INDONESIA MACROECONOMIC OUTLOOK & FISCAL POLICY DEVELOPMENT

SRI MULYANI INDRAWATI

Minister of Finance – Republic Indonesia

Reform on the move, stability intact

Investor PresentationJune 2018

…. with more potential to come

One of the best GDP growth performer

INFRASTRUCTURE DEVELOPMENT ACCELERATIONStrategic national projectssupported by budget and non-budget financing (private sector)

STRONG GDP GROWTHSupported by robust domestic activity and increasing role of investment

POVERTY & INEQUALITY ALLEVIATIONWell-targeted social assistance and subsidypolicy

EXECUTIVE SUMMARYIndonesia in Snapshot

REFORM ON THE MOVE1. Taxation2. Investment Regulation3. Bureaucratic

…. Fiscal, monetary and Real sectorContinuous reform

2

PRUDENT DEBT MANAGEMENTMaintain productive use of public debt

….followed by International RecognitionsCredible Policy Framework

….improving creditworthinessPreserved fiscal prudence

3

GLOBAL NEW NORMAL IS COMING Stabilization policy may influence in reaching Indonesia desired growth target.

The Government will continue to monitor global condition because it can translates to domestic economy.

Policy coordination amongst authorities will be continued (Government, Central Bank, FSA, Deposit insurance Corporation).

Coordinated policy to create Stability in Exchange rate, Manageable inflation rate, Healthy fiscal deficit, and Supportive current account profile.

Potential Risk For Indonesia in 2019

People preference to saving, rather than consumption, not followed by productive (intermediate) financial market

“Wait and See” profile of investor due to General Election process

Monetary policy normalization and US recent taxation policy could influence capital flow to emerging markets

Inward looking policies in Indonesia’s key trade partner with potential trade war between US and China.

Strategic Policy Prepared

Fiscal Policies to support investment, competitiveness and export performance. This include :

Fiscal incentives for investment

Expansionary budget policy, supporting productive sectors and assuring infrastructure development.

Private involvement in infrastructure development

Well-targeted and well-timed social spending

Central and Regional Policy coordination

Real Sector Policies

Law and Regulation certainty

Improving business climate

Maintaining prudent inflation management

Strengthening export performance, include those from non-commodity (high value added) related activities and taping prospective new markets

1.75

3.10

0

1

2

3

4

Jan

-11

Ap

r-1

1Ju

l-1

1O

ct-1

1Ja

n-1

2A

pr-

12

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3Ju

l-1

3O

ct-1

3Ja

n-1

4A

pr-

14

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5Ju

l-1

5O

ct-1

5Ja

n-1

6A

pr-

16

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7Ju

l-1

7O

ct-1

7Ja

n-1

8A

pr-

18

Fed Fund Rate upper bound

10Y US Gov't Bonds

US Policy Rates & 10Y Yield

4

• Consumption and investment remain as the mainengines of growth

• Investment contribution increases underpinning moreproductive economic activity

• International trade performance is robust as exportgrew by 6.17% and import 12.75%

4.945.21

5.03 4.94 5.01 5.01 5.06 5.19 5.06

5.02 5.07

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2016 2017 2018

GDP GROWTH (%, YOY)

PDB (%,yoy) Tahunan (%)

GDP breakdown by expenditure (%, YoY)

2016 2017 2018

Q1 Q2 Q3 Q4 Y Q1 Q2 Q3 Q4 Y Q1

Household Consumption 4.98 5.10 5.04 5.03 5.04 5.00 5.02 4.95 4.98 4.98 5.01

Government Consumption 3.43 6.21 (2.95) (4.03) (0.14) 2.69 (1.92) 3.48 3.81 2.14 2.73

Gross Fixed Capital Formation 4.67 4.18 4.24 4.79 4.47 4.77 5.34 7.08 7.27 6.15 7.95

