The Republic of Indonesia

1. The Republic of Indonesia June 2009

2. Outcome of Budget for Fiscal Year 2008 In Billion Rupiah

3. Slower Economic Growth Forecasted for 2009 Breakdown of GDP Growth Quarterly GDP Growth Source: Ministry of Finance, Central Bureau of Statistics *Preliminary estimates

4. 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 Ensuring Foreign Exchange Stability • 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

5. 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 • Implement Fiscal Stimulus and provides additional fiscal stimulus for business and infrastructure projects • Support for real sector and export promotion such as government guarantee for trade financing • Reduce fuel prices, apply an automatic premium gasoline price adjustment and provide incentives for diesel price to reduce manufacturing operational costs

6. Real Sector Policies Liquidity and Financing • 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 Fiscal Facilities • 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 Non-fiscal Facilities • Ease in Kemudahan dalam pembebasan Lahan • Sectoral Coordination • Central and Regional Coordination by amendment of PDRD Bill 6

7. 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 1 2 3 Accelerate job creation and foster small scale businesses Boosting the society’s purchasing power • 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 Stimulate trade and promote entrepreneurships • 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

8. 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 2009 Budget (in USD) 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

9. 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 • 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 • Original capital and social spending through line ministries remain unchanged • Incorporate fiscal stimuli (1.4% of GDP) to stabilize the economy • 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 anyworsening of the financial crisis

10. Budget 2009 Up to May 7th 2009, budget performance remain on fact with IDR 7,2 Trillion of Surplus and over financing IDR 61,3 Trillion 10

11. Fiscal Stimulus 2009 in Indonesia • Budget Deficit : 1% to 2,5% GDP due to : • Changes in macro-economic assumption. • Fiscal stimulus. • Budget deficit Financing : • US$ 4.6Billion from 2008 financing surplus • Additional debt and drawn the stand by loan • Additional program loan US$ 1 Billion • Fiscal stimulusUS$ 6.7 Billion which included tax , customs and duty, and government spending stimulus

12. 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 ASEAN countries adjust budget deficit due to a lower revenue and fiscal stimulus program Source: CEIC, Bloomberg

13. 2009 Funding Plan Budget Deficit Financing (in USD) 2009 Original Budget 2009 Budget Outlook a) 1 Revenue and Grant $104.9bn $77.1bn 2 Expenditures $110.3bn $89.8bn 1 - 2 Deficit - $5.5bn - $12.7bn 3+4+5 Financing $5.5bn $12.7bn 3 Non Debt $0.6bn $5.0bn b) 4 Amortization - $11.3bn - $10.6bn Loan - $6.6bn - $6.6bn Gov. Securities - $4.8bn - $4.1bn 5 Gross debt Financing $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) Notes: a) Estimates based on new set of assumptions plus additional fiscal stimulus measures b) 2008 financing surplus c) Additional debt from standby facility 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 Outlook Source: Ministry of Finance

14. Sensitivity of National Budget 2009 DEPARTEMEN KEUANGAN RI BADAN ANALISA FISKAL DEPARTEMEN KEUANGAN RI BADAN ANALISA FISKAL

15. Sensitivity of National Budget 2009 DEPARTEMEN KEUANGAN RI BADAN ANALISA FISKAL DEPARTEMEN KEUANGAN RI BADAN ANALISA FISKAL

16. Liquidity Support for Budget and BOP Budget Deficit Financing (in USD) Bond Issuance • 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 (1 Equivalent to USD 650 Million (2Equivalent to USD 1,5 Billion (3 Equivalent to USD 1,5 Billion (4 Equivalent to USD 3 Billion Liquidity and Trade Financing Support (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 16

17. Mechanism of Fuel Subsidies Ministry of Energy and Mineral Resource Ministry of Finance Parliament Determining the volume estimation of spesific fuel type The Down Stream Oil and Gas Regulating Agency Volume estimation proposal of spesific fuel types FINANCIAL NOTE AND ESTIMATED NATIONAL BUDGET Estimating fuel subsidies using the ICP assumption, MOPS and foreign exchange rate Spesific Fuel Subsidies Estimate Change of ICP assumption, fuel volume, and foreign exchange rate Revised National Budget Contitution National Budget Constitution Fuel Subsidies Budget

18. 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 αis distribution and marginal costs Mid Oil Platt’s Singapore (MOPS) is transactional price in Singapore fuel stock exchange Fuel Subsidies : = Fuel Standard Price- (Fuel Retail Price - Tax) ] x fuel volume

19. FUEL SUBSIDIES ESTIMATION SCHEME Fuel Standard Price Fuel Retail Price Transportation,Public Service, Smalland FisheryEnterprises Alpha(distribution and marginal cost) + MOPS Gasoline Gasoline Delta MOPS Household and Small Enterprises ICP Petroleum Petroleum Transportation and Public Service, Small and Fishery Enterprises Diesel Fuel Diesel fuel CRUDE Consumer Product

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