REFORMS IN THE MAKING

REPUBLIC OF INDONESIA REFORMS IN THE MAKING APRIL 2016 1

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

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

Improving Global Perception WEF Global Competitiveness World Governance Indicators 30 2009 2010 2011 2012 2013 2014 2015 37 50 55 53 49 45 60 49 54 56 47 55 56 40 30 42 34 31 75 90 75 87 75 Higher rank is better Indonesia India Brazil Phillipines Vietnam 20 Higher rank is better 2010 2011 2012 2013 2014 Voice and Accountability Political Stability/Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption Ease of Doing Business Corruption Perception Index 100 110 120 130 140 150 2009 2010 2011 2012 2013 2014 2015 2016 109 116 127 129 130 132 Higher rank is better 60 50 40 30 20 50 44 38 35 36 28 Higher score is better 2010 2011 2012 2013 2014 2015 Indonesia India Brazil Indonesia Thailand Malaysia Source: World Economic Forum; World Bank; Transparency International 4

2015E Total Investment / GDP (%) Indonesia Remains the Investment Destination of Choice Investments have continued to grow in 2015 1 IDR tn 150 100 50 1. Source: IMF World Economic Outlook, Database October 2015 2. Source: The Economist Asia Business Outlook Survey 2015; Indonesia enjoys large investments relative to peers within the region 2 145.4 35 34,0 30,7 46.2 30 26,5 25 20,7 24,7 99.2 20 18,0 15 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2013 2014 2015 FDI DDI Total 10 5 0 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 Korea Hong Kong Taiwan 69,3 58,2 48,0 37,2 32,7 32,2 30,1 29,0 28,3 27,1 24,8 23,6 22,9 % of surveyed who plan to increase investment in each country 18,9 0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 JBIC: Amongst ASEAN countries, Indonesia is the most preferred place for business investment (December 2015) 4 India Indonesia China Thailand Vietnam Mexico USA Philippines Brazil Myanmar Malaysia Russia Singapore Korea Turkey 7,9 6,2 5,5 4,6 3,9 3,9 11,5 11,1 16,6 23,6 27,5 30,7 40,4 38,8 38,8 % of surveyed who consider each country has promising prospects 0 5 10 15 20 25 30 35 40 45 1. Source: Indonesia Investment Coordinating Board (BKPM); 2. Source: IMF World Economic Outlook, Database October 2015; 3. The Economist Asia Business Outlook Survey 2016; 4. Source: JBIC Outlook for Japanese Foreign Direct Investment (27th Annual Survey); 5

National Strategic Development Plan (Nawa Cita) The 3 Dimensions on Economic Development Human Development Education Health Housing Character Priority Sector Development Food Security Energy & Electrical Security Maritime & Marine Tourism & Industry Water Security, Basic Infrastructure & Connectivity Equitable Development Inter- Income Group Inter-Region: (1) Rural Area, (2) Periphery, (3) Outside Java, (4) Eastern Area. Legal Certainty & Law Enforcement Security & Order Necessary Condition Politic & Democracy Governance 6

Improving Investment Climate: Establish 3-hour Investment Licensing Service Requirements: Minimum investment of IDR 100 billion (US$ 8 million) and/or employing 1.000 local workers. Arrive at BKPM Consult with Director of Investment Service Submit the required documents & data Investment Service 3-hour Investment Licensing Service Documents are processed by BKPM, notary, Tax Office, and Agrarian Ministry 4 Documents Obtained: 1. Investment License 2. Certificate of Incorporation 3. Tax Registration Number 4. Letter of Land Availability Obtain four documents within three hours to start business Investment License as a Construction Permit Obtaining IP (3 Hours License) This special permission is provided for investors who have investment license with project located in an industrial park or a specific bonded zone Investors can start constructing without first having another construction permit Note: Investors are able to order a certain land area from OSS Center BKPM, which valid for 14 days until the investor can comply the requirements of the land provisions by the Ministry of Agrarian and Spatial/National Land Agency Investment Permit as Construction Permit is implemented as a pilot project with industrial zones or bonded zone (and should be free of land issues and the Environmental Permit (EIA), as well as the support governors / regents / mayors). The Company shall comply with the requirements of norms / standards of investment, which should be completed when the company started commercial production. 7

Improving Investment Realization (Jan-Dec 2015) Rp463,1 T Rp545,4 T 1.420.846 1.435.716 Increased 15,1% Increased 1,0% Rp366 T Rp179,4 T Rp307 T Rp156,1 T Increased 16,1% Increased 13,0% Source: Investment Coordinating Board (BKPM) 8

FDI Realization by Sectors (Jan-Dec 2015) Food Industry US$3.633 Mn 14% Transportation, Warehouse and Telecommunication US$4.740 Mn 37% Paper & Printing Industry US$1.876 Mn 62% Chemical and Pharmaceutical Industry US$5.098 Mn 54% Metal, Machinery and Electronic Industry US$6.392 Mn 61% Electricity, Gas and Water Supply US$5.251 Mn 76% Mining US$8.815 Mn 47% Transport Equip and Other Transport Industry US$5.326 Mn 61% Source: Investment Coordinating Board (BKPM), compared to Jan-Dec 2014 period 9

Section 2 Economic Factor: Healthy Growth Prospects Remain Intact

Conducive Environment Underpinning Strong Growth Fundamentals Largest Economy in South East Asia 4th Most Populous country in the World; 64% in productive age Budget reform as a part of larger economic reform initiative Tax base to be broadened from one reduce dependency on commodities Manageable Inflation Rate Growing Middle Income Class From commodity-based to industrializednatural resources-based economy via infrastructure development From consumption-led to investment-led growth via a stronger manufacturing sector and more investment initiatives Policies to maintain purchasing power to stimulate domestic economy in the midst of weakening macroeconomic conditions Large and Stable Economy New Economic Structure Consistent Budget Reform New Reform- Oriented Administration High Infrastructure Investments Fuel subsidies significantly reduced and spending redirected to more productive allocation Prudent debt management Three main sources of financing for IDR 5 tn investment needs: State and regional budget, State Owned Enterprises and PPP Continuing from 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 11

Indonesia s Strong GDP Indonesia s strong GDP growth remains favorable compared to peers, supported by demographic bonus and strong domestic demand (%) 7 6 5 4 3 2 1 0 GDP Growth 5,7 5,5 6,4 Source: BPS, Bank Indonesia Strong GDP Growth 6,0 4,6 6,4 6,5 6,0 5,6 5,0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 4,7 4,7 4,7 Q2 2015 Q3 2015 5,0 Q4 2015 Global Growth Domestic Growth Remains Favorably Compared to Peers 12 10 8 6,2 6,2 6 5,6 6 5 4,8 4 2 0-2 2010 2011 2012 2013 2014 2015-4 -6 Source: Bloomberg India Brazil Turki Rusia Indonesia GDP Breakdown GDP Growth based on Expenditures Outlook Growth Prospect Sector 2013 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Household Consumption 5.5 5.2 5.4 5.4 5.4 5.1 5.1 5.0 5,01 4,97 4,96 4,9 NPI Serving Household Consumption Expenditure Gross Fixed Capital Formation 6.5 6.4 6.7 12.8 23.7 22.8 5.6 (-0.2) -8,25-7,91 6,39 8,3 7.9 5.5 6.0 2.1 4.7 3.7 3.9 4.3 4,37 3,69 4,62 7,3 Government Consumption 3.0 3.2 12.4 7.9 6.1 (-1.5) 1.3 2.8 2,65 2,13 6,56 6,9 Exports 3.5 2.1 1.3 9.4 3.2 1.4 4.9 (-4.5) -1,04-0,09-0,69-6,4 Imports 2.9 0.9 4.9 (-0.9) 5.0 0.4 0.3 3.2-2,38-6,98-6,11-8,1 GDP 5.6 5.6 5.5 5.6 5.1 5.0 4.9 5.0 4,72 4,67 4,73 5,0 Institution 2015 (in %) 2016 (in %) Indonesian Government 5.1 5.4 World Bank 4.7 5.5 IMF 4.7 5.1 Asian Development Bank 5.0 5.6 S&P 5.5 5.7 Moody s 4.7 4.7 Private consumption is expected to remain robust Government expenditure in the form of infrastructure spending started to increase from second semester of 2015 12

Strong and Stable GDP Performance Spatial GDP Growth Spatial GDP Growth Contribution Sumatera GDP Growth 2014: 4.7% 2015Q1: 3.5% 2015Q2: 2.9% 2015Q3: 3.0% 2015Q4: 4.6% Kalimantan GDP Growth 2014: 3.2% 2015Q1: 1.1% 2015Q2: 1.5% 2015Q3: -0.4% 2015Q4: 1.5% Sulawesi GDP Growth 2014: 6.9% 2015Q1: 7.3% 2015Q2: 8.6% 2015Q3: 8.2% 2015Q4: 8.3% Bali & Nusa Tenggara GDP Growth 2014: 5.9% 2015Q1: 8.9% 2015Q2: 8.9% 2015Q3: 11.8% 2015Q4: 7.6% Maluku & Papua GDP Growth 2014: 4.3% 2015Q1: 3.7% 2015Q2: 10.2% 2015Q3: 2.3% 2015Q4: 10.4% 2015Q4 GDP Growth: 5.04% Kalimantan: 8.0% Sulawesi: 6.1% Maluku & Papua: 2.2% Sumatera: 22.4% Java GDP Growth 2014: 5.6% 2015Q1: 5.2% 2015Q2: 5.1% 2015Q3: 5.4% 2015Q4: 5.9% Bali & Nusa Tenggara: 3.1% Java: 58.3% Source: BPS Source: BPS Main Contributors to GDP Growth (%) (%) 6,0 15 5,0 4,9 5,0 7,3 10 4,0 6,9 5 3,0 0 2,0-6.4 1,0-5 -8,1 0,0-10 I II III IV I II III IV I II III IV 2013 2014 2015 GDP (LHS) Household Consumption (RHS) Investment Government Consumption (RHS) Exports (RHS) Imports (RHS) Shifting from Commodity-based economy In 4 th Quarter 2015, Indonesia booked 5.04% GDP growth (yoy), slightly increase from 4.73% in 3 rd Quarter 2015. Majority of the growth was driven from Java island, contributed 58.3% of Indonesia s GDP growth and at 5.9% (yoy). Growth in Java is higher than resource-rich regions such as Sumatra and Kalimantan, given its high industrialization and larger consumption base Indonesia continues to drive growth in resource-based industrialization to shift from commodity-based economy 13

Section 3 External Factor: Improved External Resiliency

Jan Feb Mar Apr Mei Jun Jul Ags Sep Okt Nov Des Jan Feb Mar Apr Mei Jun Jul Ags Sep Okt Nov Des Jan Feb Mar Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan A Narrower, Structurally-Stronger Current Account Deficit Strong Balance of Payments (US$bn) 20 15 10 5 0 (5) (10) (15) (20) Current Account (LHS) Capital & Financial Account (LHS) Overall Balance (LHS) 2010 2011 2012 2013 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: Bank Indonesia Trade Balance Surplus Continues 5.1 (US$bn) 9.5 Improving Current Account Deficit (US$bn) 2011: CA Surplus US$1.7bn 15 10 5 0 (5) -5.1 (10) -5 (15) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Goods Services Income Secondary Income Current Account Source: Bank Indonesia 2012: CA Deficit US$24.4bn 2013: CA Deficit US$29.1bn 2014: CA Deficit US$27.5bn Rising Foreign Reserves Amid Global Uncertainties 2015: CA Deficit US$17.8bn 2011 2012 2013 2014 2015 (US$bn) 3,00 2,00 2014: Deficit US$2.52 Bn 2015: Surplus US$5.98 Bn (US$bn) 140 105 FX Reserves as of March 2016: US$107.5 Bn (Equiv to 7.8 months of imports + servicing of government debt) (Months) 7,8 8 107,5 6 1,00 0,00 70 4-1,00 35 2-2,00-3,00 Non-OG OG Total 0 0 Source: Bank BPSIndonesia 2014 2015 2016 2011 2012 2013 2014 2015 FX Reserves (LHS) Months of Imports + Debt Service (RHS) Source: Bank Indonesia 15

