The Republic of Indonesia Recent Economic Developments

Transcription

1 The Republic of Indonesia Recent Economic Developments February 2013

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, Asset of State 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: ) Hendryati Meitaria (International Department - Bank Indonesia, Phone: ) Siska Indirawati (Fiscal Policy Office Ministry of Finance, Phone: ) Singgih Gunarsa (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 to Support Further Growth Prudent Fiscal Management Improved Government Debt Position 2

4 Executive Summary 3

5 Executive Summary Indonesia s economic growth remains robust in 2012 amidst the continuation of global economic slowdown. Contributed by buoyant consumption and investment, economic growth in the Q reached 6.11%, and charted 6.23% for the whole year of Investment realization in the 4 th quarter (October - December 2012) and for the whole year 2012 keep increased for both Domestic Direct Investment (DDI) and Foreign Direct Investment (FDI). Despite increasing in number of investments, the distribution of investment activities outside Java was also increased that create more added values of domestic goods/services in order to accelerate the quality of national economic growth. Indonesia's external balances improved in Q4/2012. During the quarter, the balance of payments booked a US$3.2 billion surplus, higher than previous quarter surplus of US$0.8 billion. The improvement in the balance of payments performance resulted from increase in the capital and financial account surplus that surpassed mounting current account deficit. In response, international reserves at the end of December 2012 strengthened to US$112.8 billion, equivalent to 6.1 months of imports and government s external debt services. Inflation in January 2013 remained subdued and arrive at 4.57%(yoy) which is within target range of 4.5%±1%. This inflation supported by the implementation of monetary and macroprudential policy mix, as well as policy coordination with the Government through national inflation control team (TPI) and regional inflation control team (TPID). On the fiscal front, Indonesia continues to perform prudent fiscal management in 2012 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 1.77% of GDP (unaudited). Financial system stability remained solid with intermediation function is improving within prudential manner as indicated by secure level of capital adequacy ratio (CAR) is well above minimum level of 8% and gross non-performing loan (NPL) below 5%. In December 2012, credit growth charted 23.1% (yoy). Considering the type of loan, investment loan recorded the highest growth of 27.4% (yoy), in line with the increased in investment. In the Board of Governors' Meeting convened on 12 February 2013, Bank Indonesia decided to hold the BI rate steady at 5.75% in which considered consistent with low inflation forecast and contained within its target range of 4.5%±1% in 2013 and Bank Indonesia believes that the implementation of policy mix together with strengthen coordination with the Government will be able to maintain macroeconomic stability and sustainable economic growth. 4

6 Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Executive Summary GDP Growth Inflation 7.0% 6.0% 5.0% 5.7% 5.5% 6.3% 6.0% 4.6% 6.1% 6.5% 6.2% CPI (%, yoy) Volatile Food (%, yoy) Core (%, yoy) Administered (%, yoy) 4.0% % % % 1.0% 0.0% * Bank Indonesia projection Balance of Payments Foreign Exchange Reserves Billion USD foreign exchange reserves (LHS) Month month of import & government debt service (RHS) Source: Bank Indonesia

7 Executive Summary % -0.1% Fiscal Deficit % 2012 (unaudited) 2013 Budget 0.0% -0.5% -1.0% % Nominal Deficit (Rp Tn) deficit of GDP (RHS) -1.6% -1.14% -1.77% -1.65% -1.5% -2.0% Fiscal Revenues (Rp Tn) Central Gov t Expenditures (Rp Tn) PNBP Non Tax Revenue PENERIMAAN Tax Revenue PERPAJAKAN 1205,4 1358,2 1357,4 1525,2 1530, , , ,9 847, , APBNP 2012 RAPBN

8 Executive Summary Debt to GDP Ratio (% of GDP) Debt Composition 40% 35,2% 33,1% 28,3% 100% 30% 26,1% 24,3% 24,0% 23,1% 80% 60% 47% 52% 47% 46% 45% 44% 44% 20% 10% 40% 20% 53% 48% 53% 54% 55% 56% 56% 0% * 2013** 0% Dec-12 Domestic Debt Foreign Debt Table of Debt to GDP Ratio End of Year GDP , , , , , , ,3 Debt Outstanding (billion IDR) , , , , , , ,8 - Domestic Debt (Loan+Securities) , , , , , , ,2 - Foreign Debt (Loan+Securities) , , , , , , ,6 Debt to GDP Ratio 39,0% 35,2% 33,1% 28,4% 26,1% 24,4% 24,0% - Domestic Debt to GDP Ratio 20,8% 18,7% 15,8% 14,9% 14,1% 13,4% 13,3% - Foreign Debt to GDP Ratio 18,2% 16,5% 17,2% 13,5% 12,1% 11,0% 10,6% *: Realization December 2012 (unaudited) **: Budget 2013 Source: Ministry of Finance 7

