6.

4 Fiscal Risk
6.4.1 Sensitivity Analysis
6.4.1.1 Macroeconomy Assumption Sensitivity
Macroeconomic indicators adopted in APBN preparation are economic growth, inflation rate,
SBI 3-month interest rate, rupiah exchange rate, Indonesia Crude Oil Price (ICP), and lifting.
These indicators are basic assumptions as reference in computing the sizes of revenue,
expenditure and financing in APBN. Should the realization of such variables be different
from their assumptions, the sizes of revenue, expenditure, and financing in APBN must be
changed accordingly. Given that, uncertainty variations of macroeconomic indicators will be
risk factors influential to APBN.
Table VI.1 shows the difference of initial estimates of macroeconomic assumptions used in
APBN preparation and their realization for 2006-2009. Such difference cause variation in
target deficit from its realization. If the realized deficit is higher than target deficit in APBN,
this will be a fiscal risk, for which its financing source must be sought after.

TABLE VI.1
DISPARITY BETWEEN MACROECONOMIC ASSUMPTIONS AND REALIZATION*

Remarks 2006 2007 2008 2009**

Economic growth (%) -0,32 0,00 -0,20 -0,20
Inflation (%) -1,40 0,60 4,90 -1,50
Interest rate SBI 3 months (%) -0,30 0,00 1,80 0,00
Exchange rate (Rp/USD) -237,00 90,00 591,10 -500,00
ICP (USD/barel) -0,20 9,70 1,80 16,00
Oil production/lifting (million barel per day) -0,04 -0,05 0,00 0,00
* Positive number means realization is higher than budget assumption. For exchange rate, positive
number means depreciation.
** Constitutes disparity between APBN 2009, Stimulus Document and APBN-P 2009.
Source: Ministry of Finance

Fiscal risk from variation in macroeconomic assumptions can be illustrated in partial

sensitivity analysis against baseline APBN deficit. Partial sensitivity analysis is used to assess
the impact of change in a macroeconomic assumption variable under assumption that the
other macroeconomic assumption variables remain unchanged (ceteris paribus).
Economic growth will affect the sizes of APBN either in terms of revenue or expenditure.
From state revenue wise, economic growth is influential to tax revenue, particularly Income
Tax (PPh) and Value added Tax (PPN). On public expenditure side, economic growth will
have influence over balance fund in Transfer to Region as the result of changing tax revenue.
In 2010, if the economic growth is less than 1 percent of its assumption, additional deficit in
APBN 2010 will be predicted at Rp4.1 trillion to Rp4.5 trillion range.
Rupiah exchange rate depreciation to US dollar will exert influence to all sides of APBN,
either revenue, expenditure or financing. In state revenue wise, rupiah exchange rate
depreciation will affect revenue from oil and gas in USD denomination and PPh oil and gas
and PPN. As to public expenditure, this depreciation will have influence over: (1)
expenditure in foreign currencies, (2) foreign loan amortization, (3) fuel and electricity
subsidy, and (4) transfer to regions consisting of revenue sharing from oil and gas. In
financing side, the depreciated rupiah will bring about impacts to: (1) foreign loans, either
project loan or program loan, (2) amortization, and (3) privatization procceds and asset

1
recovery in foreign currency. In 2010, if rupiah exchange rate is depreciated Rp100 per
annum on the average from its assumption, additional deficit in APBN 2010 is predicted at
Rp0.38 trillion to Rp0.42 trillion range.
Interest rate used in APBN assumption is that of SBI 3-month rate. The changing SBI 3-
month rate will exert influence on expenditure side only. In this case, the increase in SBI 3-
month interest rate will rise the payment of domestic loan interests. In 2010, if SBI 3-month
rate is 0.25 percent higher than its assumption, additional deficit in APBN 2010 is predicted
at Rp0.3 trillion to Rp0.5 trillion.
Indonesia Crude Oil Price (ICP) will influence APBN on both state revenue and expenditure.
In state revenue wise, higher ICP will increase revenue from Production Sharing Contracts in
oil and gas sectors consisting of Non Tax (PNBP). It will also augment PPh revenue from oil
and gas and other oil and gas revenue. From public expenditure side, higher ICP will raise
expenditure of fuel subsidy and transfer to region allocation. In 2010, if ICP is to rise by
USD 1 per barrel higher than its assumption, additional deficit budget in APBN 2010 is
predicted at Rp0.0 trillion to Rp0.1 trillion range.
Lower domestic lifting will have influence over APBN in state revenue and expenditure side.
In the former, lower lifting will decrease PPh oil and gas and PNBP. As to the latter, decrease
in domestic lifting will cut transfer to region allocation. In 2010, if domestic lifting is 10,000
barrel per day lower than its assumption, additional deficit in APBN 2010 is predicted at
Rp3.0 trillion to Rp3.34 trillion range.
Another variable influential to APBN deficit is the volume of domestic fuel consumption.
Increase in domestic fuel consumption by 0.5 million kiloliter will be potential to rise APBN
2010 deficit at Rp1.33 trillion to Rp1.46 trillion.
Based on the above sensitivity, the fiscal risk of additional deficit arising from the
assumptions of macroeconomic variables in APBN 2010 preparation can be seen in Table
VI.2.
TABLE VI.2
MACROECONOMIC SENSITIVITY TO APBN 2010
2010*
Assumption Deficit addition
No. Remarks Assump-
Change Unit possibility
tion
(trillion Rp)
1 Economic growth (%) -1 5,5 4,5 s.d. 4,1
2 Inflation (%) + 0,1 5,0 Indirect
3 Interest rate SBI 3 months (%) + 100 10.000 0,38 s.d. 0,42
4 Exchange rate (Rp/USD) + 0,25 6,5 0,3 s.d o,5
5 ICP (USD/barel) +1 65 0,0 s.d. 0,1
Oil production/lifting (million
6 - 10 965 3,00 s.d. 3,34
barel per day)
7 Domestic fuel oil consumption
+ 0,5 36,5 1,33 s.d. 1,46
(million kiloliter)
* Deficit on APBN 2010 is Rp98,0 trillion.
Source: Ministry of Finance.

