Recent Economic Developments

REPUBLIC OF INDONESIA Recent Economic Developments August 2011

Published by Investors Relations Unit Republic of Indonesia Address Bank Indonesia International Directorate Investor Relations Unit Sjafruddin Prawiranegara Building, 5 th floor Jalan M.H. Thamrin 2 Jakarta, 10110 Indonesia Tel +6221 381 8316 +6221 381 8319 +6221 381 8298 Facsimile +6221 350 1950 E-mail contactiru-dl@bi.go.id

Table of Content Executive Summary Improved International Perception and Rising Investment Preserved Macroeconomic Stability to Support Further Growth Prudent Fiscal Management Improved Government Debt Position

Executive Summary

* ** May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June Jul Jan Mar May Jul Sep Nov Jan Mar May Juli Sep Nov Jan Mar May July Macroeconomic Overview GDP Growth Inflation 7.0% 6.0% 5.0% 20.00 15.00 CPI (%, yoy) Volatile Food (%, yoy) Core (%, yoy) Administered (%, yoy) 4.0% 10.00 3.0% 2.0% 1.0% 5.00 % 0.00 0.0% 2005 2006 2008 2008 2009 2010 2011 * Bank Indonesia projection 2011 * 2011-5.00-10.00 2009 2010 2011 Balance of Payments Foreign Exchange Reserves Billion USD 15 10 5 0-5 -10 Billion USD 120 100 80 60 40 20 0 Billion USD 140.00 120.00 100.00 80.00 60.00 40.00 20.00 - foreign exchange reserves (LHS) month of import & government debt service (RHS) 12.00 10.00 8.00 6.00 4.00 2.00-5 2007 2008 2009 2010* 2011 Current Acc. Cap. & Fin. Acc Reserve Assets (RHS) 2009 2010 2011

Executive Summary Domestic economy expected to continue charting strong growth, mainly supported by solid export performance, strong household consumption, and investment. Investment performance also expected to grow faster driven by higher demand and the realization of Government s capital expenditure. In the 2 nd quarter of 2011, the economy charted 6.5% (yoy) growth, in line with the projection, and is forecasted even stronger in /2011 and trough out 2011 to reach 6.6%. The continuing strong economic activities confirm the outlook of economic growth to potentially reach the upper bound of 6.3-6.8% in 2011 and 6.4-6.9% in 2012. The inflation pressure remained subdue, as reflected in July 2011 inflation which is still in line with its seasonal patterns. The CPI inflation in July 2011 came to 0.67% (mtm) or 4.61% (yoy). Core inflation reached 0.42% (mtm) or 4.55% (yoy) driven by the increase in global commodity prices and the increase in domestic demand. Looking forward, the increasing inflation is forecasted to grow from household consumption during Ramadhan and Eid holidays. However, Government policies on securing supply of foods is predicted to mitigate volatility of the prices hence inflation will be under control. The overall balance of payments in /2011 posted a surplus of US$11.9 billion, rose significantly from US$7.7 billion surplus in the preceding period. Spurring this increase was a sharp rise in the capital and financial account surplus that outweighed a decrease in the current account surplus. In response, international reserves at the end of June 2011 boosted to US$119.7 billion, equivalent to 6.8 months of imports and servicing of official external debt. Furthermore, the international reserves at the end of July 2011 reached USD 122.7 billion, or equivalent to 7 months of imports and external debt services of the Government Investment realization up to the 1 st half of 2011 spurred optimism that the full year target of Rp240 trillion is achievable. Total investment realization in the 2 nd quarter of 2011 is Rp. 62.0 trillion (around USD7.2 billion) with 85% of investments directed outside of the island of Java. The realization figures until the 1 st semester of 2011 came to Rp.115.6 trillion or 48.2% from the target and an increase of 24.4% compared to the realization at the same period in 2010. On the fiscal front, Indonesia continue to perform a prudent fiscal management in 2011, with strong commitment to fiscal consolidation, aiming on continue declining debt-to-gdp ratio, diversifying government debt profile, and reducing funding reliance on international capital market. Financial System Stability had been maintained as indicated by the Financial Stability Index which were well below the treshold of 2 (1.61 on July 2011). In the Board of Governors Meeting held on Tuesday August, 9, 2011, Bank Indonesia decided to keep the BI rate unchanged at 6.75%. Bank Indonesia is confident that the impact of the recent turmoil in the global financial markets due to the downgrade of US credit rating to the domestic financial market is limited, and can be contained with continuous monitoring of market development and coordination with the Government. Bank Indonesia is strongly confident that the implementation of monetary and macroprudential policy mix can secure macroeconomic stability and keep inflation within the targets, that is, 5% +1% in 2011 and 4.5% +1% in 2012. 6