9 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 Keep policy rate unchanged at 5.75% since March 2012, this level considered to be consistent with inflation target 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 Assuring the fulfillment of budget financing needs Effective utilisation of foreign loans Developing the domestic bond market Main financing instruments: Government debt securities: IDR denominated, global bonds, samurai bonds, USD denominated in domestic market Government Islamic securities: IDR denominated, global sukuk, USD denominated in domestic market 8

10 Improved International Perception and Rising Investment 9

11 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 21, 2012): 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 the relatively high economic growth that is resilient to the declining global condition, high investment rate, low and declining public debt ratios and the strong overall macroeconomic policy framework. Japan Credit Rating Agency, Ltd (November 13, 2012): 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 affirmation 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) reinforced resilience to external shocks by its accumulated foreign exchange reserves. Rating and Investment Information, Inc (October 18, 2012): upgraded Sovereign Credit Rating of the Republic of Indonesia to BBB-/stable outlook. R&I stated key factors supporting the decision of upgrading the sovereign credit rating of Indonesia:(1) Indonesian economic resilience in achieving high growth amid the global economic downturn (2) conservative fiscal management (3) Government s debt burden is kept low and (4 ) financial system has become more stable. S&P (April 23, 2012): affirmed Indonesia s sovereign credit rating, at BB+ level for long-term and B level for short-term with positive outlook. S&P stated that the rating on Indonesia balances institutional and economic constraints with a moderately strong fiscal, external, and monetary profile. The positive outlook signals the potential for an upgrade if the country's growth prospects improve further and financial markets deepen with steadier policy implementation. 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. 10

12 Rating agencies comments Rating history Sovereign Rating History Solid economic fundamentals supported the improvement of Indonesia s sovereign credit rating since 2001 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. Baa3/ Stable BB+ / Positive BBB- / Stable S&P 23 April 2012 The rating on Indonesia balances institutional and economic constraints with a moderately strong fiscal, external, and monetary profile. The positive outlook signals the potential for an upgrade if the country's growth prospects improve further and financial markets deepen with steadier policy implementation. Fitch 21 November 2012 The key factors supporting the decision of affirming Indonesia s sovereign credit rating are the relatively high economic growth that is resilient to the declining global condition, high investment rate, low and declining public debt ratios and the strong overall macroeconomic policy framework. 11

13 Positive Perceptions from International Institutions 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. IMF (Article IV Consultation), September 2012 Indonesian economic growth will remain solid, at 6 percent in 2012, but strong domestic demand may push inflation to 5 percent by end year. The main risks to the outlook stem from a sharper-than-envisaged slowdown in external demand and risk aversion spikes, stemming either from an intensification of the Euro area crisis or a hard landing in China. Overall, though, the economy s strong fundamentals and ample fiscal and reserve buffers should enable Indonesia to manage these risks. Fiscal reforms must become a priority by speed up budget implementation, and replace energy subsidies with direct cash assistance, to create infrastructure, health and education improvement. OECD Economic Survey Indonesia, September 2012 The real GDP is projected to grow at 6,0% in 2012 and 6,2% in 2013, while the current account is projected to contract 0,8% in 2012 due to the imports growth especially for capital goods. The main risks to the short-term outlook are external. Increased global risk aversion, could reverse the capital inflows of the past few years, endangering the financing conditions for government and banks alike and cutting growth. The key challenges to achieving growth targets is raising infrastructure fund, social spending and tax revenue, also lowering energy subsidies. Further institutional and policy reform would boost productivity growth and help the government reach its objective of becoming one of the 10 largest economies in the world by

14 Preserved Macroeconomic Stability 13

15 Robust and Stable Economy Continues to Chart Strong Growth The Indonesia s economic growth in the Q reached 6.11% and charted 6.23% for the whole year of 2012, driven by buoyant domestic demand mainly came from private consumptions and investment. On the production side, economic growth in Q remained strong contributed by three main sectors transportation & communication sector, trade hotel & restaurant sector; and construction sector. Going forward, Indonesia s economic growth in 2013 is expected to pick up will be supported by strong domestic demand and better exports performance, and higher domestic economic activity related to the preparation of General Election. Source: Bank Indonesia Forecast of Economic Growth - Demand Side Sector I II III IV I* 2013* 2014* Private Consumption Government Consumption Gross Fixed Capital Formation Exports of Goods and Services Imports of Goods and Services GDP Forecast of Economic Growth - Supply Side S e c t o r I II III IV I* 2013* 2014* Agriculture Mining and Quarrying Manufacturing Electricity, Gas, and Water Supply Construction Trade, Hotels, and Restaurant Transportation and Communication Financial, Rental, and Business Services Services GDP * Bank Indonesia Projection 14

16 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 6.3% (February 2012), -0.5% yoy. Fourth Largest Population in the World Dependency Ratio Keeps Falling Until 2025 China 1.3 billion India 1.2 billion US 310 million Indonesia 242 million Increasing Middle Income Class Population Rising GDP per capita (USD) Source: BPS, Bappenas, UNPP, McKinsey Notes: Based on purchasing power parity per capita GDP, * Estimate 15