6.4.1.2 Macroeconomic Variable Sensitivity to SOE Fiscal Risk

SOEs provide contributions to APBN, either directly or indirectly. Direct SOE contribution is
state revenue from tax, dividend payment and privatization proceeds, and public
expenditure of Public Service Obligation (PSO)/subsidy compensation. For indirect
contribution, it consists of multiplier effect to national economic development. Direct SOE

2
contribution from 2004 through 2009 indicates significant amounts as presented in Graph
VI.1.

GRAPH VI.1
SOEs CONTRIBUTION TO APBN
(trillion rupiah)
250

200

150

100

50

0
2004 2005 2006 2007 2008 APBN P
2009
Tax Dividend Privatization PSO

Sumber: Ministry of SOEs, processed.

Variation in oil price, exchange rate, economic growth, and interest rate can affect the
financial performance of SOEs that ultimately can influence their contribution to APBN. This
lower contribution is part of fiscal risk from SOEs. To identify the impacts of changing
macroeconomic variables to SOE fiscal risk, the Government will conduct sensitivity test or
macro stress test to SOE fiscal risk using several fiscal risk indicators, namely: (1) net SOE
contribution to APBN, (2) net SOE loans, and (3) cross-cut risk illustration enabling to take
early and anticipative measures against such phenomenon.
Macro stress test simulation for this year will be carried out for 22 SOEs, as further
development of last year’s macro stress test covering 7 SOEs with criteria (1) the largest
profit making SOEs, (2) the largest loss making SOEs, (3) the largest PSO/subsidy
beneficiaries SOE, and (4) SOEs representing sectors in Indonesia economy. The selection of
these 22 SOEs from previously 7 SOEs is expected to more reflect the increased SOEs, i.e.
139 SOEs in total. The test is made in partial and aggregate manner based on the financial
performace of 22 SOEs for the last four years (2005 – 2008) and their financial projections
for the next four years (2009 to 2014).
Macro stress SOE fiscal risk model presents two major results, i.e. scenario analysis and
stress test output. Analysis scenario illustrates the uncertainty of fiscal risk indicator of
individual SOE or the aggragation. Meanwhile, the ouput of stress test presents relative
variation to SOE fiscal risk indicators in the event of upheaval or risk factor pressure.
Scenario analysis is prepared into three scenarios, i.e. baseline, optimistic and pessimistic.
Baseline scenario illustrates macroeconomic conditions according to APBN assumptions,
such as economic growth in 2010 set at 5.5 percent, ICP USD65 per barrel and rupiah
exchange rate to US dollar Rp10,000/USD. In this scenario, net SOEs contribution to APBN
2010 shows negative Rp34.7 trillion.
In optimistic scenario, the macroeconomic variables are assumed at optimum position that
will be highly likely to reach, i.e. economic growth for 2010 set at 5.8 percent, relatively ICP
at USD43 per barrel, and rupiah exchange rate to US dollar assumed at Rp9,000/USD.
Under this conducive macroeconomic conditions, fiscal risk pressure to SOEs will lessen
marked with net contribution from SOEs APBN recording positive Rp51.9 trillion.

3
Pessimistic scenario shows macroeconomy at the worst condition that may take place, such
as for 2010, the economic growth is set lowly 4.2 percent, high ICP USD90 per barrel and
exceeding rupiah depreciation to US dollar Rp12,000 per USD. This condition will exert
pressure to APBN expenditure, i.e. the increase in PSO/subsidy paid by the Government via
SOEs. In addition, SOE operational production cost will upsurge that reduce SOE
contribution to APBN in tax revenue and dividend payment. Fiscl risk will also emerge from
the increasingly net SOE loans since the majority of operational costs and SOE loan
composition is in foreign currency.
The results of SOE fiscal risk analysis in aggregate are presented in Graph VI.2 and Table
VI.3.
GRAPH VI.2
FISCAL RISK SCENARIO ANALYSIS OF AGGREGATED SOEs
(trillion rupiah)

