Indonesia Economic Outlook 2018 by KEB Hana Bank

1. Indonesia Economic Outlook 2018
“Adaptive Responses to Rapid
Economic Change”
Hendri Saparini, Ph.D
Senior Economist and Founder of CORE Indonesia
Presented at KEB Hana Bank Economic Outlook 2018
November 16, 2017

2. Global Economic Growth 2018
Weak recovery in advanced economies; solid pickup in developing countries
Source: IMF , WEO October 2017
3.6 3.7
2017 2018
World
2.2 2.3
2017 2018
USA
2.1 1.9
2017 2018
Eurozone
1.5
0.7
2017 2018
Japan
6.8 6.5
2017 2018
China
6.7
7.4
2017 2018
India
15,3%
4,3%
18,3%
11,6%
7,4%
share of
GDP

3. Modest Rebound of Commodity Prices
Price increases are not supported by solid and sustained demand
Source: IMF
Agricultural
Raw Materials
Metals Price
Fuel (Energy)
20
40
60
80
100
120
140
160
Feb-08
Oct-08
Jun-09
Feb-10
Oct-10
Jun-11
Feb-12
Oct-12
Jun-13
Feb-14
Oct-14
Jun-15
Feb-16
Oct-16
Jun-17
Commodity Price Index
(2008=100)
OIL PRICE
Global GDP
growth
OPEC
production
decision
Non-OPEC
Production
Geopolitical
Risk
Investment/
speculation
Wheatear

4. Changes in Commodity prices
Commodity Prices 2017 2018 % change
Oil (US$/bl) 53 56 5.7%
Natural Gas (US$/mmbtu) 5.6 5.7 1.7%
Coal (US$/mt) 85 70 -17.6%
Palm Oil (US$/mt) 720 732 1.7%
Rubber (US$/kg) 2.2 2.1 -1.4%
Cocoa (US$/kg) 2.0 2.1 5.0%
Coffee (Arabica) (US$/kg) 3.3 3.3 0.0%
Copper (US$/mt) 6,050 6,118 1.1%
Nickel (US$/mt) 10,100 10,559 4.5%
Tin (US$/mt) 20,225 20,426 1.0%
Commodity price
increase marginally in
2018
Oil Price US$53--US$56
(+) strong global demand increase
(+) OPEC production cut agreement
(-) recovery in U.S. shale oil production
(-) expanding output of oil producers like Iran,
Libya, and Venezuela
Natural Gas US$5,6 –US$5,7
(+) strong demand especially from
chemical and fertilizer industries
(+) China gov. encouragement to
coal-to-gas switching to reduce
emissions
Coal US$ 89--U$ 70
(-) Weak demand from China as it
tackle its air pollution
(-) increase of supply from producers
countries
Palm Oil U$ 720--U$732
(+) Strong demand of India and China
(+) lower soybean production in Brazil and Argentina
(-) Increase production of palm oil in Indonesia and
Malaysia
Source: World Bank

5. High Growth of Financial Sector
Low pressure of monetary policies on financial stability
Source: OECD
0
50
100
150
200
250
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
INDEX,2010=100
Stock Market Indices of developed countries
Japan United Kingdom United States Euro area (19 countries)
0
50
100
150
200
250
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
INDEXK,2010=100
Stock Market Indices of developing countries
China India Indonesia Russia

6. GDP Growth and Distribution
Driven by exports and investment
57%33%
7%
3%
GDP Distribution (Q1-Q3 2017)
Private Consumption Fixed Investment Government Consumption Net Export
5.05%
1.97%
4.36%
-3.71% -4.01%
4.99%
1.28%
5.77%
9.53%
6.79%
Private Consumption Government
Consumption
Investment Export Import
GDP Growth (Q1-Q3 2017)
Q1-Q3 2016 Q1-Q3 2017
Source: BPS