17 Investment is Becoming the New Engine of Growth Investment both by domestic and foreign direct investors continues on the expanding trend, supporting economic growth at a time of slowing down exports Investment of GDP (%) Direct investment growth (%, yoy) China India Indonesia Russia Brazil

18 Strong investment underpinned by competitiveness and stability The investment realization on Quarter IV (October - December) of 2012 is Rp 83.3 trillion consisted of Rp 26.5 trillion of Domestic Direct Investment (DDI) and Rp 56.8 trillion of Foreign Direct Investment (FDI). It increases 10.4% compared to the same period in The cumulative of investment from January to December 2012 is Rp trilion consisted of Rp 92.2 trilion of Domestic Direct Investment (DDI) and Rp trillion (US$ 24.6 billion) of Foreign Direct Investment (FDI). It increases 22.9% compared to the same period in The distribution of project location from January to December 2012 outside of Java is Rp trillion (43.9%). Compared to the same period in 2011 it increases around 33.3%. Realized Foreign Direct Investment (USD billion) Realized Domestic Direct Investment (USD billion) Source: BKPM Source: BKPM 17

19 Strong investment underpinned by competitiveness and stability FDI Realization by Location Year of 2012 (USD Million) Sumatera Java 3209 Bali & Nusa Tenggara 1127 Kalimantan Sulawesi Maluku Papua 328 DDI Realization by Location Year of 2012 (USD Million) Sumatera Java 1731 Bali & Nusa Tenggara Kalimantan Sulawesi Maluku 5449 Papua Source: BKPM 1,059 (4.3%) 8,328 (33.9%) 744 (3.0%) 856 (3.5%) FDI by Countries Year of 2012 (USD Million) 530 (2.2%) 1,238 (5.0%) 4,856 (19.8%) 2,457 (10.0%) 1,950 (7.9%) (3.8%) (3.9%) 647 (2.6%) Malaysia Singapore Japan South Korea Taiwan Netherlands United Kingdom USA British Virgin Australia Mauritius Other Countries 18

20 Strong investment underpinned by competitiveness and stability FDI By Sector (USD million) 25,000 2,055 2,808 20,000 1,274 1,515 15, ,556 3, ,865 1,618 1,840 2,453 10,000 5, ,138 8,530 1,295 3,305 4, , ,612 1, , , , , ,229 1, ,770 1,774 1,307 1,466 1,783 1,098 1,263 1,708 3,608 4, Mining Other primary sector Food industry Paper and printing industry Chemical and pharmaceutical industry Metal machinery and electronic industry Motor vehicle and other transport equipment industries Other secondary sector Electricity, gas and water supply Trade and repair Transportation, storage and communications Other tertiary sector Source: BKPM 19

21 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan The Inflation Remains Under Control Inflation in January 2013 remained subdued and arrive at target range of 4.5%±1%, that is 4.57%(yoy), 1.03% (ytd) and 1.03% (mtm). In addition to low inflation in volatile food and administered prices, core inflation was also contained driven by the implementation of monetary and macro prudential policy mix directed toward managing the inflation pressures from the demand side, imported inflation as well as inflation expectation. And also strengthen policy coordination with the Government through national inflation control team (TPI) and regional inflation control team (TPID). Going forward, inflation will remain contained within its target range of 4.5%±1% in 2013 and Inflation by component % % 4.32% 2.42% 4.57% CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) Source: Bank Indonesia 20

22 Balance of Payments Q4/2012 The balance of payments surplus increased from US$0.8 billion to US$3.2 billion in Q4/2012, primarily due to significant increase in the capital and financial account surplus amidst a downward pressure in the current account. Accordingly, international reserves at the end of December 2012 strengthened to US$112.8 billion, equivalent to 6.1 months of imports and servicing of official external debt. Balance of Payments Source: Bank Indonesia 21

