concerns of investors, especially financial market investors. IRU is expected to serve as a single point of contact for the financial market participants. As an important part of it communication measures IRU maintains a website under Bank Indonesia website which is being administrated by the International Department of Bank Indonesia. However, investor relations activities involve a coordinated efforts which are supported by all relevant government agencies, namely Bank Indonesia, the Ministry of Finance, the Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of Industry, State Ministry of State Owned Enterprises, State Asset Management Company and the Central Bureau of Statistics. IRU also hold an investor conference call on a quarterly basis, answers questions through , 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: Bimo Epyanto (International Department - Bank Indonesia, Phone: ) Abdurohman (Fiscal Policy Office Ministry of Finance, Phone: ) Subhan Noor (Debt Management Office - Ministry of Finance, Phone: ) contactiru-dl@bi.go.id 1

3 Table of Content Executive Summary Improved International Perception and Rising Investment Preserved Macroeconomic Stability Prudent Fiscal Management Improved Government Debt Position 2

4 Executive Summary 3

5 Executive Summary As designed, Indonesia succeeded in maintaining growth at the level of 5.8% in The ongoing episode of domestic economic moderation is expected to continue, leading to a more balanced economic composition. This is in line with the stabilization policy devised by BI and the Government to bring the economy to a healthier level. Bank Indonesia projects the domestic economy to expand at the % in Domestic Direct Investment (DDI) and Foreign Direct Investment (FDI) still experienced robust growth in 2013, reflecting positive perception from investors. The cumulative investment realization in January-December 2013 is Rp trillion consist of Rp trillion from domestic direct investment (DDI) and Rp trillion from Foreign Direct Investment (FDI), an increase of 27.3% compared to the same period in The economic stabilization policies launched by Bank Indonesia and the Government have brought steady improvement in the current account. In January 2014, the trade deficit totalled USD 0.43 billion, as a result of seasonal factors that undermined exports of non-oil/gas commodities and the temporary effect of enacting the Minerba Act. Looking forward, Bank Indonesia predicts the balance of trade to return to a surplus as exports accelerate in line with stronger demand from leading trade partners, as well as sluggish imports as a result of moderating domestic demand. Bank Indonesia believes that the current account deficit will be managed at a level of below 3.0% of GDP. International reserves at the end of February 2014 increased to US$102.7 billion, equivalent to 5.7 months of imports and government s external debt services, above the adequacy level of international standard. Consumer Price Index (CPI) in February 2014 reached 0.26% (mtm) or 7.75% (yoy), a dramatic decline compared to previous month at 1.07% (mtm) or 8.22% (yoy). Bank Indonesia will continue to strengthen policy coordination with the central and local governments through inflation control teams in order to help achieve the inflation target. On the fiscal front, Indonesia continues to perform prudent fiscal management in 2013 with strong commitment to fiscal consolidation, aiming on continue declining in debt-to-gdp ratio, diversifying government debt profile, and reducing funding reliance on international capital market budget deficit realization is maintained at a safe level of 2.3% of GDP. Financial system stability was well maintained, buoyed by solid banking industry resilience as indicated by high capital adequacy ratio (CAR) at 19.6%, well above the minimum level of 8%, and gross non-performing loan (NPL) of 1.9%, well below the threshold of 5%. Credit growth eased from 21.4% in December 2013 to 20.1% in January 2014 in line with weaker domestic demand and rising lending rates. In the Board of Governors' Meeting convened on March 13th, 2014, Bank Indonesia decided to maintain BI rate at 7.50%, and holding the Lending Facility rate and Deposit Facility rate at 7.50% and 5.75%, respectively. The decision is consistent with ongoing efforts to steer the inflation rate towards its target corridor of 4.5±1% in 2014 and 4±1% in 2015, as well as supporting economic consolidation and thereby reducing the current account deficit to a more sustainable level. 4

6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4** Executive Summary GDP Growth Inflation *: BI Projection Balance of Payments Foreign Exchange Reserves billion USD Indonesia's Balance of Payments billion USD * Curr. Account Overall Balance Cap & Fin. Account Reserve Assets (RHS) Source: Bank Indonesia

7 Executive Summary Central Government Debt to GDP Ratio (% of GDP) Debt Composition 50% 120% 40% 39.0% 35.1% 33.0% 100% 30% 20% 10% 28.3% 26.2% 24.4% 24.0% 26.1% 80% 60% 40% 20% 46.8% 46.9% 52.1% 47.4% 46.3% 45.1% 44.5% 45.9% 53.2% 53.1% 47.9% 52.6% 53.7% 54.9% 55.5% 54.1% 0% * 00% Feb-14 Domestic Debt Foreign Debt *: Preliminary Realization Table of Debt to GDP Ratio End of Year * GDP 3,339, ,957, ,954, ,613, ,422, ,427, ,241, ,084,000.0 Debt Outstanding (billion IDR) 1,302, ,389, ,636, ,590, ,681, ,808, ,977, ,371, Domestic Debt (Loan+Securiti 693, , , , , , ,097, ,263, Foreign Debt (Loan+Securities 609, , , , , , , ,107,540.2 Debt to GDP Ratio 39.0% 35.1% 33.0% 28.3% 26.2% 24.4% 24.0% 26.1% - Domestic Debt to GDP Ratio 20.8% 18.6% 15.8% 14.9% 14.1% 13.4% 13.3% 13.9% - Foreign Debt to GDP Ratio 18.2% 16.5% 17.2% 13.4% 12.1% 11.0% 10.7% 12.2% Source: Ministry of Finance 6