Exchange Rate In Line with Fundamentals Stable Movement of Rupiah 14800 IDR/USD IDR/US$ Monthly Average Quarterly Average 14600 14400 14200 14000 13873 13800 13769 13600 13525 13400 13200 Data as of 31 March 2016 13000 13260 BRL MYR ZAR EUR IDR TRY KRW THB PHP INR Source: Bank Indonesia Rupiah Exchange Rate Relatively Well Compared to Peers (0,14) YTD 2016 vs 2015 2,03 2,77 2,45 3,96 3,61 4,11 5,77 (2,00) 0,00 2,00 4,00 6,00 8,00 10,00 12,00 Mar 2016 vs Feb 2016 10,26 BRL 7,58 11,8 10,12 2,96 8,15 MYR 2,83 7,78 2,41 8,73 IDR 2,35 0,84 2,15 3,35 TRY 2,02 4,94 1,92 3,28 THB 1,14 1,28 Average Point to Point 0,58 1,52 Data as of 31 March 2016 EUR 0,29 Data as of 31 March 2016 4,17 % % 0,00 2,00 4,00 6,00 8,00 10,00 12,00 14,00 Source: Bank Indonesia Source: Bank Indonesia 16

Lines of Defense Against External Shocks First Line of Defence FX Reserve Ample of level of FX reserves to buffer against external shock FX Reserves as of March 2016: US$107.5billion Second Line of Defence Japan US$ 22.76 billion swap line with the Bank of Japan currently in place The quantum of the swap line was increased from US$12 billion in December 2013 Chiang Mai Initiative Multilateralization (CMIM) Agreement Entitled to a maximum swap amount of US$ 22.76 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 BI s Existing Bilateral Currency Swap Arrangement (BCSA) China Agreed to renew currency swap agreement with PBOC and increase volume of funds to RMB130 billion up from RMB100 billion Agreement was signed in 2009 and was previously extended for a period of 3 years in 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 Exchange of local currencies between the two central banks of up to A$10 billion or IDR 100 trillion Effective as of December 15, 2015. The effective period will be three years, and could be extended by mutual consent of both sides * In addition to the above facilities, Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem as part of IMF s Global Financial Safety Net (GSFN) initiative. Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL) Source: Bank Indonesia 17

Comprehensive Stabilization Framework Ensures Proactive Risk Management of Financial System Crisis Management Protocol 1 2 3 Implementing Crisis Management Protocol Implementing Bond Stabilization Framework Enhancing coordination between government institutions and continuous dialogue with market participants 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 March 2016, the Parliament has approved Financial System Crisis Prevention and Mitigation Law (UU PPKSK) which 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. 4 Specific policies in place in the 2014 budget law to address crisis Bond Stabilization Framework DMO Budget Buyback Funds Buyback of government bonds by the DMO from the state budget 5 Swap facility arrangements based on international cooperation SOE Budget Related SOEs (min. Alert level) KUN (State s General Cash) (min. Alert level) Potential purchase of government bonds by State Owned Enterprises in primary market (min. Aware Level) and in secondary market (min. Alert Level) Potential purchase of government bonds by the Treasury Office using the State s General Cash (KUN) 6 Chiang Mai Initiative Multilateralization Other Gov t Budget PIP Investment Funds (min. Alert Level) Potential purchase of government bonds by the Indonesia Investment Agency Fiscal buffers to prevent crises and mitigate risks SAL (min. Crisis Level) Purchase of government bonds using the accumulated cash surplus (SAL). Parliament approval is required 1 2 Deferred drawdown option facilities up to US$5bn 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 18

Strengthened Private External Debt Risk Management Despite increasing trend of external debt Debt burden indicator (External Debt / GDP) remains comparable to peers (US$bn) 300 Total FCY Debt: US$311 bn 350 Turkey 50,4 250 200 150 100 50 0 Private Sector FCY Debt: US$164 bn 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015* Jan Feb 2016* 2016** 300 250 200 150 100 50 0 Thailand 34,6 Indonesia 33,1 Philippines 27,3 Brazil 27,0 India 23,2 0,0 10,0 20,0 30,0 40,0 50,0 2014 2013 (%) Public (Govt. & BI) Private Total (RHS) Source: External Debt Statistics of Indonesia, April 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: (i) minimum hedging ratio in order to mitigate currency risk, (ii) minimum forex liquidity ratio to mitigate liquidity risk, (iii) and minimum credit rating to mitigate overleverage risk Dec 2014, improves the Regulation by adjusting the coverage of components of Foreign Exchange Assets and Liabilities, the provision for fulfilment of Hedging and Credit Rating liability Source: Moody s Statistical Handbook, November 2015 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 Sanction As of Q IV-2015 Applied Must be done with a bank in Indonesia 19

Manageable External Debt Profile... short term non-bank corporate debt represents only 16.3% of total private external debt Public Long Term (1) Private Bank External Debt Position USD146.9 bn or 47.2% of total Ext. Debt USD118.5 bn or 72.0% of Private Ext. Debt USD19.4 bn or 11.8% of Private Ext. Debt Affiliation USD10.0 bn or 6.1% of Private Ext. Debt USD311.5 bn USD164.6 bn or 52.8% of total Ext. Debt USD46.2 bn or 28.0% of Private Ext. Debt USD26.8 bn or 16.3% of Private Ext. Debt Private Short-Term (1) Private Non-Bank USD16.8 bn or 10.2% of Private Ext. Debt External Debt Position as of February 2016 1 Based on remaining maturity Non Affiliation Source: External Debt Statistics of Indonesia, April 2016 20

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

Consistent Domestic Reform is Fundamental to Accelerate Growth Long Term Strategy to Create Sustainable and Equitable Economic Growth Structural Challenges Global Volatility Budget Reforms Investment to contribute larger part in achieving sustainable and equitable economic growth Revenue Optimization Quality Spending Sustainable Financing 8,0 7,5 7,0 6,5 6,0 5,5 5,0 4,5 4,0 7,6 6,8 5,3 2013 2014 2015 2016 2017 2018 2019 2020 Short Term Strategy to Navigate Global Uncertainties and Financial Turmoil Improve People Purchasing Power Structural Reforms Improve Quality of Investment Climate 22

Pillar I Revenue Optimization Pillar II Quality of Spending Pillar III Sustainable Financing Budget Reform as a Part of Larger Economic Reform Initiative to support sustainable and equitable economic growth Objective: Creating a sustainable and equitable economic growth for Indonesia I. Shift from commodity-based revenues Broaden tax coverage II. III. Improve tax compliance and prevent leakages IV. Strengthen Taxation institution V. Focus on individual tax payers I. Higher spending productivity II. Enhanced subsidy scheme III. Empowerment of local governments I. Secure budget financing II. Effective utilization of domestic and international funding sources III. Financing schemes to support infrastructure development program Initiatives: Reinventing Policy e-invoice Compliance Risk Management Tax Amnesty Tax Administrative Reform Regulatory Reform Adjustment of non-taxable income threshold Development of Semi- Autonomous Tax Office Initiatives: Improve Government procurement regulation. Continue Fuel Subsidy Reform (re-allocate energy subsidy to productive spending) and maintain targeted subsidy scheme. Budgetary allocations for: Infrastructure Projects Social Welfare, and Cashless smart cards Village fund Initiatives: Maintain manageable budget deficit; Improve bilateral and multilateral financing sources, including BSA and DDOs Increase financing instruments. Increase capital injection to SOEs to include SOEs in infrastructure development Challenges Slow and low disbursement performance Miss targeted subsidy Revenue Shortfall (tax, low oil and commodity prices) Narrow tax base Dependency on foreign financing 23

Long Term Strategies to Achieve Sustainable Growth key focus to strengthen Indonesia s economic development fundamentals Maintain Purchasing Power Accelerate Infrastructure Development State Owned Enterprise & Private Sector Maintain price stability Provide social security for workers Improve basic needs services to the poor: Health services, Education, Conditional cash transfer Provide better employment climate, particularly related to min. wage policy Promote Public Private Partnership (PPP) as infrastructure development financing scheme Develop fiscal and non-fiscal incentive and investment facilities to attract direct investment Improve the role of SOE and private in Infrastructure development Develop the alternative infrastructure financing such as infrastructure bank, trust fund, and infrastructure bond Develop downstream industries particularly on primary sectors (agricultural and mining sector) Increase the supply of high value added and competitive goods Increase export quality, determine competitive price and develop international standard services Participate in the global value chain and the global production network to enhance export performance Improve quantity and quality of exports in manufacturing and services sector Develop a more efficient trade facility, particularly related to permit process More effective import management Strategies & Policy Formulations to Boost Investments 1. Maintain economic stability to promote strong business and investment climate 2. Simplify licensing and investment procedures 3. Harmonize investment regulations between central government and local governments 4. Consistently improve the involvement of state owned enterprise (SOE) in infrastructure development 5. Increase the role of banking institutions in lending rate development, especially for working capital and investment credits 6. Expand the role of non-bank financial institutions in the development of infrastructure financing alternative 24

2016 Government Budget Items (IDR tn) Revised Budget 2014 2015 2016 1st Semester Realization % of Revised Budget Revised Budget 1st Semester Projection % of Revised Budget 2nd Semester Prognosis % of Revised Budget Outlook A. State revenue and grants 1635.4 712.7 43.6% 1,761.6 697.4 39.6% 952.3 54.1% 1649.8 1,822.5 I. Domestic revenue 1633.1 711.7 43.6% 1,758.3 697.2 39.7% 949.2 54.0% 1646.4 1,820.5 1.Tax revenue 1246.1 537.5 43.3% 1,489.3 555.2 37.3% 811.8 54.5% 1367.0 1,546.7 2.Non tax revenue 386.9 172.2 44.5% 269.1 142.0 52.8% 137.4 51.1% 279.4 273.8 II. Grants 2.3 1.0 42.8% 3.3 0.2 5.8% 3.1 94.2% 3.3 2.0 B. State expenditure 1876.9 759.9 40.5% 1,984.1 773.9 39.0% 1135.9 57.3% 1909.8 2,095.7 I. Central gov. expenditure 1280.4 468.7 36.6% 1,319.5 436.1 33.1% 809.4 61.3% 1245.5 1,325.6 1. Ministries/Agencies Spending 602.3 178.9 29.7% 795.5 208.5 26.2% 521.6 65.6% 730.1 784.1 2. Non-Ministries/Agencies Spending 678.1 289.8 42.7% 524.1 227.6 43.4% 287.9 54.9% 515.5 541.4 II. Transfer to region 596.5 291.2 48.8% 664.6 337.7 50.8% 326.5 49.1% 664.2 770.2 C. Primary balance (1) -106.0 17.9-16.8% -66.8-2.2 3.3% -100.4 150.4% -102.6-88.2 D. Overall balance (A - B) -241.5-47.2 19.6% -222.5-76.4 34.4% -183.6 82.5% -260.0-273.2 % deficit to GDP -2.4-0.5 - -1.9-0.7 - -1.6 - -2.2-2.15 E. Financing 241.5 138.8 57.5% 222.5 194.0 87.2% 66.0 29.7% 260.0 273.2 I. Domestic financing 254.9 162.2 63.6% 242.5 215.6 88.9% 28.1 11.6% 243.7 272.8 II. Foreign financing -13.4-23.4 174.0% -20.0-21.6 10.8% 37.9-189.4% 163.0 0.4 Excess/Shortage Financing 0.0 91.6 0.0% 0.0 117.6 - -117.6 - - - Budget 2016 Budget is Expected to: Strengthen Fiscal Buffer, esp. to Support Government Priority Program Stimulate Business Capacity and Product Competitiveness Create a Sustainable Fiscal Cycle by Managing Risk 25

