Country Finance Indonesia 2012

_______________________________________________________________
_______________________________________________________________
Report Information from ProQuest

20 March 2013 05:02
_______________________________________________________________
20 March 2013 ProQuest

Table of contents
1. Country Finance Indonesia 2012.................................................................................................................. 1
20 March 2013 ii ProQuest

Document 1 of 1
Country Finance Indonesia 2012

Publication info: Country Finance. Indonesia . (Jul 2012).
ProQuest document link
Abstract: None available.
Full text: Regulatory/market assessment Outstanding banking credits surged by 24.6% year-on-year to
Rp2,200trn at end-2011. Lending was spurred by an expanding economy and new regulations effective March
1st 2011, which penalise commercial banks that post loan-to-deposit ratios of under 78%. Foreign investors,
mainly those in the mining and financial sectors, as of July 2012 were awaiting the effects of several new
regulations aimed at limiting foreign shareholdings in these sectors. A decree signed by President Susilo
Bambang Yudhoyono in February 2012 stipulates that foreign holders of mining licences will have to reduce
their shares to 49% within ten years of starting production, down from a maximum 80% holding previously.
After remaining at 6.50% for an 18-month period beginning in August 2009, the policy rate was increased by
Bank Indonesia (BI-the central bank) early in 2011 then lowered twice late in the year. A 25-basis-point cut in
early 2012 took it to a record low 5.75%, as concerns mounted over slowing global economic growth while
inflation remained within BI's target range. In December 2011 Fitch Ratings became the first agency to restore
Indonesia's investment-grade credit rating. This was followed by Moody's Investors Service in January 2012,
though Standard &Poor's declined to follow suit in its April 2012 reassessment. The Indonesia Stock Exchange
welcomed a record 25 initial public offerings in 2011, though just four firms listed in the first half of 2012. The
market's main index, however, rose by just 3.2% in 2011, and by 3.5% in the first half of 2012.
Regulatory/market watch The new Financial Services Authority (Otoritas Jasa Keuangan-OJK) is expected to
become operational by end-2012. The OJK will replace the Capital Market and Financial Institution Supervisory
Agency (Bapepam-LK) in January 2013 and take over the role of watchdog for the banking system from Bank
Indonesia (BI-the central bank) in January 2014. The social security system will be overhauled in 2012-15
following the approval of the Social Security Providers Law in October 2011. Five programmes will be set up
and operated by two state-owned entities: pension fund Jamsostek and health insurer Askes. The banking
sector was facing new investment restrictions in July 2012; by the end of that month BI was expected to
announce a general 40% limit on purchases of Indonesian banks by other financial institutions. While foreign
investors are currently allowed to hold stakes of up to 99% in domestic lenders, BI has decided to reduce the
limit "to promote diversified ownership". In a related move, BI officials have said that the central bank will also
limit new acquisitions in banks by nonfinancial institutions to 30% and by families to 20%. While details had not
been released, the limits are likely to be applied selectively to existing shareholding structures and will depend
on the bank's financial health and corporate-governance ratings. In its attempts to stabilise the rupiah exchange
rate, BI is highly unlikely to announce strict capital controls in 2012-13. Still, in the first half of 2012 several new
regulations became effective aimed at enlarging the amount of foreign currency available domestically.
Corporations are forecast to issue about Rp55trn worth of bonds in 2012, compared with Rp45.7trn in 2011, as
an increasing number of firms look to lock in low interest rates. By end-May 2012, authorities had already
approved bond issues worth Rp27.2trn. Under its Masterplan for Acceleration and Expansion of Indonesian
Economic Development (MP3EI), the government is calling for Rp475trn in infrastructure investments in 2011-
25. The Land Acquisition Law, passed in December 2011, is expected to accelerate the implementation of some
of these projects. Indonesia at a glance: Political structure Elections: The president, Susilo Bambang
Yudhoyono, has a strong public mandate for reform after comfortably winning re-election in the July 2009
presidential election. In the April 2009 election to the House of Representatives (DPR), the Democratic Party
(PD) emerged as the largest party, with 20.6% of seats in the DPR. The Party of Functional Groups (Golkar)
20 March 2013 Page 1 of 69 ProQuest

came in second, with 14.6% of the seats, followed by the Indonesian Democratic Party-Struggle (PDI-P), with
14.1%. Following these secular parties are those of an Islamic orientation: the Justice Welfare Party (PKS)
garnered 8.2% of the vote, followed by the National Mandate Party (PAN) with 6.3%. Government: The six
principal organs of state are the People's Consultative Assembly (MPR), the presidency, the DPR, the Regional
Representative's Council (DPD), the Supreme Court and the State Audit Board (BPK). Major political parties:
There are three nationalist secular parties: the PD, Golkar and the PDI-P. The other main parties-the United
Development Party (PPP), the National Awakening Party (PKB), the PAN and the PKS-have an Islamic
orientation. Fiscal year: January 1st-December 31st. Indonesia at a glance: Sovereign debt ratings* Standard
&Poor's: BB+ Moody's Investors Service: Baa3 Fitch: BBB- * Senior unsecured long-term foreign-currency debt
ratings.
Economist Intelligence Unit country risk rating*
Sovereign risk
Currency risk
Banking sector risk
Political risk
Economic structure risk
Country risk
BB
BB
BBB
BB
* Overall scores for each risk category are on a numerical scale of 0-100 (0 least risky, 100 most risky). There
are ten rating bands based on this numeric scale--AAA, AA, A, BBB, BB, B, CCC, CC, C and D--each
comprising ten units of the 0-100 scale. For example, scores 0-10 = AAA and >10-20 = AA. If the score is in a
boundary area between two rating bands (scores ending in 0, 1, 2 and 9), it is at the analyst's discretion
whether to assign the higher or lower rating. The overall score for each category of risk is a weighted
combination of the scores assigned to the qualitative and quantitative indicators that inform our credit risk
model.
Download the numbers in Excel Fundamental indicators

Financial regulation in Indonesia Although global economic and financial instability continued through the first
half of 2012, Indonesia's financial institutions remain mostly insulated from the sort of crisis that devastated the
country and the banking sector during the Asian financial crisis in 1997-98. Sustained and largely responsible
credit growth, improving rates on nonperforming loans, as well as firm returns on assets, healthy capital-
adequacy ratios and loan-to-deposit ratios during the past five years, have strengthened the country's banks
and other financial entities. Also, these institutions have little overseas exposure (less than 5% of the sector's
financing was sourced from EU-based banks as of early 2012), and the regulatory safeguards instituted since
the 1998 financial crisis have helped build a more resilient financial-sector architecture. Apart from setting
monetary policy, Bank Indonesia (BI-the central bank) is also responsible for oversight of the banking sector.
However, it will have to relinquish this function, likely by end-2013, to the new Financial Services Authority
(Otoritas Jasa Keuangan-OJK), which is expected to start operating on January 1st 2013. This entity also will
take over all oversight functions from the Capital Market and Financial Institution Supervisory Agency
(Bapepam-LK), planned for January 1st 2013 (see Legislative watchlist). Authorities would like to see more
consolidation within the banking sector, though as of mid-2012 BI was not providing any incentives for
commercial lenders to do so, and banks preferred to expand organically (by opening more branches, adding to
their customer base, etc) instead of through acquisitions. The scope for organic growth remains huge as only
about 20% of adult Indonesians have a longstanding relationship with a bank or other financial-services
provider. Affiliates of the main local banks dominate the market for most financial services, but foreign banks,
brokerages and insurance companies also play important roles. BI plans to announce rules regarding bank
shareholding structures in late-July 2012, which are expected to reduce the maximum stake of (foreign or local)
investors in domestic banks to 40%, from 99% as of early July 2012. As the rupiah slowly depreciated against
the US dollar (and most other major currencies) in late 2011 and early 2012, the central bank in the first half of

2012 launched several regulations aimed at stabilising the currency while bolstering the domestic banking
sector. Indonesia has little in the way of private pension-fund management, though planned legislation is
expected to boost this sector. Its insurance sector is also small, but growing rapidly. Foreign private-equity
funds are showing increasing interest in the country, though that sector, along with venture capital, remains
small. The Islamic finance sector is expanding strongly but remains modest in comparison to its competitor in
neighbouring Malaysia. New regulations from BI to speed up approvals on allowing new Islamic financial
products have been hampered by Islamic scholars' stricter interpretation of what constitutes interest payments
(particularly on sukuk bonds). Banks and other financial institutions: Overview Commercial banks, four of them
state owned, dominate Indonesia's financial sector. Since the Asian financial crisis in 1997-98, foreign
institutions have invested heavily in local banks, established joint ventures with domestic entities or set up their
own operations, but authorities plan to curb foreign investment in 2012. The government has placed a growing
emphasis on the development of Islamic banks to compete with neighbours Malaysia and Singapore. This
sector expanded strongly in 2011, although market size still pales in comparison with neighbouring Malaysia in
particular. A wide range of regional development banks, rural credit banks and microlending schemes provide
essential financial services throughout the archipelago According to Bank Indonesia (BI-the central bank), by
the end of 2011 total Indonesian banking assets had increased to Rp3,652trn from Rp3,009trn at end-2010. The
continued healthy expansion of the Indonesian economy through 2012-13 is expected to further improve the
performance by the Indonesian banking industry. (The Economist Intelligence Unit forecasts GDP to grow by
5.9% in 2012 and by 6.5% in 2013.) A 2012 survey conducted by PricewaterhouseCoopers found that 95% of
senior bank executives predicted that growth of both credit and deposits would increase by at least 10% each
during the year. Also, there remains plenty of room for the local banking sector to grow since the average bank-
loans-to-GDP ratio stood at just 30.5% in 2011 (compared with over 110% in Malaysia and Thailand), largely
due to lenders failing to penetrate the country's more remote areas. Still, this ratio was a marked improvement
from the 27.5% recorded in 2010. To enhance standards, BI will be implementing the Basel III regulations in
stages between 2013 and 2019. BI in June 2012 issued a consultative paper on Basel III to solicit industry
opinions (see http://www.bi.go.id/web/id/Ruang+Media/Berita/Info+Terbaru+2206.htm which is in Indonesian
only). Since 2005 BI has severely restricted lending to business sectors with higher-than-average rates of
nonperforming loans (NPLs), defined as loans with monthly repayments more than 90 days overdue. Consistent
credit growth in 2010-11 helped NPLs as a percentage of total lending to decline. According to the Capital
Market and Financial Institution Supervisory Agency (Bapepam-LK), there were 135 insurance companies, 192
finance companies, 270 pension funds, 81 investment managers and 80 venture-capital firms in Indonesia at
end-2011. The insurance and mutual-fund sectors are expected to expand strongly in the coming years,
particularly as the government looks to other sources of funding for much-needed infrastructure development. A
long-delayed amendment to a law on the establishment of pension funds passed in late 2010-which allowed
banks or life-insurance companies to offer pension funds providing they can prove solvency for the previous
year and an "acceptable" two- to ten-year business plan to Bapepam-LK-will do little to aid the weakly
developed sector. The Indonesian Pension Funds and Financial Institutions Association has long pushed for
Indonesia to make it compulsory for all employees to belong to pension funds. But by July 2012, there was little
appetite from either the House of Representatives or the Ministry of Finance to do take this on. Finance
companies provide leasing, factoring and other financial services; they do not take deposits. The venture-capital
and private-equity sectors occupy much smaller market niches, but recorded solid growth in 2011. Foreign
investors have made significant inroads in many of these sectors. Responsibility for regulation will shift to the
Financial Services Authority, an independent "super-regulator," in 2013; the House of Representatives passed
legislation establishing the authority in November 2011 (see Legislative watchlist). The nation's main financial
centre is Jakarta, the capital. Important regional centres include Semarang, Bandung, Surabaya (all on the main
island of Java), Medan, Palembang (both on the island of Sumatra), Denpasar (in Bali) and Makassar (in

Sulawesi). Singapore acts as Indonesia's unofficial offshore banking centre and is still a magnet for the
country's wealthy looking for diversified investment products.
Banks and other financial institutions: Bank regulators Bank Indonesia (BI-the central bank) serves as the
archipelago's banking regulator and monetary authority. The Central Bank Law of May 1999 (UU 23/1999) gave
BI autonomy as an independent state institution free from interference by the government or any external party.
Under the law, BI's prime objective is to achieve and maintain stability of the rupiah, the country's currency. To
do this, the central bank takes responsibility for monetary policy, maintaining a fluid payment system and
supervising the banking system. BI can serve as lender of last resort to commercial banks that are facing short-
term liquidity problems up to a maximum of 90 days. But it requires collateral guarantees equal to the value of
the loan. BI acts as banker to the government and is responsible for the management of international reserves.
The central bank has representative offices in London, New York, Singapore and Tokyo, with one more planned
for Beijing in late-2012. BI reports to the president and the House of Representatives (Dewan Perwakilan
Rakyat-DPR) on its monetary policies and its targets for the economy. The bank's governor, Darmin Nasution,
who took the post in August 2010, is a member of the cabinet and an ex-officio member of two cabinet
committees: the Monetary Council and the Economic Stabilisation Council. The president forwards nominees for
the position to the DPR, which then elects the bank's governor. Governors serve a five-year term. However,
several corruption and vote-buying scandals for senior bank positions have rocked the bank over the past
several years, raisings serious ethical questions about the bank's autonomy and political impartiality. BI's 2004
Indonesian Banking Architecture plan laid out the future direction and structure of the Indonesian banking
system. The plan, which runs to 2020, focuses on six objectives: creation of sound domestic banking structures;
creation of an effective system for bank regulation and supervision in line with international standards; creation
of a strong, highly competitive banking industry; improvement of corporate governance; provision of a complete
range of banking services; and empowerment and protection of consumers. By mid-2012, however, few
concrete results were visible, though the overall health of the country's banks has improved since the start of
the plan. Eventually, the nation's commercial banks are expected to be transformed into three types: two or
three "international banks", each with capital of at least Rp50trn and the capacity to expand abroad; three to five
"national banks", each with capital of Rp10trn-50trn that will provide a full range of financial services nationwide;
and 30-50 "specialised banks," each with capital of Rp100bn-10trn that will focus on retail banking, corporate
banking, regional financial services and other subsectors. By mid-2012 only Bank Mandiri qualified as an
"international bank" while nine entities (Bank Rakyat Indonesia, Bank Central Asia, Bank CIMB Niaga, Bank

Panin, Bank Negara Indonesia, Bank Danamon, Bank Permata, The Bank of Tokyo-Mitsubishi UFJ and
Citibank) qualified as "national banks" and another 49 banks qualified as "specialised banks." These 59 banks
are also known as anchor banks. BI Regulation 7/15/PBI/2005 and Circular 7/48/DPNP in July 2005 required
anchor banks to have a minimum capitalisation of Rp80bn by end-2007 and Rp100bn by end-2010 (all
commercial banks passed these tests). Other minimum criteria for designation as anchor banks include a
capital-adequacy ratio (CAR) of 12% and a return on assets of 1.5%; both have been required from end-2010.
In January 2001 BI set a minimum CAR level for all banks at 8%, in line with the standards of the Bank for
International Settlements, based in Basel. The overall average CAR in the banking sector improved slightly
during 2011, from 17.18% at end-2010 to 16.05% by end-2011. Since end-2008 only anchor banks have been
allowed to acquire other banks. Non-anchor banks are prohibited from operating outside of the province in
which they are based, barred from directing large loans to single borrowers and barred from engaging in
foreign-exchange trades. BI amended 7/15/PBI/2005 in May 2007 with BI Regulation 9/16/PBI/2007 to clarify
the operating procedure for banks unable to qualify for "anchor" status; banks that do not reach these
capitalisation thresholds will be reclassified as rural credit banks (Bank Perkreditan Rakyat-BPRs). A BPR has
capital of up to Rp100bn and provides banking services in rural areas. BI also is promoting consolidation within
the banking sector through its single-presence policy, which it launched in October 2006. The policy required
majority shareholders in more than one bank to merge their holdings, divest their ownership or create a holding
company before end-2010. However, in May 2011 the central bank announced that the deadline would be
pushed back again, this time to end-2013, and that it may exempt state-owned banks altogether. The state
holds four large commercial banks, which would have to be merged or sold under the policy. Since the
government does not want to divest its holdings before the initial public offerings (IPOs) take place, the
likelihood of the deadline being pushed back further still remains high. The policy, which the government hopes
will markedly reduce the number of banks in the country's banking system, requires government approval for
banks to operate in the foreign-exchange market, the temporary relaxation of the statutory-reserve requirement
in rupiah, extension of time for resolution of loans exceeding the legal lending limit by reason of merger or
consolidation, and partial reimbursement of consultant costs for due diligence and adherence to improved
corporate governance rules. In 2006 a merger took place between the Ministry of Finance's two regulatory
divisions: the Capital Market Supervisory Agency (Bapepam) and the Directorate General for Nonbanking
Financial Institutions (DJLK). The resulting entity, the Capital Market and Financial Institution Supervisory
Agency (Bapepam-LK), is the primary regulator of the stockmarket and nonbank financial institutions.
Perusahaan Pengelola Aset (PPA), the state-owned asset-management company, was formed in February
2004 to handle the disposal of remaining state-owned assets, including banks, loans and nonbank equity (such
as office buildings and office inventories) from the now-defunct Indonesian Bank Restructuring Agency (IBRA).
A presidential decree in February 1998 established IBRA, giving it sweeping powers to revitalise the banking
sector, settle problem assets and attempt to retrieve at least some of the value of state funds that had been
channelled to the banking industry. The PPA, which is under the control of the Ministry of Finance, was
originally given a five-year tenure, though in September 2008 this was extended indefinitely. From the sale of
state-owned assets, the PPA contributed a mere Rp100bn to the state budget in 2011. As of end-June 2012 the
PPA had shareholdings worth around Rp2.5trn in 12 companies. At that time it was in the process of selling its
5.2% stake in Bank Niaga. Banks are not permitted to hold equity in enterprises other than financial affiliates or
subsidiaries (except when a bank becomes a temporary owner of a company as a result of its default on loan
payments). Temporary equity participation is allowed, for up to 25% of total bank capital. In 1997 BI clarified
questions about whether banks were permitted to invest in the many newly established mutual funds. It stated
that their investment would be restricted to funds trading only in fixed-income instruments and that they would
be barred from funds that include stocks in their portfolios. Banks may not underwrite the issue of shares by
another company. Under legal lending limits, amended in 1996, a bank is limited to lending up to 20% of its

capital to any single company or 25% to any group of companies, and up to 10% to companies affiliated with
the bank. However, as of January 1st 2007, BI agreed to lift this restriction if banks can provide a consolidated
risk management consultation. In January 2005 BI raised the legal lending limit to 30% for commercial banks
financing infrastructure and public-service projects. This was part of a broader package of new banking
regulations, and its main goal was to encourage banks to increase lending as a way to boost economic growth.
BI gave further support to small and medium-sized enterprises (SMEs) and infrastructure projects in January
2006, when it lowered the CAR attached to loans to SMEs from 100% to 85%. Since 2006 banks have had
more flexibility to lend to borrowers who had been delinquent in the past. This reflects the need to resume
access to capital for firms that suffered insolvency during the crisis, but which may be creditworthy now. (As
recently as 2001, the nonperforming loan rate reached 53%.) Other regulations have allowed banks greater
freedom in evaluating potential loans on the basis of each project instead of the enterprise as a whole; these
regulations also assist businesses that are still recovering from the crisis. In April 2008 BI eased rules on
commercial bank lending to boost loans, including cutting provisions on loans to SMEs and raising the ceiling
for loans that commercial banks can make to affiliated parties. Under these rules, the amount of the provision
commercial banks must put aside to cover SMEs is cut to 20% from 85%. Also in April 2008, BI announced
plans to further relax lending limits for banks that are at least 40% owned by public shareholders. These banks
are now permitted to lend borrowers up to 30% of the bank's equity, up from 20% previously. In the past, banks
favoured the expansion of consumer loans, but banks are increasingly focusing on corporate lending. Certain
banks are also venturing into mortgage lending, though that sector remains dominated by state-owned Bank
Tabungan Negara. The central bank uses reserve requirements as a monetary-policy tool but pays interest only
on some of these reserves. Effective March 1st 2011 banks are required to maintain a daily balance with BI
equalling a minimum of 10.5% of their rupiah third-party funds. This includes the secondary reserve requirement
of 2.5%. Additionally, banks with a loan-deposit ratio (LDR) of less than 78% and banks with an LDR of over
100% but a CAR below 14% will need to add to these reserve requirements according to a set formula. Through
these new rules BI is attempting to boost lending while maintaining banks' solvency. Additionally, in June 2011
the central bank required lenders to set aside 8% of their foreign-exchange deposits as reserves, up from 1%
previously. These rules remained in place as of July 2012. In December 2005 BI established an Emergency
Financing Facility (Fasilitas Pembiayaan Darurat-FPD) to meet the liquidity needs of commercial banks. Banks
must agree to certain conditions, including the formulation of an action plan for resolving liquidity difficulties and
the submission of daily reports to BI on the condition of liquidity. In 2008 BI expanded the list of acceptable
forms of collateral to include BI certificates (sertifikat Bank Indonesia-SBIs) and government securities (surat
utang negara-SUN) to help banks imperilled by liquidity constraints. Banks are prohibited from withdrawing
funds from related parties, paying out a dividend or transferring ownership of controlling shares without BI
permission. Under the agreement, BI can still serve as a lender of last resort under certain scenarios in which a
"systemically important" bank with a minimum CAR of at least 5% faces liquidity difficulties. The facility is
governed by BI Regulation 8/1/PBI/2006 and Ministry of Finance Regulation 136/PMK/05/2005. BI also issued a
ruling in May 2003 on risk management for banks, requiring commercial banks and foreign bank branches to
submit a risk-management action plan to the central bank and put in place proper policies, procedures,
monitoring systems, internal-control systems and infrastructure. A bank may be fined up to Rp1m per day for
failing to submit such a plan. In January 2006 the central bank issued Regulation 8/6/PBI/2006, requiring risk-
management plans to be based on consolidated financials. In December 2005 the Risk Management
Certification Agency began certifying bank employees' risk-management credentials. BI Regulation
7/25/PBI/2005 has required all risk managers to be certified from January 2011. The government began in early
2005 to remove gradually its guarantees on bank liabilities, first put in place during the financial crisis. However,
the global economic crisis of 2008 prompted a reversal through Government Regulation 66/2008 in October
2008 that increased the maximum deposit guaranteed by the Indonesia Deposit Insurance Corp (Lembaga

Penjamin Simpanan-LPS) from Rp100m to Rp2bn. As of July 2012, the maximum guaranteed rupiah deposit
rate was 5.50% and the maximum guaranteed dollar deposit rate was 1.00%. Financial institutions contribute
0.2% of their third-party funds to the LPS annually. Banks and other financial institutions: Regulatory watchlist
Investors in Indonesia, whether domestic or foreign, will have to face an opaque, confusing and often conflicting
set of laws, rules and regulations. The country's legislative mill turns slowly at best and even when legislation is
passed, it may take years before implementing regulations are approved, acts are actually enforced or
regulating agencies are installed. On top of that, law enforcement generally remains weak in many areas and,
despite efforts to curb graft, Indonesia still ranks as one of Asia's, and indeed the world's, most corrupt
countries. The antigraft pressure group Transparency International ranked Indonesia number 100 out of 183
countries and territories on its 2011 Corruption Perceptions Index. In one effort to improve this situation, the
legislature as of July 2012 was debating three bills on administrative reform; these cover the organisation of the
state apparatus, the civil service and a government code of ethics. The bills are part of a scheme to make the
government bureaucracy professional, streamlined and clean. The bill on the code of ethics is designed to
ensure that steps recommended by the Ombudsman, the state office that monitors government officials'
actions, actually are carried out. In addition to addressing the problem of corruption, Indonesia is considering
the need to consolidate the nation's large and growing government bureaucracy, to make it more efficient. On
October 27th 2011, the House of Representatives finally passed long-awaited legislation establishing the
controversial Financial Services Authority (Otoritas Jasa Keuangan-OJK), which will monitor and regulate the
entire financial system. The OJK will replace the Capital Market and Financial Institution Supervisory Agency
(Bapepam-LK) and take over the role of watchdog for the banking system from Bank Indonesia (BI-the central
bank). Thus, the central bank's duties would largely be confined to managing monetary policy. As of July 2012 it
was expected that the OKJ would start operating on January 1st 2013. Bapepam-LK will be detached from the
Ministry of Finance and merged into the OJK at the latest by December 31st 2012, while the central bank's
directorate for banking supervision will follow by December 31st 2013. The OJK will need up to 2,500 workers to
run its daily operation of which 1,200 will come from Bapepam-LK and up to 800 from the central bank; the
remainder will be newly hired or transferred from the Ministry of Finance. As an independent body, the OJK's
main objective will be to ensure that the financial-services environment is stable and efficient in order to support
economic growth. The OJK was originally scheduled to be operational by end-2002, but political, economic and
legal concerns had steadily pushed back this date. Critics claim these delays were the result of BI officials'
resistance to losing their potentially lucrative regulatory power over the banking industry. Throughout the
legislative process, BI officials reiterated their opposition to the scheme, claiming that losing the supervisory
function would damage the bank's "ability to carry out its duties". The OJK, the establishment of which had been
mandated by the 2004 Bank Indonesia Law, will be governed by nine commissioners, including one each from
the Ministry of Finance and the central bank. Other high-profile critics of the new body, such as the World Bank,
contend that a new agency would not have the same level of systematic capabilities as BI, particularly if the
banking system were to undergo the extreme volatility it experienced during the 1998 Asian financial crisis.
Under the law, in the early years after its inception, the OJK will be funded by the state budget, and in the long
run by premiums collected from the financial sector. The House of Representatives on December 16th 2011
passed the Land Acquisition Law, though as of mid-July 2012 implementing regulations had not been signed.
These are expected to be announced later in July or in August 2012. The law aims to strike a balance between
the needs of infrastructure sector investors-who need guarantees that once a plot of land has been designated
as fit for infrastructure projects, it actually will be available for acquisition-and the rights of landowners-who need
guarantees that they will get fair compensation at market prices. The law stipulates that once a plot of land has
been zoned for an infrastructure project, the owners are not allowed to sell it to third parties. This stipulation is
aimed at preventing speculation, which in the past caused surges in the price of land, making it difficult and/or
too expensive for infrastructure companies to carry out projects. Authorities hope this law, along with recently

implemented regulations regarding the establishment of public-private partnerships (see Infrastructure
financing) will spur investments in the country's infrastructure and speed up long-delayed developments of,
among other things, highways linking the main metropolitan areas on Java Island. The law is a key piece of
legislation in the government's Masterplan for Acceleration and Expansion of Indonesian Economic
Development (MP3EI) programme, which was launched on May 27th 2011. Investors expect that under the
MP3EI more red tape will be cut, though no other major initiatives had been announced by July 2012. In one
minor initiative, the country likely will switch to the use of a single time zone in late-2012. The implementation of
the 2004 Social Security Law (40/2004) received a major boost in October 2011 when parliament passed the
Social Security Providers Law (24/2011). This legislation requires state-owned pension fund Jamsostek and
state-owned health-insurer Askes to be transformed into nonprofit public institutions charged with operating the
five national social security programmes. Askes from January 1st 2014 will run the national healthcare
programme, which will feature universal coverage, while Jamsostek from July 1st 2015 will operate the
occupational accident, old-age risk, pension and death-benefits schemes. However, several dozen
implementing regulations still had to be drafted and signed by July 2012. The Ministry of Finance in January
2012 introduced draft regulations regarding microfinance institutions, which parliament may review in the
second half of 2012. According to the draft, microfinance institution may only be run by a domestic legal entity
with an initial minimum capital of Rp10m. The country's labour laws may be revised in late 2012 or 2013 after
the Constitutional Court in January 2012 ruled that outsourcing labour, which in this context means hiring
workers on short-term contracts without benefits, is unconstitutional. No specific amendments had been
introduced by July 2012, however. Authorities are drafting a new oil and gas law to replace the existing Law No.
22 of 2001 (the "Oil and Gas law"). Among the proposed amendments, a new governmental entity, provisionally
called the Development Body, is planned, which will oversee joint-venture and other contracts within the
industry. The draft law also stipulates domestic market obligations and may introduce further price controls.
Meanwhile, a decree signed by President Susilo Bambang Yudhoyono in February 2012 stipulates that foreign
holders of mining licences will have to reduce their shares to 49% within ten years of starting production, down
from a maximum 80% holding previously. Similarly, BI in late-July 2012 likely will announce new rules regarding
foreign investments in commercial banks. Such investments likely will be capped at 40%, though BI may grant
exemptions. Banks and other financial institutions: Domestic banks
Top ten domestic banks
Ranked by assets as of end-2011--Rp trn
Bank
Net profits a
Assets
Market share (%)
Bank Mandirib
12.25
493.05
13.5
Bank Rakyat Indonesia (BRI)b
15.08
456.38