8 2013 Policy Summary Government coordinates policy tools to maximize growth with macroeconomic management Revenue and tax policy An Increase of non-taxable income threshold by 54%, from Rp15.8 million to Rp24.3 million. Extend and widen tax base through tax extensification. VAT tariff adjustment for a number of luxury goods. Improve monitoring and service in custom & excise. Excise tax extensification and intensification. Fiscal incentives provision for strategic economic activities i.e. Hybrid and low carbon emission motor vehicles. Monetary policy Increase the policy rate by 25bps to 7.50% in response to large current account deficit amid widespread global uncertainty. Maintain IDR exchange rate stability. Strengthen monetary policy by implementing monetary and macroprudential policy mix. Deepening of the foreign exchange market. Expenditure policy Prioritize capital expenditure allocation to support infrastructure development. Reallocate consumptive spending to more productive activities. Increase infrastructure spending to support energy and food security, domestic connectivity, and tourism. Redesign subsidy policy from price subsidy to targeted subsidy. Improve budget disbursement Financing and debt management policy Prioritize funding from domestic market and financial institutions. Focus on financial inclusiveness of government securities, access to wider retail investors Debt instruments development Active government bonds portfolio management Selective external loan only for priority projects/needs Implementation of the Crisis Management Protocol and the establishment of Financial System Stability Coordination Forum (FKSSK) 7

9 Improved International Perception and Rising Investment 8

10 Improving International Perception: Acknowledged by Rating Agencies Resilient economy, which impressively navigates through the global crisis and continued confidence in economic outlook, the Republic continued to receive good reviews. Fitch Ratings (November 15, 2013): affirmed Indonesia's sovereign credit rating at BBB- level with stable outlook. The key factors supporting the decision of affirming Indonesia s sovereign credit rating are strong and sustainable economic growth, adequate policies for managing the Indonesian economy amid the global economic downturn, prudent fiscal management with public sector debt at safe levels and a banking sector underpinned by strong capital resources. Rating and Investment Information, Inc (October 11, 2013): affirmedsovereign Credit Rating of the Republic of Indonesia at BBB-/stable outlook. R&I stated that the key factors behind their decision are as follows: (1) Indonesia s capacity to achieve sustainable economic growth in the long term; (2) conservative fiscal management; (3) a sound banking sector; and (4) a low level of government debt. Japan Credit Rating Agency, Ltd (July 22, 2013): affirmed Indonesia s foreign currency long-term senior debt at BBB- and local currency long term senior debt BBB with stable outlook. JCR stated that key factors supporting the decision of affirming the sovereign credit rating of Indonesia (1) the country s sustainable economic growth outlook underpinned by solid domestic demand, (2) low level of public debt burden brought by prudent fiscal management, (3) resilience to external shocks. S&P (May 2, 2013): affirmed Indonesia s sovereign credit rating, at BB+ level for long-term and B level for short-term and revised its outlook to stable from positive. S&P stated that stable outlook on Indonesia reflects the weakened policy environment and external pressures are fairly balanced against the country's strong growth prospects, conservative fiscal policy, and favorable debt trajectories. Moody s Investors Service (January 18, 2012): upgraded Republic of Indonesia s foreign and local-currency bond ratings to Baa3 with stable outlook. Moody's stated the key factors supporting this action were (1) Moody s anticipation that government financial metrics will remain in line with Baa peers (2) The demonstrated resilience of Indonesia s economic growth to large external shocks (3) The presence of policy buffers and tools that address financial vulnerabilities and (4) A healthier banking system capable of withstanding stress. 9

11 Rating agencies comments Rating history Sovereign Rating History Solid economic fundamentals supported the improvement of Indonesia s sovereign credit rating since 2001 BBB- / Stable BB+ / Stable Baa3/ Stable Fitch 15 November 2013 The key factors supporting the decision of affirming Indonesia s sovereign credit rating are strong and sustainable economic growth, adequate policies for managing the Indonesian economy amid the global economic downturn, prudent fiscal management with public sector debt at safe levels and a banking sector underpinned by strong capital resources. S&P 2 May 2013 The rating on Indonesia fairly balances institutional and external constraints with a strong growth prospects, conservative fiscal policy, and favorable debt trajectories. The revised outlook from positive to stable signals the diminished potential for an upgrade due to the stalling of reform momentum and a weaker external profile. Moody s 18 January 2012 Indonesia s cyclical resilience to large external shocks points to sustainably high trend growth over the medium term. A more favorable assessment of Indonesia s economic strength is underpinned by gains in investment spending, improved prospects for infrastructure development following key policy reforms, and a well managed financial system. 10

