The Impact of The Global Economic Slowdown to Indonesia In a response to The World Bank 3Q211 Report

Destry Damayanti Chief Economist PT Bank Mandiri October 2011

Outline Global: Economic recovery remains fragile with more risks on the financial sector

Indonesia: Growth momentum continues supported by domestic economy Indonesian economic resilience towards the global economic slow down Challenges ahead

Global: Fragile economic recovery with more risks on the financial sector

Global economic update  Uncertainty remains high From sovereign debts to the banking sector • The global economic outlook has weakened significantly with rising uncertainties • Not clear resolution in the Euro zone debt crises could jeopardize the European banking sector with a huge exposure on Euro sovereign debt (i.e, Greece, Italy and Spain) • Standard & Poor's downgraded Italian sovereign debt to A from A+. Meanwhile financial condition in Greece remains fragile, despite the 2nd bail out by the ECB and the IMF • Sovereign credit risk rising as reflected in upward pressures on the 10 year government bond yield • Rising liquidity risk in the European banks  lead to a higher interbank interest rate • Moody's downgraded French banks Societe General and Credit Agricole due to their high exposure on Greece sovereign debt The Global outlook has worsened Countries World Output Advanced Economies - United States - Euro Area > Germany > France Emerging Economies - China - India - ASEAN-5 - Indonesia Source: The IMF

2008 3.0 0.5 0.4 0.6 1.2 0.3 6.1 9.6 7.3 4.7 6.0

2009 (0.7) (3.7) (3.5) (4.3) (5.1) (2.6) 2.8 9.2 6.8 1.7 4.6

2010 5.1 3.1 3.0 1.8 3.6 1.4 7.3 10.3 10.1 6.9 6.1

Apr 4.4 2.6 2.8 1.6 2.5 1.6 6.5 9.6 8.2 5.4

2011 Jun Sep ∆ (Sep-Jun) 4.3 4.0 (0.3) 2.4 1.6 (0.8) 2.5 1.5 (1.0) 2.0 1.6 (0.4) 3.2 2.7 (0.5) 2.1 1.7 (0.4) 6.6 6.4 (0.2) 9.6 9.5 (0.1) 8.2 7.8 (0.4) 5.4 5.3 (0.1) 6.4

Apr 4.5 2.6 2.9 1.8 2.1 1.8 6.5 9.5 7.8 5.7

2012 Jun Sep ∆ (Sep-Jun) 4.5 4.0 (0.5) 2.6 1.9 (0.7) 2.7 1.8 (0.9) 1.7 1.1 (0.6) 2.0 1.3 (0.7) 1.9 1.4 (0.5) 6.4 6.1 (0.3) 9.5 9.0 (0.5) 7.8 7.5 (0.3) 5.7 5.6 (0.1) 6.3 © PT Bank Mandiri (Persero) Tbk.

10-year Government Bond Yield in several countries tend to increase Sharply increased in Greece bond along with the nervousness of default Yield (%)

30.00

25.00 United States

20.00

United Kingdom Greece

15.00

Italy Spain Japan

10.00

China Indonesia

5.00

0.00 Jan-08 Sumber: Bloomberg

Dec-08

Nov-09

Oct-10

Sep-11

© PT Bank Mandiri (Persero) Tbk.

Lead to a flight to quality  safe haven asset Re-profiling asset from Equity market and Emerging market assets to US T-bond and USD Dollar Index

US GOV'T BOND 10Y 4

82

3.5

80

3

78

2.5

76

2

74

1.5 Jan-11

Mar-11

May-11

Jul-11

Sep-11

72 Jan-11

Mar-11

May-11

Jul-11

Sep-11

Source: Bloomberg

© PT Bank Mandiri (Persero) Tbk.

US T-bond and USD still become safe haven instruments despite slow economic recovery in the US

Foreign holder in US T-bond are dominated by China and Japan US Treasury holder (1Q11, US$9.7tn)

3%

10,000 9,000

Insurance Financial 3% institution Local Government Mutual 5%

Other 3%

Oil Exporters 2% UK 3%

US Household 10%

Foreign 46%

Brazil 2% Taiwan 2%

Fed 14%

Japan 9% China 12%

AAA Bond Outstanding (USD bn)

8,000

funds 7% Pension Fund 9%

US market is the most liquid market in the world

7,000 6,000 5,000 4,000

Other 16%

3,000 2,000 1,000

United States

France

United Kingdom

Canada

Germany

Austria

Netherlands

Australia

Denmark

Sweden

Finland

Norway

Singapore

Hong Kong

Swiss Confederation

Sumber: IMF Global Financial Stability Report, Economist, Bloomberg

New Zealand

Isle of Man

7

Luxembourg

-

© PT Bank Mandiri (Persero) Tbk.