12.5
Bank Central Asia (BCA)
10.82
380.93
10.4
Bank Negara Indonesia (BNI)b
5.81
289.46
7.9
Bank Pan Indonesia (Panin)
2.05
118.99
3.3
Bank Tabungan Negarab
1.12
89.12
2.4
Bank Mega
1.07
61.91
1.7
Bank Bukopin
0.74
57.18
1.6
Bank BTPN
1.40
46.65
1.3
Bank Muamalatc
0.27
32.48
0.9
Total market
75.08

3,652.83
100.0
Sources: Bank Indonesia; individual company statements.
(a) In full year 2011. (b) State owned but publicly traded. (c) Islamic bank. Download the numbers in Excel Four
state-owned banks dominate the booming banking industry: Bank Mandiri, Bank Rakyat Indonesia, Bank
Negara Indonesia and Bank Tabungan Negara. The largest private domestic banks include Bank Central Asia
(BCA), Bank Pan Indonesia (Panin) and Bank Mega. The stock of outstanding banking credit surged by 24.6%
year-on-year to Rp2,200trn at end-2011, marking an improvement from the 22.8% recorded in 2010. The higher
rate of loan expansion was driven by sustained growth in lending to small and medium-sized enterprises (which
have few other funding options). The upgrade of Indonesia's sovereign credit ratings in 2011-12, strong
domestic consumption, increase in exports and expanding resources industry all served to drive expansion as
well. All major commercial banks posted healthy profits in 2011, driven in part by the average net interest
margin of 5.9% in 2011 (up from 5.7% in 2010). Bank Indonesia (BI-the central bank) raised the reserve
requirement for commercial banks from 5.0% to 8.0% in November 2010, absorbing an estimated Rp53trn of
liquidity, or 3% of total bank lending; the rate remained at that level by July 2012, though some analysts expect
BI to raise the reserve requirement to 10% in the second half of 2012. Deposits with commercial banks,
meanwhile, expanded by 19.1% to Rp2,784.9trn by the end of 2011, from Rp2,338.8trn a year earlier. Under
the government's restructuring and divestment programme, most of the heavily indebted banks that were
nationalised during the 1997-98 financial crisis have been sold back to the private sector. Majority stakes in
nationalised banks were sold to foreign investors, and minority interests in state banks were sold to the public
via the stockmarket. The sales are not without controversy. Media reports claim that many were sold for as little
as ten cents on the dollar as backroom dealings took place between many of the original owners and the
government-appointed overseers of the sales. The government's stake in nine domestic private banks has been
divested and sold to foreign investors as controlling shareholders since 2002, leaving the government with
holdings in only four of the country's total 120 commercial banks at mid-2012. In September 2006 state banks
were given the same flexibility as private banks in resolving nonperforming loans (NPLs). The revisions allow
state banks various debt-restructuring options without having to first seek approval from the Ministry of Finance.
According to BI total NPLs in the banking sector rose to Rp47.70trn at end-2011, from Rp45.24trn at end-2010.
But as the amount of outstanding credits grew, the percentage of total NPLs fell to 2.17% by end-2011, down
from 2.56% at end-2010. Recent improvements in NPL ratios also have been made possible by better bank
management and loan restructuring, especially in the largest bank, Bank Mandiri. However, there are still
concerns over the disproportionate amount of NPLs held by state-owned companies. BI rules allow domestic
banks to engage in factoring and pension services, but not directly in insurance. Nevertheless, banks have
earned insurance commissions by forming strategic partnerships with insurance companies that allow insurers
to use banks' branch networks. Bank Mandiri is Indonesia's largest bank, with Rp493.05trn in assets at end-
2011, up by 4.8% from the Rp470.68trn recorded a year earlier. The state-owned bank was created from the
remains of four failed state banks: Bank Dagang Negara, Bank Bumi Daya, Bank Ekspor Impor Indonesia and
Bank Pembangunan Indonesia. Bank Mandiri's July 2003 initial public offering (IPO) remains the country's
largest IPO since 1996. Bank Mandiri's gross NPL ratio was 2.56% at end-2011 compared with 2.33% a year
earlier, but down significantly from more than 25% six years earlier. By 2014, Mandiri aspires to secure 14-16%
of the market share in revenue and aims for a market capitalisation of Rp225trn by end-2014, from Rp165.6trn
at end-June 2012. It intends to focus more on growth-heavy loans to small businesses and consumers and on
extending microcredits, while maintaining its strength in corporate banking. In 2008 Mandiri purchased a
majority stake in Bank Sinar Harapan Bali (BSHB) and a 51% stake in Tunas Finance. BSHB is a niche, micro
and small business-focused bank. Tunas Finance is a multifinance company formerly under Tunas Group, an

automotive business group. As of July 2012 the bank was looking for other acquisitions, though it did not
provide details beyond saying these targets should have assets of at least Rp10trn. Mandiri raised Rp11.68trn
through a rights issue of 2.33bn new shares in February 2011. It hopes that BI will sign off on allowing it to set
up shop in other countries after it passed the Rp50trn capital threshold required by the central bank to do so; a
full branch likely will be launched in Malaysia in late-2012 (the bank operate offices in six territories, though
none are full commercial-banking operations). The proceeds would also be used to help maintain the bank's
capital-adequacy ratio (CAR) at 12-14% to support an annual credit growth target of around 21% until 2014.
Bank Rakyat Indonesia (BRI) also is state owned and is Indonesia's principal savings bank and its second-
largest bank by assets, which were worth Rp456.38trn at end-2011, up by 15.4% over the Rp395.40trn
recorded at the end of 2010. BRI reported the strongest 2011 profit of all banks, recording net profits of
Rp15.08trn for 2010, or a 31.5% increase over the Rp11.47trn it earned in 2010. NPLs accounted for 2.30% of
Bank Rakyat's loan book at end-2011, down from 2.78% at end-2010. The bank's IPO took place in November
2003 when the government sold a 40.5% stake for Rp4.2trn. BRI has been successful at profitably serving rural
enterprises and is viewed as one of the most successful small and medium-sized enterprise (SME) lenders in
the world. The bank does this type of lending through its highly profitable Unit Desa System. Bank Central Asia
(BCA) is the country's third-largest bank, and the largest private domestic bank, with assets worth Rp380.93trn
at end-2011, up 17.8% from Rp323.35trn a year earlier. Having formerly belonged to the Salim Group and
Soeharto family members, BCA fell under the control of the Indonesian Bank Restructuring Agency (IBRA; now
defunct) during the 1997-98 financial crisis. In 2002 IBRA sold 51% of the bank to the Farindo Consortium, a
Mauritius-incorporated entity consisting of a US investment group, Farallon, and the Indonesian cigarette
conglomerate Djarum. In late 2006 Djarum expanded its shareholding in Farindo to 92%, with Farallon holding
the remaining 8%. BCA reported impressive profits of Rp10.82trn in 2011, up by 29.3% from Rp8.37trn in 2010.
BCA is the market leader for many consumer products, including internet banking (of which the SME sector is a
major consumer), automated teller machine (ATM) services (using its own proprietary network) and debit-card
transactions. BCA jumped into the burgeoning Islamic banking market in June 2010 with the conversion of Bank
IUB, a subsidiary it had acquired in October 2008, into BCA Syariah, which provides banking services that
comply with Islamic laws. BCA's strategy of cherry picking borrowers has resulted in very low NPL ratios.
Indeed, the bank's gross NPL ratio stood at just 0.5% of all loans at end-2011, down marginally from 0.6% a
year earlier, while it recorded a loan-loss coverage ratio of 380% at end-2011. State-owned Bank Negara
Indonesia (BNI) is Indonesia's fourth-ranking bank, with assets of Rp289.46trn at end-2011, up 20% from
Rp241.19trn a year earlier. BNI reported that net profits surged by 41.7% to Rp5.81trn in 2011, up from
Rp4.10trn in 2010. BNI conducted an IPO in 2003, and in October 2007 the government sold down its
shareholding to 73.3%, raising US$880m through a public offering of 3.95m shares. BNI reduced NPLs from
4.3% at end-2010 to 3.6% of loans at end-2011. BNI focuses mainly on personal savings products, loans to the
corporate and retail sectors, and international banking services. BNI in April 2012 became the first Indonesian
commercial bank to return to the international bond markets since the 1997-98 financial crisis by selling
US$500m worth of five-year bonds to international investors; the coupon yields 4.375% annually. Foreign and
joint-venture companies do not usually draw on domestic commercial banks as a source of funds for major
capital investment; they prefer to raise funds offshore, where the cost is lower. They have in the past, however,
drawn on domestic banks for short-term funds to meet cashflow needs. BI issued a regulation, in effect from
December 2002, which required private banks to publish publicly their financial reports monthly. Although banks
were previously required to submit financial reports to BI on a monthly basis, these figures were not reported to
the public. A 2004 BI corporate-governance rule stipulates that banks' controlling shareholders may control no
more than 50% of a bank's board of commissioners. Thus, if the board contains an uneven number of seats, the
controlling shareholder must control fewer than half of the board's members. However, in practice, independent
commissioners are often partial to the controlling shareholder. Islamic (sharia) banking continues to expand

rapidly. Indonesia, the world's most populous Muslim nation, has been slow in developing its Islamic finance
sector, lagging behind neighbouring Malaysia and Singapore. Although sharia banks offer the same services as
other banks-savings, time deposits, leasing and trade financing-the services are based on a profit-sharing
scheme rather than the charging and payment of interest, which Islamic law forbids. BI reports that as of end-
June 2012, there were 11 fully fledged Islamic banks and 154 rural Islamic banks, as well as 9 Islamic banking
units established by "conventional" commercial banks and 14 such units established by regional development
banks. Combined total assets of the Islamic banks and units surged 35.8% in 2011 to reach Rp132.46trn by
year-end, compared with Rp97.52trn at end-2010. Nonperforming financing stood at 2.52% of total financing
outstanding at end-2011, down from 3.02% a year earlier. Fees remain generally higher in the Islamic financing
sector than in the conventional banking sector because of the more complex structure of the loans. But tax
regulations that came into effect in April 2010 slowly are lowering rates as the new rules remove double taxation
on Islamic products. In June 2005 the central bank set the minimum-capital requirement for sharia banks at
Rp1trn (BI Regulation 7/13/PBI/2005). All BI clearing regulations for regular banks apply to Islamic banks. In
June 2008 parliament passed the Sharia Banking Law (21/2008). According to the law, only those banks with
more than half of their assets in sharia instruments will be classified as sharia banks. Other banks must
sequester their sharia instruments in distinct and separate sharia banking units. A bank's sharia unit that
achieves 50% of the bank's total assets must be legally separated from the bank. Finally, the law empowers the
controversial Suharto-era religious institution known as the Ulemas Council (MUI)-which also regulates other
religious issues, such as halal food labelling-as the regulator of sharia compliance for Islamic banks and
banking units. Despite stipulations in the Sharia Banking Law that allow foreigners to establish sharia banks in
partnership with a local partner, only one foreign bank, HSBC, had an Islamic-banking licence as of July 2012.
Its sharia unit, HSBC Amanah Sharia, in April 2009 partnered with Barclays Capital (UK) and Standard
Chartered (UK) to issue Indonesia's first global dollar-denominated Islamic sukuk, which raised US$650m in
that month. Malaysian-owned banks Bank CIMB Niaga and Bank Internasional Indonesia also offer Islamic
banking services. In July 2011 top independent Islamic lender Bank Muamalat's biggest investors postponed
their planned sale of a 67% stake in the bank for around US$500m. Muamalat had Rp32.48trn in assets by end-
2011, making it the tenth-largest lender in the country. Bank Mandiri's Islamic subsidiary, Bank Syariah Mandiri,
posted assets worth Rp48.67trn at that time. Banks and other financial institutions: Foreign banks
Top ten foreign banks
Bank
Net profita
Assets
Market share (%)
Bank CIMB Niaga(Malaysia)b
3.17
164.25
4.5
Bank Danamon Indonesia(Singapore)b
3.34
127.13

3.5
Bank Permata (UK)b
1.16
101.54
2.8
Bank Internasional Indonesia (BII; Malaysia)b
0.67
91.34
2.5
Bank OCBC NISP (Singapore)b
0.75
59.83
1.6
Citibank (US)
1.89
58.85
1.6
HSBC (UK)
1.12
55.41
1.5
Bank UOB Indonesia (Singapore)bc
0.83
55.25
1.5
The Bank of Tokyo-Mitsubishi UFJ (Japan)
0.78
52.45
1.4
Standard Chartered (UK)
0.82
47.52
1.3
Total market
75.08

3,652.83
100.0
Sources: Bank Indonesia; individual company statements.
(a) In full year 2011. (b) Operating under a domestic banking licence.(c) Formerly Bank Buana Indonesia.
Download the numbers in Excel Bank Indonesia's (BI-the central bank) regulations stipulate that foreign banks
wanting to set up operations in the country need to meet the following requirements: to be at least rated "A" by a
leading international rating agency, rank among the 200 largest banks in the world by total assets, have paid-up
operating funds of at least Rp3trn and permission from the bank's home-market regulator. A foreign bank in
Indonesia was traditionally a branch of a large foreign financial institution that handled commercial lending,
foreign exchange and crossborder financing. Later, there emerged a number of joint-venture banks as foreign
banks acquired small stakes, and often management control, in local financial institutions. Due to the
government's relaxed stance on foreign investment in the financial sector, foreign banks by mid-2012 had
obtained an increasing share of banking assets. But this success has raised protectionist sentiments in the
country, and BI and other authorities were planning to limit foreign investment in the financial sector (see
Legislative watchlist and Foreign investors to test Indonesian openness). Domestic banks, however, are still the
primary players in the market. Foreign and joint-venture banks are authorised to conduct all forms of foreign
exchange (forex), debt trading and general banking business. In the past, foreign banks focused on the
corporate sector, usually on only multinational businesses from their home countries. Now these banks also
conduct business with some of the top domestic corporations that comply with their generally stricter credit-risk
profiles. Some foreign banks, such as UK lenders HSBC and Standard Chartered, also have made inroads in
the consumer-financing sector. The largest foreign banks act as custodians for local securities and investment-
fund units. Several now offer mobile-phone and internet banking. Foreign banks raise much of their funds
offshore. They typically lend near market rates, but their depositors earn below-average levels of interest. Bank
CIMB Niaga was the largest foreign-owned bank, and the fifth largest commercial bank overall by assets as of
May 2012. It was established in April 2009 when CIMB Group (Malaysia) acquired a 51% stake in Bank Lippo
from Khazanah Nasional, Malaysia's state-owned investment company. The deal completed the merger of Bank
Niaga and Bank Lippo, forming Indonesia's sixth largest lender by assets in the process. As Khazanah
Nasional, which controls CIMB Group, had holdings in both Lippo and Niaga, the merger was required under
BI's "single presence" policy. Bank CIMB Niaga combines Niaga's strong loan expansion with Lippo's strength
in retail deposits to form a bank whose assets increased 14.9% in 2011, from Rp142.93trn at end-2010 to
Rp164.25trn a year later. The bank's profits jumped 24.31% in 2011, to Rp3.17trn, from Rp2.55trn in 2010.
Bank Danamon Indonesia, the second-largest foreign-controlled bank by assets as of end-2011, is classified as
a private national bank, though it is 67.9% owned by the Asia Financial Indonesia (AFI) Consortium, a
subsidiary of Temasek Holdings (the Singapore government's investment arm) and 32.1% by the public. Bank
Danamon Indonesia's assets rose 11.7% in 2011 to reach Rp127.13trn at year-end, from Rp113.86trn a year
earlier, and profits reached Rp3.34trn in 2011. Singapore-based DBS Group Holdings, Southeast Asia's largest
bank by assets, as of July 2012 was attempting to acquire Danamon, though regulators had not yet given their
approval by that time (see Foreign investors to test Indonesian openness). Bank Permata is majority owned by
a consortium comprising Standard Chartered (UK) and Astra International (an industrial conglomerate involved
in auto production and sales, among other interests). The bank was created in December 2002 from the merger
of five banks: Bank Arta Media, Bank Bali, Bank Patriot, Bank Prima Ekspress and Bank Universal. In October
2004 the government, which then owned 97% of the bank, sold a 51% stake to Standard Chartered and Astra.
When the government put another 20% of Permata on the market in December 2004, Standard Chartered and
Astra bought an additional 11.2%, raising their total holdings to 62.2%. Other investors, mostly Indonesian,
bought the remaining 8.8%. In 2006 the consortium acquired the remaining 26% of the government-held shares

in the bank. Bank Permata had assets of Rp101.54trn at-end 2011, up by 37% from Rp74.13trn a year earlier.
Bank Internasional Indonesia (BII) is the fourth-largest foreign bank in Indonesia by assets as of end-2011. In
March 2008 Malayan Banking (Maybank, Malaysia's largest banking group) reached an agreement to buy the
56% stake in BII held by South Korea's Kookmin Bank and Singapore's Temasek Holdings for US$1.5bn and to
acquire the rest of BII for an additional US$1.2bn. However, as the US subprime mortgage crisis deepened, the
Malaysian central bank intervened to block the deal (which independent auditors estimated was at four times
the book value of BII), fearing it could imperil the liquidity of Maybank. The deal was completed in October 2008
when Temasek and Kookmin agreed to lower their stake's price to US$1.24bn. BII had assets of Rp91.34trn at
end-2011, up 26.7% from Rp72.11trn a year earlier. BI had also licensed 28 foreign joint-venture banks by end-
2011, including ANZ Panin (Australia and New Zealand Bank of Australia), Maybank Indocorp (Maybank of
Malaysia), Resona Perdania (Resona Bank of Japan), Bank Sumitomo Mitsui Indonesia (Sumitomo Mitsui of
Japan) and Bank Mizuho Indonesia (Mizuho of Japan). These banks reported assets worth Rp181.09 at end-
2011, up 20.7% from Rp149.99 a year earlier, and net profits of Rp2.43trn in 2011, up 1.8% from Rp2.06trn in
2010. Foreign banks that rank among the 300 largest in the world by total assets may opt to establish a
representative office in Indonesia. Such offices are only allowed to provide liaison and representative services.
Banks and other financial institutions: Investment banks and brokerages
Top ten brokerages
Ranked by value of trades on the Indonesia Stock Exchange in 2011--Rp trn
Company
Net profit (loss)--Rp bna
Trading value
Market share (%)
Credit Suisse Securities Indonesia (Switzerland)
134.24
167.35
6.8
CIMB Securities Indonesia (Malaysia)
56.54
145.52
5.9
Deutsche Securities Indonesia (Germany)
54.23
117.46
4.8
JP Morgan Securities Indonesia (US)
55.82
116.08
4.7

Kim Eng Securities (Malaysia)
31.17
115.04
4.7
Bahana Securitiesb
(290.63)c
104.63
4.3
CLSA Indonesia (Hong Kong)
83.10
98.36
4.0
UBS Securities Indonesia (Switzerland)
40.42
94.41
3.9
eTrading Securities
62.52
86.26
3.5
Macquarie Capital Securities Indonesia (Australia)
n/a
84.15
3.4
Total market
n/a
2,446.88
100.0
Source: Indonesia Stock Exchange; individual company statements.
(a) In full-year 2011. (b) State owned. (c) In the first three quarters of 2011. Download the numbers in Excel
The 1992 Banking Law does not recognise investment banks per se, but the Ministry of Finance allows
securities companies to broker, deal and underwrite securities, as well as operate investment funds. Vertical
corporate affiliations are common among securities companies. Broker-dealers are necessary to attract
corporate finance and underwriting business. Although such vertically integrated companies generally have
separate departments and accounts for different activities, most privately concede that they are willing to cross-
subsidise their operations. As of end-June 2012, there were 119 companies operating in the securities sector,
including underwriters, brokers and investment managers; five of these firms were suspended at that time,

however. Among these, 26 companies operated in all types of securities business, 48 companies operated as
underwriters and brokers, 10 companies as brokers and investment managers and the rest handled only one of
the types of business. The Indonesia Stock Exchange (IDX) has set a limit of 125 brokerages; the book value of
a bourse member seat reached about Rp12bn as of May 2012. According to the IDX, just over one-third of
active brokerages operated at a loss in 2011, though the bourse declined to provide aggregated financial data.
Securities companies that deal beyond government-guaranteed securities or debts maturing within one year
must obtain a separate licence from the Capital Market and Financial Institution Supervisory Agency (Bapepam-
LK) to operate as broker-dealers, underwriters and investment managers. The sector is highly fragmented and
has been dominated by foreign brokers in recent years. In 2011 the top three investment banks by trading value
on the Indonesia Stock Exchange were Credit Suisse Securities Indonesia (Switzerland), CIMB Securities
Indonesia (Malaysia) and Deutsche Securities Indonesia (Germany). Indeed, only two domestic firms made the
top ten list (by trading value): state-owned Bahana Securities and internet-trading pioneer eTrading Securities,
which has Daewoo Securities (South Korea) and Japan Asia Investment Co (Japan) among its shareholders.
Many foreign banks have investment-banking divisions that provide services such as underwriting and
corporate consulting. Foreign and domestic underwriters must have a minimum paid-in capital of Rp50bn.
Foreign firms are allowed full ownership of brokerages; as of end-June 2012, a total of 25 out of the 114 active
brokers enjoyed varying levels of foreign investment. Bank Indonesia (BI-the central bank) has attempted to
separate traditional brokerages from foreign-exchange (forex) brokerages. A regulation passed in 2003,
amended by Regulations 7/44/PBI/2005 and 7/20/PBI/2005 of mid-2005, prohibits forex brokerages from
conducting forex transactions for their own account and from providing brokerage services on the capital
markets (except for government-bond transactions on the secondary market). Banks and other financial
institutions: Development and postal banks
Top five regional development banks
Bank
Net profits--Rp bna
Assets
Market share (%)
Bank BJBb
962.70
54.45
1.5
Bank Jawa Timur (Bank Jatim)
860.23
24.85
0.7
Bank Kalimantan Timur
495.70
23.09

0.6
Bank Jawa Tengah
410.33
22.98
0.6
Bank Sumatra Utara
426.21
18.95
0.5
Total marketc
75.08
3,652.83
100.0
Sources: Bank Indonesia; Biro Riset Infobank.
(a) In full year 2011. (b) Formerly Bank Jawa Barat &Banten. (c) Refers to the entire banking sector. Download
the numbers in Excel Before the Banking Law of 1992 removed function-based distinctions among banks, the
chief role of the state-owned Bank Pembangunan Indonesia (now part of Bank Mandiri) was to provide medium-
and long-term investment credit. The 1992 law continues to require all banks to provide at least 20% of their
total credit portfolio to small-scale business and co-operative activities. Provincial governments continue to own
and operate regional development banks (bank pembangunan daerah), of which there were 26 as of end-2011
(unchanged from a year earlier). Not all regional development banks have established good credit practices,
and the government routinely injects additional funds into them; still their combined nonperforming loan ratio
stood at just 1.75% of all loans at end-2011, down from 2.06% a year earlier. The provincial banks represent
only a small-but growing-part of the overall banking sector in terms of assets and activities, with assets of
Rp304.0trn at end-2011 (or 8.3% of total banking assets at that time), up from Rp239.14trn a year earlier (7.9%
of the total). They posted combined profits of Rp8.0trn in 2011, up 23.1% from Rp6.5trn in 2010. Primarily
government funded, these banks reprocess funds from taxes and capital operations and also channel funds
earmarked for provincial development projects from the national budget. Success is limited; in recent years
most provinces have fallen consistently short of the central government's spending targets. The World Bank and
the Asian Development Bank (ADB) provide long-term development funds to firms involved in major projects,
and the government is promoting the establishment of public-private partnerships to accelerate infrastructure
development (see Infrastructure financing). In June 2012, for example, the ADB announced that it would provide
Indonesia with US$2.5bn in "partnership loans" for six different sectors: energy, transportation, natural-
resources management, finance, water supply and other municipal services along with education. At the same
time, Indonesia also received a US$500m contingency financing facility from the ADB and its partners, including
the World Bank and the governments of Japan and Australia, to mitigate the possible impacts of the global
economic downturn. As of end-2011 there were a total of 1,669 rural credit banks (bank perkreditan rakyat) in
operation (67 fewer than a year earlier), holding just a combined 1.5% of the country's total banking assets at
that time. Rural credit banks had combined assets of Rp55.8trn at end-2011, compared with Rp43.8trn a year
earlier; only three of these banks (Bank Eka Bumi Artha, Bank Karyajatnika Sadaya and Bank Sri Artha Lestari)
controlled assets worth Rp1trn or more at end-2011. Unlike the regional development banks, these small

entities are not linked to the nationwide payment system. They are licensed to take deposits and extend (small)
loans, but cannot deal in foreign exchange; they have limited operational areas. These banks slowly are
becoming attractive targets for larger entities that plan to expand into microfinancing; Bank BJB, for example, in
June 2012 announced plans to acquire majority stakes in 51 rural credit banks, though it did not provide
additional details or a timeline. Participating state-owned banks and regional development banks in the
government-backed microcredit scheme, or People's Business Credit (Kredit Usaha Rakyat-KUR), extended
more than Rp28trn in loans to around 2m borrowers in 2011. However, foreign companies are unlikely to draw
on these institutions or make much of an impact within this sector. Two state-owned entities-Indonesia Export
Credit Agency (Asuransi Ekspor Indonesia-ASEI) and Indonesia Eximbank (Lembaga Pembiayaan Ekspor
Indonesia-LPEI)-provide financial services to exporters and importers (see Trade financing and insurance). The
Indonesian Credit Guarantee Corp (Perum Jamkrindo) provides loan guarantees to small enterprises which
cannot source (affordable) bank credits, mostly due to lack of collateral. The entity had assets worth Rp4.9trn at
end-2011. At that time, it had Rp67.8bn worth of credit guarantees outstanding. Sarana Multigriya Financial is
the state-owned mortgage-refinancing provider. Pos Indonesia, the Indonesian post office, has an extensive
network across the archipelago. It provides money-transfer services and helps some financial institutions sell
their products through its branch network. Arrangements with Bank Indonesia (BI-the central bank) in nine rural
and border areas help ensure continuity of currency supply. BI sends money from its head office in Jakarta to
cash units in these regions, in accordance with currency planning and needs, and it receives money back from
regions that hold excess cash positions. Banks and other financial institutions: Offshore banks No offshore
banking programme existed in Indonesia as of July 2012, and there was no indication from the authorities that
such a scheme would be established. Still, neighbouring Singapore serves as an offshore banking centre for
Indonesia. Most commercial and merchant banks in Singapore have operations that handle Asian currency
units (ACUs), an activity that is lightly taxed in the city-state. This special section of a financial institution is
authorised to accept deposits and extend loans in foreign currencies. In January 2001 the Indonesian
government outlawed offshore trading in the rupiah to improve its control of the currency. Banks and other
financial institutions: Insurance companies
Top ten life insurance companies
Ranked by gross premiums in 2011--Rp trn
Company
Net profita
Gross premiums
Market share (%)
Prudential Life (UK)
2,652.78
14.84
15.7
Sinar Mas MSIG Lifeb
1,302.68
12.49
13.2

Manulife Indonesia (Canada)
295.31
7.12
7.5
Allianz Life Indonesia (Germany)
365.56
6.78
7.2
Mega Life
51,490
5.23c
5.5
AJB Bumiputera 1912
81.19
5.07
5.4
AXA Mandiri Financial (France)
845.89
4.85
5.1
Jiwasrayad
394.11
4.76
5.0
AIA Financial Indonesia (US)
378.78
4.36
4.6
Indolife Pensiontama
118.00
4.29e
4.5
Total market
9,530.00e
94.43

100.0
Sources: The Capital Market and Financial Institution Supervisory Agency (Bapepam-LK); Indonesia Life
Insurance Association (AAJI); individual company reports.
(a) In full-year 2011 in Rp bn. (b) Mitsui Sumitomo Insurance Co (Japan) holds 50%. (c) Net premiums. (d)
State owned, but Download the numbers in Excel
Top ten non-life insurance companies
Ranked by gross premiums in 2011--Rp trn
Company
Net profita
Gross premiums
Market share (%)
Asuransi Sinar Mas
389.68
3.71
10.8
Asuransi Jasa Indonesia (Jasindo)b
254.03
3.35
9.8
Asuransi Astra Buana
710.43
2.68
7.8
Tugu Pratama Indonesiab
137.46
1.59
4.6
Asuransi Central Asia
250.24
1.57
4.6
Adira Dinamika
336.01
1.37
4.0

Asuransi Wahana Tata
103.76
1.22
3.6
Asuransi Jaya Proteksi
127.14
1.19
3.5
MSIG Indonesia (Japan)
33.34c
0.91
2.7
Asuransi Bina Dana Arta (Abda)
87.62
0.77
2.2
Total market
2,209.69c
34.30
100.0
Sources: The Capital Market and Financial Institution Supervisory Agency (Bapepam-LK); General Insurance
Association of Indonesia (AAUI); individual company reports.
(a) In full-year 2011. (b) State owned. (c) In full-year 2010. Download the numbers in Excel The Indonesian
Insurance Mediation Body (BMAI) started operations in August 2006, with the responsibility of handling
insurance-related disputes. The presence of the arbitration body is a milestone in an industry beset with
consistent complaints that the country's legal system has not provided fair verdicts in claim disputes. The
Federation of Indonesian Insurance Companies (FAPI) set up BMAI, with full approval of the government. BMAI
decisions are legally binding. One of the services provided by the body is a 24-hour customer-complaints
procedure, which is also available online. As of June 2012 the Capital Market and Financial Institution
Supervisory Agency (Bapepam-LK) was drafting regulations for the establishment of a guarantee fund to protect
policyholders in case of bankruptcies of insurance companies. The regulator was also in the process of
establishing guidelines for the offering of micro-insurance policies. However, no further details were available as
of early July 2012, nor has a timeline for these schemes been announced. (Micro-insurance policies have
proven popular in recent years, especially in the more remote areas of the archipelago, but no specific
guidelines regarding these products have been established). Bapepam-LK reported that as of June 2012 the
insurance sector consisted of 83 general insurers, 40 life-insurance companies, 5 social-security insurance
firms, 4 reinsurers and 3 independent takaful operators (offering sharia-compliant insurance products). Life
insurance. Indonesia still has one of the lowest life-insurance ratios in Asia, with a penetration rate, according to
the Indonesia Life Insurance Association (Asosiasi Asuransi Jiwa Indonesia-AAJI), of just 1.3% at end-2011.