7. GDP by Sectors and Its Distribution
Supported by non-tradable sectors
0.1%
3.7%
4.6%
2.8%
3.7%
4.6%
7.0%
5.7%
8.2%
9.2%
1.2%
3.7%
4.2%
4.3%
4.8%
4.9%
6.1%
6.7%
8.3%
9.8%
Mining
Real Estate
Manufacturing
Industries
Agriculture
Trade
Accomodation; Food &
Beverage
Financial Service
Construction
Transportation
Information &
Communication
GDP Growth by Its Sectors
Q1-Q3 2017
Q1-Q3 2016
Financial
Service
4%
Transportation
4% Information &
Communicatio
n
5%
Mining
6%
Construction
11%
Others
19%Trade
14%
Agriculture
14%
Manufacturing
Industries
23%
Source: BPS

8. Consumer’s Purchasing Power Decline?
7.82%
6.36%
2.40%
Semester-1 2015 Semester-1 2016 Semester-1 2017
Growth of Power Sales
Growth of Cement Consumption
2,9%
6,6%
Jan-Sep 2017
Jan-Sep 2016 12.9
10.6 11.1 11.2
13.6
16.3
6.3
11.4
10.6
8.1
9.9 10.5
6.3
3.7 4.2 4.2 4.3
6.3
-3.3
2.2 2.4
Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec
Growth of Retail Sales (yoy, %)
2016 2017
2.38%
-9.74%
2.67%
-0.26%
Mobil Sepeda Motor
Growth of Vehicle Sales
Jan-Sep 2016
Jan-Sep 2017

9. Weakening Purchasing Power of Low Income Consumers
Farmworker
Construction worker
Housemaid
97.0
98.0
99.0
100.0
101.0
102.0
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17
Index
2016=100
Wage Real Index
Food
Plantation
Holticulture
90
92
94
96
98
100
102
104
106
108
110
Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16Jan-17Jul-17
Index,
(2010=100)
Farmer Exchange Rate
20% highest40% middle40% lowest
Rp
Rp
Rp17,1%
36,3%
46,6%
Expenditure Distribution by group of income
Headline
Core
Administered
Price
Volatile Food
-4
-2
0
2
4
6
8
10
12
14
16%
Annual Inflation (yoy)
Source: BPS

10. Low Growth Sales for Retailers and Manufacturers
20%
1%
7%
-7%
10%
13%
-4% -4% -5%
0%
-10%
-5%
0%
5%
10%
15%
20%
25%
Sumber Alfaria
Trijaya
Matahari Putra
Prima
Ramayana
Lestari Sentosa
Hero
Supermarket
Matahari
Department
Store
Retail Trade Sales Growth, (9M,yoy)
2016 20017
10%
24%
9%
6%
3%
8%
4%
3%
0%
5%
10%
15%
20%
25%
30%
Indofood CBP Sukses
Makmur
Mayora Indah Unilever Indonesia
Tbk.
Ultrajaya Milk
Industry & Trading
Food and Household Sales Growth, (9M, yoy)
2016 20017

11. Rapid decline of Fast Moving Consumer Goods (FMCG)
sales
Source : Nielsen
38.7%
29.8%
20.6%
16.3%
13.4%
5.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Fest 2012 Fest 2013 Fest 2014 Fest 2015 Fest 2016 Fest 2017
Total Key Account 75 Festive Categories
+13.8%
+17.7%
+14.3%
+15.2%
+21.1%
+4.7% +11%
+9.6%
+11.1%
+14%
+10.5%
+11.5%
7.7%
YTD
+2.7%
50
100
150
200
250
300
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Fast Moving Consumer Goods has been growing very
slowly at 2,7% in 2017 (ytd) while annual average was 11%.
Inflation 8.4%
Inflation 11%
Inflation 17%

