Republic of Indonesia. Dividends of Reforms. December 2016

Transcription

1 Republic of Indonesia Dividends of Reforms December

2 About Investor Relations Unit of the Republic of Indonesia Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since The main objective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial market investors. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among others: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of State Owned Enterprises, Ministry of Energy and Mineral Resources and Financial Services Authority. IRU also convenes an investor conference call on a quarterly basis, answers questions through , telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit Republic of Indonesia Contact: Wiwit Widyastuti K. (International Department - Bank Indonesia, Phone: ) Dalyono (Fiscal Policy Office - Ministry of Finance) Farid Arif Wibowo (Directorate General of Budget Financing and Risk Management - Ministry of Finance) contactiru-dl@bi.go.id 1

3 Overview 1 Institutional and Governance Effectiveness: Accelerated Reforms Agenda with Institutional Improvement 4 Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Management 2 Economic Factor: Strong and Stable Growth Prospects Remain Intact 5 Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector 3 External Factor: Improved External Resiliency 6 Progressive Infrastructure Development: Strong Commitment on Acceleration of Infrastructure Provision 2

4 1 Institutional and Government Effectiveness: Accelerated Reforms Agenda with Institutional Improvement

5 Positive Global Perception Ease of Doing Business 1 Corruption Perception Index Higher rank is better Indonesia India Brazil Philippines Turkey * Both India and Brazil shared the same score (38) in * Higher score is better Indonesia India Brazil Philippines Turkey Global Competitiveness Index 3 World Governance Indicators Higher rank is better Higher rank is better Indonesia India Brazil Phillipines Turkey * Both Rule of Law and Regulatory Quality shared the same score (40) in Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption 1. Source: World Bank; 2. Source: Transparency International; 3. Source: World Economic Forum 4

6 Strong Improvement in Ease of Doing Business Rank* EODB 2017 Rank EODB 2016 Rank Change in Rank EODB 2017 Points EODB 2016 Points Change in Points Overall Starting a business Dealing with Construction Permit Getting Electricity Registering Property Getting Credit Protecting Minority Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency * Higher rank is better, EoDB 2017 is published in October Government efforts to boost business growth through deregulations and de-bureaucratization have been recognized by the improvement of EODB. - Structural reforms will continue including in the budget and real sectors Source: World Bank 5

7 2016E Total Investment / GDP (%) Indonesia Remains the Investment Destination of Choice Rising Direct Investments 1 Indonesia Enjoys Large Investments Relative to Peers within the Region 2 IDR tn FDI DDI TOTAL Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Brazil India* Indonesia Malaysia Philippines Thailand The Economist: Indonesia among the top 3 destination for attracting investors in Asia (January 2016) 3 India China Indonesia Philippines Malaysia Myanmar Vietnam Thailand Japan Australia Singapore South Hong Kong Taiwan % of surveyed who plan to increase investment in each country JBIC: Amongst ASEAN countries, Indonesia is the most preferred place for business investment (December 2016) 4 India China Indonesia Vietnam Thailand Mexico USA Philippines Myanmar Brazil Malaysia Singapore Russia Korea Turkey % of surveyed who consider each country has promising prospects Source: Indonesia Investment Coordinating Board (BKPM); 2. Source: IMF World Economic Outlook, Database October 2016, * actual figures; 3. The Economist Asia Business Outlook Survey 2016; 4. Source: JBIC Outlook for Japanese Foreign Direct Investment (28th Annual Survey); 6

8 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. Necessary Condition Legal Certainty & Law Enforcement Security & Order Politic & Democracy Governance 7

9 Improving Investment Climate: Introduce the 3-hour investment licensing service to complement the One Stop Service (OSS) Requirement for utilizing 3-hour Investment Lisencing Service: 1. Minimum investment of IDR 100 billion (USD 8 million) and/or employing 1,000 local workers. 2. Application must be submitted directly by at least one candidate of the proposed company stakeholder No requirements for investment in infrastructure sector BKPM Arrive at OSS at BKPM directly from the airport Consult with Director of Investment Service Submit the required documents & data Wait at the lounge while documents are processed by BKPM, in-house notary, ministries, & other government institutions Obtain eight documents & letter of land availability within three hours to start the business 2 documents needed Investor identitiy as the prospective shareholders ID Card And/or Deed of Establishment (Indonesian company) or Article of Association (Foreign company) Flowchart of business activities workflow Containing workflow from raw material production to the finished products RPTKA / Employment plan IMTA / Working permit 9 documents obtained Certainty to start a business Certainty to Import capital goods Investment license APIP / Import identification Certificate of incorporation NIK / Customs registration NPWP / Tax Registration Number TDP / Company Registration Certainty to work Accurate land information Letter of land availability Until November 2016, more than 180 companies have utilized the 3 hours services Source: Investment Coordinating Board (BKPM) 8

10 Improving Investment Climate: Introduce the 3-hour investment licensing service to complement the One Stop Service (OSS) Priority Investment Service Direct Construction (KLIK) Investors can directly start their project construction before obtaining construction permits. This service is supported by both Central and Regional Governments which become the first step to synergize between central and local licensing No Requirements No minimum investments or workers is required. Available for 14 selected industrial parks. Construction permits can be obtained in parallel with construction process. Obtain investment licence at OSS at national or regional level. Survey a land within selected industrial parks. Acquire the land for your industry. Start the construction of your project. No other permits are required. Apply for building construction permit & environmental permit, in parallel with construction process. Until November 2016, 79 projects have utilized the KLIK services Source: Investment Coordinating Board (BKPM) 9

11 Improving Investment Realization (Q3-2016) Rp140.3 T Rp155.3 T 373, ,023 * Decreasing 10.7% 26.1% Q Q * person Q Q Rp92.5 T Rp99.7 T Rp47.8 T Rp55.6 T 7.8% 16.3% Q Q Q Q Source: Investment Coordinating Board (BKPM), compared to Q period 10

12 FDI Realization by Sectors (Q3-2016) Food Industry US$ mn 50.3% Electricity, Gas and Water Supply US$ mn 37.7% Chemical and Pharmaceutical Industry US$ mn 3.2% Food Crops US$ mn 24.4% Investment Realization Metal, Machinery and Electronic Industry US$1, mn 70.1% Source: Investment Coordinating Board (BKPM), compared to Q period Mining US$ mn 15.8% Transport Equip and Other Transport Industry US$ mn 30.8% 11

13 The Economic Policy Packages To improve national industry competitiveness, export and investment to generate significant economic growth Harmonizing Regulations Simplifying Bureaucratic Process Ensuring Law Enforceability Phase I (9 Sept 15) Improving national industry competitiveness Phase II (29 Sept 15) Easing permit requirement and simplifying export proceeds requirement Phase III (7 Oct 15) Financial services facilitation, export financing and elimination of business unnecessary burden Phase IV (15 Oct 15) Social safety net and betterment of people welfare Phase V (22 Oct 15) Improving industry and investment climate through tax incentives and deregulation on sharia banking Phase VI (6 Nov 15) Stimulating economic activities in border areas and facilitating strategic commodities availability Phase VII (7 Dec 15) Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land certification process for individuals Phase VIII (21 Dec 15) Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation industries Phase IX (27 Jan 16) Accelerating electricity generation, stabilizing meat prices and improving rural urban logistics sector Phase X (11 Feb 16) Revising Negative investment List and improving protection for SMEs Phase XI (29 Mar 16) Stimulating national economy through facilitation to SMEs and industries Phase XII (28 Apr 16) Improving Indonesia s rank on Ease of Doing Business (EODB) Phase XIII (24 Aug 16) Low Cost Housing for Low-Income Communities Phase XIV (10 Nov 16) Roadmap for E-commerce 12

14 Boosting the Huge Potential of E-commerce in Indonesia Online shopper and E-commerce contribution in Indonesia is still low, despite it s huge potential Government s Support to E-commerce Sector through 14th Economic Policy Package Total Active On-line Shopper/Total Population (%) 70% 60% 50% 40% 30% 20% 10% 0% 58% 50% 44% 38% 27% 29% Indonesia Philippines Vietnam Thailand Malaysia Singapore Funding Support Tax Relaxation - SMEs Loan Schemes - Crowdfunding - Grants - Easing tax payment - Incentive for local start-up Logistic Support - Revitalizing PT. Pos Indonesia - Improving rural to city logistics Expanding high fiber cable network Communication Infrastructure E-commerce/Total Retail (%) Indonesia India Japan World South Korea China - Trainings - Increasing internet awareness HR Capacity Improvement Consumer Protection - National payment gateway - Harmonizing regulations Cyber Security Operation Management - Develop cyber security system - Awareness on cyber crime Develop E-commerce Roadmap Source: Ministry of Finance 13

15 Thematic Policy Issues on Deregulation Six policy issues under Packages I-XIV: improvement of improvement of widening of expansion of efficiency of improvement of industry competitiveness society s purchasing power investment export logistics sector tourism sector Next Phase of Policy Packages based on Sectoral and Thematic Issues Education and Vocational Training Logistics Agrarian reform Energy Industry, Manufacture, Tourism, Fishery & Service sector Food Invention, Innovation and Creative Economy 14