Among several constraints to higher insurance penetration is a lack of public awareness of insurance products,
poor selling methods and an apparent cultural mistrust of entering into long-term payment commitments,
particularly with insurance products. There is a high policy-lapse rate due to policies surrendered before
maturity or nonpayment of premiums. The life-insurance industry recorded premium income of Rp94.43trn in
2011, up by 24.28% from the Rp75.98trn recorded in 2010. Total sector assets increased by 28.80% over the
same period, to reach Rp225.25trn at end-2011. All but eight life insurers posted profits in 2011. However,
nonpremium income declined to Rp16.18trn in 2011, from Rp26.45trn in 2010, while income from investment
dropped to Rp18.42trn in 2011, from Rp23.92trn in the previous year. Total investments rose 25.50% in 2011 to
reach Rp197.54trn at end-2011; capital-market instruments amounted to 75.54% of this amount, or
Rp149.22trn. According to Bapepam-LK, there were 44 life-insurance companies (including 4 re-insurers)
licensed in Indonesia as of June 2012, though several of these were not actually operating at that time. Leading
life insurers in 2011 included Prudential Life (UK), Sinar Mas Life and Manulife (Canada). Three other foreign
joint ventures were also represented among the top ten providers. The sector is quite concentrated, with the top
five insurers holding just about half of the market, by gross premiums, in 2011 (the 15 largest life insurers held
88% of the market at that time). Many foreign firms have invested in Indonesian life insurers, and by mid-2012
at least 15 insurers were at least partly owned by foreign investors. The latest significant deal was concluded in
August 2011 when Japanese insurer Mitsui Sumitomo Insurance Co acquired a 50% stake in Sinar Mas Life for
Rp7trn. Before the rising popularity of unit-linked products began in earnest in 2004, the main products of the
life insurance industry were of the more traditional sort-whole life insurance (benefits in the event of death plus
periodic cash income during life), term insurance (benefits only in the event of death, with contract for a limited
term) and endowment (investment over several years in order to reach a savings target). Medical insurance is
growing quickly, because almost all Indonesian hospitals refuse to treat patients unless they have evidence that
an insurer will pay the bill or that the patient can deposit the estimated amount for treatment upfront. In addition
to mutual funds, several life insurers also market group pension schemes. The market for individual pension
plans-equivalent to a US-style 401(k)-remains undeveloped. A growing number of insurers are offering "micro"
insurance for work-related injuries and disease such as dengue fever. Premiums run from as little as Rp10,000
per month and are becoming increasingly popular in the archipelago's more remote areas. Non-life insurance.
Bapepam-LK reports that 82 companies offered general insurance as of June 2012; 16 of these were joint
ventures between foreign and domestic firms. (Some of these 82 companies are composite insurers, which also
offer life insurance.) Leading non-life insurers included Sinar Mas, Jasa Indonesia (state owned) and Astra
Buana; the largest 15 insurers held a market share of 72% of gross premiums earned in 2011. According to the
General Insurance Association of Indonesia (Asosiasi Asuransi Umum Indonesia-AAUI), total gross premiums
of the sector reached Rp34.3trn in 2011, an increase of 19.5% from the Rp28.7trn recorded the previous year.
Nearly one-third (Rp10.2trn) of the 2011 premiums were paid for vehicle-insurance policies, with Rp9.6trn
generated by property-insurance premiums. All but nine general insurers posted profits in 2011. Japan's largest
property and casualty insurer Mitsui Sumitomo Insurance purchased a 50% stake in Sinar Mas in March 2011
for US$860m. Mitsui said that it is looking to aggressively expand into emerging economies within Asia as its
home market ages. The AAUI and Bapepam-LK expect the industry to grow strongly in the coming years, in part
as a result of new regulations (see below). Regulations. Government Regulation 39/2008, issued in March
2008, imposed new minimum capital levels for all insurers of Rp40bn by end-2008 and Rp100bn by end-2010,
among other changes. Several industry players claimed that the regulation would lead to the end of the
insurance industry in Indonesia, while the AAUI filed a motion against the regulation in the Constitutional Court.
In December 2008 the government issued another regulation (81/2008) amending these minimal capital
requirements for insurers to Rp40bn by end-2010 and Rp100bn by end-2014. In April 2011 Bapepam-LK
sanctioned 14 insurers for not meeting the minimum capital requirement. Firms were expected to meet the
capital requirement warning within a month or risk having their licences revoked. As of mid-2012 Bapepam-LK

was in the process of stripping five insurers of their licences for failing to attract sufficient capital. Sharia units
belonging to insurance companies were required to achieve minimum capital levels of Rp5bn by end-2008 and
reach Rp25bn by end-2010. The regulation is expected to provoke consolidation in the industry. Other elements
of the original regulation that were unchanged by the revision include required capital levels of Rp100bn for new
life insurers, Rp200bn for new reinsurers, Rp50bn for sharia insurers and Rp100bn for sharia reinsurers. The
regulation also provides for sanctions between Rp180bn and Rp360bn for administrative infractions and
empowers the minister of finance to transfer insurance portfolios from an insurance company in financial
distress to another company. Companies, especially the smaller general insurers, have struggled to meet stiffer
official requirements for solvency margins (the ratio of current assets against minimum funds necessary to
recover claims and possible losses) that the Ministry of Finance instituted in 1999. Insurers were ordered to
meet a 5% requirement by the end of the first quarter of 2000, 15% by end-2000, 40% by end-2001 and 75% by
end-2002. The ministry lifted the requirement to 100% by end-2003 and 120% by end-2004 (it remained at this
level as of June 2012). Bapepam-LK has the power to transfer all or part of a company's portfolio to another
company should its solvency level fall below 40%. Effective April 12th 2010, the regulator revoked the licences
of small general insurers Dwipa International Insurance and Aspac General Insurance due to low solvency
ratios. The December 2007 Negative Investment List placed new foreign ownership limits on several key
sectors, including an 80% foreign ownership limit on loss insurance, life insurance, reinsurance, brokerage
insurance, brokerage reinsurance and loss insurance appraisals. Foreign insurance agents must partner with a
local entity and can hold a maximum 65% ownership, according to the new regulation. Joint ventures can be
"grandfathered" and, in a case where a local partner is unable or unwilling to follow proposed capital increases,
foreign ownership can be increased above the Negative Investment List limits, theoretically diluting domestic
control down to 1%. Many foreign insurers gained entry into the market by acquiring local companies or by
establishing joint ventures with local companies: as of end-2011 Bapepam-LK had licensed 19 joint-venture life
insurers and 21 joint-venture general insurers. Insurance companies operate under legislation introduced in
1992 and subsequent regulations. One law provides for prudential conditions, including investment practices,
for all companies; others are concerned with insurance in the context of the establishment of a social security
system and health insurance. Under the Insurance Law (2/1992), investment areas for insurance funds include
bank time deposits, stockmarket equities and funds, central-bank debt issues, credit bills for a period of more
than a year, mortgage loans, policy loans, property and direct investment. Insurers may invest up to 20% of
their assets offshore. There are prudential restrictions on the amount of company assets in any form of
investment, although enforcement of this legislation is not always adequate. For example, almost every major
bank owns an insurer or is part of a corporate family with its own insurer. Despite directives from the Ministry of
Finance, banks often insist that clients use their corporate-family insurance firms. A Ministry of Finance decree
issued in 2003 mandated that insurance companies pass a "fit and proper test", proving that they are financially
stable and have the professional qualifications to provide insurance coverage. Another decree in 2003 set
guidelines for takaful companies (insurers offering products in accordance with the principles of Islamic law, or
sharia). As of June 2012 authorities had licensed 43 takaful operators, including three sharia reinsurance
businesses; at that time several foreign takaful providers were planning to enter the market. The sector's assets
expanded by 32% during 2011, to reach Rp9.2trn at end-2011. Although this outstripped the growth of the
conventional insurance sector, it was below the average of 50% annual growth the takaful sector experienced in
2006-10. Regulations 39/2008 and 81/2008 help clarify the prevailing language and definitions for sharia
insurance. Banks and insurance companies are not yet integrated in Indonesia, although there are signs of
closer co-operation between the sectors. There are several insurance companies that are focused on
bancassurance; the most notable player is AXA-Mandiri (majority owned by French insurer AXA). Askes,
meanwhile, provides health insurance, mostly to civil servants. It covered 16.7m people by early 2012. The
Ministry of Health runs the Jamkesnas programme, which provides free healthcare to about 80m low-income

Indonesians. Still, by early 2012 some 37% of the population was not covered by any form of health insurance.
But Askes from January 1st 2014 will operate the new national healthcare programme, which will feature
universal coverage (see Pension funds). Banks and other financial institutions: Pension funds The Capital
Market and Financial Institution Supervisory Agency (Bapepam-LK) reported that as of end-2011 there were
270 pension funds, two fewer than a year earlier. Pension assets of these private funds totalled Rp141.3trn at
end-2011, an 8.2% increase over the Rp130.6trn recorded a year earlier. These funds covered 3.1m
participants. The assets of employer pension funds climbed by 7.5% to Rp120.8trn by end-2011 from
Rp112.4trn a year earlier. The largest pension funds are state owned: Jaminan Sosial Tenaga Kerja
(Jamsostek) for non-civil-service employees and Dana Tabungan dan Asuransi Pegawai Negeri (Taspen) for
civil-service employees. Asabri insures members of the armed forces and police. Both Jamsostek and Taspen
are run as state-owned limited-liability companies. Taspen and private pension schemes (the financial-institution
and employer-sponsored pension funds) come under the control of the Ministry of Finance. Jamsostek is under
the control of the Department of Manpower and Transmigration, with supervision by the Ministry of Finance.
Jamsostek's total assets climbed by 14.1% in 2011 to Rp116.4trn at year-end, from Rp102.0trn at end-2010; it
is aiming to have total assets of Rp125trn by end-2012. Its active participants numbered 10.7m by end-2011, up
from 9.4m a year earlier. Jamsostek reported a profit of Rp2.0trn in 2011, up from Rp1.5trn in 2010. As of end-
2011 Jamsostek had invested 43% of its funds in bonds, 30% in term deposits, 21% in stock and the remaining
6% in mutual funds, property and direct investments. In January 2011 the fund set up the Rp1trn Indonesia
Investment Corp with the Islamic Corp for the Development of the Private Sector (ICD), an investment unit of
Saudi Arabia's Islamic Development Bank. The joint venture as of July 2012 was awaiting regulatory approval to
start operations; it is expected to focus initially on developing Jamsostek's land holdings. Jamsostek provides
life insurance, work-accident protection and health insurance, as well as a provident fund. All these programmes
are mandatory for workplaces employing at least ten workers, or workplaces with a monthly payroll of at least
Rp1m. Under Jamsostek's provident fund plan, both employers and employees contribute; contribution rates
are 3.7% of employees' total salaries for the former and 2% of monthly wages for the latter. Benefits are paid
out in a lump sum upon retirement at age 55 or older. Taspen's total assets soared by 29.5% to Rp100.0trn by
end-2011 from Rp77.2trn at end-2010. There were 4.3m policyholders by end-2011, of which 2.2m were
pensioners. Parliament passed the Social Security Law (40/2004) in September 2004, but the law had still not
been fully implemented as of July 2012 (see Regulatory watchlist). The National Social Security Council, which
supposedly has authority over the implementation of the law, has little operational funding and unclear internal
decision-making processes and remains a department under the Ministry of Public Welfare (instead of being
able to act independently). But the country's social security system received a significant boost in October 2011
when parliament passed the Social Security Providers Law (24/2011). This legislation requires Jamsostek and
health-insurer Askes to be transformed into nonprofit public institutions charged with operating the national
social security programmes. Askes from January 1st 2014 will run the national healthcare programme, which
will feature universal coverage, while Jamsostek from July 1st 2015 will operate the occupational accident, old-
age risk, pension and death-benefits schemes. Nonstate pension funds come in two categories: financial-
institution pension funds (Dana Pensiun Lembaga Keuangan-DPLK) that feature defined contributions and
employer pension funds (Dana Pensiun Pemberi Kerja-DPPK) that feature either defined benefits or defined
contribution. Participation in both types of funds is voluntary. At end-2011 there were 25 DPLK and 245 DPPK
in operation. Total assets of employer pension funds reached Rp141.3trn (of which Rp120.0trn was held by the
DPPK) with 3.0m participants (of which 2.4m were active) as at end-2011. At that time, the investment portfolios
of these pension funds consisted largely of bonds (45.6%) and bank deposits (23.1%). Pension funds dominate
investments in the bond market by investing in corporate bonds and Bank Indonesia certificates. The rest of
their money is invested in equities and time deposits. By including mutual funds as an investment option for
pension funds, the government has encouraged greater investment in the capital markets. Though not all funds

are covered by the same rules, the regulatory framework for the operation of pension funds was set out under
the Pension Funds Act of 1992 (11/1992, together with Government Regulations 76/1992 and 77/1992). The
country's leading banks and insurance companies operate the largest independent funds. Manulife and BNI 46
are among the largest providers of pension-fund management advice and administrative services. The 1992 law
requires any company that has promised retirement benefits to its employees to set up a pension fund
registered with the Directorate of Pensions or to join a programme established by a financial institution. Assets
of pension funds must be segregated from those of the parent company; the company may not use cashflow to
fund the benefits. The law is ambiguous, though, about who can manage pension funds; they may be managed
directly by their founders or by registered investment managers. Contributions are tax deductible within
prescribed limits, and investment earnings on the funds are tax free. Funds are subject to an annual audit by
public accountants. Pension funds face onerous investment restrictions. For instance, they may not invest
offshore or lend directly to firms. They may invest in commercial paper and bonds with a maturity of more than
one year, but they may invest no more than 10% in companies or bonds listed for less than three years.
Nevertheless, a pension fund is allowed to invest 100% of its funds in shares of companies listed for three years
or more, or in mutual funds. They may invest up to 15% in affiliated companies and up to 10% in any single
mutual fund. Investments in time deposits and certificates of deposit may be placed only with a bank that is
neither the founder nor an affiliate of the founder of the pension fund. Investment in real property may not
exceed 15%. Ministry of Finance Regulation 199/10/2008 from December 2008 permits pension funds to invest
in derivative products listed on the Indonesia Stock Exchange, provided they do not exceed 10% of a pension
fund's total investment. There are no special reinvestment requirements for pension funds. Regulations
introduced by the Ministry of Finance in December 2002 were designed to strengthen the financial situation of
pension funds. The initiative included rules on transparency, annual actuarial evaluation, diversification of
assets, mandatory audits and manager qualification standards. In December 2006, as part of the government's
financial-sector policy package, Bapepam-LK issued Regulation 136/2006 establishing guidelines for managing
pension funds. The regulation makes strides in imposing detailed guidelines on pension-fund management, with
the aim of improving governance. It specifically calls for the implementation of internal guidelines and for codes
of ethics to be periodically reviewed by regulators. Banks and other financial institutions: Mutual funds and
asset-management f
Top ten mutual fund managers
Ranked by net asset value (NAV) as of end-March 2012--Rp bn
Name of institution
NAV
Market share (%)
Schroders Investment Management Indonesia (UK)
44,555
23.1
BNP Paribas (France)
22,563
11.7
Mandiri Manajemen Investasi*
18,276

9.5
Bahana TCW Investment Management*
12,014
6.2
Manulife Aset Manajemen Indonesia (Canada)
11,262
5.8
Panin Sekuritas
7,832
4.1
Batavia Prosperindo Aset Manajemen
6,946
3.6
Danareksa Investment Management*
6,806
3.5
Sinarmas Sekuritas
5,196
2.7
First State Investments Indonesia (Australia)
3,422
1.8
Total market
193,135
100.0
Source: The Capital Market and Financial Institution Supervisory Agency (Bapepam-LK).
* State owned. Download the numbers in Excel Investments in mutual funds have been permitted since the
enactment of the Capital Market Law in 1995. The Capital Market and Financial Institution Supervisory Agency
(Bapepam-LK) reported that 81 investment-management firms were offering 591 mutual funds at end-March
2012 (about 100 more funds had been approved by the authorities at that time but had not been launched) and
were managing nearly 500,000 accounts (a very low penetration rate given Indonesia's population of about
237m at that time). Despite the lacklustre performance of the Indonesia Stock Exchange (ISX) in 2011, total net
asset value (NAV) of mutual funds increased by 12.8% during the year, from Rp149.1trn at end-2010 to
Rp168.2trn at end-2011. Total NAV reached Rp193.1trn by end-March 2012. The Association of Indonesian
Mutual Fund Managers (Asosiasi Pengelola Reksa Dana Indonesia-APRDI) forecasts that the sector will grow
by 20% in 2012. Two foreign fund managers-Schroders Investment Management Indonesia (UK) and BNP
Paribas (France)-and one state-owned domestic manager, Mandiri, dominate the sector. These three managers
had a combined market share of just under half of total NAV as of end-March 2012. NAV growth of sharia

mutual funds (which comply with Islamic law) stalled in 2010-11 after outpacing that of the total market in 2009.
Total NAV of these funds stood at Rp3.8trn by end-2011, virtually unchanged from a year earlier. But as the
Indonesian government and domestic firms continue to increase issuance of Islamic bond (sukuk) issues, sharia
mutual funds are expected to increase their market share. Bapepam-LK announced in December 2006 that it
would permit investment in exchange-traded funds (ETFs), thus offering investors more options. But as of July
2012, just two ETFs have been launched, Indo Premier (which tracks the performance of the LQ-45 stock index
of the ISX) and Bahana (which tracks the performance of the iBoxx ABF Indonesia Bond index); however,
trading volumes were very low in 2010-11, in part because no derivative instrument exists with which to short
the indices and hedge investments. Combined NAV of these two instruments stood at just Rp550.2bn at end-
March 2012. To restore market confidence in fixed-income funds, Bapepam-LK issued a new set of regulations
in July 2005, permitting fund managers to launch capital-protected, capital-guaranteed and index funds. These
are closed-end "protected" products that invest in fixed-income securities to provide capital protection and
generate higher potential returns through the use of derivatives and options. In October 2005 Bapepam-LK
restricted money-market funds from investing in fixed-income securities with maturities of longer than one year.
However, mutual funds remain subject to a host of investment restrictions. Bapepam-LK issued new regulations
in August 2006, setting out a licensing and examination system for mutual-fund sales agents and procedures for
resolving insolvent insurance companies. Fund managers are prohibited from investing more than 10% of net
assets in one security, and they may not control more than 5% of the paid-in capital of an issuer. Only 10% of
funds may be placed in asset-backed securities, with no more than 5% of fund assets invested in one specific
asset-backed security. No more than 20% of fund assets may be invested in securities issued by an affiliate of
the investment manager or any participation holder. No more than 15% of fund assets may be invested
offshore. Under the so-called 2% rule, no single investor may own more than 2% of the value of a mutual fund.
Mutual funds are not permitted to lend directly to industry. Onerous and excessively cautious Bank Indonesia
(BI-the central bank) regulations also are slowing the development of the sector and are blamed for the lack of
new products in the past years. Steps were taken in 2009 to close the tax loophole that allowed fixed-income
investors to avoid a 15% tax on interest income. Government Regulation 16/2009 taxes interest earned or
discount received by fixed-income investors at 5% from 2011-13, reaching a final rate of 15% in 2014.
Previously, mutual funds were able to invest in listed fixed-income securities without having to incur any
withholding tax on coupons or capital gains tax on the securities for the first five years of incorporation. The
regulation unwittingly encouraged fund managers to recreate funds every five years, a practice known in the
industry as "ganti baju" or "change of dress". The change in the rules will affect insurance companies the most,
given that conventional mutual funds have largely moved into equities in recent years. In October 2007
Bapepam-LK mandated daily reporting requirements for mutual fund managers through the agency's new
electronic reporting system. Before that, funds were only required to report monthly, making it difficult to enforce
certain restrictions on investment, especially the 10% restriction for ownership in a single security. Before the
change to daily reports, funds would only maintain the 10% position at the time they were reporting. Despite an
increasing number of wealthy Indonesians, asset-management services remain underdeveloped. Singapore
continues to be the main overseas destination of choice. Banks and other financial institutions: Venture-capital
and private-equity The activities of venture-capital firms abruptly halted during the battering Indonesia received
from the regional financial crisis of 1997-98, and a strong recovery has yet to take place. According to the
Capital Market and Financial Institution Supervisory Agency (Bapepam-LK), there were 80 venture-capital funds
operating at end-2011, two more than a year earlier. These funds controlled assets worth Rp4.62trn at end-
June 2011, up 24.1% from Rp3.72trn at the start of the year. However, no data regarding actual investments
are made available and very few deals are publicly announced. One interesting development in 2010-11 has
been the arrival of several smaller venture-capital funds from neighbouring Singapore that eye companies
focusing on internet start-ups, particularly those targeting social platforms and digital media. CyberAgent

Ventures became the latest such fund to arrive in Indonesia, announcing a US$10m fund in October 2011. East
Ventures, GDP Venture and Nusantara Ventures had opened offices in 2010. Bapepam-LK on April 9th 2012
introduced new guidelines and regulations for venture-capital firms. Foreign investors are allowed shareholdings
of up to 85% in such firms, which need minimum capital of Rp5bn if set up as a co-operative or Rp10bn if
incorporated as a limited-liability company. Venture-capital firms are allowed to invest in companies through a
variety of techniques, including equity participation and convertible-bond issues. When investee firms become
publicly listed, venture-capital firms have to dispose of their shareholdings within 36 months of listing. Since
1994 BPUI, which is 82.2% owned by the Ministry of Finance and 17.8% by Bank Indonesia (BI-the central
bank), has operated a joint-venture investment arm with US fund manager Trust Company of the West (TCW).
This firm, Bahana TCW Investment Management, is 40% owned by TCW and had over Rp20trn in funds under
management as of end-2011, though the bulk of this amount was invested in mutual funds. The Indonesian
Venture Capital Association (Asosiasi Modal Ventura Indonesia) is the industry representative; however, it was
barely active as of July 2012. Many firms, and especially the state-owned entities, are not venture-capital firms
in the true sense of the word; instead, they tend to conduct conventional lending rather than providing equity
capital. These firms often make decisions based on collateral assessments rather than cashflow assessments,
in effect acting as and competing with a bank. This limits the potential for growth. Moreover, current regulations
and tax rules do not recognise equity financing, which is crucial in developed venture-capital industries. Most
firms, except for joint-venture companies, are owned by the government or are part of large business groups,
creating a situation where ownership and capital management are structurally linked. The Indonesian
government set up a state-owned holding company, Permodalan Nasional Madani (PNM), under Legislative
Decree 16/1999 of March 1999. The institution, with paid-in capital of Rp300bn, aimed to spur the development
of co-operatives and small and medium-sized enterprises (SMEs). Its venture-capital arm, PNM Venture
Capital, aims to invest Rp2bn-10bn per mid-sized firm. US-based TPG Capital (formerly Texas Pacific Group) is
one of the most active private-equity groups in the country, with investments worth an estimated US$1.3bn
under management as of end-2011. Its investments include a 71.6% stake in Bank BTPN. TPG also owns a
minority stake in private-equity firm Northstar Pacific Partners, which raised a record US$820m from investors in
2011. In previous years Northstar had raised US$110m and US$280m for two earlier funds. Total funds raised
by private-equity groups reached a record US$1.2bn in 2011, even as the value of deals concluded dropped by
half to about US$545m in the year, according to the Center for Asia Private Equity Research. The 2010 figure
was boosted by the US$800m acquisition by UK-based CVC Capital Partners of Matahari Putra Prima's
department store business, the biggest buy-out in Indonesia. Banks and other financial institutions: Factoring
firms The extension of credit backed by a company's accounts receivables grew rapidly before the 1997-98
financial crisis, but has been little used since then. Still, the sector noted strong expansion in 2011 and the first
quarter of 2012, though from a low base. According to the Capital Market and Financial Institution Supervisory
Agency (Bapepam-LK), finance companies (see Financial leasing companies) had Rp3.9trn in factoring
receivables on their books at end-March 2012, up strongly from the Rp2.3trn recorded at end-2010. Factoring is
also available from some commercial banks, mainly foreign banks focusing on international trade. Interest for
prepayment is charged on a case-by-case basis. Fees charged are 0.25-1.25% of the factoring value on
domestic claims and 0.75-2.5% on international claims (the latter is difficult to arrange at any fee). Factoring
without recourse is theoretically possible, but not available in the market. Banks and other financial institutions:
Financial leasing companies Leasing in Indonesia is conducted mainly by multifinance companies, which also
offer factoring, consumer lending and some credit card services. During the financial crisis of 1997-98, most of
these firms fell into the hands of the government's Indonesian Bank Restructuring Agency (IBRA), which set up
a special division to restructure the industry's debts in April 1999. Finance companies had borrowed heavily on
overseas markets and found their debts vastly inflated in local-currency terms when the value of the rupiah fell
sharply in 1998. Their clients, largely in the manufacturing and construction sectors, could not make

repayments, adding further pressure to the finance firms' balance sheets. Following the IBRA's intervention the
financing business has been recapitalised and (to a much smaller extent) consolidated in association with its
industry group, the Indonesian Financial Services Association (IFSA-Asosiasi Perusahaan Pembiayaan
Indonesia), which had 154 member companies as of June 2012. Major foreign players in the market are
Caterpillar Finance (US), Orix (Japan), and BTMU-BRI Finance (a joint venture between Bank of Tokyo-
Mitsubishi UFJ of Japan and Bank Rakyat Indonesia). Other large lessors include Dipo Star Finance (in which
Mitsubishi Corp of Japan holds equity), Chandra Sakti Utama Leasing and Clipan Finance (majority owned by
Bank Panin, with US financial firms Mellon Bank and Morgan Stanley holding minority stakes). Adira Dinamika
Multi Finance (a subsidiary of Bank Danamon) is the leading finance company with assets worth Rp16.9trn at
end-2011, though it focuses on vehicle financing and provides few, if any, leasing options. Neither the IFSA nor
the industry's regulator, the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK),
releases detailed data on the performance of individual companies. Ministry of Finance Decree 448/2000
governs the operations of multifinance companies; among other things, the decree expanded the definition of
multifinancing companies to include leasing, factoring, consumer-finance and credit-card companies. It also
required a business plan and a "fit and proper test" before the ministry can issue a licence. Multifinance
companies are required to allocate at least 40% of their assets to financing activities; they cannot take deposits.
Banks are increasingly interested in acquiring multifinance companies and most larger lenders held controlling
stakes in multifinance firms by July 2012. Bank Permata, for example, in June 2010 acquired the Indonesian
unit of GE Capital, the finance arm of US conglomerate General Electric, for an undisclosed sum. Singapore-
owned Bank OCBC NISP as of July 2012 was looking to acquire a finance firm. As it stands, multifinance
companies already are funded mainly through bank loans (about 85% of total funding as of March 2012), with
the remainder sourced through bond issues. Bank financing takes the form of either channelling (whereby the
bank takes all the risks on its books while paying a fee to the multifinance firm for managing the loan) or the
more popular joint-financing option (whereby both bank and multifinance company contribute to financing
arrangements while sharing the risk). According to Bapepam-LK there were 192 nonbank multifinance
companies operating at end-2011, down from 198 at end-2010. The total assets of these companies stood at
Rp301.3trn at end-March 2012, up by 30.8% from Rp230.3trn at end-2010. Multifinance companies had
Rp93.2trn in lease receivables on their books by end-March 2012, up by 75.2% from Rp53.2trn at end-2010.
Multifinance firms also provide consumer credit; the amount of such credit outstanding grew by 31.3% over the
same period to Rp170.7trn by end-March 2012. The nonperforming loan ratio for the industry stood at just 1.2%
at end-2011, down from 1.4% a year earlier. For the second half of 2012 the multifinance companies expect
their performance to be subdued following the Bank Indonesia (BI-the central bank) legislation, effective June
15th 2012, mandating minimum down payments on the purchases of motorcycles (20% of purchase price) and
automobiles (25% for those used privately; 25% for vehicles for commercial use). Previously, down payments
could be as low as 5%. BI also imposed a minimum down payment of 30% on real estate purchases, though
multifinance companies are barred from providing mortgages. The growth of leasing in Indonesia is a result of
large-scale demand for heavy machinery, through infrastructure investment and the general boom in commodity
extraction. This growth is expected to continue through 2012-15, as natural-resource exploration continues to
expand and major infrastructure projects get off the ground (see Infrastructure financing). Banks and other
financial institutions: Other institutions Pawnshops have always been a significant source of financing for small
businesses and individuals in Indonesia. The bulk of business goes to state-owned Perusahaan Umum
Pegadaian (PUP), the country's only licensed pawn brokerage. The Capital Market and Financial Institution
Supervisory Agency (Bapepam-LK) has been planning to open up the business and offer licences to private
investors, although by July 2012 no significant liberalisation measures had been announced nor had Bapepam-
LK given a timeline for the when this would take place. PUP, owned by the Ministry of Finance, operated 4,920
branches across Indonesia by May 2012, through which it serves some 21m customers annually. It had planned

