#1BHINNEKA TUNGGAL IKA Republic of Indonesia Maintaining Stability and Supporting Growth, Mitigating Covid-19 Risk February 2021#2About Investor Relations Unit of the Republic of Indonesia Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial market investors. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among others: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of State Owned Enterprises, Ministry of Energy and Mineral Resources and Financial Services Authority. IRU also convenes an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit - Republic of Indonesia Website: http://www.bi.go.id/en/iru/default.aspx Contact: Rosita Dewi (International Department - Bank Indonesia, Ph.: +6221 2981 8232) Thasya Pauline (Deputy Ministry for Macroeconomic and Finance Coordinator - Coordinating Ministry for Economic Affairs, Ph. +6221 352 1843) Putri Rizki Yulianti (Fiscal Policy Office - Ministry of Finance, Ph.: +6221 345 0012) Subhan Noor (Directorate General of Budget Financing and Risk Management - Ministry of Finance, Ph.: +6221 351 0714) E-mail: [email protected] This Presentation Book also can be downloaded from: https://www.bi.go.id/en/iru/presentation/default.aspx 1#3What's New in This Edition Economic Recovery Program and Its Updates The Job Creation Law ...page 30-36 0 ...page 8-23 Fiscal Policy Updates ...page 65-77 Financing Policy Updates ...page 74-89 GDP Q4-2020 Realization ...page 50-53 Bank Indonesia Board of Meeting Decision ...page 100-101 2#4Overview 1 Fiscal Performance and Flexibility: Economic Recovery Program and Its Updates 5 Strong Commitment in Maintaining Fiscal Credibility Institutional and Governance Effectiveness: 2 Accelerated Reforms Agenda with 6 Institutional Improvement Economic Factor: 3 Stable Growth Prospects 7 Amid Temporary Moderation External Factor: 4 Improved External Resilience 8 Commitment to Sustainability and Climate Change Mitigation Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector Progressive Infrastructure Development: Strong Commitment on Acceleration of Infrastructure Provision 13#5Section 1 Economic Recovery Program and Its Updates BHINNEKA TUNGGAL IKA#6Concerted Efforts to Mitigate Covid-19 Risk General Measures 1 Establishment of a COVID-19 Task Force to Accelerate Coronavirus Disease 2019 (COVID-19) Handling. 80 2 Extension of the emergency status for COVID-19 until 29th May 2020. 9 3 Permission for civil servants to work from home, while maintaining the continuity of public services. 10 Decentralized tests by increasing the number of Covid-19 test laboratories throughout Indonesia. Providing Designated Hospitals, including additional designated hospital in Galang Island. Utilization of four (4) of ten (10) Wisma Atlet Kemayoran Towers (former Athletes Hotel) as emergency hospital. 4 Promoting massive prevention of the spread of Covid-19; application of health protocols in public areas, public transportation, and offices; calls for carrying out social distancing and the prohibition of carrying out activities that involve large crowds. 11 Preparation of 606 health workers and 192 non-health workers in Wisma Atlet Kemayoran and recruitment of 328 medical volunteers and 2590 non-medical personnel in the field of logistics and operations. 12 Establishment of Contingency Plans in the regions level. 5 Closing and limiting the mobility of Indonesian citizens abroad and foreigners to enter Indonesian territory with strict immigration and health protocols. 13 6 Evacuation of Indonesian citizens from affected countries and strict quarantine processes with complete medical facilities. 7 Conducting Rapid Test in 17 provinces with positive patients of Covid-19. 14 Preparation of drugs that have been used for Covid-19 patients in China according to doctor's prescription. The drug has been distributed to designated facilities and its stock is continuously being augmented with domestic pharmaceutical production. Speed up the procurement and distribution of personal protective equipment for designated hospitals and the provision of incentives for medical personnel. Source: Bank Indonesia 5 LO#7Bank Indonesia's Measures to Mitigate Covid-19 Risk To maintain Monetary and Financial Market Stability 1 Measures Launched on March 2, 2020 Strengthening the intensity of triple intervention policy to maintain rupiah exchange rate stability in line with the currency's fundamental value and market mechanisms Reducing the foreign currency reserve requirement ratio for 2 conventional commercial banks from 8% to 4%, effective 16th March 2020. Reducing the rupiah reserve requirement ratio by 50bps for 3 banks engaged in export-import financing activity in coordination with the Government. Expanding the types of underlying transactions available to 4 foreign investors as hedging alternatives against rupiah holdings in Indonesia. 1 2 Measures Launched on March 18-19, 2020 Strengthening the intensity of triple intervention policy to maintain rupiah exchange rate stability in line with the currency's fundamental value and market mechanisms. Extending the SBN repo tenor to 12 months and providing daily auctions to loosen rupiah liquidity in the banking industry. Increasing the frequency of FX swap auctions for 1, 3, 6 and 12- 3 month tenors from three times per week to daily auctions in order to ensure adequate liquidity. 4 Strengthening foreign currency term deposit instruments in order to enhance foreign currency liquidity management in the domestic market. Expediting the enforcement of domestic vostro rupiah accounts 5 for foreign investors as underlying transactions for Domestic NDF, thus increasing hedging alternatives against rupiah holdings. 6 Expanding the incentive of a 50bps looser daily rupiah reserve requirement beyond banks that are engaged in export-import financing to include the financing of MSMEs and other priority sectors. 5 Global investors may utilise global and domestic custodian banks for investment activity in Indonesia. 7 Source: Bank Indonesia Strengthening payment system policy to support COVID-19 mitigation efforts. 6 CO#8Government Measures to Mitigate Covid-19 Risk Fiscal and Non Fiscal Stimuli Fiscal Stimuli Phase 1 Fiscal Stimuli Phase 2 1 Brought forward the launch of the Pre-Employment Card in Bali, North Sulawesi and the Riau Islands. 1 Relaxation of Income Tax (PPh Article 21). Increased disbursements of the Noncash Food Assistance 2 Program (BPNT) from IDR150,000 to IDR200,000 for a six- month period commencing March 2020. 2 Relaxation of Income Tax on Imports (PPh Article 22). 3 Provided a stimulus package for housing in the form of an IDR800 billion subsidy as well as a subsidy on down payments totalling IDR700 billion. 3 Relaxation of Income Tax (PPh Article 25). 4 4 Provided incentives for domestic and international travellers. Relaxation of Value Added Tax (VAT) Restitution. 5 Reduced the air passenger service fee (PSF) by 20% for March-May 2020. 6 Discounted the price of aviation fuel at airports located around nine travel destinations for March-May 2020. 7 Non-Fiscal Stimuli 1 Reduce and simplify restrictions on export activities to maintain export performance and competitiveness. Subsidised or provided grants totalling IDR3.3 trillion to local governments affected by lower tax revenues food service activities. Source: Bank Indonesia 2 Reduce and simplify restrictions on import activities to ensure the availability of raw materials. 7#9Government Measures to Mitigate Covid-19 Risk Government Regulation In UU 2/2020, Previously Perppu No.1 2020 Regulates two topics: (1) State Financial Policy (2) Stability of Financial System State Financial Policy Stability of Financial System 1. Relaxation Deficit exceeds 3%, but starting in 2023 it returns to the maximum level of 3%. 2. Relaxation is related to the allocation/reallocation of expenditure between institutions, between functions, and between programs and mandatory spending. 3. Relaxation of allocation / reallocation of Regional Government Expenditures. 4. Providing loans to the Indonesia Deposit Insurance Corporation ("IDIC") 5. Issuance of Government bond can be purchased by Bank Indonesia, SOES, corporate investors and/or retail investors 6. Use of alternative budget sources for example ASL, education endowment funds, and funds managed by the Public Service Agency. 7. Taxation Policy: a) Decrease in Corporate Income Tax Rates gradually to 20% starting in 2022; b) Taxation Incentives in the Capital Market for public ownership <40%; c) Taxation of Electronic Transactions; d) Extension of tax administration time; e) Customs facilities in the context of COVID-19. 1. Improved Coordination among The Financial System Stability Committee ("FSSC") members 2. Provide the necessary authority to 4 institutions to prevent a crisis (forward looking) in the KSSK forum for example to issue instruments, BI buys government bond on the primary market, lending to "IDIC" and "FSA" may request a merger or consolidation of Financial Services Institutions. Foreign exchange management (LLD) management for residents 3. 4. Increase public confidence without causing moral hazard. Source: Coordinating Ministry for Economic Affairs 8#10Government Measures to Mitigate Covid-19 Risk Budget Refocusing Policy I. Presidential Regulation (Perpres) No 7/2020 on Taskforce to Manage COVID-19 Outbreak → Renewed through Presidential Regulation (Perpres) No 9/2020 II. III. 1. Answer to the President → Director (Chair: Coordinating Minister for Economic Affairs) and Implementer (Chair: Head of Indonesian National Board for Disaster Management), focusing on accelerating the mitigation of COVID-19 through synergy between ministries and government 2. Funding comes from the state budget, regional budget, and other legal sources Presidential Instruction (Inpres) No 4/2020 concerning Refocusing of Activities, Reallocation of Ministry/Agency Budget, and Procurement of Goods and Services in the Framework of Mitigating COVID-19 Outbreak and Ministry of Finance Circular (SE) No 6/2020 on Refocusing Activity and Reallocation of Ministry/Agency Budget in the Framework of Mitigating COVID-19 Outbreak 1. Minister Head of Institution prioritizes the use of budget allocations for the acceleration of mitigating COVID-19 outbreak in accordance with COVID-19 Handling Protocol 2. Done through a budget revision mechanism (done quickly, simply and accountably) Policy to support efforts to adjust regional allocations and relax transfers for handling Covid-19 1. Minister of Finance Regulation (PMK)19/2020 concerning Distribution and Use of Profit Sharing Fund (DBH), General Allocation Fund (DAU), and Regional Incentive Fund (DID) budget year 2020 in the context of COVID-19 Countermeasures; 2. Minister of Finance Decree (KMK) 6/2020 concerning Distribution of Physical Special Allocation Fund (DAK) on Health and Health Operational Assistance (BOK) in the framework of Prevention and/or Handling of COVID-19; 3. Ministry of Home Affairs Regulation (Permendagri) 20/2020 on acceleration of COVID-19 Mitigation in the Scope of Regional Government IV. Government Regulation Number 23 of 2020 for Implementation of the National Economic Recovery Program in the Context of Supporting State Financial Policies for Handling Corona Virus Disease 2019 (COVID-19) and / or Facing Threats that Harm Nation Source: Coordinating Ministry for Economic Affairs 6#11Government's Priority Policies/Program Main Key 1. Healthy Indonesia Public trust → Activity increases → Public consumption increases 2. Working Indonesia Driving investment Capacity utilization increases Purchasing power of the middle to lower class increased → Public consumption increases Creating jobs Driving investment ← Capacity utilization increases 3. Growing Indonesia Socio-economic Transformation. Don't waste the opportunity to carry out this post-pandemic transformation Source: Coordinating Ministry for Economic Affairs 10#12Covid-19 Handling Fund and National Economic Recovery Health Sector (COVID-19 Handling) Comittee (Chairman: Coordinating Minister for Economic Affairs) Economy Sector (National Economic Recovery/PEN) Reducing the Spread of Covid-19 Government Responsibilities: 3T • • • Test of Covid-19 for Public Tracing for Every Positive Result, and Treat Every Case Well Community Responsibilities: 3M • Mask Awareness, • Make Sure to Wash Hand Regularly, and Make Sure to Maintain Social Distancing Reducing COVID-19 Death Rate Vice Chairman • Coord. Minister for Maritime and Investment • Coord. Minister for Politics, Law, and Security • Coord. Minister for and Culture PEN and Covid-19 Vice Chairman 2020 2021* Stimulus • Minister of Health Budget Minister of Home Affairs • Exceutive Secretary I • Exceutive Secretary II TOTAL IDR 695,2 T IDR 553,1 T Human Development 1. Health IDR 87,55 T IDR 104,70 T Minister of Finance Vice Chairman + Executive Team Leader 2. Social Safety net IDR 203,90 T IDR 150,96 T Minister of SOES 3. Business Incentives IDR 120,61 T Will be reported regularly Government Responsibilities: • Optimizing Health Facilities (Public Health COVID-19 Task Center& Hospital) . Supporting Health Workers Force (Chairman: Chairman of BNPB) PEN Task Force (Chairman: SOES Vice Minister) 4. SME's Support IDR 123,46 T IDR 156,06 T 5. Corporate Financing IDR 53,57 T COVID-19 Vaccines Provision Presidential Law No. 99/2020 as Vaccination Roadmap Health and Economic Policies need to Integrated to Encounter Covid-19 6. Sectoral Institution/ Ministry and Regional Government Support for Economy Source: Coordinating Ministry for Economic Affairs IDR 106,11 T IDR 141,36 T 11#13Illustration of Health And Economic Recovery In One Wheel Brake ➤ Health Safety Net Need to step on the brakes to suppress (contain) the covid-19 contagion Need: Brake fluid ➤ Medicine Health Workers ➤ Vaccine R Strong Brake SEATBELT: Driver safety while driving Financial Sector Safety Nets Source: Coordinating Ministry for Economic Affairs Gas Pedal ➤ Social Safety Net ➤ Real Sector Safety Net Oil/Gas ➤ Source of funding ➤ Make sure the drain is smooth and doesn't leak Step on The Gas! 12#14Economic Recovery and Covid-19 Handling Requires a Medium-Term Plan (up to 2023/2024) COVID-19 Cases Pre- Covid הוד The spread of COVID-19 will keep increasing until the vaccine is found and distributed month 12-18 months of 2020 SURVIVE vaccines invented and distributed → MAINTAIN LIVELIHOOD A period of endurance and stress Adapt & Adjust Economic Condition Source: Coordinating Ministry for Economic Affairs month of 2021 12th month of 2021 Transformation Period Goal/Minimum Target: Recover to Pre-COVID condition 2022 2023 medium term Plan 2024 13#15Covid-19 Vaccination as Game Changer for National Economic Recovery HEALTH PERSONNEL, PUBLIC OFFICERS AND THE ELDERLY WILL GET THE FIRST VACINATION PRIORITY 1 Target HEALTH WORKERS 181,5 millions people Vaccines 426,8 million doses Vaccinations are carried out for health workers in 34 provinces 1,5 M VACCINATION PERIOD; JAN-FEB 2021 2 PUBLIC OFFICERS 16,9 M ELDERLY 3 4 VULNERABLE COMMUNITIES Communities in areas with a high risk of transmission 21,5 M 63,9 M VACCINATION PERIOD FEB-JUN 2021 OTHER COMMUNITIES With a cluster approach according to vaccine availability 77,7 M VACCINATION PERIOD MAR/APR 2021 - DEC 2021 SINOVAC Procurement of Vaccines Total Firm Order (FO): 329.5 millions doses Total additional options (AO): 334 millions doses Total potential for procurement: 663.5 millions doses FO: 125,5 mn doses AO: 100 mn doses NOVAVAC FO: 50 mn doses AO: 80 mn doses COVAX FO: 54 mn doses AO: 54 mn doses Source: Coordinating Ministry for Economic Affairs ASTRAZENECA FO: 50 mn doses AO: 50 mndoses "Gotong Royong" Vaccine "Gotong Royong" Vaccine is a special vaccine program for workers whose implementation is the responsibility of the company Potential Vaccines Sinopharm Moderna Sputnik V CansinoBIO 14#16Progress of Vaccination Implementation As of February 25, 2021, the implementation of Vaccination has been given to 1.39 millions people (95% of the Vaccination Target) and the second dose of vaccination has also been carried out for 832 thousand (57% of the Vaccination Target) VACCINATION STAGE-1 (Progress) Vaccination Targets 1,5 M Vaccinated-1 • VACCINATION STAGE-2 • A total of 38.5 millions people will receive the 2nd phase of vaccination consisting of public officers and the elderly Starting February 17, 2021, 1404 market traders have been vaccinated • Vaccine service methods through health facilities, institutions, on-site mass vaccination, mobile mass vaccination Prospective Recipients Bar Elderly Market Trader Vaccinated-2 Educator Religious leaders Government employees Security 1,39 million 832 thousand 95,0% 56,7% People's representatives State officials Public Servant Public Transportation Tourism Athlete Journalists & Media Workers Source: Coordinating Ministry for Economic Affairs 15#17Micro-Scale Activity Restriction (PPKM) as a Support for Government Vaccination Program The purpose of the micro PPKM is to suppress positive cases of covid-19 as a precondition for success for handling Covid-19 and for national economic recovery Micro Scale Activity Restriction Program (PPKM) PIC Home Affairs Ministry ☐ Regional Govt. PC-19 Task Force Police and Military Duration Applied every 2 week followed by Evaluation Impact Decrease in Social ☐ Decrease in Positive Mobility Case of Covid-19 Active Involvement of Military, Police, and Other State Apparatus 123 Regencies / Cities in 7 Provinces Red Higher Community Transmission > 10 houses in a neighborhood that have positive confirmed cases during the last 7 days Micro PPKM Control Scenarios Orange Moderate Community Transmission If there are 6-10 houses in a neighborhood that have positive confirmed cases during the last 7 days Yellow Low Community Transmission If there are 1-5 houses in a neighborhood that have positive confirmed cases during the last 7 days Green No Active Cases If there are no house in a neighborhood that have positive confirmed cases during the last 7 days Fulfillment of Basic Needs for Self Isolation Target: Citizens who are confirmed positive, close contacts, and suspects Assistance: Rice (10 kg Pack) and Masks during the self-isolation period (14 days) The implementation of PPKM and PPKM Mikro for 5 weeks has succeeded in reducing the rate of increase in Active Cases No. of Active Cases has decreased significantly (-17.27% in a week) ■ Trends in Active Cases in 5 Provinces succeeded in reducing the % of active cases The trend of BOR decreases, all provinces have succeeded in reducing BOR <70% ◉ ☐ Healing Trends in 5 Provinces succeeded in increasing the % cure rate. Mortality trends in 3 Provinces succeeded in decreasing the% mortality rate ■ Trends in Prokes Compliance in all Provinces had increased in the range of 87.64% to 88.73% Source: Coordinating Ministry for Economic Affairs 16#18The Pre-Employment Card Program Successfully Helped Indonesian Workers During the Pandemic Period The Pre-employment Card is a program from the government for job seekers to workers affected by Covid-19 to improve skills through training as well as get incentives. Realization 2020 Registration 43,8 M Registrant in Pre-Employment Card Websites From all Cities and Regencies in Indonesia Recipients 5,5 M Pre-Employment Card Recipient (Batch 1-11)* 5,316,499 Recipients Has received an incentive 34 Province 514 Cities and Regencies 13.4 T Incentives Have Been Disbursed Pre-Employment Card Program Ecosystem 7 Digital Platform 150 Training Institutions • 4 Educational Institutions • 3 Job Portals 5 Payment Partners Semester | Pre-Employment Card Program in 2021 Budget: IDR 10 trillion Benefit value: Rp1 million training assistance Total post-training incentives IDR 2.4 million (IDR 600 thousand x 4 months) Post-survey incentives total IDR 150 thousand (IDR 50,000 x 3 surveys) Batch 12: 600,000 attendees Target audience: 2.7 million people Kartu Pra-kerja 88.9% 81.2% 17% SEMI-SOCIAL ASSISTANCE: Provides skills while protecting purchasing power Increased participant work skills (* BPS) Incentives are used to buy daily needs (* BPS) EMPLOYMENT: Encouraging employment, including entrepreneurship Changed from previously unemployed as of 35% February 2020 to working when surveyed (*Evaluation Survey) Changed from unemployed to >94% Skilling improvement in both skilling, reskilling, and upskilling (* Evaluation Survey) entrepreneurship (*Evaluation Survey) Nomor Kart мк 0012909009080438 2343458848090909 Nema Tangpe/Leh Alamat Bongo AT 18% Source: Coordinating Ministry for Economic Affairs Changed from being unemployed to being an employee/laborer/freelance (*Evaluation Survey) Kecamatan Kabupaten 17#19• • National Economic Recovery Strategy Through Import Substitution Program (35% Reduction) in 2022 சச AA INDUSTRIAL CONDITIONS Require to deepen Industrial Structure Necessary to be independent on raw materials and production Unsupportive regulations and incentives The P3DN Program is not yet optimal 7 SECTORS FOCUS Food and Beverage Textiles and Clothing STRATEGIC STEPS Import Reduction through Import Substitution in Industries with Large Import Value Encouraging the Increasing Production Utilisation of All Manufacturing Industry Sectors Increase in Investment and Absorption of New Workers 35% IMPORT SUBSTITUTION PROGRAM BY 2020 Source: Ministry of Industry Automotive Deepening of Industrial Structure Chemical Electronic Utilisation 60% (2020) Utilisation Utilisation 75% 85% (2021) (2022) Pharmacy Medical Devices • Absorption of workers affected by layoffs Increased domestic spending capacity • Increase in the export market 18#20Fiscal Incentives Policy to Boost the Economy The government facilitates fiscal incentives to create a conducive investment climate, especially for industry players. Through increased investment, it is hoped that it can strengthen the domestic industrial structure TAX HOLIDAY TAX ALLOWANCE INVESTMENT ALLOWANCE SUPER DEDUCTION TAX • . • The criteria are new investment, taxpayers including pioneer industries, and income received from the main business activities carried out. Pioneer industries are defined as industries that have broad linkages, provide added value and high externalities, introduce new technologies, and have strategic value for the national economy. There are 18 industrial sectors that fall within the scope of pioneer industries Updated: 31 Dec 2020 82 Taxpayers; 14 countries investors Investment plan of IDR 1,356 trillion Realization of IDR 204 Trillion Business locations in 24 provinces Workforce of 112 thousand Source: Coordinating Ministry for Economic Affairs • Facilities in order to increase direct investment activities for certain business fields and / or in certain areas. • The facilities include a reduction in net income of 30% of the total investment for six years, accelerated depreciation and amortization, imposition of income tax on dividends paid to foreign tax subjects of 10% or lower based on a tax treaty, and compensation for losses of up to ten years. The criteria are having a high investment value or for export, a large absorption of labor; or have a high local content. • Facilities in order to encourage investment in labor-intensive industries, support programs for job creation and absorption of Indonesian workers. • Incentives in the form of facilities to reduce net income by up to 60% for labor-intensive sectors • There are 45 labor- intensive industrial sectors and employ an average of . 300 workers in 1 tax year. Super Deduction Vocational • Engaging industry in vocational activities to provide knowledge and encourage the transfer of knowledge • A maximum reduction of 200% gross income from costs in the context of providing work practice, apprenticeship, and / or learning activities R & D Super Deduction . Increase the role of industry in fostering innovation and the use of the latest technology in the production process • Maximum gross income deduction of 300% over R&D costs carried out in Indonesia 19#21The Government Rolled Out A Tax Incentive to Boost Vehicle Sales and Public Consumption This incentive aims to stimulate people's purchasing power, especially in the middle class, immediately so that it has a positive impact on the national economy. TAX Stimulus is in the form of an incentive, reducing the luxury goods sales tax (PPnBM) for cars. The relaxation is valid for cars running on engines 1500 cc and below, including sedans, 4x2 s, and cars built using up to 70 percent of locally made components Period of Stages The Government will subsidize the discounted amount. The PPnBM rebate is to be applied gradually, starting on March 1, 2021 , 1. In the first stage, which is from March to May, the tax discount is 100 percent of the normal rate 2. The second stage, form June to August, the rebate is 50 percent 3. Lastly, from September to December, the tax cut is 25 percent. Source: Coordinating Ministry for Economic Affairs 20 20#22Government Support for MSMEs During the Covid-19 Pandemic In the form of relaxation of asset quality assessments, postponement of principal & interest subsidies, low-interest working capital loans guaranteed by Askrindo and Jamkrindo, tax incentives for MSMEs borne by the government, and Productive Presidential Assistance for Micro Enterprises 1 ASSET QUALITY MSMEs CREDIT RESTRUCTURING ASSESSMENT According to POJK 2 WORKING CAPITAL CREDIT POSTPONEMENT OF PRINCIPAL & INTEREST SUBSIDIES 3 KUR Super Mikro: Loan up to IDR 10 million • Interest subsidy will be 19% consist of additional interest subsidy 6% and regular interest subsidy 13%, debtors pays 0% interest from Aug - Dec 2020. KUR MKM (SMEs): 4 Quality No. 11/POJK.03/2020 & 14/POJK.05/2020 Asset LOW INTEREST Placement of IDR30 Trillion Government Funds at Bank Himbara GUARANTEE Arrangement: Loans S IDR 10 billion can be based only on the accuracy of principal interest payments Restructurisation: The credit quality for affected debtors is determined to be current restructuring since The restructuring is carried out without a ceiling limit type of financing Loan up to Rp10 million up to IDR 500 million • Postponement of installments and 6% additional interest subsidy for the period from Apr-Dec 2020 to 0%. Loan > Rp500 million up to IDR 10 billion • • Postponement of installments and interest subsidies from 3% to 3% for the period Apr-Jun 2020 and interest subsidies from 2% to 4% for the period Jul- Sep 2020. UMi, Mekaar, Pegadaian (Pawnshop) • Postponement of principal installments and interest subsidies for 6 months from Apr-Sep 2020 Fintech Loan, Co-op, Farmers, LPDB, LPMUKP, UMKM PEMDA Relaxation is given a 6% interest subsidy for 6 months Based on Coordination Meeting held by Financing Policy Committee for MSME on December 28, 2020, KUR implementation in 2021 are as follows: Source: Coordinating Ministry for Economic Affairs Additional interest subsidy 3% for 6 months, debtors pays 3% interest. Increase the ceiling of KUR in 2021 to IDR 253 trillion. 5 6 Government support in the form of guarantees by Askrindo and Jamkrindo OTHER SUPPORT Income Tax for MSMEs is borne by Government MSMEs receive a final PPh rate of 0.5% (PP 23/2018) borne by the government (DTP). MICRO BUSINESS PRODUCTIVE PRESIDENT ASSISTANCE Direct assistance to 12 million Micro- Business Actors in the amount of IDR 2.4 million per recipient 21 224#23Integration of Various Types of Social Assistance and Financing for Super Micro and MSMEs is Continually Encouraged • Super micro, micro and small businesses that are un-bankable have begun to be empowered by the Government with the Productive Presidential Assistance & Pre-Work Card programs, while the BUMN through the partnership and community development program (PKBL) and private parties with CSR. KUR Super Micro scheme, people enjoy loans with 0% interest until December 31, 2020. Meanwhile, People's Business Credit (KUR) for micro small and medium enterprises (MSME) is given an additional interest subsidy of 6% until 31 Dec 2020. For 2021, MSME is given an additional interest subsidy of 3% for 6 months, so MSME pays 3% interest. A Commercial Financing Patterns Social Assistance F Unbanked B Fully commercial loan Subsidized loan Special scheme of commercial loan Rolling soft loan C CSR D E Productive Presidential Assistance & Pre- employment Card Partnership and Community Development Program (PKBL) & Private CSR Bankable MSMEs Financing Mekaar UMi BWM LPDB* KUR Super Micro People's Business Credit (KUR) Regular Commercial Facilities Social grants Private PKBL & CSR Funds Interest Subsidy from the Government Government Guarantee Market Mechanism Source: Coordinating Ministry for Economic Affairs Business Ability 22 22#24NG 25 30 35 40 45 50 55 Jan-19 2018 Indonesia's Economic Improvement Trend Continues Some economic indicators indicate an improvement. Government Expenditure also decrease the contraction in GDP by Expenditure Growth. Confidence in PMI Manufacture also hit a four-year level high, Increase in for People's Business Credit (KUR), recovery in Consumer Confidence Index (CCI), and also increase in Direct Investment GDP Growth (% YoY) -5.32 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 4.97 Trade Balance (Billion USD) 2.97 4.00 20.00 Demand for People's Business Credit (KUR) - IDR Trillions 1.96 198.58 2.00 0.00 140.1 120.3 -2.19 0.00 -3.49 -20.00 94 96.7 PMI Markit Indonesia Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 27.5 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 2020 Source: Bloomberg, Bank Indonesia, BPS, BKPM, Financing Policy Committee for MSMEs, IHS Markit 52.2 -2.00 -40.00 22.75 -4.00 -60.00 1 3 5 7 9 11 1 3 5 7 9 11 1 2019 2020 Trade Balance (Bn USD) 2021 Export-g (% YoY)-rhs Target 2015 2016 2017 2018 2019 2020 30 T 100 T 110 T 120 T 140 T 190 T 721.3 Total investment (FDI+DDI) In Trillion Rupiah 809.6 2018 2019 2020 Fintech Lending (Trillion IDR) Jan-18 ■Nov-18 Des-19 ■Jan-20 Des-18 Jan-19 ■Nov-19 ■Okt-20 ■Nov-20 826.3 124.40 2.58 16.52 -19.62 22.44 63.86 69.82 75.71 117.82 JAVA 19.06 26.00 137.66 146.25 OUTSIDE JAVA AGGREGATE (TOTAL) 23#25Section 2 Institutional and Government Effectiveness: Accelerated Reforms Agenda with Institutional Improvement BHINNEKA TUNGGAL IKA#26Rank Higher rank is better 20 30 40 50 60 70 80 90 India Indonesia Philippines Worldwide Governance Indicators³ Improving Global Perception ...with recent improvements on governance effectiveness Global Competitiveness Index¹ 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 Ease of Doing Business² 2018* 2019* 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 20 Higher rank is better (rankings at the time of annual report publication) 40 36 41 60 45 50 80 72 73 73 91 100 120 140 *New Concepts by using the Global Competitiveness index 4.0 which captures the determinants of long- term growth. 