16 Progress of the Economic Policy Packages TOTAL INITIAL REGULATIONS REVOKED REGULATIONS TOTAL REGULATIONS 10 I XII I XIV SET % TOTAL 42 PRESIDENTIAL PRESIDENTIAL LEVEL SELESAI MINISTRIAL/INSTITUTIONAL LEVEL 154 TOTAL FINISHED FINISHED 3 I XII I XIV I XII I XIV 96% 100% ON GOING DISCUSSION 1% Initially, there are 215 regulations which need to be deregulated Based on the further assessment, 10 regulations has been revoked from deregulation process Total regulation subject to be deregulated: 205 regulations As of November 16th, 2016, deregulation of 202 regulations are finished (99%), comprising 48 regulations at Presidential level and 154 regulations at Ministrial/Institutional level Unfinished regulations: (a) Proposed Presidential Regulation concerning Gas Buffer Enterprises (Aggregator); (b) Proposed Government Regulation concerning Acceleration on Housing Construction Licensing for Low- Income Communities; and (c) Proposed Policy on E-commerce Roadmap TECHNICAL REGULATIONS As of November 16th, 2016, from total 26 technical regulations, 24 regulations are deregulated, which left 2 regulations in process of deregulation 15

17 Early Outputs: Positive Influence on Investment 1 Bonded Logistics Center (Pusat Logistik Berikat/ PLB) Total 28 BLC has been launched, including airplane maintenance industry and oil 6 Export Financing/KURBE Export of Train Wagon to Bangladesh 2 Investment Permit - 3 Hours Granted for more than 180 companies as of November EoDB for SMEs Streamline/Simplify permits and procedures which shorten lead time and costs in 10 indicators 3 Industrial Zones (IZ) The Province of Central Java proposed 3 IZ s: Kendal, Demak, and Ungaran Pharmaceutical IZ in Bitung (North Sulawesi) in Simplification of Fiscal Incentive Process Used by 18 companies with average processing time of 13.4 days (previously 2 years) 4 Wage Systems 14 Provinces have set 2016 Minimum Wage System in accordance to the Government Regulation (GR) No. 78/2015 (Kepri, Kalbar, NTB, Sumbar, Jambi, NAD, Kalsel, Banten, Gorontalo, NTT, Jabar, Bali, Sumut, and Babel). 9 SME s Export Product Aggregator/Consolidator Launched with coconut export from North Sulawesi through SOEs Synergism Program 5 Facilities and Incentives for SEZ Total value of Rp 33.8 T (as of September 2016) 10 Revision to Negative List (PP No. 44/2016) Implemented since 24 June 2016 with participation of 527 companies with planned investment of USD bn 16

18 2 Economic Factor: Strong and Stable Growth Prospects Remain Intact

19 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 Large and Stable Economy Consistent Budget Reform Reform-Oriented Administration Fuel subsidies significantly reduced and spending redirected to more productive allocation Prudent debt management 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 New Economic Structure High Infrastructure Investments Three main sources of financing for IDR 5 tn investment needs: State and regional budget, State Owned Enterprises and PPP Continuing from 2015 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 18

20 Indonesia s Strong GDP Strong GDP Growth 1 Favourable GDP Growth Compared to Peers 2 % QoQ YoY % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q * 2017* 2018* Brazil India Indonesia Malaysia Philippines Singapore Thailand GDP Growth Based on Expenditures 1 By expenditure HH. consumption Non profit HH. consumption Government consumption Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q (0.5) (8.1) (8.0) (1.8) (3.0) Investment Exports (4.6) (0.6) 0.0 (0.6) (6.4) (3.9) (2.7) (6.0) Imports (2.2) (7.0) (5.9) (8.1) (4.2) (3.0) (3.9) GDP Growth Prospect Institutions 2016 GDP growth (%YoY) 2016 Revised Budget 5.2 Bank Indonesia IMF 4.9 World Bank 5.1 ADB 5.0 Consensus Forecast (December 2016) Source: Central Bureau of Statistics of Indonesia (BPS) 2. Source: World Economic Outlook Database - October 2016; * indicates estimated figure 19

21 Strong and Stable GDP Performance Spatial GDP Growth Spatial GDP Growth Contribution Sumatera GDP Growth Q2 2016: 3.9% Kalimantan GDP Growth Q2 2016:2.1% Sulawesi GDP Growth Q2 2016:6.7% Bali & Nusa Tenggara GDP Growth Q3 2016: 5.0% Maluku & Papua GDP Growth Q3 2016: 13.7% Sulawesi: 6.2% Kalimantan: 7.7% Bali & Nusa Tenggara: 3.2% Maluku & Papua: 2.5% Sumatera: 22.0% Java GDP Growth Q2 2016: 5.6% Java: 58.4% Contributors to GDP Growth by Sector GDP growth by sectors (YoY) (%) Agriculture, forestry, and fishery Q1 Q2 Q3 Q4 Yearly Q1 Q2 Q3 Q4 Yearly Q1 Q2 Q Mining (1.0) (1.3) (5.2) (5.7) (7.9) (5.1) (0.8) (0.1) 0.1 Industrial processing Construction Big traders, wholesale, retail Transportation and warehousing Information and communication Financial service and insurance Other GDP Shifting from Commodity-based Economy to Manufacturing and Service Sectors % Manufacture Source: BPS Q Q Transportation & Warehousing Agriculture Mining Manufacturing sector showed stable growth, supported by positive investment performance and provision of incentive Logistic-related sector growth is driven by the development of infrastructure projects and the improvement on logistic efficiency Agriculture sector slowed due to unfavorable weather Mining sector showed positive signal as the increase of oil and gas production 20

22 3 External Factor: Improved External Resiliency

23 A Narrower, Structurally-Stronger Current Account Deficit Strong Balance of Payments Improving Current Account Deficit US$bn Source: Bank Indonesia US$bn (4.5) Current Account Capital & Financial Account Overall Balance Reserve Assets (RHS) Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* Q3* * 2016** US$bn : CA Surplus US$1.7bn Source: Bank Indonesia 2012: CA Deficit (US$24.4bn) 2013: CA Deficit (US$29.1bn) 2014: CA Deficit (US$27.5bn) 2015: CA Deficit (US$17.8bn) 2016**: CA Deficit (US$4.5bn) Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* Q3* * 2016** Goods Services Income Secondary Inc. Current Acc (4.5) (7.9) (1.5) Trade Balance Surplus Continues US$bn Source: BPS 2014: Deficit US$1.89bn 2015: Surplus US$7.52bn Jan- Nov 2016: Surplus US$7.78bn Non-OG OG Total Supported by Substantial FX Reserves to Mitigate External Challenges US$bn Source: Bank Indonesia FX Reserves as of Nov 2016: US$111.5bn (Equiv. to 8.1 months of imports + servicing of government debt) FX Reserves (LHS) Month of Import & Debt Service (RHS) Month

24 Exchange Rate In Line with Fundamentals Stable Movement of Rupiah IDR/US$ Source: Bank Indonesia IDR/USD Monthly Average Quarterly Average * data as of 30 November Rupiah appreciation was maintained through to October 2016 but then derailed somewhat in November after the US presidential election. Point-topoint, the rupiah strengthened 1.7% (ytd) to a level of Rp13,550 per USD at the end of November The rupiah appreciated on positive sentiment concerning the domestic economic outlook in line with stable macroeconomic conditions and the successful implementation of the Tax Amnesty. Nonetheless, rupiah appreciation was halted in November 2016 due to widespread global economic uncertainty stemming from the US election and the expectation of FFR hike. Rupiah Exchange Rate Relatively Well Compared to Peers YTD 2016* vs 2015 ZAR TRY MYR BRL INR PHP THB KRW Average Point-to-point EUR * data as of 30 November 2016 IDR % Source: Bank Indonesia Nov 2016* vs Oct 2016 TRY BRL JPY MYR KRW IDR EUR PHP CNY INR Average Point-to-point THB ZAR * data as of 30 November % Source: Bank Indonesia 23

25 Global Regional Bilateral Ample Lines of Defense Against External Shocks Ample Reserves FX Reserve Ample of level of FX reserves to buffer against external shock FX Reserves as of November 2016: US$111.5 billion Swap Arrangement Japan US$ billion swap line with Japan currently in place The quantum of the swap line was increased from US$12 billion in December 2013 South Korea Established a 3 year KRW/IDR swap arrangement with the size of up to 10.7 trillion KRW / IDR 115 trillion in March 2014 Australia Established a 3 year A$/IDR swap arrangement with the size of up to A$10 billion or IDR 100 trillion in December 2015 Chiang Mai Initiative Multilateralization (CMIM) Agreement Entitled to a maximum swap amount of US$ billion under the ASEAN+3 (Japan, China, and Korea) FX reserves pool created under the agreement Came into effect in 2010 with a pool of US$120 billion Doubled to US$ 240 billion effective July 2014 IMF Global Financial Safety Net - GSFN Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL) 24