Falls in global commodities prices Particularly for non-energy commodity prices

© PT Bank Mandiri (Persero) Tbk.

Implication in the short to near-term • Advanced economies: fiscal consolidation  budget discipline to reduce the deficit • Improve bank balance sheet due to high banks’ exposure in sovereign debt • Structural reform in advanced countries to improve the growth prospect • Emerging countries: – Concern over a spill over affect from the downturn in the EU and US – Increase market volatility along with rising risk aversion

© PT Bank Mandiri (Persero) Tbk.

Indonesia: Growth momentum continues supported by solid domestic economy

Indonesian economic fundamental remains solid

Domestic economy continued to be the main driver of growth Fiscal position remains solid  debt to GDP ratio is only 25% Accumulation of reserves which reach almost doubled in Sep 11 at USD122bn compared with USD66bn in 2009 would make Indonesia well-placed to deal with the external shock  Banking condition remains healthy with CAR at 17% (vs 8% required by BI’s regulation); NPL at under 3% (vs a critical level of 5% set by BI); LDR at 80% with the credit growth at 24% Prudent macro economic policies are intact to manage macro economic stability

© PT Bank Mandiri (Persero) Tbk.

GDP grew by 6.5% yoy in 2Q11: 6.5% (YoY) More balanced growth

Expenditure (%)

1Q11 2010 YoY Growth

2Q11 QoQ Growth

2Q11 YoY Growth

Share on GDP 2Q11

2011 F*

2012 F*

Private Expenditure

4.6

4.5

1.3

4.6

54.3

4.4 - 4.9

4.6 - 5.1

Government Expenditure

0.3

3.0

26.0

4.5

8.3

9.7 - 10.2

5.5 - 6.0

Gross Fixed Capital Formation

8.5

7.3

3.9

9.2

31.6

9.6 -10.1 12.4 - 12.9

Exports

14.9

12.3

7.4

17.4

27.3

8.5 - 9.0

Imports

17.3

15.6

6.0

16.0

25.4

9.8 - 10.3 11.2 - 11.7

6.1

6.5

2.9

6.5

100

6.0 - 6.5

Gross Domestic Product (GDP)

8.8 - 9.3

6.1 - 6.6

Sumber: BPS *) Bank Indonesia Forecast

17

© PT Bank Mandiri (Persero) Tbk.

Manufacture sector growth has improved significantly Sector (%) Agriculture, Livestock's, Forestry and Fisheries

1Q11 2Q11 2Q11 Share 2010 YoY QoQ YoY on GDP Growth Growth Growth 2Q11

2011 F *

2012 F *

2.9

3.4

3.7

3.9

15.4

3.2 - 3.7

3.4 - 3.9

2. Mining and Quarrying

3.5

4.6

-1.0

0.8

11.6

3.3 - 3.8

3.3 - 3.8

3. Manufacturing Industries

4.5

5.0

3.1

6.1

24.3

4.3 - 4.8

4.3 - 4.8

4. Electricity, Gas and Water Supply

5.3

4.2

4.0

3.9

0.8

6.2 - 6.7

7.2 - 7.7

5. Construction

7.0

5.3

4.2

7.4

10.1

7.3 - 7.8

8.2 - 8.7

6. Trade, Hotel and Restaurant

8.7

7.9

4.8

9.6

13.9

8.4 – 8.9

8.5 - 9.0

7. Transportation and Communication

13.5

13.8

2.1

10.7

6.4

12.3 - 12.8

10.7 11.2

Financial, Ownership and Business Services

5.7

7.3

1.0

6.9

7.2

5.8 - 6.3

6.0 - 6.5

6.0

7.0

2.4

5.7

10.3

5.9 - 6.4

6.0 - 6.5

6.1

6.5

2.9

6.5

100.0

6.0 - 6.5

6.1 - 6.6

1.

8.

9. Services Gross Domestic Product (GDP) Sumber: BPS *) Bank Indonesia Forecast 18

© PT Bank Mandiri (Persero) Tbk.