12 Positive Perceptions from International Institutions JBIC 2013 Survey Report on Overseas Business Operations of Japanese Manufacturing Companies, November 2013 Put Indonesia at the 1 st rank for the most promising investment destination for the next three years. In 2013, Japan already dominates foreign direct investment in Indonesia. Japanese companies investing enthusiasm in Indonesia is mainly due to Indonesia's rapidly expanding middle class combined with large population (over 240 million people), thus forming a huge consumption class. High consumption rate is believed to be a catalyst to spur further economic development in Southeast Asia's largest economy. World Economic Forum: Global Competitiveness Report Indonesia is considered as one of the most dynamic and rapidly improving economies in terms of competitiveness Since edition of GCI, Indonesia has been progressed 19 places, positioned at 38th on edition - the biggest progression among G20. Infrastructure pillar is the most improved since infrastructure improvement spending have started to bear fruit. The positive development will contribute to sustaining Indonesia s impressive growth momentum - GDP grew by 5.2 percent annually over the past decade. World Bank Indonesia Economic Quarterly, March 2014 Indonesia is blessed with abundant labor. Between 2013 and 2020, the population of working age will increase by 14.8 million, reaching 189 million from the current 174 million. Today, 50 percent of the population is under the age of 30. This increasingly educated and IT-savvy youth is an asset that can be used to boost overall productivity and economic growth. Urbanization is increasing at an annual pace of about 4 percent, making Indonesia one of the most rapidly urbanizing countries in the world. China s rapidly rising wages present Indonesia with a potential second chance in regaining a comparative advantage in labor-intensive export sectors. McKinsey Report (The Archipelago Economy: Unleashing Indonesia s Potential), September 2012 Indonesia will be the 7th largest economy in the world in 2030, and additional 90 million Indonesians could join the global consuming class (individuals with net income of more than US$ 3,600 per annum in PPP). Over the past decade, compared with any advanced countries in OECD and BRIC plus South Africa, Indonesia has had the lowest volatility in economic growth, fallen debt to GDP ratio (5th lowest), and third strongest economic growth after China and India. To achieve growth target, Indonesia needs to push labor productivity, address social gap issue and manage increasing demand. 11

13 Preserved Macroeconomic Stability 12

14 Robust and Stable Economy Continues to Chart Moderate Growth Bank Indonesia expects the ongoing episode of domestic economic moderation to continue, leading to a more balanced economic composition. Household consumption is predicted to slow compared to initial projections due to the limited impact of the upcoming legislative election as well as the transmission of stabilisation policy initiated by Bank Indonesia in conjunction with the Government. Meanwhile, investment growth, including non-construction investment, is projected to rebound in the second semester of Forecast of Economic Growth - Demand Side S e c t o r I II III IV * Private Consumption Government Consumption Gross Fixed Capital Formation Exports of Goods and Services Imports of Goods and Services (-0.6) GDP Forecast of Economic Growth - Supply Side S e c t o r I II III IV * Agriculture Mining and Quarrying (-0.6) Manufacturing Electricity, Gas, and Water Supply Construction Trade, Hotels, and Restaurant Transportation and Communication Financial, Rental, and Business Services Services GDP Source: BPS * Bank Indonesia Projection 13

15 Young and Dynamic Population Rising young and dynamic population marked by decreasing dependency ratio that will continue on until Rising income per capita and growing ranks of the middle income class. Labor force participation rate is nearly 70% and open unemployment rate only 5.9% (February 2013), -6.8% (yoy). Fourth Largest Population in the World Dependency Ratio Keeps Falling Until 2025 China 1.3 billion India 1.2 billion US 0.31 billion Indonesia 0.24 billion Increasing Middle Income Class Population Rising GDP per capita (USD) Source: BPS, Bappenas, UNPP, McKinsey Source: IMF, International Financial Statistics 14

16 Globally Competitive and a Top Investment Destination Indonesia s stage of development is categorized as efficiency-driven with a strong and well balanced performance across all 12 pillars of competitiveness Indonesia is in the Top 40 of the Global Competitiveness Index ( GCI ) Rank (1) Country 2008 (2) 2013 (2) Institutions Infrastructure Macro-economic Environtment Health and primary education Higher education and training Goods market efficiency Labor market efficiency Financial market development Technological readiness Market size Business sophistication Score Score Score Score Score Score Score Score Score Score Score Score Innovation 1 Spain Thailand Indonesia Turkey Italy South Africa Mexico Brazil Philippines Source: Global Competitiveness Index , WEF (1) Countries with sovereign ratings in the Eaa1-Baa1 category and population larger than 40 million (2) Rank among 148 countries JBIC: Indonesia is the #1 Promising Country/Region for Business Development Over the Medium Term (Next 3 Years) Rank Country / Region No. of Companies (1) (%) Percentage Share 3 1 Indonesia India Thailand China Vietnam Brazil Mexico Myanmar Russia USA Source: Japan Bank for International Cooperation ( JBIC ) FY2013 Survey Report on Overseas Business Operations of Japanese Manufacturing Companies (1) Total number of companies that responded was 488 The Economist: Indonesia is the #3 Investment Destination in Asia in 2013 China India Indonesia Malaysia Thailand Vietnam Increase their level of investment Reduce their investment Source: The Economist Asia Economic Outlook Survey Still in the market, but will not invest more Have no plans to invest 15