2016 Budget Key Macroeconomic Assumptions and Strategy Period 2016 Budget Key Macroeconomic Assumptions Revised Budget 2015 2016 Latest Realization Proposed Budget Growth (%) 5.7 4.7 1 5.3 Inflation (%) 5.0 YoY 6.83 2 4.7 YTD 2.24 2 Exchange Rate (US$/IDR, Average) 12,500 EOP 13,534 3 13,900 YTD 13,303 3 3-month-SPN (Treasury Bills) 6.2 5.9 2 5.5 Indonesia Crude Price (ICP) (US$ / bbl) 60.0 52.2 2 50.0 Oil Lifting (thousand bbl / day) 825 756.6 4 830 Gas Lifting (thousand bbl / day oil equivalent) 1,221 1,175 4 1,155 2016 Budget Strategy and Features Revenue Set revenue target more realistic by using 2015 revenue outlook. Broadening tax base, improving compliance, improving tax administration. Improving fiscal incentives for strategic purposes. Optimizing non-tax revenue from government institution rather than commodity-based revenue. Expenditure Continuing develop priority infrastructure projects as committed. Spending in more efficient method. Better targeted subsidy scheme. Fulfill mandatory spending Stimulating regional economy to reach optimum growth Financing Keeping budget deficit under regulated threshold (3% of GDP) Mixed budget financing instruments, currencies Cooperating with financing sources with competitive term and condition (Bilateral loan, DDO, etc.) Source: Ministry of Finance 26

Strategic Policy of 2016 Budget in Summary 1 Controlled expansion at 2.15% GDP Deficit 6 Better subsidy scheme (objects, subjects & delivery methods) 2 Bureaucracy efficiency 7 Sustainable national social security system 3 5% Healthcare Budget 8 Fasten efforts to reduce income gap (expansion of PKH) 4 Continuously increasing infrastructure projects 9 Strengthen fiscal decentralization (higher Village Fund & Reallocation of DK/TP) 5 20% Education Budget 10 1 million home program 27

Tax Ratio in 2016 Budget: 13,11% Breakdown (IDR bn) 2015 2016 Budget-R Budget 1. Tax Revenue 1,489,255.5 1,546,664.6 a. Domestic Tax Revenue 1,439,998.6 1,506,577.5 Revenue Composition(%) 72,3% 73,3% 74,9% 74,0% 84,5% 84,9% 1) Income Tax 679,370.1 757,230.1 - Non-Oil & Gas Income Tax 629,835.3 715,788.6 - Oil & Gas Income Tax 49,534.8 41,441.5 2) VAT 576,469.2 571,732.7 3) Land and Building Tax 26,689.9 19,408.0 4) Duties 145,739.9 146,439.9 5) Other Tax 11,729.5 11,766.8 b. Tax from International Trade 49,256.9 40,087.1 1) Import Duty 37,203.9 37,203.9 2) Export Duty 12,053.0 2,883.2 General policies to achieve taxation target includes: a. Optimize tax revenue by maintaining conducive investment climate; b. Maintain national economic stability and protect purchasing power; c. Improve national competitiveness and industry valueadd; d. Control consumption of excisable goods. 37,8% 35,9% 32,9% 34,8% 1,5% 1,6% 1,9% 1,3% 18,1% 17,7% 1,2% 0,7% 2011 2012 2013 2014 2015 2016 Non Tax Perpajakan Tax Revenue PNBP Hibah Grant Revenue Extra Effort to Reach Revenue Target 2016 TAX Optimize examination efforts i.e. focus on primary sectors in each regional office, transfer pricing and fraud Extend and Intensify services to Tax Payers i.e. data matching, optimize IT system, e-tax invoice, regulation reform Year 2016 as the Year of Law Enforcement i.e. through active tax billing, examination and investigation CUSTOM AND EXCISE Improving audit performance Revise target of audit object Boost supervision, action and investigation efforts Increase operations to monitor distribution of excisable goods 28

Incentives Incentives Pioneer Industry/Projects High Priority Industry/Projects Reform in the Budget (Revenue, Spending, Financing) as part of a larger structural reform Tax Allowance Tax Holiday Tax Allowance Facility Up to 30% of invested capital is deductible for tax purposes Tax Holiday Facility Income Tax Relief or Reduction High economic integration Contributes high value addition and externalities Introduces new technology Has strategic role on the national economy Support economic diversification Strengthen national industry structure Competitive in the international market High absorptions of workers and supporting technology transfer Located outside Java, Bali, and Batam Islands (Remote Areas & KTI) Taxable Income reduction amounting up to 30% of the invested capital Corporate income-tax relief for a minimum period of 5-15 years. Can be extended to 20 years Accelerated depreciation and amortization Eligible industries: Reduction of Income Tax on dividend from 20% to 10% Extended loss carried forward (from 5 years) to max of 10 years Eligible Industry: 66 sector industries and 77 sector industries in specified region Basic metal industry Oil refinery Petrochemical industry Machinery Agricultural, forestry and fisheries Telecommunication, information and communication Marine transportation Major manufacturing in Special Economic Zone Infrastructure, ex. PPP projects 29

Targeted Tax Incentives to Attract Investment supportive fiscal (tax allowance and tax holiday) to further improve business climate Improve regulation; Tax amnesty, Amendment of Income tax law (UU PPh), VAT law (UU PPN), General tax provisions and procedures (UU KUP), and non tax revenue (PNBP). Reinventing policy, E-Invoice, Compliance risk management. Adjustment of non-taxable income threshold. Broaden tax base, improve compliance, improve tax administration and improve the Tax Office Information and Communication Technology (ICT). Improve fiscal incentives for strategic purposes. Optimize non-tax revenue from government institution. Keep budget deficit under constitutional threshold (3% of GDP). Mix budget financing instruments and currencies. Combine financing sources with competitive terms and conditions (Bilateral loan, DDO, etc). Increase capital injection to SOEs to include SOEs in infrastructure development. Revenue Financing Expenditure Develop priority infrastructure projects as committed. More efficient spending. Better targeted subsidy scheme. Fulfill mandatory spending. Improve Government procurement regulation. Continue targeted subsidy reform (Electricity, seed, Fertilizer, Interest (KUR)). Stimulate regional economies to reach optimum growth by introducing transfer to rural regions (dana desa). Larger Budgetary allocations for: Infrastructure projects Social welfare Cashless smart cards Rural transfers 30

Optimization of Government Revenue the focus of government to broaden tax base, increase compliance, and improve the quality of tax administration Grand Strategy to Achieve Taxation Target Control the consumption of goods subject to customs Improve competitiveness and added value to the national industry Maintain national economic stability and people's purchasing power Optimization of tax revenue to maintain investment climate Policy Direction Shifting the sources of income derived from commodities Widening the scope of revenue base Increasing the level of tax compliance Prevent tax leakage, especially VAT refunds Control the consumption of goods subject to customs Tax Policies Improvement of tax administration Tax Amnesty Compliance Risk Management Reinventing policy; e-invoice Extensification and Intensification of Taxpayers Data matching, optimization of IT, e-tax invoice, improved regulation Optimization of inspection The focus of the leading sectors of each regional office, transfer pricing, and fraud; Implementation of 2016 as the year of Law Enforcement Adjustments to Non-Taxable Income Threshold Revision on Taxation Regulation (Amendments Tax Procedures Law, Income Tax Law, and VAT Law) 31

Tax Amnesty Scheme as a Policy Breakthrough short and long term impact is expected to be very positive on economic growth Objectives Assets and Properties of Indonesian Citizen Deposited Overseas Accelerating Economic Growth through Asset Repatriation Increase domestic liquidity Create lower interest rate Improve the stability of IDR currency Support investment growth + Expanding Tax Base through Reliable, Integrated and Comprehensive Database Providing tax relief for taxpayers who revise their unreported assets Rp Rp Rp Increasing More Sustainable Tax Collection Paying for certain amount of compensation Lowering tax rate for repatriation than declaration Lowering tax rate for early reporting By the implementation of Automatic Exchange of Information (AEOI) globally in 2018, taxpayers could not hide the information of their asset to avoid taxation 32

Stimuli to Maintain Purchasing Power The Virtuous Cycle of Purchasing Power Stimuli Consumption is still the largest contributor to Indonesia s GDP Ease of Land Certification and Licensing for Street Vendors Increase Non-taxable Income Limit Fuel Price And Electricity Adjustment Private consumption has been a key factor driving Indonesia s economic growth in recent years The Government has designed stimulus program to maintain and enhance purchasing power of the people 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 Ensure the Availability of Medicine and Medical Tools to Optimize the Quality of Public Health Insurance 33

Stimuli to Promote Investment 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 Special Economic Zones Eliminate Double Taxation for REITS and Tax Incentive for REITS Issuance Dwelling Time Optimization Oil Refinery Development Aviation Sector Incentives Downstream Industries Debt To Equity Ratio SME Loan Improvement: Expansion of Coverage, Interest Subsidy, Special Rate for Export Oriented SME Accelerate export import process, esp. in Harbor 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 34

Transfer to Local Government and Rural Also Being Revisited Policy Reform for 2016 Transfer to Region 1. Transfer to region to be closer or even higher than line ministries 2. Increasing the amount and improving the formula of General Allocation Fund (DAU) as an equalization grant 3. Strengthening Specific Allocation Fund (DAK) as an instrument to improve the quality of public infrastructure as well as a tool to support national priority 4. Strengthening and improving incentive mechanism through reform on Regional Incentive Fund (DID) policy 5. Strengthening village fund IDR tn 2.500 2.000 1.500 1.000 500 0 345 697 411 884 481 1.011 513 574 1.137 1.204 665 770 1.320 1.326 2010 2011 2012 2013 2014 Revised Budget 2015 Central Government Spending Regional & Rural Transfer Budget 2016 Objectives of non-cash scheme on regional transfer, are: 1. To encourage a more healthy, efficient, and effective regional budget management 2. To push a more optimum and timely regional budget disbursement 3. To lesser regional government unusual cash and/or bank deposits Non-cash scheme can be delivered by government sharia/obligation scheme Time period of the sharia/obligation is 3 months, with yield 50% of interest rate of government deposit in Bank Indonesia (65% from BI rate) 35

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Future Growth Policies Geared Towards Investments Share of Growth Geared Towards Investment % of GDP 100 80 60 40 20 0 Increased 32,1 32,6 32,8 share of investments 39,0 2,2 1,2 1,1 in GDP 1,0 56,2 56,1 56,3 54,9 2013 2014 2015 2019 Target Policy to Accelerate Infrastructure Development Incentive for Business Sector expected to create stable trade sector Policy to Maintain Purchasing Power Household Consumption Non Profit Private Consumption Investment Source: BPS Stable Dependency Ratio Showing Sustainable Support for Investment Activities 90 80 70 60 50 40 30 Source: Euromonitor Indonesia will continue to have young and vibrant population as evidenced by stable dependency ratio outlook China India Russia Strategies & Policies to Boost Investments 1. Maintain economic stability to promote strong business and investment climate 2. Simplify licensing and investment procedures 3. Harmonize investment regulations between central government and local governments 4. Consistently improve the involvement of state owned enterprise (SOE) in infrastructure development 5. Increase the role of banking institutions in lending rate development, especially for working capital and investment credits 6. Expand the role of non-bank financial institutions in the development of infrastructure financing alternative The Government will encourage the development of infrastructure projects to boost investment opportunities and create greater competitiveness for Indonesian economy 36

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 41 47 53 68 77 114 105 102 146 156 138 178 267 255 311 306 310 290 312 345 350 376 409 419 Improvement in Budget Implementation Supports Sustainable Economic Growth Government Spending grew 11% CAGR from 2010 2016 with Regional and Rural Transfer Allocation Outgrowing Central Government Budget (IDR tn) 2.500 2.000 1.500 1.000 500 0 345 697 411 481 513 574 665 770 884 1.011 1.137 1.204 1.320 1.326 2010 2011 2012 2013 2014 Revised Budget 2016 Budget 2015 Central Government Spending Regional & Rural Transfer Reallocation of Energy Subsidies to Productive Areas: Education, Healthcare and Infrastructure 10 Ministries with Highest Budget Allocation Budget (IDR tn) Min. of Public Works and Housing 104.1 Min. of Defence 99.5 National Police 73.0 Min. of Health 63.5 Min. of Religious Affairs 57.1 Min. of Basic Education 49.2 Min. of Transportation 48.5 Min. of Higher Education and Research 40.6 Min. of Finance 39.3 Min. of Agriculture 31.5 The Result of Online Procurement: Acceleration of Capital and Goods Spending in 2015 (IDR tn) 450 300 150 0 2011 2012 2013 2014 Revised Budget 2015 Budget 2016 Education Healthcare Energy Subsidy Infrastructure EDUCATION 28.3% HEALTH 75.4% ENERGY SUBSIDY 60.7% INFRASTRUCTURE 103.5% Comparison between average allocation in 2015-2016 and 2011-2014 (IDR tn) 140 120 100 80 60 40 20 0 2015 Revised Budget Capital Spending Profile 2015 2014 (IDR tn) 180 150 120 90 60 30 0 2015 Revised Budget Goods Spending Profile 2015 2014 37

