Dr. Raden Pardede Senior Partner and Co-Founder C R eco Research

1. Ekonomi Update dan outlook2014 dankedepan Dr. Raden Pardede Senior Partner and Co-Founder CReco Research Wakil Ketua Komite Ekonomi Nasional Jakarta, May 2014

2. Outline • Perkembanganekonomi global • Perkembanganekonomidomestik • PDB • Neracapembayaran • Budget danruangfiskal • Litsrikdansubsidi • Politikdanekonomi This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

3. Perkembangan global • Aktifitas global telah menguat secara luas dan diharapkan untuk berkembang lebih lanjut pada 2014-2015 • Dorongan pertumbuhan datang dari perekonomian maju. Walaupun resiko negatif telah berkurang secara keseluruhan, inflasi yang lebih rendah dari yang diekspektasikan menggambarkan resiko untuk perekonomian maju, perekonomian negara berkembang mengalami kenaikan volatilitas finansial, dan kenaikan dalam biaya kapital akan cenderung menekan investasi dan membebani pertumbuhan • Para pengambil kebijakan ekonomi negara maju perlu untuk menghindari penarikan dini akomodasi moneter • Para pengambil kebijakan ekonomi negara berkembang harus mengadopsi langkah-langkah untuk menghadapi fundamental yang berubah, mefasilitasi penyesuaian eksternal, memperpanjang pengetatan kebijakan moneter dan melakukan reformsi struktural.

4. World economic outlook projection (IMF)

5. Risiko Advanced economy risks Emerging market economy risks Risks of further growth disappointments in emerging market economies Lower growth in China (hard landing) Geopolitical risks related to Ukraine • Risks to activity from low inflation • Reduced appetite for completing national and euro- area-wide reforms as the result of improved growth prospects and reduced market pressures • Risks related to the normalization of monetary policy in the United States • Upside risks to global growth from advanced economies 5 This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

6. Back no normal scenario This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

7. Coverage of Current Account by Foreign Direct Investment This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

8. Pertumbuhan ekonomi melambat, dengan tekanan dan hambatan • Neraca Pembayaran Indonesia (BOP) dan neraca perdagangan membaik seiring dengan melemahnya permintaan domestik • Aliran modal kembali setelah kebijakan pemerintah dan BI mendapatkan kembali kredibilitas dari investor • Tetapi BOP masih beresiko jika aliran modal masuk berkurang dengan signifikan atau mengalami "sudden stop”dikarenakan BOP Indonesia – investasi portofolio ada ada dalam area negatif • Guncangan eksternal tetap menjadi perhatian (dikarenakan perubahan arah “tapering”dan “forward guidance” dari AS) • Inflasi tetap menjadi perhatian walaupun tekanan telah berkurang • Kondisi fiskal memikul beban dari subsidi BBM yang terus naik dan rendahnya pendapatan pajak (yang disebabkan oleh harga komoditas yang lemah) • Banyak reformasi struktural yang menunggu untuk menyelesaikan masalah. Kebijakan “Panadol” bekerja hanya dalam jangka pendek

9. Pertumbuhanmenurun

10. Sektordenganpertumbuhantinggi

11. Pertumbuhan manufaktur dan listrik

12. Diminishing Inflation pressure 12 This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

13. BOP improved in Q4 2013, but risks remain BOP turned > 0 in Q4 (USD B) • CAD contracted (USD B) Indonesia’s current account balance improved in Q4 but this was in partly due to Forward loading raw mineral export due to export ban starting in January 2014 This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

14. Trade balance in positive territory March 2014Trade Balance: 673.2 million USDExport: 15,211.5 million USDImport: 14,538.3 million USD 14 This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

15. Oil and Gas Import and export commodities upwhile capital goods import down Source: BPS 15 This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

16. FDI slowing down 16 This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

17. Current account deficit to persist over the medium term This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

18. Weak Revenue growth This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

19. Deficit Challenge This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

20. Harga rata rata listrik dan subsidi

21. Kebutuhanlistrik (proyeksi)

22. Exchange rate more stable and yield rate trending down  confidence improved 22 This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

23. Ekonomipolitik :April 9th parliamentary result 1.PDIP 19% + NASDEM 6.9% (+PKB 9.2%) Jokowi JK ?? 2.Golkar 14.3% + ……???: Aburizal Bakrie ?????? 3. Gerindra 11.8% + PPP 6.7% + PAN 7.5% ( + Demokrat…): Prabowo Hatta • Vice President (Fix by May): • JusufKalla • Mahfud • Akbar Tanjung • HattaRajasa • Surya Darma Ali • Sukaryo • ChairulTanjung • Srimulyani • Ryamizard • LuhutPanjaitan This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

24. Faktorutama • Koalisi: Kuat vs. Lemah • Pemimpin: Terlibat aktif (proaktif) vs. Pasif • Kapasitas negara: Efektif vs. Tidak efektif • Kebijakan: Transformatif vs. Pragmatis • Fiskal: Subsidi vs. Infrastruktur • China: Lemah vs. Pulih • FED: Lambat vs. Cepat (exit) 24 This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

25. Ineffective Effective • Law/ legal • Regulation • Clean/ trust • Coordination (horizontal & vertical) • Law/ legal • Regulation • Corrupt/ Untrust • No coordination CHARACTER OF LEADER CAPACITY OF STATE Disengaged (less active) Engaged (active) • Initiative reform • Consistent/ Persistence • Blusukan • No initiative • Sporadic/ inconsistent • Passice in office This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

26. Indonesian Scenario Engaged (active) • Golden Path • Work Together • Transformative & sustainable • Take initiative • Proactive Ineffective Effective CAPACITY OF STATE CHARACTER OF LEADER TODAY • Reactive • Into the darkness • Walk behind • Painful Adjustment • Managed Through • But not optimal Disengaged (less active) This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

27. Indonesia two pronged policies : adjustment (ST) and structural reform (MT-LT) Pemimpin yang terlibat aktif Reformasi Struktural & Penyesuaian + 7 % Y Defisit N. Perdagangan rendah Inflasi rendah + 6-6.5 % + 5.5 % N Defisit N. Perdagangan tinggi Inflasi tinggi < 5 % Defisit N. Perdagangan menurun Inflasi menurun Masa Lampau Sekarang 1-2 Tahun Perdiksi > 2 Tahun Penyesuian kebijakan untuk mencapai stabilitas (dengan pertumbuhan ekonomi yang lebih rendah) – Jangka Pendek Reformasi struktural untuk menambah daya saing, mencapai pertumbuhan ekonomi yang lebih tinggi dan menurunkan defisit neraca perdagangan dan inflasi (Jangka Menengah – Jangka Panjang) This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent

28. Conclusion • Perekonomian disesuaikan menuju keseimbangan baru dengan pertumbuhan yang lebih lambat namun defisit neraca perdagangan yang lebih rendah, tingkat inflasi yang lebih rendah dan rupiah yang lebih stabil. • Bank sentral dan pemerintan bersiap untuk mengambil kebijakan tanggapan yang sesuai (dengan reaktif) walaupun reformasi struktural yang sangat dibutuhkan tetap kurang dan menjadi tugas penting untuk pemerintahan baru. • Proses politik masih berlanjut dengan kandidat presiden yang kuat dari PDIP, namun belum dapat dipastikan. This information is confidential and was prepared by CReco Consulting solely for the use of our client; it is not to be relied on by any third party without CReco’s prior written consent