to raise up to Rp6.5trn in an initial public offering in the second half of 2012, though authorities had shelved this
plan by July 2012 without announcing a new timeline. The company's pawnshops offer 16 types of products,
ranging from simple pawn transactions to microcredit schemes for small companies. An agreement between
PUP and Bank Rakyat Indonesia (BRI) allows pawnshop customers to use pawnshop services in nearly 5,000
BRI outlets. As gold prices have been increasing sharply in recent years, the pawning of gold (known locally as
rahm) has become especially popular, and several Islamic banks have set up units to tap into this market, which
is still dominated by PUP. Corporate case study: Foreign investors to test Indonesian openness Since
recovering from the 1997-98 financial crisis Indonesia in general has been very welcoming to foreign investors,
but several developments in the first half of 2012 signal a more protectionist policy direction. A decree signed by
the president, Susilo Bambang Yudhoyono, on February 21st 2012 stipulates that foreign holders of mining
licences will have to reduce their shares to 49% within ten years of starting production, down from a maximum
80% holding previously. The new rule likely will impact mineral miners more severely than coal miners, as most
coal mining joint ventures are already majority owned by local investors. Indonesia contains some of the world's
richest mineral deposits, such as Grasberg in Papua province, the world's largest gold mine, run by Freeport
McMoRan Copper &Gold (US). As of July 2012 it remained unclear whether the new regulation would apply
only to new entrants or to established operations as well. Potential new investors in mineral mines likely will be
put off by the new rules, as it generally takes more than a decade for mineral mines to become profitable. Still,
Freeport in early July 2012 announced it was considering listing on the Indonesia Stock Exchange, a move that
would let it abide by government rules on foreign ownership and improve its corporate governance. Separately,
authorities in May 2012 imposed a 20-50% export tax on overseas sales of 14 types of ore: copper, gold, silver,
tin, lead, chromium, molybdenum, platinum, bauxite, iron ore, iron sand, nickel, manganese and antimony. The
rate will increase to a uniform 50% export tax in 2013 before a ban on the export of raw minerals in 2014. (The
2009 Minerals and Coal Law stipulates that in 2014 all mining companies in Indonesia will be prohibited from
exporting raw materials. To prevent overexploitation of the country's natural resources and excessive
environmental hazards before that time, the government applies the export tax.) While by July 2012 some 40
companies had applied to construct smelters to process the ores once the export ban is in effect, some
observers doubt the effects of the ban. They point to the January 2012 ban on the export of unprocessed rattan,
a type of wood, through which authorities hoped to boost the domestic furniture-manufacturing industry. But half
a year later, few firms had been established, rattan inventories have gone unsold and prices have slumped.
Indonesia's fast-growing mining sector accounted for about 11% of GDP in 2011. The country's wealth of
natural resources and strong domestic consumption in a nation of 240m people have driven annual average
GDP growth of nearly 6% in the 2007-11 period. These numbers, in turn, have spurred foreign direct investment
to a record US$19.1bn in 2011 and a record US$5.5bn in the first quarter of 2012. Observers note that the main
catalyst for all these measures appears to be a competition for power, position and resources before the
presidential election in 2014, when the incumbent, Mr. Yudhoyono, will step down. After generally steep rises in
commodity prices over the last decade, Indonesian politicians have become increasingly vocal in their demands
to improve deals with mining companies, many of which were made in the era of the autocratic former leader
Suharto. The banking sector also was facing new investment restrictions in July 2012. By the end of that month
Bank Indonesia (BI-the central bank) is expected to announce a general maximum 40% limit on purchases in
Indonesian banks by foreign or local financial institutions. As regulations stand, foreign investors are allowed to
hold up to 99% stakes in domestic lenders, but BI has decided to reduce the limit "to promote diversified
ownership", which, it hopes, will improve corporate governance within the financial sector. Although the new
rules had not been formally announced, ranking BI officials have said that BI plans to limit ownership in banks
by financial institutions to 40%, by nonfinancial institutions to 30% and by families to 20% for new acquisitions.
These limits are to be applied selectively to existing shareholding structures and will depend on the bank's
financial health and its corporate-governance ratings. However, exceptions to the new rules may be granted on

a case-by-case basis to healthy, publicly listed banks that agree to maintain their shareholdings for a certain
period. This loophole may allow the proposed acquisition of Bank Danamon, Indonesia's sixth-largest lender by
assets, by Singapore's DBS Group, Southeast Asia's biggest bank by assets, to go ahead. The US$7.24bn
deal, announced in early April 2012, would be the largest-ever acquisition (in any sector) in Indonesia. DBS,
29% owned by Singapore sovereign investment firm Temasek Holdings, has agreed to take over Temasek's
67% share of Danamon in a cash-and-shares transaction that would see Temasek's holdings of DBS boosted to
40%. DBS would then make a mandatory offer for the remaining shares in Danamon. Monetary and currency
policies/regulations: Overview Bank Indonesia (BI-the central bank) in the first half of 2012 introduced several
measures to stabilise the depreciation of the rupiah while widening its policy options. On June 13th 2012 BI
started a one-month programme offering US-dollar term deposits. The facility is targeted at Indonesian financial
institutions that have parked some of their dollar funds with overseas lenders and will ensure that US dollars are
available in the onshore market. When launching the facility BI said it may unveil further, though unspecified,
measures to ease volatility in the foreign-exchange market in the second half of 2012, but strict foreign-
exchange controls are not planned. In January 2012 new BI regulations regarding the repatriation of exports
receipts (see Restrictions on trade-related payments) and overseas loans (see Loan inflows and repayment)
became effective. On June 28th 2011 Law No. 7 of 2011, the Currency Law, became effective. This new law
requires that Indonesian rupiah be used for all financial transactions within the country (especially in times of
turmoil on the foreign-exchange markets, the use of US dollars, Singapore dollars or gold had been
widespread). Exemptions to this requirement are transactions relating to the implementation of state budget,
overseas grants, international trade transactions, bank deposits denominated in foreign currencies and
international financing transactions. Locally based banks have stricter limits imposed on their foreign-currency
activities, and all businesses are required to comply with stiffer foreign-exchange reporting requirements. Aside
from these regulations, foreign investors remain free to transfer funds into and out of the country using accounts
denominated in local or foreign currency. Indonesia also has liberal rules regarding capital transfers, repatriation
of profits, costs related to expatriate employment expenses, loan principal and interest, royalties, technical fees
and the like. All major currencies are freely convertible. Transactions clear efficiently, and funds are typically
available within two days. Regulation 10/28/2008 required that all monthly purchases of US$100,000 or more
(down from US$500,000) by individuals, Indonesian legal entities and foreign parties be supported by
underlying transactions in goods or services. Moreover, foreign parties may only purchase amounts in excess of
US$100,000, regardless of underlying investment, on the spot market. Banks must ensure that this regulation is
followed; any bank found to be in violation is subject to a Rp10m fine per offence. BI Regulation 10/22/2008
attempted to alleviate pressure on the rupiah by guaranteeing banks a foreign-exchange supply at BI to serve
domestic corporations' needs. In order to make use of this supply, banks must follow set guidelines, make use
of a daily reporting window and document the underlying need for each request. Misuse of the window is
subject to fines equal to 10% of the nominal value of an offending transaction with a monthly maximum of
Rp20bn. The Indonesian Financial Transaction Reporting and Analysis Centre (Pusat Pelaporan dan Analisis
Transaksi Keuangan-PPATK) was set up in March 2002 to prevent money-laundering. The PPATK is the main
entity charged with enforcing the Law on Prevention and Eradication of the Crime of Money-Laundering, which
was enacted on October 22nd 2010 (and replaced a 2003 anti-money laundering law). Under the new law not
only are financial services providers obliged to report to PPATK, but also property agents, motor-vehicle
dealers, jewelers, precious-metal sellers, artwork and antique sellers and auction houses. The new law ends the
notoriously corrupt national police's monopoly on investigating money-laundering cases by allowing other
entities, such as the Public Prosecutors' Office, Corruption Eradication Commission (KPK), National Drugs
Agency, Directorate General of Taxation and the Directorate General of Customs to conduct investigations.
The new anti-money-laundering guidelines keep the "know your customer" regulations implemented by the
Capital Market and Financial Institution Supervisory Agency (Bapepam-LK). These are aimed at tightening

control of securities companies, custodian houses and mutual funds, requiring these firms to keep records of
customers' identities, their objectives in investing and any third-party identities. More specifically, the firms must
obtain supporting documents from individual customers that clarify their profession, citizenship and source and
use of funds. Corporate customers must provide their corporate statute, operating licence, taxpayer
identification number, financial report or description of business, management structure and explanation of the
source and use of funds. In October 2002 Indonesia tightened restrictions on the import and export of the rupiah
by Indonesians and noncitizens, as stipulated by BI Regulation 4/8/2002. Carrying amounts in excess of
Rp100m out of the country requires prior approval from BI. Any person carrying Rp100m or more into the
country must verify the authenticity of the funds with Indonesian customs upon arrival in the country. Monetary
and currency policies/regulations: Base lending rates The Bank of Indonesia (BI-the central bank) rate is
determined at monthly Board of Governors meetings, and functions as the singular policy articulation of BI
monetary policy; changes are made in response to deviations from the inflation target. Like most corresponding
rates set by other central banks, the standard unit of change for the BI rate is 25 basis points (bps), or multiples
thereof. The monetary-policy target is reflected in the movement in the interbank overnight rate. After setting its
policy rate at 6.50% in August 2009, BI raised this rate by 25 bps on February 4th 2011 to 6.75%, as concerns
mounted over accelerating inflation. But on October 11th 2011 BI reduced the rate back to 6.50% and followed
this with a 50 bps reduction on November 10th 2011 and a 25 bps cut on February 9th 2012, to take the BI rate
to 5.75%. It remained at this level, the lowest since the BI rate was introduced in 2005, as of mid-July 2012.
When announcing the reduction of the BI rate in February 2012, the central bank noted that the decision was
made "as a further step to boost Indonesia's economic growth amid decreasing performance of the global
economy." When deciding to maintain the base rate at 5.75% at its latest meeting on July 12th 2012, the BI
board said that the "current policy rate is considered consistent with inflation forecast, which is expected to
remain low and contained within its target range [of 3.5-5.5%] in 2012 and 2013." The Jakarta interbank offered
rate (JIBOR) is used to fix the cost of credit and is quoted for both rupiah and US dollar overnight and one-week
facilities as well as for 1-, 3-, 6- and 12-month maturities. JIBOR is based on the average interest rate at which
term deposits are offered between prime banks in the wholesale money market or interbank market. For the
year 2012 BI has appointed 27 banks to contribute quotes for the rupiah JIBOR and 13 banks to provide US
dollar JIBOR quotes. Effective February 7th 2011, BI updated its regulations regarding the JIBOR mechanism;
among other adjustments, JIBOR is now fixed at 11 am on each working day, instead of being updated
throughout the day. The three-month rupiah JIBOR stood at 4.69% at end-June 2012, sharply down from 7.14%
a year earlier, while the three-month US dollar JIBOR stood at 1.05% at end-June 2012, up sharply from 0.48%
a year earlier. At the six-month range, rupiah JIBOR stood at 4.95% at end-June 2012, and US dollar JIBOR
registered 1.50%.

Monetary and currency policies/regulations: Monetary policy Bank Indonesia (BI-the central bank) has
traditionally focused on "achieving and maintaining stability in the value of the rupiah," the national currency. It
endeavours to achieve this in two ways: in the domestic market by controlling inflation, and in the international
market by moderating fluctuations of the rupiah against foreign currencies. In July 2005 BI implemented an
inflation-targeting framework. The framework uses the BI rate as the primary reference point for controlling
inflation. BI continues to track narrow money (M1) and broad (M2), but does not set any specific target for
money supply. M1 expanded by 3.6% in the first five months of 2012, while M2 grew by 13.1%. Although the
rate of inflation accelerated to 5.4% on an annual average basis in 2011, price growth slowed throughout the
year, with consumer prices rising by only 3.8% year-on-year in December 2011. However, the Economist
Intelligence Unit expects that the trend will be reversed in 2012, with inflation rising steadily, ending the year at
6.6% (in the first six months of 2012 inflation rose steadily to reach 4.5% year-on-year in June). On an annual
average basis, however, we expect inflation to slow to 5.3%. This would be near the high end of BI's target
range of 4.5-5.5% inflation for 2012. As the economy has posted healthy expansion in recent years and
authorities have maintained low budget deficits (the Ministry of Finance forecasts a deficit of 2.3-2.4% of GDP in
2012 and 1.3-1.9% in 2013), ratings agencies have steadily raised the country's sovereign debt ratings, which
had been slashed to junk status following the 1997-98 financial crisis. On December 15th 2011, Fitch Ratings
became the first agency to restore Indonesia's investment-grade credit rating, when it upgraded the country's
long-term foreign-currency debt to BBB- from BB+, citing the country's "strong and resilient economic growth,
low and declining public debt ratios, strengthened external liquidity and a prudent overall macro policy
framework". On January 19th 2012 Moody's Investors Service followed suit and raised Indonesia's sovereign
debt ratings to Baa3 (which is investment grade) from Ba1. In April 2011 Standard &Poor's (S&P) raised
Indonesia's sovereign debt rating from BB to BB+, the highest level since the 1997-98 financial crisis, but still
one notch under investment grade. S&P in April 2012 declined to raise Indonesia's rating, citing "policy
slippages." Monetary and currency policies/regulations: Currency The rupiah remains freely convertible, and
Bank Indonesia (BI-the central bank) has no specific target rate for the currency. Still, BI does target exchange-
rate stability and actively intervenes in the foreign-exchange markets to smooth the movement of the currency
(mainly vis--vis the US dollar). At end-June 2012, the rupiah was trading at around Rp9,433:US$1, compared
with Rp9,069:US$1 at the start of the year. The rupiah appreciated by 3.6% against the US dollar on an annual
average basis in 2011, taking its cumulative appreciation since 2009 to 18.5%, supported by relatively rapid

GDP growth and interest from foreign investors in carry trades (whereby speculators borrow in countries where
interest rates are low, such as the US and Japan, to purchase assets in countries with higher rates, such as
Indonesia). However, the Economist Intelligence Unit expects the rupiah to weaken against the dollar in 2012,
by 2.4% on an annual average basis, mainly reflecting a steady decline in Indonesian real interest rates (and
hence the real rates of returns on local assets) as inflation accelerates. We forecast the currency to weaken by
0.2% in 2013, before appreciating by 1.1% a year on average in 2014-16. Maintaining the stability of the rupiah
amid volatile flows of foreign capital will remain a priority for the authorities, and it is possible that more
restrictions will be imposed on short-term capital flows. BI's official policy is to maintain a floating rupiah, while
pursuing stability in foreign-exchange markets. It is well known that the bank regularly intervenes in the market
directly to smooth the exchange rate. While BI is prone to considering and rolling out options to curb the inflows
of short-term foreign funds ("hot money"), it is quick to point out it has no plans to impose capital controls. In the
wake of the 1997-98 Asian financial crisis, the ten members of the Association of South-East Asian Nations
(ASEAN, of which Indonesia is a founding member), along with China, Japan and South Korea (a grouping
commonly referred to as ASEAN+3), in May 2000 established the Chiang Mai Initiative (CMI), which allows
these countries to draw on one another's foreign reserves in the event of external-financing difficulties. This was
transformed subsequently into a multilateral arrangement that would enable countries hit by short-term liquidity
shortages to borrow foreign reserves from each other to absorb selling pressure on their currencies. The 13
members agreed in March 2012 to double the facility from US$120bn to US$240bn in order to counteract any
possible contagion from the eurozone sovereign debt crisis; this expansion is expected to be finalised in late-
2012. The CMI's currency-swap mechanism is, in essence, a way for the smaller and more vulnerable ASEAN
economies to tap the huge buffer of foreign-exchange reserves held by China, Japan and South Korea. China
and Japan each contribute US$76.8bn to the enlarged pool, whereas South Korea contributes US$38.4bn. The
rest (20% of the total) comes from ASEAN. The CMI provides the participating nations with an alternative to
funding from the IMF. By June 2012 none of the 13 CMI participants had requested assistance from either the
CMI fund or the IMF. Separately, BI and its Chinese counterpart, the People's Bank of China, in March 2009
concluded a three-year currency-swap agreement, amounting to RMB100bn and Rp175trn. This arrangement
allows trades between the two countries to be settled directly in the local currencies, instead of US dollars.
Although this agreement had not officially been extended by June 2012, the facility was still available. Officials
expect a new agreement to be signed later in 2012. BI's foreign-currency reserves stood at US$111.5bn by
end-May 2012, up 6.0% from the US$105.2bn recorded a year earlier. Indonesia's international reserves hit a
historical high of US$124.6bn in August 2011, but active intervention by BI to slow the depreciation of the rupiah
since then has reduced the figure.

Monetary and currency policies/regulations: Loan inflows and repayment Bank Indonesia (BI-the central bank)
on September 30th 2011 issued new rules concerning the treatment of foreign-currency loan proceeds from
foreign creditors to local debtors. These regulations, which became effective on January 2nd 2012, stipulate
that proceeds from such offshore borrowings must be drawn down through the debtor's domestic bank account
(with a licensed foreign-exchange bank). These new rules do not require the foreign currency brought into
Indonesia to be converted into rupiah or for the foreign currency to be kept in Indonesia for a specified period of
time. Instead, the rules seek to bring Indonesia's large export proceeds into the domestic banking system, while
respecting BI's liberal foreign-exchange policies. The requirement applies to proceeds from the following
sources: new offshore nonrevolving loan agreements that are not used for refinancing purposes; the difference
between a refinancing facility and the amount of the previous offshore loan (ie, if the size of the offshore loan
entered into for refinancing purposes exceeds that of the old loan facility, the excess amount must comply with
the new rules); and offshore debt securities. BI must approve loans from abroad to state-owned companies and
foreign-investment companies. The volume of loans to domestic companies from overseas banks remains
limited compared with financing through Indonesian banks and fund-raising through the local debt market. The
repayment of loans and transfers is unrestricted but must meet all reporting requirements. For all foreign
investment, BI approves draft loan agreements, monitors foreign-exchange accounts, checks that capital
originates from abroad and registers offshore loans. Tax consequences. Interest payments to a foreign
institution of any kind are subject to a withholding tax of 20% (unless reduced by tax treaty). Interest paid to a
domestic financial institution is exempt from tax. Interest paid to a resident company or individual is subject to a
final tax of 20%. Monetary and currency policies/regulations: Repatriation and remittance of No official
restrictions apply. Payments must meet Bank Indonesia (BI-the central bank) reporting requirements. BI
Regulation 4/2/PBI/2002 requires nonfinancial institutions to report movement of financial assets (for example,
equity in overseas companies and savings at overseas banks) and liabilities (such as overseas loans and trade
payables) between residents and nonresidents, including overseas transactions by residents. It applies to
companies with assets exceeding Rp100bn and annual sales exceeding Rp100bn. Although capital invested in
ordinary domestic companies does not enjoy an outright guarantee of convertibility to the currency of the
original investment, it is not government policy to prevent such conversion. Capital invested in joint ventures
pursuant to the 2007 Foreign Investment Law may be stated in foreign currency at the rate specified in the
investment permit (in addition to the required rupiah statement) for determining future capital repatriation. If a
foreign investor sells shares locally after a few years (the precise number varies depending on the type of
investment), the proceeds are guaranteed conversion and repatriation rights. Proceeds from an investment's
sale are remitted at the exchange rate at the time of transfer, unless the firm's investment agreement specifies
another rate. Re-invested profits receive the same treatment as initial capital. Firms operating in Indonesia
report no difficulties in remitting profits. Earnings on approved investments are freely transferable in the
currency of the original investment, converted at the exchange rate on the day of the transfer. For recording
purposes, the remitting company must submit a report of the transfer to BI, with the amount stated in rupiah,
along with an annual balance sheet and profit-and-loss statement. Tax consequences. All payments abroad
(from individuals and corporations) for dividends, interest, rents, royalties and fees for the use of property or
know-how are subject to a final withholding tax of 20%. Although tax treaties can reduce this rate, it is
necessary to comply with the procedures in a 1996 circular issued by the Directorate-General of Taxation to
take advantage of such reduced treaty rates. The procedures require the payee to obtain a certificate of tax
domicile from the revenue authorities in its jurisdiction of establishment. For tax purposes, royalties are
understood to mean any charge for the use of property or know-how in Indonesia. Payments of royalties to
residents are subject to withholding taxes at a rate of 15%. Residents may credit withholding tax in their
calculations of tax on overall income. Insurance premiums (including reinsurance) paid by a resident to non-

Indonesian-licensed insurers are also subject to a final withholding tax of 20%. Some tax agreements between
Indonesia and other countries may protect insurance premiums. Monetary and currency policies/regulations:
Restrictions on trade-related p Bank Indonesia (BI-the central bank) on September 30th 2011 issued new rules
concerning the treatment of foreign-currency export receipts, which became effective on January 2nd 2012. The
new rules stipulate that Indonesian traders must transfer all foreign exchange arising from export proceeds to
their domestic bank account (with a licensed foreign-exchange bank) within 90 calendar days after the
registration of their Notification of Export of Goods (Pemberitahuan Ekspor Barang). These new rules do not
require the foreign currency brought into Indonesia to be converted into rupiah or for the foreign currency to be
kept in Indonesia for a specified period of time. Instead, the rules seek to bring Indonesia's large export
proceeds into the domestic banking system, while respecting BI's liberal foreign-exchange policies. Previously,
many exporters kept (at least part of) their export proceeds overseas (Singapore was a favored centre) in part
because Indonesia offers few advanced cash management, hedging and other financial services. Import
payments must comply with the exchange-control measures introduced in October 2002. Amounts in excess of
Rp100m require completion of a form issued by BI. Payments must also meet all reporting requirements (see
Foreign-exchange regulations overview). The Indonesian government further increased the administrative
burden on exporters with Ministry of Trade Regulations 01/1/2009 and 10/3/2009 (of January and March 2009,
respectively) on export of goods requiring letters of credit (L/C). The move, which was designed to channel
funds through domestic banks as well as reduce rupiah volatility, requires exporters with an export value above
US$1m to use an L/C issued by a domestic foreign-exchange bank to route export payments (as well as
subsequent proceeds). The regulation applies to mining, tin, crude palm oil products and commodities such as
coffee, rubber and cocoa. Furthermore, exporters of all involved commodities are required to report L/C
payments or other payments used in trade as well as the number and date of the payment document in the
product export notice. These exporters are also required to send monthly "export realisation reports" to the
Ministry of Trade that detail the method of payment, foreign-exchange bank used and the exporters' bank
account number. There are no restrictions on leading and lagging of payments. Successive trade reforms
introduced since 1985 have reduced Indonesia's once-important nontariff barriers and import licensing
restrictions. But in 2009 the government implemented sweeping new nonautomatic import licensing procedures
on a broad range of products, including electronics, household appliances, textiles and footwear, toys, and food
and beverage products. The measure, known as Decree 56, includes a requirement for pre-shipment
verification by designated surveyors at importers' expense and a restriction on imports to five designated ports
and airports. For details on import and export restrictions, see the Economist Intelligence Unit report Country
Commerce Indonesia. Tax consequences. Most payments to an offshore entity, paid either from or in Indonesia,
are subject to income tax. It is the responsibility of the payer to withhold the tax at source. Short-term
instruments/regulations: Overview Unlike the aftermath of the 1997-98 financial crisis, when financing at any
maturity was very difficult to obtain, the global financial and economic crises of 2008-12 have had little effect on
the availability of credit in Indonesia by July 2012. However, according to the World Bank's Doing Business
2012, Indonesia ranked 126 out of 183 countries with regard to ease of obtaining credit, down ten spots from
116 (also out of 183 economies) in the previous edition. Most Indonesian firms borrow short term at variable
rates and roll over loans, usually after six months or one year, since long-term funding is hard to find. Interest
rates are typically renegotiated every time a loan is rolled over, and bankers expect fees on each such
occasion. However, longer-term financing is increasingly becoming more prevalent, particularly in industries that
the government is trying to promote such as infrastructure development. Funds like the Infrastructure Financing
Initiative (IFI) were established in 2010 to address the long-term financing concerns of investors. The markets
for derivatives and swaps remain relatively underdeveloped in Indonesia, in part because Bank Indonesia (BI-
the central bank) has set restrictions. Still, new products, especially commodity futures, are being developed
and introduced in an attempt to spur the markets' development. Foreign-exchange regulations introduced in