12. Impact of E-commerce Expansion?
Market share of online sales is below 4% in 2017
22.4
23.3
22.1 21.7
19.8
16.8
0.
5.
10.
15.
20.
25.
2016 2017* 2018* 2019* 2020* 2021*
%
Growth of Retail E-Commerce Sales in Indonesia
0.8
1.4
2.2
3.1
3.9
4.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2014 2015 2016* 2017* 2018* 2019*
%
Share of E-commerce from Total Retail Sales In Indonesia
Jan 2017
Sumber: Statista, Wearesocial.org, Asosiasi E-Commerce Indonesia (IdEa)
7.8%
7.1%
5.8%
4.5%
Europe China United
States
Singapore Malaysia Thailand Philippines Indonesia Vietnam
Percent of Retail Sales Mode Online
(2014, % of total retail sales)
around or below 1%
Number of people
purchasing via
e-commerce
E-commerce
penetration (number
of purchaser vs total
population)
Total value of national
e-commerce 2016 (US$)
Average annual e-
commerce revenue per
user in 2016 (US$)
24.74 Million 9 % $5.6 Billion $228

13. Source : LPS dan BI
Composition of income household usage
% usage
Upper-Middle Class Holding Back Consumption
Third party deposit for above Rp 2 billion accounts grows faster
N<2B
N>2B
1,000
1,500
2,000
2,500
3,000
3,500
TriliunRp
Third Party Deposit by Nominal
N<2B
N>2B
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
Growth of Third Party Deposit By Nominal Segment

14. Direct Investment Growth
Domestic investment grows faster, mostly supported by government expenditure
17.1%
7.8% 7.8%
0.9%
10.5%
12.0%
18.6%
21.7%
16.3%
36.5%
16.9% 16.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Q1-2016 Q2-2016 Q3-2016 Q1-2017 Q2-2017 Q3-2017
Domestic & Foreign Direct Investment Growth
FDI DDI
26.59
39.44
47.46
51.61
62.62
Food Crops & Plantation
Chemical and Pharmaceutical
Industry
Food Industry
Metal, Machinery & Electronic
Industry
Mining
Triliun Rupiah
Highest Direct Investment Sectors Realization
(Q1-Q3 2017)

15. Investment in manufactures is slowing down
20.2
75.4
62.6
32.6
73
89.1
0
10
20
30
40
50
60
70
80
90
100
TriliunRp
DDI by Sector (in Trillions Rupiah)
Jan-Sep 2016 Jan-Sep 2017
Secondary Tertiary
40.2
180.1
74.9
60.4
139.8
118.3
0
20
40
60
80
100
120
140
160
180
200
Primer Sekunder Tersier
TriliunRp
FDI by Sector (in Trillions Rupiah)
Jan-Sep 2016 Jan-Sep 2017
Primary Secondary Tertiary
-30%
65%
-25%
50%
-22%
58%
-40%
-20%
0%
20%
40%
60%
80%
Primer Sekunder Tersier
FDI Growth by Sector (yoy)
Jan-Sep 2016 Jan-Sep 2017
Primary Secondary Tertiary
Primary
41%
20%
12%
61%
-3%
42%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
DDI Growth by Sector (yoy)
Jan-Sep 2016 Jan-Sep 2017
Primary Secondary Tertiary

16. GOVERNMENT AND SOE Capital Expenditure
118 145
181
147
215 207
47.5 75
118
143
212 255
268
405
111
0
100
200
300
400
500
600
700
2011 2012 2013 2014 2015 2016 Jun-17 Aug-17
Capital Expenditure by Government and
SOEs
Gov. Capital Exp. BUMN Capital Exp.
4.3
15.4
37.2
1.4
11
27.8
5.1
21.5
40
5.7
23.1
0
5
10
15
20
25
30
35
40
45
0
10
20
30
40
50
60
70
80
90
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3
2014 2015 2016 2017
%
TriliunRupiah
Realization of Government Capital
Expenditure
Realization (in Trillions Rp) Realization (in %)

17. Indonesia Export Rebound
Supported by increased commodity prices
Source: BPS, IMF
Jan-Sep
2017
Jan-Sep
2016
18,4%
14,5%
37,8%
-17,4%
-3,5%
-18,0%
Export growth by Sectors
12,8%
12,4%
-9,8%
15,21%
9,2%
-12,6%
Import Growth by Broad Economy Categories
Jan-Sep
2017
Jan-Sep
2016
Consumption Goods
Raw Material Goods
Capital Goods
Agriculture Manufacture Mining