Spending Profile Improvement...2015 spending as evidence, 2016 will be further improved Acceleration of capital and goods spending in 2015 results from: Adoption of online procurement system Task force team for disbursement acceleration and evaluation (TEPRA) establishment Regular meeting of assets and liability management Revision on Government Procurement Regulation 2015 Revised Budget Capital Spending Profile (Nominal) 2015 Revised Budget Goods Spending Profile (percentage to target) (IDR tn) % to Target 12.000 10.000 8.000 10.752 7.848 2016 2015 6,00% 5,00% 4,00% 5,33% 4,26% 2016 2015 6.000 5.356 3,00% 2,66% 4.000 2.000 0 1.459 100 194 1.566 Early auction for 2016 projects 1.318 Januari Februari Maret 2014 3.935 0,11% 0,04% 0,48% (Projects auctioned in Q4 2015: Public Road, Power Plants, Housing and Facilities, Railways, Ports, Ships Procurement, Agriculture Infrastructures, O&G Infrastructures, Energy Conversion Infrastructures, LPF and Fuel Storage Tanks, with total value IDR 107,5 tn) Pre-funding to optimize cost ahead of possible Federal Funds rate hikes and anticipate developments in global environment. (USD 3.5 bn Front Loading Issuance for 2016 Budget Financing) 2,00% 1,00% 0,00% 0,72% 0,85% Moderate spending on Q1-2015 due to some re-organization of Line Ministries that affected spending profile 1,43% Jan Feb Mar 2014 38

Public Private Partnership And Private Sector Budget State Owned Enterprises Alternative Source of Infrastructure Financing 2015 2019 Infrastructure Plan New Roads 2,650 km Highway 1,000 km Road Maintainance 46,770 km Bus Corridors 2 New Sea Ports 24 Sea Port Development 59 Pioneer Cargo Ships New Airports 15 Airport Infrastructure Development Airplanes 20 Rail lines 2,159 km Intra City Rail Lines 1,099 km Infrastructure Financing Needs 2015-2019 Scenario 1 (Full Scenario) Scenario 2 (Partial Scenario) Baseline (Baseline) Roads 1,274 851 637 Rail System 278 222 140 Urban Transportation 155 115 75 Sea Transportation 563 424 282 Ferry and Other Waster Transportation 91 80 60 Air Transportation 182 165 100 Electricity 1,080 762 714 Other Energy dan Gas 535 420 268 Waer Resources 1,091 845 645 Water and Sanitation 666 450 330 Public Housing 384 247 180 Information and Communication Technology 242 200 130 Total 6,541 4,781 3,561 SOEs and PPP Become Alternative Source of Funding as Government Budget Could Only Support ~20% of Our Infrastructure Needs Central & Regional Budget (Special Allocation Fund & Rural Transfer) Mainly to support basic infrastructure projects: Food Security: Irrigation, dams etc. Maritime: Seaports, shipyards etc. Connectivity: Village roads, public transportation etc. Government to inject capital to SOEs with leveraging process a multiplier effect, more infrastructure projects can be developed Key focus areas: For commercial and/or complex projects Medium term infrastructure developments focus: electricity and power plants, toll road Government support for PPP : Land Fund: Modification and simplification of land acquisition process Project Development Facility (PDF) through PT Sarana Multi Infrastructure Indonesia Infrastructure Guarantee Fund (IIGF) Viability Gap Fund (VGF) Projects Ready for Auction under PPP Scheme: Toll roads projects such as Balikpapan-Samarinda, Manado-Bitung Railway projects such as Halim-Soetta Airport Express Railway Water supply such as West Semarang water supply project Infrastructure Fund & Availability Payment (AP) 39

Budget Financing Breakdown in 2016 Breakdown of Budget Financing IDR tn US$ bn Redemption IDR294.5tn Government Debt (net) 330.88 25.07 Government Securities (net) 327.22 24.79 Issuance 546.62 41.41 Redemption & Cash Management (216.39) (16.39) Debt (Gross) IDR625.4tn Debt Portfolio Management (3.00) (0.23) Domestic Loans (net) 3.26 0.25 Withdrawal 3.71 0.28 Non-Debt Financing IDR57.7tn Budget Financing IDR273.2tn Redemption (0.45) (0.03) Foreign Loans (net) 0.40 0.03 Withdrawal 69.18 5.24 Redemption (68.78) (5.21) Source: Ministry of Finance. USD/IDR: 13,200 40

Government Securities Financing Plan for 2016 Instruments Indicative Target (IDR bn) Preliminary Budget Indicative Target (US$ mm) Government Securities (Net) 327,224 24,790 Redemption 197,339 14,950 Cash Management 19,054 1,443 Buyback 3,000 227 Government Securities (Gross) 546,618 41,410 Composition Domestic 76% Auction 66% Non-Auction 10% International Bond 24% Weekly Auction: Conventional securities Islamic securities Domestic Bonds ATM for Government Securities (SBN) by auction Non-Auction: 9-11 years Retail bonds 23 x 23 x Sukuk Retail (Q1), SBR 1 (Q2), Sukuk Tabungan 2 (Q3), and ORI 3 (Q4) Government Issuance Targets Sukuk 24% Debt Securities 76% International Bonds Issuance of International Bonds as complement to avoid crowding out in domestic market and provide benchmark for corporate issuance, consists of USD, YEN or EURO global bonds Maximum issuance international bond 30% from target gross Private Placement Based on request Front Loading Issuance For Budget Financing Pre-funding to optimize cost ahead of Fed rate hike Anticipate developments in global environment Our target is to 68% front load the annual budget in 1H16uhjy Government Debt Outstanding (as of Dec 2015) IDR tn US$ bn Total Govt. Debt Outstanding 3,098 235 Govt. Debt / GDP Ratio 26.8% Source: Ministry of Finance, USD/IDR: 13,200 1 SBR: Saving Bond Ritel or Retail Savings Bond 2 Sukuk Tabungan means Sukuk Savings Bond 3 ORI: Obligasi Ritel Indonesia or Indonesian Retail Bond 41

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 (%) Change in Debt to GDP Ratio (2005 2015) (%) 250 26.8% 24.5% 24.9% 23.1% 23.0% 24.7% 200 54 69 64 54 58 150 69 100 118 131 141 155 169 136 50 0 2010 2011 2012 2013 2014 2015 Securities (LHS) Loans (LHS) Source: Ministry of Finance Weighted Average Debt Maturity of ~9.28 Years (2015) (1) 30 25 20 15 10 5 0 Indonesia Philippines Turkey India Thailand Brazil Germany Poland Italy Japan Colombia Malaysia South Africa United States United Kingdom Chile Australia (80,0) (30,0) 20,0 70,0 120,0 170,0 220,0 270,0 (43,3) (39,4) (39,0) (19,3) (1,0) 2,0 5,3 8,7 30,6 31,9 33,0 34,3 52,1 61,6 113,7 Source: IMF World Economic Outlook Database, October 2015 Well Diversified Across Different Currencies 159,3 230,3 10,00 9,75 9,50 9,25 9,46 9,32 9,70 9,60 9.73 9,28 (1) % of Yearly Issuance 100% 80% 60% 40% 20% 3% 3% 3% 3% 2% 2% 4% 3% 3% 3% 3% 3% 18% 17% 14% 12% 9% 8% 29% 31% 21% 22% 24% 29% 54% 55% 56% 53% 57% 56% (1) 9,00 2010 2011 2012 2013 2014 2015 ATM (in years) Source: Ministry of Finance 0% 2010 2011 2012 2013 2014 2015 IDR USD JPY EUR Others Source: Ministry of Finance 1 Preliminary figures in 2015 42

6 45 29 23 23 23 8 17 24 23 22 16 88 76 109 93 76 71 60 48 53 42 47 53 1 28 16 28 4 29 1 1 99 98 22 28 14 122 24 14 23 20 14 32 185 160 28 79 112 17 9 92 108 101 109 109 126 85 80 Well Balanced Maturity Profile With Strong Resilience Against External Shocks Declining Interest Rate Risks % Declining Exchange Rate Risks % 30,0 25,0 20,0 15,0 10,0 5,0 20,3 26,1 25,9 18,8 22,5 23,2 16,2 16,0 21,0 21,1 14,8 14,0 50,0 40,0 30,0 20,0 10,0 46,2 45,1 44,4 11,3 10,4 10,2 46,7 43,4 43,9 11,7 10,7 11,8 0,0 2010 2011 2012 2013 2014 2015 0,0 (3) (3) 2010 2011 2012 2013 2014 2015 Variable Rate Ratio (1) Refixing Rate (2) FX Debt to GDP Ratio FX Debt to Total Debt Ratio Debt Maturity Profile Upcoming Maturities (Next 5 Years) IDR tn % 300 250 200 150 40,0 30,0 20,0 20,8 34,2 34,6 22,7 32,4 33,4 33,9 21,5 21,8 20,1 21,8 35,3 100 50 10,0 7,1 8,2 7,2 8,6 7,7 8,5 0 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046-2060 IDR-Denominated Other Currencies 0,0 2010 2011 2012 2013 2014 2015 In < 1 year In < 3 year In < 5 year (3) 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) 3 Preliminary figures for 2015 43

Financing Policy 2016 2015 2016 Description (IDR tn) R-Budget Budget I. Domestic Financing 242,5 272,8 1. Domestic Banking 4,8 5,5 2. Domestic Non-Banking 237,7 267,3 II. Foreign Banking -20,0 0,4 1. Foreign Outstanding Loan (Gross) 48,6 75,1 a. Program Loan 7,5 36,8 b. Project-Based Loan 41,1 38,3 2. Standby Loan Agreement (SLA) 4,5-5,9 3. Foreign Debt Principal Repayment 64,2-68,8 TOTAL 222,5 273,2 Debt Financing Maintaining safe level debt ratio Optimizing domestic bond market Issuing project-based financing Utilizing bilateral or foreign loan, which offer mutualism partnership. (If needed) Broadening investment instruments to enrich source of fund Monitoring debt position by conducting Asset Liabilities Management (ALM) regular meeting IDR tn 0,0 (50,0) (100,0) (150,0) (200,0) (250,0) 2010 2011 2012 2013 2014 (0,73) (1,14) Defisit % to PDB (1,86) (2,33) (2,25) 2015 R-Budget (1,90) 2016 Budget (2,15) % 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 (300,0) (3,0) 44

Profile of Total Central Government Debt Government Debt Outstanding USD bn 199.48 204.51 194.55 209.41 214.88 224.60 229.70 243,80 Increasing Foreign Ownership of Government Securities at Longer Tenors 100 80 % 65.66 68.82 70.04 74.13 75.81 75.73 76.14 76.95 76.14 60 67,04 63,16 72,84 76,5 76,39 83,66 83,52 83,87 84,27 40 30,53 30,8 32,98 32,54 38,13 38,21 38,94 38,98 38,59 34.34 31.18 29.96 25.87 24.19 24.27 23.86 23.05 2011 2012 2013 2014 Jun-15 Des-15 Jan-16 Mar-16 20 0 24,97 22,78 19,32 18,29 18,96 13,1 13,44 13,10 12,45 10,18 11,87 7,84 5,2 4,65 3,23 3,04 3,04 3,28 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Feb-16 Mar-16 Loan Government Securities 0-1 >1-5 >5 Foreign Ownership to Total (RHS) Foreign Holders of Government IDR Bonds Composition Maret 2016 100 80 36,63 36,53 33,7 31,04 23,95 29,81 30,53 38,48 (%) 60 40 32,58 30,49 33,76 30,83 37,85 31,25 30,48 32,89 20 30,8 32,98 32,54 38,13 38,12 38,94 38,98 38,48 0 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Feb-16 Mar-16 Foreign Holder Domestic Non Banks Domestic Banks Source: Ministry of Finance 45

Profile of Total Central Government Debt Maturity Profile Central Government by Instruments IDR tn Maturity Profile Central Government by Currencies IDR tn Source: Ministry of Finance 46

