The Republic of Indonesia

June 2009

22

Outcome of Budget for Fiscal Year 2008

In Billion RupiahIn Billion Rupiah

Original Realization % to GDPA. Total Revenue and Grants 894,990.544 982,099.299 20.98%

I Domestic Revenue 892,041.909 979,799.339 20.93%1. Tax revenue 609,227.490 658,667.849 14.07%2. Non-tax revenue 282,814.419 321,131.491 6.86%

II. Grants 2,948.635 2,299.920 0.05%B. Expenditures 989,493.759 985,620.901 21.05%

I. Central government Expenditure 697,070.955 692,970.140 14.80%II. Expenditure to Regional 292,422.804 292,631.985 6.25%1. Balanced funds 278,436.097 278,913.164 5.96%

a. Revenue sharing 77,726.812 78,618.672 1.68%b. General allocation fund 179,507.145 179,507.145 3.83%c. Special allocation fund 21,202.141 20,787.347 0.44%

2. Special Autonomy and Adjustment Fund 13,986.707 13,718.822 0.29%a. Special authonomy fund 7,510.286 7,510.286 0.16%b. Adjustment Fund 6,476.421 6,208.536 0.13%

C. Primary balance 29.010 84,823.178 1.81%D. Overall balance (A-B) -94,503.2 -3,521.60 -0.08%E. Financing (E.I + E.II) 98,353.3 98,353.31 2.10%

I. Domestic financing 111,466.9 111,466.90 2.38%1. Domestic bank financing -11,700.0 -11,700.00 -0.25%2. Domestic non-bank financing 123,166.9 123,166.90 2.63%

II. Foreign financing -13,113.6 -13,113.59 -0.28%1. Gross drawing 48,141.3 48,141.31 1.03%

a. Program loan 26,390.0 26,390.00 0.56%b. Project loan 21,751.3 21,751.31 0.46%

2. Amortization of foreign debts -61,254.9 -61,254.90 -1.31%

33

Slower Economic Growth Forecasted for 2009

Breakdown of GDP Growth

Quarterly GDP Growth

5,1%5,7% 5,5%

6,3% 6,2%

5,0%

0%

1%

2%

3%

4%

5%

6%

7%

2004 2005 2006 2007 2008* 2009*

0%

2%

4%

6%

8%

10%

12%

14%

16%

GDP Growth Household Consumption Exports Investment

6,09

6,416,51

6,256,32

6,44

6,11

5,7

5,9

6,1

6,3

6,5

6,7

2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3

Source: Ministry of Finance, Central Bureau of Statistics*Preliminary estimates

44

Crisis Control in the Financial Markets

Supporting the Banking and

Capital Market Systems

Place government funds with state-owned banks to increase liquidity in the banking system

Increase the amount of deposits guaranteed by the government in the banking system

Strengthen the government’s supervisory and enforcement capacity over capital markets

Prepare crisis protocol (implementation of the Financial System Stability Committee (FSSC)

Manage state-owned enterprises’ foreign exchange transactions to reduce speculation

Maintain a sufficient level of foreign exchange reserves through trade financing facilities and prevention of illegal imports

Requiring greater disclosure on large-sized purchases of foreign currency against IDR to curb speculative pressure on IDR

Ensuring Foreign Exchange Stability

55

Stimulating Real Sector Growth

Recognize the importance of monetary policy support, as deemed appropriate for domestic conditions

• Bank Indonesia lowering BI rate to 8.75% in Jan-09 when inflation pressure has slowed

• Indonesian banks have started cutting their lending rates in response to the central banks’ rate cut to accelerate real sector growth

Accelerate the disbursement of projects for government and state-owned enterprise projects in 1Q and 2Q

Support for real sector and export promotion such as government guarantee for trade financing

Implement Fiscal Stimulus and provides additional fiscal stimulus for business and infrastructure projects

Reduce fuel prices, apply an automatic premium gasoline price adjustment and provide incentives for diesel price to reduce manufacturing operational costs