Net Contribution to APBN Net debt value of SOEs

100 1.200
50 1.000
- 800
(50) 2009 2010 2011 2012 600
(100) 400
(150) 200
(200)
-
(250)
2009 2010 2011 2012
(300)
Baseline Optimis Pesimis Baseline Optimis Pesimis

Gross financing need

300
250
200
150
100
50
-
2009 2010 2011 2012

Baseline Optimis Pesimis

4
 TABLE VI.3
NET CONTRIBUTIONS OF SOEs TO APBN
(billion rupiah)
Baseline Scenario
No. Descriptions
2009 2010 2011 2012
1 Tax Paid 79,535 86,593 89,041 79,467
Income Tax 24,282 30,907 35,338 24,388
Value Added Tax 50,121 51,418 48,969 50,060
Royalties/duties 3,851 2,820 3,217 3,660
Other Tax 1,280 1,448 1,517 1,360
2 Subsidies Paid 97,651 148,521 170,227 223,783
Dividend to Government
3 21,711 26,481 30,776 20,343
(Cash)
Nonsubsidies transfer from
4 439 465 492 521
Government
Interest on Loan from
5 7 1 - -
Government
Final Position (3,281) (1,212) 64 (782)

Stress test to several main macroeconomy variables agains aggregate SOE fiscal risk is made
partially, i.e. to see the impact of variation in a macroeconomic variable to SOE fiscal risk
indicator under assumption that other macroeconomic variables remain unchanged (ceteris
paribus). Under this method, macroeconomic variables with the most significant impacts to
SOE fiscal risk can be identified.
Rupiah exchange rate depreciation against US dollar by 20 percent will generate very
significant impact to the sizes of PSO/subsidy, operation performance and financial balance
sheets of SOEs in aggregate. This relatively high vulnerability is because formula for
PSO/subsidy calculation uses foreign currency and enormous operational cost and loan
composition in foreign currency (for example loans by PT PLN in foreign currency reached
around 70 percent of total loans). This can be seen from the increased value of net SOE loans
by Rp34.0 trillion in 2010 and will further rise in the coming years. It implies that the
capacity of SOE current assets in covering total liabilities is to decrease. This condition may
cause default by SOEs or incapable to comply with their debt service.
In addition, rupiah depreciation to US dollar will increase need of SOE gross financing that
in 2010 the net financing requirements of SOEs is to rise by Rp9.3 trillion enabling them
togrow. As the result, some SOE will get difficulties in looking for financing source without
supports from the Government. This impact to SOEs will in turn reduce their net
contribution to APBN as shown in 2010 with the lower SOE contribution to Rp44.5 trillion.
The increase of global oil price by USD25 per barrel will significantly upsurge production
costs especially in SOEs engaged in energy, transport, and fertilizer sectors, and increase in
subsidy from the Government, so that net contribution of SOEs to APBN will be more
negative. The stress test shows that net SOE contribution to APBN in 2010 will be futher
negative Rp81.0 trillion exerting heavier pressure to fiscal. This PSO/subsidy increase is
mainly attributed to higher oil and electricity subsidy extended through PT Pertamina and
PT PLN.
The decrease of economic growth by 1 percent and the increase of interest rate by 3 percent
will affect fiscal despite lighter impact than rupiah depreciation to US dollar and the soaring
global oil price. Higher interest rate will increase cost that must be borne by the SOEs with
immediate consequence of lower net SOE contribution to APBN. The increased of interest
rate in 2010 will make the net SOE contribution more negative by Rp3.03 trillion and it will

5
continue in the coming years if the increase endures. The output of stress test to some
macroeconomic variables can be seen in Table VI.4.
TABLE VI.4
STRESS TEST OF CHANGES OF ECONOMIC GROWTH, EXCHANGE RATE,
OIL PRICE, AND INTEREST TOWARD SOE's FISCAL RISK

Stress test of depreciation of exchange rate ammounting 20 persen

(billion rupiah)
Impact
No. Shock Variables
2009 2010 2011 2012
1 Net contribution to APBN (43,638) (47,054) (44,450) (44,711)
2 Net debt value of SOEs 28,459 34,028 44,188 52,906
3 Gross financing need 5,517 9,322 9,417 9,500
4 Subsidy 49,057 53,822 52,614 55,190

Stress test of oil price increas USD25 per barrel

(billion rupiah)
Impact
No. Shock Variables
2009 2010 2011 2012
1 Net contribution to APBN (95,583) (80,769) (78,856) (78,943)
2 Net debt value of SOEs 2,558 (591) (9,077) (9,522)
3 Gross financing need 3,083 (66) (1,189) 583
4 Subsidy 114,205 93,972 94,265 95,248

Stress test of interest rate increases 3 percent

(billion rupiah)
Impact
No. Shock Variables
2009 2010 2011 2012
1 Net contribution to APBN (6,153) (3,022) (4,629) (5,639)
2 Net debt value of SOEs 980 (11,842) 14,194 21,271
3 Gross financing need 186 (9) 5,589 162
4 Subsidy 2,042 2,645 3,623 4,654

6
Stress test of economic growth decreases 1 percent

(billion rupiah)
Impact
No. Shock Variables
2009 2010 2011 2012
1 Net contribution to APBN 13,137 9,429 8,530 11,457
2 Net debt value of SOEs 2,628 3,589 (896) 810
3 Gross financing need 116 418 (717) 244
4 Subsidy (14,101) (10,138) (9,129) (12,144)

In connection with the above elaboration, the financial performance of some SOEs with high
fiscal risk potential from PSO in energy sector is presented in Box VI.1 and VI.1. For SOE
fiscal risk in respect of PMN, i.e. an SOE engaged in People Business Credit Program (KUR)
it can be seen in Box VI.9.