One of the most underleveraged among high growth emerging countries

220

200 150 92

100

80

77

69

54

53

50

47

44

27

18

China

Indonesia

Thailand

The Philippines

Vietnam

Malaysia

India

UK

Germany

US

Japan

0

100 90 80 70 60 50 40 30 20 10 0 Russia Turkey Poland Bulgaria Czech Republic Hungary Argentina Brazil Indonesia India China Thailand Korea Taiwan Italy Germany Japan France United Kingdom United States New Zealand

250

Household Credit, End-2008 (in percent of GDP)

General Government Gross Debt (% of GDP, 2010)

14

Source: IMF

Source: CEIC © PT Bank Mandiri (Persero) Tbk.

Rerating story for Indonesia  could trigger more FDI Peringkat kredit Indonesia semakin mendekati investment grade

Model kami mengindikasikan bahwa Indonesia layak mendapatkan investment grade 80

Standard & Poor's Foreign Curency Rating BBBBB+

S&P : BB+ (Positive) Moody's: Ba1 (Stable) Fitch : BB+ (Positive)

BB B

B-

CCC+

B-

CCC+

CCC+ CCC

CCC+

B-

B

B+

BB-

BB

BB+

70

Probability of predicted Indonesian sovereign rating in 2010 59

60

46

50

47

38

40

Moodys S&P 36

Fitch

30 Apr-11

Mar-10

Jul-06

Dec-04

Oct-03

May-03

Apr-02

Nov-01

May-01

Oct-00

Apr-00

Apr-99

Sep-02

D/SD

D/SD Mar-99

May-98

Mar-98

Feb-98

Jan-98

Dec-97

Oct-97

D/SD

19

20 8

10 000

18 9

6

21

8 3

0

001

AAA 1 year average Mean different Number of obs Significance (p(%) between pre- and value) post- upgrade period Real interest rate 2.7 46 0.09 Short-term yield spread to t-bill 3.7 49 0.04 Investment to GDP (0.7) 35 0.02 Direct investment to GDP (0.3) 30 0.35 Portfolio investment to GDP 0.8 36 0.11 FX reserves (mo of imports) (0.5) 50 0.01

15

15

Sumber: CEIC, Mandiri Sekuritas, Bloomberg, Moody’s

AA

A

BBB

BB

B

CCC

2 year average Expected sign of Mean different Number of obs Significance (pthe difference between pre- and value) post- upgrade period 3.8 46 0.10 Positive 5.7 49 0.04 Positive (1.0) 35 0.07 Negative (1.1) 30 0.08 Negative 0.9 36 0.03 Negative (1.3) 50 0.00 Negative © PT Bank Mandiri (Persero) Tbk.

Portfolio inflow and FDI have increased significantly since 2010 Improved quality of inflows 7.0

Foreign Direct Investment (IDR tn)

Capital inflow 5.0

Mining

21.87 26%

30.99 38%

3.0

Electricity, Gas & Water Supply

1.0

Transport, Storage & Communication Food Crops & Plantation

-1.0 FDI (USD bn)

-3.0

Portfolio investment (USD bn)

6.12 7%

16.62 20%

7.87 10%

43.24 53%

6.12 2.62 7% 3%

3.5 10.6%

Singapore USA

Sumber: EIU, BKPM, CEIC

Others

Domestic Direct Investment (IDR tn)

Foreign Direct Investment by country (IDR tn)

16

7.87 10%

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jun-09

Mar-09

Dec-08

Sep-08

Jun-08

Mar-08

-5.0

7 8%

Food Industry

8.75 11%

6.12 7%

16.1 48.1%

4.4 13.2%

Japan

Transport, Storage & Communication Food Crops & Plantation

Netherlands

Food Industry

South Korea Others

Non Metallic Mineral Industry

4.5 13.7%

4.6 13.8

Other

© PT Bank Mandiri (Persero) Tbk.