23 Balance of Payments Q4/2012 The slow path of global economic recovery in contrast to vibrant domestic demand led to a widened current account deficit in Q4/2012. The current account in Q4/2012 posted a deficit of US$7.8 billion (-3.6% of GDP), higher than US$5.3 billion deficit (-2.4% of GDP) in Q3/2012. This downward performance was mainly on account of shrinkage in trade balance surplus as non-oil and gas trade surplus decreased and oil and gas trade deficit enlarged. In other respects, preserved investor confidence, bolstered by additional liquidity on global financial markets derived from monetary expansion in advanced economies, enabled the capital and financial account to chart another surplus. At US$11.4 billion, this surplus was almost double the US$6.0 billion surplus in the previous quarter. The increased surplus was made up of higher foreign portfolio inflows for purchases of government securities. Another source of capital inflows was the withdrawal of offshore funds held by domestic banks in response to growing domestic demand for foreign currencies. In addition, foreign direct investment (FDI) inflows continued in nearly equal numbers compare to the previous quarter. 22 February I T E M S Q1 Q2 Q3 Q4 TOTAL Q1* Q2* Q3* Q4** TOTAL** I. Current Account 2, ,301 1,685-3,105-7,979-5,336-7,763-24,183 A. Goods 1 9,264 9,223 9,700 6,596 34,783 3, , ,417 - Exports 45,901 51,810 52,376 50, ,788 48,353 47,538 45,549 46, ,146 - Imports -36,637-42,587-42,676-44, ,005-44,543-46,720-42,351-46, , Non Oil & Gas 8,899 10,622 9,291 6,621 35,433 4,694 1,974 3,968 2,899 13, Oil -3,214-5,751-4,312-4,249-17,526-5,278-5,331-4,213-5,493-20, Gas 3,579 4,352 4,721 4,224 16,876 4,394 4,176 3,443 3,185 15,197 B. Services -1,822-3,133-2,562-3,115-10,632-2,075-2,893-2,480-3,322-10,770 C. Income -5,525-6,776-7,416-6,959-26,676-5,898-6,801-6,915-6,225-25,839 D. Current transfers 1, ,045 1,176 4,211 1, ,193 4,009 II. Capital & Financial Account 4,835 11,626-3, ,567 2,256 5,225 6,015 11,415 24,911 A. Capital Account B. Financial Account 2 4,834 11,622-3, ,534 2,250 5,222 6,007 11,393 24, Direct Investment 3,782 2,507 2,119 3,120 11,528 1,586 4,020 4,289 4,535 14, Portfolio Investment 2,920 5,213-4, ,806 2,628 3,872 2, ,196 a. Assets , ,852-5,465 b. Liabilities 3,749 5,721-4, ,996 3,085 4,058 2,485 5,032 14,661 1) Public sector 4,383 2,964-4,270-2, ,304 1,626 1,889 4,431 9,251 2) Private sector , ,438 4,169 1,781 2, , Other Investment -1,868 3, ,172-1,801-1,963-2, ,679 1,248 III. Total (I + II) 7,781 11,899-2,344-2,085 15, , , IV. Net Errors & Omissions ,616-1,641-3, V. Overall Balance (III + IV) 7,666 11,876-3,960-3,726 11,857-1,034-2, , Memorandum: Reserve Asset Position 105, , , , , , , , , ,781 In Months of Imports & Official Debt Repayment Current Account (% GDP) Debt Service Ratio (%) o/w. Government & Monetary Authority DSR (%) Source: Bank Indonesia

24 Balance of Payments Q4/2012: Current Account Trade Balance: Non-Oil & Gas The non-oil & gas trade balance surplus diminished from US$4.0 billion in Q3/2012 to US$2.9 billion. In spite of modest improvement in global demand and slower domestic demand growth, the considerable gap between these two sides made export gains were comparatively insignificant compared to the rise in imports. Non-oil & gas exports (f.o.b) growth remained in negative territory (-7.3%; y.o.y) but at a slower pace than preceding quarter (-11,3%), buoyed by increase in export volume and improvement in commodity prices. Meanwhile, non-oil & gas import (c.i.f) growth remained positive (1.4%, y.o.y) in line with robust domestic demand. Non-oil & gas imports grew faster as imports of raw materials increased and imports of consumption goods decreased at slower pace. Trade Balance: Oil & Gas Rising oil imports triggered a downward pressure on oil & gas trade balance. The oil and gas trade deficit in Q4/2012 was US$2,3 billion, increased from a USD$0.8 billion deficit in the previous quarter. As in the non-oil & gas case, higher exports were also insufficient to offset the rise in imports driven by the growing consumption of fuels for transportation. 23 Source: Bank Indonesia

25 Balance of Payments Q4/2012: Current Account Services, Income, and Current Transfers The services account deficit in Q4/2012 increased to US$3.3 billion, mainly due to higher freight payments on imports and decrease in surplus of travel services. The income account charted a smaller deficit in Q4/2012, mostly due to decrease in profit transfers of foreign direct investment companies, especially those with export orientation. Meanwhile, current transfers posted a higher surplus on account of higher grants received by the Government and increase in net receipts of remittances. 24 Source: Bank Indonesia

26 Balance of Payments Q4/2012: Capital & Financial Account Financial Account: Assets The residents investment abroad (the financial account - assets) charted net outflows of US$4.2 billion, primarily explained by increase in foreign debt securities held by public sector (portfolio investment assets). Meanwhile, other investment assets turned to a surplus mainly due to withdrawal of offshore funds held by domestic banks in response to growing domestic demand for foreign currencies. Financial Account Liabilities: Foreign Direct Investment (FDI) In line with robust domestic investment growth, foreign direct investments remained solid and structurally supported the capital and financial account. Notwithstanding, net FDI inflows in Q4/2012 (US$5.8 billion) was slighlty smaller than that in Q3/2012 (US$6.0 billion), due to higher repayments of inter-company loans of FDI companies. Manufacturing, mining, and other services including property sectors were the main contributors to the FDI inlows. Meanwhile, investment from ASEAN region, Japan, Europe and USA dominated FDI inflows in Q4/ Source: Bank Indonesia