17 Strong Investment Underpinned by Competitiveness and Stability The cumulative investment realization in January-December 2013 is Rp trillion consist of Rp trillion from domestic direct investment (DDI) and Rp trillion from Foreign Direct Investment (FDI), an increase of 27.3% compared to the same period in The distribution of investment realization based on locations, both in Q4 and in January-December 2013 shows that the portion of distribution in Java Island is bigger than outside of Java Island. In January-December 2013, the investment realization in Java Island is Rp trillion (57.8%) and outside of Java Island is Rp trillion (42.2%). The investment realization outside of Java Island has increased from the year of 2012 (Rp trillion). Realized Foreign Direct Investment (Billion USD) Realized Domestic Direct Investment (Billion USD) Source: BKPM Source: BKPM 16

18 Strong Investment Underpinned by Competitiveness and Stability FDI Realization by Location Q (Million USD) DDI Realization by Location Q (Million USD) FDI by Countries Q (Million USD) Source: BKPM 17

19 Strong Investment Underpinned by Competitiveness and Stability FDI By Sector (Million USD) *: cumulative Source: BKPM 18

20 The Inflationary Pressures Is Easing Headline inflation in February was 0.26% (mtm) or 7.75% (yoy), a dramatic decline compared to previous month at 1.07% (mtm) or 8.22% (yoy). The impressive gains are inextricably linked to policy implemented by the central and local governments to minimise the second-round effects of recent natural disasters, thereby lowering inflation of volatile foods in February Consensus Forecast Survey displayed a preserved inflation expectation within the target range in 2014 of 4.5±1% and subsequently to 4.0±1% in Bank Indonesia will continue to strengthen policy coordination with the central and local governments through inflation control teams in order to help achieve the inflation target. Disaggregation of Inflation Inflation Expectation Consensus Forecast Inflation Expectation 2013 IHK Inflation Expectation 2014 Source: BPS, Bank Indonesia Source: Consensus Forecast 19

21 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4** Balance of Payments Q Indonesia s Q4/2013 Balance of Payments (BOP) posted a renewed surplus of US$4.4 billion, after being in deficit in the last three quarters. Improvement in the Q4/2013 BOP was supported by a drop-off in current account deficit to US$4.0 billion (1.98% of GDP), much lower than the previous quarter deficit of US$8.5 billion (3.85% of GDP) and exceeded Bank Indonesia s earlier projection. The Q4/2013 BOP surplus was also augmented by increased surplus in the capital and financial account amounted to US$9.2 billion, larger than US$5.6 billion surplus in the previous quarter. In January 2014, trade balance recorded a deficit US$0.4 billions as export contracted by 5.8% (yoy), while import only contracted by 3.5% (yoy). Trade balance deficit is due to seasonal factors and the temporary impact of the Coal and Minerals Mining (Minerba) Act. billion USD Balance of Payments Trade Balance January 2014 Indonesia's Balance of Payments billion USD million US$ * 2013 Source: Bank Indonesia * Provisional figures Curr. Account Overall Balance Cap & Fin. Account Reserve Assets (RHS) Trade Balance Export (rhs) Import (rhs) 20

22 Exchange Rate In Line With Fundamentals In February 2014, Rupiah is up by 5,18% at Rp11,609 per USD. On average, the rupiah in February 2014 was valued at Rp 11,919 per USD, up 2.02% on the average reported in the preceding month at Rp 12,160 per USD. Rupiah s appreciation is higher than other currencies in the region. Bank Indonesia will consistently maintain rupiah exchange rate stability according to its fundamental value and continue to deepen the foreign exchange market. Rupiah Exchange Rate Apr./Depr. of Regional Currency Source: Bank Indonesia 21

23 Monetary Policy Stance In the Board of Governors' Meeting convened on March 13th, 2014, Bank Indonesia decided to maintain BI rate at 7.50%, and holding the Lending Facility rate and Deposit Facility rate at 7.50% and 5.75%, respectively. The decision is consistent with ongoing efforts to steer the inflation rate towards its target corridor of 4.5±1% in 2014 and 4.0±1% in 2015, as well as supporting economic consolidation and thereby reducing the current account deficit to a more sustainable level. Looking ahead, Bank Indonesia will continue to strengthen its monetary and macroprudential policy mix, deepening financial markets and enhancing coordination with the Government to control inflation and the current account deficit, including improving the structure of the economy. BI Rate (%) Source: Bank Indonesia 22

