Accelerating Momentum January 2008

Transcription

1 The Republic of Indonesia Accelerating Momentum January 28

2 Disclaimer The presentation is being made to you on the basis that you have confirmed your representation to each of Barclays Capital, HSBC and Lehman Brothers (the Joint Bookrunners ) that (i) you are not resident in the United States nor a U.S. Person, as defined in Regulation S under the U.S. Securities Act of 1933, as amended (the Securities Act ), nor acting on behalf of a U.S. Person and, to the extent you purchase the securities described herein you will be doing so pursuant to Regulation S under the Securities Act OR (ii) you are acting on behalf of, or you are, a qualified institutional buyer, as defined in Rule 144A under the Securities Act. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE OF THE U.S. OR OTHER JURISDICTION AND MAY NOT BE OFFERED OR SOLD WITHIN THE U.S. OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE OR LOCAL SECURITIES LAWS. ANY INVESTMENT DECISION SHOULD BE MADE ON THE BASIS OF THE FINAL TERMS AND CONDITIONS OF THE SECURITIES AND THE INFORMATION CONTAINED IN AN OFFERING MEMORANDUM AND/OR OTHER MATERIALS THAT WILL BE DISTRIBUTED TO YOU PRIOR TO THE CLOSING DATE AND NOT ON THE BASIS OF THIS PRESENTATION. This presentation is confidential and has been prepared by the Republic of Indonesia ( RoI ) for information purposes only. Neither the Joint Bookrunners, their respective affiliates, nor their respective officers, employees or representatives make any representation or warranty, express or implied, as to the completeness or accuracy of the information contained herein, nor have they independently verified such information. Opinions and estimates contained herein constitute the sole judgment of the RoI as of the date of this material and are subject to change without notice. The Joint Bookrunners, their respective affiliates and their respective officers, employees and representatives expressly disclaim any and all liability (whether direct or indirect, in contract, tort or otherwise) relating to or resulting from the use of the information contained herein by a prospective investor or any of its affiliates or representatives. In particular, no representation or warranty is given as to the achievement or reasonableness of any future projections, estimates or statements about the future prospect or performance of RoI. Past performance is not indicative of future results. Any securities, financial instruments or strategies mentioned herein may not be suitable for all investors. A prospective investor must make its own independent decision regarding any securities of financial instruments. The Joint Bookrunners may act as market maker or trade on a principal basis, or have undertaken or may undertake to trade for their own account, transactions in the financial instruments or related instruments of any issuer discussed herein and may act as underwriter, placement agent, advisor or lender to such issuer. The Joint Bookrunners and/or their employees may hold a position in any securities or financial instruments mentioned herein.

3 Summary Terms of the Offering Issuer Ratings Format The Republic of Indonesia Moody s: Ba3 (stable) S&P: BB- (stable) Fitch: BB- (positive) Reg S / 144A Offering Size US$ benchmark Instrument Fixed Rate Senior Unsecured Notes Maturity 1 years and / or 3 years Use of Proceeds General funding purposes Listing Governing Law Bookrunners Singapore Stock Exchange New York Barclays Capital, HSBC, Lehman Brothers 1

4 Table of Contents Section 1 Economic Performance Section 2 Monetary Policy Section 3 Fiscal Policy Section 4 Government Debt Profile

5 Section 1 Economic Performance

6 Accelerating Economic Growth Economic growth is powered by non-oil & gas sectors and is expected to exceed growth projections for ASEAN-4 (1), newly industrialized Asia (2), and the world average Indonesia: Real GDP Growth 8% GDP Growth Non Oil & Gas Growth 7% 7.% 6.8% 6.7% 6.6% 6.6% 6.5% 7.% 6.9% 6% 5% 4% 6.1% 5.9% 5.8% 5.8% 5.7% 5.4% 5.% 5.% 5.% 5.9% 6.1% 6.% 6.3% 6.5% 6.4% 6.3% ASEAN-4: 5.6% World: 5.2% Newly Industrialized Asia: 4.9% 3% 2% 1% % (4) (5) 1Q5 2Q5 3Q5 4Q5 1Q6 2Q6 3Q6 4Q6 1Q7 2Q7 3Q7 4Q7E 27E 25 FY: 5.68% 26 FY: 5.48% 9 Months 27 (3) : 6.3% Source: Ministry of Finance, IMF World Outlook Oct Newly Industrialized Asian Economies is composed of 4 areas: Hong Kong SAR, Korea, Singapore, Taiwan Province of China 2. ASEAN-4 consists of Indonesia, Malaysia, Philippines and Thailand 3. Real GDP growth for the first nine months of 27 compared to the first nine months of Ministry of Finance estimates 5. Assumed GDP growth based on Revised 27 Budget 2