27 Balance of Payments Q4/2012: Capital & Financial Account Financial Account Liabilities: Foreign Portfolio Investment Net inflows of foreign portfolio investments increased significantly and posted a surplus of US$5.0 billion in Q4/2012. The increased surplus was made up of higher foreign portfolio inflows for purchases of rupiah and foreign currencydenominated government securities, supported by the remained solid domestic economic fundamental and attractive investment returns compared to other countries in the region. Financial Account Liabilities: Foreign Other Investment Foreign other investment in Q4/2012 registered a US$4.8 billion surplus, flipped from a deficit of US$0.2 billion in previous period. This surplus was mainly explained by increase in other liabilities of public sector and higher placement of non-residents funds in domestic banks (vostro). 26 Source: Bank Indonesia

28 Exchange Rate On January 2013, Rupiah depreciated by 0.22% (mtm) to Rp9.654 per USD, with a contained volatility. In the future, Bank Indonesia will continue to maintain the stability of Rupiah exchange rate consistent with its economic fundamentals. Furthermore, Bank Indonesia will support the formation of a reference to Rupiah exchange rate in the domestic spot market. This reference is expected to promote foreign exchange market efficiency, deepening the domestic financial market. Rupiah Exchange Rate Monthly Appre/Depr. Source: Bank Indonesia Source: Bank Indonesia 27

29 Monetary Policy Stance In the Board of Governors' Meeting convened on 12 February 2013, Bank Indonesia decided to hold the BI rate steady at 5.75%. The current policy rate is considered consistent with inflation forecast, which is expected to remain low and contained within its target range of 4.5%±1% in 2013 and Going forward, Bank Indonesia remains vigilant on some risk factors from the global economy, and will strengthen policies to manage external balance to a sustainable level while also providing support for economic growth. BI Rate 10% BI Rate CPI Inflation 10% 9% 9% 8% 7% 6% 6.50% 6.50% 6.50% 6.50% 6.75% 6.75% 6.75% 6.50% 6.00% 5.75% 5.75% 5.75% 5.75% 8% 7% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% Jan-13 Dec-12 Nov-12 Oct-12 Sep-12 Aug-12 Jul-12 Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Dec-11 Nov-11 Oct-11 Sep-11 Aug-11 Jul-11 Jun-11 May-11 Apr-11 Mar-11 Feb-11 Jan-11 Dec-10 Nov-10 Oct-10 Sep-10 Aug-10 Jul-10 Jun-10 May-10 Apr-10 Mar-10 Feb-10 Jan-10 Source: Bank Indonesia 28

30 Sound Financial Sector Supported by various policies implemented by Bank Indonesia, banking industry has been more resilient, as indicated by secure level of CAR above the minimum level of 8% (17.3% at the end of December 2012) and gross NPLs managed at comfortably safe level below 5% (1.9% at the end of December 2012). Further improvement in banking intermediation is also reflected in progressively improving credit growth, recorded in December 2012 at 23.1% (yoy), in which investment credit, working capital credit, and consumption credit grew by 27.4% (yoy), 23.2% (yoy), and 19.9% (yoy), respectively. Capital Adequacy Ratio (CAR) Comfortably High NPL (gross) Historically Low Min. CAR 8% Dec-12 Nov-12 Oct-12 Sep-12 Aug-12 Jul-12 Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Dec-11 Nov-11 Oct-11 Sep-11 Aug-11 Jul-11 Jun-11 May-11 Apr-11 Mar-11 Feb-11 Jan-11 Dec-10 Dec-12 Nov-12 Oct-12 Sep-12 Aug-12 Jul-12 Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Dec-11 Nov-11 Oct-11 Sep-11 Aug-11 Jul-11 Jun-11 May-11 Apr-11 Mar-11 Feb-11 Jan-11 Dec-10 Steady Loan Growth Steady Loan-to-Deposit Ratio IDR Trilion Working Capital loans Investment Loans Consumption Loans ,004 1,069 1,042 1,059 1,090 1,128 1,168 1,206 1,209 1,210 1,237 1,246 1,266 1, Source: Bank Indonesia 29

31 Prudent Fiscal Management 30

32 Summary of Macroeconomic Assumptions Items Realization Revised Budget Realization State Budget Economic growth (%) * 6.8 Exchange rate (IDR/US$) Inflation (%) SBI/SPN 3 months (%) ICP (US$/barrel) Oil lifting (thousands barrel/day) Gas lifting (thousands barrel oil equivalent/day) *) up to Q3 realization Indikator Development Target Revised Budget (APBN-P) 2012 State Budget (APBN) 2013 Economic Growth (%) Unemployment Rate (%) Poverty Rate (%) Source: Ministry of Finance 31

33 Fiscal Policy Directions Government Work Plan (RKP) Theme Strengthening Domestic Economy for Social Welfare Improvement and Extension Pro Growth 4 Pillars of Development Pro Job Pro Poor Fiscal Policy Direction Pro Environment Encouraging Sustainable Economic Growth through Fiscal Restructuring Optimize State Revenue Improve spending quality Control budget deficit Reduce Debt Ratio to GDP 32

