Gita WirjawanChairman of the Investment Coordinating Board

Republic of IndonesiaOctober 2010

Key Messages

1. Indonesia’s macro condition remains strong with robust growth,prudent fiscal management

2. Political stability and the world’s third largest democracy

3 Its unique strengths and on going reforms provide strong future

1

3. Its unique strengths and on-going reforms provide strong futureinvestment opportunities

Indonesia• Biggest archipelago in the world

- Island : > 17.000

- Land : ± 2 million km2

- Sea : ± 5.8 million km2

- Coastal line : ± 81.000 km

• Population 234 181 300 people• Population 234,181,300 people

• Hundreds of ethnicities

• More than 750 languages & dialectsspoken

• Consists of 33 Provinces and 497Regencies/Municipalities

2

1. Indonesia’s macro condition remains strong…..1. Indonesia s macro condition remains strong…..

3

GDP (Qtr II-2010) 6.2%

FX Reserves (end of Sept ‘10) USD 86.5 Bln

Interest Rate (as per July ‘10) 6.50 %

Foreign Debt Ratio (Qtr II-2010) 28.3 %

CPI Inflation as per Sept ‘10 5 80% (yoy)

Macroeconomic Indicators

Snapshot of Indonesia’s Macro Condition

CPI Inflation as per Sept 10 5.80% (yoy)

Source: Bank Indonesia, Central Bureau of Statistics, BKPM

4

Indonesia’s economy has proven to be resilient

Real GDP growth and GDP per capita index 1997-2010

4,7%

0,8%

5,4%

3,8% 4,4% 4,7% 5,0%5,7% 5,5%

6,3% 6,1% 4,5%

6,2%

110

120

130

0,0%

5,0%

10,0%

� In 2005, real GDP/capita exceeded the pre-Asian economic crisis level recorded in 1997

� In 2010, growth continues at around 6.2% despite the slowing global economy

Source: Central Bureau of Statistics, World Bank, ADB

5

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-13,1%80

90

100

-15,0%

-10,0%

-5,0%

Real GDP growth rate (LHS) GDP per Capita Index (RHS)

Prudent fiscal management …

% %

Public debt and Budget Deficit (% of GDP)

5

6

7

8

9

10

60,0

80,0

100,0

120,0

Source: Central Bureau of Statistics, Bank IndonesiaCIA World Factbook

6

� Indonesia has consistently lowered its public debt as a % of GDP, down to 27 % in 2010.

0

1

2

3

4

0,0

20,0

40,0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Public Debt (% of GDP) (LHS) Budget Deficit (% of GDP) (RHS)

5,7%

6,3%

7,7%

8,0%

9,1%

Chi

Thailand

Turkey

Russia

India

Vietnam

Budget Deficit / GDP 2009 vs. Emerging Market Countries

Prudent fiscal management …

1,6%

3,0%

3,2%

3,7%

3,8%

0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0%

Indonesia

Colombia

Brazil

Philippines

China

� Fiscal Budget deficit has traditionally been limited and remained contained compared toother emerging market countries.

Source: Bank Indonesia

7

Improving sovereign rating…

BBB+

BBB

BBB-

BB+

BB

BB-

B+

B

B-

Non-Investmentgrade

Investment gradeMoody’s S&P/Fitch

� Prudent fiscal management lowered debt-to-GDP ratio and Indonesia’s credit continuesto escalate to BB for S&P and Ba2 for Moody’s, both with positive outlooks

S&P ratings

Moody’s ratings

CCC+

CCC

CCC-

Fitch ratings

8

The economy is driven by private consumption, withservices growing as a contributor

GDP by sector GDP by component

Net Exports Imports

Capital Formation

Source: Bank Indonesia, Bappenas

� Contribution of services has grown inthe last decade

� Private consumptions remains the maineconomic driver

Source: Bank Indonesia, Bappenas

9

Capital Formation

2. Politically stable and the world’s third largest2. Politically stable and the world s third largestdemocracy…..

10

A stable political transition towards democracy…

AppointedDirectlyelected

Directlyelected62%60%

80%

100%

% of appointed local government heads vs. directly elected

Appointed38%

0%

20%

40%

2002 2007 2009

Source: World Bank, 2009

11

An increasingly decentralized government…

200

250

300

350

400RTrillions

20

25

30

35

40

penditureandGDP(%)