Improved International Perception and Rising Investment

Improving International Perception: Acknowledged by Rating Agencies Resilient economy, which impressively navigates through the global crisis and continued confidence in economic outlook, the Republic continued to receive good reviews. S&P (April 8, 2011): upgraded Indonesia s long-term foreign currency rating to BB+ from BB with positive outlook. With the rating upgrade, puts Indonesia 1 notch closer to investment grade by the three major rating agencies. The positive outlook also indicates the possibility of Indonesia to have another upgrade in the near future. The main factor supporting this decision is continuing improvements in the government's balance sheet and external liquidity, against a backdrop of a resilient economic performance and cautious fiscal management. Fitch Ratings (February 24, 2011): affirmed Indonesia s long-term foreign and local currency issuer default ratings (IDRs) at BB+ and revised the outlooks on both to Positive from Stable. Fitch stated key factors supporting this action were strong economic growth, well above of the BB and BBB range medians. Encouragingly, Indonesia s growth has not been accompanied by the emergence of potentially-risky external imbalances rising savings rates have largely matched the growing investment, and especially the performance of Indonesia's balance of payments. Modest current account surplus is always maintained since 1998. The strengthening of foreign exchange reserves reached USD96.2 billion, equivalent to 7 months of imports and debt payments become critical factors that support the credit profile of Indonesia. Moody s Investors Service (January 17, 2011): upgraded Republic of Indonesia s foreign and local-currency bond ratings to Ba1 with stable outlook. This follows Moody s release last December which placed the ratings on a review for possible upgrade. The key factors supporting this action were (1) economic resilience which accompanied by sustained macroeconomic balance; (2) Improved government s debt position and central bank s foreign currency reserve adequacy; and (3) Improved prospects for foreign direct investment inflows which expected to fortify Indonesia s external position and economic outlook. Japan Credit Rating Agency, Ltd (July 13, 2010): upgraded Indonesia's sovereign rating to Investment Grade from BB+ to BBB- with stable outlook. The first upgrade to reach investment grade in the last 13 years reflects enhanced political and social stability, sustainable economic growth, alleviated public debt burden as a result of prudent fiscal management, reinforced resilience to external shocks stemming from the foreign reserves accumulation and an improved capacity for external debt management and efforts made by the current administration to outline the framework to deal with structural issues such as infrastructure development. 8

Sovereign Rating History Solid economic fundamentals supported the improvement of Indonesia s sovereign credit rating since 2001 9

Improving International Perception: Significant Raise in Perception Indices Conducive business climate improvement to support optimism in FDI inflows World Economic Forum The Global Competitiveness Report 2010 2011 (September 15, 2010) reported that Indonesia posts an impressive gain of 10 places, mainly driven by a healthier macroeconomic environment and improved education indictors. Indonesia considered to successfully maintain a relatively healthy macroeconomic environment throughout the crisis. While most other countries saw their budget deficits surge, Indonesia kept its deficit under control The IMD Competitive Center (May 19, 2010) reports a major improvement in Indonesia's global competitiveness, with Indonesia moving up from 42 nd to 35 nd place among a total of 57 major nations surveyed worldwide. For Indonesia, the improvement in 2010 has been achieved through significant gains in economic performance, followed by government efficiency and infrastructure improvement. OECD (March 31, 2011): Indonesia s Credit Risk Classification (CRC) still category 4. Indonesia is in one peer with Colombia, Egypt, Philippina, Turkey and Uruguay. The last year upgrade was a timely acknowledgement by the developed economies of the consistent economic improvement. And an upgrade in this category would significantly improve Indonesia s credit standing in front of the creditor countries especially the credit exports creditor countries which eventually would decrease the debt burden. 10

Strong investment underpinned by competitiveness and stability Total investment realization in the second quarter of 2011 was Rp. 62.0 trillion (around USD7.2 billion) with 85% of investments are located outside the island of Java. Until the 1 st semester of 2011 it reached Rp.115.6 trillion or 48.2% from the target and an increase of 24.4% compared to that during the same period in 2010. Those figures raised the expectation that domestic and foreign direct investment realization target of Rp240 trillion in 2011 can be accomplished. Continuous improvements of investment policies and services, acceleration of infrastructure development and the provision of fiscal incentives on capital investment will contribute to the realization of this target. Realized foreign direct investment (USD billion) Realized domestic direct investment (IDR trillion) 14.9 16.2 60.6 10.3 10.8 9.4 34.9 37.8 33.0 6.0 20.8 20.4 2006 2007 2008 2009 2010 Semester 1 2011 Source: BKPM * US$ / Rp. exchange rate of 8,709, the BI middle exchange rate as of March 31, 2011. 2006 2007 2008 2009 2010 Semester 1 2011 Source: BKPM 11

Strong investment underpinned by competitiveness and stability FDI By Sector (USD million) 18,000 Mining Other primary sector 16,000 14,000 Food industry Paper and printing industry Chemical and pharmaceutical industry Metal machinery and electronic industry 882 2,556 12,000 Motor vehicle and other transport equipment industries Other secondary sector 5,046 10,000 Electricity, gas and water supply 1,138 Trade and repair 8,530 1,295 8,000 Transportation, storage and communications Other tertiary sector 3,305 4,171 785 1,428 1,051 650 6,000 4,000 2,000 653 647 860 955 747 714 1,612 673 704 1,064 756 1,293 628 706 789 655 1,183 806 798 903 1,026 746 813 2,229 2,526 12 0 Source: BKPM 2006 2007 2008 2009 2010 Semester 1 2011

