THE ECONOMY WITH REMARKABLE ADAPTABILITY

Transcription

1 REPUBLIC OF INDONESIA THE ECONOMY WITH REMARKABLE ADAPTABILITY FEBRUARY 216 1

2 Overview Institutional And Governance Effectiveness: Unwavering Commitment on Reforms Agenda 1 Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Management 4 Economic Factor: Healthy Growth Prospects Remain Intact 2 Monetary Factor: Monetary Policy Anchors Price Stability 5 External Factor: Improved External Resiliency 3 Wide Range of Policy Reforms to Boost Economic Growth 6 2

3 Section Institutional And Governance Effectiveness: Unwavering Commitment on Reforms Agenda 1

4 Improving Global Perception WEF Global Competitiveness World Governance Indicators Indonesia India Brazil Phillipines Vietnam Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption Ease of Doing Business Corruption Perception Index Indonesia India Brazil Indonesia Thailand Malaysia Source: World Economic Forum; World Bank; Transparency International 4

5 215E Total Investment / GDP (%) Indonesia Remains the Investment Destination of Choice Direct Investments development¹ IDR Tn 15 Indonesia enjoys large investments relative to peers within the region² Q1 Q1 Q1 Q1 Q1 1 5 Source: BKPM FDI DDI Total 5 Brazil India Indonesia Malaysia Philippines Thailand The Economist: Indonesia has taken over India as the #2 investment destination in Asia 3 China Indonesia India Malaysia Vietnam Singapore Thailand Philippines Australia Hong Kong South Korea Myanmar Japan Taiwan % of surveyed who plan to increase investment in each country 1. Source: Bank Indonesia; 2. Source: IMF Estimates; 3. Source: The Economist Asia Business Outlook Survey 215; 5

6 National Strategic Development Plan (Nawa Cita) The 3 Dimensions on Economic Development 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. Legal Certainty & Law Enforcement Security & Order Necessary Condition Politic & Democracy Governance 6

7 Improving Investment Climate: Simplified Process in Investment Licensing The Indonesian Investment Coordination Board (BKPM) launched the One Stop Service Center (PTSP in Indonesian) on January 26th 215 in an effort to streamline investment permits for all sectors. This program gives BKPM the authority over 134 key permits usually issued by the 22 different ministries/agencies. The PTSP would put the permit issuance process into a single roof in BKPM thus ensuring faster process and clear guidelines. Before PTSP After PTSP 26 days In the past investors have had to seek permits and licenses from individual government agencies. They would refer to BKPM for business permits while refer MoF for taxes. Investors would need to go to ministry of law for legal permits while going to sector ministries for sector/operational permits. Before the PTSP it takes on average 26 days to issue a full business permit. The worst, licenses for power plants - is estimated to take up 93 days or almost 3 years. 26 days 9 days The new One Stop Service Center would encompass 22 different ministries and agencies into a single service center for investment managed by the National Single Window for Investments. This integrated coordination would accelerate permits from an average of 26 days to only 9 days. It even promises to expedite power plant permits to just 24 days. The OSSC provides consultation, front office and administration services to investors. The office provides issuance for investment, business expansion, tax levies, import and export permits, and human capital permits. Source: National Single Window for Investment, Indonesia Investment Coordinating Board (BKPM) 7

8 Improving Investment Climate: Simplified Process in Investment Licensing (continued) ELECTRICITY LICENSING LAND LICENSING (4 attainment licensing) FORESTRY LICENSING (13 attainment licensing) TRANSPORTATION LICENSING (4 attainment licensing) AGRICULTURE LICENSING (9 attainment licensing) INDUSTRY LICENSING (8 attainment licensing) TOURISM AREA LICENSING (6 attainment licensing) SIMPLIFICATION OF TAX ALLOWANCE PROCESS 49 License 923 days Business Rights 3-6 ha 123 days Forest Waiver License 111 days Special Terminal License 3 days Plantation License 751 days Industrial Business License 672 days List of Tourism Area Signs 661 days Duration of Uncertain Process 25 License 256 days 9 days 47 days 5 days 182 days 152 days 188 days 28 days Next Target : Simplification of Ports, Building, and Environmental Licensing 8

9 Improving Investment Realization (Jan-Dec 215) Rp463,1 T Rp545,4 T Increased 15,1% Increased 1,% Rp366 T Rp179,4 T Rp37 T Rp156,1 T Increased 16,1% Increased 13,% Source: Investment Coordinating Board (BKPM) 9

10 FDI Realization by Sectors (Jan-Dec 215) Food Industry US$3.633 Mn 14% Transportation, Warehouse and Telecommunication US$4.74 Mn 37% Paper & Printing Industry US$1.876 Mn 62% Chemical and Pharmaceutical Industry US$5.98 Mn 54% Metal, Machinery and Electronic Industry US$6.392 Mn 61% Electricity, Gas and Water Supply US$5.251 Mn 76% Mining US$8.815 Mn 47% Transport Equip and Other Transport Industry US$5.326 Mn 61% Source: Investment Coordinating Board (BKPM), compared to Jan-Dec 214 period 1

11 Effective Policymaking in Recent Times: Land Acquisition Act Law No. 2/212 on Land Acquisition and its implementing regulations stipulate the maximum number of days for various processes to avoid prolonged acquisition schedule Planning Preparation Implementation Hand over of land rights Time span in working days (Assuming there will be objections from land owners): Unregulated Max. 289 days Max. 257 days Max. 37 days TOTAL 583 DAYS If there is no objection from the land owners, total days needed could be speeded up to around 15 2 % of maximum days above. Has been successfully applied in South Sumatera Project (Trans Sumatera Toll Road, Palembang Indralaya section) 11

12 Section 2 Economic Factor: Healthy Growth Prospects Remain Intact

13 Conducive Environment Underpinning Strong Growth Fundamentals Largest Economy in South East Asia 4th Most Populous country in the World; 64% in productive age Budget reform as a part of larger economic reform initiative Tax base to be broadened from one reduce dependency on commodities Manageable Inflation Rate Growing Middle Income Class From commodity-based to industrializednatural resources-based economy 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 Large and Stable Economy New Economic Structure Consistent Budget Reform New Reform- Oriented Administration High Infrastructure Investments Fuel subsidies significantly reduced and spending redirected to more productive allocation Prudent debt management Three main sources of financing for IDR 5 tn investment needs: State and regional budget, State Owned Enterprises and PPP Continuing from 215 policy, infrastructure will be higher than fuel subsidy Infrastructure spending focused on basic infrastructure projects Fiscal and non-fiscal incentives to attract infrastructure investment and promote PPP 13

14 Indonesia s Strong GDP Indonesia s strong GDP growth remains favorable compared to peers, supported by demographic bonus and strong domestic demand GDP Growth Strong GDP Growth (%) * Q1 215* 215* 215* 215* Source: BPS, Bank Indonesia Global Growth Domestic Growth Remains Favorably Compared to Peers Source: Bloomberg India Brazil Turki Rusia Indonesia GDP Breakdown GDP Growth based on Expenditures Outlook Growth Prospect Sector Q1 Q1 Q1 Household Consumption ,1 4,97 4,96 4,9 NPI Serving Household Consumption Expenditure Gross Fixed Capital Formation (-.2) -8,25-7,91 6,39 8, ,37 3,69 4,62 7,3 Government Consumption (-1.5) ,65 2,13 6,56 6,9 Exports (-4.5) -1,4 -,9 -,69-6,4 Imports (-.9) ,38-6,98-6,11-8,1 GDP ,72 4,67 4,73 5, Institution Indonesian Government World Bank IMF Asian Development Bank S&P Moody s Private consumption is expected to remain robust Government expenditure in the form of infrastructure spending to increase in 2nd semester This will also increase investments 14

15 Strong and Stable GDP Performance Spatial GDP Growth Spatial GDP Growth Contribution Sumatera GDP Growth 214: 4.7% 215Q1: 3.5% 215: 2.9% 215: 3.% 215: 4.6% Kalimantan GDP Growth 214: 3.2% 215Q1: 1.1% 215: 1.5% 215: -.4% 215: 1.5% Sulawesi GDP Growth 214: 6.9% 215Q1: 7.3% 215: 8.6% 215: 8.2% 215: 8.3% Bali & Nusa Tenggara GDP Growth 214: 5.9% 215Q1: 8.9% 215: 8.9% 215: 11.8% 215: 7.6% Maluku & Papua GDP Growth 214: 4.3% 215Q1: 3.7% 215: 1.2% 215: 2.3% 215: 1.4% 215 GDP Growth: 5.4% Kalimantan: 8.% Sulawesi: 6.1% Maluku & Papua: 2.2% Sumatera: 22.4% Java GDP Growth 214: 5.6% 215Q1: 5.2% 215: 5.1% 215: 5.4% 215: 5.9% Bali & Nusa Tenggara: 3.1% Java: 58.3% Source: BPS Source: BPS Main Contributors to GDP Growth (%) (%) ,1. -1 I II III IV I II III IV I II III IV GDP (LHS) Household Consumption (RHS) Investment Government Consumption (RHS) Exports (RHS) Imports (RHS) Shifting from Commodity-based economy In 4 th Quarter 215, Indonesia booked 5.4% GDP growth (yoy), slightly increase from 4.73% in 3 rd Quarter 215. Majority of the growth was driven from Java island, contributed 58.3% of Indonesia s GDP growth and at 5.9% (yoy). Growth in Java is higher than resource-rich regions such as Sumatra and Kalimantan, given its high industrialization and larger consumption base Indonesia continues to drive growth in resource-based industrialization to shift from commodity-based economy 15