Ownership of IDR Tradable Central Government Securities (in trillion Rp) Description Dec-12 Dec-13 Dec-14 Dec-15 Jan-16 Mar-16 Banks* 299,66 36,73% 335,43 33,70% 375,55 31,04% 350,07 23,95% 442,76 29,81% 451,00 28,63% Govt Institutions (Bank Indonesia**) - 0,00% 44,44 4,47% 41,63 3,44% 148,91 10,19% 56,41 3,80% 52,70 3,35% ` Bank Indonesia (gross) Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 150,18 Jan-16 10,11% 149,98 9,52% GS use for Monetary Operation 93,77 6,31% 97,28 6,18% Banks* 265,03 36,63% 299,66 36,73% 335,43 33,70% 375,55 31,04% 350,07 23,95% 442,76 29,81% Govt Institutions (Bank Indonesia**) 7,84 1,08% - 0,00% 44,44 4,47% 41,63 3,44% 148,91 10,19% 56,41 3,80% Non-Banks 517,53 63,21% 615,38 61,83% 792,78 65,52% 962,86 65,87% 985,99 66,39% 1071,42 68,02% Bank Indonesia (gross) 150,18 10,11% Mutual Funds 43,19 5,28% 42,50 4,27% 45,79 3,78% 61,60 4,21% 61,48 4,14% 67,57 4,29% GS use for Monetary Operation 93,77 6,31% Insurance Company 83,42 10,21% 129,55 13,02% 150,60 12,45% 171,62 11,74% 173,26 11,67% 192,29 12,21% Non-Banks 450,75 62,29% 517,53 63,21% 615,38 61,83% 792,78 65,52% 962,86 65,87% 985,99 66,39% Mutual Foreign Funds Holders 47,2270,52 6,53% 32,98% 43,19 323,83 5,28% 32,54% 42,50 4,27% 461,35 45,79 38,13% 3,78% 558,5261,60 38,21% 4,21% 578,32 61,48 38,94% 4,14% 606,08 38,48% Insurance Company Foreign Govt's&Central Banks 93,09 12,86% 83,42 10,21% 129,55 13,02% 150,60 12,45% 171,62 11,74% 173,26 11,67% 50,06 6,13% 78,39 7,88% 103,42 8,55% 110,32 7,55% 110,98 7,47% 112,31 7,13% Foreign Holders 222,86 30,80% 270,52 32,98% 323,83 32,54% 461,35 38,13% 558,52 38,21% 578,32 38,94% Pension Fund Foreign Govt's&Central Banks 56,46 6,91% 39,47 3,97% 43,30 3,58% 49,83 3,41% 52,24 3,52% 56,15 3,57% 50,06 6,13% 78,39 7,88% 103,42 8,55% 110,32 7,55% 110,98 7,47% Pension Individual Fund 34,39 4,75% 56,46 32,48 6,91% 3,26% 39,47 3,97% 30,41 43,30 2,51% 3,58% 42,53 49,83 2,91% 3,41% 41,42 52,24 3,52% 2,79% 65,85 4,18% Individual Others 63,64 7,79% 46,68 4,69% 32,48 3,26% 60,51 30,41 5,00% 2,51% 78,5042,53 5,37% 2,91% 78,99 41,42 2,79% 5,32% 83,47 5,30% Others 53,05 7,33% 63,64 7,79% 46,68 4,69% 60,51 5,00% 78,50 5,37% 78,99 5,32% Total 817,19 100% 995,25 100% 1.209,96 100% 1.461,85 100% 1.485,16 100% 1.575,12 100% Total 723,61 100% 817,19 100% 995,25 100% 1.209,96 100% 1.461,85 100% 1.485,16 100% 1) Non Resident are consisted of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company, and Pension Fund. 2) Others such as Securities Company, Corporation, and Foundation. *) Including the gov't securities used in monetary operation with Bank Indonesia. **) net, excluding gov't securities used in monetary operation with Banks. Source: Ministry of Finance 47

Government Securities Realization Budget 2016 Realization (a.o. March 29, 2016) % Realization to Revised Budget 2016 Government Securities Net 327.224.357 171.716.143 52,48% Government Securities Maturing in 2016 and Buyback 228.839.399 90.698.489 39,63% Issuance Need for 2016 556.063.756 262.414.632 47,19% Government Debt Securities (GDS) 164.497.132 Domestic GDS 115.854.132 -Coupon GDS 81.700.000 -Conventional T-Bills 17.400.000 -Private Placement 16.754.132 -Retail Bonds - International Bonds 48.643.000 -USD GMTN 48.643.000 -Euro GMTN - -Samurai Bonds - -Domestic GDS - Government Islamic Debt Securities 97.917.500 Domestic Government Islamic Debt Securities 64.510.000 - IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) 30.510.000 - Retail Sukuk 31.500.000 - Private Placement 2.500.000 Global Sukuk 33.407.500 * Based on projection of deficit 2,15% * Adjusted by changes in Cash Management & Debt Switch Source: Ministry of Finance 48

Section 5 Monetary Factor: Monetary Policy Anchors Price Stability

Bank Indonesia Policy Mix: 2015-2016 18 June 2015 Loosens Macroprudential Policy Increase the Loan-to- Value (LTV) ratio Reduce downpayments for automotive loans 17 November 2015 Lowering IDR Primary RR by 50bps from 8.0% to 7.5%. Effective since 1 Dec 2015 18 February 2016 Cut BI Rate 25 bps to 7% Cut DF & LF Rate at 5% & 7.5% resp. BI lower the rupiah denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from 16th March 2016 21 April 2016 Hold BI Rate at 6.75%, and maintain DF & LF Rate at 4.75% & 7.25% respectively. Reformulate policy rate from BI Rate into the 7 day (Reverse) Repo Rate to improve the effectiveness of monetary policy transmission. The change will be effective on August 19th 2016 26 June 2015 Reserve Requirement Policy: RR-LDR RR-LFR Accomodate banks SMEs loan in RR calculation 14 January 2016 Cut BI Rate 25 bps to 7.25% Cut DF & LF Rate at 5.25% & 7.75% resp. BI lower its monetary operation rates even further, ranging from 25bps to 45bps (O/N to 1Y) 18 March 2016 Cut BI Rate 25 bps to 6.75% Cut DF & LF Rate at 4.75% & 7.25% resp. Room for monetary easing exists on the back of solid macroeconomic stability especially in terms of less intense inflationary pressures in 2016 as well as less uncertain global financial markets The reduction of the BI Rate and primary reserve requirement is expected to strengthen efforts to boost the ongoing economic growth 50

Bank Indonesia Policy Mix The BI Board of Governors agreed on 20th and 21st April 2016 to hold the BI Rate at 6.75%, while maintaining the Deposit Facility and Lending Facility rates at 4.75% and 7.25%, respectively Hold the BI Rate to 6.75% Reformulate policy rate from BI Rate into the 7 day (Reverse) Repo Rate to improve the effectiveness of monetary policy transmission. The change will be effective on August 19th 2016 Remain vigilant towards global developments, specifically China s economy, central banks policy convergence, and international commodity prices Maintain exchange rate stability in line with the currency s fundamental value Maintain accommodative macro-prudential policy, while continuing financial market deepening Strengthen coordination with the Government to support sustainable economic growth while maintaining macroeconomic stability Tenor 7-day 2 Weeks 1 Month 3 Months 6 Months 9 Months 12 Months Term Structure of Monetary Operations 5.50% 5.50% 5.80% 6.20% 5.50% 6.60% 6.75% 51

Enhancement Of Monetary Operations Framework Background: BI RATE BI Rate as Reference Rate 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 ENHANCEMENT Challenges Transmission of monetary policy is less effective: First, 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. Second, the shallow financial markets also inhibit the transmission of monetary policy. 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. 52

Enhancement Of Monetary Operations Framework The New Policy Rate: BI Rate BI 7-Day Repo Rate 12 months (equivalent) Non- Transactional Not optimally reflected in money market interest rates Cost of being illiquid is too high, does not support financial deepening OMO Term Structure Character Transmission Financial Deepening 7 day Transactional (Central Bank) Stronger relationship to the money market interest rates Cost of being illiquid is lower, support financial deepening 53

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar Stable Monetary Environment Despite Challenges Pre-emptive and Bold Monetary Policy % 8,00 7,00 6,00 5,00 6,50 6,75 6,50 6,00 5,75 6,50 6,00 7,25 7,00 7,50 7,75 7,50 7,25 7,00 6,75 Managed Core Inflation Over The Past Few Months % 20 15 10 5 0 9.59 4.45 3.50 2.76 2010 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) Supported by Substantial FX Reserves to Mitigate External Challenges ) US$ bn 140 70 0 Source: Bank Indonesia FX Reserves as of March 2016: US$107.5 Bn (Equiv to 7.8 months of imports + servicing of government debt) 2011 2012 2013 2014 2015 FX Reserves (LHS) Months of Imports + Debt Service (RHS) 7,8 107,5 8 6 4 2 0 Rupiah Exchange Rate Remains Comparable to Peers YTD 2016 (2) vs 2015 (%) BRL MYR ZAR EUR IDR TRY KRW THB PHP INR (0,14) 2,77 2,45 2,03 4,11 3,96 3,61 5,77 10,26 10,12 Data as of 31 March 2016 (1,00) 1,00 3,00 5,00 7,00 9,00 11,00 % 54

Banking Sector Continues to Show Resilience Capital Adequacy Ratio (CAR) & Non Performing Loan (NPL) (%) Capital Adequacy Ratio (CAR) (RHS) Gross Non-Performing Loan (NPL) (%) 5 25 21,7 4 20 2,9 3 15 2 10 1 5 0 0 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 2013 2014 2015 2016 Source: Bank Indonesia Loan-to-Deposit Ratio Well Maintained Within the Target Range LDR (%) 93 92 91 90 89 88 87 86 85 84 83 Source: Bank Indonesia 89,42 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 2013 2014 2015 2016 Credit Growth 40% 35% 30% 25% 20% 15% 10% 5% 0% 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 Source: Bank Indonesia Total Growth Investment Loans Working Capital loans Consumption Loans 2013 2014 2015 2016 Act of Financial System Crisis Prevention and Resolution (PPKSK) Strengthening the role, function, and coordination among the 4 financial authorities in the crisis prevention and resolution. Financial crisis prevention by strengthening the regulatory and supervisory functions of banking especially against SIBs. Strengthening the resolution of systemic bank issues by prioritizing bail-in principle. BI provides Short-Term Liquidity Loans (PLJP) to banks which are solvent and has sufficient collateral. Implementation of the action plan (recovery plan) by OJK and early intervention by LPS in the event of a systemic bank experiencing solvency issues. In financial distress, the president has full authority to take decisions for crisis handling. Immunity and Legal Protection for KSSK members (MoF, BI, OJK, LPS). 12,8 9,2 8,2 5,3 55

Continuous Financial Deepening Program Priority on strengthening institutional support, including cross authority coordination forum and other supporting institution Institutional Support Instrument and Investor Based Priority on developing investor base, instruments (investment, financing, liquidity and risk management instruments), and encourage reference rate credibility Priority on promoting efficiency and transparency on transaction and settlement system (ETP and CCP) Market Infrastructure Education & Socialization Regulation and Standardization Priority on clarity, harmonization of regulations, relaxation of regulation to support financial market development, and standardization of transactions agreements and accounting treatments (Repo) 56

Stronger Fundamentals Facing the Headwinds Inflation Rate IDR Depreciation BI Rate Inflation controlled under the revised Budget target Depreciation rate lower than 1998 & 2009 BI Rate is lower than 2008 60,0 1998 82,4 1998 197,0 2008 12,1 2008 35,0 9,5 6.75 7,5 Mar Sep-15 16 6,8 4,45 (yoy) Mar Sep-15 16 3.96 15,5 (ytd) 1998 2008 Apr Okt-15 16 Non-Performing Loan (NPL) Government Debt/GDP Foreign Reserves NPL level is below the maximum threshold of 5% Continue to decline and allocated to productive sectors Significantly higher than 1998 & 2008, ample to cover 7.3 months of import and external debt repayment 1998 30,0 1998 17,4 2008 3,8 100.0% 1998 27.4% 2008 15.9% 2008 50,2 Agu-15 Feb 16 2,8 2.9 Dec 2015 Mar Sep-15 16 107,5 External Debt (Public & Private) to FX Reserve Ratio Significantly lower than 1998 crisis More Liquid Market Overnight interbank money market rate is relatively lower 62 External Debt/GDP Slightly higher than 2008, but significantly lower than 1998 8.6x 1998 3.1x 2008 3.0x Dec-2015 10,5 5,0 5,7 1998 2008 Jul-15 Mar 16 116.8% 1998 33.2% 2008 36.1% Q4-2015 57

