RECENT ECONOMIC DEVELOPMENT AND REGIONAL INVESTMENT OPPORTUNITY

RECENT ECONOMIC DEVELOPMENT AND REGIONAL INVESTMENT OPPORTUNITY REGIONAL DEPARTMENT BANK INDONESIA Indonesia Infrastructure Investment Forum (IIIF) London, March 15 th 2018 Lake Toba, The World s Largest Volcanic Lake, North Sumatera Labuan Bajo, Home of Komodo, The World s Largest Living Lizard, East Nusa Tenggara Mount Bromo, East Java AIRPORT TRAIN LRT CONSTRUCTION The Biggest Budhist Temple Borobudur - Central Java MRT JAKARTA Terminal 3, expansion of Soekarno Hatta- International Airport, Jakarta

2 OUTLINE : INDONESIAN ECONOMY INVESTMENT OPPORTUNITY & INFRASTRUCTURE IN PROGRESS TOURISM INDUSTRY & INFRASTRUCTURE BANK INDONESIA POLICY

INDONESIAN ECONOMY

Indonesia remains one of the most prospective economies in Asia Supported by strong economic fundamental and reform oriented administration 4 Largest Economy in South East Asia 4 th Most populous country in the world, 64% within productive age Strong Domestic Consumption & Market Growing Middle Class Large and Stable Economy Monetary Policy: Price & Exchange Rate Stability Sound Macroeconomic Policy Fiscal Policy: Sustainable & Productive Spending Financial Stability: Close coordination & Crisis Management Prudent Debt Management Strong Economic Fundamental Commodity-based Manufacturing & services Consumptionled growth Investmentled growth New Economic Structure Policies to maintain purchasing power UNLEASHING THE POTENTIAL OF INDONESIA S ECONOMY Accelerated Reforms & Infrastructure Development Reform-Oriented Administration Accelerated Infrastructures Fiscal Reforms 16 economic stimulus packages (investment, competitiveness, trade, logistics) Financial Market Deepening

Total Investment / GDP (%) Positive global perception, improved rating outlook All rating agencies have rated Indonesia as Investment Grade, with the latest coming from S&P 5 INDONESIA BRAZIL INDIA PHILIPPINES EASE OF DOING BUSINESS YEAR 2012 YEAR 2016 128 91 130 132 138 Source: World Bank Doing Business 2017 Report 123 130 99 SOVEREIGN RATING Baa3 / Positive Feb 2017, Baa3, Outlook revised topositive We changed the oulook on Indonesia s sovereign rating to positive from stable to reflect emerging signs of a reduction in structural constraints, including its level of external vulnerability and the strength of is institutions BBB / Stable Outlook Des 2016, BBB-, Outlook revised to Positive Key drivers of the positive outlook are the build-up of a track record of macroeconomic stability in the past few years, and a strong structural reform drive since September 2015 BBB- / Positive May 2017, BBB-, Rating Upgraded Indonesia s authorities have take effective expenditure and revenue measures to stabilize the country;s public finances despite the terms of trade stock INVESTMENT RELATIVE TO PEERS DESTINATION FOR FDI IN ASIA 40 35 30 25 20 15 10 5 0 31.43 31.42 32.75 34.30 34.29 34.17 25.48 26.06 25.09 25.41 23.60 20.55 2015 2016 2017* 24.30 22.01 22.25 27.18 26.58 27.58 India Indonesia Malaysia Philippines Thailand Vietnam China India Indonesia Vietnam Phillipines Thailand Myanmar Malaysia Australia South Korea Hong Kong Japan Singapore Taiwan 18.9 18 21.3 26.3 25.3 24.8 28.4 27.7 33.3 39.4 46.2 55.7 53.7 71.6 The Economist: INDONESIA among the TOP 3 destinations for FDI in Asia (January 2017) 1 Source: IMF World Economic Outlook, Database April 2017 Source: The Economist Asia Business Outlook Survey 2017