Preserved Macroeconomic Stability

Robust and Stable Economy Continues to Chart Strong Growth On the growth side, supported with a more balanced growth structure, investment forging ahead and continued solid performancein exports, BI forecast the economy to grow around 6.3%-6.8% in 2011 and further 6.4%-6.9% in 2012. 14 For the 2 nd quarter of 2011, the economy, as projected, charted 6.5% (yoy) growth. While in the 3 rd quarter of 2011 and trough out 2011 the economy is forecasted even stronger to reach 6.6% on the back of solid investment, export, and consumption. Investment is gaining momentum to grow stronger since to government starts to spend its capital expenditure. From the production side, the growth driver are the manufacturing sector, trade, hotel, and restaurants sector, and transportation and communication sector. Economic Growth Forecast % yoy Table 3.1 Forecast of Economic Growth - Demand Side Sector 2009 2010 2011 I II III* 2011* 2012* Private Consumption 4,9 4,6 4,5 4,6 4,7 4,4-4,9 4,8-5,3 Government Consumption 15,7 0,3 3,0 4,5 18,4 8,8-9,3 3,9-4,4 Gross Fixed Capital Formation 3,3 8,5 7,3 9,2 10,5 9,3-9,8 12,3-12,8 Exports of Goods and Services -9,7 14,9 12,3 17,4 7,9 9,4-9,9 9,7-10,2 Imports of Goods and Services -15,0 17,3 15,6 16,0 10,3 11,1-11,6 11,3-11,8 GDP 4,6 6,1 6,5 6,5 6,6 6,3-6,8 6,4-6,9 * Bank Indonesia Projection Economic Growth Forecast Table 3.2 Forecast of Economic Growth - Supply Side S e c t o r 2009 2010 2011 I II III* 2011* 2012* Agriculture 4,0 2,9 3,4 3,5 3,5 3,1-3,6 3,5-4,0 Mining and Quarrying 4,4 3,5 4,6 4,1 4,1 3,7-4,2 3,7-4,2 Manufacturing 2,2 4,5 5,0 5,1 5,1 4,8-5,3 5,0-5,5 Electricity, Gas, and Water Supply 14,3 5,3 4,2 5,3 5,9 5,1-5,6 6,4-6,9 Construction 7,1 7,0 5,3 6,8 7,2 6,4-6,9 7,6-8,1 Trade, Hotels, and Restaurants 1,3 8,7 7,9 8,4 8,9 8,5-9,0 8,6-9,1 Transportation and Communication 15,5 13,5 13,8 13,1 13,2 12,7-13,2 11,6-12,1 Financial, Rental, and Business Services 5,1 5,7 7,3 6,9 7,0 6,7-7,2 6,8-7,3 Services 6,4 6,0 7,0 6,7 6,6 6,3-6,8 6,1-6,6 GDP 4,6 6,1 6,5 6,5 6,6 6,3-6,8 6,4-6,9 * Bank Indonesia Projection Source: Bank Indonesia.

* ** Balance of Payments /2011 In line with strong capital inflow (including FDI) and surplus in the current account, Indonesia balance of payment is expected to post another considerable surplus in 2011. The overall balance of payments in /2011 posted a surplus of US$11.9 billion. At the end of July 2011, the international reserves reached USD 122.7 billion, or equivalent to 7 months of imports and external debt services of the Government Balance of Payments Billion USD 15 10 5 0-5 -10 Billion USD 120 100 80 60 40 20 0 2007 2008 2009 2010* 2011 Current Acc. Cap. & Fin. Acc Reserve Assets (RHS) 15 Source: Bank Indonesia

Balance of Payments /2011 The current account posted a surplus of US$0.2 billion in /2011, buoyed mainly by strong growth in non-oil & gas exports and natural gas exports. This surplus, however, was declined considerably from the US$2.1 billion recorded in the preceding quarter, a result of larger deficits in the oil trade balance, services and income accounts. Declining performance in the current account was offset by a significant rise in the capital and financial account surplus to US$12.5 billion almost doubled from those in the previous quarter. A more conducive investment climate, continuing attractive returns on investments in Indonesia, and the need of foreign denominated liquidity in domestic market, while there be sustained excess liquidity in the global financial markets, were among the key factors that supported the robust capital & financial account performance. I T E M S 2009 2010* 2011 TOTAL TOTAL * ** I. Current Account 10,628 1,936 1,409 1,205 1,093 5,643 2,089 232 A. Goods 1 30,932 6,954 6,848 7,593 9,232 30,628 8,686 9,728 - Exports 119,646 35,088 37,444 39,712 45,830 158,074 45,818 51,460 - Imports -88,714-28,134-30,596-32,119-36,597-127,447-37,133-41,732 1. Non Oil & Gas 25,560 5,812 5,881 6,605 9,097 27,395 8,628 10,638 2. Oil -4,016-1,663-2,140-1,991-2,859-8,653-3,438-4,998 3. Gas 9,388 2,805 3,107 2,980 2,994 11,886 3,495 4,088 B. Services -9,741-2,106-2,275-2,155-2,788-9,324-2,305-3,598 C. Income -15,140-3,993-4,262-5,385-6,653-20,291-5,318-6,871 D. Current transfers 4,578 1,080 1,098 1,151 1,301 4,630 1,027 974 II. Capital & Financial Account 4,852 5,590 3,697 7,365 9,550 26,201 6,436 12,518 A. Capital Account 96 18 2 4 26 50 1 0 B. Financial Account 2 4,756 5,572 3,695 7,361 9,524 26,151 6,435 12,518 1. Direct Investment 2,628 2,484 2,298 1,684 4,241 10,706 3,041 2,699 2. Portfolio Investment 10,336 6,159 1,089 4,517 1,437 13,202 3,798 5,742 3. Other Investment -8,208-3,072 308 1,160 3,846 2,243-404 4,076 III. Total (I + II) 15,481 7,526 5,106 8,570 10,642 31,844 8,525 12,750 IV. Net Errors & Omissions -2,975-905 315-1,616 646-1,559-859 -873 V. Overall Balance (III + IV) 12,506 6,621 5,421 6,955 11,289 30,285 7,666 11,876 Memorandum: Reserve Asset Position 66,105 71,823 76,321 86,551 96,207 96,207 105,709 119,655 In Months of Imports & Official Debt Repayment 6.5 5.2 5.6 6.3 7.0 7.0 6.0 6.8 Current Account (% GDP) 1.95 1.18 0.80 0.65 0.58 0.79 1.06 0.11 Debt Service Ratio (%) 23.2 21.2 23.2 20.3 23.7 22.2 18.0 21.6 o/w. Government & Monetary Authority DSR (%) 7.5 5.0 7.2 4.8 6.2 5.8 4.5 5.4 1) In terms of free on board (fob) 2) Excluding reserves and related items 3) Negative represents surplus and positive represents deficit. 16 * Provisional figures ** Very provisional figures - Not available Source: Bank Indonesia

