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August 11th, 2017

Government Debt Securities Management

Directorate of Government Debt SecuritiesDirectorate General of Budget Financing and Risk Management

Ministry of Finance of The Republic of Indonesia

Outline

Introduction 31

Legal Framework of Government Debt Securities 112

Front Office Operations 153

Accessing International Capital Market 264

Developing Government Securities 325

Introduction

Organizational Structure

Directorate of Government Debt

Securities

Division

Government Debt Securities Portfolio

Management

Division

Government Debt Securities Market

Development

Division

Financial & Government Debt Securities Market

Analysis

Division

Government Debt Securities

Regulation and Performance Evaluation

1 Director, 4 Deputy Director that each of Deputies has 4 Managers

4

Milestone of GDS Management

5

Financing Trend, 2006 – 2017

Notes:* Revised Budget 2016** Budget 2017

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2017**

Gov't Securities (Net) 35.99 57.17 85.92 99.47 91.10 119.86 159.70 224.67 264.63 362.30 364.90 399.90

Domestic Loan (Net) - - - - 0.39 0.62 0.80 0.47 0.95 0.80 3.39 1.49

Foreign Loan (Net) (26.57) (26.58) (18.41) (12.42) (4.57) (17.80) (23.46) (5.81) (12.35) 15.30 2.53 (16.79)

Others/Non Debt (Net) 20.00 9.14 16.56 25.53 4.62 28.26 38.12 18.05 (4.33) (55.20) (69.01) (54.50)

Budget Deficit, % of GDP 0.87 1.26 0.08 1.58 0.73 1.14 1.80 2.33 2.25 2.50 2.35 2.41

0.87

1.26

0.08

1.58

0.73

1.14

1.80

2.33

2.25

2.50

2.35

2.41

(0.50)

-

0.50

1.00

1.50

2.00

2.50

3.00

-80

-30

20

70

120

170

220

270

320

370

6

7

Government Budget FY 2016-2017

In trillion IDR

Description (IDR Trillion)

2016 2017

AuditedRealization

Budget R-Budget Outlook∆ R-Budget to

Budget1H Realization

% Realization to Budget

A. Revenues and Grants 1,555.9 1,750.3 1,736.1 1,736.1 (14.2) 718.2 41.0%

I. Domestic Revenue 1,546.9 1,748.9 1,733.0 1,733.0 (15.9) 718.0 41.0%

1. Tax Revenue 1,284.9 1,498.9 1,472.7 1,472.7 (26.2) 571.9 38.2%

2. Non Tax Revenue 262.0 250.0 260.2 260.2 10.2 146.1 58.4%

II. Grants 9.0 1.4 3.1 3.1 1.7 0.2 15.5%

B. Expenditure 1,864.3 2,080.5 2,133.3 2,098.9 52.8 893.3 42.9%

I. Central Government Expenditure 1,154.0 1,315.5 1,367.0 1,343.1 51.5 498.6 37.9%

1. Ministerial Spending 684.2 763.6 773.1 769.2 9.5 263.9 34.6%

2. Non Ministerial Spending 469.8 552.0 593.9 573.9 41.9 234.6 42.5%

II. Transfer to Region and Village Fund 710.3 764.9 766.3 755.9 1.4 394.8 51.6%

1. Regional Transfer 663.6 704.9 706.3 697.7 1.4 360.4 51.1%

2. Village Fund 46.7 60.0 60.0 58.2 - 34.4 7.3%

C. Primary Balance (125.6) (109.0) (178.0) (144.3) (69.0) (68.2) 62.6%

D. Surplus (Deficit) (308.3) (330.2) (397.2) (362.9) (67.0) (175.1) 53.0%

% of GDP (2.49) (2.41) (2.92) (2.67) (0.51) (1.29)

E. Financing 334.9 330.2 397.2 362.9 67.0 209.4 63.4%

I. Debt Financing 403.0 384.7 461.3 427.0

II. Investment Financing (89.08) (47.49) (59.73) (59.73)

III. Loan 1.7 (6.41) (3.67) (3.67)

IV. Guarantee (0.65) (0.92) (1.0) (1.0)

V. Others 19.56 0.3 0.3 0.3

International Bonds Issuance (USD, EUR, JPY-denominated)

Issuance of International Bonds as complement to avoidcrowding out in domestic market consists of USD, YEN orEURO global bonds;

International bond issuance can be maximized up to 25%from gross target, depends on financing need.

Government Debt Securities (SUN): 71 %; Sukuk : 29% ATM for Government Securities (SBN): 6-8 years.

Domestic Issuance

Issuance targets for GDS, Sukuk and ATM target

Weekly Auction: Conventional Securities: 24x Islamic Securities: 24x

Non-Auction: Retail bonds Private Placements: Based on request

InstrumentsIndicative Target (IDR bn)

2017 Budget

Government Securities (Net) 399,993

Redemption 162,842

Cash Management 119,000Buyback 3,000

Government Securities (Gross) 684,835

Composition

Domestic 79%

Auction 93%

Non-Auction 7%

International Bond 21%

8

Government Securities issuance in semester I: • Target: 57.4% from gross issuance target• Realization: 57.7% from gross issuance target

Rupiah Government Securities issuance in semester I:• Target: 42.7% from gross issuance target• Realization: 43.1% from gross issuance target

Front loading issuance for budget financing

Government Securities

Indicative Financing Plan 2017

Securities Financing Realization 2017

(In Million IDR)

*Adjusted with issuance related to cash management realization.