34 State Budget Summary Item State Budget Revised Budget (APBNP) Realization (unaudited) Percentage 2013 State Budget (APBN) A. Total Revenues and Grants 1, , % 1,529.7 I. Domestic Revenue 1, , % 1, Tax Revenue 1, % 1,193.0 Domestic Taxes % 1,134.3 i. Income Tax % ii. Value Added Tax % Non Tax Revenue % Natural Resources % i. Oil and Gas % ii. Non Oil and Gas % 22.3 II. Grants % 4.5 B. Expenditures 1, , % 1,683.0 I Central Government Expenditures 1, , % 1, Personnel Expenditure % Material Expenditure % Capital Expenditure % Interest Payments % Subsidy % a. Energy Subsidy % b. Non Energy Subsidy % Grants % Social Assistance % Other Expenditure % 20.0 II. Transfer to Region % C. Primary Balance (72.3) (45.5) 62.9% (40.1) D. Surplus/(Deficit) (190.1) (146.0) 76.8% (153.3) % Deficit to GDP (2.23) (1.77) 79.4% (1.65) E. Financing % I. Domestic Financing % II. Foreign Financing (4.4) (19.1) 431.6% (19.5) SURPLUS/(DEFICIT) FINANCING

35 Revenue and expenditure policies Broad yet fair taxation 2013 Fiscal revenue policy highlights 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. Fiscal Revenues (Rp Tn) Efficient quality spending 2013 Fiscal expenditure policy highlights 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 Central Gov t Expenditures (Rp Tn) PNBP Non Tax Revenue PENERIMAAN Tax Revenue PERPAJAKAN 973,9 847,1 636,2 706, , , ,2 1357, ,2 1530, APBNP 2012 RAPBN 2013 Source: Ministry of Finance 34

36 2013 Budget matches well balanced revenues with increasing capital spending Infrastructure spending helps lower the unemployment rate State budget directed to reduce poverty level 11% 9% Infrastructure Spending (RHS) Unemployment rate Rp Tn % 15% 49.8 Social assistance (RHS) Poverty rate 86.0 Rp Tn % Aug-12: 6.14% 5.8%-6.1% % 9% Sept-12: 11.66% % % target 0 6% target 0 Increased allocation of central government expenditure towards more productive uses ( ) Source: Ministry of Finance 35

37 Indonesia Philippines Vietnam Brazil Italy France Malaysia India US Japan Favorable current macro conditions is supported by prudent fiscal management.. Indonesia Fiscal Deficit 2011 Fiscal Balance (% of GDP) (unaudited) 2013 Budget % % -0.5% % -0.7% -1.0% % Nominal Deficit (Rp Tn) deficit of GDP (RHS) 7 years average=1.1 % -1.6% -1.14% -1.77% -1.65% -1.5% -2.0% Continue reduction in Indonesia's debt to GDP ratio compared to other Asian economies, and Indonesia's low budget deficit compared to developing Asia and developed economies are beneficial as buffers against potential vulnerabilities. In the last 7 years, Indonesia budget deficit averaged at 1.1 %. 36

38 Indonesia s Fiscal Policy in Mitigating Global Crisis Crisis Prevention & Mitigation: 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 Coordination Forum for Financial System Stability Crisis Management Protocol Bond Stabilization Framework Flexibility in State Budget Law for Crisis Mitigation Action Deferred Drawdown Option 6 Chiang Mai Initiatives Multilateralization/CMI-M 37

39 Improved Government Debt Position 38

40 Budget Financing Realization, FINANCING, (billion of rupiah) Description Budget Budget % to GDP Budget A. Domestic Financing , ,8 102, ,1 I. Domestic Bank Financing , ,5 103, ,6 1. Revenue Amortization of Subsidiary Loan Agreement 4.387, ,5 146, ,6 2. Financing Surplus , ,0 100, ,0 II. Non Bank Financing , ,3 102, ,5 1. Privatization (netto) 0,0 138,3 0,0 0,0 2. Asset Management 280, ,2 406,9 475,0 3. Government Securities (net) , ,3 100, ,9 4. Domestic Loan 991, ,2 148,0 500,0 - Domestic Loan Disbursement (gross) 1.132, ,8 135,8 750,0 - Domestic Installment Payment (141,3) (70,6) 50,0 (250,0) 5. Gov't Infrastructure Fund & GCP (19.265,1) (18.862,614) 97,9 (12.223,4) a. Govt. Investment (3.299,6) (3.299,6) 100,0 (1.000,0) b. Gov't Capital Participation (GCP) (8.922,1) (8.519,6) 95,5 (6.387,6) c. Revolving Fund (7.043,4) (7.043,4) 100,0 (4.835,8) 6. National Education Development Fund (7.000,0) (7.000,0) 100,0 (5.000,0) 7. Guarantee Liabilities (633,3) - 0,0 (706,0) 8. PT. PLN's Borrowing 0,0-0,0 0,0 9. Reserve Fund 0,0-0,0 (5.000,0) B. Foreign Financing (Nett) (4.425,7) (19.147,6) 432,6 (19.454,2) I. Gross Drawing , ,9 63, ,1 1. Program Loan , ,5 96, ,0 2. Project Loan (Nett) , ,4 50, ,1 a. Central Government Project Loan , ,5 57, ,8 i. Line Ministries , ,5 60, ,9 ii. Non-Line Ministries 0,0-0,0 0,0 ii. On-granting 1.718,4-0, ,0 b. Proceed of Subsidiary Loan 8.431, ,9 25, ,3 II. Subsidiary Loan (8.431,8) (2.160,9) 25,6 (6.968,3) III. Amortization (49.724,9) (51.157,6) 102,9 (58.405,0) T O T A L , ,2 94, ,0