* ** Balance of Payments /2011: Current Account Trade Balance: Non-Oil & Gas A strong performance of non-oil & gas exports that charted 38.6% growth (yoy) supported the non-oil & gas trade balance surplus of US$10.6 billion. Primary products (resources-based commodities) were the main contributors to exports performance, benefited from buoyant demand and high commodity prices in international market. Meanwhile, solid economic growth during the reporting period triggered the non-oil & gas imports to grow at 28.4% (yoy). materials and capital goods, comprised of 70% and 20% of total imports consecutively, and grew by 31% and 26% respectively. Imports of raw Trade balance of Non-Oil & Gas Billion USD 60 40 20 0-20 -40 Trade Balance of Non-Oil & Gas 2007 2008 2009 2010* 2011 Exports Imports Non Oil & Gas Trade Balance 17 Source: Bank Indonesia

* ** Balance of Payments /2011: Current Account Trade Balance: Oil & Gas The oil & gas trade balance turned into deficit as oil imports drove up in response to rising consumption of oil-based fuels and falling national oil production amid a hike in international oil price. Meanwhile, further increase in the gas trade balance surplus was constrained by a shifting of gas supply particularly for fulfiling domestic needs. Trade balance of Oil & Gas Billion USD 6 Trade Balance of Oil & Gas 4 2 0-2 -4-6 2007 2008 2009 2010* 2011 Oil Trade Balance Gas Trade Balance Oil & Gas Trade Balance 18 Source: Bank Indonesia

* ** Balance of Payments /2011: Current Account Services, Income, and Current Transfers The services account deficit was higher than the deficit in /2010 mainly due to mounting numbers of outbound travellers during the vacation period (seasonal factors) and increased payments for freight services in line with upbeat import activity. The income account deficit in /2011 was broaden to US$6.9 billion (/2011: US$5.3 billion deficit), primarily explained by a rise in payments of debt interest. Meanwhile, current transfers surplus were relatively stable as compared to the previous period. Services, Income, and Current transfers Billion USD 2 1 0-1 -2-3 -4-5 -6-7 -8 Services, Incomes & Current Transfers Services, Net Current Transfer, Net Income, Net 2007 2008 2009 2010* 2011 19 Source: Bank Indonesia

* ** Balance of Payments /2011: Capital & Financial Account Financial Account: Total The financial account surplus mounted to US$12.5 billion, almost doubled from a surplus in the previous period. The higher surplus was primarily due to substantial inflows of foreign capital in terms of domestic debt instruments and growing domestic financing needs that prompted the private sector to draw on foreign lines of credits and offshore deposits. Financial Account: Total Billion USD 15 Financial Account (Total) 10 5 0-5 -10 2007 2008 2009 2010* 2011 Other Investment Portfolio Investment Direct Investment Financial Account 20 Source: Bank Indonesia

* ** Balance of Payments /2011: Capital & Financial Account Financial Account: Assets The residents investment abroad (the financial account - assets) posted a lower net outflows in /2010 (US$1.0 billion), compared to a substantial net outflows of US$3.3 billion in /2010. This was primarily explained by higher withdrawal of resident deposits in overseas banks in order to fulfill the foreign currency liquidity needs in domestic market. Financial Account: Assets Billion USD 4 2 0-2 -4-6 -8 Financial Account (Assets) 2007 2008 2009 2010* 2011 Other Investment Direct Investment (abroad) Portfolio Investment Financial Account 21 Source: Bank Indonesia

* ** Balance of Payments /2011: Capital & Financial Account Financial Account Liabilities: Foreign Direct Investment (FDI) Inflows of foreign direct investment (FDI) expanded further to prop up a US$5.2 billion net flows of FDI in /2011. A relatively strong investment growth was supported by a more conducive investment climate and favorable macroeconomic conditions contributes significantly to this robust performance. Foreign Direct Investment (FDI) Billion USD 13 10 8 5 3 0-3 -5-8 Foreign Direct Investment (FDI) Inflow (Equity & Loan Disb) Outflow (Equity & Debt Repayment) Total 2007 2008 2009 2010* 2011 22 Source: Bank Indonesia