66

Real Sector Policies

Decrease Corporate Income tax to move Industries Insentif pajak untuk perusahaan masuk Bursa Tax Subsidy for Oil and Gas Industry Reduce in Import tax for capital goods Penurunan Bea masuk Bahan baku dan Bahan Modal Electricity tariff Discount for Industry Diskon tarif listrik dan Penurunan harga BBM untuk Industri Percepatan pencairan APBN dan APBD

Decrease Policy Rate as Inflation Rate pressure ease. Place government funds with state-owned banks to increase liquidity in the banking system The Availability of low cost credit (Interest Subsidy)Trade Financing Facility to support Export

Ease in Kemudahan dalam pembebasan Lahan Sectoral Coordination Central and Regional Coordination by amendment of PDRD Bill

Liquidity and Financing

Fiscal Facilities

Non-fiscal Facilities

6

77

Fiscal Stimulus in Place for 2009

Support from infrastructure and national programs, such as: Additional peoples empowerment (PNPM) program to alleviate property Expansion of credit program (KUR) to accelerate the development of the

primary sectors Additional infrastructure projects for job creation activities

Accelerate job creation and foster

small scale businesses

Subsidies on medicine, and cooking oil

Direct subsidies (cash transfer and conditional cash transfer) for low-income households

Provides more direct and indirect subsidies to education and health sector

Boosting the society’s

purchasing power

Import duty facility on selected capital goods and materials Export financing and guarantee Tax rate reduction on corporate income, individual income and increase

minimum threshold for employee tax Discount on electricity peak-hour charge for industries and reduction on diesel

fuel price

Stimulate trade and promote

entrepreneurships

1

2

3

88

Assumptions on Macroeconomic IndicatorsOriginal Adjusted Original Adjusted

GDP growth rate 6.0% 4 - 4.5% Average IDR/USD 9,400 11,000

Average inflation rate 6.2% 5.0% - 6.0% Average oil production 960,000 barrels/day 960,000 barrels/day

Interest rate on 3-month short-term SBI 7.5% 7.5% Average ICP US$80/barrel US$ 45 – US$ 60 /barrel

2009 Budget Outlook with Safety Net and Crisis Prevention Mechanism

The 2009 budget is designed to give the Government enough room to adjust to any potential impact of the global financial crisis

Assumption 1 USD = IDR 9,400 for Original Budget, 1 USD = IDR 11,000 for Budget Outlook* Bonds in foreign currency are issued globally Source: Ministry of Finance

EXPENDITURE

Original Adjusted

Central Government’s own expenditure $76.2bn $62.3bn

Capital and recurrent expenditure $32.3bn $27.6bn

Debt interest service $10.8bn $10.1bn

Total subsidy $17.7bn $11.2bn

Others $15.4bn $13.4bn

Transfers to regional Governments $34.1bn $27.6bn

Total expenditure $110.3bn $89.8bn

Total expenditure as % of GDP 19.47% 18.01%

Memo: Stimulus spending $ 1.3bn $ 1.9bn

REVENUE

Original Adjusted

Domestic revenue $104.8bn $77.1bn

Tax revenue $77.2bn $60.2bn

Non-tax revenue $27.5bn $16.9bn

External grants $0.1bn $0.1bn

Total revenue $104.9bn $77.1bn

Total revenue as % of GDP 18.50% 15.46%

BUDGET DEFICIT

Budget deficit -$5.5bn -$12.7bn

Budget deficit as % of GDP 1.00% 2.50%

2009 Budget (in USD)

99

Rationale Supporting the 2009 Budget Outlook

Adjust macroeconomic assumptions: Economic growth: 6.0% 4.0% - 4.5% IDR/USD: 9,400 11,000 World oil price: US $ 80/barrel US $ 45 - US$ 60 /barrel

Original capital and social spending through line ministries remain unchanged Incorporate fiscal stimuli (1.4% of GDP) to stabilize the economy