Economic Outlook 2016 Economic Outlook Economic growth expected to increase, supported by fiscal stimulus. Private investment is expected to increase as a result of government policy packages and measurable monetary easing. Inflation projected at the lower end of the 4±1% inflation target, with the current account deficit is projected below 3% of GDP. Credit is projected to grow 12-14% on the back of improving purchasing power and fiscal stimulus. Economic Growth Inflation CAD (% GDP) Credit Growth 2015 4.79% 3.35% 2.06% 10.45% 2016 5.2% - 5.6% 4.0%±1% < 3.0% 12% - 14% 58

Three Directions for Indonesia s Financial Sector OJK has clearly set out three directions to develop the domestic financial sector in the medium term. From each direction, key priorities and programs are derived. A comprehensive Indonesia s Financial Sector Masterplan is scheduled to be launched in Q4-2015. Enhancing financial sector s role in boosting economic activities In ongoing efforts to achieve a robust and sustainable economic growth, the domestic financial sector is directed to play a more vital role in terms of catalyzing national economic activities. Strengthening financial sector s resilience to maintain financial system stability To support the sustainability of economic development, financial stability plays an important role. To that end, financial sector must maintain its resilience to confront possible shocks that could emerge from the domestic or external environments. Enhancing financial sector s role in improving financial inclusion and promoting equality Financial sector has the opportunity to play an increasingly significant role in overcoming inequality that may arise. Initiatives undertaken by OJK include promoting financial inclusion and catalyzing local economy. 59

Financial Sector to Enhance Its Role in Boosting Economic Activities In ongoing efforts to achieve a robust and sustainable economic growth, the domestic financial sector is directed to play a more vital role in terms of catalyzing national economic activities. Hence, OJK undertakes a series of initiatives for each financial sector. Enhancing the role of financial sector in the development financing Enhancing the role of financial sector in improving competitiveness and fostering growth Continuous education and socialization to potential issuers, collaborating with the stock exchange and relevant agencies Simplification of public offering process and rationalization of disclosure requirements Expansion of investment products to finance particular sectors (e.g. mortgage-backed securities Certificate of Participation for housing sector) Optimizing the role of venture capital as a financing source for SMEs & startups Providing more rooms for financing companies as a financing source Adjusting the risk weight in financing the prioritized economic sectors initiated by the Government Facilitating linkages between banks and relevant institutions (regional credit guarantee, rural banks, microfinance, and cooperatives) to foster rural credit growth Optimizing the role of state-owned banks to boost the efficiency and competitiveness of the national banking industry Optimizing the role of foreign-owned banks in trade and investment activities Putting forward reciprocity principles in the ASEAN banking integration Promoting the establishment of credit guarantee companies in each province Preparing measures to strengthen the capacity of the national reinsurance industry OJK also undertakes a number of initiatives in the implementation of green financing and the development of the Islamic financial sector. 60

Financial Sector to Have Enhanced Resilience to Maintain Financial System Stability To support the sustainability of economic development, financial stability plays an important role. To that end, financial sector must maintain its resilience to confront possible shocks that could emerge from the domestic or external environments. Hence, extending the contribution of financial services sector must be held simultaneously with maintaining the resilience. Strengthening the implementation of integrated supervision Strengthening regulations on financial reporting, GCG, and market conduct Continuing measures to deepen the capital market Regulating the minimum capital requirements for financial conglomerations. This regulation complements another directives issued in 2014 concerning the implementation of integrated corporate governance and risk management Standardizing financial reporting for industrial players in financial sector, thereby simplifying analysis and promoting understanding of financial performance of financial institutions Reinforcing the implementation of good corporate governance in the allocation of profits to corporate owners and management, with high regards to future potential risks Monitoring and analyzing consumer protection (market conduct) using the selfassessment and thematic surveillance approaches, in order to maintain consumer loyalty on financial service providers Continuously developing the capital market infrastructure. In 2015, focus of development will be put on enhancing the clearing and settlement system, developing a capital market data warehouse, and developing e- registration, e-licensing, and e- monitoring systems Increasing the trading liquidity in the secondary debt market. Measures include the implementation of electronic trading platform for the debt market and the issuance of regulations on Global Master Repurchase Agreement (GMRA) 61

Financial Sector to Increase Financial Inclusion and Promote Equality in Development Financial sector has the opportunity to play an increasingly significant role in overcoming inequality that may arise. Initiatives undertaken by OJK include promoting financial inclusion and catalyzing local economy. Expanding financial services to the public of all social classes Increasing the role of financial sector in catalyzing local economy Improving financial education and financial inclusion Expanding the branchless banking framework Intensifying micro-insurance programs, which include the insurance for fishermen and farmers, as well as health insurance for low-income families Broadening the opportunity for the public to invest in the capital market, including through various socialization programs and expanding the channeling of mutual fund products Revitalization of regional commercial banks through coordination with relevant agencies (including local government and regional bank association) and the integration of IT, HR, products, and risk management platform of all regional banks Issuing regulation on rural banks, distinguishing capital requirements for the establishment of rural banks based on the operation zone Promulgation of regulations on microfinance institutions and building cooperation with local governments in supervising the microfinance institutions Identification of the potential of municipal bond issuance to finance feasible local projects Continuing financial education programs and coordinating with the industry to develop appropriate products and services aimed at particular target groups In 2015, the prioritized target groups include students, professionals, and low-income families 62

Section 6 Wide Range of Policy Reforms to Boost Economic Growth

Short Run Policy Package I, II, and III to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package Stimulus Package I: 9 Sep 2015 Cut Red Tapes Rewriting 89 out of 154 regulations Deregulation policies such as relaxing visa requirements, gas price adjustment for certain industries and enhancing cooperative function Simplification to obtain business licenses and implementation of e-services Accelerate Strategic National Projects Simplifying spatial license & land accommodation Accelerating goods & service procurement for the government Discretion in legal issue barriers Strengthen the role of regional heads to accelerate national strategic project completion Boost Low Income Housing Promoting housing construction for low income citizens Expanding opportunity for investments in property sector Stimulus Package II: 29 Sep 2015 Simpler Permit Requirements Ease bureaucracy for investments via 3-hour permit issuance program Faster process for tax allowance and holiday for qualified investments to 25 days and 45 days, respectively Streamline permit requirements in forestry sector from 14 to 9 Tax Incentives Elimination of VAT for transport industries (train, shipping and air transport inc. spare parts) Reducing tax rate on deposits from export proceeds. 1-month deposit tax 10%, 3- month 7.5%, 6-month 2.5% and more than 6- month 0% Integrated Logistics Facilities Facility incentive on integrated logistic center Two facilities slated to be operational by end of 2015; Cikarang (Manufacturing) and Merak (Fuels) Stimulus Package III: 7 Oct 2015 Lower Fuel and Electricity Prices Lower retail fuel costs (jet fuel, LPG and retail fuel) Decrease gas price for factories and qualified industries Lower industrial electricity prices Land Permit Simplification for Investment Activities 3-hour turnaround for land availability Faster approval time for building, leasehold, use right and land permits Broadening of Small Business Credit Recipients Expanding criteria for allowed recipients to include salaried workers 64

Short Run Policy Package IV, V, and VI to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package Stimulus Package IV: 15 Oct 2015 Fair, Simplified and Projectable Wage System Setting Provincial Minimum Wage regulation Formula for setting minimum wage to ensure simplified, stable and projectable yearly wage adjustments Ease and Affordability of Small Business Credit Government provides subsidy on small business credit to stimulate credit growth in banking sector and affordability to applicants Expanding criteria for small business credit to include: Micro, Small and Medium enterprises in productive sectors (farming, fishery, manufacturing, creative business, trading and services) Overseas Indonesian workers with occupation in formal sectors Family members of salaried workers Ex-Overseas Indonesian workers Overseas Indonesian workers with terminated contract Stimulus Package V: 23 Oct 2015 Lower Asset Revaluation Tax Revaluation tax originally set at 10% Under new incentive, tax rates are cut according to periods, detailed below: Revaluation period until 31 Dec 2015: tax rate at 3% Revaluation period until 30 Jun 2016: tax rate at 4% Revaluation period until 31 Dec 2016: tax rate at 6% 00 Eliminating Double Taxation for REITs Eliminating double taxation system for Real Estate Investment Trusts (REITs) Encourage Indonesian property and infrastructure companies to issue REITs in Indonesia Stimulus Package VI: 5 Nov 2015 Propel Rural Economies through Development in Special Economic Zones (SEZs) Tax holiday (reduce income tax) and tax allowance (reduce net income and accelerate depreciation. No charges on value-added tax and luxury goods tax Import duty tariff require Certificate of Origin Foreigners allowed to have property Reduce tax on development and amusement in tourist areas Establish wage boards and specialized tripartite agencies Grant 30 days visitor visa which are extendable for 5 times SEZ administrator able to provide land services SEZ administrator able to issue principles and business permits Accelerating licensing process a max. of 3 hours Sustainable and Equitable Water Supply to the Community Drafting government regulations (RPP) on water resources utilization Drafting RPP on water supply systems (SPAM) Ensure that private entities do not dominate the whole SPAM subsystem Private water supplier to meet their needs on its own. Simplifying Import Licensing for Pharmaceutical Raw Materials Simplifying the licensing process to only 5.7 hours Target 100% paperless 65

Short Run Policy Package VII, VIII, and IX to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package Stimulus Package VII: 4 Dec 2015 Acceleration of Land Certification Process Increasing numbers of certified surveyor, especially from non-civil servant. Speed up the time needed to land registration announcement, from 60-30 days to 14 days Shifting land registration process to electronic system Giving communal rights for indigeneous peoples and people who lives in plantation/forest area Tax Incentive for Labor Intensive Industry Releasing Government Regulation (PP) which facilitate income tax (PPh) for the labor works in labor intensive industry for 2 years Giving tax facilities for various footwear industries throughout provinces in Indonesia Stimulus Package VIII: 21 Dec 2015 One Map Policy All government office will use only thematic map in 1:50.000 in order to accelerate the settlement of land using problem and to solve the country s borderline problem Refinery Construction 0 New refinery will be constructed in Tuban and Bontang, to support the existing refinery in Cilacap, Balikpapan, Balongan and Dumai. Incentive for Aircraft Maintenance Companies 0% of import duty will be applied for 21 tariff post regarding aircraft sparepart and maintenance components Stimulus Package IX: 27 Jan 2016 Accelerated Construction of Electricity Infrastructure The Government will support State Electricity Company (PLN) in its various actions by guaranteeing the supply of primary energy; Giving facilities for development of renewable energy sources; Streamlining of licensing through the onestop-shop; Resolution of conflicting spatial planning, provision of land and resolution of legal issues Stabilisation of Meat Prices Expanding the cattle population; Development of logistics and distribution; Improvements to the cattle and beef regulated trading schemes; Institutional strengthening involving Smallholder Livestock Centres (SPRs). Deregulation on Logistics Sector Development of commercial postal services Electronic single billing for port services SoE s synergy in development od export aggregators for SME s products, geographical indications and the creative economy Electronic port integrated services system 66