41 Domestic Market is Arising The amount of incoming bids for long tenor bonds from local banks remains high in recent auctions , ,59 52% 24% 24% 48% 38% 14% 51% 45% 45% 35% 30% 29% 26% 19% 20% Incoming Bid - Long Tenor ( 10 years) 51% 51% 49% 44% 41% 33% 35% 37% 32% 24% 24% 24% 24% 16% 14% 59% 53% 23% 25% 22% 17% ,92 10,42 10,14 10,01 11,86 10,04 315,91 7,57 393, ,46 198,23 5,96 5,30 5,22 6 Jan-13 Nov-12 Oct-12 Sep-12 Aug-12 Jul-12 Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Foreign Local Bank & Central Bank Others* Others* : Domestic pension funds, insurance companies and mutual funds ,60 11,71 53,98 48,73 23,57 22,54 95,57 39,30 136,18 70,78 66, as of February 19, 2013 Total Incoming Bid Total Bid Accepted Yeild at Tenor 10 year 79,20 101,90 138,85 152,77 62,79 27, Increasing demand in domestic primary market align with downward trend in borrowing cost

42 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Secondary Market Performance of Government Bonds INDO CDS 5Y to Peers Countries Yield of Benchmark Series 1400 Indonesia Turkey Brazil Mexico South Africa [In Percentage] 22,00 As of Feb 18, ,00 18,00 16,00 Global Financial Crisis 5Y 15Y 10Y 20Y , ,00 10, , ,00 4,00 2,00 Eurozone sovereign debt crisis Jan'13 Okt'12 Jul'12 Apr'12 Jan'12 Okt'11 Jul'11 Apr'11 Jan'11 Okt'10 Jul'10 Apr'10 Jan'10 Okt'09 Jul'09 Apr'09 Jan'09 Okt'08 Jul'08 Apr'08 Compare to the peers countries, Indonesia CDS 5Y and yield on benchmark yield are steadily decreased

43 Government Securities Realization (Million IDR) Budget 2013 Realization (ao Feb 18, 2013) % Realization Government Securities Maturity ,12% Government Securities Net ,97% Buyback ,00% Issuance Need 2012* ,31% Government Debt Securities (GDS) Domestic GDS Coupon GDS Conventional T-Bills Retail Bonds International Bonds - - USD Global Bonds - Samurai Bonds Government Islamic Debt Securities Domestic Government Islamic Debt Securities IFR/PBS (Islamic Fixed Rated Bond/Proje Islamic T-Bills - Retail Sukuk - SDHI International Sukuk *Adjusted by changes in Cash Management & Debt Switch

44 Outstanding of Total Central Government Debt 250 [USD billion] 200 Loan Government Securities ,35 63,52 73,30 76,64 71,29 70,51 82,34 85,26 82,78 104,20 118,39 130,97 140, ,10 58,90 63,74 68,91 68,59 63,09 62,02 62,25 66,69 65,02 68,10 68,40 63, Dec 2012 [in percentage] Year Dec 2012 Loan 47% 48% 47% 47% 49% 47% 43% 42% 45% 38% 37% 37% 31% Government Securities 53% 52% 53% 53% 51% 53% 57% 58% 55% 62% 63% 63% 69% Source: Ministry of Finance 43

45 Total Debt Maturity Profile as of January 2013 Maturity Profile of Central Government by Instruments (in trillion IDR) in Trillion IDR Gov't Securities Loan in Trillion IDR Maturity Profile of Central Government by Currencies (in trillion IDR) Domestic Foreign