18. Next Year Goverment Budget
Increased allocation for infrastructure, minimum short-term impacts on
economy
146 156
178
290
317
401 410
27%
7%
14%
62%
9%
27%
6%
0%
10%
20%
30%
40%
50%
60%
70%
0
80
160
240
320
400
480
2012 2013 2014 2015 2016 2017F 2018F
TRILIUNRUPIAH
Budget Allocation for Infrastructure
Goverment Infrastructure Budget Growth (%YoY)
Farmer Labour
Construction
Labour
Housekeeper
97.0
98.0
99.0
100.0
101.0
102.0
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Index
2016=100
Average Index of Riil Labour Wage

19. Better Targeting Subsidies
Improving the accuracy of electricity subsidy (900 VA)
Energy Subsidy
Rp 95 Tn
Fuel And LPG Subsidy
Rp 46,9 Tn
Electricty Subsidy
Rp 47,7 Tn
0
50
100
150
200
250
300
350
400
450
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
TnRupiah
Goverment Subsidy Spending
Total Energy Subsidy Total Non Energi Subsidy

20. Increased Allocation for Social Assistance
Require close supervision to improve effectiveness
22%
16%
28%
-7%
4% 6%
22%
6%
-1%
-49%
17%
23%
-60%
0%
60%
0
20
40
60
80
100
120
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
TnRupiah
Social Assistance Spending
Social Assistance Growth (YoY)
Program Keluarga Harapan
10 Million Family
Contribution for the poor in
JKN
92,4 Million Family
Program Indonesia Pintar
19,7 Million Student

21. Revenue Target for 2018
Increased target will require extra efforts
1246
1489
1539
1472
1618
0
200
400
600
800
1000
1200
1400
1600
1800
2014 2015 2016 APBNP 2017 2018
TrlionRupiah
Tax Revenue
Realization Remaining Target Target
19.5%
30%
8.2%
3.3%
24%
3.5%
-4.3%
14.6%
9.9%
906 894
987 991
340
595
516 481
1246
1489 1503 1472
0
400
800
1200
1600
Okt 14 Okt 15 Okt 16 Okt 17
AxisTitle
Revenue realization increase due to Lower Target and
Tax Amnesty Program
Realization Remaining Target Target

22. Higher risk for budget deficit leading to increased debts
High foreign ownership in government bonds is vulnerable to sudden capital
outflow
-3.00
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
-400
-300
-200
-100
0
100
200
300
400
2013 2014 2015 APBN-P 2016 Outlook 2017 RAPBN 2018 %ofGDP
TrillionsRupiah
Budget Surplus/Deficit
Primary balance Surplus/Deficit % of GDP
Value
818
Percentage
30
32
34
36
38
40
42
150
300
450
600
750
900
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
%
TnRupiah
Foreign Holding in Goverment Bonds
3.9
5.2
13.3
13.5
13.9
15
19.9
28.4
29.4
30.1
31.9
38.2
38.3
64.5
0 10 20 30 40 50 60 70
Cina
Israel
Brazil
Korea
Filipina
Thailand
Turki
Malaysia
Hungaria
Rusia
Polandia
Indonesia
Afrika Selatan
Meksiko
% Foreign Holding in Goverment Bonds by Country

23. Redesign Fiscal Policy to Reduce Income Inequality
79.9 81.5
96.1
109.2
119
131.2
172.4
214.4
2009 2010 2011 2012 2013 2014 2015 2016
TrilionRupiah
-2.4
-0.9
-1.1
+0.1
+0.3
-1.5
-0.9
-0.8
Poverty budget VS poverty reduction
0
2
4
6
8
10
12
14
16
18
20
0
5
10
15
20
25
30
35
40
45
2006 2007 2008 2009 2010 Mar
11
Mar
12
Mar
13
Mar
14
Mar
15
Mar
16
Mar
17
%
MillionsPeople
Poverty Line
Number Percentage