Budget 2017Budget Realization

(as of Aug 1, 2017)

% Realization to

Budget 2017

Government Securities Net 399,992,586 314,321,445 78.58%

Government Securities Maturing in 2017 and Buyback 284,735,024 177,757,300 62.43%

Issuance Need for 2017* 684,727,610 492,078,745 71.86%

Government Debt Securities (GDS) 353,244,478

IDR Denominated GDS 251,223,000

-Coupon GDS 130,880,000

-Conventional T-Bills 119,950,000

-Private Placement 393,000

-Retail Bonds -

International Bonds 102,021,478

-USD GMTN 73,825,500

-Euro GMTN 15,352,390

-Samurai Bonds 12,117,580

-Domestic Foreign Denominated Bonds 726,008

Government Islamic Debt Securities 138,834,267

Domestic Government Islamic Debt Securities 98,865,267

- IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) 82,827,957

- Retail Sukuk 14,037,310

- Indonesia Hajj Fund Sukuk 2,000,000

Global Sukuk 39,969,000

9

10

*) Preliminary Figures

Nominal %

a. Foreign Loan (in billion USD) 68.4 63.6 58.4 54.2 54.4 54.0 54.6 19.6%

Bilateral 42.1 37.2 31.5 26.9 24.7 23.2 23.3 8.4%

Multilateral 23.5 23.8 23.7 23.5 26.1 27.5 27.6 9.9%

Commercial 2.8 2.5 3.3 3.8 3.6 3.3 3.2 1.2%

Suppliers 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0%

b Domestic Loan (in billion USD) 0.1 0.19 0.2 0.3 0.3 0.4 0.4 0.1%

c. Government Securities (in billion USD) 131.0 140.8 136.3 155.2 174.7 207.0 223.7 80.3%

Foreign Currency Denominated 21.6 27.4 32.8 36.7 47.8 57.1 59.5 21.3%

Rupiah Denominated 109.4 113.4 103.5 118.5 126.9 149.9 164.2 58.9%

Total Central Government Debt

(in billion USD) 199.5 194.9 209.7 229.4 261.3 278.7

Total Central Government Debt

(in trilion IDR)1,808.9 2,375.5 2,608.8 3,165.1 3,511.0 3,706.5

Exchange Rate Assumption (IDR/USD1) 9,068.0 12,189.0 12,440.0 13,795.0 13,436.0 13,319.0

GDP (in trillion IDR) 7,831.7 9,524.7 10,542.7 11,540.8 12,406.8

Debt to GDP Ratio 23.1% 23.0% 24.9% 24.7% 27.4% 28.3%

Description

June 17

2011 2012 2013 2014 2016*)2015

204.5

1,977.7

9,670.0

8,615.7

Outstanding Central Government Debt By Instrument

11

Sound Government Debt Portfolio

Management

11

140.76 136.27155.24

174.7

206.95223.7

63.7658.61

54.47

54.74

54.37

54.5823.0%

24.9% 24.7%

27.4%28.3% 28.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

50

100

150

200

250

300

2012 2013 2014 2015 2016 June-2017*)

US

D b

n

Securities Loan Gross debt/GDP (%)

Stable Debt to GDP Ratio Over the Years Well Diversified Across Different Currencies

56% 53%57% 55% 58% 59%

24% 29%29% 32%

31% 29%

14% 12%9% 8% 7% 7%3% 3%

3% 3% 4% 4%

3% 3%2% 2% 1% 1%

2012 2013 2014 2015 2016 June-2017

IDR USD JPY EUR Other

Government debt/GDP (%)

*) Using GDP assumption in 2017 Budget

12

Risk Indicators

12

16.2 16.014.8

13.712.3

11.3

22.5 23.2

21.0 20.7

17.819.3

2012 2013 2014 2015 2016*) Jun-17

Variable Rate Ratio (%) Refixing Rate (%)

10.2 11.7 10.7 12.2 11.7 11.0

44.446.7

43.4 44.541.8 40.8

2012 2013 2014 2015 2016*) Jun-17

FX Debt to GDP Ratio (%)** FX Debt to Total Debt Ratio (%)

9.79.6

9.7

9.4

9.08.9

2012 2013 2014 2015 2016*) Jun-17

ATM (in years)

Interest Rate Risk Exchange Rate Risk

Debt Average Time to Maturity Debt Maturing

7.2 8.6 7.7 8.4 6.69.1

21.5 21.8 20.1 21.4 23.0 23.5

32.4 33.4 33.9 34.7 36.539.1

2012 2013 2014 2015 2016*) Jun-17

In < 1 year In < 3 year In < 5 year

*) Preliminary figures **) Using GDP assumption in 2017 Budget

-Risk indicators are improving amidst pressure from rupiah depreciation

-Risk indicators show improvements in interest rate risk and stability in exchange and refinancing risks

Legal Framework ofGovernment Debt Securities

LAW

Law No. 24 Year 2004 concerning Government Debt Securities

GOVERNMENT REGULATIONS

Government Regulations No. 76 Year 2005 concerning Management, Responsibility, and Information Publication of Government Debt Securities Management

REGULATIONS OF FINANCE MINISTER

-- Issuance through auction ---- Issuance through private placement mechanism --

-- Securities buyback ---- Issuance of foreign currency denominated bonds --

-- Issuance of retail bonds --

REGULATIONS OF DIRECTOR GENERAL

-- Administrative requirements and registration for resident ---- Guidance of the use of PDs trading infrastructure --

Regulatory Framework

14

Definition: Government Debt Securities are financial securities in the form of letters of indebtedness from the government, in Rupiah as well as in foreign currencies, which payments of the principal and interests are guaranteed by the Republic of Indonesia, in accordance with validity period thereof.