TO SHOW SIGNS OF IMPROVEMENT, BACKED BY A MORE BALANCED STRUCTURE Actual GDP growth hit 5.19% (yoy) in Q4/2017, up from 5.06% (yoy) in the previous period, which is indicative of maintained domestic economic recovery momentum. Solid economic growth is supported by a stronger structure, with investment and exports cited as the main 6 Source: Central Agency on Statistics Source: Central Agency on Statistics

COMMODITY PRICES AND INFRASTRUCTURE DEVELOPMENT: DRIVE GROWTH IN MAJORITY OF REGIONS IN INDONESIA 7 REGIONAL ECONOMIC GROWTH 2017 Aceh 4.19 Riau island 2.01 N. Sumatra 5.12 Bengkulu 4.99 Riau 2.71 Bangka Belitung 4.51 W.Sumatra 5.29 S.Sumatra 5.51 Lampung 5.17 Jambi 4.64 W.Kalimantan 5.17 S.Kalimantan 5.29 E.Kalimantan 3.13 M.Kalimantan 6.74 SE.Kalimantan 6.59 Gorontalo 6.74 N.Sulawesi 6.32 M.Sulawesi 7.14 W.Sulawesi 6.67 S.Sulawesi 7.23 SE.Sulawesi 6.81

INFLATION REMAINED MANAGABLE WITHIN THE TARGET OF 3.5±1% 8 CPI inflation in January 2018 remained under control as core inflation was managed and administered prices experienced deflation due to transportation tariffs normalized after the holiday season. Meanwhile, inflationary pressures on volatile foods increased mainly due to soaring rice price INFLATION Source: BPS, Central staff calculation Agency on Statistics, staff calculation

MANAGED INFLATION OBSERVED THROUGHOUT INDONESIA 9 CPI inflation in majority of regions in Indonesia was within the target range of 3.5 ±1%... REGIONAL INFLATION FEBRUARI 2018 (% YOY) SUMATERA Aceh 3.6 Riau Island 3.5 N. Sumatra 3.6 Bengkulu 3.5 Riau 4.1 Bangka Belitung 3.5 W.Sumatra 3.5 S.Sumatra 3.6 Lampung 4.4 Jambi 4.0 KALIMANTAN W.Kalimantan 4.0 S.Kalimantan 3.7 E.Kalimantan 3.8 C.Kalimantan 3.1 SULAWESI Gorontalo 3.5 N. Sulawesi 3.6 SE. Sulawesi 3.2 W. Sulawesi 3.0 S. Sulawesi 3.9 C. Sulawesi 4.1 Banten 3.9 C. Java 3.4 Jakarta 3.4 E. Java 3.1 W.Java 3.3 Yogyakarta 3.5 Bali 3.9 NTB 3.4 NTT 4.1 Maluku 5.7 W. Papua 3.6 N. Maluku 4.1 Papua 4.9 Source: Source: Central BPS, Agency staff calculation Statistics, staff calculation

FINANCIAL SYSTEM STABILITY HAS BEEN MAINTAINED In Decembe Adequacy Ratio (CAR) was 23.0% and liquidity ratio recorded at 21.5%. Meanwhile, non-performing loans (NPL) remained low at 2.6% (gross) or 1.2% (net 10 BANKING INDUSTRY CAPITAL % BANKING INDUSTRY LIQUIDITY Data as of December 2017 Source: Bank Indonesia Data as of December 2017 Source: Bank Indonesia NPL Gross 2.6% 1.2% NPL Net

INTERMEDIATION HAS SLIGHTLY IMPROVED 11 Deposit growth at the end of Q4/2017 was recorded at 9.3% (yoy), stabilized from a level of 9.6% in 2016. Meanwhile, credit growth improved although remained limited. At the end of Q4/2017, credit growth recorded at 8.2% (yoy), up from previous quarter of 7.9%(yoy) BANK DEPOSIT GROWTH CREDIT GROWTH 9.7 9.3 Data as of December 2017 Source: Bank Indonesia Data as of December 2017 Source: Bank Indonesia