Transfer to local govt (Nominal)

Transfer to local govt (Real)(constant 2007 prices)

Transfers to Local govt as share oftotal Gov expenditure (%)

Real GDP growth and GDP per capita index 1997-2008

� Massive decentralization efforts in 2001 (and again in 2005) devolved substantial funds andauthorities to local governments

0

50

100

150

200

2001 2002 2003 2004 2005 2006 2007 2008 2009h1

IDR

0

5

10

15

20

Shareoftotalcentralgovtexp

Source: Ministry of Finance, World Bank

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Political continuity with a strong mandate....

In election year2009, President wins

more than 60% votes from

107 9457

46

37

Legislative

Demokrat

Golkar

PDI-P

PKS

Composition byPolitical Party:

(election year 2009)

Source: People’s Representative Council (DPR)

� Relations between the executive and legislative branch of government seems poised todisplay unprecedented cooperativeness

13

176 million registeredvoters 148

282617

PAN

PPP

PKB

Gerindra

3. Indonesia’s unique strengths and on-going reformsq g g gprovide great investment opportunities…

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Indonesia’s unique strengths

� Dynamic and youthful population

� Abundance of natural resources

� Strategic geographic location and strong global

KEY STRENGHTS

presence

� Increasingly skilled labor force

15

Indonesia’s dynamic and youthful population

Population (mn) Urbanization (%) 15-64 years old (%)

Source: United Nations, 2009

� Indonesia’s working-age cohort (15-64 yrs old) is estimated to peak in 2025� Dynamic labor market participation with a growth of 2.3 million people per year� Rapidly urbanizing population provides for labor force in centers of investment

16

211

384

223

650

237 238250

500

750

Number of Internet Users in BRICI Countries, 2009 – 2015E

41

9

21

Million

137

49 36 26 20

211

8881 6844 31

223

93

155

7694 101

0

250

China India Brazil Russia Indonesia USA Japan

2006 2009 2015E

1823 20 16

2015

Compound annual growth (%)

10 20 21

� Brazil, Russia, India, China, and Indonesia—had some 610 million Internet users, and this number isgrowing at a blistering pace: it will nearly double by 2015, hitting around 1.2 billion users

Source: The Boston Consulting Group Report, 2010

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� Indonesia has among the most active online social networkers of the BRICI Countries, with morethan half of internet users participating in social networking sites.

� Of the most popular sites (on the basis of web traffic), only 30% are local and companies such asFacebook, Google, Yahoo, Blogger, Wordpress, Youtube, and Wikipedia are all in the top ten.

Indonesia’s internet usage patterns….

Mobile usage patterns….� Indonesia currently has 9 million mobile internet users, up from just 2.3 million in 2007. Inaddition, 22 to 28 percent of mobile-phone owners use multimedia messages, ringtonedownloads, mobile music, and video. An impressive 26 percent use mobile e-mail and 15 percentuse mobile payment and e-commerce, higher rates than in other BRICI countries.

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Abundance of Natural Resources…

Coal

� Indonesia is a major player in the global coal market� The world’s second largest thermal coal exporting country, third

largest exporter of steaming coal� Production of around 250 million tons by the end of 2009

Natural Gas� Around 107.3 trillion cubic feet of proven natural gas as in the

beginning of 2009 and is the single largest holder of proven naturalgas reserves in the Asia Pacific region

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Oil � 4.0 million stock tank barrels of proven oil reserves

RenewableEnergy

� Holds 40% of the world’s geothermal resources, equivalent to28.1GW of power generation potential

Others� Palm oil, cocoa, and other minerals

Source: Ministry of Energy and Mineral Resources (MEMR),BP Statistical review of world energy 2009

Over 3.5 MMSTB proven oil reserves…

121.01

ACEH(NAD)

NORTHSUMATERA

112.49

CENTRAL4 028 67

146.42

NATUNA

KALIMANTAN

745.11 51.95

SULAWESIMALUKU

43.11

PAPUA

Crude Oil Reserves

Source: Ministry of Energy and Mineral Resources (MEMR)