Export (3.10) (1.50) (5.75) 4.15 (1.57) 8.41 2.80 17.01 8.50 9.09 6.17

Import (5.04) (3.47) (4.13) 2.72 (2.45) 4.81 0.20 15.46 11.81 8.06 12.75

GDP 4.94 5.21 5.03 4.94 5.03 5.01 5.01 5.06 5.19 5.07 5.06

Quarterly Yearly

INDONESIA GDP GROWTH AT 5.06% IN Q1-2018Strong investment and stable consumption support growth

5

100

105

110

115

120

125

130

J F M A M J J A S O N D J F M A M J J A S O N D J F M A

2016 2017 2018

Consumer Confidence Index

-15

-10

-5

0

5

10

15

20

25

30

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2015 2016 2017 2018

Investment Indicators Growth (%, yoy)

Buildings

Machines & Equipments

Other Equipment

4

5

6

7

8

9

10

11

12

13

J M M J S N J M M J S N J M M J S N J

2015 2016 2017 2018

Consumption Credit Growth (%, yoy)

DOMESTIC DEMAND IS HEALTHY AND GROWINGStrong domestic economic activity indicator

6

Inflation Rate & Components (%)

INFLATION HAS BEEN MORE BENIGNCreate substantial foundation for robust consumption

Inflation Rate (%)

3.0%

3.6%

3.23%

3.1%

3.0%

2.75%

0.2%

8.7%

3.61%

5.9%

0.71%

4.33%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M

2016 2017 2018

Inflation (CPI) Core Inflation

11.1%

2.8%

7.0%

3.8%

4.3%

8.4% 8.4%

3.4%

3.0%

3.6%

1.3%

Direct Investment Realization

Q1-2016 Q1-2017 Q1-2018

Nominal (Rp Tn)

Growth (% yoy)

Nominal (Rp Tn)

Growth (% yoy)

Nominal (Rp Tn)

Growth (% yoy)

Domestic 50.4 18.6 68.8 36.5 76.4 11.0

Foreign 96.1 17.1 97.0 0.9 108.9 12.4

Total 146.5 17.6 165.8 13.2 185.3 11.8

Sumber: NSWi BKPM, diolah

FDI share by country originsQ1-2018

Housing, Estate & Building

15%

Metal, Machinery,

& Electronic Industry

12%

Electricity, Gas, & Water Supply

10%

Crops & Plantation

10%

Transportation, Warehouse, &

Telecommunication8%

Others45%

Direct Investment Share by Sectors

DIRECT INVESTMENT GREW BY 11.8 PERCENT IN Q1-2018Underpinned by improving investment climate

7

FDI share by country origins 2010-2017

32.6%

16.7%

11.6%

8.3%

6.3%

24.5%

Singapore

Japan

S Korea

China

Hong Kong

Other

23.8%

12.2%

5.5%

5.4%

4.7%

4.6%

3.9%

3.5%

3.4% 32.9%

Singapore

Japan

US

S Korea

Netherland

Malaysia

China

Hong Kong

BVI

Other

-2.0

-1.0

0.0

1.0

2.0

3.0

M

J J A S O N D

2017

-J F M A M

J J A S O N D

2018

-J F M A

Non O&G O&G Total

8Sumber:BPS, diolah

Deficit Jan-Apr 2018:

USD1.31 billionSurplus FY 2016:

USD9.5 billionSurplus FY 2017: USD11.8 billion

Trade Balance (USD billion)

-5.1%

5.3%

33.4%

4.0%

-60%

-40%

-20%

0%

20%

40%

60%

M

J J A S O N D

20

17

-J F M A M

J J A S O N D

20

18

-J F M A

Cummulative growth of export commodity

Agriculture Manufacturing Mining O&G

26.1%21.9%

31.0%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

M

J S N

20

17

-J M M

J S N

20

18

-J M

Consumption goods

Raw materials

Capital goods

Cummulative growth of import goods

• Trade balance is recording deficit cummulatively in April 2018, due to high importgrowth that supports growing domestic production

• Import grew by 23.65% (ytd) supported by higher demand for festive seasons ofRamadhan and Idul Fitri; capital good increase to support infrastructuredevelopment and military equipment; and raw material increase that highlightsimproving domestic productivity and economic activity