7
 BOX VI. 1

PT PERTAMINA (PERSERO)

During 2006-2008 period, Pertamina booked increase in net income and the recorded a
declinining trend of return on asset ratio. However, its debt-capital ratio was also to rise, implying
that increase in assets was more from debt than equity. Pertamina is one of the largest tax and
dividend contributor SOEs.

(trillion rupiah)
Descriptions 2006 2007 2008

Total Assets 206.1 254.2 294.4

Total Liabilities 81.8 133.7 144.2
Minority Liability 1.5 1.7 1.1
Total Equity 122.8 118.8 149.1
Net Income 19.02 19.51 30.20
Return on investment 9.23% 7.67% 10.26%
Debt to equity ratio 66.60% 112.60% 96.73%
Source: Ministry of SOEs, processed.

In the same period 2006-2008, there is no additional PMN for Pertamina. In 2009 there is
additional PMN, i.e. the swap of government receivables in amount of Rp9.1 trillion to government
capital.
Under PSO framework, Pertamina shall assume tasks from the Government to supply fuel for
people. For such PSO, Pertamina receives subsidy from the Government in lieu of the difference
from the selling price of PSO fuel.
(trillion rupiah)
Year Subsidy Description
2006 64.2 LKPP 2006 (audited)
2007 83.8 LKPP 2007 (audited)
2008 139.1 Realization
2009 52.4 APBN-P
2010 68.7 APBN
Source: Ministry of Finance, processed.

Macro stress test to some macroeconomic variables to fuel subsidy in Pertamina indicates impacts
as follows.
(billion rupiah)
Shock Variables 2009 2010 2011 2012
Exchange rate depreciation 20 % 32,465 33,350 32,850 32,323
Oil price increases USD25 per barrel 75,982 66,345 65,756 65,120
Interest rate increases 3 % - - - -
Economic growth 1 % - (502) (413) (410)
Source: Ministry of Finance, processed.

8
 BOX VI.2

PT PLN (PERSERO)

During 2006-2008 PLN booked the increasingly looses. The main contributing factor was the net
loss in foreign currency exchange rate for its debt service. During such period, PLN loans were to
rise significantly.
(trillion rupiah)
Descriptions 2006 2007 2008
Total Assets 247.9 273.48 290.72
Total Liabilities 108.1 137.07 163.73
Minority Liability - - -
Total Equity 139.8 136.41 126.99
Net Income (1.9) (5.65) (12.30)
Return on investment -0.78% -2.06% -4.23%
Debt to equity ratio 77.29% 100.48% 128.94%
Source: Ministry of SOEs, processed.

The relatively high debt to equity ratio (128,94%) made the burdens to be shouldered by PLN
heavier. PLN must take any initiative to reduce this loan burdens. In this respect, the largest risk is
in relation with the financing for the development of 10,000 MW Power Plant Project, which
around 80% will use foreign loans. Financing barrier will be more obvious if this project is not
supported with well-advanced loan disbursement.
(trillion rupiah)
Year Subsidy Remarks
2006 30,4 LKPP 2007 (audited)
2007 33,1 LKPP 2007 (audited)
2008 83,9 Realization
2009 47,5 APBN-P
2010 37,8 APBN
Source: Ministry of Finance, processed.

From 2006 – 2008, there is no PMN for PLN. This is also true in 2009, during which no additional
PMN is proposed by PLN. In PSO framework, PLN is tasked by the Government to supply electrical
energy with affordable rate. For such PSO, PLN receives subsidy from the Government in lieu of the
difference from selling price of PSO electricity.
Macro stress test to some macroeconomic variables of fuel subsidy in PLN shows the following
impacts.
(billion rupiah)
Shock Variables 2009 2010 2011 2012
Exchange rate depreciation 20 % 15.955 16.731 18.831 21.984
Oil price increases USD25 per barrel 33.899 23.568 24.248 26.357
Interest rate increases 3 % 1.869 2.489 3.483 4.528
Economic growth 1 % (14.377) (10.862) (9.281) (12.436)
Source: Ministry of Finance, processed.