INVESTMENT OPPORTUNITY AND INFRASTRUCTURE PROGRESS

Program Project To accelerate growth, government has developed connectivity by infrastructure projects 13 61 24 Projects Projects Sumatra Kalimantan US$47.3 Bn US$41.7 Bn 27 Projects Sulawesi US$24.3 Bn 13 Projects Maluku & Papua US$33.2 Bn 93 Projects Java US$81.1 Bn National 21 12 10 US$98.8 Bn Programs Projects Proyek 15 Projects Projects Under Presidential Reg. No.3/2016 j.o. the Presidential Reg. No.58/2017, 245 projects and 2 programs are listed as National Strategic Projects (PSN) US$0.8 Bn PSN includes 15 sectors at project level and 2 sectors at program level Exchange rate: US$ 1 = IDR 13,500 ROAD RAILWAY SEAPORT AIRPORT 74 23 10 8 30 3 3 9 54 7 4 6 12 Projects Projects Projects Project s INDUSTRIAL ZONE HOUSING NATIONAL BORDERS WATER & SANITA- TION DAM IRIGASI IRRIGA- TION TECH- NOLOGY SMELTER Projects Projects Projects Projects Projects Projects Projects Projects Projects OIL & GAS FISHERY 1Project SEA DIKE 1Project Electricity 1 PROGRAM Small- Medium Airplane 1 PROGRAM Note: The investment value is based on the updates per October 2017. The data on investment value is under verification process with The Executive Office of President (KSP) and Indonesia s National Government Internal Auditor (BPKP) Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

Progress on 245 National Strategic Projects 14 The Estimated Investment Cost of National Strategic Projects 1 Private 59% Progress of National Strategic Projects + 2 Programs (as of January 2018) 30% 3% 3% State Budget 13% SOEs/ RSOEs 28% Total Investment Value 2 US$ 327.2 Billion 1 Exclude 12 projects which investment value are still unknown 2 Exchange rate : US$ 1 = IDR 13,500 8 projects are completed 157 projects & 1 program are in construction 1 7 projects are in transaction State Budget US$ 40.6 Bn SOEs/RSOEs US$ 92.9 Bn Private US$ 193.7 Bn 5 Sectors with Highest Investment Value Energy 12 Projects US$ 93 Bn Electricity 1 Program US$ 76.7 Bn Road 74 Projects US$ 52.2 Bn Train 23 Projects US$ 46.2 Bn 64% 73 projects & 1 program are in preparation 1 1 Electricity Program in construction category SEZs and IEs 30 Projects US$ 28.7 Bn 1 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Note: This data will be verified with The Executive Office of President (KSP) and Indonesia s National Government Internal Auditor (BPKP)

Progress on 37 Priority Projects 15 From the revised National Strategic Projects, the Government has selected a list of 37 Priority Projects to be the focus on infrastructure provision. Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) New Priority Projects Existing Priority Projects SUMATERA REGION 1. 15 Segments of Trans Sumatera Toll Road. 2. Kuala Tanjung International Hub Seaport. 3. Sumatera 500 kv Transmission (4 Provinces) 4. Mine to Mouth Coal-Fired Power Plant (6 Provinces). 5. PLTGU (16 Provinces). 6. RDMP/Revitalization of the Existing Refineries (Balikpapan, Cilacap, Balongan, Dumai, Plaju). 7. Lampung Drinking Water Supply 8. Waste to Energy Program in 8 cities JAVA REGION 1. Light Rail Transit (LRT) of DKI Jakarta 2. Panimbang-Serang Toll Road.. 3. Yogyakarta Bawen Toll Road 4. Soekarno Hatta Express Railway 5. MRT Jakarta South-North Line 6. LRT of Jakarta-Depok-Bogor-Bekasi. 7. Patimban Port 8. Inland Waterways Cikarang-Bekasi-Laut (CBL) 9. Palapa Ring Broadband 10. Batang, Central Java Power Plant (CJPP) 11. Central West Java Transmission Line 12. Indramayu Coal-fired Power Plant 13. Tuban Oil Refinery. 14. West Semarang Drinking Water System 15. Jakarta Sewerage System 16. National Capital Integrated Coastal Development (NCICD) Phase A 17. Jatiluhur Drinking Water Supply EAST INDONESIA REGION 1. Balikpapan-Samarinda Toll Road 2. Manado-Bitung Toll Road 3. Makassar-Parepare Railway 4. East Kalimantan Railway. 5. Bitung International Hub Seaport 6. Bontang Oil Refinery. 7. RDMP/Revitalization of the Existing Refineries (Balikpapan, Cilacap, Balongan, Dumai, Plaju) 8. Abadi WK Masela Field 9. Tangguh LNG Train 3 Development. 10. Waste to Energy Program in 8 cities Note: New Priority Projects are highlighted in the red color