16 Section 3 External Factor: Improved External Resiliency

17 1 Q1 Q1 Q1 Q1 Q1* * * * Q1** Q1 1 Q1 Q1 Q1 Q1 Q1* * * ** 5 6 A Narrower, (5) Structurally-Stronger 4 Current Account Deficit (1) 2 8 (15) Ample Reserves (US$bn) Current Account Current Foreign Account Exchange Reserves (LHS) Capital & Financial Account (US$bn) 211: Overall Months Balance of Imports + Debt Service (RHS) Reserve Assets(Months) CA Surplus US$1.7bn 212: CA Deficit US$24.4bn 213: CA Deficit US$29.1bn 214: CA Deficit US$27.5bn 215: CA Deficit US$17.8bn (5) (1) (15) Q1 Q1 Q1 Q1 Q1-5 Source: Bank Indonesia Indonesia s Balance of Payments Goods Services Income Secondary Income Current Account Source: Bank Indonesia Trade Balance (US$bn) Current Account (LHS) Overall Balance (LHS) (US$bn) Capital & Financial Account (LHS) 15 Reserve Asset (RHS) (US$bn) Oil & Gas Non Oil & Gas Trade Balance 1.95 (5) (1) (15) (2) Q1 Q1 Q1 Q1 Q1 Q * 215** Source: Bank Indonesia Source: Bank Indonesia 17

18 Q1 Q1 Q1 Q1 Q1* * * ** Balance of Payments in /215 and 215: General Information Indonesia s Balance of Payments Indonesia s overall balance of payments (BOP) posted a US$5.1 billion surplus in /215, a turn around from a deficit of US$4.6 billion in the previous quarter. The BOP surplus was supported by US$9.5 billion surfeit of capital and financial account (CFA) exceeding the current account (CA) deficit of US$5.1 billion (2.39% of GDP). The /215 BOP surplus in turn boosted reserve assets from US$11.7 billion at the end of /215 to US$15.9 billion at the end of /215, equivalent to 7.4 months of imports and servicing public external debt, which is well above international adequacy standards. For the whole year, the 215 BOP was under pressure in the course of dynamics of the global and domestic economic development. The BOP turned from US$15.2 billion surplus last year to a deficit of US$1.1 billion in 215. The BOP pressure came from narrowed CFA surplus inadequate to fully finance the CA deficit. billion USD billion USD billion USD billion USD Current Account Capital & Financial Account Overall Balance Reserve Asset (RHS) Current Account Capital & Financial Account Overall Balance Reserve Asset (RHS)

19 Q1 Q1 Q1 Q1 Q1* * * ** Balance of Payments in /215 and 215: General Information Current Account The CA deficit widened amid recovering Indonesian economy. The /215 deficit of US$5.1 billion (2.39% of GDP) was larger than the previous quarter s deficit of US$4.2 billion (1.94% of GDP), due to the narrowing of the non-oil and gas trade surplus as non-oil and gas imports grew in line with growing domestic demand. For the whole 215, the CA improved showing a reduction in deficit to US$17.8 billion (2.6% GDP) from US$27.5 billion (3.9% GDP) last year. Such improvement was attributable to a larger fall in imports than exports, as well as better performance of services and income accounts. billion USD billion USD * 215** Non-Oil & Gas Trade Balance Services Secondary Income Oil & Gas Trade Balance Primary Income Current Account Non-Oil & Gas Trade Balance Services Secondary Income Oil & Gas Trade Balance Primary Income Current Account

20 Q1 Q1 Q1 Q1 Q1* * * ** Balance of Payments in /215 and 215: General Information Capital & Financial Account The CFA account surplus in /215 increased significantly to US$9.5 billion on subsided global financial market uncertainty and improved confidence in Indonesia economic outlook. The increase in CFA surplus from US$.28 billion surplus in the previous quarter was mainly contributed by a resumed surge in portfolio investment inflows to government bonds, including global bond. In contrast, CFA surplus for the whole 215 fell to US$17.1 billion from US$45. billion in 214. This was primarily due to lower corporate funding needs through foreign borrowing in line with slowing domestic economy and sharp decrease in foreign portfolio inflows as uncertainty in the global financial markets elevated, although the uncertainty eased in /215. billion USD billion USD * 215** Net DI Net PI Net OI Net CFA Net DI Net PI Net OI Net CFA

21 Q1 Q1 Q1 Q1 Q1* * * ** Balance of Payments in /215 and 215: Current Account Trade Balance: Non-Oil & Gas billion USD billion USD Exports Imports NOG Trade Balance (RHS) billion USD billion USD * 215** Non-oil and gas trade surplus /215 decreased from US$6.3 billion in the previous quarter to US$2.9 billion, mainly driven by 7.5% (qtq) growth of non-oil and gas imports. The biggest increase in imports occurred in capital goods, followed by consumer goods and raw materials. Meanwhile, non-oil and gas exports contracted by 4.2% (qtq) on account of remained weak global demand and declining commodity price. For 215, non-oil and gas trade balance surplus increased by 5.% (yoy) to US$19.8 billion as decrease in imports (12.2% yoy) was larger than decrease in exports (1.% yoy). Plunging imports was due to sluggish domestic demand as economy slowed down in 215. Meanwhile, decrease in exports was driven by weaker external demand in line with global economic slowdown and continued decline in global commodity prices. Exports Imports NOG Trade Balance (RHS)

22 Q1 Q1 Q1 Q1 Q1* * * ** Balance of Payments in /215 and 215: Current Account Trade Balance: Oil & Gas The oil and gas trade deficit in /215 shrank to US$1. billion from US$2.1 billion in the previous quarter following declines in the volume of oil imports and crude oil prices. For the whole 215, oil and gas trade deficit narrowed from US$11,8 in 214 billions to US$6.5 billions as oil and gas imports decreased at higher pace than oil and gas exports dropped. billion USD Exports Imports OG Trade Balance (RHS) billion USD billion USD billion USD * 215** Exports Imports OG Trade Balance (RHS)

23 Q1 Q1 Q1 Q1 Q1* * * ** Balance of Payments in /215 and 215: Current Account Current Account-Services, Primary Income, Secondary Income Compared to the previous quarter, services account deficit in /215 decreased from US$2.2 billion to US$1.8 billion. A reduction in freight services payments and increase in net receipts of travel services contributed to the narrower deficit. For the whole year of 215, service account deficit decreased by 15.2% (yoy) to US$8.5 billion supported primarily by decrease in freight services payments. Primary income in /215 recorded a deficit of US$6.6 billion, lower than deficit of US$7.5 billion in /215. The lower deficit was attributed to the decrease in direct investment income payments and fewer interest/coupon payments on public bond. In contrast, interest payments on government and private foreign loans increased following its seasonal trend. In 215, primary income recorded a US$28. billion deficit, lower than US$29.7 billion deficit registered in 214, supported by lower direct investment income payments and higher portfolio investment income receipts. Secondary income account surplus stood at US$1.4 billion in /215, higher than US$1.3 billion surplus in the previous quarter due to increase in net receipts of government grant which was higher than decrease in net receipts of personal transfer. For 215, secondary income account surplus increased from US$5.2 billion to US$5.5 billion supported by mounting receipts of worker s remittances despite diminishing number of Indonesian migrant worker in 215 compared to 214. billion USD * 215** Services Secondary Income Primary Income Total billion USD Services Secondary Income Primary Income Total

24 Q1 Q1 Q1 Q1 Q1* * * ** Q1 Q1 Q1 Q1 Q1* * * ** Balance of Payments in /215 and 215: Financial Account Financial Account: Assets On the assets side, Indonesia s financial account in /215 recorded a net inflow (surplus) of US$.3 billion, bounced from net outflows of US$3,8 billion in /215. The surplus was mainly due to withdrawal of private sectors deposits abroad. For 215, the outflow on financial account assets was almost double to US$2.3 billion on higher placement of private sectors deposits abroad, mainly registered in the first half of 215. billion USD Direct Inv. Portfolio Inv. Fin. Derivatives Other Inv. Financial Account billion USD Direct Inv. Portfolio Inv. Fin. Derivatives Other Inv. Financial Account Financial Account: Liabilities - Direct Investment Net inflows of direct investment liabilites in /215 stood at US$3.6 billion, higher than net inflows of US$3,1 billion registered in /215 following improvement in domestic economy. The increase in net inflows of long-term foreign capital was supported by the higher equity capital, but was further restrained by increase in net debt repayments to affiliates. For 215, sustained foreign investor confidence in the outlook for Indonesian economy prompted foreign investors to continue investing in Indonesia so that direct investment liabilities registered a US$18,7 billion surplus. Nevertheless, the 215 surplus decreased from the previous year which reached USD25,2 billion in line with the slowdown in the domestic economy. billion USD Debt Instruments Equity & Inv. Fund Shares Total billion USD Debt Instruments Equity & Inv. Fund Shares Total

25 Balance of Payments in /215 and 215: Financial Account Financial Account: Liabilities Portfolio Investment Foreign portfolio investment in /215 swung back to a net inflows of US$4.4 billion, in contrast to net outflow of US$1.5 billion in /215. The inflows mostly came from government bonds issuance, including global bond. For the whole 215, foreign portfolio investment booked a net inflows of US$17.7 billion, lower than previous year s inflows of US$23.5 billion. This condition was triggered by net foreign sells on domestic portfolio instruments, especially stocks. billion USD Q1 Q1 Q1 Q1 Q1* * * ** Equity & Inv. Fund Shares, net Debt Sec, net Total Financial Account: Liabilities - Other Investment Other investment liabilities in /215 recorded a surplus of US$1.5 billion, lower than surplus of US$2.4 billion in /215. The lower surplus was affected by fewer net inflows in public sector. For 215, other investment liabilities surplus shrunk from US$7.7 billion to US$1.6 billion, mainly due to net repayment of private sector s foreign loans. billion USD Q1 Q1 Q1 Q1 Q1* * * ** Private Sector Public Sector Total billion USD * 215** Equity & Inv. Fund Shares, net Debt Sec, net Total billion USD * 215** Private Sector Public Sector Total