9
 BOKS VI.3
PT ASKRINDO DAN PERUM JAMKRINDO IN SMALL-HOLDER’S BUSINESS
CREDITS (KUR) INSURANCE PROGRAM

Small-Holder’s Business Credits/Kredit Usaha Rakyat (KUR) Insurance Program is to follow up

Inpres No. 6 year 2007 concerning Real Sector Development Acceleration and UMKMK (Micro
Small Medium Cooperative Enterprises) Empowerment Policies. KUR credit is extended by
executing banks secured by PT Askrindo and Perum Jamkrindo.
The realization of KUR insurance per 31 December 2008 is as follows.
Perum
Description PT Askrindo Total
Jamkrindo
Principal (miliar Rp) 8,528.00 2,454.13 10,982.13
Gearing ratio 10.03 times 4.05 times 7.6 times
TotalUMKMK (unit) 1,140,404 168,017 1,308,421
Total labour 3,233,071 255,962 1,489,033
Total claim (billion rupiah) 2.21 1.92 4.13
Non performing guarantee 0.03 % 0.08 % 0.04 %

Fiscal stimulus Program 2009 provided additional Government Capital (PMN) to these two SOEs
worth of Rp500 billion. The largest risk of KUR program is the potential increase in Non
Performing Guarantee (NPG) due to global financial crisis that will affect the performance of
insurance company and reduce PMN placed in such two enterprises.
In general the financial performance of PT Askrindo is as follows.
(billion rupiah)
Descriptions 2006 2007 2008

Total assets 907.2 1,793.3 1,962.3

Total liabilities 55.2 65.5 207.1
Total equity 852.0 1,727.9 1,755.3
Net Income 87.3 48.7 36.7
Return on equity 10.25% 2.82% 2.09%
Debt to equity ratio 6.48% 3.79% 11.80%
Source: PT Askrindo, processed.
As to financial performance of Perum Jamkrindo it is as follows:
(billion rupiah)
Descriptions 2006 2007 2008

Total assets 442,0 1.126,0 1.267,2

Total liabilities 147,0 180,4 209,0
Total equity 295,0 945,6 1.058,2
Net Income 33,6 58,6 133,8
Return on equity 11,38% 6,20% 12,65%
Debt to equity ratio 49,83% 19,07% 19,75%
Source: Perum Jamkrindo, processed.

10
6.4.2 Public Debt Risk of Central Government
One important fiscal risk and therefore must be soundly managed by the Government is
Public Debt Risk. The management of this risk will significantly affect fiscal sustainability in
the current year and in the future. The management of public debt will indicate the size of
debt burdens to be shouldered by the Government in the future. With appropriate debt risk
management, the Government will not only concentrate to look for financing sources with
low fees for the current APBN but also take into account risk trend that will have influence
over APBN in the coming years.
Risks that must be dealt with in public debt risk management may come from external or
internal factors of debt management unit. The said risks include: (1) financial risk, i.e.
interest rate risk, exchange rate risk and refinancing risk, and (2) operational risk. These
varying risks have direct impacts to the overall efficiency and effectiveness of debt
management.
Financial risk conditions in public debt portfolio during 2009 are exposed to severe
challenges from the faltering global financial market due to crisis. The outbreak of global
financial crisis as the continuation of subprime mortgage scandal in USA has spurred world-
wide economic disaster. The immediate consequence is the drying out liquidity of global
financial market. The crisis indeed compromised domestic financial market including
Government Securities (SBN) market indicated with the falling SBN price in secondary
market and less demands in SBN Auction.
The issuance of SBN in early 2009 (quarter I) was hampered by crisis impacts. Investor
tolerance to risk was to decrease. It was nearly no demand on SBN with medium to long term
tenors. They only preferred to SBN with very short tenor. To cope with problems in covering
financing needs through SBN issuance in domestic market, the Government issued
international SBN in global market amids very unfavorable market conditions, and succeed
to issue global bonds in relatively enormous amount (USD3 billion or equivalent to Rp36
trillion). Success in this global bond issuance lessened financing risks to the Government.
The conditions of domestic and global markets were a bit better entering quarter II 2009,
marked with the lower SBN yield in domestic and global markets. In Quarter II, the
Government issued Sukuk with foreign currency denomination and started to offer SBN with
longer tenors. The bolstering market conditions in quarter II 2009 had reduced risks to debt
portfolio during Semester I 2009.
The improvement of debt risk conditions in 2009 was a little bit impeded by global financial
crisis especially in respect of refinancing risk, which was lightly to rise as the result of
shortening ternor for the issued SBN. Meanwhile, interest rate risk was still on upward trend
and exchange rate risk was stable with upward trend compared with previous years. With
optimum measures in semester II 2009 it is expected that the said risks can be further
abated.
Specifically, the interest rate risk of debt porfolio indicates downward trend as seen in Table
VI. 5.
The same table shows that indicators of interest rate in 2009, i.e. variable rate and refixing
rate ratio to total debt were lower than previous years with downward trend thanks to
financing strategy policy focusing on SBN issuance and the procurement of foreign loans
with fixed rate. Time taken to reset interest rate is slighly to reduce consistent with the
shorter Average Time of Maturity (ATM).
This lower ATM ratio is still in tolerable limit since it was not attributed to variable rate ratio,
which is more sensitive to interest fluctuation. The exchange rate risk is further lessened
along with the declining debt ratio in foreign currency denomination (FX debts) if compared
with the size of Gross Domestic Product (GDP). This ratio is important since its lowering will
indicate less exchange rate risk relative to economy. FX debt ratio to total debts also
indicates a lightly downturn tren. If no global financial crisis took place in 2008 and 2009