160 Bulgaria Colombia Indonesia -India - Philippines Bulgaria Colombia Corruption Perception Index4 44 65 55 635 60 Higher score is better 42 53 51 40 45 42 38 38 35 36 28 25 34 43 42 41 41 40 38 37 36 36 34 Higher rank is better 32 15 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 30 Voice and Accountability Government Effectiveness Political Stability/Absence of Violence Regulatory Quality 2012 2013 2014 2015 2016 2017 2018 2019 Rule of Law Control of Corruption ―Indonesia -India - Philippines Bulgaria Colombia 1. Source: World Economic Forum - The Global Competitiveness Report 2019; 2. Source: World Bank - Doing Business 2020 Report; 3. Source: World Bank - The Worldwide Governance Indicators 2020 Update; 4. Source: Transparency International - Corruption Perceptions Index 2019 Report 25#27Continuous Improvement of Investment Climate ...another leap on Indonesia's Rank on Ease of Doing Business (EODB)* EoDB 2020 Rank Rank EoDB 2019 Change in Rank EoDB 2020 EoDB 2019 Change in Points Points Points Overall 73 73 0 ( 69.6 68.0 1.6 Starting a business 140 134 6 81.2 81.2 0.0 Dealing with Construction Permits 110 112 2 66.8 66.6 0.2 Getting Electricity 33 33 0 87.3 86.4 0.9 Registering Property 106 100 6 60.0 61.7 1.7 Getting Credit 48 44 4 70.0 70.0 0.0 Protecting Minority Investors 37 51 14 70.0 63.3 6.7 Paying Taxes 81 112 31 75.8 68.0 7.8 Trading Across Borders 116 116 0 67.5 67.3 0.2 Enforcing Contracts 139 146 7 49.1 47.2 1.9 Resolving Insolvency 38 36 ⇓2 68.1 67.9 ↑ 0.2 * Higher rank is better, EoDB 2020 was published in October 2019 Government efforts to boost business growth through deregulations and de-bureaucratization have been recognized by the improvement of EODB Structural reforms will continue including in the budget and real sectors Source: World Bank 26 26#28Indonesia Has Been Rated as Investment Grade Country since 2017 BBB+ BBB BBB- Investment Grade BB+ Below Investment Grade BB BB- Fitch Ratings BBB / Stable JCRA R&J August 2020, Rating Affirmed at BBB/Stable S&P Fitch Moody's B+ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 R&I JCR BBB+ / Stable The affirmation of the rating is underpinned by a favorable medium-term growth outlook and a low government debt burden compared with "BBB" category peers. S&P Global Ratings BBB / Negative April 2020, Rating Affirmed at BBB, Outlook Revised from Stable to Negative "The affirmation reflects Indonesia's stable institutional settings, strong growth prospects, and historically prudent fiscal policy settings. The negative outlook reflects S&P expectation that Indonesia faces additional fiscal and external risks related to the COVID-19 pandemic in the next 24 months. MOODY'S "9 Baa2 Stable Feb 2020, Rating Affirmed at Baa2/Stable "The affirmation of the ratings is underpinned by a number of credit strengths including Indonesia's robust and stable growth rates and a low government debt burden, preserved by consistent fiscal discipline and emphasis on macroeconomic stability as well as persistent credit challenges." BBB+ / Stable March 2020, Rating Upgraded at BBB+/Stable "The upgrade reflects the firm implementation of policies to strengthen economic growth potential on the back of a solidified political foundation. As the global spread of the novel coronavirus could strain growth in the Indonesia economy, the government and the central bank are working to shore up the economy and maintain macroeconomic stability. Given the country's underlying economic strength which remains intact, R&I expects the economy to start to recover if the epidemic is brought under control" December 2020, Rating Affirmed at BBB+/Stable "The ratings mainly reflect the country's solid domestic demand-led economic growth potential, restrained public debt, and resilience to external shocks supported by flexible exchange rate and monetary policies and accumulation of foreign exchange reserves. Additionally, the government has been maintaining the momentum of economic structural reforms even amid the pandemic, as evidenced by the enactment of the "Omnibus Law on Job Creation". 27#29Medium-Term National Development Plan (RPJMN) 2020-2024 President's Vision: "The Establishment of an Advanced Sovereign, Independent and Personality Based on Mutual Cooperation". President's Missions Top 5 Presidential Priorities 1 Improving the Quality of the Indonesian Labour Force 1 HR Development Achieving Productive, Independent 2 and Competitive Economic Structure 3 Attaining Equitable and Prosperous 2 National Development Infrastructure Development Achieving Sustainable 4 Environmental Climate Developing Cultural Progress 3 5 Reflecting the Nation's Personality Regulation Simplification 7 RPJMN Development Agenda Simplification of Bureaucracy Transformation Strengthening Economic Resilience to Achieve Superior Economic Growth Developing More Remote Regions to Reduce Economic Gaps and Improve Equality Improvement of Quality and Competitiveness of the Labour Force Engaging in Mental Revolution and Culture Development Strengthening Infrastructure to Support Economic Development and Improve Basic Services Conservation of Environment, Supporting Climate Change, and Enhancing Disaster Resilience Enhancing Political, Legal, Defense and Stability and Transforming Public Services Developing a Dignified and Trustworthy 6 Legal System Free from Corruption 4 Protection of All Nations and 7 Provision of Security to All Citizens 00 Attaining Good, Effective, and Reliable Governance Economic 5 Achieving Synergy of Governmental 9 Framework with the Regional Government Source: National Development Planning Agency 28 28#30Economic Transformation is Required to Recover the Economy and Avoid the Middle Income Trap Bill on Job Creation as a strategic and extraordinary national policy to recover and improve the national economy (Complements UU 2/2020) Bill on Job Creation Economic Transformation National Economy Indonesia Maju 2045 Investment, Business License (80 Articles) Land Procurement (19 ✓ Articles) 督 Gov Investment and Strategic National Project (16 Articles) MSMEs & Cooperative (15 Articles) Ease of Doing Business (11 Articles) ☐ Fundamental Problems Hyper Regulation National and sub-national regulations = 43.604 Competitiveness Less conducive business environment Inefficient bureaucracy High cost economy hampering export Employment Low productivity albeit productive age Unemployed and part-time workforce amounting to 45,8 million people (34,3%) (before pandemic) License and Ease of Doing Business Employment (5 Articles) ☐ Licensing approach Economic Zones (4 Articles) Monitoring and Sanctions (3 Articles) Research and Innovation (1 Article) Source: Coordinating Ministry for Economic Affairs Convoluted and overlapped Difficult to start and operate a business MSME & Cooperative Complex licensing Without legal status Minimum protection and facilitation Legal Certainty Criminal sanction for administrative sanction Growth 0000 Equity Top 5 Global Economy Out of middle- income trap Protection Competitiveness GDP of USD 7.4 trillion Poverty Rate 0% Competitive workforce 29 29#31& DATA FACT The Job Creation Omnibus Law Encourages Employment and Facilitates New Business Opening While Recovering the Post- Pandemic Economy Toko K ۵/۵ Labour Market Of the total population aged 203.97 million people, there are 14.28 people affected by Covid-19 1. Unemployment due to covid-19 (2,56 million people) 2. Not labor force due to Covid-19 (0,76 million people) 3. Temporarily not working due to Covid-19 (1,77 million people) 4. Work with shorter hours due to Covid-19 (24,03 million people) MSME BIG 5.550 unit MIDDLE 60.702 unit SMALL 783.132 Unit MICRO 63.5 Juta Unit REGULATION Among the 64.19 million MSES, 64.13 million are Micro & Small Businesses, most of which are in the informal sector, so it needs to be encouraged to transform into formal ones. Complicated licensing issues with abundant central & local regulations (hyper-regulations) that regulate the sector, causing disharmony, overlapping, non- operational and sectoral. JOB CREATION LAW 2. BUSINESS LICENSING 8. ECONOMIC ZONE SUBSTANCE 1. IMPROVING INVESTMENT ECOSYSTEM 7. LAND PROCUREMENT (1) Encouraging Job Creation and Entrepreneurship through Ease of Doing Business from MSEs and Large Enterprises Source: Coordinating Ministry for Economic Affairs 3. LABOR 4. SUPPORTING MSMES 5. EASE OF DOING BUSINESS 6. RESEARCH & INNOVATION 10. GOVERNMENT ADMINISTRATION 11. IMPOSITION OF SANCTIONS 9. CENTRAL GOVERNMENT INVESTMENT & SPEEDING OF STRATEGIC NATIONAL PROJECT BENEFITS (2) Protecting Worker's Rights through 3 Worker's Protection Benefits for the General Public, including provision of housing and redistribution of land 30 30#32Framework of the Job Creation Law wwww COMPANY INVESTMENT HOUSEHOLD AL New Business Creation New Job Creation GREENFIELD (111> Business Development Welfare Creation Supply Brownfield PRODUCTION Demand JOB CREATION LAW CONSUMPTION Increased Purchasing Increased Income Power Source: Coordinating Ministry for Economic Affairs 31#33Development of Implementing Regulations for the Job Creation Law The government has completed 51 implementing regulations consisting of 47 government regulations and 4 presidential regulations The implementing regulations are grouped into 11 regulatory clusters, namely: 1. Spatial (4) 2. Land and Land Rights (5) 3. Environment (1) 4. Construction and Housing (6) 5. Cooperatives and SMEs (4) 6. 7. Investment (6) Fiscal (3) 8. Employment (4) 9. Economic Zone (2) 10. Government Goods / Services (1) 11. Licensing and Sector Business Activities (15) . Regulations The ministry immediately makes internal implementation standards or guidelines no later than 2 months after the implementing regulations are enacted Public Communication Ministries / Institutions held intensive socialization in the form of electronic media and leaflets Infrastructure and Supporting System . OSS and Supporting System will be ready for operation in July 2021 Readiness of Ministries / Agencies and Local Governments in providing networks, tools, and consultations Human Resources Training for OSS Operators and Supervisors Source: Coordinating Ministry for Economic Affairs 32 32#3451 Regulations for Job Creation Law (Substance Grouping) Spatial 1. Government Regulation No. 21 of 2021 concerning the Implementation of Spatial Planning 2. Government Regulation No. 43 of 2021 concerning Settlement of Inconsistencies in Spatial Planning, Forest Areas, Permits, and / or Land Rights 3. Government Regulation No. 45 of 2021 concerning the Implementation of Geospatial Information 4. Presidential Regulation No. 11 of 2021 concerning Cooperation between the Central Government and State-Owned Enterprises in Providing Basic Geospatial Information Land and Land Rights 1. Government Regulation No. 18 of 2021 concerning Management Rights, Land Rights, Apartment Units and Land Registration 2. Government Regulation No. 19 of 2021 concerning Implementation of Land Acquisition for Development for Public Interest 3. Government Regulation No. 20 of 2021 concerning Control of Neglected Areas and Lands 4. Government Regulation No. 23 of 2021 concerning Forestry Implementation 5. Government Regulation No. 24 of 2021 concerning Procedures for Imposing Administrative Sanctions and Procedures for Non-Tax State Revenues Derived from Administrative Fines in the Forestry Sector Environment 1. Government Regulation No. 22 Year 2021 concerning Implementation of Environmental Protection and Management Construction and Housing to 1. Government Regulation No. 12 of 2021 concerning Amendments No. Government Regulation 14 of 2016 concerning Implementation of Housing and Settlement Areas 2. Government Regulation No. 13 of 2021 concerning the Implementation of Flats to 3. Government Regulation No. 14 of 2021 concerning Amendments Government Regulation No. 22 of 2020 concerning Implementation Regulations of Law No. 2 of 2017 concerning Construction Services concerning 4. Government Regulation No. 15 of 2021 Implementation Regulations of Law No. 6 of 2017 concerning Architects 5. Government Regulation No. 16 of 2021 concerning Implementation Regulations of Law No. 28 of 2002 concerning Buildings 6. Presidential Regulation No. 9 of 2021 concerning the Agency for the Acceleration of Housing Management Cooperatives and SMEs 1. Government Regulation No. 34 of 2021 concerning the Use of Foreign Workers 2. Government Regulation No. 35 of 2021 concerning Specific Time Work Agreements, Transfer, Working Hours and Breaks, and Termination of Employment 3. Government Regulation No. 36 of 2021 concerning Wages 4. Government Regulation No. 37 of 2021 concerning Implementation of the Job Loss Guarantee Program the Source: Coordinating Ministry for Economic Affairs 33 33#3551 Regulations for Job Creation Law (Substance Grouping) Investment 1. Government Regulation No. 42 of 2021 concerning the Ease of National Strategic Projects 2. Government Regulation No. 44 of 2021 concerning Implementation of the Prohibition of Monopolistic Practices and Unfair Business Competition 3. Government Regulation No. 48 of 2021 concerning Third Amendment to Government Regulation No. 31 of 2013 concerning Implementation Regulations of Law No. 6 of 2011 concerning Immigration 4. Presidential Regulation No. 10 of 2021 concerning the Investment Business Field 5. Government Regulation No. 73 of 2020 concerning Investment Management Institutions2. 6. Government Regulation No. 74 of 2020 concerning Authorized Capital for Management Institutions Investation Fiscal 1. Government Regulation No. 9 of 2021 concerning Tax Treatment to Support Ease of Doing Business 2. Government Regulation No. 10 of 2021 concerning Regional Taxes and Regional Levies in the Framework of Supporting Ease of Doing Business and Regional Services 3. Government Regulation No. 49 of 2021 concerning Taxation Treatment of Transactions Involving Investment Management Institutions and / or Entities They Own Employment 1. Government Regulation No. 34 of 2021 concerning the Use of Foreign Workers 2. Government Regulation No. 35 of 2021 concerning Specific Time Work Agreements, Transfer, Working Hours and Breaks, and Termination of Employment 3. Government Regulation No. 36 of 2021 concerning Wages 4. Government Regulation No. 37 of 2021 concerning the Implementation of the Job Loss Guarantee Program Economic Zone 1. Government Regulation No. 40 of 2021 concerning the Implementation of Special Economic Zones 2. Government Regulation No. 41 of 2021 concerning the Implementation of Free Trade Zones and Free Ports Government Goods / Services 1. Presidential Regulation No. 12 of 2021 concerning Amendments to Presidential Regulation No. 16 of 2018 concerning Government Procurement of Goods / Services Source: Coordinating Ministry for Economic Affairs 34 ==#3651 Regulations for Job Creation Law (Substance Grouping) Licensing and Sector Business Activities 1. Government Regulation No. 5 of 2021 concerning Implementation of Risk-Based Business Licensing 2. Government Regulation No. 6 of 2021 concerning the Implementation of Business Licensing in Regions 3. Government Regulation No. 25 of 2021 concerning the Implementation of the Sector of Energy and Mineral Resources 4. Government Regulation No. 26 of 2021 concerning the Implementation of the Agricultural Sector 5. Government Regulation No. 27 of 2021 concerning the Implementation of the Marine and Fisheries Sector 6. Government Regulation No. 28 of 2021 concerning the Implementation of the Industrial Sector 7. Government Regulation No. 29 of 2021 concerning the Implementation of the Trade Sector 8. Government Regulation No. 30 of 2021 concerning Implementation of the Road Traffic and Transportation Sector 9. Government Regulation No. 31 of 2021 concerning the Implementation of the Shipping Sector 10. Government Regulation No. 32 of 2021 concerning the Implementation of the Aviation Sector 11. Government Regulation No. 33 of 2021 concerning the Implementation of the Railway Sector 12. Government Regulation No. 38 of 2021 concerning Accompanying Accounts for Umrah Travel Expenses 13. Government Regulation No. 39 Year 2021 concerning Implementation of the Halal Product Guarantee Sector 14. Government Regulation No. 46 of 2021 concerning Post, Telecommunication and Broadcasting 15. Government Regulation No. 47 of 2021 concerning the Implementation of Hospitalization Source: Coordinating Ministry for Economic Affairs 35#37Government Supports in Job Creation Law 1 Support for MSMEs: Business licensing for MSMEs is sufficient only through registration. 2 3 4 LO 5 6 Support for Cooperatives: easiness in establishing cooperatives by setting a minimum number of 9 people, and cooperatives can apply Sharia business principles, and can take advantage of technology. On the continuity of community plantations in forest areas, the community is given permission (legality) for the use of land sustainability in forest areas, where for community lands located in conservation areas, the community can still utilize plantation products with government supervision. Better policy integration between obtaining business licencing and environmental impact assessment. Policy integration utilise risk based approach, which makes it more uncomplicated to obtain Environmental Approval while still meeting the stipulated requirements. For Halal Certification: The government bears the cost of certification for MSES, acceleration and certainty in the halal certification process, as well as expanding the Halal Inspection Agency, which can be carried out by Islamic Organizations and State Universities. For Fishermen: Previously, the fishing boat licensing process had to go through several agencies, with the Job Creation Law, it was enough only to be processed at the Ministry of Marine Affairs and Fisheries. For the provision of housing: the backlog of community housing and the construction of houses for Low-Income Communities (MBR) will be accelerated, which is managed by the Agency for the Acceleration of Housing Management (BP3). 7 8 The Land Bank will carry out agrarian reform and land redistribution to the community Businesses and MSMEs will receive benefits that include: 9 . Ease and certainty in obtaining business licenses, by implementing risk-based licensing & implementing standards. • Proper rights and protection for workers/labour will increase competitiveness and productivity. • Receive incentives and conveniences, both fiscal incentives and convenience and certainty of services for investment. • • Wider space of business activities for investment to be entered by referring to the business sectors that are prioritized by the Government. Regarding the imposition of sanctions, administrative violations are only subject to administrative sanctions, while violations that occur due to K3L (Safety, Security and Environment) are subject to criminal sanctions. Source: Coordinating Ministry for Economic Affairs 36#38Investment Priority List in the Presidential Regulation for the Investment Business Sector The government provides positive sentiment to the business world by establishing policies for regulating business sectors that are more open (positive) and priority. PRESIDENTIAL REGULATION OF INVESTMENT BUSINESS FIELDS AREAS OF 46 BUSINESS FIELDS WITH SPECIFIC REQUIREMENTS 246 PRIORITY BUSINESS FIELDS given fiscal incentives and and non-fiscal, a.l. Tax Allowance and Tax Holiday 90 BUSINESS FIELDS OR PARTNERSHIP WITH COOPERATIONS AND MSMEs > 1700 OTHER OPEN FIELDS OF BUSINESS (domestic/foreign / joint venture) without conditions With a positive approach, the Government provides assurance that in principle all business fields are open to investment, which is declared closed by law. The investment value for Mandatory PMA is> IDR 10 billion. This openness takes into account the protection and empowerment of MSMEs. The government also provides information on the direction of investment policy in Indonesia by determining business fields that are the Government's priorities. Priority Business Field Criteria National Strategic Programs/Projects; Capital Intensive; Labor intensive; High technology; Pioneer Industry; Export Orientation; and / or Orientation in Research, Development and Innovation Activities. Incentives provided Tax Incentives: o Tax Holiday; o Tax Allowance; o Investment Allowance Customs and excise incentives (free of import duty on industrial construction machinery and materials) Non-fiscal incentives (ease of business licensing, provision of supporting infrastructure, guaranteed energy availability, raw materials, immigration, labor, etc.) Other incentives according to regulations Source: Coordinating Ministry for Economic Affairs 37 34#39Indonesia Investment Authority (INA) as An Alternative Source of Economic Development Financing The government has established an Indonesia Investment Authority (INA) as alternative financing and provides legal certainty. Currently, all the modalities are complete to run the Authority, such as regulation, the Supervisory Board and Board of Directors, and initial capital PURPOSE a. Strong Institutions with Best Governance, To Get Global Investor Trust; Republic of Indonesia C. Indonesia Investment Authority b. Integrate pockets of government investment that have been scattered in many places; Anticipating the need for infrastructure financing, especially those financed by short-term debt so that it can be shifted by financing from INA and long-term. CHARACTERISTICS AND ADVANTAGES OF INA Focus on Capital Maximization Follows International Business Practices Flexible Investment Strong Independency and Professional Management A Strong Legal Foundation for Certainty Balance Between Economic and Commercial Benefits Strong Support From The State Capable of Capturing Investors Appetite Target Target is USD 20 billions. Government has committed to put USD 5 billions as initial capital Legal • Master Fund Basis • Govt. Regulation No. 73 of 2020 concerning Initial Capital for Indonesia Investment Authority (INA) Govt. Regulation No. 74 of 2020 concerning Indonesia Investment Authority (INA) • Govt. Regulation No. 49 of 2021 concerning tax treatment of transactions involving INA and / or the entities it owns Thematic Fund Top SWF in ASEAN with its total assets: GIC Private Limited USD 453 millions О Temasek Holdings → USD 417 millions Khazanah Nasional Berhad USD 20 millions Top SWF in Global with its total assets: о Norway GovUSD 1,1 billions China Inv. Co.→ USD 1 billion Abu Dhabi USD 579 billions Source: Coordinating Ministry for Economic Affairs 38#40& 00 Investment Facilitation Services During COVID-19 Pandemic 1 2 3 4 5 Companies Operation Support Optimizing facilitation for companies that accelerate the development and operation of business activities through the issuance of letters of support to companies while still observing the COVID-19 protocol Visa Recommendations for Company Leaders Providing Visa recommendations for foreign companies' leader visit to related to their industry exploration /relocation and company operations. Including to obtain an entry permit visit visa during large scale social restriction (PSBB). Visa recommendations for foreign skilled workers Providing Visa recommendations for foreign skilled workers who will enter the country related to their investment realization / implementation Escorting Existing Investment Realization Conduct visits to companies (for example visiting Hyundai and Bonded Zone) to spur existing investment in addition to fiscal incentive facilitation Optimization of Business Licensing Services BKPM continues to provide business licensing services amid the COVID-19 Pandemic. The average business license issued during the pandemic both online and offline is 4000- 5000 permits per day. Source: Investment Coordinating Board (BKPM) 39#41Investment Realization in 2020 Rp Trillion 1000 800 600 400 200 السلس Achievement* Q1 2019 Q1 2019 QV 2019 JAN DEC 2019 Q1.2020 all 2020 Q 2020 QIV 2020 JAN DEC 2020 Target" Total 195.1 200.5 205.7 208.3 809.6 210.7 191.9 709.0 214.7 8763 817.7 DD FDI 87.2 107.9 95.6 104.9 100.7 105.0 103.0 105.3 386.5 473.1 112.7 98.0 94.3 97.6 102.9 106.1 103.6 111.1 4135 417.8 469.1 101.1% 88.2% 348,1 118.636 DDI: Domestic Direct Investment FDI: Foreign Direct Investment *) The investment realization target for 2020 is based on the chairman of BKPM letter No. 102/A.1/2020 dated April 16th 2020 regarding the Proposed Revision of the Investment Targets for 2020-2024 due to the Impact of Covid-19 and the letter from Ministry of National Development Planning of the Republic of Indonesia to The Indonesia Investment Coordinating Board (BKPM) No. B.265/M.PPN/D1/PP.03.02/04/2020 dated April 24th 2020 regarding the Approval of the Proposed Revision of Investment Target 2020-2024 due to the Impact of Covid-19. **) Towards the 2020 investment realization target ◉ The investment realization figures of the fourth quarter of 2020 constitute the direct investment realization done for the three months period (October December 2020) based on investment realization report (LKPM) from the DDI and FDI companies. ■ ☐ Investment on Oil and Gas, Banking, Non-Bank Financial Institution, Insurance, Leasing, and Home Industry sectors are excluded. The investment value is in Trillion Rupiah (T), and US$ 1= Rp 14,400 based on 2020 National Budget The total investment realization of the fourth quarter of 2020 is Rp 214.7 T, 2.7 % increase from the third quarter of 2020 (Rp 209.0 T) and 3.1 % increase from the fourth quarter of 2019 (Rp 208.3 T) Investment realization in January December 2020 is Rp 826.3 T, 2.1% increase from the previous period in January - December 2019 (Rp 809.6 T) Source: Investment Coordinating Board (BKPM) - Q-4 2020 y-o-y q-o-q DDI 0.7% 0.8% FDI 5.5% 4.6% TOTAL 3.1% 2.7% Jan-Dec 2020 y-o-y DDI 7.0% FDI -2.4% TOTAL 2.1% 40#42Investment Realization in 2020 (excluding the upstream oil and gas sector and financial services) Top 5 Investors (by country) (in USD billion) Singapore 34.1% China 4.8 16.7% Hongkong 3.5 12.1% Japan 2.6 9.1% South Korea 1.8 6.3% Others 6.2 21.7% Source: Investment Coordinating Board (BKPM) 9.8 IDR 200.7T (24.3%) By Geography By Region in IDR Trillion IDR 68.8T West Java 120.4 8.3% IDR 71.8T 8.7% IDR 51.3T (6.2%) DKI Jakarta 95 East Java 78.3 Banten 62 IDR 408.8T (49.5%) IDR 24.8T (3%) Central Java 50.2 Others 420.4 By Sector Others IDR 337.3 T (40.9%) Construction IDR 71.0 T (8.6%) Transportation, Warehouse, and Telecommunication IDR 144.8 T (IDR.5%) Electricity, Gas, and Water Supply IDR 102.0 T (1IDR3%) Basic Metal, Metal Goods, Non- Machinery and Equipment Industry IDR 94.8 T (11.5%) Housing, Industrial Estates, and Office Building IDR 76.4 T (9.2%) 41#43Investment Realization in 2020 (excluding the upstream oil and gas sector and financial services) Outside Java IDR 375.0 T (46.3%) Jan Dec 2019 Total: IDR 809.6 T Direct Investments Java Outside Java IDR 434.6 T (53.7%) IDR 417.5 T Realization y-o-y (50.5%) Java -5.9% Outside Java 11.3% TOTAL 2.1% IDR tn FDI DDI TOTAL Jan Dec 2020 Total: IDR 826.3 T 214.5 103.6 110.9 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 2018 2019 2020 Source: Investment Coordinating Board (BKPM) Java IDR 408.8 T (49.5%) 42 42#44Potential Investment Realization Reaches IDR 708 T IDR 708T Potential Investment Realization +IDR 410 (58%) The potential value facilitated Companies that had been facilitated: IDR 211.9T LOTTE CHEMICAL IDR61.2T Rosneft IDR38.0T VALE PY VALE NDONESIA T IDR39.2T YTL Power YILGACO- (Tanjung Jati Power) Solving stalled investment issues is one strategy to attract investors HYUNDAI IDR21.7T KOBEXINDO we grow together Klaten, Central Java Dumai, Riau Indonesian government does not only facilitates large investment issues, but also medium & small investments Source: Investment Coordinating Board (BKPM) NINDYA tlb IDR9.5T Bengkulu Electric Power (Galempa IDR2.0T Sejahtera ANJ Bersama) Agri Masdar А МАЗЕВИЦА СОКРИЕ PT Sumber Mutiara Indah Perdana (SMIP) IDR1.8T MALUNDO IDR14.0T IDR5.2T IDR1.8T Minahasa Cahaya Lestari IDR1.8T Others IDR1.4T IDR1.1T 43 33#45Enhancing Business License Service Standard Presidential Regulation to Accelerate Ease of Doing Business implemented since 2014 Main Policy Policy Goals Improve efficient, streamlined, & integrated business license service standards 2 A 3 Provide business licensing process assurance in terms of the costs and lead times Accelerate the business licensing process 3 ☑M Source: Coordinating Ministry for Economic Affairs 1st Phase Forming a Task Force to identify & overcome the end- to-end licensing barriers Implementing a licensing checklist for Special Economic Zones (KEK), Free Trade Zones (FTZ), Industrial Zones & Tourist Zones Utilizing data sharing Overcome the barriers to doing business in Indonesia 4 6 5 Increase coordination & synergy between central & regional government Implement integrated licensing process (single submission) 2nd Phase Business license regulatory reforms Implementation of the Single Submission system Note: 1st and 2nd Phase are implemented in parallel 44#46Improving Investment Climate ...Bonded Logistic Center launched in 2016 to Improve Indonesia's Competitiveness Bonded Logistic Center (Pusat Logistik Berikat/PLB) is a facility provided by Ministry of Finance as part of the implementation of the 1st Economic Policy Package, launched on March 2016 PLB facility aims to to improve efficiency and reduce the cost of transportation and logistics in Indonesia; support the growth of the domestic industry, including small and To date, 52 Bonded Logistic Center has been launched to support various industries. textile (chemical Food & beverages industry Small and medium industry Oil and gas, and mining industry Personal care/ home care industry Synthetic Auto- motive industry medium industries; increase Heavy Equipment industry Textile (cotton) industry. investment; and to make Defence Aircraft MRO Indonesia to become a logistics hub in Asia Pacific. industry industry industry substances) Source: Coordinating Ministry for Economic Affairs 445#47Improving Investment Climate Online Single Submission (OSS) Has Been Launched in 2018 OSS is a web-based business licensing system intended to cut the red tape involved in obtaining business permits and integrated between the central government and regional administrations Sectors Environment & Forestry Sector Electricity Sector Public Works & Housing Sector Health Sector Industry Sector Marine & Fishery Sector Medicine & Food Sector Transportation Sector Trade Sector Information & Communication Sector Business licenses can be secured in under an hour Source: Coordinating Ministry for Economic Affairs Other Sector The Advantage of Using OSS 良 Standardized business licenses are available More practical Accessible at anytime and anywhere Ellectronically integrated The whole licensing process is monitored by the Task Force 46#48Improving Investment Climate ...revision of the Negative Investment List in 2018 Introduction of New Foreign Ownership Regulation for Strategic Sectors Cold storage Before After Before Sports Center, Film Processing Lab, Crumb Rubber After Restaurants, Bars Pharmaceutical Raw Materials Manufacturing Before After Before After 33% 100% 100% 100% 100% 49% 51% 85% Key Reforms in Negative Foreign Investment List Revision of "Partnership" category to refer to partnership with Micro, Small and Medium Enterprises (MSMEs) Grandfather Law: If a particular sector is tightened in future, existing foreign investor does not need to comply with tighter stake Strengthen