46 Government Debt Securities Issuance Plan Revised Budget Budget IDR (trillion) $ USD (billion) IDR (trillion) $ USD (billion) Deficit (190,1) (19,64) (153,3) (15,84) Amortization (158,8) (16,41) (159,5) (16,48) External Loan (50) (5) (58) (6) Govt Securities (incl Buyback) (109) (11) (100,9) (10) Domestic Loan (0,14) (0,01) (0,25) (0,03) Non Debt Financing Expenditures (26,62) (2,75) (22,93) (2,37) Two Steps Loan (8,4) (0,87) (7,0) (0,72) Financing Needs (384,0) (39,7) (342,8) (35,4) Financing Sources 384,0 39,7 342,8 35,4 Non Debt (Gross) 60,6 6,26 15,2 1,57 Debt (Gross) 323,4 33,41 327,5 33,84 Govt Securities 268,5 27,7 280,9 29,0 Program Loan 15,6 1,6 6,5 0,7 Project Loan (Bruto) 38,1 3,9 39,4 4,1 Domestic Loan 1,1 0,1 0,8 0, Revised Budget (trillion IDR) % of GDP Budget (trillion IDR) % of GDP Total Revenue & Grants 1.358,2 15,9% 1.529,7 16,5% of which Tax Revenue 1.016,2 11,9% 1.192,99 12,9% Non Tax Revenue 341,14 4,0% 332,20 3,6% Expenditure 1.548,3 18,1% 1.683,0 18,2% of which Interest payment 117,8 1,4% 0,0% 113,2 1,2% 0,0% Subsidy 245,1 2,9% 317,2 3,4% Primary Balance (72,3) -0,8% (40,1) -0,4% Overall Balance (deficit) (190,1) -2,2% (153,3) -1,7% Financing 190,1 2,2% 153,3 1,7% Non Debt (Net) 33,9 0,4% (8,1) -0,1% Debt 156,2 1,8% 0,0% 161,5 1,7% 0,0% Govt Securities (Net) 159,6 1,9% 0,0% 180,4 1,9% 0,0% Domestic Official Borrowing 1,0 0,0% 0,5 0,0% External Official Borrowing (Net) (4,4) -0,1% (19,5) -0,2% Disbursement 53,7 0,6% 45,9 0,5% Program Loan 15,6 0,2% 6,5 0,1% Project Loan (Bruto) 38,1 0,4% 39,4 0,4% On lending (8,4) -0,1% (7,0) -0,1% Repayment (49,7) -0,6% (58,4) -0,6% Assumptions: Item GDP (trillion) 8.542, ,6 Growth (%) 6,5 6,8 Inflation (%) 6,8 4,9 3-months SPN (% avg) 5,0 5,0 Rp / USD (avg) 9.000, ,0 Oil Price (USD/barrel) 105,0 100,0 Oil Lifting (MBCD) 930,0 900,0 Exchange Rate Assumption (IDR/USD 1) a.o February 18, 2013: IDR Source: Ministry of Finance 45

47 Holders of Tradable 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 16,36% 16,66% 18,56% [IDR billion] 30,53% 30,80% 32,98% 33,61% ,30% 29,74% 37,71% 35,59% 32,58% 30,49% 30,32% ,02% 59,34% 53,60% 43,72% 33,88% 36,63% 36,53% 36,07% ,64% Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec Feb-13 Foreign Holders Domestic Non-Banks Domestic Banks ,66% 3,11% 10,22% Jun-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan Feb-13 Total > > > ,84% 3.13% 7,39% Source: Ministry of Finance 46

48 Profile of Government Debt Securities GOVERNMENT DEBT SECURITIES (GDS) Dec-09 Dec-10 Dec-11 Dec-12 Jan Feb Domestic Tradable GDS IDR IDR IDR IDR IDR IDR a. Zero Coupon IDR IDR IDR IDR IDR IDR Government Treasury Bills IDR IDR IDR IDR IDR IDR Zero Coupon Bond IDR IDR IDR IDR IDR IDR b. Government Domestic Bonds IDR IDR IDR IDR IDR IDR Fixed Rate *) +) IDR IDR IDR IDR IDR IDR Variable Rate *) IDR IDR IDR IDR IDR IDR Promissory Notes to Bank Indonesia **) ***) IDR IDR IDR IDR IDR IDR Total GDS (2+3) IDR IDR IDR IDR IDR IDR Total Government International Bonds *) USD USD USD USD USD USD TOTAL GOV'T DEBT SECURITIES (3+(4*Exchange Rate Assumption)) IDR IDR IDR IDR IDR IDR GOVERNMENT ISLAMIC DEBT SECURITIES (GIDS) 6. Domestic Tradable GIDS IDR IDR IDR IDR IDR IDR a. Fixed Rate *)++) IDR IDR IDR IDR IDR IDR b. Zero Coupon IDR IDR 195 IDR 195 IDR Domestic Non Tradable GIDS IDR IDR IDR IDR IDR IDR Government International Islamic Bonds 1. Fixed Rate *) USD 650 USD 650 USD USD USD USD TOTAL GOV'T DEBT SECURITIES (6+(8*Exchange Rate Assumption)) IDR IDR IDR IDR IDR IDR TOTAL GOVERNMENT SECURITIES 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 ) Including Sukuk Ritel/SR (IDR Billion) IDR IDR IDR IDR IDR IDR Exchange Rate Assumption (IDR/USD1) IDR IDR IDR IDR IDR IDR Exchange Rate Assumption (IDR/JPY1) IDR 101,70 IDR 110,29 IDR 116,80 IDR 111,97 IDR 106,76 IDR 102,82 - 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 47