24. Continued low inflation rate since 2016
Lower volatile foods inflation, but higher administered prices in 2017
Headline
Core
Administered
Price
Volatile Food
-4
-2
0
2
4
6
8
10
12
14
16
Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17
%
Annual Inflation (yoy)
3.4
4.6
1.6
3.5
3.3
2.7
-1.9
2.1
-1.3
3.6
4.8
3.7
2.5
3.2
3.4
2.7
-4 -2 0 2 4 6
Food material
Finished food, beverages,…
Housing, Water, Electricity, Gas,…
Clothing
Health
Education, Recreation and Sports
Transportation,…
General
%
Inflation Rate According to Expenditure Group
Jan-Okt 2017
Jan-Okt 2016

25. Balance of payment
Improved export performance and increased capital flows
-10
-8
-6
-4
-2
0
2
4
6
8
Bil.US$
Current Account
Goods Services Primary Income Secondary Income
Current
Account
Financial
Transaction
Balance of
Payment
-15
-10
-5
0
5
10
15
20
BillionUSD
Balance of Payment

26. Stable Exchange Rate in 2017
Foreign pressures decline, domestic economy is relatively stable
Source: IMF
Average S1-17
Rp 13.328
Average S1-16
Rp 13.409
12000
12500
13000
13500
14000
14500
15000
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Rupiah/US$
Yuan
Rupiah
Yen
Won
Ringgit
Bath
80
85
90
95
100
105
110
115
120
125
130
Index
2015:100
Exchange Rate of Asian Currency

27. LOW Impact of Monetary Policy on Bank Lending Rate
Time lag in monetary policy transmission
Source : Bank Indonesia
Δ Ags 16 - Oct 17
Reference Rate
100 bps
Lending rate
Deposit Rate
62 bps
67 bps
BI 7 Repo Rate, Lending Rate, Deposito Rate Average of Bank Interest Rate
BI Rate
BI 7 Day RR
Rate
Deposit
Facility
Lending
Facility
2
3
4
5
6
7
8
9
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17
%
Lending
Rate
Deposit
Rate
Spread
2
4
6
8
10
12
14
%

28. Banking Credit Growth & Non Performing Loan
Credit continues to grow one digit in 2017 due to high NPL and low demand
Source : OJK
Ags-16
4.7%
Ags-17
7.8%
Annual Credit Growth
Ags-16
9.4%
Ags-17
7%
Ags-16
8.2%
Ags-17
10.2%
-2%
6%
-20%
3%
16%
13%
16%
29%
9%
18%
-1%
4%
5%
5%
6%
7%
11%
13%
17%
23%
-30% -20% -10% 0% 10% 20% 30% 40%
Transportation, warehousing
and communication
Trade
Mining
Manufacturing
Acomodation Provision
Real Estate
Agriculture
Electricity, gas and water
Financial Intermediaries
Construction
Annual Credit Growth (yoy)
Aug-17 Aug-16
0.8%
1.5%
1.9%
3.2%
3.6%
3.7%
4.1%
4.1%
4.4%
8%
0% 2% 4% 6% 8% 10%
Financial Intermediaries
Electricity, gas and water
Agriculture
Real Estate
Construction
Manufacturing
Acomodation Provision
Transportation,
warehousing…
Trade
Mining
Bank NPL
Aug-17
Credit
Consumption
Working
Capital
Investment

29. Incentive System by Bank Indonesia
Important factors that causes ineffectiveness of monetary transmission
Source : Bank Indonesia
Total DPK
Rupiah
Valas
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Growth of Third Party Fund
484
506
429
325
410
191
420
486
0
100
200
300
400
500
600
2010 2011 2012 2013 2014 2015 2016 43009
TrilionRp
Placement of Banking Funds in Bank Indonesia
Instruments

30. Bank Health Indicators
Source : OJK
• 90.0 (Aug-16)
• 89.2 (Aug-17)
• 5.6 (Aug-16)
• 5.3 (Aug-17)
• 81.3 (Aug-16)
• 78.9 (Aug-17)
• 23.4 (Aug-16)
• 23.3 (Aug-17)
CAR BOPO
LDRNIM

31. Thank You