• Export grew by 8.77% (ytd), underpinned by mining commodity growth of 33.4%and manufacturing of 5.3%

IMPORT GROWTH UPHOLDS INCREASING DOMESTIC ECONOMIC ACTIVITIESUntil April 2018, trade balance is recording a deficit of USD1.31 billion

Contribution to Total Import

Capital goods 16.3%

Consumption goods 9.1%

Raw materials 74.6%

9

CAPITAL GOODS STILL DOMINATES IMPORTS ACTIVITYDown streaming effort provides some structural change in exports

Indonesia’s Goods Imports

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

Indonesia's imports, although dominated by non-oil and gas commodities showed an upward trend since early January 2017. 62% of Machinery / mechanical plane (HS84) and 25% of Electrical Appliance (HS85) imports are Capital Goods, and grows aligned with new infrastructure and industrial projects.

Top Indonesian Imports(USD Mn)

Indonesia’s Exports & Down streaming Efforts

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

200

1

200

4

200

7

201

0

201

3

201

6

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

19

96

19

99

20

02

20

05

20

08

20

11

20

14

20

17

CPO Export(USD Bn)

The decline of CPO price contributed to export moderation

About 80 percent ofIndonesian cocoa beans areexported. In order to increasethe added value andcompetitiveness, theGovernment regulate theexport on cocoa. Since theintroduction of the FMD,there has been an increase inprocessed exports.

Cocoa Export(USD Mn)

Electrical Appliance

Machinery / Mechanical plane

10

1.3

(2.9)(4.6)

5.1

(0.3)

2.2

5.7 4.5 4.5

0.7

5.4

1.0

(3.9)

-10

-5

0

5

10

15

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2015 2016 2017 2018

Balance of Payment (USD billion)

Current Account Capital & Fin Acc Overall Balance

-4.3 -4.3 -4.2 -4.7 -4.6 -5.6 -5.0

-1.8 -2.2-4.7 -4.6

-6.0 -5.5

-12

-8

-4

0

4

8

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2015 2016 2017 2018

Current Account (USD billion)

Income Goods Services Curr Transfers Current Account

124.9

90

100

110

120

130

140

Jan

Feb

Mar

Ap

r

May Jun

Jul

Au

g

Sep

Oct

No

v

Dec Jan

Feb

Mar

Ap

r

May Jun

Jul

Au

g

Sep

Oct

No

v

Dec Jan

Feb

Mar

Ap

r

May Jun

Jul

Au

g

Sep

Oct

No

v

Dec Jan

Feb

Mar

Ap

r

2015 2016 2017 2018

FX Reserves (USD billion)

Adequate for 7.7 months of import payment and external public debt service

EXTERNAL SECTOR STABILITY REMAINS PRESERVEDLower surplus of capital & fin acc led to a deficit in overall balance, but CAD narrowed and ample FX reserves

5.6

2.00.1

9.2

4.4

7.1

10.17.8 6.9

5.5

10.3

6.8

1.9

-10

-5

0

5

10

15

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2015 2016 2017 2018

Capital & Financial Account (USD billion)

Direct Portfolio Other Capital Capital & Fin Acc

2015: CAD -17.5 Bn(-2.03% GDP)

2016: CAD -16.9 Bn(-1.82% GDP)

2017: CAD -17.5 Bn(-1.73% GDP)

2018 Q-1:(-2.15% GDP)

11

JAVA: 58.7% of GDP

SUMATERA: 21.5% of GDP

KALIMANTAN: 8.2% of GDPSULAWESI: 6.0% of GDP

PAPUA: 2.5% of GDP

BALI & NUSRA: 3.0% of GDP

2018:5.78%

2018:3.25% 2018:

6.83%

2018:3.74%

2018:18.42%

2018:4.37%

2017: 4.14

2017: 5.69

2017: 4.97 2017:

6.93

2017: 4.40

2017: 2.93

ALL REGIONS RECORDED POSITIVE GROWTH IN Q-1 2018As the industrial center, Java still holds the biggest economic activity