January 2001 (as well as subsequent regulations designed to limit fluctuations in the rupiah) effectively limited
derivatives transactions by cutting back on the amount of local currency that banks can transfer to offshore
parties without underlying trade or investment transactions. BI Regulation 7/14/PBI/2005 permits certain
investors to hedge against investment-related rupiah cashflows if the investment period is longer than three
months and both the term of the hedging instrument and the value of the derivative transaction is less than that
of the realised investment. BI's definition of derivative transactions includes swaps, options and outright forward
contracts. Massive losses from derivatives contributed to the rupiah's strong depreciation during the second half
of 2008, and BI responded in November 2008 by banning structured products-including derivatives-of any kind.
The move was met with strong protest from the financial community, and BI signalled its intent in February 2009
to revise the ban and issue new regulations to clarify the rules and requirements that govern the market. BI
looked to assuage the community, by allowing for the trade in exotic derivatives on a case-by-case basis.
However, by July 2012, the bank had not given approval for a single product or trade. In April 1998 BI issued
regulations governing the liabilities of all locally incorporated banks. These include measures aimed at ensuring
that all private nonbanking companies in Indonesia report all offshore borrowings to the central bank within 14
days. At present, the definition of borrowings is confined to loans and issuance of fixed-income paper. However,
the definition of paper includes medium-term notes, floating-rate notes and other types of capital-market
instruments. Foreign investors in recent years have made a strong return to Indonesia's capital markets as they
seek exposure to the country's generally healthy economic growth and high rupiah interest rates. According to
the Ministry of Finance's Debt Management Office, at end-2011 foreigners held Rp222.9trn in government
securities, or 30.8% of total outstanding debt, up sharply from the end-2010 figure of Rp195.3trn. Short-term
instruments/regulations: Cash management The infrastructure of Indonesia's cash-management system lags
those of most of its regional competitors and is far removed from the sophisticated systems used in
neighbouring Singapore. Cash is the most commonly used instrument for retail payments and-despite the
rapidly increasing popularity of credit cards and other noncash payment methods-is expected to remain so in
the near future. Internet banking is available; however, mobile-phone-based banking services may have a
brighter future, given the much larger penetration rate of mobile phones. Credit and debit cards are widely
accepted in most areas, including tourist facilities and restaurants. However, credit-card use is hampered by the
absence of an official credit card bureau. Nevertheless, the scope for further expansion is huge-over 90% of
Indonesia's adult population still do not have credit cards. Debit cards are much more widespread, though. By
April 2011, there were 14.90m credit cards in circulation, up from 14.02m a year earlier. There were 67.02m
automated teller machine (ATM) cards (most of which also function as debit cards) by April 2012, up from
56.34m a year earlier. At end-2009 regulators asked banks to integrate smart chips into all newly issued credit
cards; however, BI allowed for the change to take place over a five-year period, beginning mid-2011. BI reports
that in 2011 the value of ATM and debit-card transactions reached Rp2,477.04trn, up 23.7% from
Rp2,001.85trn in 2010. Credit-card transactions reached Rp182.60trn in 2011, up 11.9% over Rp163.21trn in
2010. According to banking analysts, the number of ATMs in operation in Indonesia likely will surpass the
100,000 mark by end-2012 as many banks are planning to extend and upgrade their networks. Foreigners
wishing to open up credit-card accounts at local banks usually find the process difficult. Most local banks will
instead require foreigners to open up debit accounts. Electronic-money instruments, in the form of prepaid
cards, were introduced in Indonesia in mid-2007. According to a regulation issued by BI on April 13th 2009, the
monthly limit for e-money transactions stands at Rp20m per account. This amount includes payment
transactions, fund transfers and other types of transactions offered by the issuers. Most banks now provide a
range of cash-management facilities for their corporate customers, which are useful in Indonesia given
uncertainties about inflation, foreign exchange and interest rates. Many banks offer sophisticated technologies
in credit/debit cards and telephone or internet banking. Although most banks have an extensive network of
basic ATM services throughout Indonesia, foreign and joint-venture banks have ATM networks that are usually

limited to major cities. Conventional banking transactions still outnumber electronic transactions, as customers
remain concerned about the security of online transactions. However, a few banks have started to enjoy
success in this area. Bank Internasional Indonesia (BII), purchased by Malaysia's Maybank in October 2008,
was the first entrant into the online banking arena, allowing customers to check balances and account activity,
transfer funds, pay bills and make telegraphic transfers to domestic and overseas banks. Customers can also
open savings, current and time-deposit accounts and apply for credit cards via the BII website. Virtually all of
the other large banks had set up electronic banking portals by July 2012. Banking via SMS (short message
service: text messages) is rapidly developing. Users can conduct most banking transactions, including fund
transfers and bill payments, via a cellular phone. BCA has operated a mobile-banking service since 2001,
working with Excelcomindo, Indonesia's third-largest mobile-phone operator. Bank CIMB Niaga, Bank Mandiri
and Bank Mega, among many others, now also offer the service. The 2008 Law on Information and Electronic
Transactions (Law 11/2008) represents an important step forward for electronic commerce in Indonesia. It
provides a legal basis for information and electronic transactions, also legalising electronic signatures as valid
for commercial use. The law includes regulations concerning domain names, electronic intellectual property
rights, privacy and content. Moreover, it empowers legal authorities and law enforcement to conduct
investigation and enforcement concerning electronic information and transactions. Intercompany transfers are
permitted and are common among domestic groups. Some maintain intercompany funds in order to share
monies among related companies. Transfers are not publicised, and information about them is not readily
available, but the practice is believed to be widespread. Major multinational banks, such as Citigroup (US) and
HSBC (UK), offer cash-pooling services. Banks, however, are subject to stringent regulations on lending to
companies or individuals with whom they have ties. Until recently, private banks tended to ignore the
regulations on intergroup lending. Though present practices remain less than transparent, BI is far more
proactive with its mandate to ensure compliance. The requirement that insurance companies hold no more than
20% of assets offshore restricts their ability to pool cash. The netting of crossborder transactions is accepted
and common in Indonesia. No legal restrictions apply. Some state banks offer netting facilities; these banks
include Bank Negara Indonesia and commercial banks such as Bank Permata and Bank CIMB Niaga. Banks
may not issue cheques in foreign currencies for domestic use, but foreign-currency accounts can be
maintained. Counter cheques are obtainable at banks, including cheques in rupiah or foreign-currency cash,
traveller's cheques and bank drafts. Withdrawals from such accounts may also be made through ATMs at some
outlets. Overseas payments in foreign currencies may be made via bank drafts, payment orders or cable
transfers. Residents may maintain foreign-currency accounts with domestic and foreign banks both in Indonesia
and abroad. They are free to move funds abroad, subject to the applicable reporting requirements. Domestic
companies may freely conduct business, including investments, abroad. Nonresidents may hold domestic and
foreign currency in Indonesia. There is no specific legislation addressing foreign borrowing in the domestic
market, and there are no borrowing limits related to the amount of foreign equity. Foreign companies are still
primarily financed by their parent companies abroad; continued high lending rates at local banks deter
borrowing. Short-term instruments/regulations: Payment-clearing systems Bank Indonesia (BI-the central bank)
is the main provider of clearing and settlement services. However, five companies provide clearing and
settlement for ATM pooling banks, two other firms maintain debit-card networks and the Indonesian Central
Depository operates the funds settlement for securities transactions on the capital market. BI's National
Clearing System (Sistem Kliring Nasional-SKN) covers debit clearing and credit clearing, with settlements
processed nationwide. Established in 2005, SKN provides national coverage through 108 clearing houses-37
operated by BI and the other 71 operated by BI-appointed commercial banks. Regional credit banks cannot act
as clearing houses. The system processes checks, bilyet giro (an instruction presented to a bank to debit the
issuer's account and credit another account-it cannot be cashed in) and lalu lintas giro (a paper-based credit
transfer). Items declined by the clearing process-mostly due to insufficient funds-result in the issuer being added

to the national blacklist. Blacklisted issuers are banned from making transactions for a six-month period. The
maximum amount that can be processed through credit clearing is Rp100m. Any transfers exceeding this limit
must be processed through BI's Real Time Gross Settlement (RTGS) system. Launched in 2000, and designed
and operated by BI, the RTGS mechanism is an electronic fund transfer system that enables real-time
settlement (in rupiah) of individual transactions. The system is used primarily for high-value payments such as
interbank money market transactions, capital market transactions, foreign-exchange transactions, payments to
the government (such as income tax) and transfers between BI accounts. All commercial banks, including their
Islamic-banking divisions, are members of the system, which had a total of 153 participants as of June 2012. BI
conducts RTGS transactions during weekdays from 6 am to 4:30 pm. It charges members Rp7,000 for
transactions made before 3 pm and Rp15,000 after that time; clearing charges are Rp1,000 per transaction.
(Banks and other RTGS participants usually charge their customers Rp30,000-50,000 per transaction.) Charges
applied to customers depend on each member bank's policy. In 2011 the volume of transactions processed via
RTGS rose by 15.2% to 16.2m, while the transaction value jumped by 23.6% to Rp66.9trn. As of July 2012
RTGS did not support settlements of multicurrency transactions by domestic and crossborder parties. As it
stands, multicurrency transactions must be settled in rupiah, while crossborder transactions must be settled
through bilateral relationships between banks in Indonesia and their counterparts abroad. On January 25th
2010 BI and the Hong Kong Monetary Authority launched a crossborder payment-versus-payment link between
RTGS and Hong Kong's US-dollar real-time gross settlement system. This link eliminates settlement risk in
foreign-exchange transactions between two parties by ensuring the simultaneous delivery of US dollars in Hong
Kong and rupiah in Indonesia. Integrated into the RTGS is the Scrip-less Securities Settlement System (SSSS),
which provides a facility for financial market players to make transactions with BI, such as funding for banks,
and trades in BI certificates (sertifikat Bank Indonesia-SBI, see Treasury bills) and government securities. SSSS
provides depository, matching and settlement services for trades in BI certificates and government bonds and
securities. BI along with two ministries, the Law and Human Rights Ministry and the Ministry of Communication
and Informatics, passed Law No 3/2011 regarding fund transfers on the interbank market. The law requires that
fund transfers be done through legal companies that are licensed by BI. There are currently 70 nonbank
financial institutions able to conduct fund transfers. The law has set the maximum penalty of five years
imprisonment and a Rp5bn fine for violators. In May 2011 BI officials also announced that the RTGS would
undergo a major upgrade to fall into line with global standards, better integrate into other systems and work out
inefficiencies in retail payment switching. BI says that the new upgrade will markedly bring the costs of
transactions down for banking and corporate customers and should be online by late 2012. There were five
shared automated teller machine (ATM) networks as of July 2012. ATM Bersama is the largest such network,
with 67 member banks and over 34,000 ATMs. It provides links with a similar network in Malaysia (links with
other regional countries are planned); interbank settlements are processed through RTGS. The Prima network
has 25 members (operating nearly 35,000 ATMs) and is operated by Bank Central Asia (BCA), which provides
the settlement services. LINK (with four state-owned banks as members), ALTO (15 member banks) and
Chakra (3 members) fill out the list. Short-term instruments/regulations: Receivables management Firms in
Indonesia generally advance credit to customers based on long-standing relationships or personal
recommendations. Other firms simply refuse to grant credit, and very large cash transactions are still common.
Large firms and well-established customers frequently settle repeat purchases after six months. Outstanding
receivables beyond six months are ordinarily treated as bad debts. Most foreign, joint-venture and larger
domestic companies use automated accounts-receivable monitoring systems to keep track of their collections.
Credit analysis is improving and has become commonplace. Threatening to withdraw credit facilities is a tactic
commonly used to accelerate payment of receivables. Interest charges on late payments typically apply only if
agreed to in advance. There are no dunning houses for securing late payments. Receivables management is
inefficient by global standards. Outsourcing of receivables management, though available, is not commonly

practised in Indonesia. Vendors are often forced to chase after payments and meet face-to-face with debtors in
order to secure payments. A few local law firms are known for their ability to enforce debt repayment. It is
relatively common practice for companies to resort to the use of "debt collectors"-a euphemism for thugs in
Indonesia. Debt collectors usually charge fees of 10-30% of collected money. There is little legal protection
against nonpayment. Existing credit laws and institutions lack effective enforcement procedures. Also lacking
are standards for acceptable security or collateral, legally recognised documentation and proper liquidation, as
well as accessible information for credit checking. It is still common for state-owned companies to withhold debt
payments to local companies in particular. A Bankruptcy Law entered into force in August 1998, creating-in
theory-a more efficient legal framework for dealing with debts and debtors. However, commercial courts have
repeatedly sided with debtors in bankruptcy cases. This has left the situation much as it was before; that is,
firms that are owed funds have little legal recourse. Since the courts are often corrupt-most cases are
determined by which side can offer the largest bribe-delinquent accounts are often settled out of court. In an
effort to curb the number of cases against state-owned companies that go through the courts (where decisions
are often "fixed") the government announced in March 2011 that it was drafting wide-ranging amendments to
the 1998 Settlement of State's Receivables Law. These amendments will establish a new commission with
civilian oversight to administer decisions about absentee debtors; currently these decisions are handled by the
often corrupt courts and equally corrupt State's Receivable Committee. But as of July 2012, no timeline
regarding the introduction of these amendments had been announced; other minor amendments had been
introduced in February 2011, which deal with administrative and procedural issues. Parliament passed an
amended bankruptcy law in September 2004. It curbs the courts' powers to hand down bankruptcy decisions;
instead, bankruptcies of financial firms now need the approval of the Ministry of Finance, Bank Indonesia (BI-the
central bank) or the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK). Previously, a
court, including the Commercial Court, could hand down a bankruptcy decision. Any court decision on a
bankruptcy case must be made within 60 days from the date a petition is filed, and all dissenting court opinions
must be made public. BI introduced a new export facility to assist cash-strapped exporters as well as reduce the
rupiah's volatility. The initiative (as outlined in BI Regulation 10/34/2008) allows commercial banks to sell the
monies owed to an exporter by a corresponding importer, known as export receivables, to the central bank as a
means of facilitating more rapid payment to the exporter. Exporters report having to wait as long as six months
for payment, and the regulation aims to reduce this wait for six foreign currencies: US dollar, yen, pound
sterling, euro, Australian dollar and Swiss franc. Exporters are also allowed liquidity in both foreign exchange
and the rupiah. Lockbox collections-whereby buyers send money to a post-office box from which a bank, acting
as an agent for a supplier, makes collections-are uncommon in Indonesia. Short-term instruments/regulations:
Payables management Payments clear in one business day in Indonesia. Hence, companies rarely take
advantage of the "float" to delay payments. Making payments by cheque late in the week in order to take
advantage of the slow clearing process over the weekend is possible. Post-dated cheques and cheques that
cannot be cleared for lack of funds or because of "payee error" also are widespread. Rather than rely on special
tactics, it is more common for payers to take advantage of long-standing relationships to delay payments as
long as deemed reasonable. Short-term instruments/regulations: Currency spot market Indonesia's foreign-
exchange (forex) market is much smaller than those of regional rivals Malaysia and Thailand and virtually
insignificant compared with those in major Asian financial centres, such as Hong Kong and neighbouring
Singapore. Spot transactions accounted for about two-thirds of all transactions on the market in 2010-11.
According to Bank Indonesia (BI-the central bank), average monthly trading volume on the interbank forex
market was just US$121.4m in 2011, up slightly from US$106.7m a year earlier. Volumes on the US dollar
interbank call money market are around five times higher; nearly all this volume is in one-day maturities. Given
the small size of the market, banks tend to deal directly, bank to bank, when buying and selling currencies,
rather than using brokers. Only forex brokers (as opposed to ordinary brokers), nonbank financial institutions

and authorised banks and money changers are permitted to trade currency. Forex transactions are subject to
charges of about US$50 per US$1m, but discounts are generally available for larger-volume transactions.
Brokers quote most major currencies, though most trade is between the US dollar and the rupiah as most of
Indonesia's trade transactions are conducted in US dollars. To control speculative practices, banks must
maintain an open position or net forward (off-balance-sheet) position below 20% of paid-in capital throughout
the business day. No more than one-quarter of a bank's net forward position may be held in a single currency.
Tax consequences. Interest income is subjected to a 20% withholding tax, while income derived from forex
transactions is subject to corporate taxes. Short-term instruments/regulations: Futures and forward contracts
According to statistics from Bank Indonesia (BI-the central bank), forward transactions accounted for less than
5% of turnover on the interbank money market in 2010-11. Over-the-counter forward-currency contracts are
available with foreign banks, but they can be very costly at times of political and economic instability, when the
rupiah inevitably slides and local-currency interest rates rise to high levels. Banks based in Indonesia are limited
by foreign-exchange regulations in the amount of business they can write on their open positions. Rupiah
nondeliverable forwards (NDFs) are traded offshore in centres like Singapore and Hong Kong. Rupiah currency
futures and options were at one time available offshore, specifically at the New York Cotton Exchange's Finex
exchange. But these contracts were delisted in October 1998. Share-index futures. The Indonesia Stock
Exchange (IDX) introduced share-index futures based on the LQ-45 index in October 2001. This index tracks 45
highly liquid, blue-chip shares that are actively traded and have high market capitalisations. These futures are
available with a regular multiplier of Rp500,000, and a "mini" multiplier of Rp100,000. Spot contracts and
second-month contracts are available. The IDX also offers a Japan Futures contract based on the Dow Jones
Japan Titan 100 Index. Other futures products have been in the pipeline and still may be introduced, though no
announcements had been made as of July 2012. The Jakarta Futures Exchange (JFX-Bursa Berjangka
Jakarta) came into operation in December 2000, initially dealing only in olein-a by-product of crude palm oil
(CPO)-and robusta coffee (trading of which was discontinued later, but had been reintroduced by June 2012). In
February 2002 it began trading gold (as of July 2012 the JFX offered seven types of gold futures). In September
2002 the JFX launched the Indeks JBA-Bisnis Average 25 (JBA-25 futures share index) for futures trading. It is
made up of the 25 largest and most liquid stocks trading on the IDX, created from the merger of the Jakarta
Stock Exchange and Surabaya Stock Exchange in 2007; its components are updated regularly. In June 2009
the JFX launched a physical spot market for CPO contracts by daily auction. By July 2012 the JFX also had
introduced cocoa futures, while coal futures, to be offered in a joint venture with the Indonesian Coal Producers
Association, are to be launched at an unspecified future date. Turnover reached 7.6m contracts in 2011, up by
40.1% from the previous year, as trade in gold futures in particular soared. JFX officials announced in May 2011
that they may introduce futures based on carbon credits, though as of July 2012 only the nongovernmental
organisation Latin had set up a small carbon-credits trading platform. Led by Norway, the international donor
community is planning to launch large-scale environmental protection schemes in 2012-15, hence the
expectation that carbon credits will start trading by late-2012. The exchange also announced that it hoped to
offer sharia-compliant products in the near future, though again no timeline had been announced by July 2012.
The creation of the JFX was an attempt to formalise the existence of a number of "illegal" futures exchanges
(not registered with, or approved by, the Ministry of Finance) as well as intermediaries' common use of future
purchases of agricultural commodities. The JFX lost its monopoly on derivatives trading in July 2009 when the
Indonesia Commodity and Derivatives Exchange (ICDX) was granted permission to list futures contracts in gold
and CPO. By July 2012 the ICDX was offering futures in those two products, as well as in olein and tin. The
Commodity Futures Trade Regulatory Agency, under the Ministry of Trade, regulates the industry. Tax
consequences. No special Indonesian tax applies on the use of over-the-counter derivatives. Taxes apply on
profits from trading in commodity futures and other derivative products. Short-term instruments/regulations:
Options Foreign banks in Jakarta quote over-the-counter US-dollar currency options; however, trading of US

dollar/rupiah options is very expensive. Much of the activity concerning currency options involves products sold
to retail investors as part of bank deposits (for instance, a deposit in one currency can carry the option of being
converted into another currency at the end of a specified time). A handful of foreign banks-including HSBC and
Standard Chartered (both UK), and Bank of America and Citibank (both US)-offer currency options in several
other major currencies as well: euro, yen, pound sterling, and Australian and Canadian dollars. Most of them
carry out such deals via their units in Singapore. These options ordinarily trade in notional amounts of US$5m
and US$10m. The Indonesia Stock Exchange (IDX) introduced trading in share warrants, a type of option, in
1995. As with convertible bonds, however, companies cannot sell them unless they offer them to existing equity
shareholders on a preemptive basis. Trading of equity-share options was introduced in 2004. Five stocks were
selected as the underlying assets for these options: Telekomunikasi Indonesia, Astra International, HM
Sampoerna, Bank Central Asia and Indofood Sukses Makmur. But trading in these products has ground to a
halt: no options have been traded since 2009. In September 2004 the Capital Market and Financial Institution
Supervisory Agency (Bapepam-LK) issued regulations on membership and option trading on the IDX, including
the criteria for shares that can be used as underlying assets for the trading of options and requirements for
member firms to be able to trade options. Tax consequences. Capital gains from securities are taxable as
ordinary income in Indonesia; capital losses are tax deductible. In addition, both companies and individuals are
liable for a tax of 0.1% of transaction value on the sale of shares listed on the IDX. Short-term
instruments/regulations: Swaps According to statistics from Bank Indonesia (BI-the central bank) swap
transaction accounted for around one-third of turnover on the interbank foreign-exchange (forex) money market
in 2010-11. Domestic and foreign banks in Indonesia offer a range of hedging facilities, including cross-currency
swaps and floating- or fixed-interest-rate swaps, which are popular with foreign and joint-venture companies.
Bank Internasional Indonesia, for example, offers swaps with tenures of 1-5 years and with a minimum of
US$500,000. Under the January 2001 forex rules, local banks are restricted from dealing in these instruments.
They are also strictly forbidden from entering into derivatives contracts with overseas parties for speculative
purposes. Hedging of up to US$1m (or equivalent) per transaction is permitted against the rupiah with offshore
banks. BI introduced a currency-swap instrument in October 2005 that allows companies needing dollars to
acquire the funds directly from BI and not from the forex market. This instrument, which allows hedging, helps
importers manage their dollar needs more efficiently, easing pressure on the rupiah. BI now offers three- and
six-month swaps with a minimum value of US$100,000 for investors looking to hold rupiah and repurchase
dollars, in addition to swaps with terms of 1-7 days, as long as the swap covers an underlying investment of
greater value. Interest-rate swaps are conducted at rates that take into consideration credit risks, tenor of swap
and other factors. Prior to the 1997-98 Asian financial crisis, many companies used interest-rate swaps to
convert rupiah-denominated borrowings (which had double-digit interest rates) into US dollar borrowings (where
rates were below 10%). Such swaps have become rare, given the regulations of January 2001 and June 2005,
which allow spot and rupiah forward transactions between local banks and nonresidents only if they serve to
hedge investment into Indonesia. Also, banks are eager to avoid swaps as they eat into their capital-adequacy
ratios. The volume of dollar-rupiah swap transactions declined dramatically following the implementation of BI
Regulation 7/14/PBI/2005, which tightened controls on rupiah transactions and foreign-currency lending by
banks in order to prevent speculation against the rupiah. In November 2008 BI banned derivative transactions.
These restrictions do not apply to financial transactions when there is an underlying real-sector transaction,
such as trade or foreign direct investment. Because of government restrictions on the offshore trading of rupiah,
interest-rate swaps have not been traded in the offshore market since January 2001. They are ordinarily booked
onshore or can be traded as nondeliverable forward swaps. "Re-swaps", or swaps by banks on behalf of clients,
are offered only for loans with a minimum maturity of two years and are referred to as investment swaps. The
range of swaps and other hedging facilities offered by commercial banks includes call, put and "strangle"
options, as well as some "digital" (zero-sum) options. Most of these products are issued onshore. The credit risk

of Indonesian banks and the political uncertainty of the country have made settlement of many transactions
risky. Tax consequences. Profits from currency swaps are liable for capital-gains tax, while interest received is
liable for withholding tax. Short-term instruments/regulations: Exotics Because of exchange controls and their
own limited financial breadth, Indonesian companies do not often use the complex derivatives offered by
international investment banks. Domestically there is barely any use of exotics to hedge risk as of July 2012.
Tax consequences. Costs associated with taking out forward cover are allowed as deductions when computing
corporate income tax. Other consequences are unclear given the dearth of such instruments in Indonesia.
Short-term instruments/regulations: Bank loans Short-term bank loans are generally the most popular choice for
borrowing in Indonesia, in part because most borrowers have few other funding options. These working-capital
loans are extended for up to one year and may be rolled over. According to Bank Indonesia (BI-the central
bank), banks charged interest rates of 7.97-13.62% for working-capital loans in May 2012, compared with 9.42-
13.59% a year earlier. At end-May 2012, all banks had Rp1,175.26trn in working-capital loans outstanding
(including loans extended in foreign currencies), up by 28.6% from the Rp913.96trn recorded a year earlier, and
accounting for 48.73% of all outstanding loans. As an alternative to rupiah-denominated short-term bank loans,
some borrowers able to borrow overseas tap into loans based on the Singapore interbank offered rate (SIBOR)
or London interbank offered rate (LIBOR), though only a select few Indonesian companies can access these
markets. In early 2011, BI issued Regulation No. 13/7/PBI/2011, amending an earlier regulation on offshore
bank loans (BI Regulation No. 7/1/PBI/2005) by reintroducing certain restrictions on short-term offshore loans.
Regulation 13 limits the daily balance of short-term offshore loans to 30% of a bank's capital. Failure to comply
with this restriction will result in financial sanctions. Transactions that are exempt from the restriction include
short-term offshore loans from controlling shareholders to resolve a bank's liquidity issues and demand deposits
of nonresidents used for investment in Indonesia. Although relationship banking is important in Indonesia,
lending by banks to affiliates is legally restricted. Given high levels of bad debt in the past-mostly because of
intergroup lending-BI has set stiff lending limits for banks. For unrelated parties, the lending limit was set at 20%
from January 1st 2003. Collateral is essential, especially as banks move towards more prudent banking
practices. Domestic banks do not perform independent valuations of collateral and are not required to do so;
consequently, assets are often grossly overvalued. Foreign banks tend to be more circumspect. Shares may be
used as collateral for bank loans for up to 50% of the nominal value of shares. There are no restrictions on the
term or rate for bank loans. Tax consequences. Interest paid on overdrafts, bank loans and other forms of short-
term credit is deductible from corporate income as a business expense. Foreign-exchange losses on borrowing,
if applicable, also are deductible. The accretion concept of income was adopted in the overhaul of the tax
system in 1984. All forms of income under this concept are treated as ordinary income and are, after
deductions, taxed at the same progressive tax rates.

Short-term instruments/regulations: Time deposits Commercial banks offer a full range of time-deposit facilities
of 1-24 months. Time deposits may be held in either rupiah or foreign currencies (US dollars are the favoured
option in Indonesia); in early 2012 about 90% of time deposits were denominated in rupiah. Regional banks
tend to pay the highest interest rates while rates at foreign-owned banks usually are lower. According to Bank
Indonesia (BI-the central bank), time deposits amounted to Rp1,290.9trn by end-May 2012, compared with
Rp1,090.1trn a year earlier. Nearly half of the May 2012 amount was deposited in one-month accounts. Just
over 50% of the amount locked up in time deposits at that time belonged to individual savers, with nonfinancial
public corporations adding around 25%. One-month deposits yielded 4.25-5.65% in May 2012, down from 5.34-
7.55% a year earlier, according to BI statistics. Yields on six-month deposits stood at 5.48-6.58% in May 2012,
down from 6.89-8.70% a year earlier, while yields on one-year deposits stood at 5.83-7.40% in May 2012, down
from 6.79-8.42% a year earlier. As inflation reached 3.79% in 2011, down from 6.96% in 2010, real interest
rates turned positive for depositors, though the increase in inflation in the first half of 2012 and the 20%
withholding tax on time-deposit interest earnings reduced gains sharply. Excess liquidity has affected interest
rates on time deposits; as the economy recovered from the 1997-98 Asian financial crisis, many banks had
more funds than they could properly lend. Minimum-reserve requirements introduced in September 2005
penalised banks with low loan-to-deposit ratios (LDRs), after which these ratios increased sharply. Economic
growth in recent years has seen these ratios increase further as this expansion has boosted the financial health
of Indonesian corporations and thus made it easier for them to source bank loans. By end-May 2012 the LDR
stood at 79.43%, up from 78.45% a year earlier. Tax consequences. Interest earned from banks based in
Indonesia is subject to a final withholding tax of 20%. More than 50 countries have signed tax treaties with
Indonesia, and most of the agreements specify lower levels of withholding tax for nonresidents. To obtain the
lower rates, however, the payee must provide a certificate of domicile from the foreign tax authority to the
Indonesian payer.