* ** Balance of Payments /2011: Capital & Financial Account Financial Account Liabilities: Foreign Portfolio Investment Foreign portfolio investment recorded a US$6.3 billion surplus in /2011, higher than US$4.1 billion surplus in the preceding period. The massive inflows were mainly charted in domestic stocks and government bonds, driven by sustained excess liquidity on global financial markets and continuing attractive returns on investments in Indonesia. Financial Account Liabilities: Foreign Portfolio Investment Billion USD 8 6 4 2 0-2 -4-6 Foreign Portfolio Investment 2007 2008 2009 2010* 2011 Public Sector Private Sector Liabilities, Total 23 Source: Bank Indonesia

* ** Balance of Payments /2011: Capital & Financial Account Financial Account: Foreign Other Investment Foreign other investment booked a US$2.0 billion surplus, rose from a US$0.8 billion surplus in /2010. This upturn was mainly caused by larger withdrawal of corporates foreign debts to support their business activities and mounting foreign deposits in domestic banks. Meanwhile, the government debts showed a net outflows due to the seasonal factors of debt repayments. Foreign Other Investment Billion USD 6 5 4 3 2 1-1 -2-3 Foreign Other Investment 2007 2008 2009 2010* 2011 Public Sector Private Sector Total 24 Source: Bank Indonesia

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Juli Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Risk of further pressure is emanating from seasonal factor The CPI inflation in July 2011 recorded at 0.67% (mtm) or 4.61% (yoy), which is relatively in line with its seasonal pattern. Core inflation reached 0.42% (mtm) or 4.55% (yoy) driven by the increase in global commodity prices and the increase in domestic demand. Looking forward, the increasing inflation is forecasted to grow from household consumption during Ramadhan and Eid holidays. However, Government policies on securing supply of foods is predicted to mitigate volatility of the prices hence inflation will be und er control. 20.00 Inflation by component 15.00 10.00 % 5.00 0.00-5.00 2009 2010 2011-10.00 CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) 25 Source: Bank Indonesia

Monetary Policy Stance In the latest Board of Governors Meeting convened on August 9, 2011, BI rate decided to be held at 6.75%. Bank Indonesia is confident that the impact of the recent turmoil in the global financial markets due to the downgrade of US credit rating to the domestic financial market is limited, and can be contained with continuous monitoring of market development and coordination with the Government. Bank Indonesia is strongly confident that the implementation of monetary and macroprudential policy mix can secure macroeconomic stability and keep inflation within the targets, that is, 5% +1% in 2011 and 4.5% +1% in 2012. 10% BI Rate 9% 8.25% 8% 7% 6.75% 6% 5% 4% 3% 2% 1% 0% Sep-08 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 26 Source: Bank Indonesia.

Sound Financial Sector Stability in the banking system remains firm alongside steady improvement in credit growth On the financial sector, Financial System Stability had been maintained as indicated by the Financial Stability Index which were well below the threshold of 2 (1.61 on July 2011). Within the system, banking industry remains strong and prudently managed with improved intermediary function. This was reflected in the relatively high level of Capital Adequacy Ratio (CAR) of 17% and subdued Non-Performing Loans (NPL) at below 5% (2.7%) as of June 2011. Sufficient CAR (%) Sound level of NPLs (%) 20.0 4.5 19.5 19.0 18.5 18.0 17.5 17.0 16.5 16.0 15.5 19.3 19.1 19.2 17.8 17.4 16.5 16.2 16.4 16.4 16.3 17 17 18 17.6 17.8 17.4 17 4.0 3.5 3.0 2.5 2.0 1.5 1.0 gross NPL net NPL 15.0 0.5 14.5 0.0 Feb-10 Apr-10 Jun-10 Agust-10 Okt-10 Des-10 Feb-11 Apr-11 Jun-11 Source: Bank Indonesia 27

Banking Intermediation Further improvement in banking intermediation is also reflected in progressively improving credit growth, recorded in June 2011 at 23.6% (yoy) on the strength of expansion in all lending categories including credit to SMEs. Bank Indonesia will keep monitoring banking sector condition and improve sector efficiency so that the intermediation function can be optimized. Steady loan growth Working Capital loans Investment Loans Consumption Loans 391 398 408 411 418 427 436 269 274 280 278 281 286 297 483 493 289 301 475 484 499 296 307 305 489 500 336 339 501 513 523 523 325 327 332 330 537 548 558 568 577 588 348 342 357 357 365 376 603 388 674 665 677 676 677 683 703 632 633 684 694 726 759 758 813 818 819 853 880 855 857 870 882 906 940 Source: Bank Indonesia 28