Revenue projected to be 26% lower than original budget Accelerate expenditure disbursement from the central and regional government Automatic price adjustment with maximum cap applied to gasoline price

Budget deficit: 1% 2.5% of GDP Increase in budget deficit to be financed by 2008 budget surplus of US$4.7billion (1% GDP) and additional debt

of US$ 4billion (0.8% GDP) Arrange standby financing from multilateral and bilateral countries in anticipation of any worsening of the financial

crisis

1010

A. REVENUE 985,7 848,6 234,7 27,7 241,7 28,5I. REVENUE 984,8 847,6 234,6 27,7 241,6 28,5

1. TAXATION 725,8 661,8 197,3 29,8 203,3 30,7TAXES 647,9 587,8 173,1 29,4 178,2 30,3DUTIES AND EXCISE 78,0 73,9 24,1 32,7 25,1 34,0

2. NON-TAX 258,9 185,9 37,4 20,1 38,2 20,6II. GRANT 0,9 0,9 0,1 9,9 0,1 11,9

B. EXPENDITURE 1.037,1 988,1 223,5 22,6 234,5 23,7I. CENTRAL GOVERNMENT 0,7 685,0 127,6 18,6 138,0 20,1

A. MINISTRIES 322,3 333,7 56,0 16,8 65,2 19,5B. NON-MINISTRIES (SUBSIDIES, INTERST)394,1 351,4 71,6 20,4 72,8 20,7

II. TRANSFER TO REGION 320,7 303,1 96,0 31,7 96,5 31,8D. BUDGET DEFICIT (51,3) (139,5) 11,2 (8,0) 7,2 (5,2)

% TO GDP (1,0) (2,5) 0,0 0,1E. FINANCING 51,3 139,5 58,6 42,0 61,3 43,9

I. DOMESTIC FINANCING 60,8 109,5 65,4 59,7 67,4 61,6II. FOREIGN FINANCING (9,4) (14,5) (6,8) 46,9 (6,1) 42,4III. ADDITIONAL FINANCING/DEBT 0,0 44,5 0,0 0,0 0,0 0,0

CASH SURPLUS 0,0 0,0 69,8 0,0 68,5 0,0

% Real. Real. Up to May 7th 09

% Real. Orig.

Budget Adjusted Budget

Real. Up to Apr 2009

Budget 2009Budget 2009

10

Up to May 7th 2009, budget performance remain on fact with IDR 7,2 Trillion of Surplus and over financing IDR 61,3 Trillion

1111

Fiscal Stimulus 2009 in Indonesia

1. Budget Deficit : 1% to 2,5% GDP due to :

• Changes in macro-economic assumption.

• Fiscal stimulus.

2. Budget deficit Financing :

• US$ 4.6 Billion from 2008 financing surplus

• Additional debt and drawn the stand by loan

• Additional program loan US$ 1 Billion

3. Fiscal stimulus US$ 6.7 Billion which included tax , customs and duty, and government spending stimulus

USD Billion

A. Tax-saving Payment 3.909

1. 1.227

2. Increase minimum threshold to Rp15,8 mn 1.000

3.1.682

B. Import duty-subsidy / tax subsidy for business 1.209

1. VAT of Cooking oil 0.073 2. VAT of biofuel 0.018 3. Import duty for raw material and capital goods 0.227

4. VAT of oil and gas exploration 0.227

5. Income Tax of Geothermal 0.073

6. Personal Income tax 0.591

C.