Private consumption remains the back bone of the growth Supported by solid domestic economy

Healthy demographic structure

Contribution to Growth (In percent) 7.0

7.5

6.0

7.0

5.0

6.5

4.0

6.0

3.0

5.5

2.0

5.0

1.0

4.5

0.0

4.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Private consumption

Gross fixed investment

Net exports

GDP growth rate (RHS)

Growing middle income group

Affluent (more than US$20/day)

0.4 0.1

Upper middle (US$10US$20/day)

2.2 0.4

Mid middle (US$4US$10/day) Lower middle (US$2US$4/day) Poor (less than US$2/day)

7.5

Indonesia will become a global growth poles in 2025 Output Contribution (Constant to Global Simple 2009, USD tn) Growth (%) Polarity Index

Income classfication (mn people)

2009

22.3

1999 37.5

68.8 136.2

170.7

China Euro Area The US India Japan The UK Indonesia Brazil Russia Canada S. Korea Australia MIddle East Sweden Turkey

13.9 18.3 18.8 3.0 6.3 3.4 1.2 2.4 2.0 2.1 1.4 1.5 1.8 0.8 1.0

0.94 0.38 0.24 0.17 0.09 0.07 0.07 0.06 0.04 0.04 0.04 0.03 0.03 0.03 0.03

96.5 39.0 24.4 17.3 9.2 7.5 7.5 6.2 4.1 4.0 4.0 3.5 3.2 3.1 2.6

Menurut World Bank: Pada tahun 2025, Indonesia akan menjadi pusat pertumbuhan dunia (growth poles) bersama dengan 6 negara lainnya

© PT Bank Mandiri (Persero) Tbk.

Indonesia will become the engine of global growth in the future Strong market base and abundant resources will support the economy Peta Populasi Global dan Asia India: 1,1 miliar

China: 1,3 miliar

Japan: 127 juta

Wilayah lainnya : 3,4 milyar

Hampir 50% dari populasi global berada di wilayah ini.

ASEAN: 573 juta Termasuk Indonesia (230 juta) Australia: 20 juta 18

Konsentrasi Pasar Global © PT Bank Mandiri (Persero) Tbk.

Indonesian economic resiliency towards the global economic slow down

The impact of the global economic crisis to Indonesia

Global Economic slowdown

Real sector

Trade

8

Financial sector

FDI

Banking sector

Capital market

© PT Bank Mandiri (Persero) Tbk.

The direct impacts are likely to limited, but indirect impacts need to be considered  Export: – More diversified market. Indonesian exports exposure to US and EU is limited which is only less than 20% from 28% in 2000. While exports to ASEAN plus 3 (China, India and South Korea) rose to 37% from 17% in the same period. However, the indirect impact through its other trading partner should be considered. – Demand inelastic. In term of the export composition, most of Indonesian exports (60%) are commodity. The advantage is by nature their demand are inelastic. However, falls in commodity prices and slow down in China and Indian economic growth may put pressures on Indonesian commodity exports – Low export to GDP ratio which is only 27% – Therefore, the impact of global economic slowdown could be limited to Indonesian economy.

 Foreign Direct Investment (FDI):  Indonesian FDI exposure to US and EU is also limited. The role of AS as the largest contributor of FDI has been replaced by Singapore in the last 5 years. FDI from Singapore has risen more than tripled in 2010 compared with that in 2005, while FDI from US down to less than 4% in 2010 from 41.3% in 2005. – However we should be aware that should a sustained weakening of corporate condition in source countries occur than it would likely affect the inflows despite remains attractiveness of Indonesia – Low FDI to GDP ratio which is less than 3% compared with its peers indicates that investment is more sensitive to domestic economy or local corporations © PT Bank Mandiri (Persero) Tbk.

Less dependency to US and EU More diversify market

Low Indonesian exports to GDP ratio 250 185 168 153 150 90

33

Low exposure of US and EU banks to Indonesia

Less important of US and EU FDI to Indonesia

Foreign Claims on Desinated Countries (% of GDP)

25

20

European banks United States

15

10

5

0

China

2010 28.0 4.3 2.1 2.7 2.6 44.4 2.6 41.2 16.0 100

Indonesia

Sumber: CEIC, BIS, World Bank

30

2009 18.4 3.3 13.8 7.3 1.6 28.3 6.4 20.8 27.3 100

Japan

Share of total FDI inflows by source country, %) 2005 2006 2007 2008 Japan 18.5 21.5 16.3 12.3 US 41.3 -11.2 15.8 11.2 Europe 19.0 41.0 37.8 21.1 China 3.6 2.5 1.7 5.7 Korea 2.9 6.5 3.6 2.0 ASEAN 10.6 27.5 16.0 36.5 Malaysia 1.7 5.6 3.3 10.9 Singapore 8.9 21.9 12.1 24.7 4.2 12.1 8.8 11.3 22 Other Total 100 100 100 100