Main Banking Indicators Banking System Stability remains sound with stable CAR, continuous credit expansion and low NPL (data as of June 2011) Indicators Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Total Asset (T Rp) 2.563,7 2576,3 2.604,4 2.678,3 2.683,5 2.700,2 2.758,1 2.796,4 2.856,3 3.008,9 2.990,7 2.993,1 3.065,8 3.069,1 3.136,4 3.195,1 Deposits (T Rp) 1.982,2 1.980,5 2.013,2 2.096,0 2.082,6 2.092,8 2.144,1 2.173,9 2.212,2 2.338,8 2.302,1 2.287,8 2.351,4 2.340,2 2.397,2 2.438,0 - Demand Deposits 471,1 462,1 473,7 522,2 506,9 496,4 504,2 497,8 511,9 535,9 530,6 529,8 540,8 528,3 561,2 577,0 - Savings Accounts 576,2 580,5 588,8 610,8 619,5 633,2 653,6 659,7 674,3 733,2 715,8 713,2 722,7 734,5 740,8 753,7 - Time Deposit 934,9 937,8 950,7 963,1 956,2 963,2 986,2 1.016,4 1.026,0 1.069,8 1.055,6 1.044,9 1.087,8 1.077,4 1.095,2 1.107,3 Earning Assets (T Rp) 2.416,4 2419,4 2.452,4 2.528,5 2.531,6 2.547,1 2.591,3 2.647,9 2.643,1 2.778,9 2.746,8 2.749,8 2.813,3 2.799,6 2.859,7 2.912,9 - Loans (T Rp) 1.485,9 1.516,0 1.561,2 1.615,8 1.627,4 1.670,6 1.689,1 1.705,8 1.736,1 1.796,0 1.776,1 1.803,9 1.844,2 1.872,6 1.918,6 1.979,6 - Bank Indonesia Certificates (T Rp) 221,5 255,4 253,6 224,3 190,5 208,7 176,3 147,3 142,6 139,3 143,5 121,3 139,8 133,6 111,4 115,3 - Overnight Placements at BI (T Rp) 82,5 43,2 47,0 97,0 119,2 66,0 132,2 218,1 178,4 277,8 269,9 257,4 262,5 245,5 284,1 282,6 - Securities 350,6 331,7 333,3 327,1 325,7 325,1 326,4 320,7 342,9 324,9 323,1 326,5 337,9 331,8 339,5 334,5 - Inter-bank Placements 264,9 262,7 246,6 252,9 258,3 265,8 256,2 244,7 231,8 228,5 221,6 227,9 216,0 203,9 193,7 188,3 - Equity Investments 11,0 10,4 10,6 11,4 10,5 10,9 11,1 11,3 11,3 12,4 12,6 12,8 12,9 12,2 12,4 12,6 Net Interest Income (Cummulated) 36,1 48,2 60,3 73,1 85,4 98,1 110,6 123,5 136,6 1.765,8 1.746,0 1.773,9 1.814,8 1.843,5 1.889,5 1.950,7 Capital Adequacy Ratio (%) 19,1 19,2 17.8* 17,4 16,5 16,2 16,4 16,4 16,3 17,0 17,0 18,0 17,6 17,8 17,4 17,0 Loans/Earning Assets (%) 61,5 62,7 63,7 63,9 64,3 65,6 65,2 64,4 65,7 64,6 64,7 65,6 65,6 66,9 67,1 68,0 Gross Non Performing Loans (%) 3,8 3,5 3,6 3,3 3,4 3,4 3,0 3,6 3,4 2,9 3,1 3,1 3,2 3,2 3,2 3,0 Net Non Performing Loans (%) 1,0 0,9 1,0 0,8 0,9 0,7 0,7 0,9 1,0 0,7 0,9 0,9 0,9 0,9 1,1 0,9 Return on Assets (%) 3,0 2,9 2,9 2,9 2,9 2,8 2,8 2,9 2,8 2,7 3,0 2,8 3,1 3,0 3,0 3,1 Net Interest Margin (%) 5,0 5,0 5,0 5,0 0,5 0,5 0,5 0,5 0,5 0,5 0,5 0,5 0,6 0,5 0,5 0,5 Ops. Expense/Ops. Income (%) 83,6 84,8 84,3 84,8 78,7 78,7 78,9 79,8 79,4 80,0 83,5 80,5 77,8 78,5 78,2 80,0 Loan to Deposit Ratio (%) 75,0 76,5 77,5 77,1 78,1 79,8 78,8 78,5 78,5 76,8 77,2 78,8 78,4 80,0 80,0 81,2 No. of Banks 121 121 121 121 122 122 122 122 122 122 121 121 121 121 121 121 No. of Bank Office Network 13.067 13.078 13.092 13.106 13.381 13.453 13.514 13.591 13.767 13.971 14.103 14.126 14.202 14.273 14.392 14.454 29 Source: Bank Indonesia

Prudent Fiscal Management

Fiscal policy overview 2011 State budget Taxation Government Expenditure Subsidy Budget Financing Continue tax administration reform agenda Explore tax potential through intensification (widening tax base) and intensification Increase the quality of tax inspection and investigation Strengthen custom and excise supervision Provide tax incentive and custom facilities Boost infrastructure development (roads, bridges, ports, electricity, disaster rehabilitation) Social security programs, such as health program (Jamkesmas), education (BOS), and society empowerment program (PNPM) to protect the poor household Remuneration in order to continue bureaucracy reform agenda Continued LPG conversion program Better targeted electricity subsidy Utilizing alternative energy Control subsidized fuel usage through close distribution system Provide subsidy for bio fuel Provide non-energy subsidies (food, fertilizer, seeds, credit interest program) Rely on domestic bond market to finance deficit Widening domestic and international investors base through financing instrument diversification Gradually eliminate external debt Utilize domestic financing sources (Investment Fund Account and assets management) Provide infrastructure financing, e.g. government investment, guarantee, and liquidity facilities 31 Source: Ministry of Finance