Types of Government Securities:

• T-Bills: Government Debt Securities with a period of up to and including 12 (twelve)

months, with the interest in the form of a discount.

• Government Bonds: Government Debt Securities with a period of more than 12 (twelve)

months with coupons and/or with the interest in the form of a discount.

The Law Number 24 Year 2002 (1)

15

ObjectiveGovernment Securities shall be issued for the following purposes:

• Financing deficits of the State Budget;

• covering short-term cash shortfall due to the mismatch between the cash flows of

revenues and expenditures in the State Cash Accounts within one fiscal year;

• managing the state debt portfolio;

Authorization to issue Government Securities is embedded and implemented by the Minister of Finance

• Consultation with Central Bank

• Should be approved by the parliament (on a net basis)

The fund for the payment of interests and principal amounts are provided annually in the Budget

Central Bank acts as central registry and Fiscal Agent (payment, clearing and settlement). Central Bank also acts as auction agent.

The Law Number 24 Year 2002 (2)

16

Front Office Operations

Strengthening the Government Debt Securities market by:1. Helping to build stable, dependable source of demand

for securities in the primary market.2. Providing liquidity in the secondary market3. Devoting capital resources for market making (as a

proprietary buyer)4. Building distribution channels5. Providing market information including prices, volumes

and spreads between bids and offer

Primary Dealership

1. To improve the government bond market liquidity

2. To provide a reference yield for private sector issuingcorporate bonds

3. To support the overall yield curve

Establishing Benchmark

Series

Primary Dealership and Establishing

Benchmark Series

18

Government SecuritiesContinuous efforts in providing diversified instruments

Government Securities (GS)*

Government Debt Securities (GDS) Government Sharia Securities (SUKUK)

Government Bonds (GB) Treasury Bills

GB - Foreign CurrencyGB - Domestic USD GB – Rupiah

Samurai Bonds (JPY)

Global Bonds (USD)

Global Bonds (Euro)

Variable Rate (Rp)

Fixed Rate (Rp)

Variable Rate(Regular)

Savings Bond Ritel Retail Bond

Fixed Rate(Regular)

Zero Coupon(Regular)

By Tenor

By Currency

By Coupon Type

Notes: *) GS consist of Tradable and Non Tradable GS

19

• A fixed coupon • First issuance in 1999• Issued through auction• Coupon is paid every 6 months

• Retail obligation, sold through a selling agent.

• Issued through book building• Minimum order IDR5 million• ORI, first issuance in 2006• SBR, first issuance in 2014

• A variable coupon • First issuance in 1999• Issued through auction• Rate determined every 3 months

based on 3 months-T’Bills

• T’Bills (maturity less than 12 months)

• Government issues 12 months & 3 months T’Bills

• Issued through auction• Discount paper• First issuance in 2007

• First issuance in 2007• No coupon payment schedule• Sold at discount price and

nominal will be paid at its maturity time.

• Non tradable securities• First issued in 2009 to local

government

Product Development

20

• Issued in international capital market

• Dominated in US$, first issued in 2004

• Dominated in EUR, first issued in 2014

• Issued in Japan capitalmarket

• Denominated in YenJapan

• First issued in 2009under JBIC guarantee

Product Development (2)

21

• USD Bond issued in domestic market

• First issued in 2013

Auction1

Private Placement2

Book Building3

Method of Issuance

Issuance

22

Auction Mechanism (IDR and USD in

Domestic Market)

23

Private Placement Mechanism

24

SBR/ORI Issuance Plan

Request for Proposal Selling

Agent

Selling Agent Selection Process

Coupon DeterminationMarketing

Allotment & Setelment

Retail Bond Issuance Process - Book

Building Mechanism

25

Debt management program to reduce the refinancing risk, smoothening maturity (redemption) profile, as well as maintaining liquid series.

Exchange of illiquid short dated series, with liquid long dated benchmark.

Debt Switch

Debt management program to stabilize market, debt portfolio management (reducing high coupon and illiquid series), and to reduce refinancing risk (short dated debt securities).

The amount is flexible, as long as the net issuance target is achieved.

Buyback

Objectives

Debt Switch & Buyback

26

DSUN - MoF

MOFiDSMinistry of Finance

Dealing System

Dealer A

Data Offering

Auction results,Determined by MoF

Primary Dealers

1

3

4

5

6

2

Dealer B

Auction Results Announcement

Rules andMonitoring on auction

BI-SSSSv.s.

BI-RTGS

Offering

Tabulation,allocation

RegistrationAuction

7AwardedOffers

PaymentsSecurities delivery (govt bonds)

Settlement

Settlement

8

Settlement

Auction Plan Announcement

1 day before

DSS-MoF

Decision Support System

Debt Switch & Buyback Mechanism

27

Direct transaction is a transaction (buy or sell) of government securities between government and eligible parties (Primary Dealers, Central Bank, Deposit Insurance Corporation), through Dealing Room facility.

Objectives:

• Stabilizing the government securities market.

• Managing the portfolio of government securities.

• Achieving net government securities target.

Direct Transaction

28

Accessing International Capital Market

Directorate General of Debt Management

Raise capital to meet financing needs

Diversify financing sources

Creating a benchmark for valuation of sovereign credit risk and facilitate future issuance by

sovereign, local government, public enterprises

Reduce crowding out effect in domestic bond market

Promote credit story of Indonesia

Objectives:

Global Bond Issuance Strategy:

Volume: less than 30% of total gross issuance target1

Timing: considering financial market condition e.g. interest rate and market liquidity2

Instruments’ composition: based on cost calculation, potential demand, risk management and prioritizing global bond in USD (more than 50%)

3

Currency: USD, EUR, JPY4

Objectives & Strategy

30


Foreign Exchange Riskthe probability to adjust prices and costs to offset changes in exchange rate.