Short Run Policy Package X, XI, and XII to navigate through uncertain global environment and to stimulate domestic economic growth, Indonesia has launched a series of economic policy package Stimulus Package X: 11 Feb 2016 Easing of Investment Restrictions The government has added 19 business categories to those reserved for micro, small and medium enterprises and cooperative (MSMECs) in a revision to Presidential Decree Number 39 of 2014 concerning the List of Business Closed and Conditionally Open to Investment, more commonly known as the Negative Investment List (NIL). 35 business categories, including crumb rubber production; cold storage; tourism (restaurants, bars, cafés, recreational, art and entertainment businesses, sports facilities); the film-making industry; operation of marketplace electronic transactions above Rp 100 billion; establishment of telecommunication devices testing institutions; toll road concessions; nonhazardous waste management and disposal; and the pharmaceutical raw material industry have been taken off the NIL. The revisions to the NIL also opens 20 business categories to foreigners permitted to hold shares up to particular levels, compared to the previously required 100% domestic investment, including health support services (max. 67% foreign capital), land passenger transportation (max. 49%), the film-making industry including film distribution (up to 100%) and high/extra high voltage power utility installations. Stimulus Package XI: 29 Mar 2016 Export-Oriented People s Business Credit (KURBE) Provide complete and integrated export finance facilities for the working capital and investment needs of micro, small and medium enterprises. Real Estate Investment Trust (REITs) Issue REITs at relatively low cost in order to bolster efficiency in provision of long-term investment funds in support of accelerated construction of infrastructure and housing under the National Medium-Term Plan for 2015-2019. Risk Management for Expediting Flows of Goods in Ports (Indonesia Single Risk Management/ISRM) Expedite services for import/export activities that can offer business certainty, efficiency in times and costs of licensing, and savings in dwelling time through more effective supervision through integration of risk management among the relevant line ministries/government agencies. Further Development of the Pharmaceutical and Medical Equipment Industries Guarantee the availability of pharmaceutical preparations (i.e. drugs, drug raw materials, traditional medicines and cosmetics) and medical equipment in an effort to improve health services under the National Health Insurance (JKN) and promote affordable prices for drugs in Indonesia. Stimulus Package XII: 28 April 2016 Simplification of Licensing, Procedures, Duration, and Cost of Starting Business in Indonesia Starting Business Cutting procedures and minimum requirements in the establishment of Limited Company (Ltd.) Dealing with Construction Permit Simplification of 17 procedures / 210 days to 14 procedures / 52 days Registering Property Simplification of 5 procedures / 25 days to 3 procedures / 7 days Paying Taxes Introduce online taxation system to simplify procedure from 54-time to 10-time payments. Getting Credit Access to credit will be conducted through PT PEFINDO and PT Indonesia Jaya Credit Bureau. Enforcing Contract Contract enforcement by regulating simple lawsuit settlement Getting Electricity Simplification of electricity connection process from 5 procedures / 80 days to 4 procedures / 25 days Trading Across Borders Cut export time from 4.5 days to 3 days and export fees from USD424 to USD83. Resolving Insolvency Compensation to curator will be calculated based on the debt value, not based on debtor s asset value. Protecting Minority Investors Minority investors will be protected by the existing regulations. 67

Indonesian Policy Packages update on regulation issuance (implementation) Issued Regulation in 1 st Package Issued Regulation in 2 nd Package Logistic and Bounded Zone facilities President Decree No. 85/2015 Deposit interest for Export Proceed President Decree No. 123/2015 MoF Decree No. 26/PMK.010/2016 Facilities on VAT in Port Service VAT incentive President Decree No.75/2015 President Decree No. 69/2015; No. 81/2015; No. PP 106/2015 MoF Decree No. 267/2015, No. 268/2015 VAT Exemption for Transportation Fiscal Incentive in Logistic Area President Decree No. 39/2015 MoF Decree No. 192/2015; No. 193/2015 MoF Decree 272/PMK.010/2015 (Cikarang &Merak) Incentive for Industrialized Zone President Decree No. 142/2015 Luxury tax incentive Import duty exemption for Industry MoF Decree No. 206/PMK.010/2015 MoF Decree No. 188/PMK.010/2015 Issued Regulation in 6 th and 8 th Package Facilities for Investment in Special Economic Zone President Decree No. 96/2015 0% duty for airline related goods MoF Decree No. 35/2015 Issued Regulation in 4 th Package Regulation in Pipeline (Mostly 70% in Issuing) Tax incentive for Asset Revaluation Elimination of Double taxation in REITS MoF Decree No. 191/PMK.010/2015 MoF Decree No. 233/PMK.003/2015 MoF Decree No. 200/PMK.003/2015 Tax and Custom Exemption Facility in Industrial Area Physical Check Easing by DG Custom and Excise Import Duty Exemption for Export Oriented Product Shorten Tax Allowance and Tax Holiday Process Income Tax Relief for Labor Intensive Industry Expanding Industry Eligibility for Tax Allowance Tax Cut for REITS Issuance 68

Ministry of Finance Policy Package comprehensive approach across sectors Stimulus to Enhance Household Purchasing Power Increase non-taxable income threshold to IDR 36.0 million (~US$ 2,570) from IDR 24.3 million (~US$ 1,671) Increase distribution of rice for low income household by two months, to 14 months Faster turnaround for drawdown and realization of village fund budget Provision of official guidance on realization of village fund on labor intensive sectors and projects Slated to provide IDR 4-5 Tn (~US$ 286 357 million) in additional income and provides additional 800 thousand 1 million workforce across Indonesia Stimulus to Increase Incentive for Businesses Implemented Revision of Tax Allowance and Tax Holiday policies Levy of luxury tax (for houses, vehicles, airplanes and firearms) to provide competitive advantage on domestic industries Support small business through interest rate subsidies in small business credit (KUR). lowered to 12%, less than general SMEs credit rate Implementation of 4:1 Debt-Equity ratio for tax purposes to encourage capital inflow and improvements in capital structure Construction of integrated logistic centers, in Cikarang (Manufacturing) and Merak (Fuels) Higher threshold for property luxury tax to IDR 10 billion (~US$ 714 thousand) for apartments and IDR 20 billion (~US$ 1.4 million) for landed houses Support export financing for domestic industries through Indonesia Exim Bank via government capital allocation and National Interest Account Lower tax on asset revaluation. 3% tax before Dec 31st Remove double taxation for Real estate investment trusts (REITs) Lower tax on dollar deposit interest, especially for exporters Elimination of VAT levy on certain transportation industries (trains, river shipping and airplanes, including spare parts) On Pipeline Taxation Administrative and Regulatory Reform, including amendment of Income Tax Law, VAT Law, General Tax Administration Law and regulation regarding Tax Amnesty Develop more Special Industrial Zones outside Java with special incentives (tax allowance, tax holiday and elimination of customs fee) Support economic activities in Special Economic Zones via longer tax holiday up to 25 years Revision on Ease of Import for Export Destination (KITE) regulations by providing free import fee facilities and more efficient administration process Source: Ministry of Finance 69

Bank Indonesia Backs the Government s September Policy Package (9 th Sept. 2015) In line with the government s effort to promote economic growth, Bank Indonesia introduced the September Policy Package to support macroeconomic and financial system stability Strengthening inflation control and stimulating the real sector from the supply side Maintaining rupiah exchange rate stabilization Strengthening liquidity management Rupiah, through Open Market Operations (OMO), in order to divert the daily liquidity to longer tenors Strengthening foreign exchange supply and demand management Deepening the money market Strengthening coordination amongst the National and Regional Inflation Control Teams to accelerate implementation of the national and regional inflation control roadmap. There are currently more than 430 regional inflation control teams throughout Indonesia, each having a regional inflation roadmap. Strengthening Regional Economic and Financial cooperation between Bank Indonesia and the Government Preserving foreign exchange market confidence by controlling currency volatility Maintaining market confidence in tradable government securities (SBN) through purchases on the secondary market, while monitoring its impact on SBN availability in terms of inflow and money market liquidity. Changing the auction mechanism of Reverse Repo (RR) SBN from variable rate tender into fixed rate tender, adjust the pricing of RR SBN, and extend the tenor by issuing RR SBN 3 months Changing the auction mechanism of Certificates of Deposit of Bank Indonesia (SDBI) from variable rate tender into fixed rate tender, adjust the pricing of SDBI, and issue SDBI with 6 months tenor Reissue Bank Indonesia Certificates (SBI) tenor of 9 months and 12 months with a fixed rate tender auction mechanism as well as pricing adjustment Adjust the frequency of the auctions of Foreign Exchange (FX) swap from 2 times/week to 1 time/week Change the Foreign Currency Term Deposit (TD) auction mechanism from variable rate tender into fixed rate tender, pricing adjustment, and extend the tenor of up to 3 months; Lower the purchase limit of foreign currency by verifying the underlying documents from US$ 100,000 to US$ 25,000 per customer per month and requires the use of Tax Identification Number (NPWP) Expediting the bank foreign debt approval process while adhering to prudential principles Providing swap hedging facilities to shore up investment infrastructure and simultaneously strengthen foreign exchange reserve assets. Refining money market regulations covering all components of market development, including the instruments, players and infrastructure. 70

Monetary Policy Package: September II 30 th September 2015 Maintaining Rupiah Exchange Rate Stability The presence of Bank Indonesia in the domestic foreign exchange market to stabilise the rupiah exchange rate was strengthened through intervention in the forward market. In addition to intervention in the spot market, Bank Indonesia also intervenes in the forward market to help balance supply and demand. Maintaining balance in the forward market is important to alleviate pressures in the spot market. Strengthening Rupiah Liquidity Management Bank Indonesia reinforced rupiah liquidity management by releasing three-month Bank Indonesia Certificates of Deposit (SDBI) along with two-week reverse repo tradable government securities (SBN). The release of such open market operation instruments will absorb liquidity, prompting a shift towards longer tenor instruments, which should reduce the risk of excessive use of rupiah liquidity that could intensify pressures on the rupiah exchange rate. Strengthening Foreign Exchange Supply and Demand Management Policy to manage supply and demand on the forward market was strengthened. The policy aims to encourage forward selling transactions of foreign currencies/rupiah and clarify underlying forward buys of foreign currencies/rupiah by raising the forward selling threshold that requires an underlying document from US$1 million to US$5 million per transaction per customer and broaden the scope of underlying assets for forward sells to include domestic and offshore foreign currency term deposits. Foreign currency Bank Indonesia securities (SBBI) were also issued to back financial market deepening efforts, especially on the foreign exchange market. The holding period of Bank Indonesia Certificates (SBI) was reduced from 1 month to 1 week in order to attract foreign capital inflows. Incentive was provided in the form of a reduction in the interest tax paid on term deposits for exporters depositing their FX earnings at banks in Indonesia or converting the proceeds into rupiah as requested by the government. The policy is expected to keep FX earnings in the country for longer. BI ensured greater transparency and information availability when using FX by strengthening the FX flow report (LLD). In this case, LLD participants are obliged to report their use of FX through supplementary supporting documentation for transactions of a certain value. The regulation is pursuant to Act No. 24 of 1999 concerning the Flow FX and the Exchange Rate System, where Bank Indonesia is authorised to request information and data regarding the flow of FX from residents. 71

Financial Sector Policy Packages to Boost Growth As part of national efforts to reverse the recent economic slowdown, OJK has issued a series of financial sector policies. Such measures are directed to, among others, to maintain the level of household/private consumption and to support the Government s infrastructure development. July 2015 September 2015 October 2015 Banking sector: measure are focused on increasing bank loans to MSMEs and housing financing Adjustment of risk weighting for certain types of loans Relaxation of requirements for debt restructuring Capital market sector: Measures are focused on supporting financing for housing and infrastructure, as well as developing SMEs through financing from the capital market Development & expansion of investment products Development of municipal bonds Unlocking opportunities for SMEs to go public NBFI sector: Measures are focused on fostering the growth of multifinance companies and microfinance institutions Relaxation of regulations on NPF in multifinance companies Development of microfinance institutions Establishment of a rating agency for MSMEs Encourage individual foreign currency account opening for foreign residents Opening an account up to $50,000 only need to present a passport Opening an account with over than $50,000 will be subject to simple customer due diligence process - passport and other supporting documents Relaxation of regulations on business trust Preparation of agricultural insurance scheme Revitalization of venture capital, especially to finance start-up businesses Establishment of financing industry consortium, especially to provide financing for creative industry, exportoriented businesses, and MSMEs Empowerment of the Indonesia Export Financing Agency (LPEI) Implementation of one-project concept in assessing quality of loans 72