Summary of 2011 Revised Budget (IDR Trillion) 2010 2011 ITEM Original Budget APBN Revised Realisati Original APBN-P Realisasi APBN Budget on Budget Revised APBN-P Budget Selisih diferrence thd APBN Nom inal Percent persen A. STATE REVENUES & GRANTS A. PENDAPATAN NEGARA DAN HIBAH 949,7 992,4 995,3 1.104,9 1.169,9 65,0 5,9 I. DOMESTIC PENERIMAAN REVENUES DALAM NEGERI 948,1 990,5 992,2 1.101,2 1.165,3 64,1 5,8 1. TAX PENERIMAAN REVENUES PERPAJAKAN 742,7 743,3 723,3 850,3 878,7 28,4 3,3 2. NON PENERIMAAN TAX REVENUES NEGARA BUKAN PAJAK 205,4 247,2 268,9 250,9 286,6 35,7 14,2 II. GRANTS PENERIMAAN HIBAH 1,5 1,9 3,0 3,7 4,7 0,9 24,7 B. STATE EXPENDITURES B. BELANJA NEGARA 1.047,7 1.126,1 1.042,1 1.229,6 1.320,8 91,2 7,4 I. CENTRAL BELANJA GOVERNMENT PEMERINTAH EXPENDITURES PUSAT 725,2 781,5 697,4 836,6 908,2 71,7 8,6 A. Line Belanja Ministries/ K/L Agencies 340,1 366,1 332,9 432,8 461,5 28,8 6,6 B. Non Belanja Line Ministries/Agencies Non K/L 385,1 415,4 364,5 403,8 446,7 42,9 10,6 II. TRANSFER TRANSFER to KE REGIONS DAERAH 322,4 344,6 344,7 393,0 412,5 19,5 5,0 C. PRIMARY BALANCE D. SURPLUS/ (DEFICIT) (A-B) C. KESEIMBANGAN PRIMER 17,6 (28,1) 41,5 (9,4) (44,3) (34,8) 368,4 D. SURPLUS/ (DEFISIT) ANGGARAN (A - B) (98,0) (133,7) (46,8) (124,7) (150,8) (26,2) 21,0 % Defisit deficit Terhadap of GDP PDB (1,6) (2,1) (0,7) (1,8) (2,1) (0,3) 17,5 E. PEMBIAYAAN (I + II) 98,0 133,7 91,6 124,7 150,8 26,2 21,0 E. FINANCING (I+II) I. DOMESTIC PEMBIAYAAN FINANCING DALAM NEGERI 107,9 133,9 96,1 125,3 153,6 28,3 22,6 II. FOREIGN PEMBIAYAAN FINANCING LUAR NEGERI (neto) (9,9) (0,2) (4,6) (0,6) (2,8) (2,2) 355,6 Deficit in Revised Budget 2011 is estimated to increase to 2,1% from 1,8% in Original Budget Deficit in the Revised Budget 2011 is estimated to increase to 2.1% from 1.8% in the Original Budget. An increase 2011, whereas increase in government spending is higher than additional revenue and grant. To cover of government spending is higher than additional revenue and grant on the revised budget. To cover the gap, the the gap, the Government will use cash surplus balance... Government will use cash surplus balance. 32 Source: Ministry of Finance

2011 Revised Budget Macroeconomic Assumption The changes for macroeconomic assumption in the revised budget 2011 is in the following table. Macro Assumption 2010-2011 Macroeconomic Assumption Revised Budget 2010 2011 Realization State Budget Revised Budget Growth (%) 5.8 6.1 6.4 6.5 Inflation (%) 5.3 6.95 5.3 5.65 SBI 3 month or SPN 3 month for 2011 revised budget (%) 6.5 6.57 6.5 5.6 Exchange Rate (RP/US$) 9,200 9,087 9,250 8,700 ICP (US$/bbl) 80 79.4 80 95 Lifting (MCBD) 0.965 0.954 0.970 0.945 Source: Ministry of Finance 33

Improved Government Debt Position

Debt Securities Strategy 2011 Prioritizing issuance of government securities in domestic market Supporting money market and capital market development to strengthen financial system Promoting the creation of investment-oriented society Supporting efficient monetary management Foreign currency government securities issuance is complementary to domestic currency government securities issuance Diversification of financing instruments to widen the market Maintaining the presence of government financial instruments in global market Avoiding crowding out in domestic market Government securities issuance is taking into account the support to the implementation of Asset Liability Management with Bank of Indonesia Continuing development of government securities program to enhance the depth and liquidity in secondary market 35 Source: Ministry of Finance