implementation of negative investment law through active roles from ministries, agencies and regional governments 1 For total project value of IDR10bn and above Source: Investment Coordinating Board (BKPM) Toll Road Operator, Telecommunication Testing Company Before After Distribution, Warehousing Before After Private Museum, Catering, apparel Manufacturing, Exhibitions & Conventions Before After 95% 100% 67% 67% 33% 51% Professional Training, Golf Course Management, Air Transport Support Services, Travel Bureau Telecommunication Provider Before After Consultancy for Construction¹ Before with Integrated Services After Before After 49% 67% 67% 67% 55% 65% 47#49Section 3 Economic Factor: Stable Growth Prospects Amid Temporary Moderation BHINNEKA TUNGGAL IKA#50Conducive Environment Underpinning Stable Growth Fundamentals Amid Temporary Moderation Largest Economy in South East Asia Manageable Inflation Rate manufacturing 4th Most Populous country in the World; 64% in productive age Rising Middle Class and Affluent Customers Large and Stable Economy Consistent Budget Reform Reform-Oriented Administration and New Economic Structure High Infrastructure Investments From commodity-based to service sectors via infrastructure development From consumption-led to investment- led growth via a stronger manufacturing sector and more investment initiatives Policies to maintain purchasing power to stimulate domestic economy in the midst of weakening macroeconomic conditions Budget reform as a part of larger economic reform initiative Fuel subsidies significantly reduced and spending redirected to more productive allocation Tax base to be broadened from one reduce dependency on commodities Prudent debt management Three main sources of financing for investment needs: State and regional budget, State Owned Enterprises and PPP Continuing from 2015 policy, infrastructure spending will be higher than fuel subsidy Infrastructure spending focused on basic infrastructure projects Fiscal and non-fiscal incentives to attract infrastructure investment and promote PPP 49 49#51National Economic Growth Improved 7.0 Strong GDP Growth¹ % QoQ YoY 5.124.944.935.054.824.744.775.174.925.185.014.945.015.015.065.195.065.275.175.185.075.055.024.97 4.013.19 3.09 3.06 2.97 5.0 3.27 3.31 3.14 3.0 1.0 0.04 -1.0 (0.16) (0.36) (0.30) (0.41) (0.52) -3.0 (1.73) (1.81) (1.70) (1.69) (2.07) (1.74) (2.41 (532) -5.0 -7.0 Q1 Q2 Q3 Q40 1 Q2Q3/Q4 Q2 93 94 2014 2015 2016 2017 2018 1 Q2 Q3 2019 Favourable GDP Growth Compared to Peers² % 10.00 5.00 0.00 -5.00 -10.00 -15.00 Bulgaria Indonesia Colombia Philippines India 5.05 (4.19) (0.42) (3.49) (2.19) Q2 Q3 Q4 2020 8.80 7.40 6.10 4.00 • National economic growth maintained recovery momentum in the fourth quarter of 2020. Based on data from BPS-Statistics Indonesia, economic growth in Indonesia recorded a shallower -2.19% (yoy) contraction in the fourth quarter of 2020, improving from -3.49% (yoy) in the third quarter of 2020. A fourth-quarter improvement was recorded across nearly all demand-side components and economic sectors. Therefore, national economic growth in Indonesia contracted 2.07% in 2020. Looking forward, domestic economic growth, which improved through to the end of 2020, is projected to gradually gain momentum in 2021. Bank Indonesia has oriented its accommodative policy mix towards supporting the national economic recovery, while strengthening synergy with the Government and other relevant authorities. Domestic economic improvements in the fourth quarter of 2020 were supported by stimulus realisation and a positive external sector contribution. Government consumption expanded 1.94% (yoy) in 2020 due to the realisation of government stimuli, dominated by social assistance disbursements, other goods and services expenditure as well as regional transfers and village fund disbursements. Meanwhile, household consumption growth recorded a shallower -3.61% (yoy) contraction in the fourth quarter of 2020 compared with -4.05% (yoy) in the previous period in response to greater public mobility. Annually, household consumption contracted 2.63%. Investment growth also experienced a slightly shallower -6.15% (yoy) contraction in the reporting period compared with -6.48% (yoy) in the previous period, bringing the decline for the year in 2020 to negative 4.95%. On the other hand, net exports enjoyed a positive position as export performance improved in line with economic recovery momentum in several of Indonesia's major export destinations amidst comparatively subdued import performance. • Most economic sectors recorded incremental gains in the fourth quarter of 2020. Sectors associated with healthcare as well as work-from-home and school-from-home activities continued to improve and maintained positive growth, including Information Communication Prospect well as Health Services In addition, Agriculture and Education also recorded positive growth, while the Manufacturing Ind GDP Trade, accounting for large econoninstitutions sutions, improved to expericnic shallower and contractions. 2021 Budget Bank Indonesia 2012 2013 2014 2015 2016 2017 2018 ** 2019 2020 2021* 1. Source: Central Bureau of Statistics of Indonesia (BPS), Including non-profit household consumption Source: World Economic Outlook Database - October 2020; * indicates estimated figure 2. 5.0 4.3-5.3 IMF (WEO, Jan 2021) 4.8 World Bank (Global Economic Prospects, Jan 2021) 4.4 ADB (ADOS Dec 2020) 4.5 Consensus Forecast (February 2021) 4.5 50#52GDP Growth Breakdown GDP Growth Based on Expenditures (%, YoY)¹ 2015 2016 2017 2018 2019 2020 By expenditure HH. Consumption 5.0 Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 5.0 5.0 5.0 4.9 5.0 Q3 5.1 5.0 5.0 5.0 4.9 5.0 4.9 Non profit HH. consumption Government consumption Gross Fixed Cap. Formation (8.1) (8.0) 6.6 - - 2.9 2.6 7.1 8.3 (0.6) 7.1 5.3 3.4 6.4 - - - Exports Imports 3.9 2.7 6.7 6.7 6.7 6.6 8.1 8.5 6.0 6.2 (3.0) (4.0) (0.1) 2.7 (1.9) 3.5 3.8 2.1 2.7 4.6 4.0 4.9 6.4 5.0 4.7 4.2 4.2 4.8 4.5 4.8 5.3 7.1 7.3 6.2 7.9 (0.6) (0.3) (1.0) (6.4) (2.1) (3.1) (1.5) (5.9) (1.7) 8.4 2.7 16.5 8.4 8.9 5.8 7.4 8.3 (2.6) (7.1) (6.5) (8.6) (6.2) (5.0) (3.4) (4.1) (2.4) 4.8 0.2 15.4 11.9 8.1 13 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0 5.0 5.1 5.2 5.1 5.1 5.3 5.2 5.2 5.2 Q4 Tot Q1 5.0 4.9 5 5.3 6.9 8.1 Q2 Q3 Q4 Tot Q1 5.2 5 5.1 5.1 5.0 8.8 8.7 11 9.1 5.2 6.3 5.8 6.9 4.6 4.8 5.3 8.2 6.7 15 14 6.1 4.6 6.5 -1.5 7.4 12 -6.5 5.0 Q2 Q3 Q4 Tot Q1 Q2 Q3 Q4 Tot 5.2 5.0 5.0 5.0 2.8 -5.5 -4.0 -3.6 -2.6 17.0 15.3 7.4 3.5 10.6 -5.0 -7.8 -2.0 -2.1 -4.3 1.0 0.5 3.3 3.8 -6.9 9.8 1.8 1.9 4.6 4.2 4.1 4.5 1.7 -1.8 0.1 -0.4 -0.9 0.4 12.0 -11.7 -7.2 -7.7 -6.7 -8.3 -7.9 -7.4 -3.6 -18.3 -23.0 -13.5 -14.7 -8.6 -6.5 -6.2 -4.9 5.1 5.1 5.0 5.0 5.0 3.0 -5.3-3.5 -2.2-2.1 GDP 1. Source: Central Bureau of Statistics of Indonesia (BPS), GDP Growth by Sector (%, YoY) ** Including non-profit household consumption 2015 2016 2017 2018 2019 2020 By sectors Tot Q3 Q4 Tot. Agriculture, forestry, and fishery Mining and Quarrying Q1 Q2 Q1 Q2 Q3 3.7 6.5 2.9 1.6 3.8 1.5 3.5 0.6 (3.6) (4.4) (6.0) (3.4) 1.2 Q4 Tot. Q1 Q2 Q3 Q4 3.2 5.5 3.4 7.1 3.3 2.8 2.4 3.9 3.3 Q1 Q2 Q3 Q4 Tot Q1 3.8 4.7 3.6 O Q2 Q3 Q4 Tot Q1 Q2 Q3 3.9 1.8 5.3 3.1 4.2 3.6 0.0 2.2 (1. - " 1.0 0.2 བ 1.4 0.9 2.1 1.8 0.0 0.7 1.1 2.6 2.7 2.2 2.2 2.3 -0.7 2.3 0.9 1.2 0.4 NNN -2.7 -4.3 * NO Tot Q4 2.2 2.6 1.8 -1.2 -2.0 3) Manufacturing Construction Wholesale and Retail Trade, Repair of Car and Motorcycle Transportation and Storage 4.1 4.2 4.6 4.4 6.0 5.4 6.8 7.1 4.3 6.4 4.7 4.6 4.5 3.3 4.3 4.3 3.5 4.9 4.5 4.3 4.6 - F 3.8 1.6 1.4 3.5 2.5 4.3 4.3 3.7 3.9 6.8 5.1 5.0 4.2 5.2 6.0 7.0 7.0 7.2 6.8 7.4 5.7 4.0 4.6 3.5 5.2 4.5 4.5 5 5.2 5.3 4.4 3.9 4.4 5.8 4.2 4.3 ▼ F F 6.3 6.0 7.0 7.5 6.7 7.4 6.5 8.2 7.6 7.4 8.1 8.8 8.9 8.2 8.5 8.5 8.7 5.7 5.5 3157 3.9 3.5 55 4.1 5.6 6.1 5.9 5.7 5.2 4.6 5.4 ㄖ片ㄞˊ 3.7 3.8 2.1 5.6 5.8 5.8 2.9 -6.2 -4.3 -3.1 -2.9 -5.4 -4.5 -5.7 -3.3 4.4 4.2 4.6 1.6 -7.6 -5.0 -3.6 -3.7 5.9 6.7 7.6 6.4 1.3 30.8 -16.7 -13.4 -15.0 Information and communication 9.7 9.3 10.6 9.2 9.7 7.6 9.3 8.9 9.6 8.9 Financial service Other Services* 8.6 2.6 10.3 12.8 8.6 9.3 13.6 9.0 5.1 6.5 4.8 5.5 5.4 6.0 5.6 4.5 4.2 10. 5 8.9 6.0 5.9 6.1 11.1 8.8 8.3 9.6 7.8 5.1 8.1 7.1 7 9.1 9.6 9.2 9.8 9.4 9.8 10.8 10.7 10.9 10.6 3.8 5.5 4.3 P 3.8 4.9 4.2 3.5 4.8 6.0 4.6 5.4 6.2 6.7 6.4 6.2 3.1 3.1 6.2 4.2 7.2 6.8 4.5 6.2 8.5 6.6 10.6 1.1 -0.9 2.4 3.2 7.3 6.4 6.2 6.7 4.6 -6.2 -1.4 -1.7 -1.2 GDP 4.8 4.7 4.8 5.2 4.9 4.9 5.2 5.0 4.9 5.0 5.0 5.0 5.1 5.2 5.1 5.1 5.3 5.2 5.2 5.2 5.1 5.1 5.0 5.0 5.0 3.0 -5.3-3.5 -2.2-2.1 Source: Central Bureau of Statistics of Indonesia (BPS) *Other services consist of 10 sectors (according to Standard National 2008) 51#53Economic Performance Improved In Almost All Regions REGIONAL GDP Q4-2020 (% YOY) ACEH (2.99) North Sumatra (2.94) RIAU (1.47) West Sumatra (2.23) JAMBI (0.99) East Kalimantan Riau Islands (4.46) West Kalimantan (2.22) (2.83) Central Kalimantan Babel Islands (1.04) (2.10) West Sulawesi 4.45 (7.51) GORONTALO (3.56) North Sulawesi (2.23) North Maluku 9.48 Central Sulawesi West Papua (5.21) South Sumatra BENGKULU (2.39) (1.21) LAMPUNG (2.26) DKI (2.14) South Kalimantan (2.94) South-East Sulawesi (2.15) MALUKU (3.42) South Sulawesi (0.62) BANTEN (3.92) Central Java West Java (2.39) (3.34) East Java (2.64) BALI (12.21) DIY (0.68) Source: Central Bureau of Statistics of Indonesia (BPS), calculated Tw IV ≥ Tw II West Nusa Tenggara 03 East Nusa Tenggara (2.27) Tw IV < Tw II PAPUA 6.92 52 2#54Economic Performance in Most Sectors Starting to Improve Most economic sectors recorded incremental gains in the fourth quarter of 2020. Sectors associated with healthcare as well as work- from-home and school-from-home activities continued to improve and maintained positive growth, including Information and Communication as well as Health Services. In addition, Agriculture and Education also recorded positive growth, while the Manufacturing Industry and Trade, accounting for large economic contributions, improved to experience shallower contractions. Indonesia's GDP Share (%) % 100.0 2.63 1.99 2.16 2.49 2.49 3.15 3.57 3.85 4.06 3.24 4.14 4.40 4.61 4.11 3.26 3.51 3.50 4.26 3.64 90.0 17.55 17.64 17.88 18.03 18.20 18.64 18.66 18.47 18.35 18.49 18.52 18.33 19.37 18.68 19.08 18.82 19.10 19.86 19.22 80.0 3.49 3.46 3.72 3.88 3.86 4.03 3.73 3.60 4.19 3.61 4.20 4.15 4.34 3.57 3.50 4.10 4.18 4.24 4.70 4.44 4.32 4.51 4.34 4.57 70.0 3.57 3.53 3.52 3.62 3.63 3.78 3.77 3.95 3.89 3.95 3.96 4.25 4.66 4.56 3.93 4.42 4.04 4.51 4.57 5.02 5.20 5.41 5.38 5.53 5.57 5.54 5.63 5.57 5.17 3.58 4.40 4.47 4.68 13.46 13.61 13.21 13.21 60.0 13.43 13.30 13.19 13.02 13.02 13.19 12.83 12.95 12.98 12.95 13.01 13.20 12.83 12.93 12.85 50.0 9.13 9.09 9.35 9.49 9.86 10.21 10.38 10.38 10.53 10.76 10.37 10.56 10.60 10.75 10.70 10.60 10.71 11.26 10.96 40.0 30.0 22.04 21.76 21.45 21.03 21.08 20.99 19.86 20.52 20.16 19.86 20.07 19.52 19.62 19.70 19.86 19.98 19.88 19.63 19.81 20.0 10.46 11.81 11.61 11.01 9.83 6.28 7.65 7.18 7.58 8.08 7.77 7.39 6.95 6.16 7.26 6.82 6.44 6.98 6.48 10.0 13.93 13.51 13.37 13.36 13.34 13.49 13.48 13.16 12.81 12.65 13.57 13.44 15.45 11.19 12.71 12.84 14.68 11.97 13.70 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019 2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 2020 Taxes ■Transportation and Warehousing I Mining and Quarrying Source: Central Bureau of Statistics of Indonesia (BPS), calculated Other Services Wholesale and Retail Trade Agriculture, Forestry, and Fishery Financial and Insurance Services Construction Information and Communication Manufacturing 53 53#55Stronger Fundamentals Facing the Headwinds Inflation Rate (%) Inflation controlled within the target range 1998 2008 12.1 Feb 2021 1.55 (yoy) IDR Movement (%) Foreign Reserves (USD bn) Significantly higher than 1998 & 2008, ample to cover 10 months of import and external debt repayment IDR appreciated year-to-date 1998 -197 82.4 2008 -35 17 Feb 2021 -250-200 -150 -100 -50 0 1998 Non-Performing Loan/NPL (%) NPL level (gross) is below the maximum threshold of 5% 30 2008 3.8 Dec 2020 3.06 0 5 10 15 20 20 External Debt (Public & Private) to FX Reserve Ratio Significantly lower than 1998 crisis 25 30 30 35 40 Government Debt/GDP Consistently well-maintained 1998 17.4 2008 0.21 (ytd) Feb 2021 More Liquid Market (%) Overnight interbank money market rate is relatively lower 62 10.5 3.04 2020 1998 2008 50.2 External Debt/GDP Higher than 2008, but significantly lower than 1998 138.0 8.6x 3.1x 3.07x 100.0% 27.4% 40,36% 116.8% 33.2% 39.4% 2008 Dec 2020 2008 Jan 2021 2008 Q4-2020 1998 1998 1998 54 .....#56Outlook of Domestic Economy Remains Robust ...domestic economic growth is predicted to rebound in 2021 2021 Economic Outlook • Bank Indonesia projects economic growth in 2021 at the range 4.3-5.3%. Bank Indonesia projects Inflation in 2021 to remain under control and within the 3.0%±1% target corridor. • Bank Indonesia projects the current account deficit at 1.0-2.0% of GDP in 2021, thereby supporting external sector resilience in Indonesia. ● Bank Indonesia projects credit growth in 2021 will be around 5.0-7.0% LOAN π Rp Economic Growth Inflation CAD (% of GDP) Credit Growth 2018 Realisation 5.17% 3.13% 2.98% 11.75% 2019 5.02% 2.72% 2.71% 6.08% Realisation 2020 Realisation -2.07% 1.68% 0.4% -2.4% below 2021 4.3 - 5.3% 1.0 - 2.0 % 5.0 - 7.0% 3.0±1% Source Bank Indonesia 55#57Section 4 External Factor: Improved External Resilience BHINNEKA TUNGGAL IKA#58External Sector Remains Resilient Supported by Adequate Reserves and Sound Balance of Payments Current Account Continue Recorded Surplus in Q4-2020 2018: 2019: 2013: 2014: 2015: 2016: 2017: 2020: CA Deficit CA Deficit, CA Deficit CA Deficit CA Deficit. CA Deficit CA Deficit CA Deficit (US$29.1bn) (US$26.7bn) (US$17.5bn) (US$16.9bn) (US$16.2bn) (US$30.6bn) (US$30.4bn) (US$4.7bn) US$bn 160 US$bn 135.90 13 120 8 Current Account (%GDP) (rhs) Primary Income Secondary Income Services Balance Of Payment Remains Solid US$bn 20 15 10 5050 Current Account Overall Balance Capital and Financial Account Reserve Asset (rhs) -5 -10 -15 Q1Q2Q3Q 2013 3 0.80 80 (0.91) -2 (0.16) 40 -7 2014 2015 2016 2017 2018 2019* 2020** Source: Bank Indonesia Trade Balance Surplus Increases US$bn_ 5.00 4.00 3.00 2.00 1.00 0.00 -1.00 -2.00 -3.00 2013: Deficit 2014: Deficit (US$4.10bn) (US$2.37bn) 2013 2014 2015: Surplus US$7.59bn 2016: 2017: Surplus Surplus US$8.83bn US$11.83bn OG Non-OG Total 2015 Preliminary Figure ** Very Preliminary Figure Source: BPS 0 -12 1.0 0.29 0.0 9.95 -1.0 1.43 -2.0 (7.48)-3.0 -4.0 (3.10) -5.0 ww Q102030401020304 Q10 20 30 40 10 20 30 40 10 20 30 40 10 20 30 40 10 20 30 40 1Q 20304 2012 2013 2014 Source: Bank Indonesia 2015 2016 2017 2018 2019* 2020** 2018: 2019: 2020: Deficit Deficit Surplus (US$8.65bn) (US$3.24bn) (US$21.81bn) Official Reserve Assets Increased to Reinforce External Sector Resilience FX Reserves as of January 2021: US$138.0 bn (Equiv. to 10 months of imports + servicing of government debt) Month of Import & Debt Service (RHS) Month 15 Ma US$bn FX Reserves (LHS) 2.63 130 120 1.96 110 100 90 -0.67 80 70 60 50 1 4 7 1 4 7 10 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 2014 2015 2016 2017 2018 2019 2016 2017 2018 2019 2020 2021 Source: Bank Indonesia ווווווווד 543210 14 13 12 11 DEEZE 98765432 2020 2021 UT#599-Dec -Dec -Feb Exchange Rate In Line with Fundamentals Movement of Rupiah a.o. 16 Feb'21 Quarterly Average Monthly Average IDR/USD 15,711 14893 15,179 14,673 14,5 14,80 15,500 14,381 14,708 14254 14,22 14,232 14120 14,113 15,000 14339 14012 13,714 14,855 14,500 14,201 14605 14134 14061 14219 14,105 14,12 14,141 14,031 14,006 14,000 14,023 13925 13,500 13,992 13,000 17,000 16,500 16,000 Supported by Bank Indonesia's stabilisation measures and maintained foreign capital inflows to domestic financial markets, the rupiah continues to appreciate. As of 17th February 2021, the rupiah strengthened 0.22% on average, or by 0.07% (ptp) on the January 2021 level. A surge of foreign capital inflows to domestic financial markets in line with lower global financial market uncertainty and the positive perception of investors towards the promising domestic economic outlook have fed through to a stronger rupiah. Looking ahead, Bank Indonesia still expects the rupiah to regain lost value as the currency is fundamentally undervalued, supported by a narrow current account deficit, low and stable inflation, attractive domestic financial assets for investment, a lower risk premium in Indonesia as well as abundant global liquidity. In addition, Bank Indonesia will continue to strengthen rupiah exchange rate stabilisation policy in line with the currency's fundamental value and market mechanisms through effective monetary operations and by providing market liquidity. Rupiah Exchange Rate Volatilty Rupiah Exchange Rate Fared Relatively Well Compared to Peers JPY -13823 28.5 30 % KRW 1.01 -1.26 25.38 -0.54 EUR -0.82 BRL 1.02 -0.47 Feb 2021 vs Jan 2021 ■point-to-point Average 22.5 21.4 SGD 0.05 -0.29 MYR 0.09 18.02 -0.24 15.227.1 PHP -0.64 -0.03 THB -0.25 0.14 CNY -0.45 IDR 10.8717 -0.22- ao 17-Feb-21 7.1 INR 0.32 ZAR 3.06 2.33 TRY -2.00 -1.00 Source: Reuters, Bloomberg (calculated) 4.47 4.55 % 0.00 1.00 2.00 3.00 4.00 5.00 BRL ZAR TRY IDR KRW THB MYR INR SGD PHP 58 ■Dec-20 25 ■Jan-21 ■Feb-21 25 20 a.o 17 Feb 2021 20 12.8 15 12.1 6.5 3.7 8.85 7.61 8.1 10 6.4 6.4 5.801 5.38 5.425.7 2.65 4.62 2.9 3.268 3.5 5 2.0 1.5#60Ample Lines of Defense Against External Shocks Ample Reserves FX Reserve Ample level of FX reserves to buffer against external shock FX Reserves as of of January 2021: US$138.0 bn Swap Arrangement Japan Bilateral Regional Global South Korea Australia Singapore China Malaysia ASEAN Swap Arrangement (ASA) Chiang Mai Initiative Multilateralization (CMIM) Agreement IMF Global Financial Safety Net - GSFN Source: Bank Indonesia Renewed a 3 year USD22.76 billion swap line with Japan on October 14th, 2018 The facility is available in USD and JPY • Renewed a 3 year KRW / IDR swap arrangement with the size of up to KRW 10.7 trillion IDR 115 trillion in March 2020 • Renewed a 3 year A$/IDR swap arrangement of up to A$10 billion or IDR 100 trillion in August 2018 • Renewed a one year SGD/IDR swap arrangement with a size up to USD10 billion (equivalent) in November 2020 Renewed a 3 year swap arrangement and increased the size of swap line up to CNY 200 bn / USD 30 billion in November 2018 Established a 3 year RM/IDR swap arrangement with a size up to USD2 billion (equivalent) in September 2019 Entitled to a maximum swap amount of USD600 million under ASA The first MoU on the ASA was signed in 1977 among 5 ASEAN Central Banks with total facility USD100 million Doubled to USD2 billion in 2005 Entitled to a maximum swap amount of US$ 22.76 bn under the ASEAN+3 (Japan, China, and Korea) FX reserves pool created under the agreement • Came into effect in 2010 with a pool of US$120 bn and • Doubled to US$240 bn effective July 2014 Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem • Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL) 59#61Healthy External Debt Profile External Debt Structure Private External Debt ■Public External Debt 100% 80% 60% 40% 20% 0% The Structure of External Debt is Dominated by Long-Term Debt 100% Short Term External Debt 50.1 80% 60% 40% 84.4 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1-2019* Q2-2019* Q3-2019* Q4-2019* Jan 2020* Feb 2020* Mar 2020* Apr 2020* May 2020* Jun 2020* Jul 2020* Aug 2020* Sep 2020* Oct 2020* Nov 2020* Dec 2020** 49.9 20% 0% 15.6 2009 2010 2011 2012 2013 2014 2015 2016 2017 External Debt Remains Manageable Million USD 450,000 400,000 350,000 300,000 11.5 250,000 200,000 150,000 100,000 50,000 17.1 11.312.0 External Debt 10.2 10.1 External Debt (rhs) www 5.4 5.9 O 3.0 6.5 0.6 % % 20.0 18.0 240 16.0 220 31.8 32.9 External Debt to GDP Ratio & Debt to Export Ratio 34.3 34.7 36.0 36.7 36.5 36.1 36.1. 2018 Q1-2019* Q2-2019* ☎ Q3-2019* Q4-2019* Jan 2020* Feb 2020* Mar 2020* Apr 2020* May 2020* Jun 2020* Jul 2020* Aug 2020* Sep 2020* Oct 2020* Nov 2020* Dec 2020** 36.1 14.0 29.1 200 26.5 27.4 9.9 10.2 12.0 25.0 8.0 180 7.5 10.0 8.0 160 5.0 3.8 3.4 6.0 140 4.0 120 0 2.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1-2019* Q2-2019* Q3-2019* Q4-2019* Q1-2020* Q2-2020* 00 Q3-2020* Q4-2020** 0.0 80 100 121.14.9 2009 2010 2011 101.0 Source: Bank Indonesia, External Debt Statistics of Indonesia *Provisional Figures **Very Provisional Figures 2012 7 2013 2014 2015 2016 176.1 168.4 139.5 123.1 113.8 2017 168.6172.2168.472.0177.0183.3177.8 External Debt/ Export Ratio (rhs) External Debt/ GDP Ratio 2018 Q1-2019* Q2-2019* Q3-2019* Q4-2019* Q1-2020* Q2-2020* Q3-2020* Q4-2020** 37.3 38.1 39.4 34.5 40 35 197.7 207.3 15.2 30 Oxisite 10 60 60#62Manageable External Debt Profile Short term non-bank corporate debt (non affiliation) represents only 9.8% of total private external debt Public US$209.2bn Long Term 1 US$157.2bn or or 50.1% of Total Ext. External Debt Debt 75.5% of Private Ext. Debt Position Affiliation Private Bank US$19.0bn or 9.1% of Private Ext. Debt US$11.7bn or 5.6% of Private Ext. Debt 49.9% 50.1% US$417.5bn 75.5% US$208.3bn or 49.9% of total Ext. Debt 37.3% 36.6% US$51.1bn or 24.5% of Private Ext. Debt US$32.1bn or 62.7% of Private Ext. Debt 63.4% 62.7% 24.5% Short-Term¹ Private External Debt Position as of December 2020 1 Based on remaining maturity Source: External Debt Statistics of Indonesia, February 2021 Private Non-Bank US$20.3bn or 9.8% of Private Ext. Debt Non Affiliation 61#63Strengthened Private External Debt Risk Management Debt Burden Indicator (External Debt/GDP) Remains Comparable to Peers Rating Encouraging Corporates Compliance on Hedging Ratio & Liquidity Ratio External Debt/GDP (%) Hedging Ratio* Uruguay 86.1 93.9 76.2 24.2 Philippines 24.7 22.2 36.3 Indonesia 35.3 361 48.7 Colombia 53 ■2021F 42.7 2020F 53.6 Bulgaria 56.6 2019 56.3 0 20 40 60 80 100 Source: Moody's Credit View Fundamental Data, July 2020 Regulation on Prudential Principle in Managing External Debt Regulation Key Points Phase 1 Jan 1,2015 Phase 2 Jan 1,2016 Dec 31,2015 Dec 31,2016 Phase 3 Jan 1, 2017 & beyond Object of Regulation Hedging Ratio < 3 months >36 months Liquidity Ratio (< 3 months) Credit Rating Hedging transaction to meet hedge ratio Sanction Source: Bank Indonesia Governs all Foreign Currency Debt 20%* 25%** 20%* 25%** 50% 70% Not applicable Minimum rating of BB- not necessarily be done with a bank in Indonesia Must be done with a bank in Indonesia As of Q IV-2015 Applied 230 corporates (9.2%) 157 corporates (6.3%) ≤ 3 months 2,257 corporates (90.8%) > 3 - 6 months 2,330 corporates (93.7%) Liquidity Ratio* 294 corporates (11.8%) 2,193 corporates (88.2%) ■Comply ■Not Comply *Data as of Q2 2020, with total population 2..487 corporates Source: Bank Indonesia 62 69#64Solid Policy Coordination In Managing Financial Markets Volatility CMP BSF 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 Swap facility arrangements based on international cooperation Enhancing coordination between government institutions and continuous dialogue with market participants Implementing Crisis Management Protocol (CMP) 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 State's Budget Bond Stabilization Framework State Owned Enterprises (BUMN)'s Budget Social Security Organizing Agency (BPJS)'s Budget State's Budget First Line of Defense Buyback fund at DG of Budget Financing and Risk Management Investment fund at Public Service Agency (BLU) (min. level Aware) Related SOES (min. level Aware) BPJS (min. level Aware) Second Line of Defense State General Treasury Account (Rekening KUN) (min. level Alert) Accumulated cash surplus (SAL) (min. Level Crisis) Implementing Bond Stabilization Framework (BSF) Source: Ministry of Finance 63 83#65BHINNEKA TUNGGAL IKA Section 5 Fiscal Performance and Flexibility: Strong Commitment in Maintaining Fiscal Credibility#662021 ECONOMIC RECOVERY WILL BE STRENGTHEN Achievement G 2020 Indonesia is taking a big but measured steps to handle the pandemic Overcoming the spread of Covid-19, protecting the purchasing power of poor and vulnerable people, maintaining the sustainability of the business world, including MSMES Supported by synergy between institutions and all elements of the Nation Government, legislative institutions, law enforcement officers, KSSK, private sector, and society Indonesia's economic and fiscal pressures are better than many other countries Indonesia's economic contraction and widening fiscal deficit and debt were relatively moderate compared to many other countries STRENGTHENING PANDEMIC HANDLING & ECONOMIC RECOVERY 2021 Priority policies will Mass vaccination continue Strengthening 3M & 3T • Optimizing PEN program Indonesia is optimistic, but remains vigilant that the pandemic can be controlled and socio- economic activities will continue to recover "We all have to be optimistic that the beginning of 2021 will be a turning point for the pandemic problem." President RI's remarks at the annual meeting of the financial services industry, 15 Jan 65 95#67STATE BUDGET IS CRUCIAL TO CONTAIN THE IMPACT OF COVID-19 State Budget plays critical role as countercyclical instrument in avoiding the deeper economic contraction Indonesia Economic Growth (%, yoy) State Budget Continue To Strive in 2021 2017 2018 2019 5.1 5.2 State Budget 2021 5.0 5.0 2020 Realization (interim) 2021 Allocation (as of Feb 22 2021) Growth (%) Q1 2020 State Budget Rp2,589.9 T Rp2,750.0 T 6.2 2.97 Covid-19 National Economic Recovery Program (PEN) Rp579.8 T Rp699.43 T 20.6 Pandemic Health Rp63.5 T Rp176.3 T 177.6 Q4 2020 -2.19 Social Protection Rp 220.4 T Rp157.4 T -28.6 MSMEs Support & Rp 173.2 T Rp186.8 T 7.9 Corporation Financing Q2 2020 -5.32 Q3 2020 -3.49 Business Incentives Priority Program Rp 56.1 T Rp 66.6 T Rp53.9 T Rp125.1 T -3.9 87.8 Deficit (% to GDP) 6.09% 5.70% State Budget & PEN Through the widening of the 2020 state budget deficit to 6.1% of GDP, the realization of state expenditure of IDR 2,589.9 trillion, including the realization of PEN, IDR 579.8 trillion government role prevent a deeper economic contraction due to the 2020 pandemic. In 2021, state budget and fiscal policy will continue its role as a srive to support national economic recovery 66#68STATE BUDGET SUPPORTS THE 2020 ECONOMY THROUGH GOVERNMENT CONSUMPTION, HOUSEHOLD CONSUMPTION, AND PUBLIC INVESTMENT THE ROLE OF GOVERNMENT EXPENDITURE IN PROMOTING ECONOMIC RECOVERY Initial Realization 2020 State Budget Expenditure National Economic Recovery (PEN) IDR2,589.9 T (94.55%) IDR579.78 T (83.4%) Health Social Assistance Support for MSMES IDR63.5 T IDR220.4 T IDR112.4 T Business Incentives IDR56.1 T Sectoral and Local Government IDR66.6 T Support Corporate Financing IDR60.7 T Deficit 6.09% of GDP Expansion of social protection spending in cash includes PKH, incentives for pre-employment card, cash social assistance, and groceries Government consumption expenditure includes MSME support, personnel expenditure, operational goods expenditure, and government assistance Government capital expenditures include building health facilities, procurement of PSN land, procurement of defense and security equipment, construction of irrigation Household Consumption Continues to Strengthen Government Consumption Grows Positively Public Investment remains promoted 67#69THE 2020 SOCIAL PROTECTION PROGRAM IS ESCALATED TO MITIGATE THE NEGATIVE IMPACT OF COVID-19 PANDEMIC Ministry of Finance estimation shows that Social Protection is able to maintain the consumption of the poor and vulnerable groups Simulation of Changes in Household Expenditure Due to Covid-19 and Social Protection 15% 10.9% 10% 7.8% 6.8% 5.9% 4.0% 5.1% 5% 2.3% 1.9% 1.5% 0.1% 1.2% -1.4% -1.9% -2.5% 0.7% 3.0% 0% -5.5% -6.2% -6.5% -6.5% -5% -3.6% -10% -6.8% -7.7% -8.2% -7.8% -7.6% -7.8% -8.1% -8.1% -7.6% -15% 10% Poores 2 3 4 5 6 7 8 9 10% Richest 10% ■Changes in spending due to Social Assistance Changes in spending due to Covid-19 ⚫Net Changes in Household spending The poor and vulnerable people (the poorest 50%) have the most benefits. The Social Protection (Perlinsos) program reaches up to the affected middle class population (for example, wage assistance, pre- employment cards, and internet quota subsidies) ■ Without the PEN program, poverty is expected to escalate even further by 2020 ■ The middle and rich classes (group of 10% to 6th and above) tend to hold back consumption, due to limited mobility. Third Party Funds (DPK) in banking grew to reach 10.9% Source: BKF calculations, for the realization of various 2020 Perlinsos programs Note: a) simulations are carried out on the growth of nominal household consumption in 2020 using Susenas 2019. b) distribution of the Perlinsos Program is carried out based on beneficiaries in Susenas Realization of PEN & Social Protection PROGRAM PKH 10 mio Beneficiaries Jabodetabek Food Aid 2,2 mio Beneficiaries Non Jabodetabek Cash Social Assistance 9,2 mio Beneficiaries Sembako Card 19,4 mio Benficiaries Wage Assistance 12.4 mio employees Village Fund Cash Direct Assistance 8 mio penerima Non PKH Basic Food Cash Assistance 9 mio Beneficiaries Wage Subsidy Assistance for non-permanent teachers 2,6 mio teachers Pre Employment Card 5,6 mio beneficiaries PKH Participants Rice Aid 10 mio Beneficiaries Internet Quota Subsidy 51 Juta Beneficiaries Electricity Discount 32,1 mio households 68#702020 APBN SUPPORTS MSMES SURVIVALS THROUGH VARIOUS ASSISTANCE PROGRAMS The government spends IDR112.44T to support the sustainability of MSMEs through interest subsidies, credit distribution through fund placement, Micro Business President Assistance (BPUM), Final Income Tax exemption and investment financing through LPDB. 37 million MSMEs received at least one government aid. Debtors who receive interest subsidies and debt restructuring benefit from loosening cash flows and reducing NPL risk. Surveys conducted by LPEM-LD FEBUI, BRI Institute, LIPI and ITB show that MSMEs can survive thanks to government assistance. Most of the beneficiaries used PEN funds for working capital (buying raw materials). BANK Fund Placement IDR66.75 T Total Credit Rp315.51 T For 4.7 million debtors Interest subsidy IDR12.83 T For 19.1 million Debtors Polo Banpres for Micro Business Actors (BPUM) IDR28.8 T Grant IDR 2.4 million / business for 12 million businesses TAX Final Income Tax for UMKM IDRO.67 T For 248,275 Tax Payers GUARANTEE Credit Guarantee IDR2.09 T Accumulated working capital credit: IDR19.32 T Total working capital credit debtors: 923.67 Thousand . Lembaga Pengelola Dana Bergulir-KUMKM Solusi Pembiayaan hag UNKA den Kopers Investment Financing LPDB IDR 1.29 T For 63 cooperative partners and 101,011 MSMEs 69#71TAX INCENTIVE HAS SUPPORTED THE BUSSINESS RESILIENCE Tax incentives has been utilized and has supported 464,316 tax payers The tax payers most affected by pandemic has dominated the incentives utilization Incentive to improve people purchasing power Govt' borne income tax 131,889 Employers 童 Construction Trade Manufacturing 47% 19% *apart from MSME incentives (58% of trade sector) 7% Incentives to support business liquidity and continuity Income Tax Exemption on Import 14,941 : Reduction on Tax Installment 66,682 Accelerated Tax Refund 2,529 The Majority of eligible sectors have utilized the incentives I Incentive to support the MSMEs Final Income Tax 248,275 MSMES for MSMEs I I Government- Borne Income 90% Reduction of Tax Installment 86% Tax I Income Tax I ■ Accelerated Tax Exemption on 72% 43% Refund Import 70 70#72ECONOMIC RECOVERY POLICY FRAMEWORK 2021 • HEALTH INTERVENTION • Free Vaccination → for 185.55 million people to achieve herd immunity Encouraging 3M 3T • Other intervention → Health facilities, Health Protective Equipment Social Protection Programme For bottom 40 and the vulnerable group: PKH, Sembako card, BST, BLT DD, Pre employment, electricity discount, internet 2 subsidy SURVIVAL AND RECOVERY KIT Maintaining Business Continuity • Support for SMEs and cooperation Priority programs to support job creation GAME CHANGER 2021 NATIONAL ECONOMIC RECOVERY 3 STRUCTURAL REFORM Through the Job Creation Law to address various challenges of national development (providing employment opportunities, empowering MSMEs, regulatory reform, SWF development, Ease of Doing Business, etc.) 71#73STRATEGIC POLICY DIRECTION TO MAINTAIN RECOVERY MOMENTUM Acceleration on vaccination and pandemic handling, and strengthening economic boost program Vaccination & strengthening 3T and 3M to handle the pandemic and as fundamental base for solid economic recovery SCHEDULE ON VACCINE DELIVERY 1st WAVE: JAN-APR 2021 HEALTH WORKERS Vaccination in 34 provinces 1.3 mil PUBLIC OFFICERS 17.4 mil ELDERLY Will be delivered after receiving safety notice for elderly age 21.5 mil 2nd WAVE: APR 2021-MAR 2022 REST OF POPULATION Vaccination progress in many countries (22 Feb 2021, in million doses) World 63.09 (2) China 40.5 THE VULNERABLE 26.53 (5) India 11.09 Population in areas with highest risk of Cluster approach according to 6.63 (8) Turky 6.59 vaccine availability 5.55 I (18)... 