National GDP growth 5.06%

Java economic activity accounting for 58.67% of GDP

All provinces but Nusa Tenggara Barat posted positive economic growth

Maluku and Papua recorded high growth of 18.42%, underpinned by the increase of commodity price and mining activity

12

31 May 2018

BBB - BBB -

20 Des 2017

BBB- BBB

12 Feb 2018

BBB - BBB

7 Mar 2018

BBB - BBB

13 Apr 2018

Baa3 Baa2

“The upgrade to Baa2 is increasingly underpinned by a credible and effective policy

framework conducive to macroeconomic stability”

“Recovery in commodity prices and improving infrastructure to help deliver stronger economic growth in Indonesia in the next

three to four years.”

“The focus on macro stability is also evident in credible budget

assumptions in the previous few years.”

“infrastructure development has been gaining momentum under strong initiative

of President Joko Widodo for determination of National Strategic

Projects (PSN)”

“Indonesia's economy continues its strong performance, with inflation remaining low and stable. Fiscal deficits have been reined in, and

government debt is low”

SOVEREIGN RATING CREDIT UPGRADE FROM MAJOR AGENCIESAccolades of strong macroeconomic and fiscal policy framework and an improving creditworthiness

INDONESIA 2018 GROWTH OUTLOOK Economy is projected to further accelerate as in the midst of robust domestic demand and improving international trade

4.9

5.025.07

5.4

2015 2016 2017 2018 APBN

GDP GROWTH PROJECTION (%, YOY)

IMF (Apr 18) 5.3%

OECD (Mar 18) 5.3%

World Bank (Mar 18) 5.3%

Consensus Forecast (Mar 18) 5.3%

ADB (Des 17) 5.3%

2018 Growth projection from various institutions

• Stable consumption supported by benign inflation

• Rising investment driven by infrastructure development and improving business climate

• Increasing export as external demand recovering and commodity prices increasing

• Additional contribution from various special occasionssuch as Asian Games, regional election, general election preparation, and IMF-WB annual meeting

• External uncertainties: US monetary normalization, trade wars and protectionism, and geopolitical tension

OPPORTUNITIES:

CHALLENGES:

• Competitiveness needs to be enhanced particularly to fulfill growing domestic demand

• Credit growth needs to be accelerated more

• Consumption growth needs to be boosted more

13

14

Indicators

2016 2017 2018 2019

Revised Budget

(APBN-P)

Realized 31May

APBNRealized 31

MayBudget(APBN)

Realized 31 May

Submitted to Parliament

Economic growth (%, yoy) 5.2 4.94* 5.2 5.01* 5.4 5.06* 5.4 – 5.8

Inflation (%, yoy) 4.0 3.3 4.3 4.3 3.5 3.2 2.5 – 4.5

3-Month Treasury Bill (SPN) (%) 5.5 5.8 5.2 5.1 5.2 4.2 4.6 – 5.2

Exchange Rate (Average, IDR/USD) 13,500 13,435 13,400 13,336 13,400 13,714 13,700 – 14,000

ICP (USD/barrel) 40 34 48 50 48 64 60 – 70

Oil Production (thousands of barrel/day) 820 805 815 784 800 742** 722 – 805

Gas Production (millions of barrels/day) 1.15 1.18 1.15 1.14 1.20 1.14** 1.210 – 1.300

*) Q1 figures**) as of April

STABLE MACROECONOMIC TO SUPPORT PRUDENT AND PRODUCTIVE BUDGETStable amidst external vulnerabilities