1

Rollover Riskwhen debt is about to mature and needs to be rolled over into new debt. If interest rates rise adversely, countries would have to refinance their debt at a higher rate and incur more interest charges in the future.

2

Risk Entailed

Issuance Format

Benefits:1) High flexibility in global bond issuance since

the time required for the transaction is shorter

2) Issuance costs and documentation arerelatively cheaper than stand alone issuance

3) Effectively achives global distribution including Qualified Institutional Buyers (QIBs at USA)

4) Less onereous documentation requirements

Drawback:1) Less flexibility, since the time required for

the transaction is relatively longer2) Full documentation is required for each

issuance

Global Medium Term Notes Stand Alone Issuance

Risk Entailed and Issuance Format

31


Global Medium Term Note (GMTN) Process

- MoF Decision- Selection Committee- Request For Proposal

and TOR

- Offering circular- Listing requirement- Legal document- Rating confirmation- Due diligence- Road show (optional)

- Technical proposal evaluation- Beauty Contest- Expenses Negotiation- Appointment of Panel,- JLM and LC- Engagement Letter

Preparation Selection Documentation

• Bring down due diligence

• Pricing• Settlement• Listing• Signing• Closing

Execution

Notes:• Total amount of GMTN program: USD 50 billion (up to 2017)• Current balance of GMTN program: USD 9.97 billion

International Bonds

Issuance Process

- Selection Committee- TOR and RfP- Preliminary discussion

with JBIC:• Program Agreement• Draft Indemnity

Agreement• JBIC guarantee fee

- Preparation forUnderlying Transaction

•Private Placement Memorandum•Non Deal road show presentation•Other Legal Documents

- Panel Appointment - Appointment of JLM

& LC- Appointment of CCB

and IPAA- Engagement Letter


• Price Guidance• Bookbuilding• Single spread

and maximum yield• Pricing• Settlement/Closing

Execution

Samurai Bond Process – Private Placement with JBIC Guarantee

32

Notes:• CCB: Commissioned Companies for Bondholders• IPAA: Issuing and Paying Agent and Administrative


- Selection Committee- TOR and RfP

•Securities Registration Statement (SRS)

•Non Deal road show presentation•Other Legal Documents

- Panel Appointment - Appointment of JLM& LC

- Appointment of IPAA (Fiscal Agent)

- Engagement Letter




Execution

Samurai Bond Process – Public Offering

International Bonds

Issuance Process

- Selection Committee- TOR and RfP

•Private Placement Memorandum•Non Deal road show presentation•Other Legal Documents

- Panel Appointment - Appointment of JLM & LC-Appointment of IPAA

(Fiscal Agent)- Engagement Letter




Execution

Samurai Bond Process – Private Placement without JBIC Guarantee

33

Provide economic data and information on economic policies, either directly or through a website.1

Explain the context behind data releases and, therefore, actively shape investor sentiment in line with fundamentals.

2

Correct inaccurate information and dispel false rumors.3

Supply information on international and domestic government securities.4

Provide answers to questions of both retail and institutional investors either directly or through e-mail.

5


The role of investor relations programs:

The programs include:

Non Deal Road show

Investor Teleconference

Investor Mailing List

Information/Data Dissemination through website

Serve as a sounding board for sovereign financing operations.6

Help policymakers interpret evolving market techniques, practices, and sentiment.7

Investor Relations Programs

34


Credit rating is measurement of willingness and ability of debitor to service its obligations.

Credit ratings allow the issuer to tap a wide investor base as most fund managers are required to invest only in rated securities.

The role of credit ratings:

• To overcome the asymmetry of information or lack of familiarity with a given country.

• To indicate that a country’s investment climate, creditworthiness, and capacity to service

existing debt.

• To provide an independent mechanism to validate and encourage the pursuit of

appropriate macroeconomic policies and the government’s commitment to the adoption

of market-friendly economic reform.

• To promote good governance and foster transparency in government decision-making

and in the collection and dissemination of information.

• To promote investments by institutional and retail investors in mature markets

The Need for Credit Rating

35


Credit Rating Improvement

36

(RHS)

Primary Market Performance 2017:

Global Bonds (USD)

Issuer RI0122 RI0127 RI0147

Issuer Republic of Indonesia

Issuer Rating Baa3 (Moody’s) / BBB- (Fitch)

Issue Rating Baa3 (Moody’s) / BBB- (Fitch)

Issue USD Fixed Rate USD Fixed Rate USD Fixed rate

Size USD$0.75bn USD$1.25bn USD$1.50bn

Pricing/Settlement Date

December 1, 2016 / December 8, 2016

Maturity January 8, 2022 January 8, 2027 January 8, 2047

Coupon 3.700% 4.350% 5.250%

Re-offer Yield/Price 3.750%/

99.767%

4.400%/

99.592%

5.300%/

99.246%

Format Rule 144 A / Reg S

Listing SGX-ST and Frankfurt Stock Exchange

Total Book Order USD5.20bn USD3.50bn USD3.30bn

34

74%

12%

5%0

9%

RI0122

Asset Managers/ Fund ManagerBankCentral Bank/Sovereign FundsInsurance/ Pension FundsPrivate Banks