1.96 0.26 63.9 mil 77.4 mil virus transmission 205 PEN Program & Bussines Stimulus Packages to support the economic recovery and anticipate pandemic pressure 1st Semester 2021 Maintain the recovery trend to positive zone Continuing the existing incentive program for business, including incentive in MoF Regulation 9/2021 which apply until June, 30 2021 Integrated Policy Package KSSK to increase business financing in order to accelerate economic recovery (49)... 0.1 Source: Bloomberg Vaccine Tracker, selected countries 2nd Semester 2 2021 Business in stronger recovery phase and becoming growth engine for sustainable economic Targeted support for business particularly for in potential sector which become economic recovery driver Improving the Integrated Policy Package Effectiveness to support business expansion 72#74GAIN RECOVERY MOMENTUM WITH EXPANSIVE YET CONSOLIDATIVE FISCAL POLICY IN 2021 Also continue to address the Covid-19 pandemic issues, while pursuing a sustainable development goals Macroeconomic Assumption Indonesia's economic growth is projected to return to its medium-term growth trajectory, while anticipate the uncertainty in global economic recovery Development Indicator Target The overall fiscal policies are expected to support the achievement of development targets in 2021 Budget Budget Economic Growth (%) 5.0 Unemployment Rate میرا Inflation (%, yoy) (%) 7.7-9.1 3.0 Poverty Rate (%) Exchange Rate (Rp/US$) 9.2 9.7 14,600 lili. 10 years Government 4 Gini Ratio (index) 0.377 0.379 Securities Rate (%) 7.29 00 ICP (US$/barrel) 45 Oil Lifting (rbph) 705 Gas Lifting (rbsmph) 1,007 Human Development Index Farmer Terms of Trade Fisherman Terms of 72.78 72.95 Trade 102-104 102-104 73#752021 BUDGET IS A CRITICAL TOOL TO DRIVE THE ECONONOMY AMIDST UNCERTAINTY Comprehensively designed to support the acceleration of economic recovery and address Covid-19 pandemic 2020 2021 Account (IDR T) Perpres 72/2020 Realization (Unaudited) State Budget Growth* (%) Revenue 1,699.9 1,633.6 1,743.6 6.7 Tax Revenue 1,198.8 1,070.0 1,444.5 35.0 Customs & Excise 213.5 212.8 215 1.0 Non Tax Revenue 409.0 338.5 298.2 -11.9 • Grant 1.3 12.3 0.9 -92.7 STATE REVENUE POLICY • • Supporting national economic recovery by providing tax incentives selectively and prudently calculated Cutting the red tape to accelerate national economic recovery Improving public services to optimize non-tax revenue EXPENDITURE FOCUS Handling COVID-19 and supporting health programs . Expenditure 2,739.2 2,589.9 2,750.0 6.2 Continuing social safety net to lay a solid foundation of inclusive economic recovery • Central Government Expenditure 1,975.2 1,827.4 1,954.5 7.0 • Regional Transfer & Village Funds 763.9 762.5 795.5 4.3 Primary Balance (700.4) (642.2) (633.1) -1.4 Surplus (Deficit) (1,039.2) (956.3) (1,006.4) 5.2 % to GDP (6.3) (6,09) (5.70) Financing 1,039.2 1,190.9 1,006.4 -15.5 Based on 2020 realization . Expanding access to capital for MSMEs and cooperatives through interest subsidy Supporting programs activities for impacted sectors (e.g. Tourism) FINANCING STRATEGY Supporting the restructuring of SOES, PSA, Sovereign Wealth Fund (SWF) Increasing access to financing for MSMEs and housing for low-income household Continuing to support higher education,, research and cultural activities 74#76THE PEN PROGRAM AS THE KEY INSTRUMENTS FOR COVID-19 HANDLING Evidence of the government's commitment to accelerate the economic recovery Projected Allocation for PEN 2021 IDR 699.43 T* (2020 PEN Realization at IDR 579.78 T)* HEALTH Rp176.30 T 2020 IDR63.51 T SOCIAL PROTECTION Rp157.41 T 2020 IDR220.39 T PRIORITY PROGRAMS Rp125.06 T Sectoral and Regional Government 2020 : IDR66.59 T MSMES SUPPORT & CORPORATION FINANCING Rp186.81 T 2020 IDR173.17 T BUSINESS INCENTIVES Rp53.86 T 2020 IDR56.12 T* 1. 2. The COVID-19 vaccine Medical Facilities and Infrastructure 3. Health Care Claim Costs 4. Medical Personnel Incentives and death compensation 5. Reserve BPJS Contribution Assistance for PBPU / BP 6. Health tax incentives (including VAT and import duty incentives for vaccine purchases) 1. PKH 10 million beneficiaries (KPM) 2. Basic Food/SEMBAKO Card 3. Pre-Employment Card 4. Cash Transfer - Village Fund 5. Cash Social Assistance 10 million KPM 6. Internet Subsidy 7. Electricity Discount 1. Tourism Supports 2. Food Estate Security/Food 3. ICT Development 4. Loan to Regions 5. Labor Intensive Program 6. Industrial Area 1. KUR and non- KUR interest subsidy 2. Loss Limit Guarantee for MSMEs & Corporation 3. guarantee services (IJP) of MSMEs and cooperatives 7. Other Priority Programs 4. Electrical Assistance 5. Other PEN Programs 6. Placement of Funds 7. PMN to SOES carrying out assignments (HK, ITDC, Pelindo III, KIW) *) The 2021 figure includes additional proposals. The 2020 figure is a temporary realization/unaudited. 1. Government-Borne Income Tax 2. Income Tax Exemption on 3. 4. Import VAT Refund Government-Borne Income Tax for MSMEs 5. Reduction of Tax Installment 6. Corporate income tax tariff reduction 7. VAT not- collected/exempted (Bonded Zone/KITE) 8. Import duty incentives 75#77SEVEN AREAS TO BE STRENGTHENED THROUGH REFORMS In order to thrive together and transform the economy 1 EDUCATION Going digital; Strengthening teacher quality; Simplifying curriculum; ■ Global standard for measurement; ■Link and match; Strenthening public and private roles in education. " 2 HEALTH Strengthening health sector' facilities and human resources; Improving national health security program; ■ Strenthening health security ☐ preparedness; Integrated health system. 3 SOCIAL PROTECTION Improving program effectivity (data accuracy, synergy between programs) ■ Social security system covering all life cycle; Adaptive Social safety net. 4 INFRASTRUCTURE Improving basic infrastructure for human capital development; ■ Improving the quality of infrastructure to support economic transformation and strengthening cometitiveness; 5 BUREAUCRATIC REFORM System improvement: ✓ Going digital for public services; Simplifying process; Improving human capacity: Consistent reward & Punishment; Pension reform 6 BUDGETING REFORM Budget efficiency for basic function of the government; ■ Focus on priority programs (Zero based budgeting); Synergy between central and local governments ■ Result-based budgeting DATA 7 STRENGTHENING Improving accuracy, reliability and data integration 76#78THE STATE BUDGET BECOME THE PRIME MOVER FOR THE ECONOMY The realization as of January 2021 is still conserved, spending acceleration to support the continuation of PEN and the first batch of the vaccination programme 2020 2021 Account (IDR T) Realizatio Realizatio n as of 31 Jan 2020 % of Perpres 72/2020 Growth (%) Budget n as of 31 Jan 2021 % of Budget Growth (%) Revenue 105.1 6.2 (3.3) 1,743.6 100.1 5.7 (4.8) Tax Revenue 80.8 6.7 (6.1) 1,229.6 68.5 5.6 (15.3) Customs & Excise 4.5 2.2 16.0 215.0 12.5 5.8 175.3 Non Tax Revenue 19.7 6.7 5.8 298.2 19.1 6.4 (2.9) Grant 0.1 7.3 25.1 0.9 0.0 0.5 (94.8) Expenditure 139.9 5.1 (9.1) 2,750.0 145.8 5.3 4.2 Central Government Expenditure 71.5 3.6 (6.1) 1,954.5 94.7 4.8 32.4 Regional Transfer & Village 68.4 9.0 (12.0) 795.5 51.1 6.4 (25.3) Funds Primary Balance (12.2) 1.7 (44.8) (633.1) (21.0) 3.3 72.3 Surplus (Deficit) (34.8) 3.3 (23.0) (1,006.4) (45.7) 4.5 31.5 % to GDP (0.23) (5.70) (0.26) Financing 68.9 6.6 (44.3) 1,006.4 165.9 16.5 140.7 SILPA (SIKPA) 34.1 120.2 State revenue realization was mainly supported by customs and excise performance; (excise tax policy and increased exports align with rising commodity prices). Meanwhile, taxation and non- tax revenue are still under pressure due to economic activity and oil prices that had not fully recovered. The expenditure grew positively, mainly driven by capital expenditures to support infrastructure development and social assistance to protect the community. Budget deficit reached IDR45.7 T (0.26% to GDP). Budget financing is still on track, supported by positive sentiment in the financial market, capital flows, and foreign investment. 77#792021 Budget Financing 2020 2021 (in IDR tn) Pres. Decree APBN Growth 72/2020 A. State Revenue I. Domestic Revenue 1,699.9 1,743.6 2.6% 1,698.6 1,742.7 2.6% 1. Tax Revenue 1,404.5 1,444.5 2.8% 2. Non-Tax Revenue 294.1 298.2 1.4% II. Grant 1.3 0.9 -30.8% B. State Expenditure 2,739.2 2,750.0 0.4% I. Central Government Expenditure 1,975.2 1,954.5 -1.0% $ 1. Line Ministries 836.4 1,032.0 23.4% 2. Non Line Ministries 1,138.9 922.6 -19.0% II. Regional Transfer and Village Fund 763.9 795.5 4.1% 1. Regional Transfer 692.7 723.5 4.4% 2. Village Fund 71.2 72.0 1.1% C. Primary Balance D. Surplus/(Deficit) (700.4) (633.1) -9.6% (1,039.2) (1,006.4) -3.2% % to GDP (6.3) (5.7) E. Financing 1,039.2 1,006.4 -3.2% Source: Ministry of Finance Priorities in 2021 Health (IDR169.7 tn) Accelerating health recovery, National Health Insurance (JKN) reforms, and vaccine procurement Education (IDR550.0 tn) Strengthening the quality of education and teacher competences Social Protection (IDR421.7 tn) Supporting social protection reform and comprehensive social protection Infrastructure (IDR413.8 tn) Provision of infrastructure for basic services, improving connectivity, and supporting economic recovery, and continuing pending priority programs Food Security (IDR104.2 tn) Increase food production and revitalizing the national food system and developing Food Estate Tourism (IDR15.7 tn) Encouraging the recovery of the tourism sector ICT (IDR29.6 tn) Optimizing the use of ICT to support and improve the quality of public services 78#802021 Financing Needs Financing Needs Budget Deficit 2021 IDR1,006.4 T (5.7% of GDP) + o Investment financing o Lending • Liabilities 。 Other financing • Matured debt Financing Sources Foreign Denominated Debt 15-20% Foreign Loan GROSS GS (Through auction & non- auction) GDS 68-73% Sukuk 27-32% *GS: Government Securities Domestic Debt 80-85% Foreign Denomina- ted Bonds Domestic Domestic Loan GS 2021 Matured T-Bills Issuance Source: Ministry of Finance 79#812021 Financing Strategy Opportunistic, Measured, and Prudent Financing Strategies to support counter cyclical policies Debt is used as an instrument to support counter cyclical policy; managed in prudent manner, measurable and opportunistic Debt Policy Overall Funding Strategy 1 Manage debt by maintaining the debt over GDP ratio within the safe limit 1 Non-debt funding source optimization, including SAL utilization To adopt a flexible debt management which is 2 responsive in supporting the countercyclical policy, while prudently manage the cost and risk 2 Targeting Loan Program from Development Partners, for both bilateral and multilaterals, i.e. World Bank, ADB, KfW, JICA, EDFC, and AIIB To achieve an efficient debt cost, by doing market deepening exercises: A well targeted SBN (Government Bond) issuance by optimizing all available sources 3 investor base widening improving the infrastructure in the SBN 3 Targeting domestic/onshore bond issuance (including retail bond) for up to IDR 80 tn market debt instrument diversification eg. SDG bond issuance and municipal bond/sukuk issuance 4 To maintain macro stability by managing debt portfolio composition optimally. 4 Targeting Foreign Currency/Global Bond issuance amount at 12-15% from total SBN funding (subject to market conditions) Private Placement from specific institutions Support from Bank Indonesia as the funding of the last resort / back stop Source: Ministry of Finance 80 60#82Government Securities Indicative Financing Plan for 2021 Auction: Conventional Securities - 24x Islamic Securities - 24x Non Auction - Retail GDS (tradable/ORI & non tradable), Retail Sovereign Sukuk (tradable/sukri & non-tradable) Private Placement - based on request Government Securities Issuance Composition Source: Ministry of Finance GS Rupiah Domestic Auction [80%-85%] [85% -88%] Non Auction International [4% -6%] [12% - 15%] Foreign *GS: Government Securities • • Denominated GS Foreign denominated GS as complementary (avoid crowding out in domestic market) The target amount can be adjust to the potential of other financing sources and financing needs 81#83Synergy Between Central Bank and the Government in Accelerating National Economic Recovery The Enactment of Emergency Law No. 1/2020 (becoming Law No. 2/2020) allows Central Bank to buy GS in the primary market 1st Joint Decree between Minister of Finance and Governor of Bank Indonesia (BI) on April 16, 2020 (SKB I) The role of BI is as backstop buyer in the primary market 2nd Joint Decree between Minister of Finance and Governor of BI on July 7, 2020 amended with Joint Decree on July 20, 2020 (SKB II) Burden Sharing Scheme Realization of Gov't Securities purchased by Bank Indonesia under SKB I IDR 75,855 tn COVID-19 HANDLING ALLOCATION IDR 903,46 T Health 1. Public Goods Covered by Bl with rate based on BI Reverse repo 3M Issuance specifically to BI through private placement 2. Non-Public Goods: MSME ■ Corporation on-MSME 3. Non-Public Goods: Others Covered by Government with rate BI Reverse repo 3M minus 1%, and BI covered the remaining difference with market rate Full Covered by Government amounting market rate Issuance through market mechanism (auction, Green Shoe Option, Private Placement according to the SKB on April 16, 2020) • Public Goods IDR 397.56T Non-Public Goods IDR 505.90T IDR 87.55T Social Protection IDR 203.90T Sectoral K/L, Local Govt IDR 106.11 T Micro small and Medium Enterprises (MSME) IDR 123.46T Corporation Non-MSME IDR 53.57T Others IDR 328.87T SBN purchased by BI (SKB II) for Public Goods IDR397,56T or 100% from target and issuance of SBN for Non Public Goods reach IDR177,03T (100%). Non-Public Goods: Others, refer to all issuance (incl: auction, private placement, retail, and foreign denominated GS. Source: Ministry of Finance 82#84Government Securities Financing Realisation (a.o January 29,2021) 7.65% SUKUK 11.72% Government Securities 14.67% GS Nett 13.44% GDS Government Securities (GS) Nett Government Securities (GS) Government Debt Securities (GDS) IDR Denominated GDS -Coupon GDS - Conventional T-Bills |- Private Placement - Retail Bonds Foreign Denominated Bonds - SEC USD-EUR REG SHELF TAKE-DOWN - Samurai Bond - SEC USD REG SHELF TAKE-DOWN - USD Onshore Bonds - IFR/PBS/T-Bills Sukuk (Islamic Fixed Rate Bond/Project Based Sukuk Sovereign Sharia Securities (Sukuk) Domestic Sovereign Sharia Securitoes - Retail Sukuk - Private Placement Global Sukuk (Trillion IDR) Realization (ao. Jan 29, 2021) 167.74 183.47 147.97 88.00 74.35 6.65 7.00 0.00 59.97 59.97 0.00 0.00 0.00 35.50 35.50 32.00 0.00 3.50 0.00 Source: Ministry of Finance 83#85Republic of Indonesia - Dual Currency US$3bio and EUR1bio Issuer Issuer Rating Exp. Issue Rating Format Issue Pricing Date Settlement Date Republic of Indonesia Baa2 Moody's (Stable) BBB S&P (Neg) BBB Fitch (Stable) Baa2 Moody's BBB S&P / BBB Fitch SEC Registered Senior unsecured fixed rate notes off US SEC Shelf January 5, 2021 Currency Size US$1.25bio Tenor Long 10-year Maturity March 12, 2031 Coupon (p.a.) Yield 1.850% 1.900% Price 99.538% Listing January 12, 2021 USD US$1.25bio US$0.5bio Long 30-year Long 50-year PB/Others, CB/SWF 5% 3% Banks, 8% Investor Breakdown by Investor Type Insurance / PF, 9% RIEUR033 CB/SWF PB/Others, 3% 1% Banks, 8% Insurance/ PF, 20% RI0351 AM/FM, 75% PB/Others, 1% CB/SWF 8% Banks, 26% RI0331 Euro €1bio AM/FM, 63% Insurance PF, 2% Long 12-year March 12, 2051 March 12, 2071 March 12, 2033 3.050% 3.350% 1.100% 3.100% 99.020% 3.400% 98.794% 1.174 99.165% Singapore, Frankfurt Stock Exchange Use of Proceeds The net proceeds are for general purposes of the Republic of Indonesia, including its Covid-19 relief efforts Transaction Highlights • The lowest yields and coupons throughout the issuance of Indonesian Global Bonds for all tenors and currencies • All tranches priced inside of the Republic's existing credit curve with negative new issue premium and at the tightest levels for every one of the tranches • The transaction was well-executed and competitively priced, with final pricing across all tranches pricing 45bps inside of initial price guidance for USD and 40bps inside of initial price guidance for EUR Source: Ministry of Finance AM/FM, 68% Banks, 1% PB/Others, 1% CB/SWF 6% Insurance PF, 24% RI0371 Investor Breakdown by Geography US, 20% RIEUR0333 APAC, 9% EMEA, 71% EMEA, 30% US, 27% RI0351 US, 20% EMEA, 22% APAC, 43% EMEA, 31% RI0331 APAC, 58% AM/FM, 68% RI0371 US, 37% APAC, 32% =4 84#86GS Primary Market Performance 2020 - 2021 Through Auction [IDR In 2021, average incoming bid = IDR57.42 tn/auction while average awarded bid = IDR28.25 tn/auction Trillion] Incoming Bids 400 6.50 350 300 5.14 250 Average Incoming Bid 2020 = IDR54.50T /auction 200 3.14 3.01 150 100 55 50 Jan-20 Source: Ministry of Finance Feb-20 Mar-20 Apr-20 1.98 Awarded Bids 3.91 May-20 Jun-20 Jul-20 Average Awarded Bid 2020 = IDR15.85T /auction 4.24 % Bid to Cover Ratio (RHS) 7.00 6.00 5.00 3.85 4.00 3.35 3.00 2.95 2.45 2.16 2.03 2.00 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 1.00 85 55#87Ownership of IDR Tradable Government Securities (a.o January 29,2021) MUTUAL FUND 4,08% INSURANCE & PENSION FUND 14,06% FOREIGN 24.75% INDIVIDUAL OTHERS 3,47% 5,95% 10,91% Govt Institution 36,78% BANK 52,31% NON-BANK Description Banks* Dec-17 Dec-18 Dec-19 Dec-20 (IDR tn) Jan 29,2021 491.61 23.41% 481.33 20.32% 581.37 21.12% 1375.567 35.54% 1,507.76 36.78% Govt Institutions (Bank Indonesia**) Bank Indonesia (gross) GS used for Monetary Operation Non-Banks 141.83 6.75% 253.47 10.70% 262.49 9.54% 454.3606 11.74% 378.09 10.91% 179.84 8.56% 217.36 9.18% 273.21 9.93% 874.875562 38.01 1.81% -36.11 -1.52% 10.72 0.39% 420.514938 1,466.33 69.83% 1,633.65 68.98% 1,908.88 69.34% 2,040.83 22.60% 906.08 22.67% 10.86% 528.00 11.76% 52.72% 2,086.15 52.31% Mutual Funds Insurance Company and Pension Fund Foreign Holders Foreign Govt's & Central Banks Individual Others Total 104 4.95% 118.63 5.01% 130.86 4.75% 161.321131 348.86 16.61% 414.47 17.50% 471.67 17.13% 542.817373 836.15 39.82% 893.25 37.71% 1,061.86 38.57% 973.91 146.88 6.99% 163.76 6.91% 194.45 7.06% 178.3111 59.84 2.85% 73.07 3.09% 81.17 2.95% 131.210288 117.48 5.60% 134.22 5.67% 163.32 5.93% 231.572274 235.77 5.95% 2,099.77 100% 2,368.45 100% 2,752.74 100% 3,870.76 100% 3,972.00 100% 4.17% 166.17 4.08% 14.02% 557.70 14.06% 25.16% 987.32 24.75% 4.61% 233.76 5.79% 3.39% 139.19 3.47% 5.98% IDR 1.092,02T on January 24, 2020, foreign holders reach a record high in nominal terms. 69,32% Portion of foreign ownership in the mid & long term sector (≥ 5 years). 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. Source: Ministry of Finance 86#88Disciplined and Sophisticated Debt Portfolio Management Stable Debt to GDP Ratio Over the Years Prudent Fiscal Deficit IDR Tn Government Debt / GDP (%) 38.68% 500 442 446.3 0.0% 40,36% 407 414.52 6,000 40% 362 252.9 849.6 400 30.23% -0.5% 5,000 27.43% 28.33% 29.40% 30.10% 35% 300 24.74% 764.5 30% 200 -1.0% 4,000 810.7 25% 746.2 100 3,000 734.8 19 20% 755.1 5,221.7 5,383.6 0 677.6 15% 2,000 3,612.7 3,248.6 4,014.8 -100 -58 10% -4 -69 (20) 2,410.0 2,780.6 -200 1,000 1,931.2 5% -300 0 0% -2.5% -2.5% -2.6%298 2014 2015 2016 2017 2018 2019 Bond Loan Des 2020* Debt/GDP Ratio [RHS] Jan-21* -400 (308) 14 11111] -1.5% -1.8% (56) (66) (9)(35) -2.0% -2.2% -2.5% (269) (341) (349) -3.0% 2015 2016 2017 2018 2019 GS Nett Non-Debt Weighted Average Debt Maturity of ~8.7 Years Well Diversified Across Different Currencies Loan Nett Surplus (Deficit) Budget 9.75 9.39 9.13 2014 2015 Source: Ministry of Finance % of Yearly Issuance 100% 1% 1% 1% 1% 1% 1% 7% 6% 6% 5% 2% 5% 4% 4% 5% 5% 80% 31% 29% 30% 27% 23% 22% 60% 8.68 8.7 8.52 8.47 40% 8.37 57% 59% 58% 62% 66% 67% 20% 0% 2016 2017 2018 2019 2020 Jan-21 2016 2017 2018 2019 2020 Jan-21 ■IDR USD EUR JPY OTHER 87#89Well Balanced Maturity Profile with Strong Resilience Against External Shocks Interest Rate Risks Declining Exchange Rate Risks 25.0 21.0 20.7 19.2 19.7 20.0 17.5 50.0 44.6 21.0 21.17 43.4 42.6 41.3 41.0 37.9 40.0 33.53 33.49 14.8 13.7 15.0 12.1 10.0 5.0 10.6 10.6 HH 16.1 14.17 13.29 30.0 9.8 20.0 12.2 12.1 12.1 12.2 13.2 13.51 11.4 10.7 10.0 2021 2023 2025 Note: 1. *) as of end of December 2019, preliminary number and using GDP assumption Source: Ministry of Finance 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049-2070 ■IDR Denominated (Triliun Rp) Other Currencies (Triliun Rp) 0.0 0.0 2014 2015 2016 2017 2018 2019 2020 Jan-21 2014 2015 2016 2017 2018 2019 2020 Jan-21 FX to GDP Ratio ■FX Proportion ■VR Proportion Refixing Proportion Debt Maturity Profile Upcoming Maturities (Next 5 Years) IDR tn 600 500 400 300 200 100 45.0 41.0 40.4 39.59 39.3 39.03 40.0 36.0 34.7 33.9 35.0 30.0 25.0 25.5 24.3 22.8 22.51 22.7 25.0 21.4 20.1 20.0 15.0 9.9 10.6 8.69 8.4 8.1 7.84 10.0 7.7 6.5 5.0 0.0 2014 2015 2016 2017 2018 2019 2020 Jan-21 1 Year 3 Year 5 Year 88#90Holders of Tradable Central Government Securities More Balance Ownership In Terms of Holders and Tenors Holders of Tradable Gov't Domestic Debt Securities 25.2% 24.9% 38.2% 37.5% 39.8% 37.7% 38.6% 37.8% 39.9% 36.8% 42.0% 40.3% Foreign Ownership of Gov't Domestic Debt Securities by Tenor 36.0% 37.0% 34.8% 33.5% 33.9% 38.6% 44.7% 39.3% 37.2% 34.1% 39.0% 37.4% 35.6% 36.8% 35.8% 35.4% 39.8% 37.7% 38.6% 38.2% 37.5% 25.2% 24.9% 35.5% 38.0% 17.8% 17.3% 22.0% 22.1% 22.0% 18.4% 23.9% 22.5% 23.4% 20.3% 21.1% 11.8% 5.3% 5.1% 20% 1.9% 6.7% 4.0% 3.6% 3.5% 5.0% 4.3% 2.4% 4.6% 5.1% Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Jan-21 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Jan-21 10-1 >1-2 Foreign Holders ■Domestic Non -Banks Domestic Banks >2-5 >5-10 ■>10 % Foreign Ownership of Total Source: Ministry of Finance 89#91Section 6 Commitment to Sustainability and Climate Change Mitigation BHINNEKA TUNGGAL IKA#92Commitment to Sustainability and Climate Change Mitigation Republic of Indonesia's Commitment to Sustainability Including Climate Change Mitigation Commitment to Sustainability Commitment to implement the United Nation's ("UN") Sustainable Development Goals ("SDG") in order to achieve the 2030 development agenda introduced by the UN. Through Presidential Regulation No. 59/2017 relating to the implementation of SDGs in Indonesia, the National Development Planning Agency was instructed to present a roadmap to implement the SDGS Mitigation AND EDDEMIC GROWTH Background Forefront of Environmental Protection Indonesia's Environmental Law was enacted in 2009 based on the concept of sustainable development, prevention, precaution and a "polluter pays" principle. To better address environmental issues, the Ministry of Environment and the Ministry of Forestry were merged to become the Ministry of Environment and Forestry in October 2014 13 Indonesia's Environmental Commitment and Objectives Adopted the National Action Plan for Greenhouse Gas Emission Reduction in 2011. Focuses on reducing greenhouse gas emission through a National Determined Contribution with an unconditional reduction target of 29% by 2030 compared to the 2010 baseline. An additional 12% reduction is conditional on technology transfer, capacity building, results for payment and access to finance. Environmental Fund Management Agency (BPLDH): established in October 2019 with the vision to create a trusted institution to attract national and international donors as well as effectively mobilize public and private fund in order to support protection programmes. Source: Green Sukuk Report 2020, Bank Indonesia, Ministry of Finance Adaptation SUSTAINABLE The President's Nawacita Programme The "Nine Agenda Priorities" of the President's priority actions. Shifting to a low-carbon and climate-resilient development path is an integral part of this mission and is integrated in development policies, strategies and programs DEVELOPMENT GOALS National Action Plan on Climate Change Adaptation: National framework for adaptation initiatives mainstreamed the National Development Plan. into Medium Term Development Plan 2020-2024 (RPJMN): reflects Indonesia's strong commitment to shift to a low carbon development based approach to economic development and a more climate resilient path. Includes key priorities such as renewable energy and energy efficient development, forest conservation and reforestation, waste management, land intensification, food security as well as governance and institutionalization of investment and regulation. Biodiversity Indonesia is an archipelago made up of 17,504 islands with unique ecosystems containing a large number of diverse species. Indonesian Biodiversity Strategy and Action Plan 2015-2020: launched to provide an outline on how biodiversity could be utilized sustainably to improve economic opportunities. and development = 91#93Indonesia's Existing Green Bond and Sukuk Framework Existing Green Bond and Sukuk Framework under which the Republic of Indonesia can Finance and Refinance Selected Eligible Projects 1 2 3 Use of proceeds Project Evaluation and Selection of Green Bond and Green Sukuk Eligible Green Projects must fall into one of the nine eligible sectors Review and approval process by Ministry of Finance and National Development Planning Agency Management of Proceeds Management- Ministry of Finance The Green Bond and Green Sukuk proceeds will be credited to a designated account of relevant ministries for funding exclusive projects as previously defined. Allocation is managed by Ministry of Finance. Line Ministries The line ministries utilizing the proceeds shall track, monitor and report to Ministry of Finance, on the environmental benefits of the Eligible Green Projects 4 Reporting Ministry of Finance will prepare and publish a Green Bond and Green Sukuk annual report on the list of projects, amounts of proceeds allocated to such projects and estimation of beneficial impacts The Framework has received a second opinion from the Centre for International Climate Research (CICERO) and is awarded medium green shading, which allows the possibility of light, medium and dark green project types. This shade also shows that eligible listed projects are representing the country ongoing efforts towards the long-term vision in carbon emission reduction Source: Indonesia's Green Bond & Green Sukuk Framework 92 22#94Indonesia's Existing Green Bond and Sukuk Framework (Cont'd) Existing Green Bond and Sukuk Framework under which the Republic of Indonesia can Finance and Refinance Selected Eligible Projects Eligible Sectors Green Shading according to CICERO's Dark Green second-party opinion Renewable Energy The Framework Excluded Use of Proceeds for Resilience to Climate Change for Highly Vulnerable Areas and Sectors/Disaster Risk Reduction Medium to Dark Sustainable Transport Waste and Waste to Energy Management Green Tourism Sustainable Agriculture Light to Medium Light Green Energy efficiency AA Sustainable Management of Natural Resources Green Building New Fossil Fuel-Based Electric Power Large Scale Hydropower Plants > 30 MW Nuclear Assets Source: Green Sukuk Issuance Allocation and Impact Report (February 2020) 93 333#95Indonesia's Green Initiatives: Financing Green Projects Development of Indonesia's Green Projects Financing The Republic of Indonesia has issued two sovereign global Green Sukuk, consecutively in February 2018 and 2019, with the total amount of USD 2 Billion 2019 Issuance USD 750 million 2018 Issuance USD 1.25 billion (or IDR 16.75 trillion) 29% allocated to Green investors* (or IDR 11.25 trillion) 29% allocated to Green investors* Each issuance comprised of: and 49% financing new projects Indonesia has continued to develop the Green market through the introduction of the first Retail Green Sukuk in the world (Savings Retail Sukuk, ST006) in November 2019. The ST006 is an investment instrument based on Sharia principles issued and sold to individual Indonesian citizens in the domestic market with an online platform. Allocation and impact of the Retail Green Sukuk is not included in the Green Sukuk Issuance Allocation and Impact Report issued in February 2020 2019 Issuance Allocation by Sector 2018 Issuance 51% refinancing existing projects Allocation by Sector Renewable energy Resilience to Climate Change for Highly Vulnerable Arcas and Sectors/Disaster Risk Reduction Frergy efficiency Waste and Waste to Energy Management Managed by 3 Ministries: 148元 777805006 82% 22718.713 27 20088318 1262073 30217,186 11% 39.482,770 102.5.1947 42,59520 73.187388 17 96 0% 6% 7% Sustainable Transport 69% Mineary of Transportation Minicity if nergy and Mucral Resources Ministry of Putile: Warks and Housing 116. 