15

2017 2018

R-BudgetMay

Realization% real

to BudgetBudget

MayRealization

% real to budget

% of growth

(yoy)A. REVENUE & GRANT 1,736.1 594.0 34.2 1,894.7 685.1 36.2 15.3

I. Domestic Revenue 1,733.0 593.8 34.3 1,893.5 683.7 36.1 15.1

1. Tax Revenue 1,472.7 470.3 31.9 1,618.1 538.7 33.3 14.5

2. Non Tax Revenue 260.2 123.5 47.5 275.4 145.0 52.6 17.4

II. Grants 3.1 0.2 6.8 1.2 1.4 118.2 565.9

B. EXPENDITURE 2,133.3 722.8 33.9 2,220.7 779.5 35.1 7.9

I. Central Government Expenditure 1,367.0 388.0 28.4 1,454.5 458.0 31.5 18.0

1. Ministerial Spending 798.6 193.0 24.2 847.4 231.5 27.3 19.9

2. Non Ministerial Spending 568.4 195.0 34.3 607.1 226.5 37.3 16.2

II. Transfer to Region and Village Fund 766.3 334.7 43.7 766.2 321.5 42.0 (4.0)

1. Transfer to Region 706.3 306.5 43.4 706.2 300.8 42.6 (1.9)

2. Village Fund 60.0 28.2 47.0 60.0 20.7 34.4 (26.7)

C. PRIMARY BALANCE (178.0) (29.9) 16.8 (87.3) 18.1 (20.7) (160.5)

D. SURPLUS/(DEFICIT) (397.2) (128.7) 32.4 (325.9) (94.4) 29.0 (26.6)

% of GDP (2.92) (0.94) (2.19) (0.64)

E. Financing 397.2 195.6 49.3 325.9 169.9 52.1 (13.1)

% of GDP 2.92 1.45 2.19 1.15

I. Debt 461.3 193.9 42.0 399.2 169.0 42.3 (12.8)

II. Investment (59.7) 0.0 0.0 (65.7) 0.0 0.0 0.0

III. SLA (3.7) 1.6 (43.6) (6.7) 0.8 (11.9) (50.1)

IV. Guarantee (1.0) 0.0 0.0 (1.1) 0.0 0.0 0.0

V. Other 0.3 0.2 50.6 0.2 0.1 53.4 (35.6)

SURPLUS/(DEFICIT) FINANCING 0.0 66.9 - 0.0 75.5 - 12.8

• The robust tax growth and positive performance in export and import duty good in the first quarter of 2018 is a positive support.

• Central Government Expenditure grows robustly

• Deficit realization is RP94.4 T or 0.64% of GDP, much lower compared to May 2017

• Primary balance surplus is significantly higher than last year, highlighting improving fiscal performance and sustainability that well preserved

PERFORMANCE OF STATE BUDGETFiscal sustainability is well preserved as fiscal deficit narrowed and primary balance recorded a substantial surplus

25.4 T; 66.6%

ofAPBN

459.1 T; 35.0% ofAPBNP

54.2 T; 27.9% of

APBN

2018

16

REVENUE FROM TAXATION KEEPS INCREASINGTaxation collection grew by 14.6% cummulatively until May 2018

14.2 T; 39.1% ofAPBNP

349.8 T; 26.5% of APBNP

42.8 T;23,3%

ofAPBNP

PPh Migas

Pajak Non-Migas

Bea Cukai

2016

Total:Rp406.8 T

24.7 T; 59.0% ofAPBNP

399.8; 24.2%

ofAPBNP

45.8 T; 34.2% ofAPBNP

2017

Total:Rp470.3 T

Total:Rp538.8 T

Growth 15.6 % (yoy), with Tax Amnesty (TA)

12.7 % (yoy) without TA

14.6 % (yoy) with TA

17.6 % (yoy) without TA

• Non O&G tax grew by 18.4% without TA, and 14.8% with TA

• Supporting factors: increase tax return submission in April and maintained purchasing power

Income Tax O&G

Income Tax Non O&G

Custom & Excise

Tax Revenue as of May

135.0

156.0

181.0

2016

2017

2018

VAT (Rp Tn), May 2016-2018

211.7

240.5

274.7

2016

2017

2018

Income Tax Non O&G (Rp Tn), May 2016-2018

17

Growth 14.2 %20.2% (without TA)

15.5%

16.0%

Growth 13.6 %7.9% (without TA)

TAX REVENUE COLLECTION (NON TAX AMNESTY) CONTINUES ON POSITIVE TRENDTax from non oil & gas grew by 14.8%, mainly boosted by Income Tax and VAT