Debt To GDP Debt to GDP Ratio Debt Composition 57% 100% 90% 47% 39% 35% 33% 80% 70% 60% 50% 50% 47% 47% 52% 47% 46% 44% 28% 26% 25% 50% 40% 30% 20% 50% 50% 53% 53% 48% 53% 54% 56% 10% 0% 2004 2005 2006 2007 2008 2009 2010 2011++ 2004 2005 2006 2007 2008 2009 2010 2011++ Domestic Debt External Debt Notes: Based on debt outstanding as of June 2011 * = Preliminary, GDP Number Based on Revised Budget 2011 Assumption Table of Debt to GDP Ratio End of Year 2004 2005 2006 2007 2008 2009 2010 2011++ GDP 2.295.826,20 2.774.281,00 3.339.480,00 3.949.321,40 4.954.028,90 5.613.441,74 6.422.918,20 6.888.149,80 Debt Outstanding (billion IDR) 1.299.504,02 1.313.294,73 1.302.158,97 1.389.415,00 1.636.740,72 1.590.656,07 1.676.851,19 1.723.896,74 - Domestic Debt (Securities) 653.032,15 658.670,86 693.117,95 737.125,54 783.855,10 836.308,91 902.429,79 958.396,82 - Foreign Debt (Loan+Securities) 646.471,87 654.623,87 609.041,02 652.289,46 852.885,62 754.347,16 774.421,40 765.499,92 Debt to GDP Ratio 56,60% 47,34% 39% 35% 33% 28% 26% 25% - Domestic Debt to GDP Ratio 28,44% 23,74% 21% 19% 16% 15% 14% 14% - Foreign Debt to GDP Ratio 28,16% 23,60% 18% 17% 17% 13% 12% 11% Notes: * = Preliminary, GDP number based on Revised Budget 2011 Assumption [Outstanding as of June, 2011] Source: Ministry of Finance

Outstanding of Total Central Government Debt 250 Loan Government Securities 200 150 100 68 64 73 77 71 71 82 85 83 104 118 132 50 61 59 64 69 69 63 62 62 67 65 68 69-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011++ [in percentage] Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011++ Loan 47% 48% 47% 47% 49% 47% 43% 42% 45% 38% 37% 34% Government Securities 53% 52% 53% 53% 51% 53% 57% 58% 55% 62% 63% 66% Total Central Government Debt 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% + Preliminary numbers, as of June, 2011 Source: Ministry of Finance

Balanced and contained borrowing needs Debt profile shows smooth external repayment profile and a balance between domestic and external debt 2011 Gross borrowing requirements (% GDP) 1 18 Domestic (% GDP) Foreign (% GDP) 15.7 13 11.4 12.2 8 6.6 7.7 7.9 3 1.4 1.7 2.3 (2) Peru BBB- Indonesia BB Uruguay BB Colombia BB+ Vietnam BB- Philippines BB Romania BB+ Turkey BB India BBB- Source: Individual Fitch Reports; Ministry of Finance; *Indonesia IMF GDP 1 Calculations include debt servicing Debt maturity profile [Trillion IDR] 140 120 100 80 60 Promissory to BI 40 20 38-2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040-2055 Notes: Preliminary, as of June, 2011 Excluding amortization of Non Tradable Securities (SUN-002, SU-004, and SU-007) External Loan Securities Source: Ministry of Finance and Bank Indonesia

Robust domestic bond market The domestic bond market plays an increasing role in financing the budget More diversified government bond holders (IDR trillion) Foreign ownership on longer term securities is dominant 800,00 IDR Billion [Rp miliar] 300.000 700,00 250.000 600,00 500,00 87,61 108,00 195,76 248,87 200.000 400,00 300,00 10,74 31,09 54,92 101,00 68,58 87,18 78,16 116,09 156,33 219,39 228,19 230,59 150.000 100.000 50.000 200,00 100,00-287,56 300,17 276,65 283,50 281,76 254,36 217,27 220,72 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 29-Jul-11 Foreign Holders Domestic Non-Banks Domestic Banks 0 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 29-Jul-11 Total 194.971 200.405 211.574 221.424 225.319 234.992 248.869 >5 132.550 135.846 140.767 145.158 143.260 148.742 159.348 >2-5 33.855 34.633 33.823 35.065 42.134 40.422 42.309 >1-2 7.736 8.858 12.039 12.454 13.227 17.510 16.747 0-1 20.829 21.069 24.945 28.746 26.698 28.318 30.465 39 Source: Ministry of Finance

Declining local borrowing rates [in percentage] 21.00 IDR Government Bonds : Yield Curve (IDMA) 19.00 17.00 15.00 13.00 11.00 Tenor 10-Aug-11 3-Aug-11 7-May-10 27-Oct-08 13-Sep-05 1Y 4.49 4.25 6.64 19.37 2Y 4.87 5.25 7.10 17.35 14.59 3Y 5.72 5.57 7.45 19.93 4Y 6.16 6.10 8.03 17.17 14.14 5Y 6.24 6.24 8.77 17.46 14.96 6Y 6.54 6.45 8.93 17.05 15.24 7Y 6.80 6.70 9.03 17.06 16.17 10Y 6.89 6.88 9.29 20.91 15.75 15Y 7.82 7.61 9.89 16.65 14.12 20Y 8.16 8.00 10.46 20.27 30Y 8.58 8.41 10.55 20.37 9.00 7.00 5.00 3.00 10 Aug '11 3 Aug '11 7 May '10 27 Oct '08 13 Sep '05 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y 20Y 30Y Sources: IDMA, Bloomberg 40

Bond stabilization framework First line of defense The DMO stands ready to support the domestic bond market as required in the event of substantial capital outflows Second line of defense Balance sheet SOE Participating SOEs, ie banks, insurance company & other financial institution As set in the memorandum of understanding between MoF and Ministry of SoE, under coordinative framework, SoEs will use their balances to buy Government bonds Accumulated cash surplus Parliamentary approval is needed prior to the usage of the funds Government cash balance Funds managed by Government Investment Unit Government Investment Unit will use its fund to buy Government bonds in the secondary market for its portfolio Idle cash Government has the capacity to support the secondary market whenever needed 41