11
causing the slumping rupiah exchange rate to a number of foreign currencies, the FX debt
ratio to total debts would be at better level (at 45 percent range).
Refinancing risk was to rise in 2009 as the consequence of global financial crisis that
shortened tenors of the issued SBN. This higher refinancing risk can be seen in Table VI.5.
ATM to total debt in 2009 recorded relatively significant decrease to 8.32 years from 9.18
years in 2008. This decrease indicates that in general tenor for public debt tends to shorten.
For further observation, refinancing risk can be also detected from the portion of debts that
will be on due in the next year, which in fact its percentage was to rise from 6.97 percent in
2008 to 7.40 percent in 2009. The similar trend was also found in the portion of debts that
would be on due in the next 2 and 5 years.
TABLE VI.5
LOAN PORTFOLIO RISK INDICATORS OF 2006-2010

Notes:
*) 2009 rate projection for the last 2009 based on realization of semester I of 2009
**) 2010 rate is projection based on trends during 2006 through 2009
Source: Ministry of Finance
Based on the projection of debts to be matured in 2010 it will exceed Rp130.0 trillion in
consideration of Government Treasury Bill (SPN) with maturity less than 1 year in Semester
II 2009. As to outstanding debts it is expected to reach Rp1,675.04 trillion consisting of SUN
Rp1,065 trillion and PLN Rp610 trillion. It is projected that the debt risk condition in 2010
will continue the trend of the last few years, i.e. interest rate risk will bolster with the
declining projection of debt variable rate and refixing rate ratio. Improved risk rate will also
be found in exchange rate risk consistent with lower foreign currency debt to GDP ratio and
foreign currency debt to total debt ratio. As to refinancing risk it will aggravate due to higher
portion of matured short term debts. However, if the market conditions start to recover, it is

12
expected that refinancing risk will not increase significantly and become stable (same as
conditions in 2009).
Efforts to improve debt risk rate must be pursued with the following strategies:
1. Prioritize the issuance/loan withdraw with fixed rate to lessen interest rate risk, on top
of converting debts with variable rate to fixed rate.
2. Prioritize the issuance of rupiah debt instruments in domestic market in view of market
absorption capacity in semester II 2009 and 2010 that is expected to bolster in line with
the recovering global economy from crisis.
3. Currency selection in loan withdraw/SBN issuance in view to its volatility to rupiah.
4. Prioritize the withdraw of new loans with more favorable terms and condition, including
to reduce/omit commitment fee for the undisbursed committed loans.
5. Continue buyback and switching for the management of Government Securities (SBN)
portfolio and risk with a view to lessen refinancing risk in semester II 2009 and 2010.
6. Effective monitoring to loan withdraw so that inefficient loan commitment can be
immediately closed.
7. In addition to the above strategies, active debt management is now reviewed using
financial derivative instrument in the context of hedging. Review on the adoption of
derivative instrument in 2009 will be intensified with the preparation of Finance
Minister Decree on debt portfolio hedging application.
In the operation, debt management also include Operational Risk control. Efforts taken by
the Government to control operational risk in debt management are inclusive of: (a) develop
and apply standard debt management procedure, for either internal units responsible for
debt management or those responsible for relation mechanism between debt management
units and stakeholders; (2) enforce ethical code of personnel within debt management units;
(3) enhance the competence of personnel of debt management units; (4) develop technology
system to support effective, efficient, safe, transparent and accountable debt management;
and (5) prepare and revise laws and regulations concerning debt management as legal basis
to perform debt management in transparent, safe, accountable and responsible manner.

6.4.3 Contingent Liabilities of Central Government

6.4.3.1 Infrastructure Development Project
Fiscal risk related to infrastructure development project arises from support/guarantee
provided by the Government to some projects, i.e. 10,000 MW Power Generation Plant
Development Acceleration Project, Trans Java Toll Road Development Project, Jakarta
Outer Ring Road II (JORR II) Development Project, Jakarta Monorail Development Project,
Water Supply Acceleration Project, and Government Support for IPP PLTU Central Java
Model.

a. 10,000 MW Power Plant Project

Pursuant to Presidential Regulation No. 71 of 2006 and Presidential Regulation No. 86 of
2006 as amended with President Regulation No. 91 of 2007, the Government shall provide
supports of full guarantee for debt service of PT PLN (Persero) to creditors extending
funds/credits for electrical power generation development projects (10,000 MW) as
provided for in such Presidential Regulation No. 71. This guarantee aims to improve the
creditworthiness of PLN to get credits and reduce project capital fees.
It is expected that the completion of the said 10,000 MW power plant development project
be accelerated and power shortages be resolved. To assure the sufficiency of power supply in
future, at present the Government is developing 10,000 MW power generation plant phase II
covering coaldriven power plant, water-driven power plant, and geothermal-driven power
plant (renewable resources).