26 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 Specific policies in place in the 2014 budget law to address crisis Swap facility arrangements based on international cooperation 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 2013, FKSSK has conducted two crisis simulations: Full Dress Simulation (ministerial level) and activation of pre-emptive instrument (CMIM) at technical In April 2016, the Financial System Crisis Prevention and Mitigation Law (UU PPKSK) has been enacted. The law contains some key features, ie: Clear division of tasks and responsibilities between the Ministry of Finance, BI, OJK and LPS; Clarity of Systemically Important Banks (SIBs) definition based on international criteria; Application of the bail-in principle according to international best practices; and Resolution mechanism in which Lender of Last Resort (LoLR) still provided by central banks to address short-term liquidity difficulties. Several indicators are monitored daily: yield of benchmark series, exchange rate, Jakarta Composite Index and foreign ownership in government securities Bond Stabilization Framework First Line of Defence State Budget SOE Budget BPJS Budget Buyback fund at the DG of BFRM and Investment fund at PSA (min Aware Level) Related State Owned Enterprises (min. Aware Level) BPJS/Social Security Organizing Agency (min. Aware Level) 6 Chiang Mai Initiative Multilateralization Second Line of Defence State Budget SOE Budget State General Treasury Account/KUN (min. level Alert) and Accumulated Cash Surplus/SAL (min. Level Crisis) Related State Owned Enterprises (min. level Alert ) BPJS Budget BPJS/Social Security Organizing Agency (min. Alert Level) Fiscal buffers to prevent crises and mitigate risks Specific articles in the 2014 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 25

27 Strengthened Private External Debt Risk Management Despite Increasing Trend of External Debt Debt Burden Indicator (External Debt / GDP) Remains Comparable to Peers (US$bn) Public (Govt. & BI) Private Total (RHS) * Feb 2016* Source: External Debt Statistics of Indonesia, December 2016 Apr 2016* Jun 2016* Total Ext. Debt: US$323.2bn Private Sector Ext. Debt: US$163.5bn Aug 2016* Okt 2016** (US$bn) External Debt / GDP (%) Turkey Brazil Indonesia Thailand Philippines India F (%) Source: Moody s Statistical Handbook, November 2016 Prudent External Debt Management Oct 2014, 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: Minimum hedging ratio in order to mitigate currency risk Minimum forex liquidity ratio to mitigate liquidity risk Minimum credit rating to mitigate overleverage risk Regulation update in Dec 2014 including among others: broadening the coverage of components of FX Assets and Liabilities, extension of credit rating s status validity period Regulation Key Points Object of Regulation Hedging Ratio Phase 1 Jan 1,2015 Dec 31,2015 Phase 2 Jan 1,2016 Dec 31,2016 Governs all Foreign Currency Debt < 3 months 20%* 25%** > 3 6 months 20%* 25%** Liquidity Ratio ( < 3 months) 50% 70% Phase 3 Jan 1, 2017 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 Must be done with a bank in Indonesia Sanction As of Q IV-2015 Applied 26

28 Manageable External Debt Profile...short term non-bank corporate debt (non affiliation) represents only 9.5% of total private external debt Public Long Term 1 Private Bank External Debt Position US$159.8 Bn or 49.4% of Total Ext. Debt US$114.8 Bn or 70.2% of Private Ext. Debt US$19.7 Bn or 12.1% of Private Ext. Deb Affiliation US$13.5bn or 8.3% of Private Ext. Debt US$323.2bn US$163.5bn or 50.6% of total Ext. Debt US$48.7bn or 29.8% of Private Ext. Debt US$28.9bn or 17.7% of Private Ext. Debt External Debt Position as of October Based on remaining maturity Private Short-Term 1 Private Non-Bank US$15.4 Bn or 9.5% of Private Ext. Debt Source: External Debt Statistics of Indonesia, December 2016 Non Affiliation 27

29 4 Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Policy

30 Main Strategy to Spur Economic Growth...integrated policy framework through integrated fiscal, real sector and monetary policy reform LONG Term Policies Growth Friendly Fiscal Policy to Achieve Sustainable and Equitable Growth SHORT MEDIUM Term Policies Budget Focusing on more sustainable revenue, esp. taxation More realistic revenue target calculation Increasing more productive spending, inc. infrastructure Budget efficiency on non-priority spending More sustainable financing Maintaining fiscal rule of 3% deficit to GDP Incentives Investment friendly policies Regulation to stimulate the trade of high value added domestic products By utilizing: - Credible and realistic budget - Incentives for strategic sectors - Support for stable consumption Monetary Policy in line with Efforts to Optimize Domestic Economic Recovery while Maintaining Macroeconomic Stability Liquidity management Low and stable inflation Bolster growth stilmuli Ensure the success of ongoing structural reforms Budget Better targeted subsidy Social welfare spending Strengthening regional involvement through intergovernmental transfer Incentives Effort to maintain consumption growth Deregulations to ease business climate Increasing non taxable income threshold Improving the easiness in doing business 29

31 Long Term Strategies to Achieve Sustainable Growth stimuli to maintain purchasing power The Virtuous Cycle of Purchasing Power Stimuli Consumption is still the largest contributor to Indonesia s GDP Private consumption has been a key factor driving Indonesia s economic growth in recent years Ease of land certification and licensing for street vendors Increase non-taxable income limit Fuel price and electricity adjustment The government has designed stimulus program to maintain and enhance purchasing power for households The government has increased non-taxable income level and adjusted wage policy to ensure that the lowest income bracket has the greatest support Rural transfer for productive spending Stabilized price for meat products Maintaining Purchasing u Power 2 months addition of rice subsidy program Boosting housing development Funds are targeted at not only to improve basic village infrastructure but also to create jobs through labor intensive projects as well as other job creation programs Predictable labour wages Elimination of luxury goods tax for consumer goods 30

32 Long Term Strategies to Achieve Sustainable Growth stimuli to promote investments Licensing Incentives Tax Incentives Business and Infrastructure Incentives Other Incentives Permit & licensing simplfication Income tax relief for labor intensive industries Incentives for footwear and apparel industries Simplification of import licensing for drugs and raw food Accelerating infrastructure development Water management and regulation One map policy Relaxation of entry visa policies Tax incentives for REITS Dwelling time optimization Oil refinery development Aviation sector incentives Downstream industries Debt To equity ratio Expansion of coverage and interest subsidy for MSME Special economic zones Tax incentives on property Integrated logistics zones CPO fund Support for export-oriented industries Village-city logistics improvement Acceleration of power infrastructure Relaxation of negative foreign investment list 31

33 The Big Bang Policy on Relaxation of Foreign Investment promoting competition and growth from investments Introduction of New Foreign Ownership Regulation for Strategic Sectors Before Cold storage Sports Center, Restaurants, Bars Pharmaceutical Raw Materials Film Processing Lab, Crumb Rubber Manufacturing After Before After Before After Before After 49% 100% 49% 100% 51% 100% 85% 100% Key Reforms in Negative Foreign Investment List Toll Road Operator, Telecommunication Testing Company Distribution, Warehousing Private Museum, Catering, apparel Manufacturing, Exhibitions & Conventions Before After Before After Before After Revision of "Partnership" category to refer to partnership with Micro, Small and Medium Enterprises (MSMEs) 95% 100% 33% 67% 51% 67% Grandfather Law: If a particular sector is tightened in future, existing foreign investor does not need to comply with tighter stake Professional Training, Golf Course Management, Air Transport Support Services, Travel Bureau Consultancy for Construction 1 Telecommunication Provider with Integrated Services Before After Before After Before After Strengthen implementation of negative investment law through active roles from ministries, agencies and regional governments 51% 67% 55% 67% 65% 67% 1 For total project value of IDR10bn and above 32

34 2017 Macroeconomic Assumptions and Budget Posture 2017 Macroeconomic Assumption 2017 Budget Indicator Economic growth (%, yoy) Inflation (%, yoy) 3-Month T-Bills (%) Exchange Rate (Rp/US$) ICP (US$/barrel) Oil Lifting (thousand barrel/day) Gas Lifting (thousand barrel oil equivalent/day) R-budget Outlook Budget ,500 13,300 13, ,150 1,150 1,150 Description (IDR tn) Growth (%) R-Budget Outlook Budget To R-Budget To Outlook A. REVENUE 1, , , I. Domestic Revenue 1, , , Tax Revenue 1, , , Non Tax Revenue II. Grant 2.0 2, B. GOVERNMENT SPENDING 2, , , I. Central Government 1, , , , Ministerial Spending Non Ministerial Spending II. Intergovernmental Transfer Regional Transfer Rural Transfer C. PRIMARY BALANCE (105.5) (149.6) (111.4) D. BUDGET SURPLUS/(DEFICIT) (296.7) (338.9) (332.8) % deficit to GDP (2.35) (2.70) (2.41) E. FINANCING I. Debt Financing II. Investment Financing (94.0) (91.5) (49.1) III. Other Financing Macroeconomic assumption was calculated conservatively, measuring the recent external economic development, domestic potentials, and how the government policy would impact the economy. To achieve the target, government will ensure the consistency in supporting investment growth through policy packages, supportive policies from other institutions (e.g. regional government), and better budget role as growth stimulus. Budget as the instrument to support growth momentum but still keeping its credibility Source: Ministry of FInance 33