2019 Issuance imagation adaptation Allocation by Activity 11% 83% 00 2018 Issuance mbcation daptation Note: Information extracted from Green Sukuk Issuance Allocation and Impact Report (February 2020), and subject to change and assurance from PwC. Projects were financed in Indonesian Rupiahs and the currency exchange rate based on the State Budget Assumption for 2019 budget year of IDR 15,000 per USD was used to re-calculate the spent amount on each project *These statistics are based on the HSBC's in house assessment of investor ESG/SRI appetite and sophistication, which is developed from Market Intelligence and our own understanding from client conversations. A green classification is assigned to investors taking into account whether they have Green/SRI fund and/or strategy, whether they are signatories of a variety of SRI initiatives and with awareness to their broader activities/public announcements in the SRI market. Classifications evolve over time 17% 94#96Indonesia's Green Initiatives: Projected Environmental Benefits Environmental Benefits Arising from Indonesia's Green Sukuk Issuance CO 3,218,014.41 tonnes CO2e emissions reduced, towards a low carbon future Breakdown by Sector + 60 cara 1,319,620.41 355,394 1,319,620.41 1,543,000 SUSTAINABLE DEVELOPMENT GOALS 9 INDUSTRY, INNOVATION AND INFRASTRUCTURE 11 AFFORDABLE AND CLEAN ENERGY DECENT WORK AND ECONOMIC GROWTH SUSTAINABLE CITIES AND COMMUNITIES 13 CLIMATE ACTION D 691.4 km of railway constructed, linking the nation 7,429 kWh of additional power generation capacity 2,056,200 of households benefitting from improved waste management Source: Green Sukuk Issuance Allocation and Impact Report (February 2020) 95#97Tangible Results from Indonesia's Green Sukuk Initiatives Green Projects Refinanced and Financed with Proceeds from Indonesia's Green Sukuk Issuance Locations Amount Committed to Finance 2019 Projects Amount Committed to Refinance 2017 Projects Target Impact / Emissions Reduction (2017) Renewable Energy Resilience to Climate Change Across the country Across the country Waste and Waste to Energy Management Across the country USD4.31 mil USD39.62 mil 134,872.41 tonnes of CO2e USD96.57 mil USD10.83 mil USD63.13 mil In order to achieve 48,000,000 tonnes target set in RAN-GRK Project Examples Financed Refinanced Planning, Development and Supervision of New, Renewable Energy and Energy Conservation Infrastructure (Refinancing and Financing) Construction of new and renewable energy infrastructure, with a focus on areas outside current electricity coverage. The project aims to improve the electrification ratio in off-grid areas across the country. Power generation is sourced from solar, mini hydro, and micro hydro power plants*. Locations spread across 19 provinces in 2017 (Refinancing) and the 2019 development of such infrastructure are spread across all provinces (Financing) • Construction of Flood Control Facilities (Financing) of Construction retention ponds/polders, flood canals, dikes, checkdam, and river maintenance and normalization. It aims to reduce the risk of flooding due to increased rainfall intensity and land use changes. Locations: West Java, Central Java, Yogyakarta, North Sumatera, West Sumatera, South Sulawesi, Maluku, Bali • Improvement of Municipal Solid Waste Management System (Refinancing) Improvement of basic waste management infrastructure services through the development of city, regional and special area-scale of final disposal sites. Locations: All provinces except East Kalimantan Improvement of Municipal Solid Waste Management System (Financing) Improvement of basic waste management infrastructure services through the development of city, regional and special area-scale of final disposal site. Locations spread across 11 provinces *Micro-hydro is of <100 kW and mini-hydro is of 100 kW-10 MW Note: Information extracted from Green Sukuk Issuance Allocation and Impact Report (February 2020), and subject to change and assurance from PwC Projects were financed in Indonesian Rupiahs and the currency exchange rate based on the State Budget Assumption for 2019 budget year of IDR 15,000 per USD was used to re-calculate the amount spent on each project 96#98Tangible Results from Indonesia's Green Sukuk Initiatives (Cont'd) Green Projects Refinanced and Financed with Proceeds from Indonesia's Green Sukuk Issuance Proceeds from Indonesia's Green Sukuk Initiative has been Successfully Deployed to a Range of Eligible Green Projects Locations Amount Committed to Finance 2019 Projects Amount Committed to Refinance 2017 Projects Target Impact / Emissions Reduction (2017) Project Examples Financed / Refinanced in 2019 Sustainable Transport Jakarta, Sumatera, Java USD288.77 mil USD77.95 mil 1,543,000 tonnes of CO2e Development of Jabodetabek Urban Train (Refinancing) Construction of double-double track of the Jabodetabek urban railway network. Locations: Jabodetabek (Jakarta, Bogor, Depok, Tangerang, Bekasi) Construction and Management of Railways Infrastructure and Supporting Facilities in Sumatera (Refinancing and Financing) Construction of the Trans Sumatera Railway from Aceh to Lampung province. The Trans Sumatera Railway causes a mode shift from road transport to rail transport and logistics Locations: Aceh, North Sumatera, West Sumatera and South Sumatera • Track Infrastructure Supporting (Refinancing Financing) Construction Management of Double Railways and Facilities and and The construction of the double track railway project in the Trans Java railway's northern section, upgrading the single-track railway. Locations: Jabodetabek (Jakarta, Bogor, Depok, Tangerang, Bekasi) Energy Efficiency Across the country USD202.72 mil 355,394 tonnes of CO2e Installation of Navigation Facilities (Refinancing) Construction, rehabilitation and replacement of marine navigation aids and the installation of solar cells to power marine navigation aids. The shift towards solar powered marine navigation aids reduces the use of fossil-fuel sources of power. Locations: spread across 21 provinces in 2017 Improvement (Refinancing) of Land Transportation Traffic Management System Installation of road traffic equipment such as traffic signs, area traffic control systems (ATCS) and navigation aids for river and take crossings (SBNP) with energy-saving sensors. Locations: Jakarta, West Java, Central Java, Yogyakarta, East Java • Construction, Rehabilitation and Maintenance of Airport Infra-structures (Refinancing) The installation of solar-powered street lights and solar power plants. It improves the energy efficiency of airports and ensure electricity is sourced from renewable sources Locations: spread across 30 provinces in 2017 Note: Information extracted from Green Sukuk Issuance Allocation and Impact Report (February 2020), and subject to change and assurance from PwC Projects were financed in Indonesian Rupiahs and the currency exchange rate based on the State Budget Assumption for 2019 budget year of IDR 15,000 per USD was used to re-calculate the spent amount on each project 97#99Section 7 Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector BHINNEKA TUNGGAL IKA#100Bank Indonesia's Policy Mix 2020 Synergy to Build Economic Recovery Optimism $ 102 1 1 1 1 1 1 1 1 1 1 Maintaining accommodative monetary policy stance (lowering policy rate 125bps in 2020). Maintaining rupiah exchange rate stabilisation policy in line with the currency's fundamental value and market mechanisms. Strengthening the monetary operations strategy to reinforce the accommodative monetary policy stance. Focusing on the quantity channel by providing liquidity to stimulate economic recovery Controlling inflation thru Inflation Control Team in national and regional level. Supporting the 2020 state budget through SBN purchases in the primary market in line with Act No. 2/2020, while maintaining macroeconomic stability. Supporting national economic recovery program thru Burden Sharing Scheme with the MOF Promoting lower lending rates through close supervision and public communication in coordination with OJK. Strengthening policy coordination with the Government and Financial System Stability Committee to maintain macroeconomic and financial system stability. Monetary Policy Coordination with other Authorities Source: Bank Indonesia Macro- prudential Policy 1 Implementing Macro prudential Intermediation Ratio (RIM) Implementing Macro prudential Liquidity Buffer (MLB) Payment System Policy 1 5 4 Financial Market Deepening 1 1 Electronification: Social program, e-payment for Government 1 Financial technology National Payment Gateway (NPG) 1 QRIS (QR Indonesia Standard) Expanding National Clearing System (SKNBI) services Developing market financing infrastructure instruments for 1 Developing financial market infrastructures Rupiah Interest Rate Swaps (IRS) and Overnight Index Swap (OIS) 1 Domestic non-Deliverable Forward (DNDF) 1 Developing the Commercial Papers (Surat Berharga Komersial) 99#101Bank Indonesia Policy Mix: February 2021 B BANK INDONESIA BANK SENTRAL REPUBLIK INDONESIA The BI Board of Governors agreed 17th and 18th February 2021 to lower the BI 7-day Reverse Repo Rate by 25 bps to 3.50%, Deposit Facility (DF) rate by 25 bps to 2.75% and Lending Facility (LF) rate by 25 bps to 4.25%. % Rp Lower Strengthening Publishing the "Assessment of Policy Rate Transmission to Prime Lending Rates Banking in the Maintaining rupiah Relaxing down payment exchange rate requirements stabilisation on automotive loans/financin policy in line Industry" to with g and accelerate the Relaxing the currency's LTV/FTV ratio monetary policy transmission and expand the BI7DRR to 3.50% support the monetary operations to national economic recovery strategy to reinforce the accommoda- tive monetary policy stance; fundamental value and market mechanisms; on housing loans/financin g dissemination of information to corporate and individual consumers. . • Facilitating trade and investment promotion for productive sectors and tourism as well as socialising the use of local currency settlement (LCS) domestically and internationally in conjunction with other relevant institutions and stakeholders. Supporting development of an inclusive and efficient digital economy and finance ecosystem, specifically targeting SMEs, to drive the economic recovery by; Extending the QRIS 0% merchant discount rate (MDR) for micro enterprises until 31st Dec 2021; 12 Expanding QRIS acceptance million merchants in collaboration with payment system service providers as well as the central and local government; • to Encouraging collaboration between e-commerce, SMEs and the Government to strengthen the competitiveness of domestic SME products for the domestic and export markets. Source: Bank Indonesia 100#102Strengthened Monetary Expansion and Fiscal Synergy PRINCIPLES OF FUNDING AND BURDEN SHARING PRUDENT Maintaining the credibility of Monetary Policy in the effort to Maintain Economic Stability Bl as the back-stop for Non-public Goods scheme • Commencing in 2020, Bank Indonesia has injected liquidity through quantitative easing to the banking industry totalling Rp750.38 trillion (4.86% of GDP), consisting of Rp726.57 trillion in 2020 and Rp23.81 trillion in 2021 (as of 16th February 2021) Synergy between monetary expansion and fiscal stimuli has been strengthened through SBN purchases by Bank Indonesia in the primary market After making purchases in the primary market totalling Rp473.42 trillion to fund the 2020 State Budget, Bank Indonesia is continuing to purchase SBN in the primary market in 2021 to help fund the 2021 State Budget through mechanisms pursuant to the Joint Decree issued by the Minister of Finance and Governor of Bank Indonesia on 16th April 2020, which was subsequently extended on 11th December 2020 until 31st December 2021 As of 16th February 2021, Bank Indonesia has purchased SBN worth Rp40.77 trillion in 2021 in the primary market, including Rp18.16 trillion through private placement and Rp22.61 trillion through greenshoe options (GSO) MARKET MECHANISM TRADABLE & MARKETABLE MEASURED LAST RESORT SUN/SBSN tradable maintaining inflation in the target range One-off Policy in 2020 GOVERN Prioritize good governance SUSTAINABLE Source: Bank Indonesia 101#103Further Strengthening of an Accommodative Bank Indonesia's Policy Mix BGM: Lower/Hol dBI 7-day Reverse Repo Rate Stabilization Of The Rupiah Money Market & Foreign Exchange BGM 19-20 FEB, 2 MAR, AND 18-19 MAR 2020 1. Lower BI7DRR by 25 bps in February to 4,75%, and other 25 bps in March to 4,50% reserve 2. Lower a 50bps of daily rupiah requirement (RR) for the banks engaged in export-import financing, and expanding rupiah RR cut for SME 3. Lower Foreign Exchange Reserve Requirement from 8% to 4% 4. Rupiah (vostro) accounts of foreign investors as underlying of DNDF 5. Domestic custodian bank for global investors Quantitative Easing 6. Triple Macro- Prudential Policy Payment System Policy spot, intervention: DNDF, & purchasing SBN in the secondary market 7. Daily FX swap auction and Repo auction of SBN 8. Liquidity through operation injection monetary 9. Relaxation of Macro- prudential Intermediation Ratio 10. QRIS campaign to SME, traditional markets, students and worship places Board of Governor Meeting 11. Lower SKNBI cost Source: Bank Indonesia BGM 13-14 APRIL AND 18-19 MAY 2020 1. Hold the BI 7-Day Reverse Repo Rate at 4.50% for external stability & stimulate growth 2. Strengthening the intensity of triple intervention policy 3. Providing liquidity for the banking industry on restructuring MSME loans and ultra-micro with formal loans 4. Lower the rupiah RR ratios by 200bps for conventional commercial banks and by 50bps for Islamic banks 5. Strengthening and Monetary Islamic operations financial market deepening through FLisBI, PASBI and SiPA 6. Relaxing the additional demand deposit obligations on the MIR 7. Raised the MLB by 200bps for conventional commercial banks and by 50bps for Islamic banks the 8. Increasing non-cash payment instruments uptake 9. Strengthening policy mix and coordination with the other & Government authorities 10.Accelerating implementation of digital economy & finance BGM 17-18 JUNE 2020 AND 15-16 JULY 2020 1. Lower BI7DRR to 4,00%, 25 bps in June and 25 bps in July 2. Maintaining Rupiah exchange rate stabilization policy in line with currency's the fundamental value and market mechanisms 3. Providing reserve requirement remuneration of 1.5% per year for banks meeting daily and average rupiah reserve requirements 4. Strengthening a synergized expansive monetary policy response with accelerated fiscal stimuli from the Government: ✓ firmly committed to funding the APBN 2020 through SBN purchases in to the primary market finance the budgets for healthcare, protections, social sectoral local government ministries and agencies & government ✓ Burden sharing with the Government to accelerate corporate MSME and sector recoveries 5. Expediting payment system digitalization to hasten the digital economy and finance implementation as part of the economic recovery efforts BGM 18-19 AUGUST 2020 BGM 16-17 SEPTEMBER 2020 1. Hold B17DRR at 4,00% 2. Focusing on the quantity channel by providing liquidity to stimulate economic recovery, including supporting Government in accelerating 2020 state budget realization 3. Maintaining rupiah stabilization line policy in with fundamental value & market mechanisms 4. Strengthening MO strategy in order to accelerate monetary policy transmission 5. Accelerating money market and foreign exchange market deepening through infrastructure development, including ETP & CCP 6. Lowering the minimum limit of DP on green automotive loans/financing from 5-10% to 0%, in compliance with prudential principles 7. Extending the 50bps lower on rupiah reserve requirements, as an incentive for banks disbursing loans to SMEs and for export-import activity and to non-SMEs operating in priority sectors as stipulated in the PEN, from 31 Dec' 20 previously until 30 Jun'21; 8. Accelerating development of money market instruments to support corporate and SME financing in line with the national economic recovery program 9. Strengthening synergy with the banking industry, FinTech, Government and relevant authorities to accelerate digitalization, amongst others, by supporting SME digitalization and the Made in Indonesia National Movement (GERNAS BBI), and promoting the use of QRIS for e-commerce 10. Expanding QRIS acceptance to bolster economic recovery and accelerate SME by extending 0% MDR for micro-businesses from 30 Sept 20 previously until 31 Dec'20 11. Strengthening policy implementation to stimulate SMEs through corporatization, increasing capacity, access to finance as well as digitalization in line with Gernas BBI 12. Strengthening the digital economy & finance ecosystem through the of digital payment instruments & collaboration between the banking industry, FinTech & e- 102 commerce to support PEN use#104Further Strengthening of an Accommodative Bank Indonesia's Policy Mix BGM 18-19 NOVEMBER 2020 BGM 16-17 DECMBER 2020 BGM 20-21 JANUARY 2021 BGM: Lowe/Hol dBI 7-day Reverse Repo Rate Stabilization Of The Rupiah Money Market & Foreign Exchange Quantitative Easing Macro- Prudential Policy Payment System Policy Board of Governor Meeting Source: Bank Indonesia 1. 1. BI7DRR lower 25 bps at 3,75% for maintain external stability and inflation is predicted to remain low 2. 3. providing economic recovery, including Hold BI7DRR at 3,75% % for maintain external stability and inflation is predicted to remain low Maintaining rupiah stabilization policy in line with fundamental value & market mechanisms Strengthening MO strategy in order to accelerate monetary policy 1. 2. 3. 4. 2. Focusing on the quantity channel by liquidity to stimulate supporting Government in accelerating 2020 state budget realization 3. Maintaining rupiah stabilization policy in line with fundamental value & market mechanisms 4. Strengthening MO strategy to accelerate MP transmission 5. Accelerate the deepening of the development of the foreign exchange market and the domestic financial market through the implementation of BPPU 2025 6. Maintain a CCB ratio of 0%, RIM 84- 94%, PLM 6% as well as 6% repo flexibility and LTF / FTV ratio for property loans. 7. Strengthening macroprudential policy to stimulate inclusive financing, in particular for small and medium enterprises (SMEs) 8. Strengthening payment system digitalization in order to build economic recovery momentum through several digital transformation initiatives, including: expanding access to digital financial economy services for SMEs & public, collaboration between banks & fintech; promoting broader acceptance of digital payments through the QRIS 9. Reducing service fees for the BI-RTGS, Extending the period of lower service fees for the SKNBI, & lower payment limit and late payment fees for CC 5. 6. 7. 8. 9. Strengthening accommodative macroprudential policy to stimulate growth of loans allocated to priority sectors towards national economic recovery, while maintaining financial system resilience Promoting lower lending rates through close supervision and public communication in coordination with the Indonesian Financial Services Authority (OJK) in terms of interest rate transparency in the banking industry Strengthening money market deepening by expanding underlying DNDF to boost liquidity and reinforce JISDOR as a reference for exchange rate setting in forex market Strengthening integrated bank supervision coordination between BI, OJK and LPS to maintain financial system stability Accelerating digital transformation & synergy to strengthen economic recovery momentum with robust payment system policy and faster implementation of BSPI'25 Extending the 0% MDR on QRIS transactions for micro enterprises until 31/3/2021 10. Strengthening and expanding electronification and digitalization centrally and regionally 11. Promoting technology innovation, utilization & collaboration between the banking & FinTech industries through faster implementation of Sandbox 2.0, encompassing, i.g: the regulatory sandbox, industrial tests, innovation lab & start-ups 4. 5. 6. 7. 8. Hold the BI 7-Day Reverse Repo Rate at 3.75%, while also maintaining the Deposit Facility (DF) rates at 3.00% and Lending Facility (LF) rates at 4.50%. Maintaining rupiah exchange rate stabilisation policy in line with the currency's fundamental value and market mechanisms. Strengthening the monetary operations strategy in order to reinforce the accommodative monetary policy stance. Accelerating money market deepening by strengthening JISDOR as a rupiah reference rate against the US dollar in order to increase domestic foreign exchange market credibility and support exchange rate stability in Indonesia. BI has strengthened JISDOR in terms of the methodology, transaction monitoring period and publication schedule. Strengthening accommodative macroprudential policy to stimulate growth of loans/financing allocated to priority sectors towards national economic recovery. Promoting lending rate transparency in the banking industry in order to accelerate monetary and macroprudential policy transmission. Strengthening coordinated and integrated bank supervision between Bank Indonesia, the Indonesian Financial Services Authority (OJK) and Deposit Insurance Corporation (LPS) to maintain financial system stability. Strengthening payment system policy and rupiah currency management to establish a digital economy and finance ecosystem in order to accelerate the economic recovery by: a. Applying an integrated and collaborative strategy to expand QRIS acceptance to 12 million merchants, while developing QRIS features, such as transfers, withdrawals and deposits, in order to boost public QRIS acceptance. b. Implementing payment system regulatory reforms in accordance with Bank Indonesia Regulation (PBI) No. 22/23/PBI/2020 through industry restructuring, license reclassification, ownership, technological innovation, including data and information, as well as strengthening supervision, including cyber risk management. 103#10520 15 10 Stable Monetary Environment Despite Challenges Well Maintained Inflation Ensured Price Stability 0 2013 5 וויי 2014 2015 2016 2017 2018 Strengthened Monetary Policy Framework ICPI (%, yoy) rhs -Core (%, yoy) - Ihs 8 10 (%) 8.00 19 August 2016 The New Monetary Operation Framework 7.00 -Volatile Food (%, yoy) - Ihs2 Administered (%, yoy) - lhs LF Rate: 7.00 6 BI Rate: 6.50 6.00 4 1.55 5.00 2.82 2019 2020 Jan-2021 1.56 0.340 4.00 Rupiah Exchange Rate Fared Relatively Well Compared to Peers *) YTD 2021 vs 2020 20.0 BRL JPY -3.59 -4.52 -2.63 2.42 KRW -1.92 EUR -1.88 PHP -0.74 6.85 5.95 3.24 ZAR -0.69 SGD -0.38 3.89 THB -0.17 4.29 MYR 0.00 3.90. IDR 0.21 3.67 INR 0.61 1.38 CNY 1.00 ao 17-Feb-21 TRY -3.79 -6.0 -4.0 -2.0 0.0 2.0 4.0 Source: Bank Indonesia. *) Source: Reuters and Bloomberg 3.00 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 LF Rate: 4.25 Q3-2016 Q4-2016 Q1-2017 Q2-2017 Q3-2017 04-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 DF Rate: 2.75 BI 7Day RR Rate: 3.50 Jan-21 Feb-21 Credit Growth Profile % yoy 15.0 10.0 9.39 5.0 -0.8 -0.9 0.0 -2.4 Total Growth -point-to-point---average-- Working Capital Loans -5.0 Investment Loans Consumption Loans -4.3 6.72 -10.0 5.56 6.0 8.0 10.0 12.0 2015 2016 2017 2018 2019 2020 04#106Regional Inflation Remains Under Control ...supported by maintained inflation in all regions Inflation remains low on subdued domestic demand and adequate supply, JANUARY 2021(%, YOY) SUMATRA 1,88 1.88 1.49 Aceh 3,7 13 1.05 SULAWESI 1,59 KALIMANTAN 0,98 1.31 Riau Islands 1,7 North Sumatra 1,8 Bengkulu 1,1 Riau 2,4 Babel Islands 1,3 West Sumatra-1,6 South Sumatra 1,4 Lampung 1,9 Jambi 2,8 1.09 0.98 West Kalimantan 1,6 South Kalimantan 1,2 East Kalimantan 0,6 Central Kalimantan 1,1 North Kalimantan 0,7 100 0x00 040 020 Gorontalo 1,4 1.60 1.59 1.29 North Sulawesi 0,8 Central Sulawesi 2,0 1.15 West Sulawesi 3,3 South Sulawesi 1,7 South-East Sulawesi 1,5 NATIONAL INFLATION JANUARY 2021: 1,55% (yoy) Inf > 4% 3% < Inf≤4% 2% Inf≤3% Inf≤2% རྐ་ནི་ཞེ་ ཟྭ ིི་ནི་ རྩ 1.64 04:30 Source: BPS, calculated JAVA 1,57 1.73 1.71 Banten 1,4 DKI Jakarta 1,5 1.57 West Java 1,9 Source: Central Bureau of Statistics of Indonesia (BPS), calculated Central Java 1,7 East Java 1,3 01-20 Now 20 Dec-20 Jan-21 140 1.20 120 1.12 1.03 1.00 0.85 0.71 0.69 0.72 Bali 1,0 16.80 West Nusa Tenggara 0,7 10.00 East Nusa Tenggara 0,5 10.40 10.20 DI Yogyakarta 1,7 BALI-NUSA TENGGARA 0,85 0.62 Out:20 Now 20 Dec-20 Jan-21 MALUKU-PAPUA 0,62 Maluku -0,4 North Maluku 1,3 Papua 0,9 West Papua 1,4 105#1074 Strategies to Achieve the Inflation Target 2018-2019 Target Achieving inflation at 3,5%±1% Maintaining core inflation Maintaining volatile food stability at 4-5% Controlling administered price inflation 2020-2021 Target Achieving inflation at 3,0%±1% Maintaining core inflation Maintaining volatile food inflation less than 4% Controlling administered price inflation 1. Price Affordability 2. Supply Availability Stabilizing the price Managing demand side Strengthening production, Government food reserves and food export-import management 4 Strategies 3. Well Managed Distribution 4. Effective Communication Strengthening institution Encouraging trade cooperation between regions Improving trade infrastructure Improving data quality Strengthening central-regional coordination Source: Bank Indonesia 106#108Principles of Average Reserve Requirement Ratios Improvement . • Considerations for the Average Reserve Requirement Ratios Improvement Improvement in average reserve requirement is a follow up to the monetary policy operational framework reform implemented by Bank Indonesia since 2016. Monetary policy operational framework reform started in August 2016 as BI7DRR replaced BI Rate as policy rate. This was then strengthened in 1st July 2017, by the implementation of the average reserve requirement in rupiah for conventional commercial banks at 1.5% out of the total 6.5% of GDP requirement in Rupiah. The reformulation is also backed by various efforts in financial market deepening. reserve The current improvement aims to elevate flexibility in banking liquidity management, enhance banking intermediation function, and support efforts in financial market deepening. This multiple targets will in turn improve the effectiveness of monetary policy transmission in maintaining economic stability. * Substance a. Additional rupiah average reserve requirement for conventional commercial banks b. Annulment of demand deposit renumeration c. Implementation of foreign exchange average reserve requirement for conventional commercial banks d. Implementation of average reserve requirement for Islamic banks Old New Effective Date Fixed RR: 5% Fixed RR: 4.5% Average RR: 1.5% RR: 6.5% Average RR: 2% RR: 6.5% 16th July 2018 2.5% (from 1.5% RR) 0% Fixed RR: 8% Average RR: 0% RR: 8% Fixed RR: 6% 16th July 2018 Average RR: 2% RR: 8%* 1st October 2018 Fixed RR: 5% Average RR: 0% RR: 5% Fixed RR: 3% 1st Average RR: 2% RR: 5%* October 2018 Complemented by harmonisation feature to align with the average reserve requirement in rupiah feature for conventional commercial banks (e.g. Calculation period, lag period, and Maintenance period of 2 weeks) Source: Bank Indonesia 107#109Relaxing Reserve Requirement Ratios Lower reserve requirements, effective 1st May 2020 Regulation 1 2 3 4 200bps for conventional commercial banks INELIGIBLE for looser daily reserve requirements as per macroprudential policy to support export-import and MSME financing, effective from 1st April 2020, to 3.5%, with a daily ratio of 0.5% and average ratio of 3% 50bps for Islamic banks and Islamic business units INELIGIBLE for looser daily reserve requirements as per macroprudential policy to support export-import and MSME financing, effective from 1st April 2020, to 3.5%, with a daily ratio of 0.5% and average ratio of 3% 200bps for conventional commercial banks eligible for looser daily reserve requirements as per macroprudential policy to support export-import and MSME financing, effective from 1st April 2020, to 3.0%, with a daily ratio of 0% and average ratio of 3% 50bps for Islamic banks and Islamic business units eligible for looser daily reserve requirements as per macroprudential policy to support export-import and MSME financing, effective from 1st April 2020, to 3.0%, with a daily ratio of 0% and average ratio of 3% Source: Bank Indonesia 108#110Principles of Macroprudential Intermediation Ratio (MIR) and Macroprudential Liquidity Buffer (MLB) 1 Considerations for Macroprudential Instruments Macroprudential Intermediation Ratio (MIR) and Macroprudential Liquidity Buffer (MLB) 2 3 4 Striving to stimulate the bank intermediation function and liquidity management, Bank Indonesia issued Bank Indonesia Regulation (PBI) No. 20/4/PBI/2018 and Board of Governors Regulation (PADG) No. 20/11/PADG/2018 concerning the Macroprudential Intermediation Ratio (MIR) and Macroprudential Liquidity Buffer (MLB) for Conventional Commercial Banks, Sharia Banks and Sharia Business Units. The regulation is effective for conventional commercial banks from 16th July 2018 and for sharia banks from 1st October 2018. The policy is expected to stimulate the bank intermediation function to the real sector congruent with sectoral capacity and the economic growth target in compliance with prudential principles, while also overcoming the issue of liquidity procyclicality. This macroprudential policy instrument is countercyclical and can be adjusted in line with prevailing economic and financial dynamics. Source: Bank Indonesia 109#111Principles of Macroprudential Intermediation Ratio (MIR)* Regulation MIR (Conventional Commercial Bank) 1 MIR Accounting Formula Credit Owned Bond Deposit Issued Bond 2 Rate and Parameters Ceiling 94% • Floor 84% 3 Scope of credit/financing . and deposits to calculate MIR MIR Sharia . MIR Sharia (Sharia Banks and Sharia Business Units) Financing + Owned Sharia Bond Deposit Issued Sharia Bond Ceiling 94% • Floor 84% • Minimum • 14% Capital Adequacy Requirement • Minimum Capital Adequacy Requirement 14% Upper disincentive parameter 0.2 • Lower disincentive parameter 0.1 Credit: rupiah and foreign currency Deposits in rupiah and a foreign currency: • (i) demand deposits, (ii) savings deposits; and (iii) term deposits, excluding interbank funds Monthly Commercial Bank Reports Corporate bonds and/or corporate sukuk • For Sharia business units, the Minimum Capital Adequacy Requirement is the same as that of the parent conventional commercial bank • Upper disincentive parameter 0.2 • Lower disincentive parameter 0.1 • Financing: rupiah and foreign currency Deposits in rupiah and a foreign currency: (i) wadiah savings; and (ii) unrestricted investment funds, excluding interbank funds Monthly Sharia Bank Reports Corporate bonds and/or corporate sukuk • Issued by a nonbank corporation and by a resident • Offered to the public through a public offering 4 Source of Data 5 Criteria for securities held • • Equivalent to investment grade rating affirmed by a rating agency • Administrated by an authorised securities institution *As part of further relaxation on macroprudential policy, an adjustment will be applied starting from December 2nd, 2019 110#112Principles of Macroprudential Intermediation Ratio (MIR)* Regulation MIR (Conventional Commercial Bank) MIR Sharia (Sharia Banks and Sharia Business Units) 6 Percentage of the securities held 7 Criteria for securities issued 100% (MTN) medium-term notes (MTN), floating rate notes • sharia-compliant medium-term notes (FRN) and/or bonds other than subordinated and/or sukuk other than subordinated sukuk bonds • Issued by a nonbank corporation and by a resident • Offered to the public through a public offering • Equivalent to investment grade rating affirmed by a rating agency 8 88 Securities Reporting 9 Scope of deposits to meet DD MIR /DD MIR Sharia 10 Relaxation of DD MIR/Sharia DD MIR • Administrated by an authorised securities institution Offline delivery mechanism (email) • Average daily total deposits in rupiah at all branch offices in Indonesia . Including rupiah liabilities to a resident and non-resident third-party nonbank, consisting of: (i) demand deposits, (ii) savings deposits; (iii) term deposits, and (iv) other liabilities • Average daily total deposits in rupiah at all branch offices and sharia business units in Indonesia Including rupiah liabilities to a resident and non- resident third-party nonbank, consisting of: (i) wadiah savings; (ii) unrestricted investment funds, and (iii) other liabilities • Bank Indonesia may relax the provisions of the DD MIR/Sharia DD MIR based on credit/financing disbursement and fund accumulation • The provisions may be relaxed based on a request from a conventional commercial bank, Sharia bank or Sharia business unit or a recommendation from the Financial Services Authority (OJK) • Conventional commercial banks, Sharia banks or Sharia business units that receive the relaxed policy are exempt from sanctions *As part of further relaxation on macroprudential policy, an adjustment will be applied starting from December 2nd, 2019 111#113Adjustment of Macroprudential Intermediation Ratio (MIR)/Sharia Macroprudential Intermediation Ratio (Sharia MIR)* Bank Indonesia strengthens accommodative macroprudential policy through an adjustment to the Macroprudential Intermediation Ratio by including the loan/financing received by banks as a component of funding in MIR/sharia MIR. Policy Backgrounds • • • • In response to global and domestic economic developments, BI is maintaining an accommodative policy mix to maintain the economic growth while also maintaining macroeconomic and financial system stability. BI relaxed MIR/sharia MIR policy in March 2019, which stimulated bank lending. Nevertheless, the macroprudential intermediation ratio (MIR) is again approaching the upper bound, thus necessitating efforts to increase bank lending capacity. Considering the potential of bank funding sources that are not included in the MIR ratio, for example the expanding share of loans/financing received by banks, Bl decides to adjust MIR/sharia MIR policy in order to optimize loans/financing received for bank lending. This policy to stimulate credit growth will comply with prudential principles. Therefore, Bl is only encouraging banks with low non-performing loans and adequate capital resilience to expand credit/financing. *This adjustment will be effective from December 2nd, 2019 Source: Bank Indonesia Main Regulatory Points Including loan received by conventional commercial banks and financing received by Islamic banks and Islamic business units as a source of bank funding in the calculation of MIR/sharia MIR. The criteria for loans/financing received by banks that are eligible to be included in MIR/sharia MIR calculation are as follows: a. Loans/financing received in Rupiah and foreign currency; b. Loans/financing received in the form of bilateral loans and/or syndicated loans for conventional commercial banks, Islamic banks and Islamic business units; c. Loans/financing excludes interbank loans/financing. d. Loans/financing received with a maturity of no less than 1 year; and e. Loans/financing received based on a loan agreement. Based on points a and b, the adjusted MIR/sharia MIR formula is as follows: Credit + Owned Bond Deposit + Issued Bond + Loan/Financing Received Lower disincentive parameter MIR/sharia MIR RR= Lower Disincentives Parameter X (Lower Bound MIR/Sharia MIR Target - Bank's MIR/Sharia MIR) x Deposit NPL ≥ 5% CAR KPMM 14% < 5% 14% KPMM ≤ 19% KPMM 19% Lower Disincentives Parameter 0.00 0.00 0.10 0.15 Upper disincentive parameter MIR/sharia MIR RR= - of 0.2 x (Bank's MIR/sharia MIR Upper Bound of MIR/Sharia MIR Target - ) x Deposit *This disincentive applies for banks with CAR below 14%. The reference rate used to calculate penalties for banks that do not meet MIR/sharia MIR policy will be adjusted from the Jakarta Interbank Offered Rate (JIBOR) to the Indonesia Overnight Index Average (IndONIA). 