26 Exchange Rate In Line with Fundamentals Depreciation of Rupiah compared to other EM currencies. IDR Data as of 29 Jan 216 EUR IDR -.28 THB -.4 PHP INR MYR CNY KRW TRY BRL ZAR Source: Bank Bank Indonesia Jan 216 vs Dec 215 Average Point to Point * data as of 31 Jan % The rupiah was stable and tracked an upward trend on the back of foreign capital inflow, as uncertainty eased on global financial markets and confidence in the domestic economic outlook was restored. In /215, the rupiah appreciated 6.27% (ptp point to point) to a level of Rp13,785 per USD. Furthermore, rupiah appreciation persisted into January 216, with the currency climbing.1% (ptp) to close at a level of Rp13,775 per USD at the end of the month. Rupiah appreciation was bolstered by an influx of foreign capital to government securities in line with favorable investor perception of domestic economic fundamentals due to the lower BI rate, government policy packages aimed at improving investment climate, and an increasingly effective implementation of various infrastructure projects. In addition, less risk on global financial markets, reflecting a more dovish Fed Fund Rate path, also drove rupiah appreciation. Bank Indonesia will always maintain exchange rate stability in line with the currency s fundamental value. 26

27 Lines of Defense Against External Shocks First Line of Defence FX Reserve Ample of level of FX reserves to buffer against external shock FX Reserves as of January 216: US$12.1billion Second Line of Defence Japan US$ billion swap line with the Bank of Japan currently in place The quantum of the swap line was increased from US$12 billion in December 213 Chiang Mai Initiative Multilateralization (CMIM) Agreement Entitled to a maximum swap amount of US$ billion under the ASEAN+3 (Japan, China, and Korea) FX reserves pool created under the agreement Came into effect in 21 with a pool of US$12 billion Doubled to US$ 24 billion effective July 214 BI s Existing Bilateral Currency Swap Arrangement (BCSA) China Agreed to renew currency swap agreement with PBOC and increase volume of funds to RMB13 billion up from RMB1 billion Agreement was signed in 29 and was previously extended for a period of 3 years in 213 South Korea Established a 3 year KRW/IDR swap arrangement with the size of up to 1.7 trillion KRW / IDR 115 trillion in March 214 Australia Exchange of local currencies between the two central banks of up to A$1 billion or IDR 1 trillion Effective as of December 15, 215. The effective period will be three years, and could be extended by mutual consent of both sides * In addition to the above facilities, Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem as part of IMF s Global Financial Safety Net (GSFN) initiative. Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL) Source: Bloomberg, Bank Indonesia 27

28 Comprehensive Stabilization Framework Ensures Proactive Risk Management of Financial System Implementing Crisis Management Protocol Implementing Bond Stabilization Framework Enhancing coordination between government institutions and continuous dialogue with market participants Crisis Management Protocol The FKSSK, Consists of Minister of Finance, BI Governor, Head of Indonesian FSA and Head of Indonesian Deposit Insurance Corporation, manages the Nationwide Crisis Management Protocol (CMP) Framework as guidance and procedures for national crisis prevention and mitigation measures. The nationwide CMP incorporates the Exchange Rate, Banking, Non-Bank Financial Institution, Capital Market, Government Bonds Market (SBN), and Fiscal CMPs. Coordination Meeting is conducted regularly to discuss and assess the current level of Financial System Stability and current issues related to the financial system In 213, FKSSK has conducted two crisis simulations: Full Dress Simulation (ministerial level) and activation of pre-emptive instrument (CMIM) at technical Bond Stabilization Framework Specific policies in place in the 214 budget law to address crisis Swap facility arrangements based on international cooperation Chiang Mai Initiative Multilateralization DMO Budget SOE Budget Other Gov t Budget Buyback Funds Related SOEs (min. Alert level) KUN (State s General Cash) (min. Alert level) PIP Investment Funds (min. Alert Level) SAL (min. Crisis Level) Buyback of government bonds by the DMO from the state budget Potential purchase of government bonds by State Owned Enterprises in primary market (min. Aware Level) and in secondary market (min. Alert Level) Potential purchase of government bonds by the Treasury Office using the State s General Cash (KUN) Potential purchase of government bonds by the Indonesia Investment Agency Purchase of government bonds using the accumulated cash surplus (SAL). Parliament approval is required Fiscal buffers to prevent crises and mitigate risks 1 2 Deferred drawdown option facilities up to US$5bn Specific articles in the 214 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 28

29 Strengthened Private External Debt Risk Management Despite increasing trend of external debt Debt burden indicator (External Debt / GDP) remains comparable to peers 35 (US$bn) Total FCY Debt: US$31bn 35 Turkey Private Sector FCY Debt: US$167bn Thailand Indonesia Philippines Brazil Q1* 215 * 215 * 215 ** 5 - India (%) Public (Govt. & BI) Private Total (RHS) Source: External Debt Statistics of Indonesia, February 216 Source: Moody s Statistical Handbook, November 215 Prudent External Debt Management Oct 214, introduced prudential principles in managing external debt for the nonbank corporation to mitigate risk emerging from external debt activity. Corporations holding external debt required to fulfil: (i) minimum hedging ratio in order to mitigate currency risk, (ii) minimum forex liquidity ratio to mitigate liquidity risk, (iii) and minimum credit rating to mitigate overleverage risk Dec 214, improves the Regulation by adjusting the coverage of components of Foreign Exchange Assets and Liabilities, the provision for fulfilment of Hedging and Credit Rating liability Regulation Key Points Object of Regulation Hedging Ratio Phase 1 Jan 1,215 Dec 31,215 Phase 2 Jan 1,216 Dec 31,216 Governs all Foreign Currency Debt < 3 months 2% * 25%** > 3 6 months 2%* 25%** Liquidity Ratio ( < 3 months) 5% 7% Phase 3 Jan 1, 217 and beyond Credit Rating Not applicable Minimum rating of BB- Hedging transaction to meet hedge ratio not necessarily be done with a bank in Indonesia Sanction As of Q IV-215 Applied Must be done with a bank in Indonesia 29

30 External Debt Profile Public Long Term* Private Bank External Debt Position USD 143. billion or 46.% of total Ext. Debt USD billion or 72.5% of Private Ext. Debt USD 2.7 billion or 12.4% of Private Ext. Debt Affiliation USD 9. billion or 5.4% of Private Ext. Debt USD 33,7 USD MILIAR 31.7 billion atau,2% (mtm) USD ,2 billion MILIAR or pangsa 54.% 55,7% of dr total Ext. ULN Debt USD 47, billion MILIAR or pangsa 15,7% 27.5% dr total ULN of Private Ext. Debt USD USD 25.4 billion 25,4 or MILIAR 15.2% pangsa 8,4% of Private dr total ULN Ext. Debt External Debt Position as of December 215 *Based on remaining maturity Source: External Debt Statistics of Indonesia, February 216 Private Short-Term* Private Non-Bank USD 16.4 billion or 9.8% of Private Ext. Debt Non Affiliation 3 23

31 Section Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Policy 4

32 Coordinated Short Run and Long Run Policies to ensure sustainable and equitable economic growth LONG TERM strategy to create sustainable and equitable economic growth GROWTH CHALLENGES Revenue Optimization Budget Reforms Spending Quality Sustainable Financing STRUCTURAL CHALLENGES SHORT TERM strategy to safely navigate the economy through global uncertainties Fiscal Stimulus GLOBAL VOLATILITY Maintain People Purchasing Power Improve Quality of Investment Climate 32

33 Pillar I Revenue Optimization Pillar II Quality of Spending Pillar III Sustainable Financing Three Key Pillars to a Sustainable and Equitable Growth long term policies to ensure consistent and equitable growth in Indonesia Objective: Creating a sustainable and equitable economic growth for Indonesia I. Shift from commoditybased revenues II. Broaden tax coverage III. Improve tax compliance and prevent leakages IV. Strengthen Taxation institution I. Higher spending productivity II. Enhanced subsidy scheme III. Empowerment of local governments I. Secure budget financing II. Effective utilization of domestic and international funding sources III. Financing schemes to support infrastructure development program Initiatives: Reinventing Policy e-invoice Compliance Risk Management Tax Amnesty Tax Administrative Reform Regulatory Reform Adjustment of non-taxable income threshold Development of Semi- Autonomous Tax Office Initiatives: Improve Government procurement regulation. Continue Fuel Subsidy Reform (re-allocate energy subsidy to productive spending) and maintain targeted subsidy scheme. Budgetary allocations for: Infrastructure Projects Social Welfare, and Cashless smart cards Village fund Initiatives: Maintain manageable budget deficit; Improve bilateral and multilateral financing sources, including BSA and DDOs Increase financing instruments. Increase capital injection to SOEs to include SOEs in infrastructure development 33

34 Long Term Strategies to Achieve Sustainable Growth key focus to strengthen Indonesia s economic development fundamentals Maintain Purchasing Power Accelerate Infrastructure Development State Owned Enterprise & Private Sector Maintain price stability Provide social security for workers Improve basic needs services to the poor: Health services, Education, Conditional cash transfer Provide better employment climate, particularly related to min. wage policy Promote Public Private Partnership (PPP) as infrastructure development financing scheme Develop fiscal and non-fiscal incentive and investment facilities to attract direct investment Improve the role of SOE and private in Infrastructure development Develop the alternative infrastructure financing such as infrastructure bank, trust fund, and infrastructure bond Develop downstream industries particularly on primary sectors (agricultural and mining sector) Increase the supply of high value added andcompetitive goods Increase export quality, determine competitive price and develop international standard services Participate in the global value chain and the global production network to enhance export performance Improve quantity and quality of exports in manufacturing and services sector Develop a more efficient trade facility, particularly related to permit process More effective import management Strategies & Policy Formulations to Boost Investments 1. Maintain economic stability to promote strong business and investment climate 2. Simplify licensing and investment procedures 3. Harmonize investment regulations between central government and local governments 4. Consistently improve the involvement of state owned enterprise (SOE) in infrastructure development 5. Increase the role of banking institutions in lending rate development, especially for working capital and investment credits 6. Expand the role of non-bank financial institutions in the development of infrastructure financing alternative 34