Short-term instruments/regulations: Certificates of deposit All state-owned banks, the main privately owned
commercial banks and some foreign banks issue transferable certificates of deposit (CDs), mostly in rupiah.
Terms are comparable to or slightly better than time-deposit rates. Bank Indonesia (BI-the central bank) does
not provide data regarding the issuance of CDs. Tax consequences. CDs are treated as normal deposits in an
assessment sense and, as such, are liable to a withholding tax of 20%.
Short-term instruments/regulations: Treasury bills Bank Indonesia (BI-the central bank) certificates (sertifikat
Bank Indonesia-SBIs), or central-bank debt issues, are auctioned weekly by the central bank to regulate
liquidity. SBIs traditionally had maturities of 1-3 months; however, the bank began selling SBIs with a 6-month
maturity in April 2008 as a means of reducing market volatility and moving foreign investors out of short-term
SBIs. As an extension of this scheme, the central bank started issuing 9-month SBIs from the second week of
August 2010. BI also had planned to start launching 12-month SBIs from September 2010 onward, although
these instruments were not offered by July 2012. Since May 13th 2011 BI also has required that buyers of SBIs
hold on to their SBIs for at least six months, effectively putting an end to the highly popular short-term
(especially the one-month) SBI. Only repurchase agreement (repo) transactions with BI would be allowed during
that timeframe. The changes were made in an attempt to slow the inflow of speculative short-term foreign funds
into the market. In general, BI is looking to move away from short-term SBIs in favour of 6-, 9- and 12-month
borrowing instruments; during 2011 and the first six months of 2012 BI only auctioned 9-month SBIs. In March
2011 BI introduced its new 3-month T-bill to replace the 3-month SBI. SBIs are denominated in multiples of
Rp1m, but the minimum purchase for the primary dealers required to provide bids to the central bank is set at
Rp1bn, with increments of Rp100m. Some SBI issues are structured so they are sharia-compliant (acceptable
under Islamic law). As of July 2012 authorities had appointed 18 primary dealers: 14 banks-Citibank (US),
Deutsche Bank (Germany), HSBC (UK), Bank Central Asia, Bank Danamon Indonesia (Singapore), Bank
Internasional Indonesia (Malaysia), Bank CIMB Niaga (Malaysia), Bank Mandiri, Bank Negara Indonesia, Bank
Panin, Bank Rakyat Indonesia, Bank Permata, Standard Chartered Bank (UK) and JPMorgan Chase Bank
(US)-and four brokerages-Bahana Securities, Danareksa Sekuritas, Mandiri Sekuritas and Trimegah Securities.
These dealers also are required to provide bids for most other government debt issues. Government securities
(surat utang negara-SUN) include rupiah- and dollar-denominated Treasury bonds and bills and are regulated
by the Sovereign Debt Securities Law 24/2002. The law paved the way for the primary sale of Treasury bonds
and bills and, ultimately, for the development of a domestic bond market and a longer yield curve for
government bonds. The Indonesia Stock Exchange may trade government bonds as well as corporate bonds.
Government bonds had previously changed hands through over-the-counter trading outside the bourse via
designated banks and securities firms. According to the Ministry of Finance's Debt Management Office, as of
end-June 2012 banks held 37.66% of the total of Rp791.18trn in outstanding government bonds. Foreigners
held 28.37% of government securities at that time. Since July 2006 the Ministry of Finance has regularly sold
tranches of its retail state bonds (obligasi negara ritel-ORI). These savings bonds are sold directly by
designated sales agents to individual purchasers without an auction process and offer a higher yielding
alternative to bank deposits. Also, they are liable for a final withholding tax of 15%, compared with a 20% levy
on regular deposits. They are restricted to Indonesian citizens, though foreigners can, at least theoretically, buy
them on the secondary market or through nominees. The eighth tranche, the ORI-8, was sold in October 2011
and raised Rp11trn. The offering consisted of three-year bonds carrying a coupon of 7.30% annually, though
interest is paid monthly. The previous seven ORI issues had attracted a combined Rp51.5trn. Indonesia raised
US$650m in April 2009 through the issue of its first dollar-denominated sukuk bond, a fund-raising instrument
that complies with sharia (Islamic law), which prohibits the payment of interest. Indonesia has the world's largest
Muslim population, and the government has committed to Islamic finance and the issuance of sukuk. In
November 2011 the government raised another US$1bn through a sukuk issue, carrying a seven-year maturity
and a 4% "interest" rate, and is planning another US$1bn issue of such bonds in the third quarter of 2012. The
government successfully sold US$2bn in conventional US dollar bonds (Yankee bonds) in January 2010 and
35bn in conventional yen bonds (Samurai bonds) in July 2009. The second issue of Samurai bonds was
completed in November 2010, raising 60bn and offering yields of 1.6% and a ten-year maturity. The
government regularly issues rupiah-denominated sukuk domestically, though at times these issues fail to sell.
Authorities are planning to launch bonds denominated in renminbi and South Korean won in 2013. The Capital
Market and Financial Institution Supervisory Agency (Bapepam-LK) issued regulations in April 2007 that allow
regional administrations to issue bonds on the domestic capital market. The issuers must use the proceeds from
any such bonds to finance projects benefiting the public, and the bond issues must comply with capital-market
requirements, including a detailed mandatory annual report of the regional budget. Tax consequences. Gross
interest from nonbank sources is subject to a withholding tax of 15% if the recipient is a resident, or a final
withholding tax of 20% for nonresidents. The advance withholding tax deducted from a resident company's
gross interest may be credited against that company's corporate income tax. Residents of countries that have
signed tax treaties with Indonesia may be subject to lower levels of withholding tax, but they must provide
certificates of domicile from their tax authority to the Indonesian payer. Short-term instruments/regulations:

Repurchase agreements The government started a repurchase agreement (repo) market in 2004, and all banks
may participate in trading them. Repos include one-month, three-month, six-month and nine-month central bank
instruments, known as Bank Indonesia (BI-the central bank) certificates (sertifikat Bank Indonesia-SBIs), as well
as longer-dated Treasury bonds (not all maturities are offered at all times, however). In June 2005 the
government established a master repurchase agreement (MRA) to stand as a benchmark for repo transactions.
The measure was aimed at increasing liquidity in the market. On January 29th 2009 BI Regulation 11/4 became
effective, allowing for repos denominated in US dollars. The maximum tenor for dollar repos is 28 days.
According to the Ministry of Finance's Debt Management Office, average daily volume of repo trades involving
all types of government securities amounted to Rp1.74trn in 2011, up sharply from Rp0.56trn the previous year.
As part of a review of its monetary policy announced on June 16th 2010, BI increased the repo rate from the BI
rate plus 50 basis points (bps) to the BI rate plus 100 bps. Therefore, the repo rate was equal to 6.75% as of
early July 2012. In concert with the move, BI also widened the overnight deposit rate (Fasilitas Bank Indonesia-
FASBI) by 50 bps to the BI rate minus 100 bps from that date. The US dollar repo rate is the Singapore
interbank offered rate (SIBOR) plus 50 bps. As part of this monetary policy programme, from July 7th 2010 BI
offered banks a one-month "term deposit", a liquidity management instrument without an underlying debt
security. This instrument, designed to supplement repos and the FASBI, is nontransferable, but can be
redeemed prior to maturity subject to certain requirements. By May 2012, the Capital Market and Financial
Institution Supervisory Agency (Bapepam-LK) and BI had finalised drafting new provisions on a repo agreement
to better align with Global Master Repurchase Agreement, a standard master agreement for repo transactions.
BI hopes that standardised repo contracts will create better liquidity for banking and securities companies. The
two regulators expect the new regulations to be introduced in mid-2012, but they had not been announced by
early July 2012. Effective December 1st 2011, BI has allowed sharia banks and financial institutions to conduct
reverse repo transactions. Tax consequences. No specific rules are in place regarding repo transactions. Short-
term instruments/regulations: Commercial paper Issues of commercial paper (CP) ground to a halt in the wake
of the 1997-98 financial crisis, and the market has remained moribund since then as investors lack the
confidence in unsecured paper and little foreign-investor interest in Indonesian corporate debt. Issuance of
medium-term notes, however, has been increasing in recent years. When issued, both banks and nonbank
financial institutions conduct trading in CP, and maturities are 2-270 days. Typical investors in Indonesian CP
would include state banks, pension funds and international institutions. Government Regulation 1/2008, on
government direct investment, empowers the government to purchase CP under the auspices of providing
social or economic benefits, such as for critical infrastructure projects. Bank Indonesia (BI-the central bank)
issued regulations in August 1995 that govern CP arrangements more tightly. The rules, drafted in reaction to
the default of Pacific International Finance on a US$10m CP issue, define the scope of CP, bringing it into line
with US regulatory guidelines. BI was concerned that banks were issuing guarantees for unrated CP issued by
third parties simply to generate the fee revenue. The ruling prohibits banks from acting as underwriters of CP
issues, which must be arranged as stand-alone credits. Credit Rating Indonesia (Pemeringkat Efek Indonesia-
Pefindo) has been operating since 1994. Issuers of CP have had to be rated by this agency since 1995, as part
of new requirements applying to such securities, and they must be rated investment grade. The new
requirements reduced the maximum maturity from one year to 270 days. CP is generally endorsed and issued
by tender offer through a bank. Only nonbank domestic firms may issue CP traded in the banking system.
Banks are prohibited from acting as an underwriter or issuing agent for affiliates of any firm whose borrowings
are classified as doubtful or subject to loss. However, as it can take upwards of a month for Pefindo to rate an
issue, which is then followed by another lengthy wait for BI to grant approval, borrowers in Indonesia tend to
look for other arrangements for working capital. Tax consequences. Discounts on CP are subject to withholding
taxes at a rate of 15% for residents and 20% for nonresidents. Short-term instruments/regulations: Overdrafts
Overdrafts are used as a means of disbursing working-capital loans, though they are not as commonly

disbursed as in other countries. Still, this type of financing is increasing in popularity, though from a very small
base, and may take the form of short-term bridging loans collateralised against shares, negotiated by private
brokerages. Companies also establish overdraft facilities directly with commercial banks, often as part of a
wider financing arrangement. Banks may provide intra-day overdrafts only to foreign parties, except for
overdraft credit to cover the imposition of administrative fees. Securities firms are eligible for overnight
overdrafts. Since 2010, banks have had an increasing appetite to offer overdrafts for infrastructure projects and
expanding resource-extraction companies that witnessed surges in net incomes. Like other lending
arrangements, overdrafts usually feature extendable terms of up to 12 months and may require some form of
collateral (usually real estate or machinery). The main providers of working-capital loans are large banks, such
as Bank Central Asia and Bank Mandiri. Foreign banks such as HSBC (UK) and Citibank (US) also offer such
services. However, Bank Indonesia (BI-the central bank) does not keep statistics on overdraft lending. Tax
consequences. Interest paid on overdrafts is deductible from corporate income as a business expense. Foreign-
exchange losses on borrowing, if applicable, also are deductible. Short-term instruments/regulations: Banker's
acceptances Banker's acceptances (BAs) are rarely used in Indonesia. Bank Danamon Indonesia (see Foreign
banks) offers a BA facility based on underlying trade transactions. Foreign BAs are sometimes used to finance
imports and are sold offshore, mainly in the US. Tax consequences. The commission charges paid to the
financing bank are allowed as expenses for tax deductions against gross income. Short-term
instruments/regulations: Supplier credit Manufacturers and importers provide credit to distributors and retailers
for widely varying periods, at interest rates usually set at 1 or 2 percentage points above the rates for one-
month Bank Indonesia certificates. Terms are often dependent on personal relationships between the parties.
The large retailers (including foreign-owned hypermarkets) can extract more favourable terms from their
suppliers than smaller retailers. Supplier credit guarantee schemes (often funded by development agencies
such as the Japan International Co-operation Agency) are available through commercial banks' trade-financing
departments. Koperasi Jembatan Kesejahteraan, a co-operative that distributes to kiosk operators, has carried
this idea much further by making small loans to its clients and turning its financial operations into a profitable
business unit. A number of other distributors have set up schemes, run on much the same lines as microcredit
investment in more remote areas of the country. Tax consequences. The interest paid on supplier credits is
recognised as an allowable expense for corporate tax computation. Short-term instruments/regulations:
Intercompany borrowing Banks engaged flagrantly in intra-group borrowing in the period before the regional
financial crisis of 1997-98. This practice has been partly blamed for the banks' high levels of bad debt,
particularly among those that are part of large domestic business groups and that are mostly family owned.
Consequently, Bank Indonesia, the central bank, has strongly reiterated existing lending limits (of up to the 20%
of total loan portfolio) for banks. However, state-owned conglomerates in particular continue to circumvent these
restrictions by making loans among subsidiary units. Tax consequences. Interest incurred on intercompany
borrowings only is allowed as an expense for tax-deduction purposes if the loan arrangement is consistent with
the arm's-length principle. Short-term instruments/regulations: Discounting of trade bills Most banks, certainly
the larger lenders, provide facilities to lend against trade bills, with borrowers using letters of credit as collateral.
Financing is usually without recourse and generally for periods up to six months. Tax consequences. There are
no special tax considerations for discounting of trade bills; borrowers' interest payments are deductible from
corporate income as a business expense. Medium- and long-term instruments/regulations: Overview Banks
were loath to extend long-term credit even before the 1997-98 financial crisis, and the problem persists, partly
because of a predominantly short-term deposit base and partly because of bankers' lingering fears of adding to
their nonperforming loans portfolio, which Bank Indonesia (BI-the central bank) is particularly keen to see
reduced industry wide. Credits are typically granted at short terms and rolled over with renegotiation of the
interest rate. Equity and bond offerings are now the preferred ways to raise long-term funds, although these
markets are accessible only to a tiny, albeit growing, portion of Indonesia's businesses. Securitisations may

receive a boost in the second half of 2012, though this niche is not expected to expand rapidly in the coming
years. Indonesia's stockmarket rebounded sharply in the last three quarters of 2009 and had a banner year in
2010, though growth was much more subdued in 2011 and the first six months of 2012. Record numbers of
companies launched initial public offerings (IPOs) in 2010-11, though more firms headed to the bond markets to
raise funds in the first six months of 2012. The infrastructure sector is expected to receive a boost from several
government initiatives that focus on developing public-private partnerships to help upgrade the nation's often
creaky infrastructure. The government on May 27th 2011 launched its Masterplan for Acceleration and
Expansion of Indonesian Economic Development (MP3EI), which calls for Rp475trn in infrastructure
investments in 2011-25. The institutional organisation of the capital market consists of the Capital Market and
Financial Institution Supervisory Agency (Bapepam-LK) and three self-regulatory organisations: the Indonesia
Stock Exchange, the Indonesian Clearing and Guarantee Corp and the Indonesian Central Securities
Depository. Bapepam-LK signed a memorandum of understanding in December 2006 with the Corruption
Eradication Commission (KPK) designed to strengthen anti-corruption policies in the capital markets. Both
institutions will share information, hold joint training of personnel and update information on the assets of
government officials. The government established the Indonesian Capital Market Board of Arbitration (Badan
Arbitrase Pasar Modal Indonesia-BAPMI) in August 2002. BAPMI serves as an independent arbiter of capital-
market disputes. Medium- and long-term instruments/regulations: Securities markets Indonesia has one
stockmarket-the Indonesia Stock Exchange (IDX)-created in November 2007 from the merger of the Jakarta
Stock Exchange (JSX) and Surabaya Stock Exchange. Despite the fusion, the local market remains small
compared with the size of the domestic economy. As of July 2012 the IDX was the third-largest exchange in
South-east Asia, lagging behind the stockmarkets of Malaysia and Singapore. As of end-June 2012, the IDX
listed 445 companies, 19 more than a year earlier but still a very small number compared to the size of the
economy. Taking advantage of lofty share price valuations, a record number of firms listed on the market in
2010-11, though the number of initial public offerings dropped off in the first half of 2012. The IDX in 2011 could
not sustain its 2010 performance, when total market capitalisation soared by 46.0%. Still, the market saw its
capitalisation rise by 8.9% during 2011, to reach Rp3,537.3trn by end-2011. By end-June 2012 market
capitalisation had increased to Rp3,729.9trn. Average daily trading volume reached 4.9bn shares in 2011, down
from 5.4bn in the previous year. Average daily trading value, however, increased slightly over the same period,
from Rp4.8trn in 2010 to Rp5.0trn in 2011. As of end-June 2012, the IDX also listed two exchange-traded funds,
39 warrants (with a market capitalisation of Rp8.9trn), 90 series of government bonds (worth Rp791.2trn) and
314 series of corporate bonds issued by 96 companies (worth Rp167.5trn). In 2011 foreign investors accounted
for 31% of trading volume on the exchange, the same share they held in the previous year. This ratio jumped to
43% of trading volume during the first quarter of 2012. The IDX has two boards: a Main Board consisting of
large firms with established track records and a Development Board aimed at mining companies, internet start-
ups and biotechnology firms (though few of the latter two entities exist in Indonesia). The benchmark Jakarta
Composite Index (JCI), which covers all stocks, in 2011 failed to sustain its 2010 performance, when it soared
by 46.0%. The JCI ended 2011 at 3,822 for an annual gain of just 3.2%. In the first half of 2012 the index gained
3.5% to reach 3,956 at end-June 2012. Because of the illiquid nature of a good proportion of the stocks on the
composite index, it does not always give an accurate picture of the value of blue chips. In response to brokers'
demands for a more narrowly focused index, the blue-chip LQ-45 was launched in February 1997. Shares
included in the index are determined by liquidity, and the composition of the index is reviewed every three
months by a team of academics, brokers, bourse observers and officials from the Capital Market and Financial
Institution Supervisory Agency (Bapepam-LK). On April 23rd 2012 the IDX launched the IDX30 index, which
tracks the performance of the 30 leading stocks in the LQ45 index. Components of the IDX30 will be reviewed
every six months; its base date was set at December 30th 2004. The JSX together with Danareksa Investment
Management launched a Jakarta Islamic Index (JII) in 2002, which covers 30 companies and has become the

benchmark for sharia investors. The IDX has continued the index, which fulfils the criteria set by the National
Sharia Board. On January 27th 2009 the IDX and the Bisnis Indonesia Daily newspaper launched the Bisnis-27
Index, which tracks the performance of 27 listed companies picked using a number of criteria, including market
capitalisation, profits, revenue and trading volume. On May 19th 2009 the Pefindo25 SME Index was launched
by the IDX in cooperation with Credit Rating Indonesia (Pemeringkat Efek Indonesia-Pefindo, see Corporate
bond issues) and the Investor Daily newspaper. The index tracks the performance of 25 smaller listed
companies with assets of less than Rp1trn but a return-on-equity (ROE) ratio higher than the average ROE of
all listed firms. These indexes were augmented by the SRI-Kehati Index on June 8th 2009. This interesting
index is maintained by the IDX in cooperation with the Indonesian Biodiversity Foundation (Yayasan
Keanekaragaman Hayati Indonesia-Kehati) and tracks the performance of 25 larger companies (each with
assets over Rp1trn, a positive price-earnings ratio and a free-float ratio of at least 10%) that are deemed to
have the best standards in "business behaviour", community work, corporate governance, environmental
policies, fair labour practices and awareness of human rights. On May 7th 2011, the IDX launched its first index
of sharia-compliant companies. The Indonesian Shariah Stock Index (ISSI) was largely promoted to attract
greater investment from Middle East companies and investors. Exchange officials said the ISSI offers a broader
selection of stocks than the JII, which was established in 2000 but only offers stocks of 30 companies. The ISSI
tracks 214 stocks which are constituents of IDX's JCI. On September 21st 2005 the Association of South-East
Asian Nations (ASEAN) and global index provider FTSE Group (UK) launched the first two indices created for
the ASEAN equity markets as a regional grouping, involving listings from the five main ASEAN exchanges:
Bursa Malaysia, IDX, Philippines Stock Exchange, Singapore Exchange and The Stock Exchange of Thailand.
The FTSE/ASEAN Index has 180 constituents and is expected to become the benchmark for the five markets;
the FTSE/ASEAN 40 is targeted as a tradable index for institutional and retail funds, exchange-traded funds and
derivatives contracts. Development of the indices is one step in ASEAN's plans to develop an interlinked
securities marketplace by 2015. A Capital Market Law (8/1995) came into effect in 1996, replacing the 1952
Bourse Law. It provided a legal basis for direct listing of foreign companies' shares and open-end mutual-fund
operations. The law empowers Bapepam-LK to examine the files of publicly listed companies in the course of
investigating stockmarket-related crimes, such as fraud, market manipulation and insider trading. It is authorised
to impose administrative penalties on stockmarket players. Securities firms, clearance houses and underwriters
remain self-regulating, but their rules need the approval of Bapepam-LK. In September 1997 the government
abolished the 49% ceiling on foreign ownership of listed companies. Banks were initially excluded from that
measure, but they were included after May 1999. Rules regarding tenders and offers are also undergoing
change. Bapepam-LK initially changed the rule in July 2008 to elevate the ceiling for triggering a public tender
offer, from 20% of outstanding shares to 50%. The rule also required 20% of outstanding shares to be left in
public hands. The regulation faced stern opposition from capital markets associations, and Bapepam-LK revised
the rules. Essentially, the new rule calls for a tender offer when a ceiling of either 50% of ownership or effective
control of a company is reached. The regulation also imposes the obligation to relist (or "free float") 20% of
shares within two years of the acquisition.

Medium- and long-term instruments/regulations: Portfolio investment The government encourages foreign
individuals and corporations to invest in Indonesian securities on the Indonesia Stock Exchange (IDX) and the
over-the-counter market. Foreign holdings of listed shares are now freely permitted, following a greater opening
to foreign investment in recent years. The financial crisis of 1997-98 and the general lack of faith in Indonesia as
an investment destination-the result of legal uncertainty and minimal protection for minority shareholders-led to
a foreign exodus from the market beginning in 1998. But foreign interest in Indonesian equities has made a
striking recovery since 2002 as the political situation stabilised and the economy expanded strongly. According
to the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK), foreigners were net buyers of
Rp24.3trn worth of equities in 2011, after purchasing a net Rp21.0trn of equities in 2010. Since 2000 foreigners
have been net sellers of equities during only one year, 2005, when they sold a net Rp15.4trn in equities. In the
first quarter of 2012 foreigners added another net Rp10.0trn to their holdings. According to Bank Indonesia (BI-
the central bank), the country saw net foreign equity investments of US$10.9bn in 2011, up from US$7.9bn in
2010. Net foreign equity investments reached US$2.9bn in the first quarter of 2012. Foreigners looking for
exposure to the Indonesian markets also are allowed to invest in mutual funds. Closed-end investment trusts
were introduced in Indonesia in 1995, followed by open-ended funds, which were permitted under the Capital
Market Law implemented in 1996. (No data regarding foreign investments in such funds are published.) Tax
consequences. Capital gains from securities are taxable as ordinary income in Indonesia; capital losses are tax
deductible. In addition, both companies and individuals are liable for a tax of 0.1% of transaction value on the
sale of shares listed on the IDX. Founder shares are subject to a final tax of 0.5% on the share value at the time
of an initial public offering (IPO), irrespective of whether they are held or sold following the IPO. Indonesia
halved the tax on dividends in 2009 from 20% to 10%. Income derived from property rentals is subject to a final
tax of 10% on gross receipts, including service charges and maintenance costs. Capital gains from the sale of
Indonesian assets by foreigners are taxable at 5% on the gross proceeds. Foreign companies without a
permanent establishment in Indonesia and nonresident individuals are subject to income tax on capital gains
from sales of shares in domestic companies (5% tax for nonlisted shares and 0.1% for listed shares). Approved
pension funds and certain investment funds are exempt from income tax. For further information, see the
Economist Intelligence Unit report Country Commerce Indonesia.

Medium- and long-term instruments/regulations: Trading, clearing and settle Securities traded on the Indonesia
Stock Exchange (IDX) are traded via an automatic, scripless system, the Jakarta Automated Trading System
NextGeneration (JATS-NextG), a new version of which was introduced on May 14th 2012. JATS-NextG now is
designed to accommodate up to 2.5m transactions per day. The system enables the trading of multiple products
(stocks, bonds, derivatives, etc) on one platform. In May 2011 derivative products and bonds were added to the
JATS-NextG platform. The IDX features a remote-trading system introduced in March 2002. Trades are carried
out through the securities houses, including underwriters, broker-dealers and investment-management
companies. For each of these activities, it is necessary to obtain a licence from the Capital Market and Financial
Institution Supervisory Agency (Bapepam-LK). Brokerage fees for buying or selling are variable, up to a
maximum of 1% of traded value. There are no market-makers or specialists in individual securities. As of July
2012 a total of 119 brokerages were listed as active on the IDX. Trading hours are 9.30 am to 12.00 pm (with
pre-opening starting at 9.10 am) and 1.30 pm to 4 pm. On Fridays the morning session ends at 11.30 am while
the afternoon session starts at 2 pm. The standard amount by which stock prices are allowed to fluctuate (the
step value) ranges from Rp1 (for stocks priced under Rp200) to Rp50 (for stocks priced Rp5,000 or more); the
maximum amount by which one trade is allowed to differ from the previous trade stands at ten times the step
value. Trades in the regular and cash markets are subject to transaction fees of 0.03% of the trade's value and
guarantee fund fees of 0.01% of this value. Trades conducted in the negotiated market (where two sides agree
on price and volume) are not liable for guarantee fund fees. The automated, and scripless, trading systems also
have led to more efficient clearing and settlement procedures under the management of the Indonesian
Clearing &Guarantee Corporation (Kliring &Penjaminan Efek Indonesia-KPEI). KPEI introduced an updated
electronic-settlement system in October 1999. Transactions in the regular market must be settled by the third
exchange day after the trade (T+3), and transactions in the cash market must be settled the same day (T+0).
Trades in the negotiated market are settled based on an agreement between the two parties, not to exceed
T+3. Trading through the IDX operates as follows: a bid or order is first submitted to the exchange, then posted
on the respective board representing the company whose securities are to be traded. The transaction must then
be registered with the IDX, and the buying broker must issue a transaction note specifying the details of the
transaction and the names of the seller and the buyer involved. This notice must then be submitted to the buyer,
the seller and the IDX. Major banks and most large brokerages provide custodian services. Trading is broadly
divided into regular trading for shares and bonds (that is, in a continuous auction market) and nonregular trading

(that is, trading based on direct negotiation between exchange members). For the latter, there are separate
boards for block trading large-scale transactions of at least 200,000 shares, for odd-lot trading of shares in lots
below the standard 500-share trading units and for crossing those buying and selling orders with the same price
and number of shares. Margin trading is recognised by the IDX, but short-selling is not officially recognised.
One of the most important changes in trading practices in recent years has been the tremendous proliferation in
online trading activity, in particular by eTrading Securities. In 2011 this brokerage became the largest broker by
trading volume (though only the ninth-largest in terms of trading value). Most other brokerages also offer
internet-based trading systems. Tax consequences. Capital gains from securities are taxable as ordinary
income in Indonesia; capital losses are tax deductible. In addition, both companies and individuals are liable for
a tax of 0.1% of transaction value on the sale of shares listed on the IDX. Medium- and long-term
instruments/regulations: Corporate governance At the core of Indonesia's economy lie several huge family-
owned conglomerates and state-owned enterprises that control assets worth about 40% of GDP. This situation
has been blamed for lax local standards of transparency and corporate governance. Meanwhile, standards in
public governance, law enforcement and regulations also remain lacking. Still, by July 2012 nearly all listed
companies had introduced corporate governance codes. Partly, this has been due to pressures from overseas
investors, as by July 2012 nearly 1,000 (mostly institutional) investors, with combined funds of over US$30trn
under management at that time, had endorsed the UN Principles for Responsible Investment (2006). These
guidelines require managers to take environmental, social and governance issues into account when investing
in companies, wherever these are located or traded. Hence, firms with strong standards may find it easier to
attract investors. Corporate governance requirements for companies are covered in two separate regulatory
frameworks: the Limited Liability Companies Law 40/2007, passed in August 2007, and regulations issued by
the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK). The Companies Law applies to
all limited-liability companies established under Indonesian law, and the capital-market regulations apply to
"public companies" as defined in the Capital Market Law (Law 8/1995). A public company is a company that has
shares held by at least 300 persons and paid-in capital of Rp3bn. Bapepam-LK's regulations are guided by the
principles laid out in the Indonesian Code of Good Corporate Governance, published in 2001 (and last updated
in 2006) by the National Committee on Governance (Komite Nasional Kebijakan Governance-KNKG). The
KNKG was established by the government in 1999 and aims not only "to propagate the acceptance and
application of good corporate governance principles nationwide" but also, rather ambitiously, to "establish
Indonesia's reputation as a country where high standards of corporate governance are firmly embedded
throughout the economy in public and corporate administrations." It also issues indicators regarding standards
of public and corporate governance, as well as regulations regarding whistleblowers. The KNKG, in co-
operation with other entities, has established an annual reward for best annual report issued by an Indonesian
company; the 2011 award was issued to Garuda, the national airline. Law 40/2007, which replaced the
Indonesian Company Law of 1995, is the most important framework for present legislation on corporate
governance in Indonesia. Under this law, directors and commissioners represent the company, which is a
separate and legal entity. Additionally, the general meeting of shareholders has the power to approve or
disapprove the consolidation, merger, acquisition, bankruptcy and/or dissolution of the company and the
appointment and dismissal of commissioners and directors. The board of commissioners supervises and
advises the directors, carrying out, in good faith and with full responsibility, their duties in the best interests of
the company. They are empowered by law to suspend a director and must sign, together with the board of
directors, the company's annual report. The board of commissioners shares legal responsibility for misleading
financial statements, and all commissioners must disclose any personal or familial shareholding interests in any
company, including the dates that they acquire and dispose of such shares. The board of directors is fully
responsible for the management of the company. Both directors and board members are fully and personally
liable if they are at fault or guilty of neglect of the good faith/responsibility clause. The board of directors must

administer the company's books, prepare and submit to the general shareholders meeting an annual report and
annual financial statement as well as establish and maintain a register of shareholders and minutes of the
general shareholders meeting. All members of the board of directors must also disclose any personal or familial
shareholding interests in the company or in any other companies. Under present rules, a publicly listed
company is required to appoint a corporate secretary, who also acts as an investor-relations officer. The deeds
of establishment of each company containing the articles of association must be ratified, approved or accepted
by the minister of justice. Key provisions of Law 40/2007 include rules on company splits and new share
acquisitions, electronic shareholder meetings and the obligations of a sharia supervisory board for companies
with business subject to Islamic laws. The law also states that if the deed of incorporation is not submitted to the
Ministry of Justice for approval within 60 days of the deed's date, it will be deemed void, and the company under
the incorporation is legally dissolved. The other important stipulation of the law (Article 74) is that companies
engaging in business related to natural resources must perform, under the threat of legal sanctions, corporate
social responsibility. But this article is hard to enforce as the Ministry of Justice has yet to issue implementing
regulations that lend clarity in terms of which industries are subject to the law, what the sanctions are for
noncompliance, the measure and threshold of the requirement, as well as the consequences for corporate tax
liability. Under the rules and regulations issued by Bapepam-LK, a public company must disclose material
information through annual reports and financial statements in a timely, accurate, understandable and objective
manner. Each year, within five months of the closing of a company's books, the board of directors must submit
an annual report to a general meeting of shareholders. The report must contain (1) a consolidated balance
sheet and profit-and-loss statement for the preceding financial year, audited by a registered public accountant in
certain instances, and (2) a report on the condition and performance of the company. The report must also be
published in one newspaper, after approval by the general meeting of shareholders. Companies must take the
initiative to disclose not only matters required by law but also those of material importance to the decision-
making of institutional investors, shareholders, creditors and other stakeholders with respect to the company.
Commissioners and directors holding shares in the company and any other "insiders", as meant in the
elucidation of Article 95 of the Capital Market Law, must not take advantage of inside information in dealing with
those shares. Bank Indonesia (BI-the central bank) has taken measures to promote the implementation of good
corporate governance for commercial banks by issuing BI Regulation 8/4/PBI/2006. These measures include
enhanced roles for the board of commissioners and board of directors, and greater clarity in the definitions of
independent commissioner and independent parties. Lenders are supposed to comply fully with the Basel II
international banking practices by December 31st 2012. However, many salient parts of the accord do not apply
until 2015 and 2018. While Indonesia is a supporter of Basel II, like most other Asian countries, it will follow its
own roadmap to implementation. Several organisations attempt to raise the awareness of governance
standards. The most prominent of these are the Forum for Corporate Governance in Indonesia (FCGI, which
publishes booklets, organises training courses and visits companies); the Indonesian Institute for Corporate
Governance (IICG, which undertakes research on and assesses corporate governance practices); and the
Indonesian Society for Transparency (MTI, which aims to report on and eradicate corruption in Indonesia).
Regional integration is expected to raise corporate-governance standards, however slowly. The Association of
South-East Asian Nations (ASEAN), of which Indonesia is a founding member, is working toward establishing a
common market by 2015. This process will lead to the ten members increasingly adopting regional corporate-
governance standards, which are skewed toward those established by the more advanced members, such as
Malaysia and Singapore. However, there are no provisions to monitor or enforce compliance by member states
with less stringent regulations. Medium- and long-term instruments/regulations: Listing procedures The main
requirements for companies intending to list shares on the Main Board of the Indonesia Stock Exchange (IDX)
are (1) having limited-liability status and Indonesian domicile (perseroan terbatas-PT); (2) operating in the same
business for at least three consecutive years with operating profits; (3) having assets of at least Rp100bn; and