7 Solid Growth Supported by Strength in Consumption, Exports and Investment Private consumption growth has exceeded pre-crisis levels while investment growth is supported by favorable climate Sources of Economic Growth Growth 18% 16.4% 17.1% 15% 12% 9% 6% 3% 4.% 1.8% 9.6% 6.6% 4.9% 4.7% 3.2% 2.9% 7.9% 9.2% 8.8% 7.6% 8.% % Private Consumption Government Consumption Investment Exports Imports (1) (1) (2) Investment climate has been enhanced by the New Investment Law, which key features are: Equal treatment for both domestic and foreign investors Abolishment of requirement for gradual divestment by foreign investors Extension of validity of land titles Right to appoint foreign management Prohibition of nationalization without indemnification at market value Unrestricted repatriation of profits and capital Source: Ministry of Finance 1. Preliminary 2. Real growth for the first nine months of 27 compared to the first nine months of 26 3

8 Growth Driven by Non-oil & Gas Sectors Growth is broad based but highlighted by strengths in infrastructure and telecom Economic Growth by Major Sectors 15% 12% (1) (1) (2) % 9% 6% 3% 4.3% 3.7% 5.% 7.4% 7.9% % Agriculture Mining & Quarrying Manufacturing Trading, Hotel, Restaurant Transportation & Communications Finance Sector as a % of GDP (3) 14.5% 8.8% 27.3% 17.% 7.% 9.3% Manufacturing is the single largest sector and growth outlook is supported by Infrastructure spending Pro-industry policies Double-digit growth in transportation and telecommunication supported by infrastructure development and consumption Source: Ministry of Finance 1. Preliminary 2. Real growth for the first nine months of 27 compared to the first nine months of Sector composition of GDP (at constant market prices) for the first nine months of 27 4

9 Continued Growth in Investment Recovery in imported capital goods and steady increase in investment credit reflect increasing investment US$ mn 3, 2,5 2, 1,5 1, 5 Quarterly Imports of Capital Goods % Growth 6% 5% 4% 3% 2% 1% % 1Q5 2Q5 3Q5 4Q5 1Q6 2Q6 3Q6 4Q6 1Q7 2Q7 3Q7 1% 8% 6% 4% 2% % 64.5% Value of Imports Realized Government Capital Expenditure % Realization 84.5% 9.2% Source: Ministry of Finance, Bank Indonesia 1. Preliminary (1) % Growth (y-o-y) Investment and Working Capital Credit Growth Growth (y-o-y) 35% 3% 25% 2% 15% 1% 5% % 1Q5 2Q5 3Q5 4Q5 1Q6 2Q6 3Q6 4Q6 1Q7 2Q7 3Q7 Investment Credit Working Capital Credit 5

10 Increasing Foreign Investment Significant foreign portfolio inflows demonstrate resilience against the subprime mortgage crisis Foreign Portfolio Investment Foreign Direct Investment US$mn 12, 1, 8, 6, 4, 2, 1,521 6,58 5,27 4, (1) (2) US$mn 9, 8, 7, 6, 5, 4, 3, 2, 1, 8,336 5,58 4,429 1,896 (1) (2) 19% growth in net FDI inflow in the first nine months of 27 supported by: Increase in reinvested earnings Establishment of the Batam, Bintan and Karimun SEZs Increase in approvals for foreign investment applications Creation of tax incentives Significant growth of over 16% in foreign portfolio investment Key components of FPI include purchases of government bonds and Bank Indonesia certificates Inflows dropped substantially in the 3 rd quarter following the subprime crisis but inflows in September recovered to levels consistent with the early part of the year Source: Bank Indonesia 1. Preliminary 2. For the first nine months of 27 6