112#114Principles of Macroprudential Liquidity Buffer (MLB) Regulation 1 Rate 2 Components 3 Calculation Formula 4 Flexibility 5 Sources of Data on Deposits MLB (Conventional Commercial Bank) MLB Sharia (Sharia Banks) 4% of rupiah deposits (including Sharia Business Units 4% of rupiah deposits deposits) • Securities denominated in rupiah held by a conventional commercial bank that may be used for monetary operations (including SBI/SDBI/SBN); and • Sharia-complaint securities denominated in rupiah held by an Sharia business unit that may be used for sharia-compliant monetary operations (including SBIS/SBSN) Sharia-complaint securities denominated in rupiah held by an Sharia bank that may be used for sharia-compliant monetary operations (including SBIS/SBSN) Percentage of rupiah securities held by a conventional Percentage of sharia-compliant rupiah securities commercial bank to rupiah deposits held by an Sharia bank to rupiah deposits Under certain conditions, the securities used to meet the sharia MLB may be used for repo transactions to Bank Indonesia for open market operations, totalling no more than 2% of rupiah deposits Under certain conditions, the securities used to meet the MLB may be used for repo transactions to Bank Indonesia for open market operations, totalling no more than 2% of rupiah deposits • Monthly Commercial Bank Reports • Rupiah deposits to calculate MLB are the average daily total deposits at all branches in Indonesia • Rupiah deposits include: (i) demand deposits, (ii) savings deposits; (iii) term deposits, and (iv) other liabilities • • Monthly Sharia Bank Reports Rupiah deposits to calculate sharia MLB are the average daily total deposits at all branches in Indonesia Rupiah deposits include: (i) wadiah savings; (ii) unrestricted investment funds, and (iii) other liabilities 113#115Macroprudential Liquidity Buffer (MLB) Policy and Credit card policy Policy to increase the Macroprudential Liquidity Buffer (MPLB), effective 1st May 2020. Regulation Before After 1 Increase in the Macroprudential Liquidity Buffer (MLB) for conventional commercial banks 4% of rupiah deposits 6% of rupiah deposits 2 Increase in the Macroprudential Liquidity Buffer (MLB) for Islamic banks and Islamic business units 4% of rupiah deposits 4.5% of rupiah deposits Regulation Credit card policy, effective 1st May 2020. 1 Lower upper limit on credit card interest 2 Temporary reduction of minimum payment requirements 3 Temporary reduction of late payment penalties 4 Supporting credit card issuer policy to extend the due date for customers Before 2.25% per month 10% 3% or maximum of IDR150,000 After 2% per month 5% 1% or maximum of IDR100,000 Issuer discretion Effective Period 1st May 2020 1st May 2020 - 31st December 2020 1st May 2020 - 31st December 2020 1st May 2020 - 31st December 2020 114#116Relaxing the Loan-to-value (LTV) and Financing-to-Value (FTV) Ratios* The LTV/FTV relaxation is conducted while taking into account aspects of prudential and consumer protection* 1. Increasing opportunities of first time buyers to fulfill their housing needs through housing loan, specifically by adjusting the LTV ratio for property loan and the FTV ratio for property financing for the 1st facility, 2nd facility, etc., making the largest LTV ratio for property credit and FTV ratio for property financing as shown in the table below. PROPERTY LOAN & PROPERTY FINANCING BASED ON MURABAHAH & ISTISHNA DEEDS 2. 3. Relaxing the amount of loan/financing facility through indent mechanism to a maximum of 5 facilities without taking account of the orders Adjusting the arrangement of stages and amount of property loan/financing disbursement of indent property: Current Regulation Conditions PROPERTY FINANCING BASED ON MMQ & IMBT DEEDS Current Regulation Current Regulation Relaxation PROPERTY TYPE PROPERTY TYPE Property Loan & Property Loan Property Financing Relaxation Property Financing (m²) Financing & Financing (m²) I II Ill etc 1 Il etc etc etc HOUSE Type>70m² HOUSE 85% 80% 75% 80% Type 22-70m? 85% 80% 85% Type>70m Type 22-70m² 90% 85% 80% 85% 90% 85% 90% Type <=21m² Type <=21m² APARTMENT APARTMENT Туре >70м² 85% 80% 75% 30% Type>70m² 90% 85% 80% 85% Type 22-70mm? 90% 85% 80% 85% Type 22-70m² 90% 85% 30% 85% Type <=21m² 85% 80% 85% Type <=21m² 85% 80% 85% SHOP/OFFICE HOUSE 85% 80% 85% SHOP/OFFICE HOUSE 85% 80% 85% Stage and Disbursement Rate House/Office House/Shop Max. Cumulative disbursement up to 40% of ceiling Max. Cumulative disbursement up to 80% of ceiling Max. Cumulative disbursement up to 90% of celling Max. Cumulative disbursement up to 100% of celling Apartment Max. Cumulative disbursement up to 40% of ceiling Max. Cumulative disbursement up to 70% of ceiling Max. Cumulative disbursement up to 90% of ceiling Max. Cumulative disbursement up to 100% of celling Footing finished Roof toop finished Letter of acceptance signing Letter of acceptance accompanied with deeds of purchase and mortgage deeds/authorization for the assignment of a mortgage Footing finished Roof toop finished Letter of acceptance signing Letter of acceptance accompanied with deeds of purchase and mortgage deeds/authorization for the assignment of a mortgage Relaxation 66 "The LTV rate depends on each bank's risk management Stage and Disbursement Rate House/Office House/Shop House Max. Cumulative disbursement up to 30% of ceiling Max. Cumulative disbursement up to 50% of celling Max. Cumulative disbursement up to 90% of ceiling Max. Cumulative disbursement up to 100% of celling *As part of further relaxation on macroprudential policy, an adjustment will be applied starting from December 2nd, 2019 Source: Bank Indonesia Conditions After loan deeds Footing finished Roof toop finished Letter of acceptance accompanied with deeds of purchase and covernote 115#117Relaxing the Loan-to-value (LTV) and Financing-to-Value (FTV) Ratios* 1. 2. 3. Prudential aspects of Relaxing the Loan-to-value (LTV) and Financing-to-Value (FTV) Ratios The requirements of the LTV ratio for property credit and FTV ratio for property financing are as follows: i. The net ratio of NPL to total credit or NPF to total financing must not exceed 5%; and ii. The gross ratio of property NPL to total property credit or property NPF to total financing must not exceed 5%. Banks must make sure that there is no loan transfer to another borrower at the same bank or different bank for tenors of less than 1 year. The requirements are valid for banks that will disburse pre-order property loan/financing. Banks are required to comply with prudential principles when disbursing loans. 4. Gradual loan liquidation is only allowed for developers that comply with bank's risk management policy (e.g. the business feasibility of the developer). 5. Banks are required to ensure that transactions to disburse loans (including down payment) and gradual liquidation must be processed through the debtor and developer/seller's bank account. LTV / FTV Exemptions Central government or local government loan / financing programs are exempt from this regulation. Source: Bank Indonesia 116#118Adjustment of LTV Ratio for Property Loans, FTV Ratio for Property Financing, and Down Payments on Automotive Loans/Financing* (Effective December 2nd, 2019) Bank Indonesia adjusts macroprudential policy in the property and automotive sectors by: (i) relaxing the LTV ratio for property loans and the FTV ratio for property financing; (ii) providing additional incentive on LTV ratio for green property loans and FTV ratio for green property financing; (iii) relaxing down payments on automotive loans/financing; (iv) providing additional incentive on down payments on green automotive loans. • Policy Backgrounds In response to global and domestic economic developments, Bl is maintaining an accommodative policy mix to maintain the economic growth while also maintaining macroeconomic and financial system stability. This effort will be targeted to several potential sectors. Considering the ongoing needs to stimulate the property and automotive sectors which have a huge backward and forward linkages to other sectors in the economy, BI decides to relax LTV/FTV policy for property loans/financing and down payments on automotive loans in compliance with prudential principles. Additional incentives are also given to support sustainable development through green financing in order to reduce potential disruptions to financial system stability stemming from environmental degradation. As a prudential mitigation, those relaxations will be given to borrower with strong repayment capacity and low credit/financing risk. Main Regulatory Points 1. Adjustment of LTV Ratio for Property Loans and FTV Ratio for Property Financing. a. Bl decides to relax the LTV ratio for property loans and FTV ratio for property financing by 5% from current ratio as follows: Landed House Type >70 Type >21-70 Type $21 Apartment Type >70 Type >21-70 Type $21 Office House Landed House Type >70 Type >21-70 Type ≤21 Table 1. Current LTV/FTV Ratio Meets NPL/NPF Criteria Property Loan & Property Financing based on Akad Murabahah & Akad 1 Istishna Does Not Meet NPL/NPF Criteria Property Financing based on Akad Murabahah & Akad Property Financing based on akad MMQ & akad IMBT Property Financing based on akad MMa & akad IMBT Istishna 22 1 22 1 2 23 1 80% 85% 80% 85% 85% 85% 2 23 8596 80% 70% 60% 85% 75% 65% 90% 80% 70% 80% 70% 85% 80% 70% 60% 85% 75% 65% 85% 90% 80% 70% 90% 80% 70% 85% 80% 70% 80% 70% 85% 80% 70% 80% 70% Table 2. Adjusted LTV/FTV Ratio Property Loan & Property Property Financing Meets NPL/NPF Criteria Does Not Meet NPL/NPF Criteria Property Financing Property Financing Financing based on Akad Murabahah & Akad based on Akad based on akad MMQ & akad IMBT based on akad MMO Murabahah & Akad & akad IMBT Istishna Istishna 22 1 22 1 2 23 2 23 90% 85% 75% 65% 90% 80% 70% 95% 85% 75% 85% 75% 85% 90% T Apartment • Bl will regularly evaluate this policy at least once a year. Type >70 85% 19096 85% 75% 65% 90% 80% 70% Type 21-70 90% 90% 95% 85% 75% 95% 85% 75% Type 321 90% 90% 85% 75% 85% 75% Office House 90% 90% 85% 75% 85% 75% Source: Bank Indonesia *This adjustment will be effective from December 2nd, 2019 117#119Adjustment of LTV Ratio for Property Loans, FTV Ratio for Property Financing, and Down Payments on Automotive Loans/Financing* (Effective December 2nd, 2019) Main Regulatory Points 2. Additional incentive on the LTV ratio for green property loans and FTV ratio for green property financing. a. The Green Property criteria standards/certificates refers to the or issued by a nationally internationally recognized environmental institution. b. Green property that is granted for the incentive has to meet the following standards: i. For residential areas/buildings in certified green belt areas, each unit in the residential area/building is considered to meet the criteria. ii. In case that the residential area/building is not a certified green belt area, an evaluation will be conducted on each unit as follows: İ. For buildings 2500m², the bank may conduct a self-assessment using the tools/applications provided by a recognized institution. ■ For buildings > 2500m², the assessment must be conducted by a recognized institution; ■ For new buildings constructed in an area by one developer or group of developers, the assessment must be conducted by a recognized institution and the certificate must be submitted by the developer Additional incentive for green property on LTV ratio for property loans and FTV ratio for property financing is 5% from the LTV/FTV ratio presented in Table 2 as follows: Source: Bank Indonesia *This adjustment will be effective from December 2nd, 2019 Landed House Type >70 Type 21-70 Type 521 Apartment Type>70 Type>21-70 Type s21 Office House Table 3. LTV/FTV Ratio for Green Property Meets NPL/NPF Criteria Property Loan & Property Property Financing Financing based on Akad Murabahah & Akad Does Not Meet NPL/NPF Criteria Property Financing based on Akad Murabahah & Akad Property Financing based on akad MMQ & akad IMBT Istishna 1 based on akad MMQ & akad IMBT 22 1 22 1 90% 95% Istishna 23 1 2 23 95% 90% 80% 70% 90%. 95% 80% 85%6 75% 90% 80% 90%. 95% 90% 80%. 70% 959 85% 75% 95% 95% 90% 80% 90% 80% 95% 95% 90% 80% 90% R0% 95% 95% 00% 80% 90% 80% of Down Payments 3. Adjustment Loans/Financing on Automotive a. Down Payments on Automotive Loans/Financing is adjusted as follows: i. Relaxation on the down payments of automotive loans automotive financing 5%-10% from current regulations; or ii. The relaxation should consider the gross NPL/NPF ratios and gross NPL/NPF ratios on automotive loans/financing; iii. The adjustment of down payments of automotive loans/financing in points a and b is as follows: Table 4. Current Down Payment on Automotive Loan or Financing Current Down Payment Table 5. Adjusted Down Payment on Automotive Loan or Financing Adjusted Down Payment Meets MPUMPF Does Not Meet Criteria Meets NPL NPF Criteria Does Not Meet NPL NPF Criteria 2 Whookd 20% 35% 2-Wheeled 15% 20% 3-Wheeled or more (nonproductive) 3-Wheeled or more productive 25% 30 3-Wheeled or more (non productive) 15% 25% 10% 3-Wheeled or more productive 10% 15% 118#120Adjustment of LTV Ratio for Property Loans, FTV Ratio for Property Financing, and Down Payments on Automotive Loans/Financing* (Effective December 2nd, 2019) Main Regulatory Points 4. Adjustment of Down Payments on Green Automotive Loans/Financing a. The green vehicles criteria refers to the Presidential Regulation No. 55 of 2019 concerning Battery Electric Vehicles. b. The down payments on green automotive loans or green automotive financing is adjusted as follows: i. Additional incentive of 5% on green vehicles from the down payment presented in Table 5; ii. The down payment incentives considers the gross NPL/NPF ratios and gross NPL/NPF ratios on automotive loans/financing; ¡¡¡. The down payment regulation for green automotive loans or green automotive financing in points a and b is as follows: Table 6. Down Payment on Green Automotive Loan or Financing 2-Wheeled Down Payment on Green Automotive Loan or Financing Does Not Meet NPL/NPF Masts NPL/NPF Criteria 10% Criteria 15% 10% 5% 20% 10% 3-Wheeled or more (non productive) 3-Wheeled or more (productive) Note: Adjustments of the LTV ratio for property loans, FTV ratio for property financing and down payments on automotive loans or financing will be effective from December 2nd, 2019 Source: Bank Indonesia *This adjustment will be effective from December 2nd, 2019 119#121Adjustment of Minimum Down Payments on Green Automotive Loans/Financing (Effective 1st October 2020) Bank Indonesia adjusts macroprudential policy in automotive sectors by: (Lowering the minimum limit of down payment on green automotive loans/financing from 5-10% to 0%, in compliance with prudential principles. Main Regulatory Points 1. Adjustment of Minimum Down Payments on Green Automotive Loans/FinancingThe green vehicles criteria refers to the Presidential Regulation No. 55 of 2019 concerning Battery Electric Vehicles. Type of Green Motor Vehicle Current regulation New Regulation *) (PBI No. 21/13/PBI/2019) *) Two-wheel 10% 0% Three-wheel or more (non- 10% 0% commercial) Three-wheel or more 5% 0% (commercial) 1. Applicable to banks with a non-performing loans (NPL) ratio below 5% 2. Effective 1st October 2020 Requirements: 1. Gross NPL ratio on total credit <5%; and 2. Net NPL ratio on automotive loan <5% Source: Bank Indonesia 120#122Adjustment of LTV/FTV Requirements on Automotive loans/financing (effective from 1st March 2021 until 31st December 2021) Bank Indonesia relaxes down payment requirements on automotive loans/financing to minimum 0% for all new motor vehicles to stimulate credit growth in the automotive sector, while maintaining prudential principles and risk management Policy Objectives and Background a. b. C. In response to the latest global and domestic developments, Bank Indonesia is maintaining an accommodative policy mix in line with efforts to stimulate economic recovery and maintain financial system stability. Considering the need to stimulate recovery, particularly in the automotive sector, and considering the sector has strong backward and forward linkages in the economy. The policy is implemented as part of the policy mix with fiscal stimuli issued by the Government, including a reduction to the luxury goods sales tax (PPnBM). d. The amendment also takes into consideration the contained credit/financing risk in the automotive sector. e. Looser downpayment requirements on automotive loans must comply with prudential principles and risk management. Changes to Down payment Requirements on Automotive Loans/Financing Current Requlation Downpayment Requirements on Non-Green Vehicles Downpayment Requirements on Green Vehicles New Regulation Downpayment Requirements on Non-Green Vehicles Downpayment Requirements on Green Vehicles Source: Bank Indonesia Vehicle Type NPL Requirements Met** NPL Requirements Not Met** NFL Requirements Met- NPL Requirements Not Met** Vehicle Type NPL Requirements Met** NPL Requirements Not Met** NPL Requirements Met** NPL Requirements Not Met** Two Wheels 15% 20% 0% 15% Two Wheels 0% 10% 0% 0% Two Wheels 15% 25% 0% 20% Dr More (Non- Commercial) Two Wheels 10% 15% 0% 10% or More (Commercial) *) previous regulation, PBI No. 21/13/PBI/2019 Requirements as follows: Two Wheels ог (Non- Commercial) Two Wheels or More 0% 10% 0% 0% More 0% 5% 0% 0% (Commercial) 1. Gross NPL/NPF ratio <5%; and 2. Net NPL/NPF ratio <5% Notes: Green vehicles include battery electric vehicles (BEVS) as stipulated in prevailing laws and regulations on accelerating the battery electric vehicle program for road transportation. 121#123Adjustment of LTV/FTV ratio on Housing loans/financing (effective from 1st March 2021 until 31st December 2021) Bank Indonesia relaxes he Loan/Financing-to-Value (LTV/FTV) ratio on housing loans/financing to maximum 100% on all residential property (landed houses, apartments and shop houses/office houses) for banks meeting specific NPL/NPF criteria, and repealing regulations on the gradual liquidation of partially prepaid property to stimulate credit growth in the property sector, while maintaining prudential principles and risk management, Policy Objectives and Background a. In response to the latest global and domestic developments, Bank Indonesia is maintaining an accommodative policy mix in line with efforts to stimulate economic recovery and maintain financial system stability. b. C. d. Considering the need to stimulate recovery, particularly in the property sector, and considering the sector has strong backward and forward economic linkages. The amendment also takes into consideration the contained credit/financing risk in the property sector. The LTV ratio is set at an upper limit of 100% for banks meeting the NPL/NPF requirements and regulations concerning the liquidation of partially prepaid property (inden) are being relaxed, which must comply with prudential principles and risk management. a. Changes to LTV/FTV Ratio on Non-Green Property Loans/Financing Current Regulation NPL/NPF Criteria Met Property Loans Financing NPL/NPF Criteria Not Met* Property Loans/Financing Property Financing based on MMO and IMBT Contracts Facility based on Murabahah and Istishna Contracts 1 22 Property Financing based on MMO and IMBT Contracts 1 22 based on Murabahah and Istishna Contracts 1 2 23 1 2 Landse HouSO Type>70 Type>21-70 85% 90% Type ≤21 - |85% 75%| - 90% 85% 75% 65% 90% 80% 70% 95% 85% 75% New Regulation NPL/NPF Criteria Met Property Loans/Financing NPL/NPF Criteria Not Met* Property Loans/Financing based on Murabahah and Istishna Contracts 1 Property Financing based on MMO and IMBT Contracts Facility based on Murabahah and Istishna Contracts 1 22 Property Financing based on MMO and IMBI Contracts 1 22 2 23 1 2 23 Landec House Type>70 Type >21-70 Type ≤21 100% Apartment Type >70 100% 100% 100% 100% 95% 90% 90% 95% 90% 90% 100% 100% 100% 100% 95% 95% 95% 95% 95% 95% 100 100 100% 100% 100% % % 95% 95% 95% 95% 85% 90% 85% 75% 65% 90% 80% 70% Type>21-70 90% 90% Type 521 90% 90% Shop House/Office 90% 90% 95% 85% 75% 95% 85% 75% 85% 75% 85% 75% 85% 75% - 85% 75% Apartment Type >70 Type >21-70 Type ≤21 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 95% 95% House 95% 90% 90% 95% 90% 90% 95% 95% 95% 95% 95% 95% 100 100 % % 95% 95% Source: Bank Indonesia denotes LTV ratio policy at bank discretion 2. Based on PE No. 21/13/PB/2019 Notes: 1. Shop House Office House 100% 100% 100% 100% 95% 90% 90% 95% 90% 90% *) NPL NPF Criteria 1. 2. Gross NFL/NPF ratio <5%; and Net NPLANPF ratio on property cans/financing <5% 122#124Adjustment of LTV/FTV ratio on Housing loans/financing (effective from 1st March 2021 until 31st December 2021) Facility based on Murabalah and Istishna Contracts 1 27 based on Murabahah and Istishna Contracts 1 22 1 2 23 1 2 23 Facility b. Changes to LTV/FTV Ratio on Green Property Loans/Financing Ketentuan Saat Ini NPL/NPF Criteria Met Property Loans/Financing Property Financing based on MMO and IMBT Contracts NPL/NPF Criteria Not Met Property Loans/Financing Property Financing based on MMO and IMBT Contracts Ketentuan Baru NPL/NPF Criteria Met Property Loans/Financing based on Murabahah and Istishna Contracts 1 Property Financing based on MMQ and IMBT Contracts 22 1 NPL/NPF Criteria Not Met* Property Loans/Financing PP Bdsr 22 2 based on Murabahah and Istishna Contracts 1 23 Akad MMQ & Akad IMBT 1 2 23 Landoc House Type >70 Type >21-70 90% 95% 95% 90% 80% 70% 95% 85% 75% 90% 80% 90% 80% Landed House Type >70 100% 100% 100% Type>21-70 100% 100% 100% 100% 100% 95% 90% 90% 95% 90% 90% 95% 95% 95% 95% 95% 95% Type ≤21 Apartment Type ≤21 100% 100% 100% 100% 100% 95% 95% 100% 95% 95% Type >70 90% 95% 90% 80% 70% 95% 85% 75% Type >70 100% 100% 100% Type >21-70 95% 95% Type $21 95% 95% 90% 80% 90% 80% |90% 80% Type >21-70 100% 100% 90% 80% Type ≤21 100% 100% 100% 100% 100% 95% 90% 90% 95% 90% 90% 100% 95% 95% 95% 95% 95% 95% 100% 100% 95% 95% 100% 95% 95% Shop House Office 95% 95% 90% 80% 90% 80% House Shop House Office House 100% 100% 100% 100% 95% 90% 90% 95% 90% 90% Notes 1. denotes LTV ratio policy at bank discretion *NPLNPF Criteria 2. Based on PB No. 21/13/PBU2019 3. Criteria for a green building a Property area <2,500m², assessed by Bank Indonesia using tools from an approved green building appraisal institution and/or certified directly by an approved green building appraisal institution, b. Property area > 2500m², certified by an approved green building appra sel institution. 1. Gross NPL/NPF ratio < 5%, and 2. Net NPL/NPF ratio on property loans/financing <5% c. Changes to Indent Regulations Current Regulation Source: Bank Indonesia Maximum cumulative liquidation Maximum cumulative liquidation up to 30% of ceiling upon completion of loan contract up to 50% upon completion of foundations Maximum cumulative liquidation up to 90% of ceiling upon completion of roof Maximum cumulative liquidation up to 100% of ceiling upon signing of BAST, accompanied by AJB and a cover note. New Regulation 1. Repeals regulations concerning the gradual indent and the liquidation of maximum cumulative liquidation of property loans or property financing. 2. Banks are required to maintain prudential principles and risk management when liquidating property loans/financing on indent. 123#125Assessment of Policy Rate Transmission to Prime Lending Rates in the Banking Industry Bank Indonesia published the “Assessment of Policy Rate Transmission to Prime Lending Rates in the Banking Industry" to accelerate monetary policy transmission and expand the dissemination of information to corporate and individual consumers in order to enhance governance, market discipline and competition in the credit market. Key Takeaways Prime lending rate response to lower policy rate (BI7DRR) still rigid. Greater prime lending rate rigidity at state-owned banks compared with other bank groups. Prime lending rate rigidity found across all credit segments, excluding micro loans. Notwithstanding, the lending rate response to a lower policy rate and loose liquidity conditions in the banking industry remains rigid. This is reflected by significant rigidity in the Prime Lending Rate (PLR) 2 in response to the lower policy rate The prime lending rate is used as the basis for determining the interest rate to be charged by the bank to the customer yet does not include the risk premium. Therefore, the interest rate charged by the bank to the borrower is not necessarily the same as the prime lending rate. PLR rigidity is a facet of nearly all credit segments, affecting consumer loans, corporate loans and retail loans. The rigid banking industry response, as reflected by smaller increments of prime lending rate reductions, has been observable in non-housing consumer loans sessment period until December 2020 based on a Sin der 2 The pipe lending rate these rapid by wit (P2010. 37/POJK.03/2019, dated 19th Dec 2019, concerning Bank Report Transparency and Publication. Source: Bank Indonesia Prime Lending Rate and Deposit Rate Response to BI7DRR 1 Bank Indonesia has maintained an accommodative monetary and macroprudential policy stance in order to stimulate economic growth. Prior to the Covid-19 pandemic, from June 2019 until Feb 2020, BI lowered the BI7DRR policy rate five times by a total of 125bps from 6.00% to 4.75%. From March 2020, Bank Indonesia lowered the policy rate another four times (100bps) to a level of 3.75% in November 2020. In terms of liquidity, accommodative monetary and macroprudential policy significantly boosted liquidity in the banking industry in order to maintain financial system stability and the bank intermediation function. BIZDRR Monthly Deposit Rate SBDK - Prime Lending Rate (SBDK) Graph 1. % 12 10 B ɓ 4 2 0 Prime Lending Rate (SBDK) % Graph 2. 13 12 11 10 9 8 7 based of banking group Regional Govt Banks (BPD) State Owned Banks (BUMN) Prime Lending Rate (SBDK) 2017 11.27 6.72 6.00 2020 +10,11 6.36 4,21 3,75 5.84 2018 2019 Spread (SBDK-BITDRR) Spread (SBDK Sb depo 1 binl ... SBDK Deposito 1 bulan ---B17 DRR 11.67 10.37 10.58 16.51 10.79 9,80 9.67 5,17 • National Private Commercial Banks (BUSN) 5 53. • Foreign Branch Banks (KCBA) 2017 2018 2019 2020 BPD BUMN BUSN KCBA Graph 3. 