Non-tax subsidy for business/job opportunity 1.542

1. Reduction in diesel fuel price by Rp 300/litre 0.253

2. Discount on electricity for industries 0.125

3. Additional peoples empowerment program 0.055

4. Interest rate subsidy for clean-water industries 0.001

5. Subsidy for generic medicine 0.032

6. Rehabilitation of primery commodity warehouse 0.011

7. Stimulus spending for infrastrucuture 1.020

8. PMN for Askrindo (credit program / KUR) 0.045

Total Stimulus 6,7

Description

Reduction in individual income tax rate (35% --> 30%) and extention

Tax rate reduction on corporate income (30% --> 28%) andlisting company --> 5% lower

1212

Indonesia's Stimulus Package is Comparable to Other Economies

The fiscal stimulus package that Indonesia has put in place is in line with rest of the world

Source: CEIC, Bloomberg

-1

-3.1

-1.4-1

-2.9-2.5

-4.8

-2.5

-1.7

-3.5

-8

-6

-4

-2

0

Indonesia Malaysia Philippines Thailand Vietnam

%

2009 2009 Forecast

ASEAN countries adjust budget deficit due to a lower revenue and fiscal stimulus program

1313

2009 Funding Plan

Notes:

a) Estimates based on new set of assumptions plus additional fiscal stimulus measures

b) 2008 financing surplus

c) Additional debt from standby facility

2009 Original Budget 2009 Budget Outlook a)

Revenue and Grant 1 $104.9bn $77.1bn

Expenditures 2 $110.3bn $89.8bn

Deficit 1-2 -$5.5bn - $12.7bn

Financing 3+4+5 $5.5bn $12.7bn

Non Debt 3 $0.6bn $5.0bn b)

Amortization 4 -$11.3bn - $10.6bn

Loan -$6.6bn - $6.6bn

Gov. Securities -$4.8bn - $4.1bn

Gross debt Financing 5 $16.1bn $14.2bn

Loan $5.5bn $5.1bn

Program $2.8bn $2.8bn

Project $2.7bn $2.3bn

Gov. Securities $10.6bn $9.1bn

Additional Debt $4.0bn c)

Assumption 1 USD = IDR 9,691 for 2008, 1 USD = IDR 9,400 for 200 9 Original Budget, 1 USD = 11,000 for 2009 Budget OutlookSource: Ministry of Finance

Budget Deficit Financing (in USD)

1414

Sensitivity of National Budget 2009

Doc. Stimulus

Growth decrase

1%

Inflation increase

1 %

SBI rate increase

1 %

Rp Depreciate Rp1000

ICP decrease

US$10

- A. Total Revenue and Grant 848,6 (11,6) 2,0 - 10,3 (25,4)

I. Domestic Revenue 847,6 (11,6) 2,0 - 10,3 (25,4)

1. Tax Revenue 661,8 (11,6) 2,0 - 4,2 (8,7)

2. Non-tax Revenue 185,9 - - - 6,1 (16,7)

B. Expenditures 988,1 (0,1) 0,2 1,5 23,0 (26,3)

I. Central Government Expenditure 685,0 (0,0) 0,0 1,5 21,4 (20,9)

- Interest Payment 110,6 - - 1,5 3,4 -

- Fuel Subsidies 24,5 - - - 11,5 (14,6)

II. Expenditure to Regional 303,1 (0,1) 0,2 - 1,6 (5,4)

C. Primary Balance (139,5) (11,5) 1,8 (1,5) (12,7) 0,9

% thd PDB (0,0) (0,2) 0,1 (0,0) (0,2) 0,0

D. Financing 139,5 - - - (3,7) -

I. Domestic Financing 109,5 - - - - -

II. Foreign Financing (14,5) - - - (3,7) -

Surplus/Deficit Financing (0,0) (11,5) 1,8 (1,5) (16,4) 0,9

1515

Sensitivity of National Budget 2009

Dok. Stimulus Growth

Turun 1% Kurs

Naik Rp1.000 ICP

Turun US$10

- A. Total Revenue and Grant 848,6 (11,6) 10,3 (25,4)