11 Improving External Position Improving Balance of Payments position with record high current account surplus, contributing to a significant increase in foreign currency reserves US$mn 16, 14, 12, Balance of Payments (1) 14,51 Months Foreign Currency Reserves US$ bn , 9, , , 4, 5,3 3, , , Current Account Balance Capital and Financial Account Months of Imports and Official Debt Repayment (LHS) Overall Balance (2) (3) International Reserves (RHS) Source: Bank Indonesia 1. Balance of Payments from 24 onwards are based on the revised BOP reporting system 2. For the first nine months of Preliminary 7

12 Record High Exports Strong growth in non-oil & gas exports following solid global demand and price increases in international commodities Composition of Exports by Major Groups Indonesian Export Price Index US$bn 12 Index (22 = 1) (1) (2) Agricultural Products Manufactured Products LNG, LPG and Natural Gas Mineral Products Crude Oil and Oil Products Total IDEXXPG Index (Non-oil & Gas) IDEXPEGS Index (Oil & Gas) Source: Bank Indonesia, Bloomberg 1. Preliminary 2. Exports for the first nine months of 27 8

13 Section 2 Monetary Policy

14 Monetary Policy Designed to Achieve Macroeconomic Stability Building macroeconomic stability through inflation targeting 14% 13% 12% 11% 1% 9% 8% 7% 6% Monetary Policy Strategy Consistent implementation of inflation targeting Maintain a prudent, measured course in monetary policy by careful monitoring of dynamics changes in the economy and coordination with the MOF Foster macroeconomic stability by intervening to avoid excessive volatility in the exchange rate to support sustainable growth Improve banking supervision and prudent regulation BI Rate J F M A M J J A S O N D J F M A M J J A S O N D % 1.2%.8%.4%.% 9,6 9,5 9,4 9,3 9,2 9,1 9, 8,9 8,8 8,7 8,6 Inflation 27 Target: 6% ± 1% 28 Target: 5% ± 1% J F M A M J J A S O N D J F M A M J J A S O N D M-o-M (LHS) Y-o-Y (RHS) Exchange Rate (USD/IDR) 26 Avg. Rate: Rp 9, Avg. Rate: Rp 9,139 2.% 15.% 1.% 5.%.% J F M A M J J A S O N D J F M A M J J A S O N D Source: Bank Indonesia 9

15 Prudent Regulations Bolster the Banking Sector Performance Prudent Regulations Bolster the Banking Sector Performance Main Banking Indicators (%) US$ bn Commercial Bank Earning Assets 23% 15.% % 18 Interbank 22% 12.% 16 21% 21.3% 2.7% 2.7% 9.% Recap Bonds Other Securities BI Bills 2% 2.% 6.% % 19.4% 19.3% 6 Loans 19% 3.% % Q7 2Q7 3Q7.% Q7 2Q7 3Q7 Average CAR Gross NPL Net NPL Source: Bank Indonesia 1

16 Section 3 Fiscal Policy

17 Resilience Against Higher Oil Prices No significant impact on 27 budget, an additional US$.9 bn deficit was incurred US$/Bbl Jan- 7 Historical and Futures Brent Oil Price Index Mar- 7 May- 7 Jul- 7 Sep- 7 Nov- 7 Jan- 8 Brent futures contracts Close as of Dec 31, 27 Feb- 8 Apr- 8 Jun- 8 Aug- 8 Oct- 8 Dec- 8 US$ bn (1) (2) (3) (4) Effect of Oil Price on Budget, Assuming US$72/Bbl; compared to 27 Budget assumption of US$6/Bbl (3.5) (.9) Revenue Expenditure Deficit / Surplus Negative Oil Imports and Exports, 27 Oil & Gas Imports and Exports, 27 US$ bn 3 US$ bn Surplus (1) (2) (3) (18.) (6.1) (1) (2) (3) (18.1) Exports Imports Trade Balance Exports Imports Trade Balance Source: Ministry of Finance, Bloomberg 11