53%

22%

5%

18%2%

RI0127


27%

2%6%62%

3%

RI0147


Allocation by Geography

Allocation by Investor Type

Primary Market Performance 2017

Global Bonds (USD)

3%

22%

27%

48%

RI0122

Indonesia Asia (Ex. Indonesia) Europe USA

18%

26%

18%

38%

RI0127


1%

58%12%

29%

RI0147


35


Samurai Bonds (JPY)


Issuer Rating Baa3 (Moody’s) / BBB- (S&P) / BBB- (Fitch) / BBB- (R&I) / BBB- (JCR)

Format Samurai Bonds

Type of Notes Senior Unsecured

Bond Rating Baa3 (Moody’s) / BBB- (Fitch) / BBB- (R&I)

Pricing Date May 31, 2017

Settlement Date June 8, 2017

Total Issue amount JPY 100bn

Series #1 #2 #3

Tenor 3yr FIX 5yr FIX 7yr FIX

Trance Size JPY 40bn JPY 50bn JPY 10bn

Coupon 0.65% 0.89% 1.04%

Re-offer Spread +55bps +75bps +85bps

39


Samurai Bonds (JPY)Allocation by Geography


25.0%

11.3%

2.0%15.8%

9.3%

4.0%

6.8%

26.0%

RIJPY0620

City Banks Trust Banks Specialized BanksLife Insurance Asset Managers Regional BanksShinkins Others

18.0%

24.6%

23.4%

8.8%

1.8%

23.4%

RIJPY0622

Trust Banks Life Insurance Asset Managers

Regional Banks Shinkins Others

20.0%

8.0%

5.0%

15.0%

52.0%

RIJPY0624

Life Insurance Asset Managers Regional Banks

Shinkins Others

100%

RIJPY0620

Asia

100%

RIJPY0622

Asia

100%

RIJPY0624

Asia

40


Dual Currency (EUR & USD)

Issuer RIEUR0724 RI0727 RI0747


Issuer Rating Baa3 (Moody’s) / BBB- (Fitch)

Issue Rating Baa3 (Moody’s) / BBB- (Fitch)

Issue EUR Fixed Rate USD Fixed Rate USD Fixed rate

Size EUR€1.00bn USD$1.00bn USD$1.00bn

Pricing/Settlement Date

July 11, 2017 / July 18, 2017

Maturity July 18, 2024 July 18, 2027 July18, 2047

Coupon 2.150% 3.850% 4.750%

Re-offer Yield/Price 2.178%/

99.820%

3.900%/

99.589%

4.800%/

99.209%

Re-offer Spread +158bps - -

Format Rule 144 A / Reg S

Listing SGX-ST and Frankfurt Open Market

Total Book Order EUR4,3bn USD4.1bn USD3.2bn41

42


Dual Currency (EUR & USD)Allocation by Geography


55%

11%

6%

28%

RI0747

Fund/Asset Managers Bank/ Private Banks

Central Bank/Sovereign Funds Insurance/ Pension Funds

52%

17%

14%

17%

RIEUR0724



56%27%

10%7%

RI0727



10%

17%

16%

13%

8%

7%

5%

13%

11%

RIEUR0724

Indonesia Asia (Ex. Indonesia) Inggris Raya

Jerman Swiss Itali

Perancis Eropa lainnya USA

2.5%

35.5%

24%

38%

RI0747


15%

25%

22%

38%

RI0727


42

Developing Government Securities

DEEP, ACTIVE, AND LIQUID MARKET

Sufficient market capacity to absorb and efficient price/yield

REGULATION, SUPERVISION, INSTITUTIONAL SUPPORT, AND MARKET

COMMUNICATION

PRIMARY MARKET

• Activities: Regular issuance (auction, book building), private placement

• Infrastructure: Auction system for domestic and global issuance, settlement

system for retail bonds

SECONDARY MARKET

• Activities: Buyback, debt switch, securities lending facility

• Infrastructure:

- Primary dealers quotation system

- Trading system through IDX

- INDOBeX

- Electronic Trading Platform (ETP): for retail bonds (under development)

• Price Discovery Mechanism:

- IBPA (Indonesia Bond Pricing Agency)

- PLTE (Penerima Laporan Transaksi Efek)

- Yield curve for benchmark series.

• Repo Instruments and Derivatives: MRA, GMRA & Indonesia Government

Bond Futures

MARKET INFRASTRUCTUREDEMAND SUPPLY

Banks

Central Banks

Foreign Investors

Insurance

Pension Funds

Mutual Funds

Corporates

Securities Houses

Retail Investors

LPS (Indonesia Deposit

Insurance Corporation)

BLU (Public Service

Agency)

SOE (State Owned

Enterprise)

Others

GOVERNMENT

BOND:

Local Currency

Bonds

Foreign Currency

Denominated Bonds

TREASURY BILLS

Government Securities Market

Development Framework

44

PRICE DISCOVERY MECHANISM

Centralised transaction report through PLTE

Yield curve for benchmark series and all tenors

Establishment of IBPA (Indonesia Bond Pricing Agency)

UNDER DEVELOPMENT

ETP (Electronic Trading Platform) for secondary market

Developing IGBF (Indonesia Government Bond Futures)

MARKET MECHANISM

Establishment of primary dealers system for govt debt securities & PDs

quotation system

Development of INDOBeX (Indonesia Government Bond Index)

Debt switch through many-to-many and staple bonds mechanism

GMRA as a standard master agreement for repo transactions

Implementation of SID (Single Investor Identification)