(4) having 100m shares or 35% of paid-in capital, whichever is a lesser amount, held by minority shareholders.
In addition, the public offering must be approved by Bapepam-LK, and the firm must have audited financial
statements provided by a public accountant registered with the Capital Market and Financial Institution
Supervisory Agency (Bapepam-LK). The firm must not have defaulted on debt payments. All listed companies
are required to maintain at least 1,000 shareholders. A company that wishes to list its shares must submit a
securities-registration statement to the exchange managers through a licensed underwriter. Required
documentation includes a draft prospectus, articles of association, financial forecasts and a statement of
confidence by the underwriter. A public issue takes 4-6 months to be listed. The IDX had planned to issue new
regulations on listing and initial public offerings (IPOs) in the second half of 2009, but had not implemented
these by July 2012. Key changes in the regulation would require companies to (1) sell 300m shares or 20% of
paid-in capital to the market during their IPO; (2) pay dividends at least once every three years; and (3) notify
IDX about any transactions that change the share ownership structure when engaging in "backdoor listing",
whereby a private company becomes a public firm by acquiring a publicly listed company. Another key tenet of
the proposed regulation is to toughen the IPO requirements for mining companies. Companies will now be
required to prove that they own at least one mining concession and have secured the relevant government
permits. Companies must also submit work plans and financial accounts that are approved by the relevant
government regulator. Finally, delayed exploration expenses must be included in the net value of the company
before an IPO can be conducted and the value of mineral resources must be subtracted from this valuation. The
IDX listed 24 mining companies at end-March 2010, with a market capitalisation of Rp324.2trn or about one-
seventh of the total market. In July 2000 the Jakarta Stock Exchange (JSX) was divided into two boards: the
Main Board and the Development Board. The distinction continues on the IDX. The Main Board remained the
home of large issuers with established track records. To list on the Development Board, companies must have
operated for 12 months and have assets of at least Rp5bn. They must satisfy thresholds of at least 500
shareholders and 50m shares. The Development Board is aimed at mining companies, internet start-ups and
biotechnology firms (though few exist in Indonesia). A company on the Main Board can fall to the Development
Board if it fails to maintain certain financial results, including assets of Rp100bn and at least one year's worth of
operating profits. The proposed regulation on listing procedures would also increase the registration fee to
Rp25m for both the Main and the Development boards from Rp15m and Rp10m, respectively. The Main Board
would then be for companies with 300m listed shares, while the Development Board would be for companies
with a minimum of 100m listed shares. Once listed, companies must provide the IDX with regular financial
statements and information that could affect the value of their securities or investment decisions. An annual
report audited by an accountant registered with Bapepam-LK must be submitted no later than three months
after the end of the firm's fiscal year. An unaudited mid-year report must be submitted no later than one month
after the end of the six-month period. An audited financial statement must be submitted no later than the end of
the second month. The requirements apply to both foreign and domestic firms. Penalties apply to companies
that fail to meet the reporting schedule. In December 2007 IDX launched an electronic reporting system for
listed entities, known as IDXnet (http://www.idxnet.co.id). The system is used by listed entities to submit all of
their reports and information disclosures to IDX, as well as for information dissemination from IDX. By June
2010 nearly all issuers were utilising IDXnet to transmit their information disclosures to the exchange.
Companies must inform Bapepam-LK of a variety of corporate events. These include acquisitions, amendments
to articles of association, changes in management, changes in the composition of the board of (executive)
directors and board of commissioners (supervisory directors), legal claims, mergers, replacement of the public
accountant, replacement of trustees, share dividends, share splits, as well as deviations from projects published
by the issuer. All listed companies have to employ a corporate secretary. The board of commissioners must
have at least one unaffiliated director. At least 30% of the directors must be independent. Issuers are required
to monitor the number of their securities in circulation and to track changes in ownership to prevent forging of

securities. Companies may be delisted if (1) they are liquidated or declared bankrupt; (2) they post losses for
four consecutive years; (3) their shares are not traded for nine months; (4) their financial report issues an
adverse warning in the last fiscal year; (5) they fail to provide a corporate plan on time; or (6) the number of
shareholders falls below 100 for six months. In July 2004 Bapepam-LK changed the rules for listing, requiring
companies to provide financial performance details according to their net tangible assets (defined as total
assets minus nonmonetary assets). It also provided voluntary delisting criteria, allowing a company to delist if it
has been on the exchange for five years, has approval from shareholders and is willing to buy back all of its
shares. Virtually all companies issue common shares, though different types may be issued as the market
develops. New firms must list all of their shares, including those held by their founders. Banks wishing to list
must obtain approval of Bank Indonesia (BI-the central bank) after meeting capital-adequacy and other
requirements. Initial listing fees are equal to 1% of capitalisation, but no less than Rp10m and no more than
Rp150m. Annual listing fees are equal to 0.5% of capitalisation, but no less than Rp5m and no more than
Rp100m. As they stand, registration fees for the Main and Development boards are Rp15m and Rp10m,
respectively. Registration fees are deductible from initial listing fees. Tax consequences. A premium gained by a
company on the issue of shares is not subject to income tax. It can be converted at a later date through the
issue of bonus shares or share dividends and distributed to shareholders without charge. Such dividends to
shareholders are not subject to income tax. Sales of rights issues are subject to income tax on capital gains and
securities-transaction fees. Founder shares are subject to a final tax of 0.5% on the share value at the time of
an IPO, regardless of whether they are held or sold following the offering. All other share transactions are
subject to 0.1% tax. Listed firms are eligible for a reduction of 5 percentage points of corporate income taxes.
Medium- and long-term instruments/regulations: Recent initial public offeri In 2011 the Indonesia Stock
Exchange (IDX) welcomed a record 25 initial public offerings (IPOs), which raised a combined Rp19.60trn; this
compares with Rp29.63trn raised from 23 IPOs in 2010. In the first six months of 2012, the IDX saw only four
IPOs, which raised a combined Rp989.55bn. At the start of 2012, the IDX had expected 25 companies to launch
IPOs during the year, though by May 2012 analysts were forecasting a total of around 15 IPOs as more
companies opt for the bond market when raising funds. Industrial estate developer Bekasi Fajar Industrial
Estate raised Rp300.05bn in April 2012 by selling 1.765bn shares at Rp170 each. The shares were listed on the
Main Board of the IDX on April 10th 2012. The company said it would use the proceeds from the IPO for
working capital and to fund land acquisitions in West Cikarang in West Java province, the site of its flagship
estates. According to Ciptadana Securities, the sole underwriter of the IPO, 90% of Bekasi Fajar's shares were
bought by domestic institutional investors and the remaining 10% by domestic retail investors. Foreign investors
were said to be relatively uninterested because of the IPO's small size. Bekasi Fajar also issued 882.5m
warrants at Rp200 apiece. TiPhone Mobile Indonesia, a manufacturer and distributor of mobile phones, listed its
shares on the Main Board of the IDX on January 12th 2012 after selling 1.35bn shares at Rp310 each to raise
Rp418.50bn. According to the firm, nearly 90% of the proceeds from the IPO (which was the largest in the first
five months of 2012) will go towards paying off debt incurred by its four subsidiaries, with the remainder to be
used for working capital. TiPhone had planned to sell around 2bn shares but reduced its offering due to
"unpredictable" market conditions. Still, the issue was four times oversubscribed, with strong demand from
foreign investors, but no greenshoe option (the offering of extra shares in case the offering is oversubscribed)
was included in the IPO. Coal miner Atlas Resources raised Rp975.0bn by selling 650m shares at Rp1,500
each in late October and early November 2011. The firm's shares were listed on the IDX's Development Board
on November 8th 2011. One of Atlas's underwriters, UBS Securities Indonesia, reported that 92% of the shares
offered in the IPO were bought by institutional investors, with 10% of the offering being taken up by Noble
Group (Hong Kong), Asia's largest trading company. Atlas said it planned to spend 60% of the IPO proceeds on
the expansion and upgrading of its new production site on Sumatra Island, while the remaining 40% was
earmarked for working capital as well as for increasing Atlas's ownership stakes in some of its 18 subsidiaries,

and for compensation for the restructuring of coal delivery contracts signed prior to the IPO with Noble Group.
Golden Energy Mines, another coal miner, raised Rp2.21trn in late October and early November 2011 after
selling 882.35m shares at Rp2,500 each. The firm listed on the IDX's Main Board on November 17th 2001. The
company is a unit of IDX-listed energy and infrastructure firm Dian Swastatika Sentosa (itself a subsidiary of the
Sinar Mas Group), which saw its ownership in Golden Energy reduced to 85% following the IPO. The company
said it would use the proceeds for working capital, to expand its ten mining sites and to fund its subsidiary.
About 10% of the proceeds were earmarked to pay off debt. The IPO was delayed several times in 2011 due to
doubts over the firm's valuation and whether it would be able to enlist a strategic partner to develop its coal
mines. In August 2011 Golden Energy did indeed secure a strategic partnership with GMR Infrastructure (India),
which not only purchased about 80% of the shares offered in the IPO, but also acquired another 18% of the firm
through a private placement following the IPO. In another offering by a natural-resources company in late 2011,
mining and energy firm ABM Investama in late November and early December 2011 sold 550.63m shares at
Rp3,750 each to raise Rp2.06trn. ABM listed on the IDX's Main Board on December 6th 2011. ABM said it
would use 66% of the raised funds to support the expansion efforts of its five subsidiaries (coal production
company Reswara Minergi Hartama, contract mining company Cipta Kridatama, integrated logistics company
Cipta Krida Bahari, power solutions company Sumberdaya Sewatama and engineering services company
Sanggar Sarana Baja). Another 27% of the proceeds were allocated to repay debt, while the remaining 7%
would be used as working capital. In a much smaller offering, broadcaster Visi Media Asia, a unit of the Bakrie
Group, Indonesia's largest conglomerate, raised Rp500.10bn in November 2011. The company, also known as
Viva, sold 1.67bn shares at Rp300 each before listing on the IDX's Main Board on November 21st 2011. Viva
said that it would use about 60% of the proceeds to create more television channels, including a 24-hour sports
channel and websites to target the country's growing middle class. The remaining amount was earmarked for
paying off debt. Following the largest IPO of 2011, the national airline Garuda Indonesia listed its shares on the
IDX's Main Board on February 11th 2011. After a very tepid response to the offering, Garuda managed to raise
Rp4.75trn, or only about half of the amount it was targeting, after selling 6.34bn shares at Rp750 each.
However, the three (state-owned) underwriters of the issue-Mandiri Sekuritas, Danareksa Sekuritas and
Bahana Sekuritas-had to absorb nearly 40% of the issue due to weak demand. Only in late April 2012 did the
underwriters manage to offload their shares, to another Indonesian airline, Trans Airways, at a 17.3% discount
to Garuda's IPO price. (Garuda shares had been trading under their IPO price since their listing.) Once-troubled
Garuda has earmarked the proceeds to introduce safety, maintenance and management infrastructure, while
refitting and expanding its fleet. Medium- and long-term instruments/regulations: Underwritten offerings There
are no particular rules on underwritten offerings. A combination of local and foreign underwriters handles most
listings; these underwriters are responsible for the prospectus and other documentation. Fees for underwriting
offerings are negotiated on a case-by-case basis; due to fierce competition, the fees dropped to about 1% of the
emission's value by early 2012 (compared with up to 3% before the 2008-09 economic downturn). The
Association of Indonesian Securities Companies in mid-2011 suggested the Capital Market and Financial
Institution Supervisory Agency (Bapepam-LK) set minimum fees at 2%, in line with the regional average, but the
agency had not done so by July 2012. Tax consequences. A premium gained by a company on the issue of
shares is not subject to income tax. It can be converted at a later date through the issue of bonus shares or
share dividends and distributed to shareholders without charge. Such dividends to shareholders are not subject
to income tax. Medium- and long-term instruments/regulations: Rights offerings Tracing the record number of
the initial public offerings launched on the Indonesia Stock Exchange (IDX) in 2011, a total of 24 companies
issued rights offerings in 2011, raising Rp27.9trn in capital. In comparison, 27 companies raised Rp38.6trn in
2010. In the first quarter of 2012 only three companies issued rights offerings, raising Rp3.6trn. Trading in rights
certificates, on a special board and on cash-and-carry terms, may take place during a period determined by the
IDX. Rights certificates for trading should be issued in denominations that permit the holder to buy one round lot

of shares. A share split (to issue new shares) by publicly listed companies may not cause share value to drop
below Rp500. Publicly listed banks are exempt from the regulation, since their share prices are usually below
that level. Trade in rights certificates reached Rp514.0bn in 2011, up sharply from the Rp335.8bn recorded in
2010. Warrants were introduced in 1995, although, as with convertible bonds, companies may not issue them
unless they are offered to existing equity shareholders on a pre-emptive basis. Consequently, warrants tend to
be used as "sweeteners" for rights offerings. Trade in warrants reached Rp5.4trn in 2011, slightly more than the
Rp5.3trn recorded in the previous year. Foreign-owned and domestic firms get equal treatment in offerings of
rights and warrants. Underwriting fees on rights issues are not subject to regulation. Tax consequences. Sales
of rights issues are subject to tax on capital gains and to securities-transaction fees. Medium- and long-term
instruments/regulations: Private placements Many foreign brokers have arranged private placements in recent
years, since Indonesia has no regulatory restrictions on the resale of private securities. Obstacles to private
placements include lack of recognition, tax discrimination, lack of full disclosure, cost to issuers and lack of
flexibility. The Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) does not make data
regarding private placements available. Tax consequences. A premium gained by a company on the issue of
shares is not subject to income tax. Medium- and long-term instruments/regulations: GDRs/ADRs Overseas
listings are uncommon among Indonesian companies but have been used by telecommunications groups as a
means of gaining access to technology markets. As of July 2012, only three companies-telecommunications
firms Indosat, Pasifik Satelit and Telekomunikasi-had issued American Depositary Receipts (ADRs). Only
investment company Medco Energi had issued Global Depositary Receipts (GDRs) at that time. However,
unsponsored ADRs of another 41 Indonesian firms, mainly in the banking and natural resources sectors, also
were traded at that time; these instruments are issued by depositary banks and require no involvement from the
companies whose stock the ADRs represents. There is no cap on aggregate GDR or ADR issuance. Custodian
services are offered by the larger commercial banks. Tax consequences. There are no special tax issues
related to the issuance of GDRs or ADRs; costs incurred by companies issuing such instruments are treated as
business expenses. Medium- and long-term instruments/regulations: Alternative markets There are no other
legal ways to tap or trade in equity markets in Indonesia. As of July 2012, the authorities did not have plans to
license other bourses besides the Indonesia Stock Exchange. Tax consequences. Not applicable. Medium- and
long-term instruments/regulations: Bank loans Medium-term (one- to three-year) financing arrangements have
been less difficult to obtain, though long-term financing deals are accessible only to a select few Indonesian
companies. Collateral is required, for which shares may be used. Loans obtained abroad from foreign banks
were popular in the early and mid-1990s, but have been rare since the Asian financial crisis of 1997-98.
Foreign banks are required to notify Bank Indonesia (BI-the central bank) of any syndicated-loan arrangements.
Very few domestic companies are able to secure such facilities anyways, though coal miner Atlas Resources
arranged a US$95m syndicated loan from Bank Permata, Bank Danamon and Bank DBS Indonesia in late
2011. The government caps the level of foreign borrowing that state and private banks may take on for lending
to domestic clients. There are no restrictions on direct foreign commercial borrowing offshore by domestic firms,
but such loans must be reported. Mortgage loans are available from many commercial banks and continue to
increase, albeit from a very small base. The rates on private and state banks' mortgages for commercial use
have fluctuated greatly, with maturity terms varying by project. Tax consequences. Interest paid on borrowing in
the form of bank loans and corporate bonds is deductible from corporate income as a business expense.
Foreign-exchange losses on borrowing, if applicable, also are deductible. The accretion concept of income was
adopted in the overhaul of the tax system in 1984. All forms of income under this concept are treated as
ordinary income and are, after deductions, taxed at the same progressive tax rates.

Medium- and long-term instruments/regulations: Financial leasing Leasing facilities, including sale-and-
leaseback arrangements, are available for the normal range of equipment, vehicle fleets and the like. Leasing
contracts may be denominated in rupiah or dollars. Vehicles and plant machinery represent about two-thirds of
the total value of financial-leasing contracts, many of which are provided by multifinance companies. Typical
rates charged on leasing contracts are 1 to 2 percentage points above comparable bank lending rates. The
maximum contract term usually is three years, though it may be longer for durable assets. Tax consequences.
The interest and principal payments on leasing contracts are tax deductible. Companies may have to pay
income tax on the residual value of any depreciated assets that they sell and lease back. Medium- and long-
term instruments/regulations: Corporate bond issues The Indonesian bond market, which is based at the
Indonesia Stock Exchange (IDX), has expanded markedly in recent years as more companies are considered
creditworthy enough to issue paper. In 2011, a total of 37 companies raised a combined Rp45.7trn in the
primary market, compared to 29 issuers raising Rp35.4trn in 2010. Analysts predict bond issues to reach about
Rp55trn in 2012; by end-May 2012 authorities had approved bond issues worth a combined Rp27.2trn. By end-
June 2012, the amount of corporate bonds outstanding stood at Rp166.2trn, while government bonds worth
Rp791.2trn also were listed on the exchange. In December 2006 the Capital Market and Financial Institution
Supervisory Agency (Bapepam-LK) issued new rules to improve transparency in the corporate-bond markets.
The rules specify that corporate-bond issuers must grant greater access to authorities, rating agencies and
investors on their bond ratings and other bond-related information. Generally, there are no restrictions to foreign
and domestic investments for corporate bonds. Bapepam-LK issued a regulation in December 2002 that
allowed Indonesian companies to sell and list foreign-currency-denominated debt in the domestic market.
Nevertheless, most companies continue to sell foreign-currency-denominated debt (mainly in US dollars and
euros) in London and Singapore. Bond maturities, on average, are 5-10 years. Regulations require a debt
instrument classified as a bond to have a maturity of at least three years. A full open-quote, fixed-income
securities market for listed bonds was launched in April 1997. There is no tax levied on transactions. The
majority of bond purchasers are long-term investors with no intention of reselling their bonds on the secondary
market, although trading has been expanding in recent years. Average daily turnover of corporate bonds on the
secondary market reached only Rp511.7bn in 2011, though this was still higher than the Rp367.4bn recorded in
2010. Turnover value increased to a daily average of Rp638.4bn in the first quarter of 2012. In essence, only
high-quality corporate paper is traded. Trade is more active in government bonds, with average daily turnover

on the secondary market reaching Rp8.0trn in 2011, compared with R5.9trn the previous year, and increased
further to Rp9.1trn in the first quarter of 2012. The Indonesia Bond Pricing Agency, established in late 2008 but
only effectively launched in October 2009, publishes bond prices and a yield curve, in an attempt to provide a
more transparent pricing mechanism and thereby enhance the secondary market. Guarantees may be available
through the Credit Guarantee and Investment Facility, which was established in November 2010 by the Asian
Development Bank, the Association of South-East Asian Nations (of which Malaysia is one of ten members),
China, Japan and South Korea. The facility, initially funded with US$700m, provides guarantees on local-
currency-denominated bonds issued by companies in these 13 countries. Such guarantees are expected to
make it easier for firms to issue local bonds with longer maturities, as well as facilitate crossborder listings. The
establishment of Indonesia's first credit-rating agency in 1994 helped buttress the secondary market by
providing investors with important data necessary to evaluate bonds after issuance. The agency, Credit Rating
Indonesia (Pemeringkat Efek Indonesia-Pefindo), was formed by Bank Indonesia (BI-the central bank) and
Bapepam-LK. It is owned by 100 domestic institutional shareholders, including major pension funds, banks,
insurers, IDX and securities companies. Pefindo is allied with Standard &Poor's Rating Services (US).
Transaction settlement is conducted two days after the trading day (T+2). For corporate bonds, the Indonesian
Central Securities Depository (Kustodian Sentral Efek Indonesia-KSEI) performs the role of central registry and
handles securities settlement. As Law 24/2002 stipulates, BI is responsible for the administration of government
securities in the primary and secondary markets. This responsibility includes ownership registration, clearing
and settlement, and payment of interest and principal to the paying agent. Convertibles. A ruling issued by
Bapepam-LK in 1992 has made it much harder to raise public funds through convertible bonds. The ruling
requires companies issuing any form of equity security to offer the issue first to existing public shareholders. A
firm launching a convertible bond must get each individual shareholder to waive his or her right to the issue
before the company can proceed. Convertible bonds take six months to issue under this rule-compared with the
previous five-week period from mandate to completion-making these bonds unattractive. Bapepam-LK has
formulated regulations for warrants attachable to both convertible and regular bonds. Zero-coupon bonds have
also appeared in the market and two such instruments were listed at end-2011. Plans to unveil more zero-
coupon bonds in the sukuk market in 2011 and early 2012 were dealt a blow when Indonesian religious
scholars deemed them not to be sharia-compliant because the debt is sold at a discount. This is not the case in
Malaysia, where zero-coupon bonds are considered sharia compliant. Listing requirements. The listing
requirements for bonds are similar to those for shares, though issuing bonds (apart from convertible bonds) is
easier and cheaper. The main requirements for listing are that (1) the minimum nominal value of bonds to be
listed must equal Rp25bn; (2) the company must have been in operation for at least three years; and (3) during
the previous two fiscal years, the company must have had an operational income and no loss balance in its
most recent financial statement. A registration statement must be approved by Bapepam-LK, and a financial
statement audited by a public accountant must be registered with Bapepam-LK. In addition, issuers are obliged
to obtain a rating from Pefindo. The period from the effective date of the registration statement to application for
listing may not exceed six months. The annual listing fee for bonds is equal to the initial listing fee, at 0.022-
0.025% of nominal value and subject to a minimum of Rp10m and a maximum of Rp150m for each issue. A
prospectus must be submitted to Bapepam-LK. The commission/fee for issuing debentures is typically 1-2%.
Foreign companies also may issue debt on the domestic bond market. In July 2005, for example, Pam
Lyonnaise Jaya, a subsidiary of Suez (France), issued Rp550bn in notes with maturities of 2-7 years. Though
rare, the practice can be used to hedge against foreign-exchange risk and to fulfil local-currency requirements
without accessing the foreign-exchange markets. Conversely, local companies may issue foreign-currency
denominated debt in the local market. Medco Energi, for instance, issued US$80m worth of debt in October
2011; the oil company plans to issue debt denominated in Singapore dollars and Chinese renminbi in the
second half of 2012 or in 2013. Bonds may be underwritten by any licensed securities firm, including foreign

securities firms. The IDX permits all its member securities companies to trade in bonds. There are no
restrictions on foreign issuers or investors in corporate-bond markets. Tax consequences. A 20% final
withholding tax applies on gross interest payments on bonds. The withholding tax may be different under the
provisions of any applicable income tax treaty Indonesia has with another country; under the US-Indonesia tax
treaty, for instance, the withholding tax rate is 10%. In January 2010 a new rule to prevent tax evasion came
into effect, which requires more detailed information from bond issuers to determine whether they are entitled to
withholding tax rates below the standard rate of 20%. Borrowers setting up an offshore unit in a jurisdiction with
a lower tax rate and with a double taxation treaty with Indonesia need to prove that the unit was not set up only
for the purpose of reducing taxes. This new regulation applies to both new and existing issuers. Medium- and
long-term instruments/regulations: Private placement of notes The private placement of longer-term securities is
not uncommon, but it occurs mostly among unlisted local firms. Indonesian companies with no foreign equity
are termed perusahaan modal dalam negeri (PMDN) companies, or domestic investment companies; joint-
venture and foreign firms are termed perusahaan modal asing (PMA) companies. If a PMDN company
competes with a PMA company for a government licence, the PMDN firm will probably be favoured. PMDN
companies lose their favoured status upon listing. The private placement of convertible bonds of PMDN firms
allows such firms to raise foreign funds before listing without losing either equity or their PMDN status. These
convertible bonds, purchased mostly by foreign investors, contain a clause stating that the company promises
to go public within a set time, at which point the foreign holders of the bonds can convert and legally take equity
in the company. If the company fails to go public, bondholders may invoke penalty clauses giving them an
annual return on their capital, typically 30%. At times, convertible bonds of this type, or pre-initial public offering
convertibles, can be very profitable for investors. Securities firms act as intermediaries for private placements.
No statistics are kept on these securities. Tax consequences. There are no special taxes levied on the private
placement of notes. Medium- and long-term instruments/regulations: Structured finance Indonesia's structured-
finance market showed some promise in the early and mid-1990s following several vehicle-lease receivables
and crossborder securitisation deals. But the economic crisis of 1997-98 put the brakes on further development
and, apart from two remarkable deals, the market has been largely inactive since. However, analysts forecast
several securitisations to be announced in the second half of 2012 or in early 2013, as the pool of potential
underlying assets for such deals has increased strongly in recent years. New issues likely will feature
securitisations of vehicle loans and commercial real-estate leases, followed by residential mortgages. But
disadvantageous tax regulations will limit the market's expansion. The most remarkable deal following the 1997-
98 crisis came in July 2005 with a US$600m crossborder securitisation that won the "SE Asia Structured
Finance &Securitisation Deal of the Year" award by Asian Legal Business. Ten international and local firms
were involved in the issue of US$600m of structured notes by IndoCoal Exports (Cayman). Subsequently, in
June 2006 Credit Suisse arranged the issue and sale by IndoCoal Exports of US$800m in structured notes.
This deal was the largest-ever securitisation in South-east Asia and the largest fund-raising by an Indonesian
company without an offshore guarantor since the Asian financial crisis in 1997. On February 12th 2009 state-
owned Danareksa Investment Management listed the first securitised bonds on the Indonesia Stock Exchange
(IDX). The issue is a securitisation of an Rp111.1bn pool of residential mortgages held by state-owned Bank
Tabungan Negara. It marked the first time that mortgages of any kind had been securitised in Indonesia. This
asset-backed security is listed with a size of Rp100bn. It has a maturity of nine years, carries a 13% annual
interest rate, and a quarterly coupon payment. It has received a triple A (with stable outlook) rating from
Moody's Indonesia rating service. On November 11th 2009 Danareksa listed another tranche of this mortgage-
backed securitisation programme on the IDX. This Rp360bn issue consists of amortising notes, which pay a
coupon of 11% per year on a quarterly basis, along with any amortisation due on principal. Another Rp31bn
tranche was privately placed on the same date and not listed on the IDX. Danareksa issued Rp689bn worth of
nine-year paper (with a coupon of 9.25%) under this programme on December 29th 2010 and another Rp645bn

of ten-year paper (carrying a coupon of 8.75%) on November 17th 2011. As of July 2012 these four asset-
backed securities issues remained the only such issues listed on the IDX; these had a combined market
capitalisation of Rp1.3trn at that time. Medium- and long-term instruments/regulations: Infrastructure financing
Indonesia's crumbling and inadequate infrastructure is a high-priority area for the government, which on May
27th 2011 launched its Masterplan for Acceleration and Expansion of Indonesian Economic Development
(MP3EI) programme. The scheme calls for Rp475trn in infrastructure investments in 2011-25; as of May 2012
ground had been broken on 153 MP3EI projects. Though most projects will be funded by various government
entities and state-owned enterprises, public-private partnerships (PPPs) play an important role as well. Also in
May 2011, the Ministry of Finance announced that it would set aside 10% of the state budget over the next five
years for infrastructure development, mostly benefiting MP3EI projects. The Indonesia Infrastructure Guarantee
Fund (Penjaminan Infrastruktur Indonesia-PII) was established on December 30th 2009 to provide guarantees
for infrastructure projects developed through PPPs; it had guaranteed 12 projects by June 2012. During 2010-
14, Indonesia plans to develop some 100 projects through PPPs, including the US$10bn, 29-km Sunda Strait
bridge connecting Java and Sumatra. However, there was tepid response from foreign investors and
contractors during an infrastructure-investment conference in November 2010. The government set up the PII
with Rp1trn in initial capital. On May 11th 2010 this was expanded with Rp1.3bn from the Singapore-based
Temasek Foundation. In May 2010 the World Bank committed to guarantee up to US$500m worth of projects
supported by the company. The PII provides guarantees to the private sector against risks arising from
government actions, specifically those of contracting agencies (such as ministries, state-owned enterprises and
regional governments), including coverage against land acquisition delay/failure, permits delay/failure, change
in law, breach of contract and termination. Guarantees can be extended at any point during pre-construction,
construction and/or operations. Eventually, the PII is expected to become the government's "one-stop shop" for
infrastructure projects and will be responsible for evaluating the projects, structuring the guarantee and
processing any claims to ensure transparency and consistency of the projects. Pursuant to Regulations No.
66/2007 and No. 75/2008, the government on February 26th 2009 established the Sarana Multi Infrastruktur
(SMI) with the task of accelerating infrastructure development in Indonesia. SMI promotes PPPs in financing
various infrastructure projects and aims to provide alternative sources of project financing. The Rp1.6trn
Indonesia Infrastructure Finance (IIF) fund was established under the SMI on January 15th 2010 with the Asian
Development Bank, the International Finance Corp and the Deutsche Investitions-und Entwicklungsgesellschaft
as other shareholders. It provides funding for commercially feasible, mainly private, infrastructure projects
through debt instruments, equity participation or infrastructure financing guarantees for credit enhancement. By
end-December 2011 IIF had provided (co-)financing and/or guarantees for Rp1.2trn worth of projects, mainly in
the power-generating sector. Government regulations regarding PPPs can be downloaded from the websites of
Bank Indonesia, the central bank (http://www.bi.go.id) and the Ministry of Economic Affairs
(http://www.ekon.go.id). Previously, large infrastructure projects had typically allied an important local company
with foreign partners and overseas financing. Financial institutions from Europe, Japan and the US have played
important roles in extending credit for ports, power plants, roads and telecommunications projects. Foreign
investments in infrastructure must be made through a joint-venture company, with the Indonesian partner
controlling at least 5% of equity. No divestiture requirements apply. Joint-venture projects are typically financed
by long-term debt. To promote risk sharing in PPPs, the government issued Presidential Regulation 67/2005 in
November 2005, which mitigates sovereign risk for investors. It also reduces price risk via a mechanism for
biannual tariff adjustments in line with inflation. On May 2nd 2012 the Association of South-East Asian Nations
(ASEAN, of which Indonesia is one of ten members) launched the ASEAN Infrastructure Fund. Under the
scheme, member states can tap the fund to finance domestic infrastructure plans, with the Asian Development
Bank (ADB) acting as a co-financier and/or guarantor for bond issues. The fund is being set up with an initial
equity contribution of US$485.2m, of which US$335.2m came from ASEAN members and the remaining