Economic Stimulus Package To boost investments, The Government of Indonesia has streamlined some regulation in 16 economic stimulus packages. The main objectives are to simplify business permit, increase access to funding, develop e-commerce industry, as well as integrate payment system. 16 1 5 Sept 9 th 2015 Improving National industry competitiveness. Oct 22 nd 2015 Improving industry and investment climate through tax incentives and deregulation on sharia banking. 2 Sept 30 th 2015 3 Oct 7 th 2015 6 Easing permit requirement and simplifying export process requirement. Nov 5 th 2015 Stimulating economic activities in border areas and facilitating strategic commodities availability. 7 Boosting investment, spurring export and maintaining people s purchasing power. Dec 4 th 2015 Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land titling process for individuals. 4 8 Oct 15 th 2015 Setting up a favourable wage formula and expanding loans for small business. Dec 21 st 2015 Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation industries. 9 10 Jan 27 th 2016 Accelerating power plant project, stabilizing meat prices and improving ruralurban logistics sector. Feb 11 th 2016 Revising the Negative investment list and improving protection for SMEs. 11 March 29 th 2016 Stimulating national economy through facilitation to SMEs and industries. 12 April 28 th 2016 Improving Indonesia s rank on EODB. 13 Aug 24 th 2016 Low cost housing for low-income communities. 14 Nov 10 th 2016 Roadmap for E-Commerce 15 June 15 th 2017 Development of Business & Competitiveness of National Logistics Service Providers. 16 Aug 31 st 2017 Business license / permit speed up