點 18 16 • based of credit segment Mortgage (KPR) 14 12 Non Mortgage (non KPR) 10 • Corporation Micro Retail 2017 2018 Konsumsi KPR 2019 2020 4 Konsumsi Non KPR Korporasi Mikro Ritel ********* * * * B17 DRR (RHS) 11,52 10.42 10.27 2:38 36 G 13,75 3 10.85 9.70#126Improving the Effectiveness of Monetary Policy Transmission Bank Indonesia has instituted a Reformulation of Monetary Policy Operations Framework which consists of 3 pillars B Reformulation of Monetary Policy Operational Framework Implementation of BI 7 Day Reverse Repo Rate Enhancement of monetary policy signal Implementation of Money Market Deepening Program Enhancement of instruments and transactions Implementation of Reserve Requirement (RR) Averaging Enhancement of banking liquidity management Blueprint for Money Market Development (BPPU) 2025 launched on Dec 14th, 2020 to build a reliable and efficient ecosystem for money market development in Indonesia Initiative I Promoting Digitalization and Strengthen Financial Market Infrastructures (Trading venue, central counterparty, BI-SSSS, BI-RTGS, trade repository) Initiative II Strengthening Effectiveness of Monetary Policy Transmission (Repo, IndONIA and JIBOR, Overnight Index Swap, DNDF, LCS) Initiative III Developing Economic Financing Sources and Risk Management (long-term hedging, sustainability and green financing, investor retail, asset securitization) Blueprint is accessible here: https://www.bi.go.id/en/publikasi/kajian/Pages/Blueprint-Pengembangan-Pasar-Uang-2025.aspx Source: Bank Indonesia 125#127Principles of Domestic Non Deliverable Forward (DNDF) Transaction 1. 2. 3. Purposes To support the effort of stabilizing the Rupiah exchange rate through the additional of alternative hedging instruments To support the development and deepening of the domestic financial market To increase the confidence of exporters, importers, and investors in conducting economic and investment activities through the flexibility of hedging transactions against Rupiah currency risk General Provisions ✰ Domestic Non-Deliverable Forward Transaction (DNDF Transaction) Plain vanilla derivative transaction of foreign exchange against rupiah in the form of forward transaction with fixing mechanism in the domestic market ✰ Forward Transactions Forward Transactions are sell/purchase foreign currencies against rupiah whereas the delivery of funds shall be performed in more than 2 days after the transaction date Fixing Mechanism Transaction settlement mechanism without full movement of funds by calculating the difference between rate on the transaction date and reference rate in JISDOR on a specified future time agreed in the contract (fixing date) Other Definitions The definition of derivative transaction of foreign exchange against rupiah, Forward Transaction, Spot Transaction, Customers, Foreign Party is referring to Bank Indonesia regulations regarding foreign exchange transaction against rupiah Source: Bank Indonesia 126#128Principles of Domestic Non Deliverable Forward (DNDF) Transaction Bank can perform DNDF Transactions as follows: Transaction between: III Bank Customer III Can only be performed to hedge rupiah exchange rate risk. 1. Must have Underlying Transactions: X Including all following activities : a. b. C. Trade of goods and services Investments, loans, capital, and other investements. Banks credit or financing in foreign currencies (specifically for transactions between bank and customers) Excluding following activities: a. b. C. d. e. f. g. Bank Indonesia certificates; Placement of funds with bank; Unwithdrawn credit facilities; Documents of foreign currencies sales againts rupiah; Money transfer by fund transfer companies Intercompany loan Money changer activities. Bank Foreign Party III III 2. Nominal of DNDF Transactions ≤ Nominal of Underlying Transactions 3. Tenor of DNDF Transactions ≤ Tenor of Underlying Transactions Bank - Bank Source: Bank Indonesia 127#129Principles of Domestic Non Deliverable Forward (DNDF) Transaction Source: Bank Indonesia Transaction Settlement • Use Fixing mechanism Reference rate: JISDOR for USD/IDR and BI FX Transaction MidRate for non-USD/IDR Settlement currency : IDR Roll over and early termination are not allowed Roll over and early termination for DNDF is prohibited However, unwind can be done by opening the reverse DNDF transactions Cover Hedging Bank may conduct DNDF Transactions with Bank Overseas for cover hedging purpose. Underlying Transactions: DNDF Transaction between Bank and Customer/Foreign Purpose: Hedging Customer/ Foreign Party Overseas Bank Hedging Cover Hedging Bank Notes: Customer A conduct DNDF transactions with Bank B, and so Bank B can conduct DNDF transactions with overseas Bank for the purpose of cover hedge. 128#130Amendment on DNDF Regulation *to provide more flexibility in DNDF transaction *to increase liquidity and efficiency in domestic foreign exchange market BI Regulation No. 20/10/PBI/2018 Article 3 AMENDMENT BI Regulation No. 21/7/PBI/2019 Article 3 1. DNDF transactions must have Underlying Article 6 2. Not Regulated; Article 11 1. Sell FX/IDR through DNDF up to $ 5 mio can be done without underlying documents Article 6 2. DNDF can be terminated (unwind); Article 11 3. Underlying documents must be final (firm) with additional supporting documents 4. Not Regulated; Article 11 *Effective on May 17th, 2019; English version of the regulation is available in Bl website. Source: Bank Indonesia 3. Underlying documents for buy FX/IDR for DNDF is : Final (firm commitment) + Supporting documents 4. Underlying documents for sell FX/IDR for DNDF above threshold $ 5 mio can be: . • Final (firm commitment) + Supporting documents Projection (anticipatory basis) + Supporting documents Article 11 5. In using estimate underlying transaction documents in the form of cash flow projection, Bank must evaluate the appropriateness through: a. Supplementary documents; b. Historical data within at least 1 year before; and c. Track record of the Customer or Foreign Party. 129#131• Strengthening Jakarta Interbank Spot Dollar Rate (JISDOR) To accelerate money market deepening The strengthening of JISDOR to increase domestic foreign exchange market credibility and support exchange rate stability. This measures is in line with the benchmark reform initiatives taking place on global financial markets, to establish a reference rate that represents daily exchange rates based on transactions supported by best practice methodologies. ✓ Effective starting April 5, 2021 JISDOR is obtained by calculating the weighted average based on transaction volume of the Rupiah exchange rate against USD on the spot market within the specified time window Specification Before Implementation After Implementation Information Currency Pair USD/IDR Not changed Data type Actual USD/IDR spot transactions traded in interbank market Not changed Data Reporting Media SISMONTAVAR Publisher Administrator Bank Indonesia Observation Range 08.00-09.45 08.00-16.00 Not changed Not changed Changed Jakarta Time JISDOR Publication Time Calculation Method 10.00 WIB Weighted average rate of USD/IDR spot transactions traded in interbank market Jakarta Time * 16.15 WIB * Changed Not changed Publication Media Bank Indonesia Website Not changed * Adjustment of the operational time for the domestic FX Market operating hours during The COVID-19 Pandemic: Monitoring Period JISDOR ranges: 09.00 - 15.00, JISDOR published at 15.15 Jakarta Time. JISDOR is available on every working days on https://www.bi.go.id/en/statistik/indikator/Default.aspx 130#132Overnight Index Swaps (OIS) & Interest Rate Swaps (IRS) As hedging instruments against Rupiah interest rate changes IRS market development OIS market development We're Here 3 IRS is a contract between two parties to periodically exchange rupiah interest rate flows during the contract period or at the completion of the contract based on certain notional amount. IRS pricing is based on JIBOR. OIS is an interest rate swap agreement based on a daily overnight reference rate (IndoNIA) IndoNIA & JIBOR Strengthening reference rate based on real transactions Source: Bank Indonesia OIS transaction with IndoNIA as benchmark rate Alignment between JIBOR and OIS interest Improvement of IRS transaction liquidity rate Encourage price transparency in the rupiah money market * Strengthen monetary policy transmission Provide alternative hedging instruments against rupiah interest rate changes Support securities market deepening in Indonesia 131#133OIS and IRS Transactions: General Provisions Market Players. Banks, bank clients, both individual and non-bank institutions, and also foreign parties. Transaction Needs Analysis. A bank performing an IRS or OIS transaction with a customer and/or foreign party on behalf of the customer and/or foreign party is required to have an analysis on the need of rupiah interest rate derivative transactions. Calculation Base ACT/360 Market Conventions Interest Payment based on Netting OIS Quotation rates based on 2 decimals Market Conventions. When performing IRS and OIS transactions, the respective bank is bound by market conventions agreed upon by market players through industry association including the Indonesian Foreign Exchange Market Committee. Settlement. Settlement can be performed as a netting payment and every transaction has to be settled in Rupiah. Close-out netting can be applied under predetermined conditions. IndONIA Index with 5 decimals Compound Floating Rates (CFR) based on 5 decimals Notional of Net interest payment in IDR with 0 decimals Settlement Date = 1 business days after Maturity Date (MD) Quotation : 1W, 2W, 1M, 2M, 3M, 4M, 5M, 6M At the 1st phase, OIS settlement will only be done at the end of the OIS tenor (MD+1bd). Source: Bank Indonesia 132#134Enhancement of Monetary Operations Framework 3 2 STRENGTHENED THE ROLE OF JIBOR AS REFERENCE RATE by regulatory enhancement. ACCELERATED MARKET REPO TRANSACTIONS by promoting GMRA REDUCED SEGMENTATION AND IMPROVE THE CAPACITY OF MARKET TRANSACTIONS by encouraging banks to open more access to counterparties 4 MOVING FROM AXED RATE TENDER (FRT) TO VARIABLE RATE TENDER (VRT) PROGRESS IN PROGRESS PROGRESS • • PREVIOUS JIBOR Can be traded among contributor banks for 10 minutes. • Up to the amount of IDR10 billion. Up to 1-month tenor. CURRENT JIBOR (as per June 1st, 2016) Can be traded among contributor banks for 20 minutes. Up to a total of IDR20 billion. • Up to 3-month tenor. Source: Bank Indonesia 133#135IDR Tn 180 160 140 120 100 80 60 40 420 20 0 2016 Source: Financial Service Authority (OJK) 2017 IDR Tn 6,000 5,000 4,000 3,000 2,000 1,000 0 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Bank Loans Financial Intermediation Affected Economic Activities Recovery of financial services intermediation remains a challenge as credit demand has not fully recovered due to limitations on daily activities... Following the Bank's restructuring program, credit growth shows a declining trend in 2020 with a -2.41% growth in December 2020. On-going focus on repayment and restructuring, restrained new financing distribution, pushing growth to contract by -18.20% in December 2020. Dec-19 Jan-20 Feb-20 YoY Growth (rhs) YOY IDR Tn 5,481.56 16% 500 12% 400 8% 300 4% 200 -2.41% 90 0% 100 May-20 Jun-20 Jul-20 Aug-20 Dec-20 -4% Financing Capital raising through securities issuance reached IDR 118.7 Tn in 2020, and recorded the highest number of IPO among ASEAN countries (53). ΠΙΡΟ Rights Issue After experiencing a contraction since 2019, life insurance premium growth increased by 1.9% while general insurance premium growth remained steady from the previous month. Corporate Bond & Sukuk 50 Life Insurance Premium Growth General & Reinsurance Premium Growth 2018 2019 6.1 20.3 2020 92.3 10 10 -10 -30 Jan-19 30 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 YOY Growth (rhs) 10% 370 5% 0% -5% -10% Dec-19 Jan-20 Feb-20 Mar-20 Mar-20 Apr-20 Apr-20 May-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Sep-20 -7.2 134 1.9 -18.20% -15% - -20% Oct-20 Nov-20 Dec-20#1360 Jan-19 Feb-19 Mar-19 Apr-19 May-19 2 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 4 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 16 14 12 10 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 NNNN 22 20 18 26 24 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 ■CAR Resilient Financial Institutions ■Tier 1 Domestic financial institutions remain sound and stable, supported by strong capitals and leverage amidst hurdles due to the pandemic... CAR of the banking sector remained high and stable at 23.84%, with Tier-1 capital at 22.06% as of December 2020. *) RBC of the insurance industry remained high and well above the minimum threshold (120%) with Life Insurance RBC at 529% and General Insurance RBC at 343%. *) Sep-20 Oct-20 Nov-20 Dec-20 As of December 2020, banking sector's profitability remained adequate with a slight increase from the following month. *) 6 ■Net Interest Margin Return on Assets Gearing ratio of multi-finance companies remained steady far below the threshold in December 2020. *) % 4 4.32 3 Source: Financial Service Authority (OJK) *) provisional figures due to the relaxation on financial institutions' report to OJK because of Covid-19 Dec-20 2 1.59 1 0 T T Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 135 Dec-20 Life Insurance (Lhs) 900 23.84 800 22.06 700 600 500 400 300 200 General Insurance (rhs) 400 343 350 300 529 250 - 200 100 0 threshold Insurance RBC (Lhs)=120% threshold Insurance RBC (rhs)=120% 150 100 50 0 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Apr-20 2.15 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20#1374 3 2 1 0 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 5 % Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19- Oct-19- Nov-19 Dec-19 Jan-20 Manageable Credit Risks with Adequate Liquidity % % % 170 160 Liquid Assets to Non-Core Deposits Liquid Assets to Deposits (rhs) 149.38 40 240 220 35 150 200 140 30 180 130 32.31 160 120 25 140 110 120 20 100 100 90 80 threshold LA to Deposit (rhs) = 10% 15 80 60 70 10 40 60 threshold LA/ NCD= 50% 5 20 50 0 40 T T T 0 ■NPL Net Financial Institutions are equipped with ample liquidity while credit risk is still manageable.. The ratios of liquid assets to deposit and non-core deposits remained well above the threshold following banks' cautious appetite for lending. *) Investment adequacy ratios in the insurance industry, both life and general insurance, were maintained above the threshold of 100% and remained steady in December 2020. *) Feb-20 Mar-20 Apr-20 May-20 NPL Gross Life Insurance Banking NPL ratios are well-managed below the threshold, at 3.06% gross and 0.98% net as of December 2020. *) As economic conditions are improving, NPF of multi-finance companies are steadily declining which is at 4% as of December 2020. *) Apr-20 May-20 st 4 3.06 3 2 0.98 1 0 5 UT 60 Source: Financial Service Authority (OJK) *) provisional figures due to the relaxation on financial institutions' report to OJK because of Covid-19 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Jan-19 Feb-19 Mar-19 Apr-19- May-19 Jun-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-19 Aug-19- Sep-19 Oct-19 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 136 General Insurance threshold Investment Adequacy Ratio= 100% Mar-20 4 105.7 203.3#1380 300 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 0 Jan-19 % 5 4 3 2 1 Feb-19 Mar-19 Apr-19 May- Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 יון Nov-... Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May- Manageable Market Risks Amidst global pressure, the risk profile of domestic financial institutions remains manageable... Net open position in the banking sector was still maintained far below the maximum limit of 20% in December 2020. *) The net asset value (NAV) of Equity Mutual Funds continues to recover, following JCI's upward trend. Insurance & pension fund investment value was steadily increasing with insurance reaching IDR 1242.47Tn and pension fund at IDR 305.83Tn in December 2020. *) IDR Tn Insurance 1,500 1,200 900 600 Pension Funds (rhs) IDR Tn 250 400 1242.47 200 350 150 300 100 305.83 250 50 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Source: Financial Service Authority (OJK) *) provisional figures due to the relaxation on financial institutions' report to OJK because of Covid-19 200 0 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-... Dec-20 Domestic Debt 0 150 1.58 100 50 50 IDR Tn 200 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 NAV Equity Mutual Funds JCI (rhs) 7,000 6,000 5,000 4,000 3,000 As of 5 Feb, 2021 2,000 1,000 Multi-finance companies' exposure to foreign and domestic debt remained stable. *) Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 137 91.80 Foreign Debt 140.20 0#139Jan-19 Feb-19 Mar-19 Apr-19 Source: Bloomberg and Ministry of Finance May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Domestic Capital Market Performance Amid Global Challenges Positive development of Covid-19 vaccines and prospect of economic recovery have kept a positive tone in the global capital market... Global indices continue to rise as more investors have returned to stock markets. JCI experience correction in January but continues its upward trend as it enters February. 0.67% Stock Index Performance as of 5 Feb'21 (compared to 31 Dec'20) MAL -2.99% PHIL -1.69% CHIN BRAZ US EU SIN INDO THAI TURK 340 Comp Bond Index Comp Stock Index (rhs) 7000 320 6500 6000 300 1.03% 1.77% 5500 280 1.81% 5000 2.23% 2.89% 260 4500 3.26% 3.42% 240 4000 WORLD JPN HKN S KOREA 3.76% 4.86% 220 As of 5 Feb, 2021 3500 7.56% 8.60% 200 3000 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Non-resident portfolios, both of gov't bonds and equity have recorded a net buy of IDR 10.02 Tn and IDR 3.79 Tn respectively in February. 100 50 0 -50 -100 -150 Gov't Debt Securities. ■ Equity Gov't bond yields remain competitive with continued improvement followed by stable rupiah as risk premium is maintained. Yield (%) 10 3.79 9 T T 10.02 8 7 6 5-yr Yield 20-yr Yield 10-yr Yield IDR (rhs) 18,000 14,000 10,000 6,000 150 Jan-19 Mar-19 May-19 Jul-19- Sep-19 Nov-19- Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 138 2,000#140Stimuli to Support Indonesia's Financial Industry OJK and other government institutions have worked intensively to minimize the impact of COVID-19 on the economy 1 ■ ◉ Maintaining business fundamental of the real BANN secto JK Regulation No. 11/POJK.03/2020: Bank NBFI "National Economic Stimulus as A Countercyclical Policy of The Impacts of COVID-19 Outbreak" Relaxation of credit assessment and credit restructuring to debtors who are affected by COVID-19. Credit assessment (up to IDR10 billion) is based only on the punctuality of debtors to pay their debts and interests. This applies to Commercial and Sharia Banks With maximum 1 year period of credit restructuring *) OJK Regulation No.18/POJK.03/2020: "Written Orders to Handle Bank Problems" ■ merger, Stabilizing financial sector particularly in banking sector amid COVID-19 outbreak by allowing consolidation, acquisition, and/or integration to banks permitted by OJK. *) OJK Regulation No. 14/POJK.05/2020: "Countercyclical Policy as an Impact of COVID-19 for Non-Bank Financial Institution Extendedadline of report submission Relaxation of financing assessment Financing Restructuring - - - - - Regulating loan restructuring, deadline of periodic reports, Conducting fit and proper tests, Determination of asset quality of financing, Calculation of solvency level of insurance companies, Calculation of pension fund quality, and Implementation of asset management provisions. Source: Financial Service Authority (OJK) 2 Maintaining financial market stability OJK Circular Letter No. 3/SEOJK.04/2020: "Other Conditions as Significantly Fluctuating Market Condition on Stock Buyback issued by Issuers or Public Companies" - Prohibition of short-selling Asymmetric Auto Rejection (current auto rejection limits under 7%) 30-minute Trading Halt for 5% decrease in IHSG Negation of trade in the pre-opening session Stock buyback without prior general shareholders meeting *) OJK Regulation No.15/POJK.04/2020: "Plan and Organization of the General Meeting of Shareholders of Public Companies" Aimed to enhance the participation of shareholders in General Shareholders Meeting (RUPS) by allowing electronic authorization to third parties. *) OJK Regulation No.16/POJK.04/2020: "The Implementation of Electronic General Shareholders Meeting (Glating the implementation of electronic corporate decision making by requiring a member of the board director/commissioner in charge of GSM, while other electronic attendances are counted as fulfillment of attendance quorum. *) OJK Regulation No.17/POJK.04/2020: Material Transaction and Changes in Business Activities " Improving the definition and procedure of Material Transaction, as well as the effectiveness of regulation to enhance the protection of public shareholders and the quality of information disclosure in Material Transaction and Business Activities Changes. *) OJK Regulations in Response to Government Regulation in Lieu of Law No. 1 Year 2020 to maintain financial stability and economic activities. of 139#141Further Stimuli to Provide Liquidity and Capital in Banking Industry Relaxation for Conventional and Sharia Banks (Reporting/Treatment/Governance of Restructured Credit/Financing) Adjustment of Banking Provisions Implementation during Relaxation Period Deferral of Basel III Reforms Implementation (valid until 31 December 2022) Relaxation for Rural and Rural Sharia Banks Restructured credit/financing is excluded from the Loan at Risk (LAR) in the assessment of banks performance. Banks are also allowed to approve credit restructuring with several alternative governance by considering the necessary principle. i. Eliminating the obligation to fulfill Capital Conservation Buffer by 2.5 percent of Risk Weighted Assets (ATMR) for BUKU 3 and BUKU 4 banks (until 31 March 2021) ii. Maintaining the obligation of fulfilling Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) for BUKU 3, BUKU 4, and foreign banks at a minimum level of 85 percent (until 31 March 2021) iii. Dismissing the quality assessment of Foreclosed Collateral (AYDA) based on the period of ownership (until 31 March 2021) iv. Reducing the obligation of education funds provision to less than 5 i. Precede ferment reforms include Risk-Weighted Assets (RWA) for operational risk, credit risk, market risk, and Credit Valuation Adjustment (CVA) ii. Until then, the Capital Adequacy Requirement still refers to the current RWA standard. i. Relaxing the General Loan Loss Provision (PPAP) to less than 0.5% ii. Exemption of Interbank Placement for Legal Lending Limit (BPMK) and Maximum Limit of Fund Channeling (BPMD) to a maximum 30% of capital iii. Temporary Halt on Foreclosed Collateral (AYDA) calculation based on period of ownership iv. Providing 5% less on Education, Training, and Human Resource Fund from the previous year Source: Financial Service Authority (OJK) 140#142OJK's Role in the National Economic Recovery Program (PEN) National Economic Recovery Program (PEN) PP No. 23/2020 OJK carry out efforts to support the economic recovery, through: Fund Placement Placement of funds by the Government to provide liquidity support to banks conducting loan restructuring and to provide additional creditworking capital financing OJK supports the program through Liquidity Buffer and Credit Restructuring to Banks and Multi-Finance Companies Providing Interest Subsidies for MSMEs Article 20 Paragraph 2 Government Regulations No. 23 of 2020 All debtors with credits up to IDR500 million will be given interest subsidies while debtors with credits up to IDR10 billion will go through the same mechanism with credit restructuring program. The program is eligible for debtors of banks/multi-finance companies with Performing Loan (Kol 1 and Kol 2) before COVID-19, valid from 29 February 2020. • • • Targeted Beneficiaries MSMEs debtors with credits up to IDR10 billion Debtors of housing loans (KPR) up to type 70 Debtors of motorcycle loans for productive activities, including online transportation and informal business OJK's Role Providing necessary information in the implementation of interest subsidies based on the procedure which will be arranged through Joint Decision Letter (SKB) • III Other Requirements Obedient taxpayer Excluded from National Blacklist (DHN) Mechanism The provision regarding the budgeting, implementation, and responsibility mechanism of interest subsidies and debtor requirements are regulated in the Minister of Finance Regulation (PMK) Source: Financial Service Authority (OJK) 141#143Strategic Policies in Financial Sector Providing financing alternatives for Goverment Priority Sectors Providing financial access to MSMEs especially in remote areas Supporting acceleration $ of national economic growth Improvement of business process in the industry Preparing financial services industry to cope with Industrial Revolution 4.0 Source: Financial Service Authority (OJK) 142#144Continuous Program on Capital Market Deepening ...continuously strengthened, including through capital market deepening initiatives Enhancing the supply-side ■ Product: QIB offering and private placements, private fund, asset-backed securities, REITs, infrastructure fund, IGBF (Indonesia Government Bonds Future) & equity crowdfunding. ■ Issuer: Financial conglomerates, big bank debtors, local government, IDX incubators, SMEs, SOES & big tax payers. ☐ ☐ ☐ Strengthening market infrastructure Development of Integrated Licensing (SPRINT). Enhancement of electronic reporting system. Development of electronic public offering. ☐ Integrated data warehouse and supervisory system. ☐ Enhancing the demand-side Enhancing the role of the domestic institutional investors (insurers & pension funds) in capital markets. Development of the domestic investor base (conducting investor education programs). Simplification in opening securities account. Development of regional securities companies. Development of e-bookbuilding. ☐ ☐ Online marketing initiative Strengthening governance & customer protection Development of market players' capacity ■ Enhancement of GCG for publicly-listed companies Establishment of disgorgement fund Source: Financial Service Authority (OJK) 143#145Enhancing Financial Literacy & Inclusion OJK strives to build a strong foundation for financial inclusion programs, to ensure access to financial products & services by Indonesians of all social classes. Such initiatives also include the enhancement of financial literacy and financial consumer protection. Developing financial education models utilizing various delivery channels Enhancing the role of the "Investment Alert Taskforce" Developing micro-credit products with additional business support ("KUR Klaster") Promoting the establishment of Islamic microfinance institutions ("Bank Wakaf Mikro") Strengthening the role of Financial Access Acceleration Taskforce (TPAKD) in local areas The result of OJK's 2019 national survey demonstrated an improvement in financial literacy & inclusion among Indonesians compared to that of 2016. 21.8% 29.7% 38.03% 59.7% 67.8% 76.19% Financial Literacy 2013 2016 2019 Financial 2013 2016 2019 2019 Target: 35% Inclusion 2019 Target: 75% Source: Financial Service Authority (OJK) 144#146A Comprehensive Financial Deepening Program ...strategy to tackle challenges in deepening Indonesia's financial markets In Apr-2016, the Minister of Finance, the Governor of Bank Indonesia, and the Chairman of the Board of Commissioners of the Financial Services Authority launched a Coordination Forum for Development Financing through Financial Market (FK-PPPK). The three authorities have agreed to formulate "The National Strategy of Financial Market Development" Vision: To Establish Deep, Liquid, Efficient, Inclusive, and Safe Financial Market Mission: Financial Market as Sources of National Development Financing TARGET KEY PERFORMANCE INDICATOR 1 2 STRATEGIC ACTION PLAN 3 ECONOMIC FUNDING & MARKET INFRASTRUCTURE 3 Pilars RISK MANAGEMENT DEVELOPMENT POLICY COORDINATION, HARMONIZATION & EDUCATION 6 Markets Money Market Bond FX Market Market Stock Market Syariah Market Structure Product Market 7 Elements of Financial Fund Market Infrastructure Regulatory Framework Market Ecosystem Instrument Benchmark Rate & Standardization Coordination & Education Source: Bank Indonesia Intermediaries 145#147BI's Roles in Supporting Distribution of Non-Cash Social Assistance (NCSA) Bl supports government's program of shifting social assistance to targeted non cash social assistance disbursement through the electronic payment system. In the future, electronic mechanism disbursement will be also applied to LPG subsidy. NCSA Programs Family Hope Program (Program Keluarga Harapan -PKH) Smart Indonesia Program (Program Indonesia Pintar-PIP) Pilot Project Source: Bank Indonesia KARTY KELARA SE MATERA Gradual Implementation Non Cash Food Assistance (Bantuan Pangan Non Tunai BPNT) I 9876543210 XXYYZZ 12345678 LPG Subsidy 2016-2020 Full Implementation Interconnected & interoperable payment system T T 146#148Progress of NCSA Programs • • Family Hope Program (Program Keluarga Harapan - PKH) The Family Hope Program (PKH) is a program that provides cash to very poor households. IDR1.89 million/year will be granted for each household. PKH will be granted every February, May, August, and November. As of December 2017, PKH has been distributed to 6.0 million households on non- cash basis. • In 2018, PKH has been distributed to 10 million households on non-cash basis. with In 2019, PKH has been distributed to 9.84 million house hold on noncash basis total realization of IDR32.75T. KARTU KELUARGA SEJAHTERA 1281 5678 12345678 AGE RAMANAS • • Non Cash Food Assistance (Bantuan Pangan Non Tunai - BPNT) BPNT is a poverty alleviation and social protection program that is managed by the central government. It provides subsidized rice and eggs to low-income households. IDR110 thousand month will be granted for each household as BPNT that can be used in certain stores which called e-warong. As of December 2017, BPNT was distributed to 1.2 million households in 44 cities. In 2018, BPNT has been distributed to 10.1 million households (65.1% of the target of 15.5 million households target). . In 2019, BPNT has been distributed to 15 million household on non cash basis with total realization of IDR15.44T Source: Bank Indonesia 147#149Section 8 Progressive Infrastructure Development: Strong Commitment on Acceleration of Infrastructure Provision BHINNEKA TUNGGAL IKA#150PIC Institutional Reforms to establish a conducive PPP ecosystem kppip Institutional Reforms for PPP Implementation KPPIP: Coordinating unit in decision- making processes and debottlenecking efforts for infrastructure acceleration WLKPP KANTOR BERSAMA KPBU REPUBLIK INDONESIA Por Gommini PPP Joint Office: Information center for policy coordination and capacity building to encourage the use of PPP schemes IIGF Indonesia Infrastructure Guarantee Fund: Provides guarantee and supports project preparation VSMI Sarana Multi Infrastruktur: Facilitating infrastructure financing, preparing project, and serving advisory PPP Stages Project Development Facility (PDF) Outline Business Case Determination of Funding Scheme Tender document + Transaction preparation PPP Agreement Final Business Case (FBC) Government Contracting Agency (PJPK) Financial Close Legend IIGF PAM Вердитым Kementerian PPM/ Bappenas Business Entity P Happ KANTOR BERSAMA KPBU REPUBLIK INDONESIA KANTOR BERSAMA KPBU REPUBLIK INDONESIA KANTOR BERSAMA KPBU REPUBLIK INDONESIA IIGF kppip PornP Intabuldur Fibr kpsip VSMi Business Entity Lender Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Ministry of National Development Planning Ministry of Finance 149#151Reforms Along the Project's Life Cycle ...to encourage and accelerate infrastructure project using PPP scheme Government of Indonesia Project Development Facility (PDF) Preparation Project development facility assists the Government Contracting Agency (GCA) in PPP project preparation (PDF&TA) Managing entity: KPPIP, PT SMI and PT IIF, Ministry of Finance Viability Funding Gap (VGF) Guarantee Scheme Tax Facilities Availability Payment Land Acquisition A facility which contributes to construction cost in order to increase project financial feasibility Managing entity: Ministry of Finance based on GCA proposal Govt's commitment: Max 49% per project cost Bidding Process Guaranteeing govt. contractual obligations under infra. concession agreements and MoF Reg. No. 130/PMK.08 /2016 re: Govt. guarantee for electricity project acceleration Managing entity: Indonesia Infra. Guarantee Fund (IGF) and MoF Govt's commitment: US$ 450 Mil MoF Reg. No.150/2018 allowed 100% Tax Holiday for 18 Pioneering Industries for 5 - 20 years depending on the investment value. The tax holiday is not only given to the new investments but can also be obtained by the existing taxpayers who want to expand their business. Managing entity: Ministry of Finance A scheme in which concessionaires receive periodic payments from central or regional government if the service standard is fulfilled. The MoF Regulation and MOHA Regulation on Availability Payment have been stipulated. Managing entity: Ministry of Finance Ministry of Home Affairs Construction A facility to support land acquisition for infrastructure projects particularly projects that involve private sector Managing entity: Ministry of Finance; Ministry of Agrarian and Spatial Planningl/BPN, and BLU-LMAN Gov't. commitment: US$ 9.3 bn (2016- 2021)* *USD1 IDR13,500 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 150#152Efforts to Accelerate Infrastructure Provision The establishment of Indonesia Asset Management Agency (LMAN) Government has established State Asset Management Unit (LMAN) as a solution to accelerate the land acquisition through the provision of land acquisition fund Land Acquisition Budgeting Scheme G 1. Unutilized fund can be allocated for the following year Non-project-specific land acquisition fund LMAN at a Glance 1. LMAN was established in December 2015 through the issuance of MoF Reg. 219/2015 concerning State Assets Management 2. In 2016, BLU LMAN was mandated to provide land acquisition fund as a support to Ministry of Public Works due to US$ 1,081 Mio shortage of fund to acquire land for priority toll roads 3. The scope of support is broaden for all National Strategic Projects through the issuance of MoF Reg. 21/2017 (j.o MoF Reg. 209/2019 j.o. MoF Reg. 139/2020) concerning land acquisition financing guideline for PSN 4. In April 2019, LMAN has disbursed up to US$ 4 billion (IDR 54 Trillion) through bridging finance scheme for 93 toll road projects, and planned to start the implementation of direct payment scheme 2. 