2010 % Share 16,791 10.6 14,178 9.0 25,782 16.3 15,627 9.9 9,915 6.3 33,109 21.0 42,377 26.9 157,779 100.0

Vi et n

ga po

am

re

g Sin

e in

Ko n g Ho n

illi p Ph

ala ys ia M

Th ai lan d

re a Ko

in a Ch

sia do ne In

In

di a

0

Thailand

27

15

India

58 50

64

2005 % Share 10,175 11.9 9,868 11.5 18,049 21.1 6,662 7.8 2,878 3.4 15,824 18.5 22,203 25.9 85,659 100.0

Philippines

100

Malaysia

200

US$ mn Europe US Japan China India ASEAN Other Total

197

© PT Bank Mandiri (Persero) Tbk.

Simple regression suggests that Indonesia is the least affected country by the global economic slow down Indonesia paling kecil terpengaruh ketika AS, China, Singapura atau Jepang mengalami krisis

US

China

Singapura

Jepang

Indonesia

0.11

0.33

0.08

0.10

Malaysia

1.14

1.23

0.44

0.87

Philippines

0.6

0.64

0.25

0.48

Thailand

1.3

1.06

0.43

0.97

Singapura

1.8

1.9

1.40

Note: setiap penurunan 1% pertumbuhan GDP AS maka pertumbuhan ekonomi Indonesia akan turun sebesar 0,11%. Penghitungan belum memasukkan faktor 2nd round effect Perbandingan tiga simulasi untuk pengaruh krisis US terhadap negara-negara ASEAN

23

Mandiri

Merrill Lynch

Deutsche

Indonesia

0.11

0.30

0.1

Malaysia

1.14

0.80

1.4

Philippines

0.6

0.30

0.7

Thailand

1.3

0.40

1.3

Singapura

1.8

1.70

1.8

Sumber: Merrill Lynch, Deutsche, Mandiri © PT Bank Mandiri (Persero) Tbk.

Lesson learned: Indonesia has shown its highly resistance from the 2008 global crisis Penurunan laju pertumbuhan ekonomi Indonesia relatif lebih rendah dibandingkan region lain

Indonesia hanya membutuhkan 4 kuartal untuk keluar dari pengaruh krisis ekonomi global

Indonesia GDP growth

GDP Growth (%)

% yoy

10 7.0 6.5

5

6.0

0

-5

Indonesia mengalami kontraksi yang paling dalam

Indonesia mengalami kontraksi yang paling kecil

World -10

Advanced countries

5.5 5.0 4.5 4.0

Emerging countries Indonesia

3.5 Mar-2008

Mar-2009

Mar-2010

Mar-2011

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-15

Sumber: International Monetary Fund, CEIC

© PT Bank Mandiri (Persero) Tbk.

Foreign capital inflows to Indonesia have risen supported by solid macroeconomic backdrop ...and so does the total FX reserves

© PT Bank Mandiri (Persero) Tbk.

But the risk aversion rises lead to an increase in market volatility PE band: would it break the average of 11 x?...?

Capital reversal in Indonesian market SBI (IDR tn) Government bonds (IDR tn) Stock (IDR tn) Total (IDR tn)

60

40

JCI PER band (Rolling) Average (1995-now): 11.2x

25.0

20.0

20

Std+1 15.0 14.71 X

10.0

(20)

Euro-zone debt crisis

Apr-96 Oct-97 Apr-99 Oct-00 Apr-02 Oct-03 Apr-05 Oct-06 Apr-08 Oct-09 Apr-11

Aug-11

May-11

Feb-11

Aug-10

May-10

Feb-10

Nov-09

Aug-09

May-09

Feb-09

Nov-08

Aug-08

May-08

Feb-08

0.0

Euro-zone debt crisis

(60)

Nov-10

Global financial crisis

The reduction in foreign holding on SBI would be positive for the market

Inflasi 7% akibat harga komoditas, BI dianggap behind the curve

Foreign holding is more on the long-end tenor

300

40% Foreign Ownership (Rp tn)

40%

Rp tn

300

Std-1

5.0

Inflation soared to 7%, BI considered as behing the curve

(40)

35%

250

35%

250

SUN (LHS)

30%

SB I (LHS)

30% 200

200

% o f SUN o utstanding (RHS)

25%

150

20%

25%

% o f SB I o utstanding (RHS)

150

20%

15%

100

15% 100

10% 50

5%

10% 50 5%

0-2

2-5

5-10

>10

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jun-09

Mar-09

Dec-08

Sep-08

Jun-08

Mar-08

0%

Dec-07

-

Share of Outs (RHS)

-

0% Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Aug-11

© PT Bank Mandiri (Persero) Tbk.