Establishment of BI-SSSS

Establishment of MoFIDs

BI-SSSS= Bank Indonesia – Scripless Securities Settlement SystemMoFIDS = Ministry of Finance Dealing System

Improving market infrastructure

45

FINANCIAL MARKET

STABILISATION

Ministry of Finance

Bank Indonesia

Indonesia Financial Services

Authority (OJK)

Indonesia Deposit

Insurance Corporation

(LPS)

FINANCIAL MARKET

DEVELOPMENT

Ministry of Finance

Bank Indonesia

Indonesia Financial Services

Authority (OJK)

Coordination among Authorities

46

47

1.97 1.89

1.11

1.73 1.74

1.94

2.60

2.14

1.39

1.58 1.75

4.72

2.44

1.93 2.01

2.62

2.38

1.31

1.83

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

-

20

40

60

80

100

120

140

160

Incoming Bids Awarded Bids % Bid to Cover Ratio (RHS)

Average awarded bids

2017= IDR16.7T/auction

Average incoming bids

2017 = IDR36.7T/auction

Average Incoming Bid 2016 = IDR25.55T while Average Awarded Bid 2016 = IDR13.37T

“as of Aug 2, 2017”

*) Surat Utang Negara (SUN)

[In Trillion IDR ]

GDS* PRIMARY MARKET PERFORMANCE

2017 - Auction

47

Average awarded bids

2016= IDR13.37T/auction

Average incoming bids

2016 = IDR25.55T/auction

GS Maturity Profile S-1 2017

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2040 2041 2042 2043 2044 2045 2046 2047

TOTAL 142 192 204 124 169 154 120 199 106 160 116 72.6 93.4 25.7 93.3 64.3 48.2 92.4 21.3 84.3 39.8 42.3 0 7.53 7.53 17.2 43.4 29.9 54.8 26.6 16.6 20

SUKUK USD 0 13.3 20 0 0 13.3 0 20 26.6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

SUKUK IDR 48 33.3 31.5 38.8 0 1.22 0 0 1.55 0 3.79 0 0 2.18 0 0 0 0 0 4.11 10.1 0 0 7.53 7.53 0 0 9.93 0 0 0 0

SUN JPY 0 2.7 11.6 14.7 4.56 13.3 0 1.21 6.6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

SUN EUR 0 0 0 0.74 14.9 0 22.3 0 18.6 0 0 22.3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

SUN USD 13.3 25.3 26.6 26.6 33.3 36.6 33.3 26.6 26.6 36 16.6 0 0 0 0 0 0 0 21.3 0 20 26.6 0 0 0 0 30 20 26.6 26.6 16.6 20

SUN IDR 80.9 118 114 43.1 116 89.6 64.4 151 26 124 95.7 50.3 93.4 23.5 93.3 64.3 48.2 92.4 0 80.2 9.63 15.7 0 0 0 17.2 13.4 0 28.2 0 0 0

0

20

40

60

80

100

120

140

160

180

200

220

48

[In Trillion IDR ]

49

GDS Secondary Market Performance

2

4

6

8

10

12

14

16

18

20

22

Aug'1

1

Nov'1

1

Feb'1

2

May'1

2

Aug'1

2

Nov'1

2

Feb'1

3

May'1

3

Aug'1

3

Nov'1

3

Feb'1

4

May'1

4

Aug'1

4

Nov'1

4

Feb'1

5

May'1

5

Aug'1

5

Nov'1

5

Feb'1

6

May'1

6

Aug'1

6

Nov'1

6

Feb'1

7

May'1

7

Aug'1

7

5Y 10Y 15Y 20Y

6.68 (5Y), 6.88 (10Y), 7.33 (15Y), 7.56 (20Y)

(%)Average Daily TradingYield of Benchmark Series

Quotation of Benchmark Series (ao Aug 1, 2017) Foreign Ownership V. 10Y Yield Movement

Source: IBPA

As of Aug 1, 2017

5.88 5.73 5.31 7.91 9.38 9.54

12.36 9.20

11.40 0.16 0.38 0.25

0.76 0.72 0.61

0.82

0.41

0.75

1.54 3.07

6.46

8.80

10.15

15.50

15.84

15.59

15.34

-

10.00

20.00

30.00

40.00

2011 2012 2013 2014 2015 2016 Mar-17 Jun-17 Jul-17

OUTRIGHT REPO BANK REPO BIAs of Aug 1, 2017

A DAY

BEFORE

5 DAYS

BEFOREMTD YTD

FR0061 PRICE 101.28 101.13 100.99 101.13 97.96 15 29 15 332

5Y YIELD 6.68% 6.72% 6.75% 6.72% 7.47% (4) (7) (4) (79)

FR0059 PRICE 100.80 100.48 100.60 100.48 94.98 32 20 32 582

10Y YIELD 6.88% 6.93% 6.91% 6.93% 7.71% (5) (3) (5) (83)

FR0074 PRICE 101.50 101.26 101.75 101.26 101.18 24 (25) 24 32

15Y YIELD 7.33% 7.36% 7.31% 7.36% 8.13% (3) 2 (3) (80)

FR0072 PRICE 106.88 106.26 106.96 106.26 97.19 62 (8) 62 969

20Y YIELD 7.56% 7.62% 7.55% 7.62% 7.81% (6) 1 (6) (25)

CHANGES (bps)YEAR TO

DATE

PRICE/

YIELD

SERIES/

TENOR

MONTH TO

DATE

A DAY

BEFORETODAY

5 DAYS

BEFORE

[In IDR ]

50

Ownership of Tradable Domestic

Government Securities(in trillion IDR)

1) Non Resident consists of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company, and Pension Fund.

