REFORMS IN THE MAKING APRIL 2016 1 Overview Fiscal Performance - PowerPoint PPT Presentation

REPUBLIC OF INDONESIA REFORMS IN THE MAKING APRIL 2016 1

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

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

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

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

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

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

Improving Investment Realization (Jan-Dec 2015) Rp5 Rp545,4 T 1.43 1.435.7 .716 Rp4 Rp463, 3,1 T 1.42 1.420.8 .846 Increased Increased 15,1% 1,0% Rp3 Rp366 6 T Rp1 Rp179, 9,4 T Rp1 Rp156, 6,1 T Rp307 Rp30 7 T Increased Increased 16,1% 13,0% Source: Investment Coordinating Board (BKPM) 8

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

Healthy Growth Prospects Remain Intact 2 Section Economic Factor:

Conducive Environment Underpinning Strong Growth Fundamentals Tax base to be 4th Most Populous Budget reform as a broadened from Largest Economy in country in the part of larger one reduce South East Asia World; 64% in economic reform dependency on productive age initiative commodities Fuel subsidies Consistent Budget Large and Stable significantly Economy Reform Manageable Growing Middle reduced and Prudent debt Inflation Rate Income Class spending redirected management to more productive allocation New Reform- Oriented Administration Three main sources of financing for IDR 5 tn From commodity-based to industrialized- investment needs: State and regional budget, natural resources-based economy via State Owned Enterprises and PPP infrastructure development New Economic High Infrastructure Continuing from 2015 policy, infrastructure From consumption-led to investment-led Structure Investments will be higher than fuel subsidy growth via a stronger manufacturing sector and more investment initiatives Infrastructure spending focused on basic infrastructure projects Policies to maintain purchasing power to stimulate domestic economy in the midst of Fiscal and non-fiscal incentives to attract weakening macroeconomic conditions infrastructure investment and promote PPP 11

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