24 Sound Financial Sector Controlled economic corrections in Indonesia are supported by well-maintained financial system stability. Banking industry resilience remains solid with credit risk, liquidity risk and market risk well anticipated, underpinned by support from robust capital, CAR above the minimum level of 8% (19.6% as of January 2014) and gross NPLs managed at comfortably safe level below 5% (1.9% as of January 2014). Credit growth eased from 21.4% in December 2013 to 20.1% in January 2014 in line with weaker domestic demand and rising lending rates. Bank Indonesia will coordinate with the Financial Services Authority (OJK) to steer credit growth according to moderating domestic demand. Steady Loan Growth Capital Adequacy Ratio (CAR) Comfortably High NPL (gross) Historically Low Steady Loan-to-Deposit Ratio Source: Bank Indonesia 23

25 Prudent Fiscal Management 24

26 2014 Budget (APBN) Items Budget Comparison IDR tn 2013 Realization 2014 Budget US$bn % of GDP IDR tn US$bn % of GDP A. State revenue and grants 1, % 1, % I. Domestic revenue 1, % 1, % 1.Tax revenue 1, % 1, % 2.Non tax revenue % % II. Grants % % B. State expenditure 1, % 1, % I. Central gov. expenditure 1, % 1, % 1. Personnel and Goods & Services % % 2. Capital % % 3. Interest payments % % 4. Subsidies % % 5. Grants % % 6. Social expenditure % % 7. Other expenditure % % II. Transfer to region % % Primary balance (96.8) (9.3) (1.1%) (54.1) (5.2) (0.5%) Overall balance (A - B) (209.5) (20.0) (2.3%) (175.4) (16.7) (1.7%) Financing % % I. Domestic financing % % II. Foreign financing (13.3) (1.3) (0.1%) (20.9) (2.0) (0.2%) 2014 Macroeconomic Assumptions State revenue and grants forecast at 16.1% of GDP State expenditure forecast at 17.8% of GDP Effort to allocate more funds away from subsidies, with state expenditure on subsidies at 3.2% of GDP below previous budgets Savings from subsidies generated by the recent fuel price hike initiative Indicators Key Points 2013 Revised Realization as Budget of Dec 31, (APBN-P) State Budget (APBN) Economic growth (%) Exchange rate (IDR/USD) 9,600 10,452 10,500 Inflation (%) SBI/SPN 3 months (%) ICP (USD/barrel) Oil lifting (thousands barrel/day) Gas lifting (thousands barrel oil equivalent/day) 1,240 1,213 1,240 Will decrease both state expenditure on subsidies and the percentage allocation of central government expenditure to subsidies Source: Ministry of Finance Note: IDR/US exchange rate of 9,600 which is the rate used under the 2013 Revised Budget. USD values are for convenience only 25

27 Favorable Current Macro Conditions is Supported by Prudent Fiscal Management Indonesia's low budget deficit compared to developing Asia and developed economies are beneficial as buffers against potential vulnerabilities. Between , Indonesia budget deficit averaged at 1.3% Fiscal Balance (% of GDP) Indonesia Fiscal Deficit Source: Ministry of Finance and S&P Sovereign Risk Indicators as of July 2013 Source: Ministry of Finance 26

28 Indonesia s Fiscal Policy in Mitigating Global Crisis Pre-emptive measures Implementing Crisis Management Protocol Implementing Bond Stabilization Framework Enhancing coordination between government institutions and continuous dialogue with market participants Specific policies in place to address crisis enacted in the 2013 budget law Swap facility arrangements based on international cooperation Chiang Mai Initiative Multilateralization Extremely prudent with fiscal deficits and debt ratios among lowest in the world Addresses growth and social needs through capital spending and subsidies while lowering debt to GDP Aims for quality spending with capital expenditures increasing Crisis mitigation measures in place 1 Fiscal Buffers to prevent and mitigate crisis Deferred Drawdown Option facility 2 Specific articles in the 2013 State Budget Law that provide flexibility for Government to take quick mitigation action if necessary, with Parliament approval that has to be given within 24 hours 27