I. Domestic Revenue 847,6 (11,6) 10,3 (25,4)

1. Tax Revenue 661,8 (11,6) 4,2 (8,7)

2. Non-Tax Revenue 185,9 - 6,1 (16,7)

B. Expenditures 988,1 (0,1) 23,0 (26,3)

I. Central Government Expenditure 685,0 (0,0) 21,4 (20,9)

- Interest Payment 110,6 - 3,4 -

- Fuel Subsidies 24,5 - 11,5 (14,6)

II. Expenditure to Regional 303,1 (0,1) 1,6 (5,4)

C. Overall Balance (139,5) (11,5) (12,7) 0,9

% thd PDB (0,0) (0,2) (0,2) 0,0

D. Financing 139,5 - (3,7) -

I. Domestic Financing 109,5 - - -

II. Foreign Financing (14,5) - (3,7) -

Surplus/Deficit Financing (0,0) (11,5) (16,4) 0,9

1616

Liquidity Support for Budget and BOP

Deficit increased from IDR 51,3 Trillion

(1.0% GDP) to IDR 139,5 Trillion (2.5%

GDP) Finance by accumulated budget surplus

amounted IDR 51,3 Trillion Additional Debt required: IDR 44,5

Trillion Under the volatile market, the additional

“contingencies” financing coming from:

- The World Bank

- ADB

- Bilateral (G2G): Japan and

Australia Maintain amount of government

securities of IDR 53,9 Trillion nett of

issuance, including domestic and

international Sukuk

Budget Deficit Financing (in USD)

In response to forex risk due to volatile market conditions, steps taken:

Extend BSA swap with Japan, USD 6 bn to USD 12 bn Bilateral swaps with China in Local Currency USD 15 bn Trade Financing through IND Exim Bank with JBIC up to USD

500 mn

Liquidity and Trade Financing Support (in USD)

  2007 2008 2009

SUN (Rupiah)  86,37  86,93 43,28

SUKUK (Rupiah)     5,56

Global SUKUK     7,15(1

Global Bond 16(2  46.2(3 33,00(4

Total Issuance     89

Additional Req.     10,6

Bond Issuance

(1 Equivalent to USD 650 Million (2 Equivalent to USD 1,5 Billion

(3 Equivalent to USD 1,5 Billion (4 Equivalent to USD 3 Billion

16

1717

Mechanism of Fuel Subsidies

The Down Stream Oil and Gas Regulating Agency

Ministry of Finance

Parliament

National Budget Constitution

Volume estimation proposal of spesific fuel types

Determining the volume estimation of spesific fuel type

FINANCIAL NOTE AND ESTIMATED NATIONAL BUDGET

Fuel Subsidies Budget

Estimating fuel subsidies using the ICP assumption, MOPS and foreign

exchange rateSpesific Fuel Subsidies Estimate

Change of ICP assumption, fuel

volume, and foreign exchange rate

Revised National Budget Contitution

Ministry of Energy and Mineral Resource

1818

FORMULA TO ESTIMATE THE FUEL SUBSIDIES

Fuel Retail Price is domestic fuel price per litre Tax is the Value Added Tax and Motor Vehicle Fuel Tax Fuel Standard Price is counted price based on MOPS plus marginal and distribution

costs. Fuel Standard Price = MOPS + α

α is distribution and marginal costs Mid Oil Platt’s Singapore (MOPS) is transactional price in Singapore fuel stock

exchange

Fuel SubsidiesFuel Subsidies : := = Fuel Standard PriceFuel Standard Price- (- (Fuel Retail PriceFuel Retail Price - - TaxTax) ] x ) ] x fuel volumefuel volume

1919

FUEL SUBSIDIES ESTIMATION SCHEME

ICP

CRUDE

Delta MOPS

Gasoline

Petroleum

Diesel fuel

Product

Fuel Retail Price

Consumer

MOPS

Household and Small Enterprises

Alpha (distribution and marginal cost)

Gasoline

Petroleum

Diesel Fuel

Transportation,Public Service, Small and Fishery Enterprises

Transportation and Public Service, Small and Fishery Enterprises

Fuel Standard Price

+

2020