35 216 Government Budget Items (IDR tn) Revised Budget st Semester Realization % of Revised Budget Revised Budget 1st Semester Projection % of Revised Budget 2nd Semester Prognosis % of Revised Budget Outlook A. State revenue and grants % 1, % % ,822.5 I. Domestic revenue % 1, % % , Tax revenue % 1, % % , Non tax revenue % % % II. Grants % % % B. State expenditure % 1, % % ,95.7 I. Central gov. expenditure % 1, % % , Ministries/Agencies Spending % % % Non-Ministries/Agencies Spending % % % II. Transfer to region % % % C. Primary balance (1) % % % D. Overall balance (A - B) % % % % deficit to GDP E. Financing % % % I. Domestic financing % % % II. Foreign financing % % % Excess/Shortage Financing % Budget 216 Budget is Expected to: Strengthen Fiscal Buffer, esp. to Support Government Priority Program Stimulate Business Capacity and Product Competitiveness Create a Sustainable Fiscal Cycle by Managing Risk 35

36 216 Budget Key Macroeconomic Assumptions and Strategy Period 216 Budget Key Macroeconomic Assumptions Revised Budget Latest Realization Proposed Budget Growth (%) Inflation (%) 5. YoY YTD Exchange Rate (USD/IDR, Average) 12,5 EOP 13, ,9 YTD 13, month-SPN (Treasury Bills) Indonesia Crude Price (ICP) (USD / bbl) Oil Lifting (thousand bbl / day) Gas Lifting (thousand bbl / day oil equivalent) 1,221 1, , Budget Strategy and Features Revenue Set revenue target more realistic by using 215 revenue outlook. Broadening tax base, improving compliance, improving tax administration. Improving fiscal incentives for strategic purposes. Optimizing non-tax revenue from government institution rather than commodity-based revenue. Expenditure Continuing develop priority infrastructure projects as committed. Spending in more efficient method. Better targeted subsidy scheme. Fulfill mandatory spending Stimulating regional economy to reach optimum growth Financing Keeping budget deficit under regulated threshold (3% of GDP) Mixed budget financing instruments, currencies Cooperating with financing sources with competitive term and condition (Bilateral loan, DDO, etc.) Source: Ministry of Finance 36

37 Strategic Policy of 216 Budget in Summary 1 Controlled expansion at 2.15% GDP Deficit 6 Better subsidy scheme (objects, subjects & delivery methods) 2 Bureaucracy efficiency 7 Sustainable national social security system 3 5% Healthcare Budget 8 Fasten efforts to reduce income gap (expansion of PKH) 4 Continuously increasing infrastructure projects 9 Strengthen fiscal decentralization (higher Village Fund & Reallocation of DK/TP) 5 2% Education Budget 1 1 million home program 37

38 Tax Ratio in 216 Budget: 13,11% Breakdown (IDR bn) Budget-R Budget 1. Tax Revenue 1,489, ,546,664.6 a. Domestic Tax Revenue 1,439, ,56,577.5 Revenue Composition(%) 72.3% 73.3% 74.9% 74.% 84.5% 84.9% 1) Income Tax 679, , Non-Oil & Gas Income Tax 629, , Oil & Gas Income Tax 49, , ) VAT 576, , ) Land and Building Tax 26, ,48. 4) Duties 145, , ) Other Tax 11, ,766.8 b. Tax from International Trade 49, ,87.1 1) Import Duty 37, ,23.9 2) Export Duty 12,53. 2,883.2 General policies to achieve taxation target includes: a. Optimize tax revenue by maintaining conducive investment climate; b. Maintain national economic stability and protect purchasing power; c. Improve national competitiveness and industry valueadd; d. Control consumption of excisable goods. 37.8% 35.9% 32.9% 34.8% 1.5% 1.6% 1.9% 1.3% 18.1% 17.7% 1.2%.7% Perpajakan Tax Revenue Non Tax PNBP Hibah Grant Revenue Extra Effort to Reach Revenue Target 216 TAX Optimize examination efforts i.e. focus on primary sectors in each regional office, transfer pricing and fraud Extend and Intensify services to Tax Payers i.e. data matching, optimize IT system, e-tax invoice, regulation reform Year 216 as the Year of Law Enforcement i.e. through active tax billing, examination and investigation CUSTOM AND EXCISE Improving audit performance Revise target of audit object Boost supervision, action and investigation efforts Increase operations to monitor distribution of excisable goods 38

39 Incentives Incentives Pioneer Industry/Projects High Priority Industry/Projects Targeted Tax Incentives to Attract Investment supportive fiscal (tax allowance and tax holiday) to further improve business climate Tax Allowance Tax Holiday Tax Allowance Facility Up to 3% of invested capital is deductible for tax purposes Tax Holiday Facility Income Tax Relief or Reduction High economic integration Contributes high value addition and externalities Introduces new technology Has strategic role on the national economy Support economic diversification Strengthen national industry structure Competitive in the international market High absorptions of workers and supporting technology transfer Located outside Java, Bali, and Batam Islands (Remote Areas & KTI) Taxable Income reduction amounting up to 3% of the invested capital Accelerated depreciation and amortization Corporate income-tax relief for a minimum period of 5-15 years. Can be extended to 2 years Eligible industries: Reduction of Income Tax on dividend from 2% to 1% Extended loss carried forward (from 5 years) to max of 1 years Eligible Industry: 66 sector industries and 77 sector industries in specified region Basic metal industry Oil refinery Petrochemical industry Machinery Agricultural, forestry and fisheries Telecommunication, information and communication Marine transportation Major manufacturing in Special Economic Zone Infrastructure, ex. PPP projects 39

40 Government Expenditure Government Expenditure consistenly increase with 12% average. From Regional Transfer and Village Fund grew faster than Central Government Budget. IDR Tn Central Govt. Expenditure Transfer to Region & Village Funds % to GDP 4

41 Regional Transfer and Village Fund Description (IDR tn) R- Budget Budget A. Transfer to Region 643,8 723,2 1. Balancing Fund 521,8 7,4 a. General Transfer Fund ,5 1) Profit Sharing Fund 11,1 16,1 2) General Allocation Fund 352,9 385,4 b. Special Transfer Fund 58,8 28,9 1) Physical Purpose Allocation Fund n/a 85,5 2) Non-Physical Purpose Allocation Fund n/a 123,5 2. Region Incentive Fund n/a 5 3. Special Autonomy Region Fund and DIY Fund 17,6 17,8 4. Other Fund Transfer 14,4 n/a B. Village Fund 2,8 47 TOTAL 664,6 77,2 Some important policies related to Transfer to Regions and the Village Fund, among others: Increase the allocation to the Regional Transfer and the Village Fund budget to closely match with Ministries and Agencies spending Improve the quality of budgeting and Regional Revenue Sharing Fund (Dana Bagi Hasil-DBH) distribution Reformulation of General Allocation Fund (Dana Alokasi Umum-DAU) in order to improve the distribution of financial capability among regions (as equalization grant) Reformulation and strengthening Special Allocation Fund (Dana Alokasi Khusus-DAK) to support the implementation and achievement of national priorities Reformulation of Regional Incentive Fund (Dana Insentif Daerah-DID) to provide a greater appreciation for the area that performs well in financial management, economy and welfare areas Improving the management quality for Special Autonomy Fund and Special Fund for Yogyakarta as a Special Region Improve the allocation of up to 6% in accordance Road Map Village Fund from 215 to 219, to in compliance with mandate from Government fulfill the mandate in Law No.6/214 on Villages 41

42 Rigorous Infrastructure Development is Needed Banda Aceh Padang Belawan Enggano Kuala Tanjung Pontianak Dumai Batam Panjang Pangkal Pinang Kertajati Cilacap Tj. Priok Singkawang Muara Teweh Palangkaraya Banjarmasin Tj. Perak Lombok Achieving food sovereignty through irrigation system improvement Maratua Maloy Makassar Tojo Una- Una Sultan Hassanuddin Miangas Pohuwato Halmahera Kupang Energy Related Bitung Ambon Namniwel Moa Sorong Merauke Jayapura Taria Kenyam Aboy Koroway Batu Location of 24 new seaports & 15 new airports Source: Bappenas Ensure efficiency of fuel production by optimizing domestic refineries Logistics Related Sea toll concept as a means to support Indonesia in becoming the world maritime axis. Strengthen connectivity through air transport infrastructure development Develop urban transport Reduce logistic cost by improving railway infrastructure. Achieve electrification ratio of 96.6% by 219 through generating capacity improvement Improve transport efficiency by road development and maintenance 42

43 Comprehensive Support for Infrastructure Development Fiscal Policy Expenditure Infrastructure Financing Tax Policy Incentives Tax Allowance, Tax Holiday, CSF, Optimizing LPEI s role, NIA, Seaport industry incentive, Property incentive, SEZ, Integrated Logistic Center, Shipyard Incentive, KUR interest subsidy Basic Infrastructure Connectivity Social Welfare Transfer to Region & Village Fund DAU dan DAK DBH Public Private Partnership Certain infrastructure projects to be funded and operated through a partnership of Indonesia government and private sector companies Government support for PPP : Land Fund:, Project Development Facility (PDF) through PT Sarana Multi Infrastructure. Indonesia Infrastructure Guarantee Fund (IIGF): To guarantee for infrastructure risks. Viability Gap Fund (VGF) for PPP projects with near-term financial constraints. Infrastructure Fund: To offer long term financing for infrastructure projects. Availability Payment (AP) Through SOEs Creting Positive Incentive for Private Sector 43