35 A More Realistic Tax Revenue Target...tax policies are directed to expand tax base and increase compliance Tax Collection Target (IDR tn) Non Oil and Gas Tax Collection (IDR tn) ,4% -2,6% % -3,6% ,5% 29,9% 8,2% 24,1% 6,4% 13,5% ,9% 38,7% 8,2% 30,4% 9,4% 15% Main Tax Policies Realization/ Realisasi Target Target to target growth Realization/ Realisasi Target Outlook for 2016 Realization to target growth Outlook for 2016 Realization to realization growth Increase tax base and tax compliance i.e. through IT and database improvement Provide tax incentives to support competitiveness and investment climate Improve taxation regulation i.e. through the amendment of laws (KUP, VAT, Income Tax, Stamp Duty Laws) Excises to control consumption of certain goods and minimize negative externality Optimize international taxation to enforce transparency Source: Ministry of Finance 34

36 Tax Amnesty as Policy Breakthrough...expected to be strongly affecting the economy trajectory in both short and long run Tax Amnesty as the Milestone of Tax Reform More Reforms are Coming Accelerating Economic Growth through Asset Repatriation, via several transmissions: Increase domestic liquidity Create lower interest rate Expanding Tax Base through more Reliable, Integrated and Comprehensive Database Increasing More Sustainable Tax Collection in Both Short and Long Term Short Term: Collection from Amnesty Fee Improve the stability of IDR currency Support investment growth Long Term : Better Tax Collection based on Better Tax Database Tax Policy Reform Amendment of General Provision of Taxation Law Amendment of VAT Law Amendment of Income Tax Law Amendment of Stamp Duty Law Tax Administration Reform Establishment of Semi Autonomous Revenue Agency More effective and better targeted law enforcement Improvement of IT and communication system Enhancement of data management 35

37 One of the Most Succesful Tax Amnesty in the World...proving the huge potential on Indonesia tax base Tax Amnesty Revenue Realization, Based on Tax Declaration Letter (US$ bn) Realization Of Asset Declaration From Tax Amnesty (US$ bn) Tax Amnesty Revenue Realization, Based On Tax Payment Slip (US$ bn) Indiv. Non MSME Indiv. MSME 5.71 Corp. Non MSME Corp. MSME Onshore Declaration Offshore Declaration Repatriation Redemption (TPS) Preliminary Evidence Payment Tax Arrears Payment Declared Assets Revenue From Tax Amnesty % of GDP Penalty as % of GDP 25% 23% 0.8% 0.76% 20% 0.7% 0.62% 0.6% 15% 0.5% 0.4% 0.35% 10% 8% 0.3% 0.24% 4% 5% 0.2% 0.12% 2% 2% 0% 0.1% 0.04% 0% 0.0% Australia India Spain Italy Chile Indonesia Austalia Spain Italy India Chile Indonesia Source: Ministry of Finance, Deutsche Bank Calculation, as of Sept, 30th 2016 (the end of Tax Amnesty Program s first period) 36

38 Worldwide Declaration and Repatriation* * in IDR trillion Source: Ministry of Finance, as of Sept, 30th 2016 (the end of Tax Amnesty Program s first period) 37

39 Tax Amnesty Progress Total Declared Asset (IDR tn) 1, , Tax Amnesty Revenue IDR105,1 trillion 3,028.4 Onshore Declaration Offshore Declaration Repatriation Tax Amnesty Participants Taxpayers 1 st Phase (ended on Sept, 30th 2016) Penalty Fee Repatriation : 2% Onshore Decl. : 2% Offshore Decl. : 4% 2 nd Phase (Until Dec, 31th 2016) Penalty Fee Repatriation : 3% Onshore Decl. : 3% Offshore Decl. : 6% 3 nd Phase (Jan, 1st - Mar, 31th 2017) Penalty Fee Repatriation : 5% Onshore Decl. : 5% Offshore Decl. : 10% Source: Ministry of Finance, as of Dec, 29th 2016; 11:00 WIB 38

40 Commitment to Continue Productive Spending...budget allocation for education, infrastructure, and health significantly increasing Education +27.3% Infrastructure % Health +82.9% Energy -64.6% The efficiency ambience is maintained in 2017 budget, especially for less priority spending Preserving the infrastructure acceleration Social welfare spending to improve equality and maintain consumption growth Better and better subsidy scheme Source: Ministry of Finance 39

41 Budget for Priority Program...20 percent for education and 5 percent for health Budget for Education Program IDR tn APBN Budget for Health Program IDR tn % APBNP 3.0 % of APBNP APBN Certification Indonesia Smart Card (KIP) Bidikmisi Immunization Health Insurance Subsidy (PBI) Stunting Prevention 101,100 teachers 10,200 lecturers School Operational Assistance (BOS) 19.5 million students School Rehabilitation thousands college students Operational Assistance for Colleges Basic and complete immunization for 92% of 94.4 million people 0-11 months old infants Community Health Centre (Puskesmas) Stunting prevention to 29.6% of children below 2 years old Family Plan Program (KB) 8.5 million students 41,128 rooms 107 Colleges/Universities 700 regencies 6.7 million people 40

42 Infrastructure Budget Continues to Increase Infrastructure Budget Allocation* 2017 Target IDR tn Anggaran Infrastructure Infrastruktur budget % thd of Belanja total state Negara expenditure (RHS) (RHS) % Roads 815 km Seaports Bridges 9,399 m Railways Airports 13 airports Terminal * Budget for infrastructure in the 2017 State Budget increases by Rp40.8 T than proposed, mainly comes from transfer to regions (DAU & DBH) 0 55 locations 550 km 3 locations As regulated in the Minister of Finance Regulation PMK 48/2016 on Transfer to the Regions and Village Funds management, in 2017 minimum 15% of non-earmarked Revenue Sharing and General Allocation Fund have to be used for infrastructure development (the level has increased to become 25% in the 2017 State Budget). Source: Ministry of Finance 41

43 Subsidy Policy in 2017 Aims to be Better Targeted and Improved Mechanism IDR Tn % 35% 53% 47% 52% 48% 70% 60% 50% 40% Energy Subsidy Fuel and 3kg LPG subsidies Rp32.3 T: Close distribution (by name and by address) Implemented gradually Recipients are 26 million poor households and 2.3 million micro business Electricity subsidy Rp45,0 T: Recipients are 19.1 million customers of R-1/450 VA and 4.05 million customers of R-1/900 VA For non poor customers of 900VA, the tariff will be gradually adjusted by three times every two months % 60 Non-Energy Subsidy Energy Subsidy Non Energy Subsidy Portion Share of of Energy Ener. Subsidy Portion Share of of Non-Energy Ener. Subsidy Source: Ministry of Finance 20% 10% 0% Food subsidy will be given to 14.3 million households Gradual conversion of rice for the poors (Rastra) to become non-cash/voucher food assistance program. Pilot project in 44 cities. Fertilizer and seeds subsidies program are directed to support the improvement of agriculture productivity Provision of 9.55 millions volume of fertilizer subsidy Seeds subsidy provision for rice and soybean. Support MSME through KUR (interest subsidy) 42

44 Increasing the Effectiveness and Efficiency of Transfer to Regions & Village Fund IDR7.5 tn (Incentive Fund) IDR20.3 tn (Special Autonomy & Daerah Istimewa Yogyakarta) IDR173.4 tn (Special Transfer Fund) IDR60.0 tn (Village Fund) 2017 Transfer to Regions and Village Funds* IDR503.6 tn (General Transfer Fund) Minimum 25% (Rp125.9 tn) of General Transfer Fund has to be used for public service facility development acceleration Physical Special Transfer Fund allocation is based on regions proposal and national priorities, especially for underdeveloped regions, border areas, and transmigration. Incentive Fund allocation is increased to reward regions with good fiscal management and basic public service performances. There are 317 regions being rewarded with incentive fund. The lowest incentive is Rp7,5 billion. The highest incentive is Rp65,3 billion. Improving efficiency and effectiveness of Special Autonomy & DIY Fund. Special Autonomy Fund Papua Rp5.6 T. Special Autonomy Fund West Papua Rp2.4 T. Special Autonomy Fund Aceh Rp8.0 T. DTI Papua & West Papua Rp3.5 T. *The budget for this allocation is higher than the budget for line ministries Gradually increases Village Fund. Average allocation for each village Rp800.5 million. Lowest village fund allocationrp726.7 million. Highest village fund allocation Rp2.8 billion. 43

45 Preserving Fiscal Sustainability Through the Compliance with Fiscal Rule and Productive Financing Indonesia s Fiscal Deficit (% of GDP) Prudent and Cautious Expansive Fiscal Deficit Constitutional Threshold -3 Brazil India Malaysia Indonesia Managing fiscal deficit below 3% Indonesia has implemented budget deficit regime for years but never exceeded the constitutional threshold Financial inclusion and market deepening Debt issuance to finance productive activity Selective external loan (to finance infrastructure and energy sector) Loan as an alternative instrument for financing Active Debt Management and Assets and Liabilities Management Government sharia debt securities (SUKUK) as project-based financing for infrastructure projects, such as double track railway from Martapura-Baturaja (South Kalimantan), Purwokerto-Kroya (Central Java) and Madiun-Jombang (East Java), and other road and bridge financing across the nation Indonesia Financing Plan Audited Audited R-Budget Budget Government securities 255,7 380,9 371,6 384,7 Investment Financing (8,9) (59,7) (94,0) (47,5) Lending 2,5 1,5 0,5 (6,4) Liability Guarantee 1,0 - (0,7) (0,9) Other Financing 0,5 0,3 19,3 0,3 Source: Ministry of Finance 44