13
Total investment value of this 10,000 MW power project is expected to amount Rp99.4
trillion (exchange rate USD1 = Rp9,200) with the following breakdowns: Rp73.5 trillion for
generators and Rp25.9 trillion for transmission. Around 85 percent of fund requirements for
such power generation and transmission project will be covered from bank credits, either
domestic or foreign. Through May 2009 the committed financing sources (signed and the
bid winner had been determined) can be seen in Table VI.6.
TABLE VI.6
FINANCING RESULT OF 10,000 MW POWER PLANT PROJECT
(through November 2009)
Loan Ammount
Capacity
No. PLTU Rupiah Portion USD Portion
(MW)
(in billion) (in million)
1 Suralaya 1 x 625 735.4 284.29
2 Paiton 1 x 660 600.6 330.83
3 Rembang 2 x 315 1,911.5 261.80
4 Labuan 2 x 315 1,188.6 288.56
5 Indramayu 3 x 330 1,272.9 592.22
6 Pacitan 2 x 315 1,045.9 293.23
7 Teluk Naga 3 x 315 1,606.6 454.97
8 Pelabuhan Ratu 3 x 350 1,874.3 481.94
9 Lampung 2 x 100 459.9 119.21
10 Sumatera Utara 2 x 200 780.8 209.26
11 NTB 2 x 25 273.8 23.79
12 Gorontalo 2 x 25 264.8 25.84
13 Sulawesi Utara 2 x 25 304.5 27.31
14 Kepulauan Riau 2x7 71.2 -
15 NTT 2x7 73.2 7.89
16 Sulawesi Tenggara 2 x 10 97.1 10.28
17 Kalimantan Tengah 2 x 60 413.9 62.06
18 Tanjung Awar-Awar 2 x 350 1,155.4 -
19 Sulawesi Selatan 2 x 50 379.9 52.35
20 3 Bangka Belitung 2 x 30 316.9 22.95
21 2 Papua 2 x 10 140.8 13.66
22 Kalimantan Selatan 2 x 65 313.4 83.94
23 Aceh 2 x 110 614.3 124.26
24 2 NTT 2 x 16.5 134.5 23.42
25 1 NTB 2 x 10 120.5 23.79
26 Sumatera Barat 2 x 112 521.4 138.34
27 2 Kalimantan Barat 2 x 27.5 172.0 30.77
28 4 Bangka Belitung 2 x 16.5 142.2 23.90
29 Maluku Utara 2x7 100,4 9.87
30 Adipala 1 x 660 50,0 575.26
Total 9,145 17,136.7 4,595.99
Source: Ministry of Finance.

14
Fiscal risk from the above full guarentee is when PLN fails to comply with its debt service to
creditors timely, for which the Government shall be required to meet such debt service. This
debt service compliance by the Government will be carried out through APBN mechanism.
Some risk factors that can reduce PLN capacity in complying with its debt service to
creditors on timely basis include high power energy sales growth, tariff policy, exchange rate
fluctuation, fuel price hike and coal supply shortages.
In 2010 the liabilities of PLN to creditors will be limited to the payment of loan interest. If all
financing requirements can be fulfilled in 2009, the Government will allocate budget in its
APBN 2010 to anticipate fiscal risks arising from PLN obligations, i.e. interest payment, in
amount of Rp1 trillion. Increase in risk budget allocation is made on two main
considerations.
First, higher interest payment in 2009 was because credit dibursement in 2009 was expected
to rise up to 100 percent of total loans committed. Second, it is expected that the
construction of most generators be accomplished. These two factors can bring about impacts
to financial performance/cash flow of PLN.

b. Toll Road Development Project

Fiscal risk in toll road development project comes from Government support in shouldering
part of land acquisition cost excess (land capping) because of price escalation during land
acquisition. Twenty eight (28) toll road development projects receiving such supports
include Trans-Java Toll Road Projects and Jakarta Outer Ring Road II (JORR II).
Government supports to cost escalation in land acquisition in 28 links of toll road is
intended to accelerate the sluggish toll road development, which is due to increase in price of
land liberation that will be in toll road development. Such supports are also to maintain
financial feasibility of toll road projects so that investors will immediately finish their
development.
The supports are expressed in the allocation of Rp4.89 trillion since 2008. Out of such sum,
Rp1.2 trillion will be allocated in APBN 2010. The expenditure of budget procceeds from the
end of 2009 to early 2010 will be used to evaluate this Government support policy and as
basis to decide the continuation of land capping policy in 2011 and so forth.

c. Jakarta Monorail Development Project

Another infrastructure project receiving Government support is that of Jakarta Monorail
Development Project (green line and blue line). The support is given in the form of guarantee
to cover shortfall of ridership for 160,000 passengers per day. The maximum amount of this
guarantee will be USD 11.25 million per annum for five years since the commercial operation
of project in question with transport capacity of 270,000 passengers per day. The guarantee
will be effective since 15 March 2007 for 36 months period. If this provision is not complied
with, according to Decree of Finance Ministry (PMK) No. 30/PMK.02/2007 such guarantee
shall declare void and null.
Until the first quarter 2009, the investors of Jakarta Monorail Development Project has yet
to get financial facility (financial close) as set out in Agreement signed with DKI Jakarta
government (Pemprov DKI). For this respect, Pemprov DKI will conduct due diligence that
its result will be used as reference in deciding this continuation of project.
Given that, in 2010 it is expected that no fiscal risk may arise from this monorail project
since the project will not operated in 2010.