44 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Improvement in Budget Implementation Supports Sustainable Economic Growth Government Spending grew 11% CAGR from with Regional and Rural Transfer Allocation Outgrowing Central Government Budget (IDR tn) 2,5 2, 1,5 1, ,11 1,137 1,24 1,32 1, Revised Budget 216 Budget 215 Central Government Spending Regional & Rural Transfer Reallocation of Energy Subsidies to Productive Areas: Education, Healthcare and Infrastructure 1 Ministries with Highest Budget Allocation Budget (IDR tn) Min. of Public Works and Housing 14.1 Min. of Defence 99.5 National Police 73. Min. of Health 63.5 Min. of Religious Affairs 57.1 Min. of Basic Education 49.2 Min. of Transportation 48.5 Min. of Higher Education and Research 4.6 Min. of Finance 39.3 Min. of Agriculture 31.5 The result of online procurement: Acceleration of capital and goods spending in 215 (IDR Revised Budget 215 Education Healthcare Energy Subsidy Infrastructure Budget 216 EDUCATION 28.3% HEALTH 75.4% ENERGY SUBSIDY 6.7% INFRASTRUCTURE 13.5% Comparison between average allocation in and (IDR Trillion) Revised Budget Capital Spending Profile (IDR Trillion) Revised Budget Goods Spending Profile

45 Public Private Partnership And Private Sector Budget State Owned Enterprises Alternative Source of Infrastructure Financing Infrastructure Plan New Roads 2,65 km Highway 1, km Road Maintainance 46,77 km Bus Corridors 2 New Sea Ports 24 Sea Port Development 59 Pioneer Cargo Ships New Airports 15 Airport Infrastructure Development Airplanes 2 Rail lines 2,159 km Intra City Rail Lines 1,99 km Infrastructure Financing Needs Scenario 1 (Full Scenario) Scenario 2 (Partial Scenario) Baseline (Baseline) Roads 1, Rail System Urban Transportation Sea Transportation Ferry and Other Waster Transporation Air Transportation Electricity 1, Other Energy dan Gas Waer Resources 1, Water and Sanitation Public Housing Information and Communication Technology Total 6,541 4,781 3,561 SOEs and PPP Become Alternative Source of Funding as Government Budget Could Only Support ~2% of Our Infrastructure Needs Central & Regional Budget (Special Allocation Fund & Rural Transfer) Mainly to support basic infrastructure projects: Food Security: Irrigation, dams etc. Maritime: Seaports, shipyards etc. Connectivity: Village roads, public transportation etc. Government to inject capital to SOEs with leveraging process a multiplier effect, more infrastructure projects can be developed Key focus areas: For commercial and/or complex projects Medium term infrastructure developments focus: electricity and power plants, toll road Government support for PPP : Land Fund: Modification and simplification of land acquisition process Project Development Facility (PDF) through PT Sarana Multi Infrastructure Indonesia Infrastructure Guarantee Fund (IIGF) Viability Gap Fund (VGF) Projects Ready for Auction under PPP Scheme: Toll roads projects such as Balikpapan-Samarinda, Manado-Bitung Railway projects such as Halim-Soetta Airport Express Railway Water supply such as West Semarang water supply project Infrastructure Fund & Availability Payment (AP) 45

46 Financing Policy Description (IDR tn) R-Budget Budget I. Domestic Financing 242,5 272,8 1. Domestic Banking 4,8 5,5 2. Domestic Non-Banking 237,7 267,3 II. Foreign Banking -2,,4 1. Foreign Outstanding Loan (Gross) 48,6 75,1 a. Program Loan 7,5 36,8 b. Project-Based Loan 41,1 38,3 2. Standby Loan Agreement (SLA) 4,5-5,9 3. Foreign Debt Principal Repayment 64,2-68,8 TOTAL 222,5 273,2 Debt Financing Maintaining safe level debt ratio Optimizing domestic bond market Issuing project-based financing Utilizing bilateral or foreign loan, which offer mutualism partnership. (If needed) Broadening investment instruments to enrich source of fund Monitoring debt position by conducting Asset Liabilities Management (ALM) regular meeting IDR tn, (5,) (1,) (15,) (2,) (25,) (,73) (1,14) Defisit % to PDB (1,86) (2,33) (2,25) 215 R-Budget (1,9) 216 Budget (2,15) %, (1,) (2,) Non Debt Financing Sharpen PMN recipients and purposes Provide government guarantee for infrastructure project Support accessibility for education and housing for low income class (3,) (3,) 46

47 Profile of Total Central Government Debt Government debt outstanding USD bn Increasing foreign ownership of government securities at longer tenors % Jun-15 Dec-15 Jan Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Loan Government Securities -1 >1-5 >5 Foreign Ownership to Total (RHS) Maturity profile of tradable central government securities IDR tn Loan Gov't Sec 24% 76% 76% Gov't Sec Loan Source: Ministry of Finance 47

48 Government Securities Realization Budget 216 Realization (a.o. January 29, 216) *(Million IDR) % Realization to Revised Budget 216 Government Securities Net ,25% Government Securities Maturing in 216 and Buyback ,49% Issuance Need for ,98% Government Debt Securities (GDS) Domestic GDS 4.. -Coupon GDS Conventional T-Bills 5.. -Private Placement Retail Bonds - International Bonds USD GMTN Euro GMTN - -Samurai Bonds - -Domestic GDS - Government Islamic Debt Securities Domestic Government Islamic Debt Securities IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) Retail Sukuk - Private Placement 1.. Global Sukuk * Based on projection of deficit 2,15% * Adjusted by changes in Cash Management & Debt Switch Source: Ministry of Finance 48

49 Section 5 Monetary Factor: Monetary Policy Anchors Price Stability

50 Bank Indonesia Policy Mix: June 15 Loosens Macroprudential Policy Increase the Loan-to-Value (LTV) ratio Reduce downpayments for automotive loans Aug Sept 215 Temporary tightening in monetary operation rates 14 Jan 16 Cut BI Rate 25 bps to 7.25% Cut DF & LF Rate at 5.25% & 7.75% resp. BI lower its monetary operation rates even further, ranging from 25bps to 45bps (O/N to 1Y) 2 July 15 Reserve Req. Policy: RR-LDR RR-LFR Accomodate banks SMEs loan in RR calculation 17 Nov 15 Lowering IDR Primary RR by 5bps from 8.% to 7.5%. Effective since 1 Dec Feb 16 Cut BI Rate 25 bps to 7% Cut DF & LF Rate at 5% & 7.5% resp. BI lower the rupiah denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from 16th March 216 Room for monetary easing exists on the back of solid macroeconomic stability in terms of less intense inflationary pressures in 216 as well as less uncertain global financial markets The reduction of the BI Rate and primary reserve requirement is expected to strengthen efforts to boost the ongoing economic growth

51 Bank Indonesia Policy Mix The BI Board of Governors agreed on 17th and 18th February 216 to lower the BI Rate 25 bps to 7%, as well as the Deposit Facility rate and the Lending Facility rate, to 5% and 7.5%, respectively Lower the BI Rate to 7.% Reduce the rupiah denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from 16 th March 216. Remain vigilant towards global developments, specifically China s economy and international commodity prices Maintain exchange rate stability in line with the currency s fundamental value Maintain accommodative macro-prudential policy, while continuing financial market deepening Strengthen coordination with the Government to support sustainable economic growth while maintaining macroeconomic stability Macroeconomic stability, reflected in low inflationary pressures amidst less global financial market uncertainty, creating room for monetary policy easing 51

52 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Continued Cautious Monetary Policy Stance Pre-emptive and Bold Increase of BI Policy Rate (%) Managed Core Inflation Over The Past Few Months (%) (%) CPI (%, yoy) Volatile Food (%, yoy) Core (%, yoy) Administered (%, yoy) Source: Bank Indonesia Source: Bank Indonesia Risk Adjusted Return (RAR) Projection for -215 & Relative to Peers Foreign Holders of Government IDR Bonds Composition January 216 Source: Bank Indonesia (%) Source: Bank Indonesia Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Foreign Holder Domenstic Non Banks Domestic Banks 52

53 Healthy Banking System The banking sector remains sound. The impact of exchange rate depreciation to corporate performance and the banking sector is limited Capital Adequacy Ratio (CAR) & Non Performing Loan (NPL) (%) Capital Adequacy Ratio (CAR) (RHS) Gross Non-Performing Loan (NPL) (%) Source: Bank Indonesia Loan-to-Deposit Ratio Well Maintained Within the Target Range LDR (%) Credit Growth Source: Bank Indonesia To keep the economic growth momentum, Bank Indonesia loosened macro-prudential policy: Revising the LDR-RR regulation, Revising LTV policy for mortgage loans. Revising down payments regulation for automotive loans Source: Bank Indonesia 53 4% 35% 3% 25% 2% 15% 1% 5% % Total Growth Investment Loans Working Capital loans Consumption Loans % 1.3% 8.2% 9.9%

54 Continuous Financial Deepening Program Priority on strengthening institutional support, including cross authority coordination forum and other supporting institution Institutional Support Instrument and Investor Based Priority on developing investor base, instruments (investment, financing, liquidity and risk management instruments), and encourage reference rate credibility Priority on promoting efficiency and transparency on transaction and settlement system (ETP and CCP) Market Infrastructure Education & Socialization Regulation and Standardization Priority on clarity, harmonization of regulations, relaxation of regulation to support financial market development, and standardization of transactions agreements and accounting treatments (Repo) 54

55 Stronger Fundamentals Facing the Headwinds Indonesia has proven its remarkable ability to navigate through crisis, even now with stronger footing Inflation Rate IDR Depreciation BI Rate Inflation controlled under the revised Budget target Depreciation rate lower than 1998 & 29 BI Rate is lower than Jan-16 Sep ,14 (yoy) Sep (ptp) Feb-16 Oct-15 Non-Performing Loan (NPL) Government Debt/GDP Foreign Reserves NPL level is below the maximum threshold of 5% Continue to decline and allocated to productive sectors Significantly higher than 1998 & 28, ample to cover 6.8 months of import and external debt repayment % % % Dec-15 Aug Dec 215 Jan-16 Sep-15 12,1 External Debt (Public & Private) to FX Reserve Ratio Significantly lower than 1998 crisis More Liquid Market Overnight interbank money market rate is relatively lower 62 External Debt/GDP Slightly higher than 28, but significantly lower than x x 28 3.x Dec Dec-15 Jul % % %