3. allocation. Unused allocated fund can flexibly be made available for the other project Land acquisition fund for PSN projects is managed under one agency This LMAN initiative provides better flexibility, coordination and management of land acquisition fund provision for National Strategic Projects (PSN) Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 151#153Efforts to Accelerate Infrastructure Provision Limited Concession Scheme as an Alternative of Infrastructure financing Presidential Regulation No 32/2020 about Infrastructure Financing through Limited Concession Scheme Definition Limited Concession Scheme of Infrastructure Asset is the asset concession agreement to improve operations of Government assets (BMN) and/or SOES' assets generate revenue to improve similar project operations and/or finance other infrastructure provision Infrastructure Financing Priority to Revenue generated by the LCS will be used to fund the priority infrastructure projects and/or national strategic infrastructure projects Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) LCS Principles LCS transfers concession rights from brownfield asset owned by the Government and/or SOEs to private sector to operate, maintain, and develop the assets; As the rewards, Government and/or SOE will receive upfront payment or annuity payment during the concession period Future CAPEX during the concession period will be borne by the concession holder to ease the Government and SOE budget burdens Technical Criteria for the LCS assets The asset has been fully operated for minimum 2 years The asset needs to improve operation efficiency based on international standard Asset's useful life minimum is 10 years For the SOE's asset, the asset must have positive cash flow for minimum 2 years in a row and has been audited at least 3 years in a row For Government asset (BMN), the asset should be on the Ministry Financial report that has been audited based on the Government Accountancy Standard in the previous period 152#154Efforts to Accelerate Infrastructure Provision Land Value Capture (LVC) Scheme ❝ A policy approach that enables communities to recover and reinvest economic value increases and increases in economic productivity that result from public investment and other government actions. (Lincoln Institute of Land Policy) . Open Housing & Settlement Human Settlement Improvement 品 Keep Investing- network Grows LVC Benefit alue Uplift Retain a Portion • Local revenue from tax and levy Better city planning and development • Regional growth Distributed development in urban area Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Tax based LVC Land and Property Tax Betterment Levies and Special Assessment Tax Increment Financing (TIF) Development Based LVC Land Sale and Rent Air Right Sale Joint Development Land Readjustment Better Triple Win LVC Reducing Urban Creating Fiscal Subsidy Mobility Space 153#155Efforts to Accelerate Infrastructure Provision Sovereign Wealth Fund (SWF) • • SWF Investment Guide Omnibus Law mandated the establishment of Sovereign Wealth Fund as Gol investment body With goal to • hcrease and optimize . asset value in long term To support sustainable development Gol committed to invest IDR 15 Billion as initial capital for SWF/LPI Domestic and International Investor Co - Investor (Minority Shareholder) Direct landing to company/asset/project Government of Indonesia Cq. Ministry of Finance Indonesia Sovereign Wealth Fund (Lembaga Pengelola Investasi/LPI) Investment Agreement Managed fund for infrastructure Managed fund for Energy & Natural Resources Master Fund Manager Management Agreement Master Fund/ Principal Investor (ex. ADB, JBIC) Investment Agreement Managed fund for Health sector Managed fund for Tourism | Managed fund for Technology Managed fund for New Capital Toll roads Oil & Gas Hospitals reserves Pharma- ceuticals Tourism SEZ Tanamori Toba Digital lending Payments Commerce Contractor Utilities Land & Likupang building Hotel chain Airports Seaports Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 154#156Fundamental Regulations Initiation to accelerate infrastructure projects delivery 1 2 3 4 5 Government Reg. No. 13/2017 on National Spatial Plan (RTRWN) The issuance of RTRWN can resolve spatial planning mismatch in the implementation of infrastructure projects listed in the annex of Government Reg. No. 13/2017. A number of breakthroughs were developed, and one of them is that the Minister of Agrarian and Spatial can issue a recommendation of spatial utilization; so that the process of obtaining project permission can be done. MoF Reg. No. 60/2017 on Procedures for the Provision of Central Government Guarantee for the Acceleration of the National Strategic Projects Implementation The supporting regulation for Presidential Reg. No. 3/2016 on the Acceleration of the National Strategic Projects Implementation. This regulation regulates the scope and general requirements and procedures to propose and grant guarantees, as well as allocate state budget obligation on government guarantees to all PSN. The guarantee provision is expected to increase the feasibility and trust of investors to participate in the implementation of PSN. Presidential Reg. No. 56/2017 on Social Impact Handling in Land Acquisition Process for PSN This Presidential Reg. allows the Executing Agency to pay land acquisition compensation to the impacted community who does not have official rights over the land required for PSN. This regulation helps to solve the land acquisition problem due to community objection over the land use. Presidential Reg. No. 66/2020 on Land Acquisition Funding for Public Interest in Implementing PSN This Presidential Reg. was issued to accelerate the process of land acquisition funding for PSN as well as replacing the Presidential Reg. No. 102/2016 MoF Reg. No. 21/2017 on Procedures for Land Acquisition for National Strategic Projects (PSN) and Asset Management of Land Acquisition by State Asset Management Agency (j.o. MoF Reg. No. 5/2019, j.o. MoF Reg. No. 209/2019, j.o. MoF Reg. No. 139/2020) The implementing regulation of Presidential Reg. No. 102/2016 on Financing of Land Acquisition for the Development of Public Interest in the Framework of the National Strategic Implementation. This regulation becomes the legal basis for the financing of the procurement of National Strategic and Priority Projects by BLU LMAN Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 155#157National Strategic Projects (PSN) may receive privileges as stipulated in the Presidential Reg. No. 3/2016 j.o. the Presidential Reg. No. 58/2017 j.o. the Presidential Reg. No. 56/2018, j.o Presidential Decree no.109/2020 Project acceleration for private investment Settlement of Legal Issues Accelerate Goods and Service Procurement Land transfer fee waiver 12 01 Electronic permit licensing 11 PSN Facilities 02 10 60 Spatial Planning 10 3 03 04 Land clearing acceleration Problems and 09 Hindrance Completion New Facilities 08 SOE's Assignment 07 06 Projects Monitoring via KPPIP IT System Existing Facilities Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 95 05 Local Content Utilization Government Guarantee Provision 156#158Job Creation Law's Positive Development of PSN Government Regulation on Ease of Doing Business for PSN Government Regulation on Land Acquisition for Public Interest Government Regulation on Spatial Adjustment for Forest and Land Right/Permit 呂 Government Regulation on Spatial Planning Government Regulation on Land Bank Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) A 157#159Under Presidential Reg. No.56/2018, PSN list has been revised into 223 Projects and 3 Programs 53 Projects Sumatra US$43.6 B 17 Projects 27 Projects 12 Projects Sulawesi Kalimantan US$23.4 B US$35.7 B Maluku & Papua US$34.5 B 89 Projects 3 Programs National Java US$72.7 B 12 Projects US$100.7 B 13 Projects Bali & Nusa Tenggara US$0.7 B Exchange rate: US$ 1 = IDR 13,500 PSN includes 15 sectors at project level and 3 sectors at program level Project A Road 69 Projects Dams 51 Projects SEZs & IES 29 Projects Railway 16 Projects Energy 11 Projects Ports 10 Projects Clean Water & Sanitation Airports 7 Projects 4 Housing Smelter 6 Projects Technology 4 Projects 3 Projects Fisheries/Farming 1 Projects Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 8 Projects Sea Dike 1 Projects Education 1 Projects Irigation 6 Projects Program Electricity 1 Program Aeroplane Industry 1 Program Economic Equality 1 Program 158#160PSN Profile of 223 Projects and 3 Programs The Estimated Investment Value for 223 Projects + 3 Programs PSN¹ State Budget 10% 5 Sectors with Highest Investment Value Energy 11 Projects US$ 89.8 Bn Private 59% 31% SOES/ RSOES 4 A Electricity 1 Program US$ 76.7 Bn Roads 69 Projects US$ 49.7 Bn Total Investment Value² US$ 307.4 Billion State Budget US$ 31.6 Bn SOES/RSOES US$ 96.6 Bn Private US$ 179.2 Bn Railways 16 Projects US$ 29.2 Bn SEZs and IEs 31 Projects US$ 31 Bn ¹Exclude 7 projects which investment value are still unknown Exchange rate: US$ 1 = IDR 13,500 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 159#161From 2016-2020, there were 92 projects¹ completed with total estimated investment value of IDR 847 tn Completed 2016 20 Projects (IDR 33,3 T) • 7 Airports . 1 Seaports 1 Toll Road • 1 Gas Pipe • 6 Dam • 4 National Border Completed 2017 10 Projects (IDR 61,4 T) Completed 2018 32 Projects (IDR 207,4 T) Completed 2019 30 Projects (IDR 165,3 T) Completed 2020 12 Projects (IDR 135,3 T) • . 2 Toll Road . 1 Access Road 3 National Border 1 Dam 2 Railway . 1 Airports 4 Airports • 4 Dam • 4 Industrial Zone 9 National Road . . 1 Airports • 1 Irrigation • 1 Irrigation • 4 Smelter 6 Industrial Zone • 1 Gas Facility 10 Toll Road 5 SEZ • 1 Fishery Center • 2 Smelter • 4 Dam • 2 Technology ¹In cumulative, including projects that are already taken out in 2016 and 2017 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) • 2 railways 1 seaport • 1 Airport • 1 Train 3 Highway 1 SPAM . 3 Industrial Estate 2 Dam 1 Port 160#162Since January 2020, 12 PSN projects completed with 19 projects operate partially and 99 under construction PSN Progress (January- December 2020) PSN Investment contributor 12 Completed (IDR 124,2 T) State budget 6% 19 SOE Operate Partially (IDR 1.442,2 T) 67 25 % PSN Construction (IDR 1.749,9 T) IDR 4.817,7 Trillion* 69% Transaction (IDR 214,7 T) 99 Preparation (IDR 1.286,8 T) Private *Include 10 programs -> 6 Operate partially, 1 Construction, and 3 Preparation *Exclude Regional Development program, food estate program and Bali Utara airport investment Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 161#163Progress on 37 Priority Projects From the revised National Strategic Projects, the Government has selected a list of 37 Priority Projects to be the focus of infrastructure provision. 24 22 14 23 24 27 23 24 4 22 23 22 22 24 27 4 11 23 37 24 15 2 18 24 23 18 24 30 12 23 24 18 18 18 27 25 18 31 24 18 18 18 18 24 36 1234 1. # New Priority Projects # Existing Priority Projects Balikpapan-Samarinda Toll Road 24 3 13 9 16 33 27 37 1 37 10 13 35 21 20 24 19 32 20 29 26 28 27 6 37 37 24 37 5 24 24 26. 13. LRT of DKI Jakarta 2. Manado-Bitung Toll Road 14. Kuala Tanjung International Hub Seaport 27. 3. Panimbang-Serang Toll Road 15. Bitung International Hub Seaport 4. 15 Segments of Trans - Sumatera Toll 16. Patimban Port 28. Road 17. 56∞ 5. - Probolinggo Banyuwangi Toll Road 18. Inland Waterways Cikarang-Bekasi-Laut (CBL) Palapa Ring Broadband 29. Tuban Oil Refinery RDMP/Revitalization of the Existing Refineries (Balikpapan, Cilacap, Balongan, Dumai, Plaju) Abadi WK Masela Field Unilization Field Has Jambaran-Tiung Biru 30. 6. - Yogyakarta Bawean Toll Road 19. Batang, Central Java Power Plant (CJPP) 31. Indonesian Deepwater Development (IDD) Tangguh LNG Train 3 Development 7. SHIA Express Railway 8. MRT Jakarta South-North Line 20. Central West Java Transmission Line 500 kV 32. 21. Indramayu Coal-fired Power Plant 33. West Semarang Drinking Water Supply System Jakarta Sewerage System 34. 9. Makassar-Parepare Railway 22. 10. Light Rail Transit (LRT) of Jakarta- 23. Depok-Bogor-Bekasi Sumatera 500 kV Transmission (4 Provinces) Mulut Tambang Coal-fired Power Plant (6 Provinces) National Capital Integrated Coastal Development (NCICD) Phase A 35. Jatiluhur Drinking Water Supply 11. LRT of South Sumatera 24. PLTGU (16 Provinces) 36. Lampung Drinking Water Supply 12. East Kalimantan Railway 25. Bontang Oil Refinery 37. Waste to Energy Program in 8 cities Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 162#164Progress on 37 Priority Projects Progress of 37 Priority Projects (as of June 2020) 8% 11% 5% 60% 16% 4 project is completed 6 projects in construction and partial operation phase 22 projects in construction and I will start operating after 2019 3 projects in transaction 2 projects in preparation Recent Milestones A Palapa Ring West package has been fully operasional since April 2018. A Trans Sumatera Toll Road Segment of Pekanbaru-Dumai (131,5Km) has been operated on Sept 26th, 2020. West Semarang Water Supply System: On March 2018, pre-qualification stage has resulted 4 shortlisted bidders Funding Scheme of 37 Priority Projects 8% O 26% 66% Total Investment Value US$ 183.9 Billion US$120.7 billion from Private/ PPP US$47.7 billion from SOE/ Regional SOE US$15.5 billion State/ Regional Budget (including G-to-G loan) Exchange rate: US$ 1 = IDR 13,500 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) ធៈ០ Mass Rapid Transit (MRT) Jakarta South-North Allocation of repayment liability on additional-loan for Phase | and Phase II has been decided in the KPPIP Ministerial meeting - 49% will be borne by Central Government and 51% will be borne Provincial Government of DKI Jakarta. Patimban Port Loan Agreement has been signed on 15 November 017. Note: This data is still going to be verified by The Executive Office of President (KSP) and Indonesia's National Government Internal Auditor (BPKP) 163#165Energy Sector: the Progress of 35.000 MW Program Average economic growth of 6.7% requires 7,000 MW / year or 35,000 MW 5 years (Kepmen ESDM No. 0074/2015 on RUPTL 2015-2024) Debottlenecking through regulation: 1. Regulation No.1/2015 concerning electricity supply cooperation & joint utilization of the electrical network among license holders. 2. Regulation No.3/2015, concerning Procedures of Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection & Appointment. Cabinet Meeting Progress of 35,000 MW Launching 35.000 MW by the President in Goa Beach Sanden DIY 17 Dec '14 Jan '15 Cabinet Meeting "There's electricity crisis in Indonesia, requires construction of large capacity plant " Jan '15 35,000 MW Program Distribution Update Electricity Supply Business Plan (RUPTL) 2019-2028) 16 Mar '15 4 May '15 Kalimantan (4,477 MW) Sulawesi (2,570 MW) 1. Op. 904 MW 1. Op. 1,146 MW 2. Cons. 785 MW 2. Cons. 963 MW Maluku-Papua (877 MW) The progress so far: 1. 3. PPA 1,413 MW 3. PPA. 76 MW Op. 437 MW Aug 20 2. Cons. 54 MW 4. Proc. 218 MW 4. Proc. 235 MW Sumatera (9.410 MW) 5. Plan. 158 MW 5. Plan. 150 MW 3. PPA. - 12345 1. Op. 1,302 MW 4. Proc. 160 MW No Phase MW % 5. Plan.-225 MW 2. Cons. 4,248 MW 3. PPA 3,555 MW 4. Proc. 85 MW 5. Plan. 85 MW Jawa, Madura & Bali (18,399 MW) Nusa Tenggara (812 MW) 1. Op. 4,184 MW 2. Cons. 12,730 MW 3. PPA. 1,485 MW 4. Proc. - 5. Plan. - 1. Op. 427 MW 2. Cons. 274 MW 3. PPA. 4. Proc. 5 MW 5. Plan. 106 MW 1234 Operating Construction 8,400 24 19,055 54 Signed Power-Purchase Agreement 6,528 18 Procurement 839 5 Planning 724 2 Source: PLN Note : Progress of 35,000 MW Electricity Program as of August 2020 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 164#166Energy Sector: the Progress of 35.000 MW Program December 2016 November 2017 December 2018 December 2019 August 2020 2% 3% 16 6% % 9% 28 % 3% 8% 2% 19 2% 24 % % 5% 3% 2% 19 18 % % 44 32 % % 30 38 52 % 24 % % 57 54 % % % 706 MW operating phase 10,141 MW in construction phase 8,478 MW signed Power-purchase Agreement 10,560 MW in procurement phase 5,824 MW in planning phase in 998 MW in operating phase 15,676 MW in construction phase 13,782 MW signed Power-purchase Agreement 3,163 MW in procurement phase 2,228 MW in planning phase Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 2,899 MW in operating phase 18,207 MW in construction phase 11,467 MW signed Power-purchase Agreement 1,683 MW in procurement phase 954 MW in planning phase 6,811 MW in operating phase 20,168 MW in construction phase 6,678 MW signed Power-purchase Agreement 829 MW in procurement phase 734 MW in planning phase 8,400 MW in operating phase 19,055 MW in construction phase 6,528 MW signed Power-purchase Agreement 839 MW in procurement phase 724 MW in planning phase 165#167Acceleration of 35.000 MW Program The Government has issued Presidential Regulation No. 4/2016 on Electricity Infrastructure Acceleration to accelerate power projects Government Support (outside Guarantee) • Provision of Primary Energy Provision of Renewable Energy Simplicity of Permits and non-Licensing Spatial Planning Land acquisition Resolution on Legal Matters Government Assignment Local Content Obligation on the usage of local content through an open book system, price guideline, reverse engineering or other methods to maximise the local content. 1 EPC Powerplant and Transmission PT PLN Provision of Electricity 2A 2B 23 PLN Subsidiary (Joint Venture) SJKU* Ministry of Finance Independent Power Producer Direct Lending PT PLN's divident allocation Company Tax Holiday *)SJKU=Surat Jaminan Kelayakan Usaha/ Business Viability Guarantee Letter Strengthen Equity Strengthen PLN's Balance Sheet Loan from independent lenders Equity Injection by the Government Refinancing Hedging Bond issuance by PT PLN Asset Revaluation Financial Asset Optimization Direct Lending Other types of funding Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 166#168Significant Progress on Infrastructure Projects Roads wwwwcon Trans-Sumatra Toll Road Dams Merah Putih Bridge, Ambon Drinking Water Processing Jatigede Dam (Operational) Umbulan Drinking Water Provision System, East Java Transportation Jakarta MRT Project² Terminal 3 Ultimate Soekarno-Hatta² New Tanjung Priok Port Project² Nop Goliat Dekai, Papua Improving Monitoring System on Infrastructure Projects¹ KPPIP developed an integrated IT System for monitoring of national strategic and priority projects, providing database on projects' latest status which can be effectively utilized for monitoring and decision-making purposes. Database Project information such as map, track, existing study and latest project status. 2 Platform data outlook that is efficient and functional using a user-friendly framework. 12 1 An integrated IT system with monitoring capacity for stakeholders, so that they can have real time data. 3 Record decisions related to projects and synchronize the implementation schedule that can be utilized by stakeholders. Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Not funded from National Budget 167#169Infrastructure Projects and Financing Schemes Promotion of Infrastructure Development to Accelerate Economic Growth 1 Infrastructure Development is a Key Priority Infrastructure Development in order to: 1. Accelerate growth particularly in rural areas 2. Support industrial development and tourism 3. Reduce unemployment and poverty Infrastructure fundraising needs: $357.9 bn (or equivalent to IDR4,796.2 tn) Broad Objective Core Mandates 1 1 245 National Strategy Projects under National Medium Term Plan for 2015 2019 with an estimated total cost of IDR 4,197 tn (USD 313 bn) 1 37 priority infrastructure projects with an estimated cost of IDR 2,490 tn (USD 180 billion) Additional Mandates 1 - Majority of 37 priority projects are expected to commence commercial operation by 2018 2022 Establishment of PPP Unit Champion project preparation and acceleration of the PPP agenda in Indonesia - Improve quality of project selection under KPPIP OBC criteria Support project preparation through PDF support and highly qualified transaction advisors Act on behalf the Minister of Finance in providing government support and approvals for projects Coordinate all public finance instruments Provide input for PPP Policy program Development and Regulations Implement capacity building for Govt. Contracting Agency (GCAs) One stop shop for PPP promotion & Information Budget Central & regional budget (special allocation fund & rural transfer) • Primarily to support basic infrastructure projects: Food security: Irrigation, dams etc. Maritime: Seaports, shipyards etc. Connectivity: Village roads, public transportation etc. Public Private Partnership Certain infrastructure projects to be funded and operated through a partnership between the Indonesian government and the private sector Projects ready for auction under the PPP Scheme: Toll roads projects such as Balikpapan-Samarinda and Manado-Bitung Railway projects such as an express line into Soekarno-Hatta International Airport Water supply projects such as the West Semarang Project Various government support for PPP: - - Project Development Facility (PDF): Helps Government Contracting Agencies (GCAs) in project preparation and transaction Viability Gap Fund: improves financial viability of PPP projects Government Guarantees: Supports PPP projects' bankability by providing sovereign guarantees Infrastructure Financing Fund: Provided through PT SMI and IIGF Availability Payment (AP): GCA pays private partner based of availability of infrastructure services Note: OBC: Outline Business Case; PDF: Project Development Facility; GCA: Government Contracting Activity Source SOE & Private Sector Government to inject capital into SOES: Intended multiplier effect to develop more infrastructure projects • Key focus areas: Infrastructure and maritime development Transportation and connectivity Food security ● Medium term infrastructure developments to focus on: Water Supply Airports Seaports Electricity and power plants Housing Mining Ministry of Finance; Bappenas; KPPIP: "Komite Kebijakan Percepatan Penyediaan Infrastruktur" or National Committee for the Acceleration of Infrastructure Delivery Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 168#170Government Guarantee For Basic Infrastructure Development Reflects strong commitment to national development planning Government Guarantee Program Contingent Liabilities from Government Guarantee as of Q3 2020 ** Power (Electricity) - Full credit guarantee for PT PLN's debt payment obligation under FTP 1 10,000MW and 35GW programs*. No. Central Government Guarantee for Infrastructure Programs Guarantee Document Credit Outstanding /Investment Exposure (billion)** Credit Guarantee Business Viability Guarantee (BVG) PPP Guarantee Political Risk Guarantee - Clean Water Guarantee for 70% of PDAM'S debt principal payment obligations. - I Toll road Full credit guarantee for PT Hutama Karya's debt payment obligations for development of Sumatra Toll Roads. Infrastructure Full credit guarantee on SOE'S borrowing from international financial institution & guarantee for PT SMI's local infrastructure financing. 1 the Coal Power Plant 10,000MW Fast Track Program (FTP 1) 15 USD 1.30 2 Clean Water Supply Program 6 USD 0.01 3 Direct Lending from International Financial 7 USD 1.83 Institution to SOES 4 Sumatra Toll Road 10 USD 3.04 5 Renewable energy, Coals & Gas Power Plant 7 USD 3.88 10,000 MW (FTP 2) 6 Public-Private Partnerships (PPP) 7 USD 4.93 7 Regional infrastructure financing 1 USD 0.20 8 Public Transportation (Light Rail Transit) 1 USD 0.41 9 Electricity Infrastructure Fast Track Program (35 GW) 6 USD 4.51 60 USD 20.09 Public Transportation (Light Rail Transit) Full credit guarantee for PT Kereta Api Indonesia's debt payment obligations for the development of LRT Jabodebek. Power (Electricity) Guarantee for PT PLN's obligations under Power Purchase Agreements with IPPS (off-take and political risk) under FTP-2 10.000MW and 35GW programs* - Infrastructure Guarantee for Government-related entities obligations (line ministries, local governments, SOEs, local SOEs) under PPP contracts/agreements Infrastructure Guarantee against infrastructure risks for National Strategic Projects (Presidential Decree No.58/2017) which are not covered by other type of guarantees *) MOF provides both credit guarantees and BVGs for 35GW program Source: Ministry of Finance Total From 2008 to Q3-2020 **, the government has issued 89 guarantee documents with total value of USD40.69 billion, there were 29 guarantee documents worth USD4.12 billion have been expired. to The Maximum Guarantee Limit for the period 2020-2024 is set at 6% of GDP. Beginning in 2008 the Government has allocated a contingent budget with respect these guarantees. Any unused budget allocation may be transferred to a guarantee reserve fund. This reserve fund, together with the relevant annual budget allocations, reserves for any claim that arises from these guarantees. serves as **) Currency conversion of IDR14,105.01/USD1 and IDR17,330.13/EUR1 (as of end December 2020) 169#171Government Financial Facilities for PPP Projects Financial Facilities to Attract More Private Participation More Funding Schemes are on the Pipelines Viability Gap Fund (VGF) Project Development Facility (PDF) LCS (Limited Concession Scheme) Government Guarantees (directly by MoF or through IIGF) Availability Payment Schemes Financing from PT. SMI and PT. IIF PINA (Non-Government Budget Infrastructure Those financial facilities were instrumental in supporting the execution of PPP projects, indicated by the signing of financial close of the following PPP projects: Financing) Source: Ministry of Finance Project Financing funded by the private sector through the granting of concessions for an operating asset owned by the Government/SOE (based on the policy of the Government) to the private sector to be operated & managed. • • Scheme Characteristics Asset is owned by public sector Operating asset, not greenfield project Records positive cash flow for the last several years Predicted revenue Project Financing funded by any source of funds other than Government's budget, e.g. long term management funds (insurance, repatriated funds from tax amnesty, pension funds, etc.), private equity investors and infrastructure funds. Supported & facilitated by National Development Planning Ministry/Bappenas. . Scheme Characteristics Asset is owned by private sector Greenfield brownfield / operating projects 170#172New Guarantee Schemes for Non-PPP Projects Guarantee on SOE Direct Lending from International Financial Institutions (IFIs) The Government had issued Presidential Regulation No 82/2015 and Ministry of Finance Regulation No 189/2015 to provide guarantee for SOE Direct Lending from IFIs for the Development of Infrastructure Projects. The objective of this guarantee is to provide credit enhancement in terms of low interest rate and long tenor financing, State finance soundness Guarantee for Regional Infrastructure Financing Provision with 3 main principles: Fiscal sustainability Best practice of fiscal risk management Based on Government Regulation No. 95/2015 and Ministry of Finance Regulation No. 232/2015, Minister of Finance assigns PT SMI (Sarana Multi Infrastruktur) to carry out functions in providing loan to local government, as previously carried out by PIP (Government Investment Center). The Government had issued Ministry of Finance Regulation No 174 of 2016 to provide guarantee to PT SMI on the assignment of regional infrastructure financing provision, by loan to local governments that is transferred from PIP to PT SMI, and new loan channeled by PT SMI to the local government. The objective is to give stimulus to the acceleration of local infrastructure development through the ease of access to infrastructure financing and to boost local economic growth, as well as to provide alternative financing schemes in order to meet local infrastructure development needs and to reduce reliance on state/local budget. 171#173wonderful indonesia indonesia.travel @indtravel indonesiatravel @indtravel www.indonesia.travel Tanjung Lesung Beach