46 Management of Contingent Liabilities Government Guarantee Program and Portfolios Present Central Government Guarantees are carefully provided to meet various item of infrastructure programs Until Sept 2016, total guarantee committed are USD16,24 bn (eq. IDR211,1 tn) for 6 th programs, and outstanding/exposure were USD5,59 bn (eq. IDR72,6 tn) 45

47 Financing Policy Description (IDR tn) Budget R-Budget I. Domestic Financing Domestic Banking Domestic Non-Banking II. Foreign Banking Foreign Outstanding Loan (Gross) a. Program Loan Debt Financing Manageable Debt-to-GDP ratio Financial inclusion & market deepening Debt issuance for productive activity Selective external loan (infrastructure and energy sector) Loan as an alternative instrument for financing Active debt management and Asset Liabilities Management (ALM) b. Project-Based Loan Standby Loan Agreement (SLA) Foreign Debt Principal Repayment TOTAL IDR tn 0 (50) (100) (150) (200) (250) (0,73) (1,14) Deficit % to PDB (1,86) (2,33) (2,25) 2016 Budget (1,90) 2016 R-Budget (2,35) % 0,0 (1,0) (2,0) Non Debt Financing Sharpen PMN recipients and purposes Provide government guarantee for infrastructure project Support accessibility for education and housing for low income class (300) (3,0) 46

48 Budget Financing Breakdown in 2016 Breakdown of Budget Financing IDR tn US$ bn Redemption IDR315.63tn Government Debt (net) Government Securities (net) Issuance Redemption & Cash Management (243.54) (17.95) Debt Portfolio Management (3.00) (0.24) Debt (Gross) IDR729.03tn Domestic Loans (net) Withdrawal Non-Debt Financing IDR69.01tn Budget Financing IDR344.39tn Redemption (0.33) (0.02) Foreign Loans (net) (3.35) (0.25) Withdrawal Redemption (74.37) (5.48) Source: Ministry of Finance. USD/IDR: 13,563 (as of November 30, 2016) 47

49 Government Securities Financing Plan for 2016 Revised Budget Instruments Indicative Target Indicative Target (IDR bn) (US$ mm) Government Securities (Net) 407,886 31,253 Redemption 215,089 16,481 Cash Management 27,874 2,136 Buyback 3, Gov t Securities Conversion Government Securities (Gross) 654,422 50,143 Composition Domestic 78% Auction 63% Non-Auction 15% International Bond 22% Government Issuance Targets Sukuk 28% Debt Securities 72% International Bonds Issuance of international bonds as a complement to diversify investor base in domestic market and to avoid crowding out the domestic market Provides benchmark for Indonesia corporate issuances, consisting of USD, JPY and EUR denominated bonds Target maximum 27% of issuance via international bonds Weekly Auction: Conventional securities Islamic securities Domestic Bonds ATM for Government Securities (SBN) by auction Non-Auction: 9-11 years Retail bonds Private Placement 23 x 23 x Sukuk Retail (Q1), SBR 1 (Q2), Sukuk Tabungan 2 (Q3), and ORI 3 (Q4) Based on request Front Loading Issuance For Budget Financing Pre-funding to optimize cost ahead of potential Fed rate hikes Anticipate developments in global environment Target: to front load 74% of the annual budget in 1H16 Government Debt Outstanding (as of end of November 2016) IDR tn US$ bn Total government debt outstanding 3, Loan Securities 2, US$/IDR: 13,563 (as of Nov. 30, 2016) 1 SBR: Savings Bond Ritel or Retail Savings Bond 2 Sukuk Tabungan means Sukuk Savings Bond 3 ORI: Obligasi Negara Ritel or Indonesian Retail Bond Source: Ministry of Finance 48

50 Disciplined and Sophisticated Debt Portfolio Management Stable Debt to GDP Ratio Over the Years Remarkable Debt Reduction Initiative Over the Past 10 Years US$ bn Government Debt / GDP (%) 27.4% 27.7% % 23.0% 24.9% 24.7% * Securities (LHS) Loans (LHS) Govt Debt / GDP (%) (RHS) Change in Debt to GDP Ratio ( ) (%) Philippines Turkey Indonesia India Germany Poland Thailand Brazil Italy Colombia Japan Malaysia South Africa United States United Kingdom Chile Australia Source: Ministry of Finance Weighted Average Debt Maturity of ~9.2 Years (As of Oct. 2016)** Years Nov-16** Source: Ministry of Finance * Revised Budget 2016 Figure, ** Using GDP assumption in 2016 R-Budget, ***SDR, AUD, and other Source: IMF World Economic Outlook Database, October 2016 Well Diversified Across Different Currencies % of Yearly Issuance 100% 80% 60% 40% 20% 0% 3% 3% 3% 2% 2% 2% 3% 3% 3% 3% 3% 4% 17% 14% 12% 9% 8% 8% 22% 24% 29% 55% 56% 53% 57% 56% 58% Source: Ministry of Finance 29% 31% 29% Nov-16 IDR USD JPY EUR Others*** (1) 49

51 Well Balanced Maturity Profile With Strong Resilience Against External Shocks Declining Interest Rate Risks Declining Exchange Rate Risks % Variable Rate Ratio¹ Refixing Rate² % FX Debt to GDP Ratio* FX Debt to Total Debt Ratio Nov-2016* Nov-2016* Debt Maturity Profile Upcoming Maturities (Next 5 Years) IDR tn IDR-Denominated Other Currencies % In < 1 year In < 3 year In < 5 year Source: Ministry of Finance 1 Variable Rate Ratio is defined as ratio between debt instruments with variable rate divided by total debt instruments (variable + fixed rates) 2 Refixing Rate ratio is defined as ratio between debt instruments with variable rate + debt instruments with fixed rate maturing in 1 year divided by total debt instruments (variable + fixed rates) **Using GDP assumption in 2016 R-Budget; ** Preliminary figures; Nov-2016* 50

52 Profile of Total Central Government Debt Government Debt Outstanding Increasing Foreign Ownership of Government Securities at Longer Tenors USD bn (%) % Jan-16 Jul-16 Sep-16 Nov Jan-16 Jul-16 Sep-16 Nov-16 Loan Government Securities >5 Foreign Ownership to Total Holders of Government IDR Bonds Composition November (%) Jan-16 Jul-16 Sep-16 Nov-16 Foreign Holder Domestic Non Banks Domestic Banks 51

53 Ownership of IDR Tradable Central Government Securities Description Dec-14 Dec-15 Jun-16 Nov-16 (IDR tn) Banks* % % % % Govt Institutions (Bank Indonesia**) % % % % Bank Indonesia (gross) % % GS used for Monetary Operation % % Non-Banks % % % % Mutual Funds % % % % Insurance Company % % % % Foreign Holders % % % % Foreign Govt's&Central Banks % % % % Pension Fund % % % % Individual % % % % Others % % % % Total 1, % 1, % 1, % 1, % 1) Non Resident consists of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company and Pension Fund. 2) Others such as Securities Company, Corporation, and Foundation. *) Including the Government Securities used in monetary operation with Bank Indonesia. **) net, excluding Government Securities used in monetary operation with Banks. 52

54 Government Securities Realization (IDR mn, as of end of November 2016; budget deficit: 2.7%) Revised Budget 2016 Widening Budget Deficit 2.7% Realization (a.o. Nov ) % Realization to Budget 2016 Government Securities Net 364,866, ,885, ,898, % Government Securities Maturing in 2016 and Buyback 246,535, ,972, ,755, % Issuance Need for ,402, ,858, ,653, % Government Debt Securities (GDS) 465,755,157 Domestic GDS 356,716,437 -Coupon GDS 247,970,000 -Conventional T-Bills 53,240,000 -Private Placement* 31,895,977 -Retail Bonds 23,610,460 International Bonds 109,038,720 -USD GMTN 48,643,000 -Euro GMTN 44,975,610 -Samurai Bonds 12,760,910 -Domestic GDS 2,659,200 Government Islamic Debt Securities 179,898,652 Domestic Government Islamic Debt Securities 146,491,152 - IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) 108,356,030 - Retail Sukuk 34,085,122 - Private Placement 4,050,000 Global Sukuk 33,407,500 *Including the issuance of Government Securities Conversion - Issuance Government Securities Conversion *Including the issuance of Government Securities Conversion 572, ,581 - Issuance Government Securities Conversion 572, ,581 - Matured Government Securities Conversion 572, ,814 - Matured Government Securities Conversion 572, ,814 Nett Issuance Government Securities Conversion 211,767 53