29 Fiscal Policy Measures Additional budget for social protection and infrastructure: Conditional Cash Transfer ( PKH ): IDR0.7tn Unconditional Cash Transfer ( BLSM ): IDR9.3tn Poor Students Aid ( BSM ): IDR7.5tn Additional allocation of rice for the poor ( Raskin ): IDR4.3tn Basic infrastructure development: IDR7.2tn Implementing higher deficit for expansionary reason. Deficit is revised from 1.7% to 2.4% Support of Small and Medium Enterprise: Simplification of Business License application process Easier access to electricity Improved access to loans Support for the simplification of regulations regarding Bankruptcy Settlement, Recording of Land & Building Rights and Recording of Land & Building Ownership 1. Additional income tax for selected goods. The criteria includes: Goods not used for domestic industries Household consumption goods Non-inflationary goods. 2. Additional relaxation of goods imported for export activity The package is to be fully implemented by January Revised Budget October Policy Package December Policy Package June July August September October November December Subsidized Fuel Price Adjustment August Policy Package 2014 Budget Subsidized fuel prices increased by 44.4% per liter for gasoline and 22.2% per liter for diesel A. Policy to improve current account and exchange rate performance: Increase mandatory level of biodiesel in diesel oil to reduce oil imports Additional luxury tax on luxury cars and branded products Increase mineral exports by relaxing procedures related to quotas and Clean & Clear B. Provision of incentives to maintain economic growth and people s purchasing power Deduction / deferring of income tax for specific industries Improve tax holidays & tax allowance provisions C. Policy to curb inflation Improve the meat and horticulture trade system to satisfy demand D. Policy to promote investment Streamline permit process and improve the National Single Window for Investment ( NSWi ) service Accelerate the revision of the Presidential Decree pertaining to the Negative Investment List ( DNI ) De-bottleneck problems in strategic investment projects Macroeconomic Assumption 2013 Revised Budget 2014 Budget Growth (%) Inflation (%) Exchange Rate (IDR / US$) 9,600 10,500 Interest Rate (SPN 3 months) (%) ICP (US$ / barrel) Oil and gas Lifting a. Oil Lifting (MBCD) b. Gas Lifting (MBOEPD) 1,240 1, Key Government Policies Government capital expenditure to support economic growth Support of infrastructure development guarantees Government incentives with respect to investments Price stabilization policies to maintain purchasing power Improvements to the Negative Investment List (DNI) Increase productivity through incentives for R&D activity and training as well as Social Security and Labor Policy

30 Improved Government Debt Position 29

31 Secondary Market Performance of Central Government Bonds Yield of Benchmark Series [In Percentage] As of March 18, ,00 20,00 18,00 16,00 14,00 12,00 10,00 8,00 Global Financial Crisis 5Y 15Y 10Y 20Y 6,00 4,00 Eurozone sovereign debt crisis 2,00 Feb'14 Des'13 Okt'13 Agust'13 Jun'13 Apr'13 Feb'13 Des'12 Okt'12 Agust'12 Jun'12 Apr'12 Feb'12 Des'11 Okt'11 Agust'11 Jun'11 Apr'11 Feb'11 Des'10 Okt'10 Agust'10 Jun'10 Apr'10 Feb'10 Des'09 Okt'09 Agust'09 Jun'09 Apr'09 Feb'09 Des'08 Okt'08 Agust'08 Jun'08 Apr'08

32 Government Securities Realization *Adjusted by changes in Cash Management & Debt Switch (Million IDR) Budget 2014 % Realization Realization (ao March 18, 2014) to Budget 2014 Government Securities Net ,88% Government Securities Maturing in ,64% -Buyback ,33% Issuance Need 2014* ,40% Government Debt Securities (GDS) Domestic GDS Coupon GDS (Auction, Private Placement) Conventional T-Bills (Auction, Private Placement) SPNNT Retail Bonds - International Bonds USD Global Bonds USD Domestic Bonds Government Islamic Debt Securities Domestic Government Islamic Debt Securities Global Sukuk -

33 Outstanding of Total Central Government Debt [USD billion] Loan Government Securities ,64 71,29 70,51 82,34 85,26 82,78 104,20 118,39 130,97 140,75 136,27 142, ,91 68,59 63,09 62,02 62,25 66,69 65,02 68,65 68,51 63,76 58,28 58, Jan 2014 [in percentage] Year Jan 2014 Loan 47% 49% 47% 43% 42% 45% 38% 37% 37% 31% 30% 29% Government Securities 53% 51% 53% 57% 58% 55% 62% 63% 63% 69% 70% 71% Source: Ministry of Finance 32

34 Total Debt Maturity Profile as of February 28, 2014 Maturity Profile of Central Government by Instruments (in trillion IDR) Gov't Securities Loan Maturity Profile of Central Government by Currencies (in trillion IDR) Foreign Domestic 54% 46% Foreign Domestik 33