-2.39%

-3.46%

13.32%

17.45%

TAX REVENUE CUMULATIVE GROWTH (NON TA)JAN-APR

May’15 May ’16 May ’17 May ‘18

-8.78%

-35.49%

7.83%

16.89%Excise Revenue Growth (May ytd)

CUSTOM AND EXCISE POSTED THE HIGHEST GROWTH IN THE LAST 3 YEARS

18*Data sementara (diakses 1 Mei 2018)Sumber EIS, CEISA, SPAN 1 Mei 2018

May’15 May ’16 May ’17 May ‘18

-13.80%

-26.46%

6.97%

18.29%

-13.80%

-26.46%

6.97%

18.29%

-13.80%

-26.46%

6.97%

18.29%

-13.80%

-26.46%

6.97%

18.29%Custom & Excise Revenue Growth (May ytd)

May’15 May ’16 May ’17 May ‘18May’15 May ’16 May ’17 May ‘18

May’15 May ’16 May ’17 May ‘18

-4.89%

6.80%

1.14%

14.11%Import Duty Revenue Growth (May ytd)

-75.27%

-37.72%

66.03%84.60%

Export Duty Revenue Growth (May ytd)

19

2015

IDR 1,183.3 T

2016

IDR 1,154.0 T

2017

IDR 1,259.6 T

2018

IDR 1,454.5 T

Central Government

SpendingLine Ministries

Non Line Ministries

IDR 847.4 T

IDR 607.1 T

Energy Subsidy

Better targeting

• Targeted for the

poor

•Database

improvement

• Inflation

management

Interest Payment

Cost efficiency

•Controlling cost of

financing

•Deepening

government bond

market

•Controlling debt

burden

Non-Energy Subsidy

Integration with energy

subsidy

•Synergy with social

assistance programs and

transfer to regions

•Staple good price

management

• Improving agriculture

productivity

• Line ministries spending will

be directed to improve

planning process, operational

spending efficiency, and an

early procurement process

• Allocation of energy subsidy

to total expenditure continues

to decline, in line with the

government's commitment to

increase spending on

infrastructure

3.35

1.030.86 0.72 0.64

0.47 0.58 0.54 0.51 0.420

1

2

3

4

2014 2015 2016 2017 2018

Energy Non-Energy

Subsidy allocation to GDP

% to G

DP

Source:

COMMITMENT TO CONTINUE STRENGTHENING PRODUCTIVE SPENDINGResources are used to promote inclusive and sustainable growth

20

2015:

65.9

2016:

92.3

2017:

104.9

2014:

59.7

2018:

111.0

2016:

370.42014:

353.4

2015:

390.12017:

419.8

2018:

444.1

© h

am

da

nh

asa

n.d

evia

nta

rt.c

om

Education Allocation (20% of Spending)

Health Allocation (5% of Spending)

Infrastructure Allocation

2014:

154.7

2015:

256.1

2016:

269.12017 :

400.9

2018:

410.4

Focuses: improving supply side, better access, service quality, promoting preventive

action, and maintain JKN sustainability.

Policy direction

Improving distribution of health facilities and health personnel.

Strengthening promotive and preventive programs

Improving the effectiveness and sustainability of the national health insurance program.

Increasing the role of local government for supply side as well as service side.

Focus on improving access, distribution, and quality of education

Policy direction

• Improving access, distribution, and quality of education.

• Improving school facilities and infrastructure.

• Synergy between Central and Local Government.

• Strengthening vocational education and link and match curriculum.

• Widening access (BOS, PKH, PIP, Bidik Misi and DPPN) for sustainable education.

Infrastructure acceleration to tackle regional and global challenges

Target : Road: 856 km Railway:639 km’sp New airports in 15 locations Irigation:781 km Electrification ratio: 95.15%; Housing: 7062 unit

ALLOCATING MORE ON PRODUCTIVE AVENUEScommitted to strengthen the quality of its people through infrastructure support, good education and health spending

21

AIRPORTTRAINS

ROADS

OTHERS

144226

HOUSING OIL &GAS

1.000 591 733 328 507

TELCO &IT

280 987

ELECTRICITY PORT

Source : RPJMN 2015-2019

• Allocating more money

does not necessarily

mean an increase in

infrastructure quality.