Increase risk aversion in September 2011

© PT Bank Mandiri (Persero) Tbk.

Massive outflows in the Bond and Equity markets

© PT Bank Mandiri (Persero) Tbk.

during Jan- Sep 2011

Net Sell/Buy (IDR tn)

Net Sell/Buy (IDR tn)

stock market

bonds market

20.0

20.0

17

14

15.0 15.0

10.0 5.0

10.0

11 5

10

10 4

0.0 4

5.0

-5.0

5

Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 (1)

Jul-11

Aug-11 Sep-11 (1)

-10.0

2

2

-15.0 0.0 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 (0) (2) -5.0

-10.0

Jul-11 Aug-11 Sep-11

-20.0 -25.0

(4)

-30.0 (8)

(29)

-35.0

Sumber: Bloomberg, per 22 September 2011 © PT Bank Mandiri (Persero) Tbk.

Indonesian position relative to its peers

© PT Bank Mandiri (Persero) Tbk.

Stock Market Index Performance: Compared with the pre-crisis 2008 Indonesian market has performed relatively better than its peers (index) 180 160 United States 140

France Greece

120

Japan China

100

Singapore 80

Malaysia Thailand

60

Indonesia 40 20 0 Jan-08

Dec-08

Nov-09

Oct-10

Sep-11

Sumber: Bloomberg © PT Bank Mandiri (Persero) Tbk.

On the year to date basis (Jan-Sep2011) the correction in Rupiah still manageable compared with its peers usdidr

usdsgd

usdmyr

usdphp

104.0 102.0 100.0 98.0 96.0 94.0

Sep-11

Aug-11

Jul-11

Jun-11

May-11

Apr-11

Mar-11

Feb-11

Jan-11

Dec-10

Nov-10

92.0

Dibandingkan akhir tahun lalu, pelemahan Rupiah masih paling kecil setelah Phillipines

ytd 2011 mtd Sept

IDR 0.47 5.69

SGD 1.36 8.07

MYR 4.08 7.29

PHP 0.16 3.37

THB 3.37 3.47

AUD 4.18 9.18

JPY (5.99) (0.21)

Note: as per 26 September 2011. Angka positif artinya melemah

© PT Bank Mandiri (Persero) Tbk.

How resilience is Indonesia against the global turmoil?? Foreign direct investment flow recorded the highest level ever

Trade surplus remain ample, backed strong growth in exports 25

120

Indonesia's semi-annual trade performance

7

100

20

Capital inflow

Trade balance (US$ bn, LHS)

5

80

Exports (US$ bn, RHS)

15

Imports (US$ bn, RHS)

60

10

40

3

1

5

20

0

0 Dec-00 Jun-02 Dec-03 Jun-05 Dec-06 Jun-08 Dec-09 Jun-11

-1

Stronger FX reserves position FDI (USD bn)

-3

Portfolio investment (USD bn)

8.0 7.5 7.0

Mar-11

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

-5

140

Foreign exchange reserves Mo of imports and short term debt (LHS)

6.5

5.5

Improved quality of inflow 33

6.5 6.2

Nominal (U$ bn, RHS) 5.6

6.0

5.0

6.8

4.5

100 80

5.0

4.8

120

60

4.1

3.9

4.0

40 20

3.5 3.0

0 2004

2005

2006

2007

2008 2009Mandiri 2010 2011* © PT Bank (Persero) Tbk.

Improved Reserves ratio will make Indonesia well-placed to deal with a sudden capital reversal

Rasio cadangan devisa terhadap besaran-besaran ekonomi masih pada level yang aman 43%

180%

International Reserve (% of M2, LHS) International Reserve (% of M1, RHS))

41%

Ratio reserve per external short term debt

170%

39%

160%

2.6

2.4

37%

150%

2.2

35%

140%

33%

2.0 130%

31%

Jun-11

Dec-10

Jun-10

Dec-09

Jun-09

Dec-08

Jun-08

Dec-07

Jun-07

Dec-06

100%

Jun-06

25%

Dec-05

110%

Jun-05

27%

Dec-04

120%

Jun-04

29%

1.6

1.4 1.2 1.0

2004

Ratio of government bonds and SBI to international reserves

35%

1.8

2005

2006

2007

2008

2009

2010

2011

30% 25%

Sumber: Bloomberg, CEIC

20% 15% 10% 5%

Jul-11

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Jul-06

Jan-06

Jul-05

Jan-05

Jul-04

0% © PT Bank Mandiri (Persero) Tbk.