35 Central Government Debt Securities Issuance Plan 2014 in billion Rp Source: Ministry of Finance Budget % to GDP A. Total Revenue ,8 16,07% - 0,00% B. Total Expenditure ,3 17,76% C. Primary Balance (54.069,0) -0,52% D. Deficit ( ,5) -1,69% E. Financing ,5 1,69% I. Non Debt Financing (9.773,7) -0,09% II. Debt Financing ,2 1,78% 1. Government Securities (Net) ,8 1,98% 2. Foreign Loan (Net) (20.903,6) -0,20% + Disbursement ,7 0,38% - Program Loan 3.900,0 0,04% - Project Loan ,7 0,34% + Subsidiary Loan Agreement (SLA) (1.226,3) -0,01% + Repayment (58.810,0) -0,57% 3. Domestic Loan (Net) 963,0 0,01% Assumptions : a. GDP (trillion IDR) (Y.o.Y) ,3 b. Growth (%) 6,0 c. Inflation (%) y-o-y 5,5 d. 3-month-SPN (%) 5,5 e. IDR/USD (average) Gov t Debt Operation Policy Combination Domestic market issuance will be prioritized Issuance in benchmark tenor, Benchmark Series for 2014: FR 69 5 Y FR Y FR Y FR Y Issuance in global market Maximum non-idr govt securities issuance approximately 18%-20% from total gov t debt securities issuance 1. Citibank N.A 2. Deutsche Bank AG 3. HSBC Primary Dealers 4. PT. Bank Central Asia, Tbk 5. PT. Bank Danamon Indonesia, Tbk. 6. PT. Bank Internasional Indonesia, Tbk 7. PT. Bank Mandiri (Persero), Tbk 8. PT. Bank Negara Indonesia (Persero), Tbk 9. PT. Bank OCBC NISP, Tbk 10. PT. Bank Panin, Tbk 11. PT. Bank Rakyat Indonesia, Tbk 12. PT. Bank Permata, Tbk 13. PT. Bank CIMB Niaga, Tbk 14. Standard Chartered Bank 15. JPMorgan Chase Bank NA. 16. PT. Bahana Securities 17. PT. Danareksa Sekuritas 18. PT. Mandiri Sekuritas 19. PT. Trimegah Securities, Tbk 34

36 Holders of Tradable Central Government Securities Continued Increasing proportion of foreign ownership of Indonesian Government securities. Holders of Tradable Domestic Government Securities Foreign Ownership of Gov t Domestic Debt Securities 30,53% 30,80% 32,98% 32,54% 33,26% 100% 80% 46% 38% 45% 44% 46% 40% 32,98% 32,54% 33,48% 33,26% 30,53% 30,80% 40,00% 35,59% 32,58% 30,49% 33,76% 32,54% 33,88% 36,63% 36,53% 33,70% 34,20% Dec-10 Dec-11 Dec-12 Dec Mar-14 Foreign Holders Domestic Non-Banks Domestic Banks 60% 25% 40% 21% 28% 32% 31% 38% 17% 18% 20% 8% 16% 13% 11% 11% 5% 10% 12% 3% 5% 6% 6% 8% 0% 5% 6% 5% Dec-10 Dec-11 Dec-12 Dec-13 Feb Mar-14 >10 >5-10 >2-5 > % Foreign Ownership to Total (RHS) 20,00% 0,00% Source: Ministry of Finance 35

37 Profile of Central Government Debt Securities GOVERNMENT DEBT SECURITIES (GDS) Dec-09 Dec-10 Dec-11 Dec-12 Dec Feb Mar Domestic Tradable GDS IDR IDR IDR IDR IDR IDR IDR a. Zero Coupon IDR IDR IDR IDR IDR IDR IDR Government Treasury Bills IDR IDR IDR IDR IDR IDR IDR Zero Coupon Bond IDR IDR IDR IDR IDR - IDR - IDR - b. Government Domestic Bonds IDR IDR IDR IDR IDR IDR IDR Fixed Rate *) +) IDR IDR IDR IDR IDR IDR IDR Variable Rate *) IDR IDR IDR IDR IDR IDR IDR Promissory Notes to Bank Indonesia **) ***) IDR IDR IDR IDR IDR IDR IDR SPNNT IDR IDR - 4. Total GDS (1+2+3) IDR IDR IDR IDR IDR IDR IDR Total Government International Bonds *) USD USD USD USD USD USD USD TOTAL GOV'T DEBT SECURITIES (3+(4*Exchange Rate Assumption)) IDR IDR IDR IDR IDR IDR IDR GOVERNMENT ISLAMIC DEBT SECURITIES (GIDS) a. Domestic Tradable GIDS IDR IDR IDR IDR IDR IDR IDR a. Fixed Rate *)++) IDR IDR IDR IDR IDR IDR IDR b. Zero Coupon IDR IDR 195 IDR IDR IDR b. Domestic Non Tradable GIDS IDR IDR IDR IDR IDR IDR IDR c. Government International Islamic Bonds 1. Fixed Rate *) USD 650 USD 650 USD USD USD USD USD TOTAL GOV'T DEBT SECURITIES (6+(8*Exchange Rate Assumption)) IDR IDR IDR IDR IDR IDR IDR TOTAL GOVERNMENT SECURITIES IDR IDR IDR IDR IDR IDR IDR Notes: - Nominal in billion rupiah (domestic bonds), million USD & million JPY (international bonds) - *) Tradable - **) Non-Tradable - +) Including ORI (IDR Billion)) IDR IDR IDR IDR IDR IDR IDR ) Including Sukuk Ritel/SR (IDR Billion) IDR IDR IDR IDR IDR IDR IDR Exchange Rate Assumption (IDR/USD1) IDR IDR IDR IDR IDR IDR IDR Exchange Rate Assumption (IDR/JPY1) IDR 101,70 IDR 110,29 IDR 116,80 IDR 111,97 IDR 116,17 IDR 114,19 IDR 110,84 - Since October 2006, Government and Central Bank committed to replace interest payment of Promissory Notes to Bank Indonesia (SU-002 & SU-004) with new bond (SU-007) and omitted indexation of SU-002 & SU-004 Source: Ministry of Finance 36