56 Economic Outlook 216 Economic Outlook In 216, economic growth in Indonesia is projected in the range of % (yoy), bolstered by fiscal stimuli, in particular infrastructure projects, and tenacious consumption. Meanwhile, investment is expected to increase in line with solid macroeconomic stability and the implementation of government policy packages designed to attract investment. Government measures to boost purchasing power coupled with effective fiscal stimuli will be critical to catalyzing economic growth in 216. Economic Growth 5.2% - 5.6% Credit Growth 12% - 14% Inflation Rate CAD (% GDP) 4.%±1% < 3.% 56

57 Three Directions for Indonesia s Financial Sector OJK has clearly set out three directions to develop the domestic financial sector in the medium term. From each direction, key priorities and programs are derived. A comprehensive Indonesia s Financial Sector Masterplan is scheduled to be launched in Enhancing financial sector s role in boosting economic activities In ongoing efforts to achieve a robust and sustainable economic growth, the domestic financial sector is directed to play a more vital role in terms of catalyzing national economic activities. Strengthening financial sector s resilience to maintain financial system stability To support the sustainability of economic development, financial stability plays an important role. To that end, financial sector must maintain its resilience to confront possible shocks that could emerge from the domestic or external environments. Enhancing financial sector s role in improving financial inclusion and promoting equality Financial sector has the opportunity to play an increasingly significant role in overcoming inequality that may arise. Initiatives undertaken by OJK include promoting financial inclusion and catalyzing local economy. 57

58 Financial Sector to Enhance Its Role in Boosting Economic Activities In ongoing efforts to achieve a robust and sustainable economic growth, the domestic financial sector is directed to play a more vital role in terms of catalyzing national economic activities. Hence, OJK undertakes a series of initiatives for each financial sector. Enhancing the role of financial sector in the development financing Enhancing the role of financial sector in improving competitiveness and fostering growth Continuous education and socialization to potential issuers, collaborating with the stock exchange and relevant agencies Simplification of public offering process and rationalization of disclosure requirements Expansion of investment products to finance particular sectors (e.g. mortgage-backed securities Certificate of Participation for housing sector) Optimizing the role of venture capital as a financing source for SMEs & startups Providing more rooms for financing companies as a financing source Adjusting the risk weight in financing the prioritized economic sectors initiated by the Government Facilitating linkages between banks and relevant institutions (regional credit guarantee, rural banks, microfinance, and cooperatives) to foster rural credit growth Optimizing the role of state-owned banks to boost the efficiency and competitiveness of the national banking industry Optimizing the role of foreign-owned banks in trade and investment activities Putting forward reciprocity principles in the ASEAN banking integration Promoting the establishment of credit guarantee companies in each province Preparing measures to strengthen the capacity of the national reinsurance industry OJK also undertakes a number of initiatives in the implementation of green financing and the development of the Islamic financial sector. 58

59 Financial Sector to Have Enhanced Resilience to Maintain Financial System Stability To support the sustainability of economic development, financial stability plays an important role. To that end, financial sector must maintain its resilience to confront possible shocks that could emerge from the domestic or external environments. Hence, extending the contribution of financial services sector must be held simultaneously with maintaining the resilience. Strengthening the implementation of integrated supervision Strengthening regulations on financial reporting, GCG, and market conduct Continuing measures to deepen the capital market Regulating the minimum capital requirements for financial conglomerations. This regulation complements another directives issued in 214 concerning the implementation of integrated corporate governance and risk management Standardizing financial reporting for industrial players in financial sector, thereby simplifying analysis and promoting understanding of financial performance of financial institutions Reinforcing the implementation of good corporate governance in the allocation of profits to corporate owners and management, with high regards to future potential risks Monitoring and analyzing consumer protection (market conduct) using the selfassessment and thematic surveillance approaches, in order to maintain consumer loyalty on financial service providers Continuously developing the capital market infrastructure. In 215, focus of development will be put on enhancing the clearing and settlement system, developing a capital market data warehouse, and developing e- registration, e-licensing, and e- monitoring systems Increasing the trading liquidity in the secondary debt market. Measures include the implementation of electronic trading platform for the debt market and the issuance of regulations on Global Master Repurchase Agreement (GMRA) 59

60 Financial Sector to Increase Financial Inclusion and Promote Equality in Development Financial sector has the opportunity to play an increasingly significant role in overcoming inequality that may arise. Initiatives undertaken by OJK include promoting financial inclusion and catalyzing local economy. Expanding financial services to the public of all social classes Increasing the role of financial sector in catalyzing local economy Improving financial education and financial inclusion Expanding the branchless banking framework Intensifying micro-insurance programs, which include the insurance for fishermen and farmers, as well as health insurance for low-income families Broadening the opportunity for the public to invest in the capital market, including through various socialization programs and expanding the channeling of mutual fund products Revitalization of regional commercial banks through coordination with relevant agencies (including local government and regional bank association) and the integration of IT, HR, products, and risk management platform of all regional banks Issuing regulation on rural banks, distinguishing capital requirements for the establishment of rural banks based on the operation zone Promulgation of regulations on microfinance institutions and building cooperation with local governments in supervising the microfinance institutions Identification of the potential of municipal bond issuance to finance feasible local projects Continuing financial education programs and coordinating with the industry to develop appropriate products and services aimed at particular target groups In 215, the prioritized target groups include students, professionals, and low-income families 6

61 Section 6 Wide Range of Policy Reforms to Boost Economic Growth

62 Short Run Policy Package I, II, and III to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package Stimulus Package I: 9 Sep 215 Cut Red Tapes Rewriting 89 out of 154 regulations Deregulation policies such as relaxing visa requirements, gas price adjustment for certain industries and enhancing cooperative function Simplification to obtain business licenses and implementation of e-services Accelerate Strategic National Projects Simplifying spatial license & land accommodation Accelerating goods & service procurement for the government Discretion in legal issue barriers Strengthen the role of regional heads to accelerate national strategic project completion Boost Low Income Housing Promoting housing construction for low income citizens Expanding opportunity for investments in property sector Stimulus Package II: 29 Sep 215 Simpler Permit Requirements Ease bureaucracy for investments via 3-hour permit issuance program Faster process for tax allowance and holiday for qualified investments to 25 days and 45 days, respectively Streamline permit requirements in forestry sector from 14 to 9 Tax Incentives Elimination of VAT for transport industries (train, shipping and air transport inc. spare parts) Reducing tax rate on deposits from export proceeds. 1-month deposit tax 1%, 3-month 7.5%, 6-month 2.5% and more than 6-month % Integrated Logistics Facilities Facility incentive on integrated logistic center Two facilities slated to be operational by end of 215; Cikarang (Manufacturing) and Merak (Fuels) Stimulus Package III: 7 Oct 215 Lower Fuel and Electricity Prices Lower retail fuel costs (jet fuel, LPG and retail fuel) Decrease gas price for factories and qualified industries Lower industrial electricity prices Land Permit Simplification for Investment Activities 3-hour turnaround for land availability Faster approval time for building, leasehold, use right and land permits Broadening of Small Business Credit Recipients Expanding criteria for allowed recipients to include salaried workers Source: Coordinating Ministry of Economic Affairs 62

63 Short Run Policy Package IV, V and VI to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package Stimulus Package IV: 15 Oct 215 Fair, Simplified and Projectable Wage System Setting Provincial Minimum Wage regulation Formula for setting minimum wage to ensure simplified, stable and projectable yearly wage adjustments Ease and Affordability of Small Business Credit Government provides subsidy on small business credit to stimulate credit growth in banking sector and affordability to applicants Expanding criteria for small business credit to include: Micro, Small and Medium enterprises in productive sectors (farming, fishery, manufacturing, creative business, trading and services) Overseas Indonesian workers with occupation in formal sectors Family members of salaried workers Ex-Overseas Indonesian workers Overseas Indonesian workers with terminated contract Stimulus Package V: 23 Oct 215 Lower Asset Revaluation Tax Revaluation tax originally set at 1% Under new incentive, tax rates are cut according to periods, detailed below: Revaluation period until 31 Dec 215: tax rate at 3% Revaluation period until 3 Jun 216: tax rate at 4% Revaluation period until 31 Dec 216: tax rate at 6% Eliminating Double Taxation for REITs Eliminating double taxation system for Real Estate Investment Trusts (REITs) Encourage Indonesian property and infrastructure companies to issue REITs in Indonesia Stimulus Package VI: 5 Nov 215 Propel Rural Economies through Development in Special Economic Zones (SEZs) Tax holiday (reduce income tax) and tax allowance (reduce net income and accelerate depreciation. No charges on value-added tax and luxury goods tax Import duty tariff require Certificate of Origin Foreigners allowed to have property Reduce tax on development and amusement in tourist areas Establish wage boards and specialized tripartite agencies Grant 3 days visitor visa which are extendable for 5 times SEZ administrator able to provide land services SEZ administrator able to issue principles and business permits Accelerating licensing process a max. of 3 hours Sustainable and Equitable Water Supply to the Community Drafting government regulations (RPP) on water resources utilization Drafting RPP on water supply systems (SPAM) Ensure that private entities do not dominate the whole SPAM subsystem Private water supplier to meet their needs on its own. Simplifying Import Licensing for Pharmaceutical Raw Materials Simplifying the licensing process to only 5.7 hours Target 1% paperless Source: Coordinating Ministry of Economic Affairs 63