2) Others such as Securities Company, Corporation, and Foundation.

*) Including the Government Securities used in monetary operation with Bank Indonesia.

**) net, excluding Government Securities used in monetary operation with Banks.

Description

Banks* 375.55 30.98% 350.07 23.95% 399.46 22.53% 493.82 27.27% 399.19 20.45% 550.79 27.95%

Govt Institutions (Bank Indonesia**) 41.63 3.43% 148.91 10.19% 134.25 7.57% 53.31 2.94% 175.89 9.01% 32.59 1.65%

Bank Indonesia (gross) 157.88 8.90% 163.63 9.03% 180.28 9.23% 180.25 9.15%

GS used for Monetary Operation 23.63 1.33% 110.32 6.09% 4.39 0.22% 147.66 7.49%

Non-Banks 795.17 65.59% 962.86 65.87% 1239.57 69.90% 1264.02 69.79% 1377.15 70.54% 1387.53 70.40%

Mutual Funds 45.79 3.78% 61.60 4.21% 85.66 4.83% 87.84 4.85% 91.56 4.69% 91.80 4.66%

Insurance Company 150.60 12.42% 171.62 11.74% 238.24 13.43% 241.25 13.32% 254.21 13.02% 257.31 13.06%

Foreign Holders 461.35 38.05% 558.52 38.21% 665.81 37.55% 685.51 37.85% 770.55 39.47% 776.24 39.38%

Foreign Govt's&Central Banks 103.41 8.53% 110.32 7.55% 120.84 6.81% 118.91 6.57% 131.94 6.76% 132.92 6.74%

Pension Fund 43.30 3.57% 49.83 3.41% 87.28 4.92% 86.95 4.80% 89.11 4.56% 89.85 4.56%

Individual 32.80 2.71% 42.53 2.91% 57.75 3.26% 57.69 3.19% 60.49 3.10% 60.02 3.05%

Others 61.32 5.06% 78.50 5.37% 104.84 5.91% 104.78 5.79% 111.23 5.70% 112.31 5.70%

Total 1,212.35 100% 1,461.85 100% 1,773.28 100% 1,811.14 100% 1,952.23 100.00% 1,970.91 100.00%

01-Aug-17Jun-17Dec-16 Jan-17Dec-15Dec-14

Yield of Govt Bonds on Peers’ Market

• Market Watch as of August 2, 2017• Source: Asian Bonds Online

Source: IDMA, Bloomberg, as of Nov. 22 2016

LCY 10 Year Government

Bonds

Latest Yield(%)

YTD Change (BP)

MTD Change

(BP)

HK 1.542 -43.2 +2.4

ID 6.925 -104.8 -2.6

JP 0.078 +3.2 -0.5

KR 2.260 +16.8 +3.3

MY 3.988 -24.0 -0.5

PH 4.989 +36.1 +31.5

SG 2.130 -34.4 +3.4

TH 2.413 -23.5 -1.8

US 2.253 -19.1 -4.1

VN 5.456 -91.9 +1.0 -

2

4

6

8

10

12

14

16

18

20

22

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y 20Y

1 Aug '17 25 Jul '17 3 Jul '17 9 Feb '12

22 Sep '11 27 Oct '08 13 Sep'05

[in percentage]

51

Crisis Management Protocol &Bond Stabilization Framework

Pre-emptive Measures

Implementing Crisis Management Protocol (CMP)

Implementing Bond Stabilization Framework (BSF)

Enhancing coordination between government institutions and continuous dialogue with market participants

Specific policies in place to address crises enacted in 2015 budget law

Swap facility arrangements based on international cooperation

Crisis Management Protocol Indicators to determine crisis level of

Government Securities Market condition (normal, aware, alert, crisis)

Several market indicators that are monitored daily:

- Yield of benchmark series;- Exchange rate;- Jakarta Composite Index;- Foreign ownership in government securities

Policies to address the crisis at every level :

- Repurchase the government securities at secondary market- Postpone or stop the issuance

First Line of Defense

State’s Budget

Buyback fund at DG of Budget Financing and Risk Management

Investment fund at Public Service Agency (BLU) (min. level Aware)

State Owned Enterprises (BUMN)’s Budget

Related BUMNs (min. level Aware)

Social Security Organizing Agency (BPJS)’s Budget

BPJS (min. level Aware)

Second Line of Defense

State’s Budget

State General Treasury Account (Rekening KUN) (min. level Alert)

Accumulated cash surplus (SAL) (min. Level Crisis)

State Owned Enterprises (BUMN)’s Budget

Related BUMNs (min. level Alert)

Social Security Organizing Agency (BPJS)’s Budget

BPJS (min. level Alert)

Bond Stabilization Framework

Implement Measures to Manage

External Volatility

53

14.67 15.95

13.17 12.49

21.34

(19.84)

39.48

6.84

(3.59)

4.10 6.31

23.04

(3.90)

(7.96)

(2.30)

5.39

8.38

21.37 19.80

9.46

18.30 20.09

(4.21)

22.03

15.04

9.06

16.89

(9.35)

(19.58)

9.75

19.70

6.38

31.33

22.59

10.33

14.40

(0.41)

(7.60)

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

0.08

0.1

(30.00)

(20.00)

(10.00)