38 Debt Switch & Cash Buyback Program Debt Switch Program [in billion IDR] Auction Date Auction Frequency Source Bonds Tenor Series Offer Received Offer Awarded series up to 21 series up to 21 series up to 31 series up to 28 series up to 28 series up to 27 series up to 20 series up to 13 series Total Buyback Program Year Auctions Frequencies Direct Transactions Volume (IDR billion) GRAND TOTAL

39 Maturity Profile of Tradable Central Government Securities as of March 18, 2014 [IDR Trillion] 120,00 100,00 80,00 60,00 40,00 20, TOTAL 87,5 88,4 87,6 76,2 87,5 94,4 73,1 63,5 96,8 82,7 88,7 27,5 19,6 44,3 50,2 34,2 25,6 27,1 42,8 47,8 23,8 18,0 4,11 33,4 38, ,5 37,3 22,8 29,5 SUKUK USD 7, ,2 16, , SUKUK IDR 4,36 18,9 14,9 20,4 8,71-0,71-1, ,55-2, , ,11 10, ,95 - SUN JPY ,88 6,65-6, SUN USD 11,2 11,2 10,1 17,3 21,4 22,5 22,5 28,2 22,5 28,2 22, ,0-16,9 22, ,3 16,9 22,5 SUN IDR 64,5 58,1 62,5 38,3 46,1 51,0 43,2 35,3 55,1 54,5 66,2 26,0 19,6 41,4 50,2 34,2 23,5 27,1 42,8 47,8 23, ,40 15, ,5 12,0-6,95 Source: Ministry of Finance 38

40 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb Mar-14 Daily Transaction & Offshore Ownership Average Daily transaction Govt Bonds Net Buyer (Seller) Non Resident Volume (billion rupiah) - LHS Frequency - RHS Jan '13 Feb '13 Mar '13 Apr ' May '13 Juni '13 July 13 Aug Sep 13 Okt 13 Nov Dec Jan 14 Feb March [Trillion IDR] 30,00 20,00 10,00 1,69 0,00 (1,49) (4,99) (10,00) (20,00) (30,00) (40,00) (29,29) Capital Inflows 8,06 13,11 (8,99) (2,27) 4,15 (0,08) (4,37) 10,13 Capital inflows over total foreign holders (1,41) 7,83 9,35 19,52 2,68 0,68 8,44 (0,88) 17,97 4,22 (19,98) 2,81 (1,76) 10,13 23,98 6,08 (0,37) 4,82 16,49 8,71 0,10 0,05 0,00 (0,05) (0,10) (0,15) Source: Ministry of Finance 39

41 Ownership of IDR Tradable Central Government Securities (IDR Trillion) Dec-09 Dec-10 Dec-11 Dec-12 Dec Mar-14 Banks 254,36 43,72% 217,27 33,88% 265,03 36,63% 299,66 36,73% 335,43 33,70% 363,85 34,20% Govt Institutions 22,50 3,87% 17,42 2,72% 7,84 1,08% 3,07 0,37% 44,44 4,47% 28,27 2,66% Non-Banks 304,89 52,41% 406,53 63,40% 450,75 62,29% 517,53 63,09% 615,38 61,83% 671,81 63,14% Mutual Funds 45,22 7,77% 51,16 7,98% 47,22 6,53% 43,19 5,27% 42,50 4,27% 43,30 4,07% Insurance Company 72,58 12,48% 79,30 12,37% 93,09 12,86% 83,42 10,17% 129,55 13,02% 139,30 13,09% Foreign Holders 108,00 18,56% 195,76 30,53% 222,86 30,80% 270,52 32,98% 323,83 32,54% 353,85 33,26% Pension Fund 37,50 6,45% 36,75 5,73% 34,39 4,75% 56,46 6,88% 39,47 3,97% 39,45 3,71% Securities Company 0,46 0,08% 0,13 0,02% 0,14 0,02% 0,30 0,04% 0,88 0,09% 0,50 0,05% Individual 32,48 3,26% 46,00 4,32% Others 41,12 7,07% 43,43 6,77% 53,05 7,33% 63,64 7,76% 46,68 4,69% 49,42 4,64% Total 581,75 100% 641,21 100% 723,61 100% 820,27 100% 995,25 100% 1.063,92 100% Source: Ministry of Finance Notes: - Foreign Holders (offshore) are non-resident Private Banking, Fund/Asset Mgmt, Securities Co, Insurance, Pension Fund, etc - Others are Corporate, Foundations, etc. - Private Banks Recap and Non Recap Banks include foreign banks branches and subsidiaries 40