Improving Investment Climate 17 One of the breakthrough in the stimulus packages is Service Simplicities in direct Construction Permit or what we called KLIK. This service is supported by both Central and Regional Governments. It is expanded to 32 Industrial Estates (IE) throughout Indonesia 1 North Sumatera (1 IE; 100 ha) Medan Industrial Estate/KIM (100 ha) 2 Banten (3 IE; 3,150 ha) 1. Modern Cikande Industrial Estate/MCIE (1,800 ha) 2. Wilmar Integrated Industrial Park/WIIP (800 ha) 3. Krakatau Industrial Estate Cilegon/KIEC (570 ha) 3 West Java (5 IE; 1.151 ha) 1. Bekasi Fajar Industrial Estate/BFIE (300 ha) 2. Delta Silicon 8 (158 ha) 3. Karawang Internasional Industrial City/KIIC (293 ha) 4. Suryacipta City of Industry/SCI (300 ha) 5. GT Tech Park @ Karawang (100 ha) Source: Investment Coordinating Board (BKPM) 4 KLIK 1 st Stage (14 IE) KLIK 2 nd Stage (18 IE) Central Java (3 IE; 840 ha) 1. Kendal Industrial Park/KIP (700 ha) 2. Bukit Semarang Baru/BSB (40 ha) 3. Wijayakusuma Industrial Estate/KIW (100 ha) 5 East Java (1 IE; 1,761 ha) KI Java Integrated Industrial and Port Estate/JIIPE (1,761 ha) 6 South Sulawesi (1 IE; 3,000 ha) Bantaeng Industrial Park/BIP (3,000 ha) 1 Riau Island (5 IE; 556 ha) 1. Batamindo Industrial Park (61.4 ha) 2. Bintang Industrial Park II (20 ha) 3. Kabil Integrated Industrial Estate (142.5 ha) 4. Bintan Inti Industrial Estate (229.6 ha) 5. West Point Maritim Industrial Park (102.5 ha) 5 Central Java (1 IE; 285.7 ha) IE Demak (285.7 ha) 1 2 1 3 2 3 5 4 4 2 5 Riau (1 IE; 198.9 ha) IE Dumai (198.9 ha) 3 6 East Java (2 IE; 341 ha) 1. IE Maspion (151 ha) 2. IE Tuban (190 ha) 7 DKI Jakarta (2 IE; 129 ha) 1. Kawasan Berikat Nusantara/KBN (118.6 ha) 2. Jakarta Industrial Estate Pulagadung/JIEP (10.4 ha) 6 6 4 West Java (6 IE; 1,814.1 ha) 1. Artha Industrial Hill (315.1 ha) 2. Greenland International Industrial Center (GIIC)/Deltamas (400 ha) 3. Jababeka Tahap III (45 ha) 4. Kota Bukit Indah Ind. City (510 ha) 5. Indotaisei Kota Bukit Indah (300 ha) 6. Marunda Center (300 ha) 7 East Kalimantan (1 KI;133.8 ha) IE Kariangau (133.8 ha)

TOURISM INFRASTRUCTURE

19 PROMOTING TOURISM INDUSTRY AS A NEW SOURCE OF ECONOMIC GROWTH Tourism sector contributed to economy growth, employment, and investment. Such contribution tend to be higher in World Top Tourism Destination Country ASPECT WORLD 2017 SPAIN* 2017 SINGAPORE* 2017 INDONESIA 2017 GDP-Direct Contribution 3.2% of GDP 5.3% of GDP 4.7% of GDP 1.9% of GDP GDP-Total Contribution 10.6% of GDP 14.7% of GDP 10.6% of GDP 6.5% of GDP Employment Direct Contribution 3.7% of total employment 4.8% of total employment 4.6% of total employment 1.6% of total employment Employment Total Contribution Investment 9.8% of total employment $839.6 Billion 14.9% of total employment $18.1 Billion 8.7% of total employment $13.8 Billion 5.7% of total employment $14 Billion * Spain ranked #1 2017 T&T Competitiveness Index and Singapore ranked #1 in ASEAN 2017 T&T Competitiveness Index Source: WTTC, calculated 19

INDONESIA TOURISM OPPORTUNITY Indonesia now focusing on entertainment and shopping as main tourist attraction, as side of natural resources tourism. 20 TOURIST SPENDING Indonesia Thailand Malaysia Miscellaneous Sightseeing, Local Tour and Transport Entertainment 4.3% 29.9% Shopping Food and Beverage Accomodation (% total pengeluaran) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Source: CEIC, calculated 20

INDONESIA TOURISM COMPETITIVENESS 21 Indonesia's tourism competitiveness rating continued to improve and reached #42 in 2017. Rank 2008 2009 2011 2013 2015 2017 80 81 71 70 50 42 PILLARS of COMPETITIVENESS Cultural Resources and Business Travel Natural Resources Tourist Service Infrastructure South East Asia 2017 Indonesia 2017 Safety and Security 6 Health and Hygiene 5 4 3 2 1 0 Human Resources and Labour Market ICT Readiness Prioritization of Travel & Tourism Ground and Port Infrastructure International Openness Source : World Economic Forum (WEF), 2017 Air Transport Infrastructure Environmental Sustainability Price Competitiveness 21