0.00

10.00

20.00

30.00

40.00

50.00

Ju

l-1

4

Se

p-1

4

No

v-1

4

Ja

n-1

5

Ma

r-1

5

Ma

y-1

5

Ju

l-1

5

Se

p-1

5

No

v-1

5

Ja

n-1

6

Ma

r-1

6

Ma

y-1

6

Ju

l-1

6

Se

p-1

6

No

v-1

6

Ja

n-1

7

Ma

r-1

7

Ma

y-1

7

Ju

l-1

7

Net Inflows [LHS] Net Inflows Over Total Foreign Holdings [RHS]

Monthly Net Buyer (Seller) - Non Resident Foreign Ownership - Proportion by Tenor

[In Trillion IDR ]

54

As of July 17, 2017

5.2% 4.6% 3.2% 3.5% 3.4% 5.4% 4.4%

5.4% 3.7%

1.3%5.3%

2.0%5.1% 5.2%

12.9% 15.2%

11.8%

17.8%17.8%

17.4% 18.2%

32.0% 33.6%

39.0%

37.4%38.0%

35.9% 36.2%

44.5% 42.8% 44.7%

36.0%38.8% 36.2% 36.0%

32.5%

38.1% 38.2% 37.5% 37.8%39.5% 39.1%

0%

20%

40%

60%

80%

100%

Dec 13 Dec 14 Dec-15 Dec-16 Jan-17 Jun-17 17-Jul-17

0-1 ≥1-2 ≥2-5 ≥5-10 ≥10 %Foreign Ownership of Total

Foreign Investor ActivityDominated By High Quality Long Term Investors

FSA (OJK) Regulation No 1/POJK.05/2016*on Investment in Government Securities for Non-Bank Financial Institution

Life Insurance Company

Min. 20% of total investment ( by Dec. 31 2016).

Min 30% of total investment ( by Dec. 31 2017).

General Insurance, Reinsurance & Guarantee

Company



Employer Pension Fund

Min. 20% of total investment ( by

Dec. 31 2016)

Min 30% of total investment ( by Dec. 31 2017).

BPJS Ketenagakerjaan(The Social Security

Administration Body for Employment)

Min. 50% of total investment of

Employment Social Security Fund (by

Dec. 31 2016).

Min. 30% of total portfolio

investment of BPJS Ketenagakerjaan(by Dec. 31 2016)

BPJS Kesehatan (Healthcare Social Security Agency)

Min. 30% of total investment of BPJS Kesehatan (by Dec.

31 2016).

55

*Since November 14, 2016 this regulation is revised to be FSA (OJK) Regulation No.36/POJK.05/2016 . The revised regulation has added SOE infrastructure bonds as instrument other than Gov’t Securities that can be utilized to fulfill the minimum investment requirement.

Domestic Institutional Investors

63.17

18.63

15.81

97.17

21.02

6.52

12.12

17.44

26.94

7.78

24.06

107.29

66.62

37.45

15.22

26.08

- 20 40 60 80 100 120

Banks*

Bank Indonesia**

Mutual Fund

Foreign Holders

Insurance Company

Pension Fund

Individual

Others

IDR tn

NET BUY 2016 NET BUY 2015

Domestic Investor ActivityIncreasing Demand From Non-bank Institutional

How to mitigate risk resulted from high foreign participation in the domestic market

How to improve liquidity of govt securities:

Benchmark; Non-benchmark series; and 3M SPN (Treasury Bills)

How to increase repo transactions among market players

Challenges

57

END OF PRESENTATION

Directorate General of Budget Financing and Risk ManagementMinistry of Finance of Republic of Indonesia

Directorate of Government Debt SecuritiesFrans Seda building, 4th floor,Jl. Wahidin Raya No. 1, Jakarta Pusat – Postal Code: 10710Phone: +6221 3810175Fax. : +6221 3846516Site: www.djppr.kemenkeu.go.id

To supportmarket

development

To enhance public accountability as part

of transparent Government debt

management

To meet financing needs at

optimum cost and tolerable

riskGeneral Policy

To manage debt-to-

GDP ratio To increase

debtmanagement

efficiency

Tooptimizecurrency

mix of issuance

To achieveoptimal

participation of society

To conductactive debtportfolio

To directdebt use toproductiveactivities

To optimizethe use of

external and domestic

loans

Tostrengthen

the functionof Investor Relations

Unit

Financing Strategy 2017

General Objective & Policy

59

In February 2017, Moody’s changed its outlook on Indonesia to positive (Baa3). The positive outlook reflects their view of:

Improved policy effectiveness (as evidenced by positive improvements in institutions, track record of macrostability and fiscal stability)

Expected reduction in vulnerability to external shocks due to narrowing current account deficits and a slower growth in private sector external debt

In May 2017, S&P upgraded Indonesia’s long-term sovereign credit ratings to an investment grade rating of ‘BBB-’ with stable outlook, from ‘BB+’. This reflects:

Reduced risks to Indonesia’s fiscal metrics

More realistic revenue targets

Effective expenditure management

Increased predicability of economic and financial policy

S&P stated that long-term ratings could be raised if there are significant improvements in the external and fiscal balance

In July 19, 2017, Fitch affirmsIndonesia ast BBB- with outlook Positive. The positive rating reflects:

Al low government debt burden

Strong macroeconomic policy with focus on macro stability and sustainable growth

Further increase in foreign exchange buffers

Improving business environment

Ease of Doing Business1

International acknowledgement from various agencies and improving global perception

1. Source: World Bank.

Integrated Reforms to Bolster Growth

91

130

123

98

69

50

60

70

80

90

100

110

120

130

140

150

2008 2009 2010 2011 2012 2013 2014 2015 2016

Indonesia India Brazil Philippines Turkey

Lower rank is better

Continuous Improvement in Indonesia’s Credit Quality

60