20

SUMATERA 4.028.67

SOUTH SUMATERA902.42

WEST JAVA570.66

937.01EAST JAVA

51.95

89.64

PAPUA

Oil Reserves (MMSTB)Proven = 4.303.10 MMSTBPotential = 3.695.39 MMSTBTOTAL = 7.998.49 MMSTB

Status : Janaury 2009MMSTB : Million Stock Tank Barel

The largest proven gas reserves in Asia Pacific…

5.55

ACEH(NAD)

NORTHSUMATERA

1.26

CENTRAL

52.14

NATUNA

KALIMANTAN

21 78 2 88

SULAWESIMALUKU

15.22

Gas Reserves

21

Source: Ministry of Energy and Mineral Resources (MEMR)

CENTRALSUMATERA 10.57

SOUTH SUMATERA17.74

WEST JAVA17.74

5.10EAST JAVA

21.78 2.88

23.71

PAPUA

Gas Reserves (TSCF)Proven = 107.34 TSCFPotential = 52.59 TSCFTOTAL = 159.63TSCF

Status : January 2009TSCF : Trillion Standard Cubic Feet

Other mineral & agriculture comparativeadvantages…

No Commodity Production LocationWorldRank

1 Crude Palm Oil 19 million ton (2008) Sumatera, Kalimantan,Sulawesi, Papua.

1st

2 Tin 96 thousand metric ton(2008)

Sumatera 2nd

3 Cocoa 792 thousand ton (2008) Sulawesi, Sumatera,Java Kalimantan East

2ndJava, Kalimantan, EastNusa Tenggara

4 Copper 651 thousand metric ton(2008)

Papua, Maluku, NusaTenggara

7th

5 Nickel 193 thousand metric ton(2008)

Sulawesi, Sumatera,Maluku, Papua

4th

6 Gold 60 metric ton (2008) Kalimantan, Sumatera,Maluku, Papua

11th

Source: BKPM, FAO, US Geological Survey, 2010

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Increasingly skilled workforce …..

� Government is committed to makingeducation a priority :� Education spending increased from2.8 % of GDP in 2006 to 3.3% ofGDP in 2008; and increased from15% of national budget in 2006 to20% of national budget in 2009

Composition of University graduatesCommitment of Government

Education20%

Humanitiesand arts

Agriculture6%

Health andwelfare6%

Others4%

- Total Graduates (2008): 424,616

Source: Unesco

20% of national budget in 2009

� Education is now the sector with thelargest public spending

� The majority of University graduates earndegrees in “hard skills” such as socialsciences, business and law.

23

1%

Socialsciences, business and law

40%Science6%

Engineering, manufacturing

andconstruction

17%

Strategic location and increasing globalpresence…

� Indonesia lies strategically in theintersection of the Pacific Ocean, alongthe Malacca Straits and the Indian ocean

� Over half of all international shippingtravel through Indonesian waters

� The only country in South-east Asiathat is a member of the G-20

� An active and strong voicefordeveloping countries in globaldiscussions on issues around climatechange, global economicarchitecture, etc.

Source: Supply Chain Leaders

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With on-going reforms in investment climate …

Structural

� Investment Law (2007)

� Mandate equal treatment for foreign and domestic investors

� No minimum capital requirement, freedom to repatriate capital

� Issuance of comprehensive investment negative list that includes all foreign ownershipopportunities in a single, more transparent regulation

� An acceleration of the VAT refund system for exporters

� Establishment of a complaint management system and a code of conduct for tax

Source: Ministry of Finance, Ministry of Trade, Investment Coordination Board, etc 25

� Establishment of a complaint management system and a code of conduct for taxofficials

� Launching of the National Single Windows for trade facilitation at the main seaport

� Simplification of business start up and licensing procedures, including the “one-stopshop” licensing provision at the Investment Coordinating Board (BKPM)

� Establishing an Investor Relation Unit at the Investment Coordinating Board forinformation facilitation and queries handling from existing and potential investors.

� Implementing a regional champion program to help select local governments accelerateinvestments in their respective regions

and reforms in other relevant areas….