Initiatives to Accelerate Infrastructure Development through Reforms (1/2) INSTITUTIONAL REFORMS To ensure sound implementation, some institutional reforms and new institutions have been established. National Land Agency (BPN) Reforms Increased Fiscal Contribution by GoI through PT SMI, PT IIF, and IIGF Reform of National Land Agency (BPN), including establishment of special deputy for land acquisition acceleration and dedicated team for priority infrastructure projects, development of SOPs for every BPN activities etc. Establishment of PT SMI (Sarana Multi Infrastruktur), PT IIF (Indonesia Infrastructure Finance) to provide long-term financing The government is also in the process of establishing more institutions to further accelerate infrastructure delivery Establishment of KPPIP KPPIP (The Committee for Accelerated Infrastructure Delivery) is a central government body that will coordinate the delivery of the government s priority infrastructure projects, which consists of key government ministries related to infrastructure delivery, such as the CMEA, MoF, BAPPENAS and the BPN. KPPIP has established 30 priority projects for 2016 to be implemented. Establishment of PPP unit under MOF PPP Unit under Ministry of Finance will facilitate project development of PPP projects, by providing facilities such as Project Development Facilities (PDF), technical assistance, arrangement of guarantee with IIGF, and infrastructure funding with PT SMI and PT IIF. PPP Unit will also help capacity development for PPP and promotion of PPP projects Minister has approved the establishment of PPP unit, and the funding arrangement with donor and regulatory framework are under progress. 73

New Law no 2 / 2012 Initiatives to Accelerate Infrastructure Development through Reforms (2/2) REGULATORY REFORMS Law No. 2 /2012 regarding Land Acquisition for Public Interest Presidential Regulation (PR) no 38/2015 regarding PPP Presidential Regulation (PR) no 39/2014 regarding the New Negative List of Investment Minister of Energy & Mineral Resources Reg. No. 3/2015 regarding Procedure for Power Purchase The new law will ease land acquisition bottlenecks and disputes for infrastructure projects such as road, railway, station, port, airport, etc. The law regulates procedures of land acquisition, funding for land acquisition land appraisal, amount and types of compensations, objections and dispute settlements. The new President Reg. No. 30/2015 stipulates the role of private investors in contributing to land acquisition process. Government has revised the original regulation on PPP (Presidential Regulation no 67/2005) three times to accommodate more concerns regarding PPP development in Indonesia. For example, the revision accommodates foreign companies/investors in procurement of PPP projects, criteria and compensation for unsolicited project proposal, the need for fiscal support from Ministry of Finance. Government has revised the previous Negative list of investment to encourage more foreign businesses to take part in infrastructure development. For example, in transport sector, foreign ownership of seaport facility increased from 49% to 95% during PPP concession period. The government also allows 100% foreign ownership of power plant >10MW during PPP concession period (previously 95%). This regulation allows for power purchase from mine mouth coal power plant, coal power plants, gas/micro gas power plants, and hydro power plants can be done with direct selection and direct appointment with the purpose to accelerate procurement process. One of the major reforms is the New Land Law No.2/2012: BPN as central agency in implementation of land acquisition More detailed regulation on implementation of land acquisition Neutral decision making regarding community rejection Successful case of the implementation of the New Law The best example of a successful implementation of the law is the city of Bojonegoro, where the civil society was socialized early to the law and where the land appraisal and compensation amount were attractive. Better Land Appraisal Team Appointment Less bureaucratic land right revocation process Outcome: the overall land acquisition process for the Java North Line Double Track Rail project took less than 2 years. 74

Commitment to Accelerate Infrastructure Development Progress of Infrastructure Projects Still Positive Despite Some Administration Issues in the Beginning of 2015 Projects Already Being Auctioned NATIONAL TOLL ROAD Trans Java Pejagan Pemalang (58 km) Semarang Solo (73 km) Trans Sulawesi Manado Bitung (39 km) Trans Sumatera Medan Binjai (16 km) Palembang Indralaya (22 km) Pekanbaru Dumai (135 km) Medan Tebing Tinggi (62 km) 1 MILLION HOUSE PROJECT West Jakarta, Banten, Kalimantan, Batam, NTB, NTT, East Java, Central Java, South Sulawesi, West Sulawesi, Southeast Sulawesi DRINKING WATER INFRASTRUCTURE Central Java (West Semarang); DAM East Java (Bendo), Central Java (Gondang, Pidekso), North Sulawesi (Lolak), NTT (Raknamo), NTB (Mila), Banten (Karian) INTERCITY RAILWAY South Sumatera (Prabumulih Kertapati), North Sumatera (Tebing Tinggi Kuala Tanjung), Southern Java Double Track COMMUTER RAILWAY Jakarta MRT (North South Corridor), Jakarta LRT, SHIA Airport Railway AIRPORT DEVELOPMENT Revitalization Central Kalimantan, Bangka Belitung, New Project West Java (Kertajati) Expansion Terminal 3 Soekarno-Hatta International Airport PORT AND HARBOUR East Kalimantan (Maloy), Jakarta (Kalibaru), South Sulawesi (Makassar New Port), Central Sulawesi (Parigi) IDR 66.4 tn allocated to: Public Road Water Resource Housing Infrastructure (sanitation and clean water) Public housing MINISTRY OF PUBLIC WORKS & HOUSING IDR 4.6 tn allocated to: MINISTRY OF AGRICULTURE Procurement of farm machineries Cattle procurement Other supporting infrastructure for agriculture sectors MINISTRY OF TRANSPORTATION IDR 32.5 tn allocated to: New construction and maintenance of railway infrastructure Port construction, procurement of exploration and navigation ships Procurement of traffic equipment Ferry ships MINISTRY OF ENERGY & MINERAL RESOURCES IDR 4.0 tn allocated to: Power plants Oil & gas infrastructure Energy conversion and renewable energy infrastructure LPG and fuel storage tanks Source: Varipus Sources Source: Ministry of Finance Infrastructure development target reflects Government target from 2014 2019 75

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 2015. 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) 76

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 2015. 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. Land Procurement Process as Stipulated in Law No. 2 of 2012 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 77

Indonesia Infrastructure Projects and Financing Schemes Financing Breakdown (2015 2019) Establishment of PPP Unit Total Financing Needs: ~ US$345.1 Bn Govt & Local Budget (41.3%) Financing Gap ~ US$142.4 Bn SOE (22.2%) PPP (36.5%) ~ US$76.7 Bn ~ US$126.0 Bn Alternative Financing Scheme Broad Objective Core Mandates Additional Mandates Champion project preparation and acceleration of the PPP agenda in Indonesia Improve quality of project selection under KKPPI OBC criteria Support project preparation through PDF support and use a high quality Transaction Advisor Act on behalf the Minister of Finance in providing government support approvals for projects Coordinate all public finance instruments Provide input for PPP Policy Development and Regulations Implement capacity building program to GCA One stop shop for PPP promotion & Information Sea Port New Sea Ports 24 Budget Public Private Partnership State Owned Enterprise & Private Sector Roads Railways Airport Seaport developments 59 New Roads 2,650 km Highway 1,000 km Road maintenance 46,770 km Bus Corridors 2 Railway Lines 2,159 km Intra City Rail Lines 1,099 km New Airports 15 Airplanes for new routes 20 Central & Regional Budget (Special Allocation Fund & Rural Transfer) Mainly to support basic infrastructure projects: Food Security: Irrigation, dams etc. Maritime: Seaports, shipyards etc. Connectivity: Village roads, public transportation etc. Certain infrastructure projects to be funded and operated through a partnership between the Indonesian government and private sector companies Projects Ready for Auction under PPP Scheme: Toll roads projects such as Balikpapan-Samarinda and Manado- Bitung Railway projects such as an Express Line into Soekarno-Hatta International Airport Water supply such as West Semarang water supply project Government to support the PPP via initiatives: Land Fund: Modification and simplification of land acquisition process Project Development Facility (PDF) through PT Sarana Multi Infrastructure Indonesia Infrastructure Guarantee Fund (IIGF): A mutual government guarantee scheme for infrastructure risks Viability Gap Fund (VGF) for PPP projects with near-term financial constraints Infrastructure Fund: To offer long term financing for infrastructure projects Availability Payment (AP): To allow availability of infrastructure services provided by PPP companies Government to inject capital into SOEs intention is that through a multiplier effect, more infrastructure projects can be developed Key focus areas: Infrastructure and maritime development Transportation and connectivity Food security Medium term infrastructure developments in focus: Water Supply Airports Seaports Electricity and power plants Housing Mining 78

Government Guarantee for Basic Infrastructure Development Budget Allocation for Claims on Government Guarantee (1) Guarantee Program based on Guarantee Classification (US$ mm) 79,5 75,8 3,8 68,5 67,3 1,1 53,4 48,0 4,5 0,8 2,7 47,2 46,3 73,0 3,7 69,2 0,2 63,9 3,8 60,0 2010 2011 2012 2013 2014 Revised Budget (IDR bn equivalent) 2015 0,1 69,6 24,5 45,0 2016 1,000.0 889.0 623.3 611.2 913.7 792.0 593.9 50.0 15.0 10.0 35.0 2.2 1.8 0.9 59.2 48.2 49.7 323.2 Electricity Development Clean Water Program PPP & Electricity Dev. Project 0.1 Program Guaranteed Party No. of Letters A Credit Guarantee 47 Acceleration of coalfired power plant project (10,000 MW) stage 1 Acceleration of drinking water supply project PLN B Investment Guarantee 10 Acceleration of coalfired power plant project (10,000 MW) stage 2 Government partnership with Enterprise Infrastructure Guarantee Agency Total 57 Currency Value (bn) Outstanding as of 2015 (bn) US$ 4.0 2.7 IDR 36,007.0 19,138.9 11 US$ 4.0 2.7 25 IDR 35,678.7 18,975.7 PDAM 11 IDR 328.3 163.2 US$ 8.2 IDR IPP 9 US$ 5.0 Private 1 US$ 3.2 US$ 12.1 2.7 IDR 36,007.0 19,138.9 In 2016, Government will add credit guarantee program (i) infrastructure financing through direct loans from international financial institutions (ii) acceleration of toll road construction in Sumatera Source: Ministry of Finance 1 USDIDR exchange rate of 13,200 79

30 Priority Projects Within the Pipeline 1. Jakarta Sewerage System (Rp70 T, Zona 1 Rp7 T) 2. Existing Refinery Upgrading Project (Cilacap, Balongan, Plaju, Dumai, dan Balikpapan) (~Rp210T) 3. New Port in Northern West Java (TBA) 4. Inland Waterways/ Cikarang Bekasi Laut (CBL) (Rp35T) 1. High Voltage Direct Voltage Transmission (Rp20 T) 2. 1.000MW Indramayu Power Plant (Rp20 T) 3. Central-West Java 500 kv Transmission Line (Rp7,64T) 4. National Capital Integrated Coastal Development (NCICD) Tahap A (Rp 20 T) 5. Karangkates Power Plant (2x50MW) 6. Kesamben Power Plant (37MW) 7. Lodoyo Power Plant (10MW) 8. Bitung Port Development (Rp34 T) 9. Kalimantan Timur Railways (Rp72 T) 1. Trans-Sumatera Toll Road (>Rp 31T) 2. Makasar-Parepare Railway (Rp 6,4 T) 3. SHIA Express Railway (Rp2,7 T) 4. MRT Jakarta (Rp 25 T) 5. LRT Jabodetabek (Rp 11,9 T) 6. LRT Palembang (Rp11,5 T) 7. Kuala Tanjung Int l Hub Port (Rp 30 T) 8. Manado-Bitung Toll Road (Rp 4,3 T) 9. Balikpapan-Samarinda Toll Road (Rp13,1 T) 10.Batang 2.000 MW Power Plant (Rp40 T) OBC Development Permit and Land Acquisition Construction Ready for PPP Tender Financial Close 1. SPAM Semarang Barat (Rp845 M) 2. Bontang Refinery (Rp140 T) 3. Tuban Refinery (Rp165 T) 4. Sumatera 500 kv Transmission (Rp6,71 T) 5. Panimbang-Serang Toll Road (Rp12 T) 1. Sumsel 8, 9, 10 (3.000 MW) Power Plant (Rp 54 T) 2. Palapa Ring Broadband (Rp 6 T) Preparation Stage Implementation Stage 80

Significant Progress on Key Infrastructure Projects Roads Dams Housing Trans-Sumatra Highway Cikampek-Palimanan Highway (Operational) Jatigede Dam (Operational) Raja Ampat Housing Project, Papua Transportation Jakarta MRT Project 1 Terminal 3 Ultimate Soekarno-Hatta1 New Tanjung Priok Port Project 1 Komodo Airport, NTT Matahora Airport, Southeast Sulawesi Tual Airport, Maluku Juwata Airport, Tarakan 1 Not funded from National Budget 81