The capacity of spending

and the quality of

spending relation does

not align perfectly.

• For infrastructure

spending, Indonesia

should invite more

private capital (through

PPP). Infrastructure

funding gap, expected to

be potentially fulfilled by

either SOE & Private

Sector

Ab

ov

e t

he lin

e

Tax Allowance, Tax Holiday, Fiscal

Incentives

STATE REVENUE

STATE EXPENDITURE

Line Ministries

(Ministry of Public Works, Ministry of

Transportation, Ministry of Energy, etc)

Non Line Ministries

(o/w. VGF, PDF, grants, PSO)

ransfer to the Regions & Vilage Fund

(o/w. DAU (25%), Physical DAK, Vilage Fund)

Belo

w t

he lin

e

FINANCING

Revolving Fund (o/w. FLPP), Project based

bonds (e.g. SUKUK), Capital injection in PT

SMI & PT IIF (financing) as well as PT IIGF

(guarantee), Subsidiary Loan Agreement,

Guarantee, Investment (capital injection) in

SOE, Capital injection in BLU LMAN for land

clearing

No Status Total projects Sector

1. Financial Close 7 Electricity , water and sanitation, toll road, telecommunication

2. KPBU agreement 8 Toll road

3. On transaction 3 Water supply and toll road

4. FBC (under project development fund) 6 Transport, health facility, toll road, water supply

Update on PPP Projects

Area of infrastructure financing alternativeInfrastructure Needs by Sector 2015 - 2019 (In trillions Rupiah)

STRATEGY TO IMPROVE INFRASTRUCTUREDeveloping new ways to attract infrastructure investment

Uraian (% PDB)APBN

20182019** 2020 2021 2022

Revenue & Grants 12.76 12.7 – 13.5 12.7 – 13.9 13.5 – 14.0 13.6 – 14.4

Tax Ratio* 11.6 11.4 – 11.9 11.4 – 12.5 11.6 – 13.0 11.8 – 13.6

Total Spending 14.95 14.2 – 15.4 14.3 – 15.6 15.0 – 15.7 15.1 – 16.0

Capital Expenditure 1.4 1.5 - 1.7 1.8 – 2.3 2.2 – 2.7 2.3 – 3.0

Primary Balance (0.59) 0.05 -(0.30) 0.05 – 0.01 0.10 – 0.01 0.1 – 0.05

Budget Deficit (2.19) (1.6) - (1.9) (1.6) - (1.7) (1.5) - (1.7) (1.5) - (1.6)

Debt Ratio 29.07 28.8 – 29.2 28.50 - 28.61 27.81 – 28.30 26.25 – 27.87

Strengthening quality of spending by increasing productive avenues

Enlarging fiscal space through revenue increase

Efficiencies in non-priority spending

Focusing on quality and productive spending, expanding fiscal space and sustainability

Developing creative and innovative financing

Manageable deficit and debt level

Positive primary balance in 2020

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*Including revenue from oil&gas and general mining** submitted to parliament for discussion

MEDIUM TERM FISCAL FRAMEWOK

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FINANCING PLAN FOR 2018Creating prudent and sustainable fiscal management

Government Securities to Meet State Budget Financing

Domestic Government Securities

Issuance Targets for Government Securities

70% - 75%

25% - 30%

Government Debt Securities Government Sukuk

Weekly Auction:

Conventional securities 24-25x

Islamic securities 24-25x

Non-Auction

Retail Bonds and Retail Sukuk

Private Placement Based on request

Target avg. tenor maturity for Government Securities Issuance

7-8 years

Instruments

Indicative Budget Target

IDR tn USD bn

Budget Deficit (2.19% of GDP) 325.9 24.3

Financing 399.2 29.8

Government Securities (Net) 407.2 30.4

Government Securities (Gross) 834.3 62.3

Composition

Domestic Government Securities 80 - 83%

International Government Securities 17 - 20%

International Government Securities

Avoid crowding out in domestic market

Provide benchmarks for corporate bonds

Investor base diversification

• USD

• Sukuk USD

• EUR

• JPY

Alternative of Issuance

Private

PlacementAuction Book Building

Government Securities Financing Realization

Budget 2018Realization

(as of May, 2018)

% Realization to

Budget 2018

IDR tn USD bn IDR tn USD bn

Government securities (net)407.2 30.4 190.8 14.2 46.8%

Government securities (gross)834.3 62.3 434.9 32.5 52.1%

Government debt securities (GDS) 602.2 44.9 303.2 22.6 50.4%

- Domestic GDS 504.3 37.6 205.3 15.3

- International bonds 97.9 7.3 97.9 7.3

Government Sukuk 232.1 17.3 131.7 9.7 56.8%

- Domestic Government sukuk 190.7 14.2 90.3 6.7

- Global Sukuk 41.4 3.0 41.4 3.0

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SOUND GOVERNMENT DEBT PORTFOLIO MANAGEMENT Portfolio management characterized by stable debt/GDP ratio and well-diversified debt

Manageable Debt to GDP Ratio Over the Years

Proven Access to Funding Across Multiple Currencies and Markets

136.3 155.2 174.7207.0

235.8 243.8

58.654.5

54.754.7

54.9 55.024.9% 24.7%27.4% 28.3% 29.2% 29.6%

2013 2014 2015 2016 2017 May-18*

Securities Loans Debt to GDP Ratio

USD billions

53% 57% 55% 57% 60% 58%

29% 29% 32% 31% 29% 30%

12% 9% 8% 7% 6% 6%3% 3% 3% 4% 4% 5%3% 2% 2% 1% 1% 1%

2013 2014 2015 2016 2017 Apr-18

IDR USD JPY EUR Others

Declining Exchange Rate Risks

11.7 10.7 12.2 12.1 11.7 12.6

46.843.4 44.5

42.640.4 41.8

2013 2014 2015 2016 2017 Apr-18

Foreign Debt to GDP Ratio Foreign Debt to Total Debt Ratio

Diversified Mix of External Funding Sources

USD billions

40.545%

51.450%

60.554%

66.256%

73.658%

50.455%

50.850%

50.946%

51.344%

52.342%

2014 2015 2016 2017 Apr-18

Commercial Debt* Concessional & Semi-concessional Loans

*As of May 31, 2018 and using GDP assumption IDR14,092.72 tn as mentioned in APBN Kita **Commercial comprises bonds/sukuk issued in the international capital markets and commercial loans.

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SOLID POLICY COORDINATION IN MANAGING FINANCIAL MARKETS VOLATILITY

First Line of Defense

State’s BudgetBuyback fund at DG of Budget Financing and Risk Management

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

Aware)

State Owned Enterprises

(SOE)’s BudgetRelated SOEs (min. level Aware)

Social Security Organizing

Agency (BPJS)’s BudgetBPJS (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)

Gov’t Securities Crisis Management Protocol (CMP)

Indicators:

- 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

The enactment of Law No. 9/2016 regarding Prevention and

Mitigation of Financial System Crises as a legal foundation

for the government to serves at the time of financial crisis in the

form of Financial System Stability Committee (KSSK)

KSSK members: the Ministry of Finance, Bank Indonesia, the

Financial Services Authority, and the Deposit Insurance

Corporation

Most important provisions stipulated in the Law:

• Financial system stability monitoring and maintenance

by KSSK members based on crisis management protocol of

each member;

• Prevention of financial system crisis, including the

mitigation of systemically important bank’s liquidity and

solvency problems;

• Recovery Plan for Systemically Important Banks;

• Bank Restructuring Program

Gov’t Securities CMP Level

NORMAL AWARE ALERT CRISIS

Bond Stabilization Framework

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THANK YOU