18 Government Fuel Subsidies Remain an Issue Electricity and Fuel Subsidies US$ bn (1) Fuel Electricity Domestic fuel subsidies 27 fuel subsidy has grown 31% over 26 due to: Higher oil prices Higher domestic oil consumption Electricity subsidies 27 electricity subsidy has grown 21% due to: Higher sales ( 6.8%), energy losses ( 9.75% 1.14%), and increased use of fuel to generate electricity ( 32%) Higher fuel consumption and fuel price Source: Ministry of Finance 1. Preliminary 12

19 Fiscal Policy 27 State Budget Fiscal prudence whilst maintaining strong growth and resilience to external factors Key Assumptions Revised Budget Realization GDP Growth (%) 6.3% 6.3% Inflation (%) 6.% 6.59% Exchange Rate (US$/IDR) 9,5 9,139 3 Month SBI Rate (%) 8.% 8.% Crude Oil Price (US$/Bbl) 6 72 Lifting (mn Bbl/day) State Budget 27 Highlights Targeted deficit at 1.5% of GDP, current realization of 1.1% of GDP Tax ratio declined slightly from 13.1% to 13.% of GDP Spending on energy subsidies increased from 2.8% to 3.18% of GDP Budget financing to rely more on domestic sources, primarily government debt Outcome In US$ bn Revised Realization Total Revenues & Grants Tax Revenues Non-tax Revenues Grants.4.2 Total Expenditures Central Government Of which: Energy Subsidies Transfer To Region Overall Balance (Deficit) (6.4) (4.7) In US$ bn Revised Realization Domestic Financing Domestic Bank Financing Domestic Non-bank Financing Privatization Proceeds and Asset Recovery.4.3 Government Bonds, Net Infrastructure Support (.2) (.2) Foreign Financing, Net (1.4) (2.6) Program Loans Project Loans Amortization (6.1) (6.4) Total Financing Source: Ministry of Finance 13

20 28 State Budget Infrastructure investment for job creation and acceleration of growth Key Assumptions Official GDP Growth (%) 6.8% Inflation (%) 6.% Exchange Rate (US$/IDR) 9,1. 3 Month SBI Rate (%) 7.5% Crude Oil Price (US$/Bbl) 6. Crude Oil Production (mm Bbl/day) 1.34 Budget Highlights Targets of 28 Budget: To expand economic growth by increasing infrastructure expenditure To lower Indonesia s total debt to 33% of GDP Projected total Government revenue (including grants) of US$85.9 bn Deficit of US$8.1 bn expected to be financed mainly from domestic sources, primarily through issuance of domestic bonds Official State Budget 28 In US$ bn Budget % of GDP Total Revenues & Grants % Tax Revenues (1) % Non-tax Revenues % Grants.2.% Total Expenditures % Central Government % Transfer To Region % Overall Balance (Deficit) (8.1) (1.7%) In US$ bn Budget % of GDP Domestic Financing % Domestic Bank Financing.3.% Domestic Non-bank Financing % Privatization and Asset Recovery.2.% Government Bonds, Net % Infrastructure Support (.4) (.1)% Foreign Financing, Net (1.8) (.4%) Program Loans 2.1.4% Project Loans 2.6.6% Amortization (6.6) (1.4%) Total Financing 8.1 (1.7%) Source: Ministry of Finance 14

21 Impact of Oil Price, Production & Consumption on the 28 State Budget Government is prepared to ensure fiscal prudence in the face of rising oil prices 9 Fiscal Policy Measures 1. Usage of contingent fund in the Budget 2. Usage of unrealized expenditure in the Budget 3. Bond issuance to the oil producing (windfall) region 4. Prioritization of Government expenditures 5. Energy policy with regards to production and subsidy of oil and gas and power 6. Improvement in Pertamina and PLN efficiency 7. Tax revenue increase and dividends from SOEs 8. Additional bonds / Government securities issuance 9. Counter cyclical fiscal policy measures Sensitivity of Budget Deficit to Oil Prices In US$ mn $9 $95 $1 (US$/Bbl) Oil Revenue (Tax & Non-tax) +9, , ,73 Expenditure (Subsidies & Transfers) +15, , ,714 Deficit w/o Policy Measures (5,198) (5,593) (6,11) Total Deficit as a % of 28 GDP (2.8%) (2.9%) (3.%) Deficit w/ Policy Measures (22) (132) (286) Total Deficit as a % of 28 GDP (1.7%) (1.7%) (1.8%) Source: Ministry of Finance 15