US$150m provided by the ADB. The fund's total lending commitment through to 2020 is forecast to be about
US$4bn. With projected 70% co-financing by ADB, it is expected to lead to more than US$13bn in infrastructure
financing by 2020. Indonesia is the second-largest ASEAN contributor (after Malaysia) with a US$120m equity
investment. The fund is based in Malaysia as a limited liability company. As of July 2012 authorities were
considering the establishment of a dedicated infrastructure bank which would fund, mainly, projects approved
under the MP3EI programme, but no timeline was made available. Syndicated loans to fund large infrastructure
projects are quite common. In May 2012, for example, Transmarga Jatim Pasuruan, a subsidiary of state toll-
road operator Jasa Marga, sourced a Rp1.9trn syndicated-loan facility from Bank Mandiri, Bank Negara
Indonesia, Bank Rakyat Indonesia and Bank Jatim to partially finance the development of a 34-km toll road in
East Java. The Ministry of State-Owned Enterprises had planned to introduce a fund-pooling scheme to finance
infrastructure projects, but this State-Owned Enterprise Fund was scrapped in late 2010 as it contravened legal
provisions. Government efforts to improve infrastructure remain beset by delays. Bureaucratic inefficiency is
often compounded by delays in obtaining local approval for projects. In addition, officials in the Ministry of Public
Works and the National Land Agency are unable to carry out vital land acquisition processes owing to capacity
constraints and conflicts of interest. In particular, numerous toll-road projects are experiencing delays due to
problematic land acquisition. A long-delayed Land Acquisition Law to empower the government to proceed with
projects despite disputes arising from a minority of landholders in a given area was passed by parliament on
December 16th 2011 and is expected to take effect by end-July 2012. The government consigns money for land
purchases to the courts, pending the resolution of disputes. In addition, the government has decided to
outsource the function of appraising land to professional external consulting firms; according to the new law, this
valuation process must be completed within 30 days. Resolution of these land issues is expected to lead to a
boom in toll roads, reduce bottlenecks and create new construction jobs. Medium- and long-term
instruments/regulations: Trade financing and insuranc Trade financing, like other forms of credit, can become
very scarce during times of political volatility or economic turmoil. State-owned Indonesia Export Credit Agency
(Asuransi Ekspor Indonesia-ASEI) is the leading source of export insurance. ASEI's net profit grew by 41% in
2011 to Rp67.84bn from Rp48.12bn in 2010. At end-2011, its assets stood at Rp967.46bn, up from Rp803.25bn
a year earlier. Another state-owned institution, Indonesia Eximbank (Lembaga Pembiayaan Ekspor Indonesia-
LPEI), which replaced Bank Ekspor Indonesia in January 2009, provides credit to finance exporters and
importers. LPEI's net profits soared by 135.4% in 2011 to Rp460.64bn from Rp195.65bn in 2010. At end-2011,
its assets stood at Rp26.32trn, up 27.5% from Rp20.64trn a year earlier. Export-insurance programmes. ASEI is
the main source of export insurance for all products other than oil and gas. ASEI offers policies for
comprehensive shipment, comprehensive contract, political risk, letters of credit (L/C), consignment, client-
specific contract, and services and bond guarantee. ASEI offers policies of up to one year and indemnifies the
exporter for as much as 85% of actual loss; the exporter bears the remaining 15% risk. Credit limits reflect the
assessed creditworthiness of the foreign buyer and the situation prevailing in the country of destination.
Premiums for ASEI's comprehensive policy range from 0.2% (for a short-term irrevocable L/C for shipments to
the US, Australia, Europe and Japan) to 4% (for a one-year L/C to several high-risk countries) of the gross
invoice. The rate reflects country risk, the presence of payment security (or lack thereof) and the period of
credit. Covered commercial risks include the importer's or foreign buyer's insolvency; failure of the importer to
pay for goods that have been sent and approved by the buyer within six months of the due date of payment;
and failure or refusal by the importer to accept goods that have already been exported, where the refusal is not
excused by and does not relate to any breach of contract by the exporter. Covered noncommercial risks include
anything that prevents or delays payment transfer into Indonesia; imposition of any decree that restricts or
controls payment of imports; cancellation of an import licence; occurrence of war between the importer's country
and Indonesia; and war, or other similar disturbance, in the importer's country. Risks that are not covered
include losses owing to the exporter's negligence or failure to comply with contract or policy terms; losses that

can be covered by a general-loss insurance policy (marine transport, fire, theft and others); losses caused by
negligence or default of the exporter's agent or collecting bank; and losses arising from fluctuations in foreign-
exchange rates. ASEI offers two kinds of credit guarantees. One provides a guarantee against risks of payment
default by the exporter on credit granted by banks or other financial institutions. The other provides a guarantee
for credit beyond the maximum legal lending limit of an individual commercial bank. ASEI also offers various
types of surety bonds as well as general (non-life) insurance products. Official export-credit programmes.
Indonesia Eximbank was legally established in January 2009 to replace the state-owned Bank Ekspor Indonesia
(BEI), which was established in September 1999. In December 2008 parliament passed Law 44/2008
converting BEI into Eximbank, an institution with sovereign status and unencumbered by banking regulations
that had prevented firms (including many exporters) with bad debts from applying for credit. Eximbank was
capitalised with Rp4trn, apart from which it is responsible for its own funding. Eximbank is responsible for the
execution of government priorities and initiatives on export financing in strategic regions and industries. The
Ministry of Finance appoints the bank's chairman and board of directors. Eximbank plans to increase its export
credit financing by 19% in 2012, to Rp24.4trn, from a total of Rp20.5trn in 2011. In order to reach that target, the
bank in May 2012 issued US$500m worth of medium-term notes. Eximbank provides various forms of trade
financing, including a buyer's credit scheme (for a maximum of one year and up to 85% of the value of imported
goods); the issuance of L/C and trust receipts; export working capital loans; and warehouse receipt financing. A
number of these products also are available on a shariah-compliant basis. Financing may be available in US
dollars or other foreign currencies. Domestically registered subsidiaries of foreign companies usually are eligible
for the export-credit programmes. Private export-financing techniques. Large banks extend export facilities
cautiously, though packing credits (of usually up to three months) are easier to arrange and may carry lower
interest charges than overdrafts. However, strong export-directed companies experience no difficulty in
attracting loans from banks to fund general operations. Import credit. Loans to finance imports are becoming
more easily available, but may be expensive because of foreign-exchange risks. Nevertheless, all registered
foreign-exchange banks and their overseas branches arrange stand-by L/C that are internationally guaranteed.
Forms of payment other than L/C require mutual agreement between importer and exporter. Foreign banks
such as HSBC (UK) offer a range of import financing options, such as endorsing bills of exchange. HSBC also
offers an import financing facility to small enterprises, with credits limited to US$250,000 (or its equivalent).
Under a facility of the Japan Bank for International Co-operation, Eximbank will offer credit from Indonesian
commercial banks to finance the import of raw materials for exporting firms, in co-operation with 14 foreign
banks, including the Bank of Tokyo-Mitsubishi and Sumitomo Mitsui Banking Corporation (both of Japan),
Deutsche Bank (Germany) and Standard Chartered Bank (UK). The foreign banks act as confirming banks to
the domestic L/C. Countertrade. Since countertrade guidelines came into effect in early 1982, authorities have,
at least nominally, required foreign firms bidding for major government tenders to include counterpurchase
elements into their bids. Although these regulations are rarely enforced, authorities at times do insist that foreign
firms provide some form of offset or technology transfer, particularly when negotiating defence or large-scale
infrastructure contracts. The Ministry of Defence in the second half of 2012 plans to launch a formal offset policy
in an attempt to enhance the country's industrial capabilities and reduce its dependency on imports. As of July
2012 it was negotiating technology-transfer arrangements with South Korea as part of its procurement of three
new submarines for the navy; planned weapons purchases from China and Russia at that time also were
expected to include (unspecified) offset elements. The Ministry of Industry and Trade is the co-ordinating and
regulatory agency for nondefence-related countertrades. After the onset of the 1997-98 financial crisis,
countertrade was used occasionally in deals with former Soviet states. Low-value countertrade transactions are
fairly widespread-though technically illegal-in the farther-flung regions of the country. Forfaiting. Forfaiting
services are offered by some of the larger commercial banks, such as Bank Negara Indonesia. However,
forfaiting is rarely used, as other forms of trade financing tend to be cheaper and less cumbersome to arrange.

Tax consequences. Export proceeds are regarded as regular business income, while costs associated with
obtaining credits or guarantees are allowed as deductions. Key contacts Asian Development Bank (ADB), BRI
Tower II, Seventh Floor, Jl Sendral Sudirman Kav. 44-46, Jakarta 10210; tel: (62.21) 251-2721; fax (62.21) 251-
2749; internet: http://www.adb.org/indonesia/. Association of Indonesian Mutual Fund Managers (Asosiasi
Pengelola Reksa Dana Indonesia-APRDI), Indonesia Stock Exchange Building, Tower I, Second Floor, Jl
Jendral Sudirman Kav 52-53, Jakarta 12190; tel: (62.21) 515-0448; fax: (62.21) 515-0823; internet:
http://www.aprdi.or.id. Association of Indonesian Securities Companies (Asosiasi Perusahaan Efek Indonesia-
APEI), Jakarta Stock Exchange Building, Tower I, Second Floor, Jl Jendral Sudirman Kav 52-53, Jakarta
12190; tel: (62.21) 5299-1077; fax: (62.21) 5299-1079; internet: http://apei-info.com. Association of South-East
Asian Nations (ASEAN), ASEAN Secretariat, 70A Jl Sisingamangaraja, Jakarta 12110; tel: (62.21) 7262-991;
fax: (62.21) 7398-234; internet: http://www.aseansec.org. Bank Indonesia (BI-the central bank), Jl MH Thamrin
2, Jakarta 10010; tel: (62.21) 381-7187; fax: (62.21) 350-1867; internet: http://www.bi.go.id. Capital Market and
Financial Institution Supervisory Agency (Badan Pengawas Pasar Modal dan Lembaga Keuangan-Bapepam-
LK), Department of Finance Building, Fourth Floor, Jl Dr Wahidin Raya, Jakarta 10710; tel: (62.21) 385-8001;
fax: (62.21) 385-7917; internet: http://www.bapepam.go.id. Commodity Futures Trade Regulatory Agency
(CoFTRA; Badan Pengawas Perdagangan Berjangka Komoditi-Bappebti), Gedung Bappebti, Third-Fifth Floors,
172 Jl Kramat Raya, Jakarta 10430; tel: (62.21) 3192-4744; fax: (62.21) 3192-3204; internet: http://www.
bappebti.go.id. Corruption Eradication Commission (Komisi Pemberantasan Korupsi-KPK), Jl HR Rasuna Said
Kav C-1, Jakarta 12920; tel: (62.21) 2557-8300; internet: http://www.kpk.go.id. Credit Rating Indonesia
(Pemeringkat Efek Indonesia-Pefindo), Panin Tower, 17th Floor, Senayan City, Jl Asia Afrika Lot19, Jakarta
10270; tel: (62.21) 7278-2380; fax: (62.21) 7278-2370; internet: http://www.new.pefindo.com. Directorate-
General of Taxation (Direktorat Jenderal Pajak), Jl Gatot Subroto No. 40-42, Building B, 15th Floor, Kantor
Pusat, Jakarta 12190; tel: (62.21) 525-0208 or 526-2880; fax: (62.21) 520-3184; internet: http://www.pajak.go.id
(Indonesian only). Forum for Corporate Governance in Indonesia (FCGI), Gedung Menara Jamsostek, 20th
Floor, 38 Jl Jendral Gatot Subroto, Jakarta 12710; tel: (62.21) 5290-2177; fax: (62.21) 5290-2178; internet:
http://www.fcgi.or.id. General Insurance Association of Indonesia (Asosiasi Asuransi Umum Indonesia-AAUI), Jl
Majapahit 34, Blok V/29, Jakarta 10160; tel: (62.21) 345-4387 or 381-3264; fax: (62.21) 345-4307 or 351-1535;
internet: http://www.aaui.or.id. Indonesia Bond Pricing Agency (IBPA; Penilai Harga Efek Indonesia), Jakarta
Stock Exchange Building, Tower I, Fourth Floor, Jl Jendral Sudirman Kav 52-53, Jakarta 12190; tel: (62.21)
515-1569; fax: (62.21) 515-1568; internet: http://www.ibpa.co.id. Indonesia Commodity and Derivatives
Exchange (ICDX), Jl Letjen, S Parman, Kav. 73 Suite A, Jakarta 11410; tel: (62.21) 536-2393; fax: (62.21) 548-
2652; internet: http://www.icdx.co.id. Indonesia Deposit Insurance Corp (Lembaga Penjamin Simpanan-LPS),
BRI Tower II, 11th Floor, Jl Jendral Sudirman Kav 44-46, Jakarta 10210; tel: (62.21) 571-3100; fax: (62.21) 573-
5006; internet: http://www.lps.go.id. Indonesia Eximbank (Lembaga Pembiayaan Ekspor Indonesia-LPEI),
Indonesia Stock Exchange Building, Tower II, Eighth Floor, Jl Jendral Sudirman Kav. 52-53, Jakarta 12190; tel:
(62.21) 515-4638; fax: (62.21) 515-4639; internet: http://www.indonesiaeximbank.com or
http://www.indonesiaeximbank.go.id. Indonesia Export Credit Agency (Asuransi Ekspor Indonesia-ASEI),
Menara Kadin Indonesia, 22nd Floor, Jl HR Rasuna Said Block X-5 Kav 2-3, Jakarta 12950; tel: (62.21) 5790-
3535; fax: (62.21) 5790-4031/4032; internet: http://www.asei.co.id. Indonesia Infrastructure Guarantee Fund
(IIGF; Penjaminan Infrastruktur Indonesia), Sampoerna Strategic Square, North Tower, 14th Floor, Jl Jenderal
Sudirman Kav. 45-46, Jakarta 12930; tel: (62.21) 5795-0550; fax: (62.21) 5795-0040; internet:
http://iigfweb.com. Indonesia Life Insurance Association (Asosiasi Asuransi Jiwa Indonesia-AAJI), The Plaza
Office Tower, 19th Floor, Jl MH Thamrin Kav 28-30, Jakarta 10350; tel: (62.21) 2992-2929; fax: (62.21) 2992-
2828; internet: http://www.aaji.or.id. Indonesia Stock Exchange (IDX-Bursa Efek Indonesia), Indonesia Stock
Exchange Building, Tower I, Jl Jendral Sudirman Kav 52-53, Jakarta 12190; tel: (62.21) 515-0515 exts 4302,
4320, 4311, 4307; fax: (62.21) 515-0330; internet: http://www.idx.co.id. Indonesian Association of Pension

Funds (Asosiasi Dana Pensiun Indonesia-ADPI), Arthaloka Building, 16th Floor, Jl Jendral Sudirman Kav 2,
Jakarta 10220; tel: (62.21) 251-4050/52; fax: (62.21) 251-4051; internet: http://www.adpi.or.id (Indonesian only).
Indonesian Bankers' Association (Ikatan Bankir Indonesia-IBI), Mandiri Tower, Ninth Floor, Bapindo Plaza, Jl
Jendral Sudirman Kav 54-55, Jakarta 12190; tel: (62.21) 526-7306; fax: (62.21) 527-8690; internet:
http://ikatanbankir.com. Indonesian Banks' Association (Perhimpunan Bank-Bank Umum Nasional-Perbanas),
Griya Perbanas, J Perbanas, Karet Kuningan, Setiabudi, Jakarta 12940; tel: (62.21) 522-3038; fax: (62.21) 522-
3037; internet: http://www.perbanas.org (Indonesian only). Indonesian Capital Market Board of Arbitration
(Badan Arbitrase Pasar Modal Indonesia-BAPMI), Indonesia Stock Exchange Building, Tower I, Second Floor,
Suite 201B, Jakarta 12190; tel: (62.21) 5299-1075; fax: 5299-1076; internet: www.bapmi.org/en/index.php.
Indonesian Central Securities Depository (Kustodian Sentral Efek Indonesia-KSEI), Indonesia Stock Exchange
Building, Tower I, Fifth Floor, Jl Jendral Sudirman Kav 52-53, Jakarta 12190; tel: (62.21) 5299-1099; fax:
(62.21) 5299-1199; internet: http://www.ksei.co.id. Indonesian Clearing &Guarantee Corp (Kliring &Penjaminan
Efek Indonesia-KPEI), Indonesia Stock Exchange Building, Tower I, Fifth Floor, Jl Jendral Sudirman Kav 52-53,
Jakarta 12190; tel: (62.21) 515-5155; fax: (62.21) 515-5120; internet: http://www.kpei.co.id. Indonesian
Financial Services Association (IFSA-Asosiasi Perusahaan Pembiayaan Indonesia), Plaza Sentral, 14th Floor,
Jl Jendral Sudirman 8, Jakarta 12930; tel: (62.21) 5288-0113/24; fax: (62.21) 5288-0114; internet:
http://www.ifsa.or.id. Indonesian Financial Transaction Reports and Analysis Centre (Pusat Pelaporan dan
Analisis Transaksi Keuangan-PPATK); Jl Ir H Juanda No. 35, Jakarta 10120; tel: (62.21) 385-0455; fax: (62.21)
385-6809; internet: http://www.ppatk.go.id. Indonesian Institute for Corporate Governance (IICG), 7C Jl Radio
Dalam, Jakarta 12140; tel: (62.21) 723-1288; fax: (62.21) 725-8932; internet: http://www.iicg.org (site under
construction). Indonesian Society for Transparency (Masyarakat Transparansi Indonesia-MSI), 7A Jl H Saaba,
Cipete Utara, Kebayoran Baru, Jakarta Selatan; tel: (62.21) 723-2669; internet: http://www.transparansi.or.id.
Investment Co-ordinating Board (Badan Koordinasi Penanaman Modal-BKPM), Jl Jendral Gatot Subroto 44,
Jakarta 12190; tel: (62.21) 525-2008; fax: (62.21) 526-4211; internet: http://www.bkpm.go.id. Jakarta Futures
Exchange (JFE; Bursa Berjangka Jakarta-BBJ), The City Tower Building, 20th Floor, 81 Jl MH Thamrin, Jakarta
10310; tel: (62.21) 3199-6030; internet: http://www.bbj-jfx.com. Large Taxpayer Office (Wajib Pajak Besar), Jl
Medan Merdeka Timur 16; Jakarta; tel: (62.21) 352-4015; fax: 352-0860; internet:
http://www.kanwilpajakwpbesar.go.id (Indonesian only). Ministry of Economic Affairs (Kementerian Koordinator
Bidang Perekonomian), 2-4 Jl Lapangan Banteng Timur, Jakarta 10710; tel: (62.21) 352-1835; fax: (62.21) 351-
1643; internet: http://www.ekon.go.id. Ministry of Finance (Departemen Keuangan-Depkeu), Jl Lapangan
Banteng Timur 2, Jakarta 10710; tel: (62.21) 381-4324; fax: (62.21) 381-1914; internet:
http://www.depkeu.go.id. National Committee on Governance (Komite Nasional Kebijakan Governance-KNKG),
Gedung BEJ Tower I, Second Floor, Jl Jendral Sudirman Kav. 52-53, Jakarta 12930; tel: (62.21) 515-5877; fax:
(62.21) 515-5880; internet: http://www.knkg-indonesia.com or http://www.knkg-indonesia.com. National
Development Planning Agency (Badan Perencanaan dan Pembangunan Nasional-Bappenas), Gedung Utama,
Jl Taman Suropati 2, Menteng, Jakarta 10310; tel: (62.21) 3193-4811; fax: (62.21) 3193-4779; internet:
http://www.bappenas.go.id (Indonesian only). Permodalan Nasional Madani (state-owned holding company),
Arthaloka Building, Floors 1, 6, 8, 9, 10, Jl Jendral Sudirman Kav 2, Jakarta 10220; tel: (62.21) 251-1404; fax
(62.21) 251-1405; internet: http://www.pnm.co.id. Sarani Multi Infrastruktur (and Indonesia Infrastructure
Finance), BRI Tower II, 29th Floor, Jl Jendral Sudirman Kav 44-46, Jakarta 10210; tel: (62.21) 5785-1313; fax:
(62.21) 570-9460; internet: http://ptsmi.co.id. State-Owned Asset Management Company (Perusahaan
Pengelola Aset-PPA), Sampoerna Strategic Square, Jl Jendral Sudirman Kav. 45-46, Jakarta 12930; tel:
(62.21) 251-2222; fax: (62.21) 5798-2150; internet: http://www.ptppa.com. Statistics Indonesia (Badan Pusat
Statistik-BPS), Jl Dr. Sutomo 6-8, Jakarta 10710; tel: (62.21) 384-1195; fax (62.21) 385-7046; internet:
http://www.bps.go.id. World Bank, Indonesia Stock Exchange Building, Tower II, 12th Floor, Jl Jendral
Sudirman Kav 52-53, Jakarta 12190; tel: (62.21) 5299-3000; fax: (62.21) 5299-3111; internet:

http://www.worldbank.org/id.
Location: Indonesia, Asia-Pacific region
Identifier / keyword: Indonesia, Asia-Pacific region
Publication title: Country Finance. Indonesia
Publication year: 2012
Publication date: Jul 2012
Year: 2012
Publisher: The Economist Intelligence Unit
Place of publication: New York
Country of publication: United States
Publication subject: Business And Economics--Banking And Finance, Business And Economics--International
Commerce
ISSN: 15482367
Source type: Reports
Language of publication: English
Document type: Statistics, EIU Country Report Finance
ProQuest document ID: 1034118939
Document URL: http://search.proquest.com/docview/1034118939?accountid=31533
Copyright: (c) 2012 The Economist Intelligence Unit Ltd. All rights reserved. Reproduced with permission of the
copyright owner. No further reproduction is permitted.
Last updated: 2012-08-19
Database: ABI/INFORM Complete
_______________________________________________________________
Contact ProQuest
Copyright 2012 ProQuest LLC. All rights reserved. - Terms and Conditions

Country Finance Indonesia 2012

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Country Finance Indonesia 2012

Загружено:

Авторское право:

Доступные форматы

_______________________________________________________________

Report Information from ProQuest

20 March 2013 ProQuest

1. Country Finance Indonesia 2012.................................................................................................................. 1

20 March 2013 ii ProQuest

Country Finance Indonesia 2012

Abstract: None available.

20 March 2013 Page 1 of 69 ProQuest

Economist Intelligence Unit country risk rating*

Banking sector risk

Economic structure risk

Download the numbers in Excel Fundamental indicators

20 March 2013 Page 2 of 69 ProQuest

20 March 2013 Page 3 of 69 ProQuest

20 March 2013 Page 4 of 69 ProQuest

20 March 2013 Page 5 of 69 ProQuest

20 March 2013 Page 6 of 69 ProQuest

20 March 2013 Page 7 of 69 ProQuest

20 March 2013 Page 8 of 69 ProQuest

Top ten domestic banks

Ranked by assets as of end-2011--Rp trn

Market share (%)

Bank Rakyat Indonesia (BRI)b

20 March 2013 Page 9 of 69 ProQuest

Bank Central Asia (BCA)

Bank Negara Indonesia (BNI)b

Bank Pan Indonesia (Panin)

Bank Tabungan Negarab

20 March 2013 Page 10 of 69 ProQuest

Sources: Bank Indonesia; individual company statements.

20 March 2013 Page 11 of 69 ProQuest

20 March 2013 Page 12 of 69 ProQuest

Top ten foreign banks

Ranked by assets as of end-2011--Rp trn

Market share (%)

Bank CIMB Niaga(Malaysia)b

Bank Danamon Indonesia(Singapore)b

20 March 2013 Page 13 of 69 ProQuest

Bank Permata (UK)b

Bank Internasional Indonesia (BII; Malaysia)b

Bank OCBC NISP (Singapore)b

Bank UOB Indonesia (Singapore)bc

The Bank of Tokyo-Mitsubishi UFJ (Japan)

Standard Chartered (UK)

20 March 2013 Page 14 of 69 ProQuest

Sources: Bank Indonesia; individual company statements.

20 March 2013 Page 15 of 69 ProQuest

Top ten brokerages

Ranked by value of trades on the Indonesia Stock Exchange in 2011--Rp trn

Net profit (loss)--Rp bna

Market share (%)

Credit Suisse Securities Indonesia (Switzerland)

CIMB Securities Indonesia (Malaysia)

Deutsche Securities Indonesia (Germany)

JP Morgan Securities Indonesia (US)

20 March 2013 Page 16 of 69 ProQuest

CLSA Indonesia (Hong Kong)

UBS Securities Indonesia (Switzerland)

Macquarie Capital Securities Indonesia (Australia)

Source: Indonesia Stock Exchange; individual company statements.

20 March 2013 Page 17 of 69 ProQuest

Top five regional development banks

Ranked by assets as of end-2011--Rp trn

Net profits--Rp bna