Currently we are developing Top-10 tourism priority destination called 10 New Bali 22

These are Top-10 Priority Destinations on The Map 23 LAKE TOBA Area : 500 HA Investment : USD 1,6 B TANJUNG KELAYANG Area : 1.200 HA Investment : USD 1,4 B BOROBUDUR Area : 1.000 HA Investment : USD 1,5 B WAKATOBI Area : 500 HA Investment : USD 1,5 B MOROTAI Area : 300 HA Investment : USD 2,9 B TANJUNG LESUNG Area : 1.500 HA Investment : USD 4 B KEP. SERIBU & OLD CITY Area : 1.000 HA Investment : USD 1,5 B BROMO TENGGER SEMERU Area : 500 HA Investment : USD 1,6 B MANDALIKA Area : 1.035 HA Investment : USD 3 B LABUAN BAJO Area : 1.000 HA Investment : USD 1,2 B TOURISM AUTHORITY TOURISM SPECIAL ECONOMIC ZONE NASIONAL STRATEGIC TOURISM ZONE

BANK INDONESIA POLICY 24

Policy Mix of Monetary, Fiscal and Structural Reforms To achieve high, sustainable and inclusive growth with macroeconomic and financial stability, it is important to have close coordination between central bank policy, fiscal policy and structural reforms. 25 CENTRAL BANK POLICY MIX Maintaining price stability and supporting financial stability Policy mix of interest rate, exchange rate, capital flow management and macroprudential measures. FISCAL POLICY Macroeconomic stability through sustainable fiscal deficit and public debt. Tax policy and allocation of productive spending for stimulating higher and inclusive growth STRUCTURAL REFORMS Achieving higher growth through productivicity of capital, labor, and technological change Reforms in infrastructure, investment climate, product and market, and labor.

Bank Indonesia Policy Mix Accommodative monetary and macroprudential policies in 2015-2017 for supporting growth 26 Policy BI 7 RR Rate cuts of 200 bps to 4.25% Exchange rate stability consistent with fundamental Minimum Reserve Requirement at 5% & 1.5 % of the average of a two-week term or a certain reporting period and shall be met on a daily basis. Dual intervention in the FX market and purchases of government bonds from secondary market EXCHANGE RATE POLICY Monetary Policy Relaxations of LTV for property and automotive loans Expanding RR-LDR to RR-LFR Strengthening systemic surveilance and crisis management protocol for financial stability. MACRO- PRUDENTIAL POLICY Obligation of Rupiah usage for all domestic transactions in Indonesia territory. National movement for non-cash (GNNT) and usage of e-money for social transfers. Clean money and new Rupiah issuance Fintech Office. PAYMENT SYSTEM POLICY Effective transmission for stability and supporting economic growth.

27 Bank Indonesia promotes the infrastructure progress by proposing recommendation based on research, analysis, coordination both the central and local government to formulate quick solution for debottlenecking infrastructure project obstacle. Regional Economy & Structural Issues Analysis & Research Board of Governors Meeting on Regional Issues BANK INDONESIA COORDINATION CENTRAL GOVERNMENT X INFRASTRUCTURE BOTTLENECK SOLUTION REGULATION PERMIT SOLUTION Coordinating with Ministry of Economic and Maritime Affairs LOCAL GOVERNMENT POLICY REFORM

28 1 Indonesian economy has been resilient and showing sustained recovery, bolstered by strong domestic demand, and supported by continued macroeconomic and financial system stability. 2 Indonesia s economic performance has benefited from a coherent policy coordination among Bank Indonesia, Central and Local Government on the stability of macroeconomic, financial system, fiscal and the structural reform. 3 Indonesia economic outlook is expected to more progressive, with higher and more inclusive growth. 4 Indonesia would continue the ongoing structural reform including business climate improvement to accelerate growth. 5 Indonesia s structural reform and ongoing infrastructure projects would underpin the domestic and foreign investor to invest in various projects.

THANK YOU 29