22 Central Government Revenue Central Government Sources of Revenue US$ bn Historical and Projected Tax Ratio % of GDP 14% 13.% 13% 12.7% 12.2% 12.3% 12% 11.8% 11.3% 13.6% E Tax Non-tax (1) (2) 11% 1% E Tax and Customs Reform Apply the new tax administration law Improve tax and custom administration through modernization of tax offices Improve tax compliance, tax audit and speed up VAT refund process Provide tax and import duty incentives Free Trade Agreements (FTA), Economic Partnership Agreements (EPA) and National Single Window (NSW) (1) (2) Source: Ministry of Finance 1. Preliminary 2. Assumed based on state Budget 28 16

23 Central Government Expenditure Central Government Expenditure by Function (1) US$ bn Reallocation of Government Expenditure US$ bn (2) (3) E Capital Expenditure Material Expenditure Realization of Transfer to Regions E (2) (3) US$ bn (2) (3) E Material Capital Interest Payments Subsidies Transfers to Regions Others Source: Ministry of Finance Budget 27 1 Beginning 25, certain categories in Government expenditure have been reclassified. Current expenditures and development expenditures have been merged. 2 Preliminary 3 Assumed based on state Budget 28 17

24 Commitment Towards Privatization Privatization is one of the main themes in the roadmap for Indonesian SOEs Privatization Proceeds US$ mn (1) (2) E Gross Privatization Proceeds Government Equity Injection Net to Budget Up till 25, privatization proceeds were wholly used as a source of budget deficit financing Now, privatization is not just a source of budget deficit financing, but a means for improving corporate governance and is instrumental in disciplining the SOEs and improving their performance From 28, the government will no longer inject capital into SOEs in order to encourage SOEs to rely on independent financial resources and increase equity participation from the private sector Source: Ministry of Finance, State Budget 24 to 28 1 Preliminary 2 Assumed based on state Budget 28 18

25 Section 4 Government Debt Profile

26 Effective Debt Management Strategy Indonesia practices a disciplined approach to sovereign debt management Objective To minimize cost of debt within manageable risk Prudent Rules Domestic Bond Market Development External Loan Financing Portfolio Management Prioritise debt securities issuance in domestic market for deficit financing & debt refinancing Diversify debt instruments to widen investor base Develop market infrastructure to support efficient price discovery mechanism Meet Millennium Development Goals (MDGs), (E.g. poverty reduction) Finance cost recovery projects Enhance project readiness criteria Issue benchmark bonds on regular basis (E.g. 5, 7, 1, 15 and 2 years) Aggressively conduct debt switching to extend duration Buyback bonds to reduce outstanding debt and stabilize market Diversify funding sources (e.g., Sukuk) Effective Coordination amongst Fiscal, Monetary and Capital Market Authorities Source: Ministry of Finance 19

27 Issuance of Government Securities to Fund the Deficit Government securities are the major source of financing for the budget deficit, debt refinancing and infrastructure support % of GDP 2.5% 2.% Budget Deficit Financing 1.6% 2.1% 1.5% 1.7% 1.1% 1.%.8% 1.1%.9%.5%.5%.% (1) (2) Budget Deficit, % of GDP Government Securities - Net, % of GDP Source: Ministry of Finance 1. Preliminary 2. Assumed based on Proposed State Budget 28 2