55 5 Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector

56 Bank Indonesia Policy Mix: January 2016 Cut BI Rate 25 bps to 7.25% Cut DF & LF Rate at 5.25% & 7.75% resp. BI lowered its monetary operation rates even further, ranging from 25bps to 45bps (O/N to 1Y) 18 March 2016 Cut BI Rate 25 bps to 6.75% Cut DF & LF Rate at 4.75% & 7.25% respectively 19 May 2016 Held BI Rate at 6.75%, and maintained DF & LF Rate at 4.75% & 7.25% respectively 21 July 2016 Held BI Rate at 6.5%, & maintained BI 7-day RR Rate, DF & LF Rate at 5.25%, 4.5% & 7.00% respectively. BI continued to conduct financial market deepening by introducing new investment & hedging products in the financial market, strengthened monetary management strategies, & encouraged the real sector to make optimal use of repatriation funds to support the implementation of the 2016 Tax Amnesty Law 22 September 2016 Lowered BI 7-day RR Rate to 5.0% Lowered DF and LF Rate to 4.25% and 5.75% 17 November 2016 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 %. 18 February 2016 Cut BI Rate 25 bps to 7% Cut DF & LF Rate at 5% & 7.5% resp. BI lowered the rupiah denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from 16th March April 2016 Held BI Rate at 6.75%, and maintained DF & LF Rate at 4.75% & 7.25% respectively. Reformulated policy rate from BI Rate into the 7 day (Reverse) Repo Rate to improve the effectiveness of monetary policy transmission. The change was effective on August 19th June 2016 Cut BI Rate 25 bps to 6.5% Cut DF & LF Rate at 4.5% & 7.0% respectively Relaxed the loan-to-value ratio (LTV) and financing-to-value ratio (FTV) on housing loans/financing Relaxed partially prepaid loans/financing Raised the floor on the Reserve Requirement - Loan to Funding Ratio (RR-LFR) from 78% to 80%, with the ceiling maintained at 92%. The change was effective on August August 2016 Held BI 7-day RR Rate and DF Rate at 5.25% and 4.5% Cut LF Rate to 6.00%. 20 October 2016 Lowered BI 7- day RR Rate to 4.75% Lowered DF and LF Rate to 4.00% and 5.50% 15 December 2016 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 %. 55

57 Bank Indonesia Policy Mix: December 2016 The BI Board of Governors agreed on 15 December 2016 to hold the BI 7-days Repo Rate at 4.75%, as well as the Deposit Facility at 4.00% and Lending Facility at 5.50% Holds the BI 7- day Repo Rate at 4.75% Remains vigilant towards global risks, such as the uncertain fiscal and international trade policy direction of the United States, as well as the economic rebalancing and financial system restructuring process in China Predicts economic growth in 2016 to reach 5.0% (yoy) and % range in 2017, buoyed by solid domestic demand and an export recovery, along with the improvements in Indonesia s export commodity prices Monitors the risk of a sudden capital reversal linked to the ambiguous US policy direction and implement exchange rate stabilisation measures in line with the rupiah s fundamental value by maintaining market mechanisms Continues to strengthen coordination with the Government to control inflation, focusing on efforts to maintain supply and distribution of basic needs, and relating to the timing of administered prices adjustments Projects credit and deposit growth in 2017 to improve, within the 10-12% and 9-11%, respectively, in line with increased economic activity and the loose monetary and macroprudential policy stance adopted. 56

58 Enhancement of Monetary Operations Framework BI rate as reference rate BI rate BI 7-day repo rate BI RATE CHALLENGES BI Rate reflects monetary policy stance as a tool to anchor economic agent inflation expectations BI Rate is used as a benchmark interest rate for transactions in financial markets and eventually to influence general interest rate BI Rate effectively affect banking interest rate Challenges: Transmission of monetary policy is less effective Excess liquidity due to massive capital inflows post 2008 global financial crisis draw down overnight interbank rates around DF Rate. Meanwhile, the BI rate is currently around 9-12 months OM instrument. The shallow financial markets also inhibit the transmission of monetary policy. 12 months (equivalent) Non-Transactional Not optimally reflected in money market interest rates OMO term structure Character Transmission 7 day Transactional (Central Bank) Stronger relationship to the money market interest rates ENHANCEMENT Enhancement of monetary operations framework Bank Indonesia will enhance the monetary operations framework that is supported by the deepening of the financial markets in order to strengthen the transmission of monetary policy. Cost of being illiquid is too high, does not support financial deepening Financial Deepening Cost of being illiquid is lower, support financial deepening 57

59 Enhancement of Monetary Operations Framework...positive results thus far Monetary operation term structure is being referred by money market rates Domestic money market yield curve tend to converge 11,0% Domestic Money Market Yield Curve (Dec 2015) Domestic Money Market Yield Curve (Nov-V 2016) 7,5% Yield Curve Pasar Uang Nov V ,0% 7,0% 9,0% 6,5% 8,0% 7,0% 6,0% 5,5% 5,0% 6,0% 4,5% 5,0% o/n 1w 2w 3w 1m 2m 3m 6m 12m 4,0% o/n 1m 2m 3m 1b 3b 6b 12b JIBOR PUAB Repo FX Swap TS OM JIBOR PUAB Repo FX Swap OM Source: LHBU, HARTIS, Bloomberg 58

60 Enhancement of Monetary Operations Framework...positive results thus far...jibor has been strengthened as a market reference PREVIOUS JIBOR 1 STRENGTHENED THE ROLE OF JIBOR AS REFERENCE RATE by regulatory enhancement. Can be traded among contributor banks for 10 minutes. Up to the amount of Rp10 billion. Up to 1-month tenor. 2 ACCELERATED MARKET REPO TRANSACTIONS by promoting GMRA 3 REDUCED SEGMENTATION AND IMPROVE THE CAPACITY OF MARKET TRANSACTIONS by encouraging banks to open more access to counterparties CURRENT JIBOR Can be traded among banks contributor for 20 minutes. Up to a total of Rp20 billion. Up to 3-month tenor. as per June 1,

61 Stable Monetary Environment Despite Challenges Downward Trend of Inflation Ensured Price Stability (%) CPI (%, yoy) Core (%, yoy) 19 Volatile Food (%, yoy) Administered (%, yoy) Rupiah Exchange Rate Remains Comparable to Peers YTD 2016 * vs ZAR TRY MYR BRL INR PHP THB KRW Average Point-to-point EUR * data as of 30 November 2016 IDR % Strengthened Monetary Policy Framework Credit Growth Supported by Macroprudential Policy (%) August 2016 LF Rate: 7.00 BI Rate: 6.50 DF Rate: 4.50 The New Monetary Operation Framework LF Rate: 5.50 BI 7Day RR Rate: 4.75 DF Rate: 4.00 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Okt-16 Nov-16 Des-16 YoY 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Growth Working Capital loans Investment Loans Consumption Loans % 7.46% 7.43% 6.1% LF Rate BI Rate BI-7Day RR Rate DF Rate Source: Bank Indonesia 60

62 IDR tn Financial Intermediaries Development The has been an improvement in the growths of bank loan & multifinance financing, in line with the improving growth in The domestic capital market is directed to play an increasingly important role as a source of long-term financing. The utilization of capital markets by Indonesian corporations increases significantly in The growth of banking loans started to improve in October. The IDRdenominated loans remain at a high level The growth of financing distributed by multifinance companies also continues to improve Capital raising through IPOs, rights issues, and corporate bond issuance in the capital market is relatively stable Gross premium revenue in the domestic insurance industry also demonstrates a positive development in 2016 % Source: OJK 61

63 Financial Institutions Remain Robust and Less Vulnerable Financial performance of domestic financial institutions generally remains robust. Capital adequacy is well above the minimum requirements. Profitability and leverage are maintained at a sufficient level. Further, gearing (debt-to-equity) ratio of multifinance companies provides ample room for future growth. Banking sector s capital adequacy ratio (CAR) is maintained high Risk-based capital (RBC) of the insurance industry also remains high, well above the minimum threshold % Profitability of the banking sector is relatively stable % Gearing ratio of multifinance companies is well below the maximum requirement, providing ample room for future growth % Source: OJK 62

64 Adequate Liquidity, Manageable Credit Risks Banks are found to possess adequate liquid assets to anticipate depositors withdrawal. Insurance industry also demonstrates an enhanced level of investment adequacy ratio. The non-performing loan/financing (NPF/NPL) ratio is also maintained below the threshold. The ratio of liquid assets to deposits in the banking sector is well maintained at a high level % % Investment adequacy ratio in the insurance industry is maintained above 100% The NPL ratio is maintained well below the 5% threshold % NPF ratio in the multifinance industry is also maintained below the 5% threshold Source: OJK 63

65 Manageable Market Risk Amidst Fluctuations Being exposed to fluctuations in the securities market and IDR exchange rate, financial institutions demonstrated resilience in dealing with such risks. Net open position of the banking sector remains low, while the investment value of domestic institutional investors (mutual funds, insurers, and pension funds) continues to expand. Multifinance companies exposures to the exchange risks have generally been mitigated through hedging measures. Net open position in the banking sector is kept far below the maximum requirement (20%) The movement of mutual funds net asset value (NAV) is in line with the market index, but with much lower volatility IDR tn IDR tn The investment value of insurers continues to grow, while of pension funds only slightly decreases IDR tn IDR tn Multifinance companies exposures to foreign debt have generally been mitigated through hedging measures IDR tn Source: OJK 64