64 Short Run Policy Package VII, VIII, IX and X to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package Stimulus Package VII: 4 Dec 215 Acceleration of Land Certification Process Increasing numbers of certified surveyor, especially from non-civil servant. Speed up the time needed to land registration announcement, from 6-3 days to 14 days Shifting land registration process to electronic system Giving communal rights for indigeneous peoples and people who lives in plantation/forest area Tax Incentive for Labor Intensive Industry Releasing Government Regulation (PP) which facilitate income tax (PPh) for the labor works in labor intensive industry for 2 years Giving tax facilities for various footwear industries throughout provinces in Indonesia Stimulus Package VIII: 21 Dec 215 One Map Policy All government office will use only thematic map in 1:5. in order to accelerate the settlement of land using problem and to solve the country s borderline problem Refinery Construction New refinery will be constructed in Tuban and Bontang, to support the existing refinery in Cilacap, Balikpapan, Balongan and Dumai. Incentive for Aircraft Maintenance Companies % of import duty will be applied for 21 tariff post regarding aircraft sparepart and maintenance components Stimulus Package IX: 27 Jan 216 Accelerated Construction of Electricity Infrastructure The government will issue a Presidential Regulation to accelerate electricity infrastructure development in order to meet the needs of the population for electricityas well as to promote economic growth and improve the electrification ratio Stabilisation of Meat Supply and Prices The Minister of Agriculture will prescribe countries or zones eligible to supply livestock on the basis of risk analysis while adhering to the International Animal Health Organisation (OIE) regulations. Importing livestock will remain possible and animal products under certain conditions. Deregulation on Logistics Sector Development of commercial postal services Electronic single billing for port services SoE s synergy in development od export aggregators for SME s products, geographical indications and the creative economy Electronic port integrated services system Use of the rupiah currency for transportation activities Stimulus Package X: 11 Feb 216 Improving protection for MSMECs by broaden the scope of business conducted by MSMECs The government has added 19 business categories to those reserved for MSMECs, including construction business services/consultancy services using simple/intermediate technology and/or carrying low or medium risk and/or with value of work below Rp 1 billion. Value of work has been raised from Rp 1 billion to Rp 5 billion for the 39 categories of business reserved for MSMECs Opens 2 business categories to foreigners permitted to hold shares up to particular levels These businesses include health support services (maximum 67% foreign capital), land passenger transportation (maximum 49%), the film-making industry including film distribution (up to 1%) and high/extra high voltage power utility installations. Increase from 55% to 67% in 19 business categories consisting of construction business/consultancy services with value of work greater than Rp 1,,,., etc Source: Coordinating Ministry of Economic Affairs 64

65 Ministry of Finance Policy Package comprehensive approach across sectors Stimulus to Enhance Household Purchasing Power Increase non-taxable income threshold to IDR 36. million (~USD 2,57) from IDR 24.3 million (~USD 1,671) Increase distribution of rice for low income household by two months, to 14 months Faster turnaround for drawdown and realization of village fund budget Provision of official guidance on realization of village fund on labor intensive sectors and projects Slated to provide IDR 4-5 Tn (~USD million) in additional income and provides additional 8 thousand 1 million workforce across Indonesia Stimulus to Increase Incentive for Businesses Implemented Revision of Tax Allowance and Tax Holiday policies Levy of luxury tax (for houses, vehicles, airplanes and firearms) to provide competitive advantage on domestic industries Support small business through interest rate subsidies in small business credit (KUR). lowered to 12%, less than general SMEs credit rate Implementation of 4:1 Debt-Equity ratio for tax purposes to encourage capital inflow and improvements in capital structure Construction of integrated logistic centers, in Cikarang (Manufacturing) and Merak (Fuels) Higher threshold for property luxury tax to IDR 1 billion (~USD 714 thousand) for apartments and IDR 2 billion (~USD 1.4 million) for landed houses Support export financing for domestic industries through Indonesia Exim Bank via government capital allocation and National Interest Account Lower tax on asset revaluation. 3% tax before Dec 31st Remove double taxation for Real estate investment trusts (REITs) Lower tax on dollar deposit interest, especially for exporters Elimination of VAT levy on certain transportation industries (trains, river shipping and airplanes, including spare parts) On Pipeline Taxation Administrative and Regulatory Reform, including amendment of Income Tax Law, VAT Law, General Tax Administration Law and regulation regarding Tax Amnesty Develop more Special Industrial Zones outside Java with special incentives (tax allowance, tax holiday and elimination of customs fee) Support economic activities in Special Economic Zones via longer tax holiday up to 25 years Revision on Ease of Import for Export Destination (KITE) regulations by providing free import fee facilities and more efficient administration process Source: Ministry of Finance 65

66 Bank Indonesia Backs the Government s September Policy Package (9 th Sept. 215) In line with the government s effort to promote economic growth, Bank Indonesia introduced the September Policy Package to support macroeconomic and financial system stability Strengthening inflation control and stimulating the real sector from the supply side Maintaining rupiah exchange rate stabilization Strengthening liquidity management Rupiah, through Open Market Operations (OMO), in order to divert the daily liquidity to longer tenors Changing the auction mechanism of Reverse Repo (RR) SBN from variable rate tender into fixed rate tender, adjust the pricing of RR SBN, and extend the tenor by issuing RR SBN 3 months Changing the auction mechanism of Certificates of Deposit of Bank Indonesia (SDBI) from variable rate tender into fixed rate tender, adjust the pricing of SDBI, and issue SDBI with 6 months tenor Reissue Bank Indonesia Certificates (SBI) tenor of 9 months and 12 months with a fixed rate tender auction mechanism as well as pricing adjustment Strengthening foreign exchange supply and demand management Deepening the money market Strengthening coordination amongst the National and Regional Inflation Control Teams to accelerate implementation of the national and regional inflation control roadmap. There are currently more than 43 regional inflation control teams throughout Indonesia, each having a regional inflation roadmap. Strengthening Regional Economic and Financial cooperation between Bank Indonesia and the Government Preserving foreign exchange market confidence by controlling currency volatility Maintaining market confidence in tradable government securities (SBN) through purchases on the secondary market, while monitoring its impact on SBN availability in terms of inflow and money market liquidity. Adjust the frequency of the auctions of Foreign Exchange (FX) swap from 2 times/week to 1 time/week Change the Foreign Currency Term Deposit (TD) auction mechanism from variable rate tender into fixed rate tender, pricing adjustment, and extend the tenor of up to 3 months; Lower the purchase limit of foreign currency by verifying the underlying documents from US$ 1, to US$ 25, per customer per month and requires the use of Tax Identification Number (NPWP) Expediting the bank foreign debt approval process while adhering to prudential principles Providing swap hedging facilities to shore up investment infrastructure and simultaneously strengthen foreign exchange reserve assets. Refining money market regulations covering all components of market development, including the instruments, players and infrastructure. 66

67 Monetary Policy Package: September II 3 th September 215 Maintaining Rupiah Exchange Rate Stability The presence of Bank Indonesia in the domestic foreign exchange market to stabilise the rupiah exchange rate was strengthened through intervention in the forward market. In addition to intervention in the spot market, Bank Indonesia also intervenes in the forward market to help balance supply and demand. Maintaining balance in the forward market is important to alleviate pressures in the spot market. Strengthening Rupiah Liquidity Management Bank Indonesia reinforced rupiah liquidity management by releasing three-month Bank Indonesia Certificates of Deposit (SDBI) along with two-week reverse repo tradable government securities (SBN). The release of such open market operation instruments will absorb liquidity, prompting a shift towards longer tenor instruments, which should reduce the risk of excessive use of rupiah liquidity that could intensify pressures on the rupiah exchange rate. Strengthening Foreign Exchange Supply and Demand Management Policy to manage supply and demand on the forward market was strengthened. The policy aims to encourage forward selling transactions of foreign currencies/rupiah and clarify underlying forward buys of foreign currencies/rupiah by raising the forward selling threshold that requires an underlying document from US$1 million to US$5 million per transaction per customer and broaden the scope of underlying assets for forward sells to include domestic and offshore foreign currency term deposits. Foreign currency Bank Indonesia securities (SBBI) were also issued to back financial market deepening efforts, especially on the foreign exchange market. The holding period of Bank Indonesia Certificates (SBI) was reduced from 1 month to1 week in order toattract foreign capital inflows. Incentive was provided in the form of a reduction in the interest tax paid on term deposits for exporters depositing their FX earnings at banks in Indonesia or converting the proceeds into rupiah as requested by the government. The policy is expected to keep FX earnings in the country for longer. BI ensured greater transparency and information availability when using FX by strengthening the FX flow report (LLD). In this case, LLD participants are obliged to report their use of FX through supplementary supporting documentation for transactions of a certain value. The regulation is pursuant to Act No. 24 of 1999 concerning the Flow FX and the Exchange Rate System, where Bank Indonesia is authorised to request information and data regarding the flow of FX from residents. 67

68 Financial Sector Policy Packages to Boost Growth As part of national efforts to reverse the recent economic slowdown, OJK has issued a series of financial sector policies. Such measures are directed to, among others, to maintain the level of household/private consumption and to support the Government s infrastructure development. July 215 September 215 October 215 Banking sector: measure are focused on increasing bank loans to MSMEs and housing financing Adjustment of risk weighting for certain types of loans Relaxation of requirements for debt restructuring Capital market sector: Measures are focused on supporting financing for housing and infrastructure, as well as developing SMEs through financing from the capital market Development & expansion of investment products Development of municipal bonds Unlocking opportunities for SMEs to go public NBFI sector: Measures are focused on fostering the growth of multifinance companies and microfinance institutions Relaxation of regulations on NPF in multifinance companies Development of microfinance institutions Establishment of a rating agency for MSMEs Encourage individual foreign currency account opening for foreign residents Opening an account up to $5, only need to present a passport Opening an account with over than $5, will be subject to simple customer due diligence process - passport and other supporting documents Relaxation of regulations on business trust Preparation of agricultural insurance scheme Revitalization of venture capital, especially to finance start-up businesses Establishment of financing industry consortium, especially to provide financing for creative industry, exportoriented businesses, and MSMEs Empowerment of the Indonesia Export Financing Agency (LPEI) Implementation of one-project concept in assessing quality of loans 68

69 Market s Positive Signal to Policy Package Market Participants began to welcome the Indonesian economic recovery efforts in addition to dynamic external conditions Rupiah Curr (Rp/1US$) Composite Index BEI Package III Package II Source: Bloomberg Package I Yuan devaluation Source: Bloomberg 69