The need of strong and solid Macroeconomic policy

35

Monetary Policy Anchoring inflation expectation by rising BI rate to 6.75% and reserves requirement to 8% for both rupiah and non-rupiah deposit Replacing SBI 1,3,and 6 month with term deposit instrument and introducing 9mo SBI Extending SBI minimum holding period to 6 months

Fiscal Policy Conducting open market operation and implementing importation policy on food product to reduce food inflation Preparing a Crisis Management Protocol

Accumulating foreign exchange reserve, reaching US$122.7bn in July 2011

Crisis mitigation fund in the amount of Rp130tn

BI can by back bonds using their bulk of foreign reserve in the secondary market in event of a significant fall in government bond prices

Establishing Bond Stabilization Fund (BSF), which estimated to in the amount of Rp 100 trillion

Limiting short term debt in foreign exchange rate to 30% of bank's equity.

Together with BI, the government is considering to replace non-tradable bonds to tradable bonds in order to support the bond market

Government bond buy back mechanism in the amount of Rp 3.1 trillion

© PT Bank Mandiri (Persero) Tbk.

Challenges ahead

How to optimize an excess liquidity in the financial system

Liquidity is ample, as seen in increase of

480,000

Low interest rate and ample liquidity has helped the lending rate to stabilize 12

430,000

OMO outstanding in banks (IDR bn) JIBOR O/N (%)-RHS

380,000

11

17

Interest rate (%)

BI rate base lending rate

15

10

9

330,000

8

280,000

7

time deposit 13

11

6

230,000

9

5

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Jan-10

Apr-10

Oct-09

Jul-09

Apr-09

Jan-09

Jul-08

Oct-08

Apr-08

Jan-08

Oct-07

5 Jul-07

3 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11

130,000

7

Jan-07

4

Apr-07

180,000

37 Source: CEIC

© PT Bank Mandiri (Persero) Tbk.

Limited Capital Spending Rasio belanja modal terhadap PDB dan APBN masih di bawah belanja lainnya Rasio-rasio

2005

2006

2007

2008

2009

2010

2011*

2012**

Belanja Modal/GDP

1.2%

1.6%

1.6%

1.5%

1.4%

1.3%

1.9%

2.0%

Belanja Pegawai/GDP

2.0%

2.2%

2.3%

2.3%

2.3%

2.3%

2.5%

2.6%

Subsidi/GDP

4.4%

3.2%

3.8%

5.6%

2.5%

3.0%

3.3%

2.5%

Belanja Modal/APBN

6.5%

8.2%

8.5%

7.4%

8.1%

7.1%

10.7%

11.9%

Belanja Pegawai/APBN

10.7%

11.0%

11.9%

11.4%

13.6%

13.2%

13.8%

15.2%

Subsidi/APBN

23.7%

16.1%

19.8%

27.9%

14.7%

17.1%

18.0%

14.7%

Note: * APBNP; ** RAPBN 2012

• Secara historis belanja modal secara proporsi masih di bawah belanja pegawai dan subsidi.

Belanja subsidi selalu di atas belanja modal Belanja Modal

Subsidi

300 250

209

200

168

150 100

• Tantangan ke depan adalah memanfaatkan belanja modal yang terbatas sebaik mungkin untuk mendorong pertumbuhan ekonomi

50 0 2005 2006 Sumber: Kemenkeu

2007

2008

2009

2010

2011*

2012**

© PT Bank Mandiri (Persero) Tbk.

Realisasi belanja modal masih rendah di 2011 Belanja Modal 160 140

Realisasi 120%

103% 93%

92%

100%

85%

120

80%

100 80

• Secara total, realisasi anggaran pemerintah pusat di semester I 2011 masih lebih rendah dibandingkan dengan pencapaian tahun 2010. Belanja modal bahkan masih berkisar 16.2% atau di bawah realisasi semester I 2010 yang sebesar 17.3%.