66 Capital Market Demonstrate Strengthening Trend Volatility in the domestic capital market tends to ease in The market indices are back to a strengthening trend, accompanied by significant nonresident capital inflows. The IDX Composite Index demonstrated a positive growth and listed among the best-performing indices (ytd) in the region The volatility in the domestic equity market now tends to ease The domestic bond market again attracts nonresident inflows IDR tn Source: Bloomberg, Thomson Reuters 65

67 Macroprudential Policy Mix to Support Growth Effective from August 29th, 2016, Bank Indonesia relaxed the Loan to Value Ratio (LTV) and Financing to Value Ratio (FTV) on housing loans at 85-90% for the first mortgage lending facility, 80-85% for the second mortgage lending facility, and 75-80% for the third mortgage lending facility. The relaxation is only applicable to banks with nett NPL for total loan below 5% and gross NPL for property loan/financing below 5%. The rationale is to stimulate domestic demand in order to drive domestic economic growth momentum while maintaining compliance to prudential principles. House Housing Loans and Financing Based on Murabahah and Istishna Contracts Property type (m 2 ) Lending/Financing Facility First Second Third >70 m 2 85% 80% 75% m 2-85% 80% Apartment <21 m >70 m 2 85% 80% 75% m 2 90% 85% 80% <21 m 2-85% 80% Home Shop/Office - 85% 80% Housing Financing Based on MMQ and IMBT Contracts House Property type (m 2 ) Lending/Financing Facility First Second Third >70 m 2 90% 85% 80% m 2-90% 85% Apartment <21 m >70 m 2 90% 85% 80% m 2 90% 85% 80% <21 m 2-85% 80% Home Shop/Office - 85% 80% 66

68 A Comprehensive Financial Deepening Program...strategy to tackle challenges in deepening Indonesia s financial markets Financial Market Deepening Program First Priority: Continuous Basis Monitoring, match making, and solution: Repo Hedging Market Development Money Market Bank Indonesia Regulation (PBI) on Money Market Encourage well-functioning money market (deep and efficient, risk mitigation, and market integrity), Bank Indonesia Regulation (PBI) on Negotiable Certificate of Deposit (NCD) Enriching money market instruments, encourage banks to raise long term funding, and acts as an alternative investment for investors Bank Indonesia Regulation (PBI) on Commercial Paper Alternative sources of financing for non-bank corporations, as well as an investment outlet for investors FX Market Swap Link Deposit a combination of foreign currency deposits with FX Swap against the rupiah. Dual Currency Deposit a combination of assets (deposits) and derivatives (FX Options). Supporting Regulations Coordination Corporate Bonds Government Bonds Other instruments Source: Bank Indonesia Strengthening JIBOR Extension of window time Increase in IDR nominal Lengthening tenor of up to 3 months Market Code of Conduct More comprehensive code of conduct The use of technology and public security Inter-agency Cooperation Signing of MoU on April 8 th, 2016, between MoF, BI, and OJK on Coordination in the Context of Financial Markets Development and Deepening to Support National Development Financing Certification of Dealer Obligation on certification for dealers Dealers training for certification The Signing of this MoU is driven by the need for: Sufficient development financing, Financial markets deepening, and Good coordination among related institutions 67

69 Stronger Fundamentals Facing the Headwinds Inflation Rate (%) IDR Movement (%) Inflation controlled within the target range Strengthening IDR with appreciation in 2016 Foreign Reserves (USD bn) Significantly higher than 1998 & 2008, ample to cover 8.4 months of import and external debt repayment Nov Sep (yoy) Sep Nov (ytd) Nov Sep Non-Performing Loan/NPL (%) NPL level is below the maximum threshold of 5% More Liquid Market (%) Overnight interbank money market rate is relatively lower Oct Agu Jul-15 Nov 16 External Debt (Public & Private) to FX Reserve Ratio Significantly lower than 1998 crisis Government Debt/GDP Continue to decline and allocated to productive sectors External Debt/GDP Slightly higher than 2008, but significantly lower than x x x 100.0% % % 116.8% % % Q Q Q

70 Outlook of Domestic Economy Improves...domestic economic growth is predicted to be higher in Economic Outlook Economic growth expected to increase, supported by fiscal stimulus linked specifically to accelerated infrastructure project development. Private investment is expected to increase as a result of government policy packages and measurable monetary easing Inflation is predicted around the floor of the 2016 inflation target of 4±1% in the % range, with the current account deficit is projected below 2% of GDP Credit is projected to grow 7-9% in line with looser monetary and macroprudential policy mix as well as acceleration of fiscal stimulus Economic Growth Inflation CAD (% GDP) Credit Growth % 3.35% 2.06% 10.45% % 4.0±1% <2% 7-9% 69

71 6 Progressive Infrastructure Development: Strong Commitment on Acceleration of Infrastructure Provision

72 After Before The Government has Enacted Various Reforms to Accelerate Infrastructure Provision Fiscal Reforms Institutional Reforms Regulatory Reforms Investing in Indonesian infrastructure has been regarded as risky Uncertain returns on investment Did not have any fiscal mechanisms to support the infrastructure investment Lack of leadership to implement the changes needed Indonesia regulatory corpus has been characterized by some ambiguities and conflicting regulations Indonesia now has fiscal supports: Viability Gap Fund (VGF) Availability Payment Land revolving fund Risk-sharing scheme Institutional strengthening covers establishment and empowerment of: KPPIP Empowerment of PT SMI & IIGF PPP Revised regulations on: PPP, Availability Payment Direct Lending Land Acquisition Other deleregulations as listed in the Economic Policy Packages Supported by improving awareness of Indonesia infrastructure issues, convergent reforms are bulding a better business environment for tomorrow s investment Source: KPPIP 71

73 Reforms Along the Project s Life Cycle...to encourage and accelerate infrastructure project using PPP scheme Government of Indonesia Project Development Facility (PDF) Viability Funding Gap (VGF) Guarantee Fund Tax Facilities Availability Payment Land Acquisition Preparation Bidding Process Construction Project development facility contributing to assist GCA on PPP project preparation (PDF&TA) Managing entity: KPPIP, PT SMI PT IIF, and Ministry of Finance A facility with contribution to construction cost to increase project financial viability Managing Entitiy: Ministry of Finance based on GCA proposal Govt. Commitment: 49% max. Per project cost Guaranteeing Govt. contractual obligations under infrastructure concession agreements and Mof Regulation No 130/PMK. 08/2016 re: Govt guarantee for electricity project acceleration Managing entity: IIGF and MoF Govt s comitment: US$ 450 mn MoF Reg. No. 159/PMK. 010/2015 re: tax holiday for pioneer sector, such as base metal, oil refinery, basic petrochemical, machinery, renewable energy, & telco equipment industries. Sector will be further expanded Managing entitiy: Ministry of Finance A scheme in which concessionaires receive sum of money periodically from government after the completion of an asset. Ministry of Finance Regulation on Availability Payment has been ratified Managing entity: Ministry of Finance A facility to support land acquisition for infrastructure projects particularly projects that involve private sector Managing enitiy: Ministry of Finance, Ministry of Agrarian and Land Spatial/BPN and BLU-LMAN Govt commitment: US$ 12 mn (2016) Source: KPPIP 72

74 Efforts to Accelerate Infrastructure Provision Improvement on PPP Regulation By taking into account the growth of PPP project potential, the Government of Indonesia has revised the Presidential Regulation No. 67 of 2005 on PPP and its amendments by issuing the new Presidential Regulation No. 38 of 2015 on PPP on 20 March This new Presidential Regulation addresses the constraints which contributes to delays in PPP implementation, such as: PPP for the social infrastructure; a low quality of pre-feasibility studies; gaps of quality in assets that were partly constructed by the Government; unattractive investment return scheme; and weak Ministries/Institutions commitment for PPP projects. The Ministry of National Development Planning has issued the Ministerial Regulation No. 4 of 2015 on the implementation Procedures for a Public-Private Partnership in Infrastructure Provision. This Ministerial Regulation is a derivative regulation to supplement the Presidential Regulation No. 38 of 2015 on PPP. Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 73

75 Efforts to Accelerate Infrastructure Provision (continued) Regulation improvement to accelerate land procurement process The Government of Indonesia issued Law No. 2 of 2012 on Land Acquisition for Public Interest, with a purpose to provide certainty about the land acquisition duration for the Government Contracting Agencies and the Investors. The Law sets an estimated 583 days maximum time to complete the land acquisition process. For its implementation, the Law No. 2 of 2012 was supported by the Presidential Regulation No. 71 of 2012 on Land Acquisition Implementation for Developing Public Facilities, which has been revised into the Presidential Regulation No. 30 of The Amendment to the Regulation allows a Business Entity to allocate funding for a land acquisition which can be reimbursed by the Government following the completion of land acquisition process. With this Regulation, the land acquisition process is expected not to be delayed by the unallocated budget or the delay on the budget disbursement. Law No. 2/2012 was successfully applied in: 1. Palembang Indralaya section of the Trans Sumatera Toll Road Project 2. Java North Line Double Track Rail Project Source: KPPIP Land Procurement Process as Stipulated in Law No. 2 of