70 Initiatives to Accelerate Infrastructure Development through Reforms (1/2) INSTITUTIONAL REFORMS To ensure sound implementation, some institutional reforms and new institutions have been established. National Land Agency (BPN) Reforms Increased Fiscal Contribution by GoI through PT SMI, PT IIF, and IIGF Reform of National Land Agency (BPN), including establishment of special deputy for land acquisition acceleration and dedicated team for priority infrastructure projects, development of SOPs for every BPN activities etc. Establishment of PT SMI (Sarana Multi Infrastruktur), PT IIF (Indonesia Infrastructure Finance) to provide long-term financing The government is also in the process of establishing more institutions to further accelerate infrastructure delivery Establishment of KPPIP KPPIP (The Committee for Accelerated Infrastructure Delivery) is a central government body that will coordinate the delivery of the government s priority infrastructure projects, which consists of key government ministries related to infrastructure delivery, such as the CMEA, MoF, BAPPENAS and the BPN. KPPIP has established 3 priority projects for 216 to be implemented. Establishment of PPP unit under MOF PPP Unit under Ministry of Finance will facilitate project development of PPP projects, by providing facilities such as Project Development Facilities (PDF), technical assistance, arrangement of guarantee with IIGF, and infrastructure funding with PT SMI and PT IIF. PPP Unit will also help capacity development for PPP and promotion of PPP projects Minister has approved the establishment of PPP unit, and the funding arrangement with donor and regulatory framework are under progress. 7

71 New Law no 2 / 212 Initiatives to Accelerate Infrastructure Development through Reforms (2/2) REGULATORY REFORMS Law No. 2 /212 regarding Land Acquisition for Public Interest Presidential Regulation (PR) no 38/215 regarding PPP Presidential Regulation (PR) no 39/214 regarding the New Negative List of Investment Minister of Energy & Mineral Resources Reg. No. 3/215 regarding Procedure for Power Purchase The new law will ease land acquisition bottlenecks and disputes for infrastructure projects such as road, railway, station, port, airport, etc. The law regulates procedures of land acquisition, funding for land acquisition land appraisal, amount and types of compensations, objections and dispute settlements. The new President Reg. No. 3/215 stipulates the role of private investors in contributing to land acquisition process. Government has revised the original regulation on PPP (Presidential Regulation no 67/25) three times to accommodate more concerns regarding PPP development in Indonesia. For example, the revision accommodates foreign companies/investors in procurement of PPP projects, criteria and compensation for unsolicited project proposal, the need for fiscal support from Ministry of Finance. Government has revised the previous Negative list of investment to encourage more foreign businesses to take part in infrastructure development. For example, in transport sector, foreign ownership of seaport facility increased from 49% to 95% during PPP concession period. The government also allows 1% foreign ownership of power plant >1MW during PPP concession period (previously 95%). This regulation allows for power purchase from mine mouth coal power plant, coal power plants, gas/micro gas power plants, and hydro power plants can be done with direct selection and direct appointment with the purpose to accelerate procurement process. One of the major reforms is the New Land Law No.2/212: BPN as central agency in implementation of land acquisition More detailed regulation on implementation of land acquisition Neutral decision making regarding community rejection Successful case of the implementation of the New Law The best example of a successful implementation of the law is the city of Bojonegoro, where the civil society was socialized early to the law and where the land appraisal and compensation amount were attractive. Better Land Appraisal Team Appointment Less bureaucratic land right revocation process Outcome: the overall land acquisition process for the Java North Line Double Track Rail project took less than 2 years. 71

72 Commitment to Accelerate Infrastructure Development Progress of Infrastructure Projects Still Positive Despite Some Administration Issues in the Beginning of 215 Projects Already Being Auctioned NATIONAL TOLL ROAD Trans Java Pejagan Pemalang (58 km) Semarang Solo (73 km) Trans Sulawesi Manado Bitung (39 km) Trans Sumatera Medan Binjai (16 km) Palembang Indralaya (22 km) Pekanbaru Dumai (135 km) Medan Tebing Tinggi (62 km) 1 MILLION HOUSE PROJECT West Jakarta, Banten, Kalimantan, Batam, NTB, NTT, East Java, Central Java, South Sulawesi, West Sulawesi, Southeast Sulawesi DRINKING WATER INFRASTRUCTURE Central Java (West Semarang); DAM East Java (Bendo), Central Java (Gondang, Pidekso), North Sulawesi (Lolak), NTT (Raknamo), NTB (Mila), Banten (Karian) INTERCITY RAILWAY South Sumatera (Prabumulih Kertapati), North Sumatera (Tebing Tinggi Kuala Tanjung), Southern Java Double Track COMMUTER RAILWAY Jakarta MRT (North South Corridor), Jakarta LRT, SHIA Airport Railway AIRPORT DEVELOPMENT Revitalization Central Kalimantan, Bangka Belitung, New Project West Java (Kertajati) Expansion Terminal 3 Soekarno-Hatta International Airport PORT AND HARBOUR East Kalimantan (Maloy), Jakarta (Kalibaru), South Sulawesi (Makassar New Port), Central Sulawesi (Parigi) IDR 66.4 tn allocated to: Public Road Water Resource Housing Infrastructure (sanitation and clean water) Public housing MINISTRY OF PUBLIC WORKS & HOUSING IDR 4.6 tn allocated to: MINISTRY OF AGRICULTURE Procurement of farm machineries Cattle procurement Other supporting infrastructure for agriculture sectors MINISTRY OF TRANSPORTATION IDR 32.5 tn allocated to: New construction and maintenance of railway infrastructure Port construction, procurement of exploration and navigation ships Procurement of traffic equipment Ferry ships MINISTRY OF ENERGY & MINERAL RESOURCES IDR 4. tn allocated to: Power plants Oil & gas infrastructure Energy conversion and renewable energy infrastructure LPG and fuel storage tanks Source: Varipus Sources Source: Ministry of Finance Infrastructure development target reflects Government target from

73 3 Priority Projects Within the Pipeline 1. Jakarta Sewerage System (Rp 7 T, Zona 1 Rp 7 T) 2. Existing Refinery Upgrading Project (Cilacap, Balongan, Plaju, Dumai, dan Balikpapan) (~Rp21T) 3. New Port in Northern West Java 4. Inland Waterways/ Cikarang Bekasi Laut (CBL) (Rp 35T) OBC Development 1. High Voltage Direct Voltage Transmission (Rp 2 T) 2. 1.MW Indramayu Power Plant (Rp 2T) 3. Central West Java 5 kv Transmission Line (Rp7,64T) 4. National Capital Integrated Coastal Development (NCICD) Tahap A (Rp 2 T) 5. Karangkates IV & V Power Plant (2x5MW) 6. Kesamben Power Plant (37MW) 7. Lodoyo Power Plant (1MW) 8. Kuala Tanjung Port Development (Rp 3 T) 9. Bitung Port Development (Rp 34 T) 1.Kalimantan Timur Railways (Rp 51 T) 11.Panimbang-Serang Toll Road (Rp 12 T) 12.Palapa Ring Broadband (Rp 6 T) Permit and Land Acquisition 1. Trans-Sumatera Toll Road (>Rp 31T) 2. Makasar-Parepare Railway (Rp 6,4 T) 3. MRT Jakarta (Rp 25 T) 4. LRT Jabodetabek (Rp 11,9 T) 5. LRT Palembang (Rp 7,2 T) 6. Kertajati Airport (Rp 25,4T) 7. Manado-Bitung Toll Road (Rp 4,3 T) Construction Ready for PPP Tender Financial Close 1. SPAM Semarang Barat (Rp 765 M) 2. Bontang Refinery (~Rp 6 T) 3. Tuban Refinery (~Rp14 T) 4. Sumatera 5 kv Transmission (Rp 35 T) 5. Balikpapan-Samarinda Toll Road (Rp 11,4T) 1. Sumsel 8, 9, 1 (3. MW) Power Plant (Rp 54 T) 2. Batang 2. MW Power Plant (Rp 4T) Preparation Stage Implementation Stage 66

74 Mining Sector: Progress of Processing and Refinery Facility (1/3) 1. Processing & refinery facility plan based on progress No. PROGRES S (%) Progress Status Environmental Impact Analysis (AMDAL) Ground Breaking and Initial Construction Plant Mid-Plant Construction Phase Final Phase of Construction On Commissioning / Production Phase Total Mining Permit (July 215) Total No. of Smelter Total Processing & refinery facility plan based on commodities No. Commodities Total Mining Permit Total No. of Facilities 1. Nickel Bauxite Iron Mangan Zircon Lead and Zinc Kaolin and Zeolite 4 4 Total Note: Total Mining Permit cooperating with smelter companies may change 74

75 Mining Sector: Progress of Processing and Refinery Facility (2/3) Company Name: Indoferro (Cilegon-Banten) Steel Smelter (Operational) Company Name : Delta Prima Steel (Tanah Laut-South Kalimantan) Mangan Smelter (Operational) Company Name : Krakatau Posco (Cilegon-Banten) Company Name : Indotama Ferro Alloy (Purwakarta-West Java) 75

76 Mining Sector: Progress of Processing and Refinery Facility (3/3) Nickel Refining Facility (NPI) Still On Progress Company Name: Bintang Delapan Group (Morowali-Central Sulawesi) 76

77 Energy Sector: 35, MW Program has been launched Average economic growth of 6.7 requires 7, MW / year or 35, MW / 5 years (Kepmen ESDM No. 74/215 on RUPTL ) Cabinet Meeting Progress of 35, MW 17 Dec 14 Jan 15 4 May 15 Jan Mar 15 Cabinet Meeting There s electricity crisis in Indonesia, requires construction of large capacity plant " Debottlenecking through regulation: 1. Regulation No.1/215 concerning electricity supply cooperation and joint utilization of the electrical network among license holders. 2. Regulation No.3/215, concerning Procedures of Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection and Appointment. Launching 35. MW by the President in Goa Beach Sanden DIY. 77