60%

60 24%

40

40% 20%

20 0

0% 2007

2008

2009

2010

Note: realisasi belanja modal s/d Agustus 2011 Sumber: Kemenkeu

• Percepatan anggaran merupakan sesuatu tantangan untuk mendorong pembangunan infrastruktur yang berkualitas.

2011*

© PT Bank Mandiri (Persero) Tbk.

Weak Infrastructure development Global Competitive Index 2010-2011

1st pillar: Institution

2nd pillar: Infrastructure

3rd pillar: Macroeconomic Env.

4th pillar: Health and primary education

5th pillar: Higher education and training

6th pillar: Goods market efficiency

7th pillar: Labor Market efficiency

8th pillar: Financial Market development

9th pillar: Technological roadness

10th pillar: Market size

11th pillar: Business sophistication

12th pillar: Innovation

Indonesia was rank 82 out of 139 countries

Singapore

3

1

5

33

3

5

1

1

2

11

41

15

9

Malaysia

26

42

30

41

34

49

27

35

7

40

29

25

24

China

27

49

50

4

37

60

43

38

57

78

2

41

26

Thailand

38

64

35

46

80

59

41

24

51

68

23

48

52

Indonesia

44

61

82

35

62

66

49

84

62

91

15

37

36

India

51

58

86

73

104

85

71

92

17

86

4

44

39

S.Africa

54

47

63

43

129

75

40

97

9

76

25

38

44

Brazil

58

93

62

111

87

3

114

96

50

54

10

31

42

Vietnam

59

74

83

85

65

93

60

30

65

65

35

64

49

Russian Federation

63

118

47

79

53

50

123

57

125

69

8

101

57

Philippines

85

125

104

68

90

73

97

111

75

95

37

60

111

Country/ Economy

Sumber: World Economic Forum, Executive Opinion Survey

© PT Bank Mandiri (Persero) Tbk.

Indonesian Infrastructure quality was way below the ideal level

Indikator (Units)

Indonesia

Trend

Rank/139

Score (1-7)*

2nd pillar: Infrastructure

82

3.6

Quality of overall infrastructure*

90

3.7

Quality of roads*

84

3.5

Quality of railroad infrastructure*

56

3.0

Quality of port infrastructure*

96

3.6

Quality of air transport infrastructure*

69

4.6

Available airline seat kilometers, million

21

1.450.9

Quality of electricity supply*

97

3.6

Fixed telephone lines/100 population

82

14.8

Mobile telephone subscriptions/100 population

98

69.2

2005-2010

n/a

n/a

Sumber: World Economic Forum, Executive Opinion Survey

© PT Bank Mandiri (Persero) Tbk.

Indonesian infrastructure development has yet to meet its performance before 1997-98 crisis

© PT Bank Mandiri (Persero) Tbk.

How much is the probability for the 3rd scenario ?

© PT Bank Mandiri (Persero) Tbk.

Summary: The impact of 2008 global crisis to Indonesian market 

IHSG fell by 54% from the highest position of 2746 to the lowest at 1242, before it back to a normal level within 16 months (Dec 08 – Mar10)

 CDS Indonesia rose by 1040 bps from 205 to 1248 and needs around 11 months to back to 200 level (Nov08 – Sep09)

 Yield SUN 10 year rose sharply more than 900bps to reach 21%, but it has corrected shortly (3 months) to an initial level of 11%; The average Rp/US$ depreciated by 29% to Rp11.853/US$ from Rp9.149/US$ and needs around 14 months (Mar09 – April10) to recover; Maximum outflow per quarter was USD 4 milyar;

© PT Bank Mandiri (Persero) Tbk.

Summary: The impact of 2008 global crisis to the Banking sector  Outstanding open market operation (OMO) BI fell to Rp148tn in Aug08 from Rp281tn in Dec07 Interest rate:  Jibor 1 mo rose by 230bps to reach the highest at 11.8% in November;  Time deposit 1 mo rose by 134bps to reach the highest at 8.76% in November;  Landing rate rose by 110bps to reach the highest of 14.2% in November Interbank transaction volume fell to Rp4.7tn in Nov08 from the average of Rp15tn NPL rose to 4.14% (Apr09) from the lowest at 3.32% (Sep08) LDR dropped to 72.9% (Mei09) from the highest at 79% (Aug08) CAR fell to 16.7% (Okt08) from the highest of 21.6% (Jan08) © PT Bank Mandiri (Persero) Tbk.