76 Significant Progress on Key Infrastructure Projects Progress of National Strategic Project (as of August 2016) 1 11% 6% 14 projects is completed* *Gempol-Pandaan Toll Road, Sentani Airport, 83 projects is under construction Juwata Airport, Matahora Airport, Labuan Bajo 38% 17 projects is during transaction Airport, SHIA Terminal 3, Kalibaru Port, Belawan-Sei Mangkei Gas Pipe, Rajul Dam, 37% 86 projects is in preparation Jatigede Dam, Bajulmati Dam, Nipah Dam and 8% 25 projects is being reassessed Titab Dam Roads Dams Housing Trans-Sumatra Highway Merah Putih Bridge, Ambon Jatigede Dam (Operational) Raja Ampat Housing Project, Papua Transportation Jakarta MRT Project 2 Terminal 3 Ultimate Soekarno-Hatta 2 New Tanjung Priok Port Project 2 Komodo Airport, NTT Matahora Airport, Southeast Sulawesi Tual Airport, Maluku Juwata Airport, Tarakan 1 Source: KPPIP 2 Not funded from National Budget 75

77 30 Priority Projects Within the Pipeline Source: KPPIP 4 8 Construction Transaction Preparation Reassessed Balikpapan-Samarinda Toll Road 2. Manado-Bitung Toll Road 3. Panimbang-Serang Toll Road 4. Trans-Sumatera Toll Road (8 Sections) 5. SHIA Express Railway 6. MRT Jakarta South-North Line 7. Makassar-Parepare Railway 8. Kuala Tanjung International Port Hub 9. Bitung International Port Hub 10. Karangkates IV & V (2x250MW) Hydro-Electric Plant 11. Kesamben (37MW) Hydro-Electric Plant 12. Lodoyo (10MW) Hydro-Electric Plant 13. Inland Waterways Cikarang-Bekasi-Laut (CBL) 14. Light Rail Transit (LRT) South Sumatera 15. Integrated LRT Jakarta-Depok-Bogor-Bekasi 16. National Capital Integrated Coastal Development (NCICD) Phase A 17. Jakarta Sewerage System 18. West Semarang Water Supply 19. High Voltage Direct Current (HVDC) 20. Sumatera 500 kv Transmission Line 21. Central-West Java 500 kv Transmission Line 22. Batang, Central Java Powerplant 23. Indramayu Powerplant 24. Mine to Mouth Powerplant Sumatera Selatan Bontang Refinery 26. Revitalization of the Existing Refineries (Balikpapan, Cilacap, Balongan, Dumai, Plaju) 27. New Port Development in West Java (North Part) 28. Tuban Refinery 29. Palapa Ring Broadband 30. East Kalimantan Railway 76

78 Energy Sector: the Progress of MW Program Average economic growth of 6.7% requires 7,000 MW / year or 35,000 MW / 5 years (Kepmen ESDM No. 0074/2015 on RUPTL ) Debottlenecking through regulation: 1. Regulation No.1/2015 concerning electricity supply cooperation and joint utilization of the electrical network among license holders. 2. Regulation No.3/2015, concerning Procedures of Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection and Appointment. Cabinet Meeting Progress of 35,000 MW Launching MW by the President in Goa Beach Sanden DIY 17 Dec 14 Jan 15 Jan Mar 15 4 May 15 Cabinet Meeting There s electricity crisis in Indonesia, requires construction of large capacity plant " Sumatera PLN: 1,100 MW Private: 8,990 MW Transmission: 18,729 ckt.km Substation: 35,521 MVA Kalimantan PLN: 900 MW Private: 1,735 MW Transmission: 5,604 ckt.km Substation: 3,500 MVA Jawa & Bali PLN: 5,000 MW Private: 13,697 MW Transmission: 9,185 ckt.km Substation: 66,265 MVA Sulawesi PLN: 2,000 MW Private: 1,470 MW Transmission: 5,275 ckt.km Substation: 4,390 MVA Nusa Tenggara PLN: 670 MW Private: 0 MW Transmission: 2,347 ckt.km Substation: 1,410 MVA 35,000 MW Program Distribution Papua PLN : 220 MW Private: 0 MW Transmission: 364 ckt.km Substation: 460 MVA Maluku PLN: 260 MW Private: 12 MW Transmission: 653 ckt.km Substation: 620 MVA Source: PLN The progress so far: Sept 16 No Phase MW % 1 Planning 7, Procurement 10, Power-purchase Agreement 9, Construction 8, Commercial Operation Date Source: KPPIP 77

79 Investment in Iron Ore, Alumina and Bauxite Smelter Existing Iron Ore Refinery Facility No. Company Product Ore Input Capacity (ton) Concentrate Input Capacity (ton) Investment (USD mn) Progress Completion Date 1 PT DPS Steel % PT MJIS Sponge iron, slab, billet Upcoming Iron Ore Refinery Facility No. Company Product % 2013 Ore Input Capacity (ton) Concentrate Input Capacity (ton) Investment (USD mn) Progress Completion Date 1 PT SILO Sponge iron % PT SBP Pig iron % PT MIS Pig iron % PT MMP Pig iron % PT RS Sponge iron % PT QEP Sponge iron % PT JMI Pig Iron % 2019 Existing Alumina and Bauxite Refinery Facility No. Company Product Input Capacity (ton) Investment (US$ mn) Progress Completion Date 1 PT Indonesia Chemical Alumina Chemical Grade Alumina 1,000,000 0,49 100% PT Well Harvest Winning Smelter Grade Alumina 1,000,000 1,1 Phase 1 : 100% Phase 2 : 0% 2016 (Phase 1) 2017 (Phase 2) Completed but not operating Completed and operating 78

80 Investment in Nickel Smelter 79

81 Infrastructure Financing Infrastructure Financing Need General criteria for financing schemes % 41,25% ,75% 22,23% (billion USD)* Government Budget is used for basic infrastructure projects, mainly for projects that are economically feasible but financially not. SOE scheme is used for projects managed under SOEs (electricity, toll roads, oil, etc.) to leverage public funding channeled through capital injections (PMN) and empower SOEs PPP scheme in mainly targeted for projects that are both economically and financially feasible. The government can provide financial facilites to support PPP & SOE schemes 36,52% Financing Needs Gov t Budget Financing Gap SOE Private PPP scheme and facilities provided to PPP Projects *) USD1=IDR13500 (APBNP 2016) Source: Bappenas Financial Facilities Provided to Infrastructure SOEs The government may appoint certain SOEs to assign specific infrastructure projects To support the infrastructure provision through the SOEs, the government provide a number of financial facilities, such as: Capital Injection (PMN) Lending Credit Guarantees Guarantees for SOE Direct Lending Business Viability Guarantees 80 80

82 Financing the Acceleration of Infrastructure Development Acceleration of public infrastructure development is partly translated into programs to increase private participation and SOEs involvement in the development of public infrastructure. Ministry of Finance provide a number of financial facilities to attract more private participation as well as to increase the capacity of SOEs in developing public infrastructure. Financial Facilities for PPP Projects Project Development Facility (PDF) Viability Gap Fund (VGF) Government Guarantees (provided directly by MoF or through IIIGF) Availability Payment scheme Financial Facilities for Non-PPP Projects Government guarantees to SOEs loans from IFIs for the Development Infrastructure Projects Government guarantees to SOEs loans for the development of Sumatra Toll Roads Business Viability Guarantee Letter for PT. PLN power projects Credit guarantees for Regional Water Companies So far, the government has provided a number of guarantees to PPP and non-ppp projects as well as developed close monitoring to maintain the fiscal sustainability. The issued guarantees are currently as follows: Guarantees Amount of Guarantees (IDR mn) Outstanding Exposures (IDR mn) Number of Guarantees Fast Track Project 1 87, , PDAM PPP 42, , FTP 2 66, , SOE Direct Lending 14, , Sumatra Toll Roads 1, Total 213, ,

83 Progress on PPP-Schemed Infrastructure Projects With a new PPP unit already established in the Ministry of Finance and some financial facilities are already in place, PPP projects started to show some real progresses. There are 3 projects already reached financial close in 2016 and one more to come in November Another project will reach financial close in March 2017 Other projects are on the final stage of progress (PPP and guarantee contracts have been signed). Some significant numbers are on the final RFP while others are still on the preliminary stage. 82

84 Progress of SOE Projects: Facility for Non-PPP Projects Progress of projects benefiting from guarantees on SOE direct lending: No. Project Name Project Cost (USD) Lender SOE Status 1 Sumatera Power Transmission and Distribusion 600 mn ADB PT. PLN Guarantee is effective 2 Sumatera Power Distribution 500 mn World Bank Pt. PLN Guarantee is issued but still inneffctive 3 The Enhancement of Electricity Grid 330 mn IDB PT. PLN Proposal has been submitted Projects benefiting from guarantees on SOE loans: The government issued government guarantees to loans of PT. Hutama Karya in the development of Sumatra Toll Road, which comprise as follow: Other guarantees that have been provided to SOE projects: 83