28 Effective Debt Management Indonesia s debt-to-gdp and debt service ratio is improving Central Government Debt to GDP Ratio 8% 6% 4% 2% 69% 36% 33% 62% 29% 55% 32% 28% 27% 47% 39% 36% 23% 18% 24% 21% 19% 16% % (1) (1) (2) Total Debt to GDP Ratio Domestic Debt to GDP Ratio External Debt to GDP Ratio Central Government Debt Service Ratio % of Revenue 4% 34.8% 3% 26.8% 33.2% 25.8% 24.7% 26.1% 2% 1% % (1) (1) (1) Source: Ministry of Finance 1. Preliminary 2. Ratio of external debt as at September 3, 26 over GDP for the period September 3, 27 to September 3, 27 21

29 Composition of Debt Debt is balanced between domestic and external sources with a majority of debt being either Rp denominated or long-dated Debt Composition, Sep 27 By Currency, Sep 27 1% Others 4% EUR 7% GBP 1% 75% 5% 46% 47% 5% 5% 47% 46% IDR 54% USD 17% JPY 17% By Maturity and Interest Rate, Sep 27 25% 54% 53% 5% 5% 53% 54% In US$ bn Interest Type Total Tenor Fixed Variable Nominal % Short term: up to 3 years 17,716 9,927 27, % Medium term: 4 to 1 years 3,62 12,898 42, % % E Domestic Debt External Debt Long term: more than 1 years 56,2 17,127 73, % Total 13,779 39, ,732 1.% Source: Ministry of Finance 22

30 Holders of Government Securities Holders of Domestic Government Securities Composition of Foreign Holders of Government Securities by Maturity US$ bn yrs 11% 16% 43 3% 13% 2-5 yrs 22% >1 yrs 42% % 25% 21% 24% 17% 72% 75% 66% 59% Dec-4 Dec-5 Dec-6 Dec-7 Banks Non-Banks Foreign Holders 5-1 yrs 25% Total: US$8.3 bn As of December 28, 27 Source: Ministry of Finance 23

31 Maturity Profile of Tradable Domestic Government Securities Maturity profile has been improving over time towards a more balanced structure US$bn % 15.8% 15.7% 15.% 13.4% Unbalanced maturity profile at the end of 21 had been restructured with re-profiling programs in Q4 22 and Q % 15.3% 14.3% 14.% 14.3% Yield 18.% 16.% 14.% % 9.%9.3%9.9% 9.6% 9.8%9.9% 1.%1.1% 7.6% 8.4%8.6%9.1%9.2% 9.6%9.6% 7.7% % 1.2% 1.4% 1.5% 1.5% 1.% 1.7% Dec 21 eoy 23 eoy Dec'7 Yield Curve as of 31 Aug'5 (RHS) Yield Curve as of 31 Dec '6 (RHS) Yield Curve as of 28Dec'7 (RHS) Source: Ministry of Finance % 8.% 6.% 4.% 2.%.% 24

32 Indonesia s Credit Rating History Prudent government debt securities management helped the improvement of Indonesia s sovereign credit rating Credit Rating History BBB+ BBB BBB- BB+ Economic Crisis in 1998 Banks Recapitalization Continuous fiscal adjustment, improving liquidity and structural improvements in real economy Sound record of fiscal management on the success of Government efforts to improve the investment climate Baa1 Baa2 Baa3 Ba1 BB Ba2 BB- Ba3 B+ B1 B B2 B- B3 CCC+ Caa1 CCC CCC- CC R/C Diminished likelihood that the Government will seek additional debt rescheduling Gradually improving external liquidity, macroeconomic stability and improved political conditions Oct 7 upgrade to Ba3 (stable) by Moody s Caa2 Caa3 Ca C SD/DDD S&P's Fitch's Moody's (RHS) Source: Ministry of Finance 25

33 Final Remarks Demonstrated resilience against the recent external shocks due to the subprime crisis and the escalating oil price 27 budget deficit was 1.1% of GDP; lower than target of 1.5% of GDP Higher macroeconomic growth expected by government based on continued strong household demand, an increase in exports and acceleration of investment in infrastructure projects On track to achieve 6.3% GDP growth in 27 Assumed GDP growth of 6.8% in Budget 28 In order to minimize the impact that higher oil prices have had on the fiscal deficit, the Government expects to maintain a prudent approach to fiscal policy 26