StructuralHorizontal/crosscutting

�Tax administration Law (2007)�Strengthens the rights of taxpayers�Reduce the statute of limitations for tax assessments

�Labor Law (2003)� Extends contracting period, restricts right to strike, legalizesoutsourcing

�Policy package to Improve the Investment Climate (2006)�85 specific reform measures in general investment policy, customsand ports, taxes, manpower and SME policy

�Policies to Accelerate Development of the Real Sector and Empower

Examples of on-going reforms on investment climate

Operational

Policies to Accelerate Development of the Real Sector and EmpowerMicro, Small and Medium Enterprises (June 2007)

�141 specific actions covering institutions, ports andcustoms, taxation, the financial sector, infrastructure and SMEs

Vertical/Sectoral

�Establishment of National Committee on Policy for AcceleratingInfrastructure Provision (KKPPI) including a Public Private Participation(PPP) Unit as a center of technical expertise in project preparation ininfrastructure

� A new regulatory framework: Mining Law (2007), electricity law (2009), etc� Increase in public sector spending for infrastructure from 2 percent (2000)to 3.2 percent (2005)

�Masterplan for railways and telecommunication completed (2008)�Clarification of central and local governments role through governmentregulations

� Establishment of Infrastructure Funds26

and on-going reforms to boost investmentclimate…

Structural/

Regulatory

� Foreign Investment Law (2007)

� No minimum capital requirement, freedom to repatriate capital

� Labor Law (2003)

� Extends contracting period, restricts right to strike, legalizesoutsourcing

Some on-going reforms

Source: Ministry of State-Owned Enterprises

� Infrastructure Fund

� Land Revolving Fund

� Project Guarantee Fund

Total of IDR 100 tn set aside in 2008, upfrom IDR 2 tn each in 2006 and 2007Financing

27

4 Investments would further unlock Indonesia’s value4. Investments would further unlock Indonesia s value..

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Investments in key sectors would furtherunlock the country’s potentialSome key sectors in Indonesia

� Increasing public expenditure in infrastructure (around 3% of GDP in 2008)

� Infrastructure fund established in 2007Infrastructure

�Accelerated power plants program (additional 2GW by 2014)

�Continued high demand for power (expected to be 7 9 percent in the nextEnerg �Continued high demand for power (expected to be 7-9 percent in the next10 years) to keep up with economic growth

�Electricity law was passed, allowing some deregulation in the sector

Energy

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The Top 25 Most Attractive FDI Destination1. China 14. Hong Kong

2. U.S.A 15. Gulf Countries

3. India 16. Romania

4. Brazil 17. Czech Republic

5. Germany 18. Russia

Among the top 25 most attractive FDI destination

6. Poland 19. Saudi Arabia

7. Australia 20. Indonesia

8. Mexico 21. Malaysia

9. Canada 22. Chile

10. United Kingdom 23. Turkey

11. United Arab Emirates 24. Singapore

12. Vietnam 25. Egypt

13. France

Source: ATKEARNEY, 2009 Survey

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Rising investment realization

US$Bn

TOTAL 2005 – 2010 (Semester I) BY COUNTRY 2001 – 2009

No. Country Value of Investment

(US$ Mn)

# of projects

1. Singapore 13835.94 8882. Mauritius 10589.03 55

3. Japan 8019.97 990

4. UK 6156.38 417

5. Netherlands 3434.59 227

6. South Korea 2792.74 992

7. Malaysia 1523.30 342

8. USA 1427.47 2648

10

12

14

16

18

Yearsource: BKPM

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Bn 9. HongKong 1301.33 126

10. Seychelles 973.99 13

11. Taiwan 973.76 287

12. Australia 700.43 214

13. France 649.29 109

14. Jerman 604.15 153

15. Swiss 589.98 67

16. China 417.70 135

17. India 196.38 122

18. Brazil 165.90 4

19. Bahamas 164.40 6

20. Thailand 148.61 23

� Investment Realization figures documented here only records investment activity and realization outside of the followingsectors: Oil & Gas, Banking, Financial Institutions,non-bank Financial Institutions, Insurance, Leasing, Portfolio Investments,Capital Markets Investments, Investments whose licensing are issued by technical Ministries, as well as HouseholdInvestments.

0

2

4

6Foreign

Domestic

Invest in

www.bkpm.go.id