15
d. Water Supply Development Acceleration Project
To accelerate water supply for people and to reach millennium development goals (MDG),
the Government will promote investments in PDAM. This is made by broadening investment
credits from national banks under guarantee and interest subsidy by central government.
This policy is set out in Presidential Regulation No. 29 of 2009 concerning Guarantee and
Interest Subsidy Provision by Central Government for Water Supply Development
Acceleration. Guarantee from the Central Government reaches 70 (seventy) percent of
PDAM debt services of total matured investment credits. The remaining 30 (thirty) percent
will be the risk of banks extending the investment credits. With regard to interest rate for the
investment credits extended by the banks to PDAM it is set at equal to BI rate plus maximum
5 (five) percent on the condition that interest rate at BI rate shall be charged to PDAM and
the difference of interest rate higher than BI rate for a maximum of 5 percent shall become
subsidy shouldered by the Central Government. Guarantee for PDAM debt service and
subsidy will be paid by the Government under APBN scheme. Such guarantee will become
liabilities of PDAM and Regional Government to Central Government.
Fiscal risk that may arise from this guarantee is the incapacity of PDAM to comply with its
debt service for the credits on due to banks. Owing to that, the Government will cover 70
(seventy) percent of such PDAM debt service. Factors that can incite such default include
exceeding non water revenue (NWR), unreliable interal PDAM management, and water tariff
(set by Regional Government/PDAM) lower than its economic price.
PDAM debt service to banks in APBN 2010 is limited to the payment of credit interest. In
APBN 2010, the Government will allocate budget Rp50 billion to anticipate fiscal risk of
PDAM debt service with regard to interest payment.

e. Establishment of Guarantee Fund for Infrastructure

As mandated in Presidential Instruction No. 5 of 2008 concerning Economic Focus for
2008-2009, the establishment and operation of guarantee fund institution is required to
encourage the participation of private sector in infrastructure development. The main goal to
set up this guarantee fund is to provide facilitation for infrastructure projects in obtaining
the best financial close and cost of capital by raising creditworthiness of infrastructure
projects concerned. Guarantee fund is expected to enhance the quality in guarantee
management against the risks secured by the Government for infrastructure projects as
spelled out in Presidential Regulation No. 67 of 2005 and Decree of Finance Minister No.
38/PMK.01/2006.
Guarantee fund will improve the management into more transparent and accountable
fashion against the contingent liabilities arising from the guarantee to infrastructure projects.
Nevertheless, its does not necessarily mean that guarantee fund will get rid of fiscal risk
exposure of such infrastructure projects since guarantee fund can propose recourse to the
Government for the paid claims.
The participation of Government funding in such institution is expressed with the placement
of Government Fund (PMN) as initial capital for its formation. Indeed, guarantee fund will
be set up as a State Owned Enterprise (SOE). In 2009, the Government has allocated budget
of Rp1.o trillion. With this Government Capital (PMN), the ownership of Government to the
said institution will reach 100 percent. In 2010 the Government has yet to allocate co-
participation capacital to guarantee fund.

f. Government Support for Independent Power Producer (IPP) Model in PLTU

Central Java
In Semester I 2009, the Government received proposal for support request from PT PLN
(Persero) for IPP Model in PLTU Central Java. The project is 1 (one) of 10 (ten) projects

16
promoted by the Government during Indonesia Infrastructure Conference and Exhibition
(IICE) 2006 as project models that will be executed in accordance with Presidential
Regulation No. 67 of 2005 and Decree of Finance Minister No. 38 of 2006. In 2010, it is
expected that no fiscal risk from the aforesaid project will arise since the contruction will just
be commenced in 2011 and operated in 2014.

6.4.3.2 Pension and Old Age Insurance Program (THT) for Public Servants
(PNS)
Starting from 2009, the Government decides that pension funding for PNS (Government
Civil Servants) will be totally charged to APBN. Formerly, pension funding was under
sharing arrangement between APBN and PT Taspen (Persero) with the portion percentage
set by the Minister of Finance. In 2007 and 2008, the percentage of this funding sharing was
respectively 85.5 : 14.5 and 91 : 9.
The overall benefits for PNS pension fund in 2007 and 2008 was respectively Rp27.6 trillion
and Rp33.3 trillion and expected to rise to Rp39.8 trillion and Rp48.9 trillion in 2009 and
2010 respectively in view of basic salary increase of PNS and more beneficiaries including
the payment of honor fund as stipulated in Government Regulation No. 24 of 2008. APBN
burdens in pension payment for 2009 and 2010 can be seen in Table VI.7.

TABLE VI.7
PENSION PAYMENT
Year Total Pension Pension Payment
Beneficiary (people) (Rp trillion)
2009 2,344,645 39.8
2010 2,505,788 48.9
With the increasingly APBN burdens for pension payment and in view of provision set out in
the applicable laws and regulations, i.e. Law No. 11 of 1969, Government Regulation No. 25
of 1981 and Law No. 40 of 2004, the Government needs to establish Pension Fund and apply
fully funded system. Consequently, the Government will be charged with past service liability
for active PNS. One alternative to lessen fiscal risk is to set graph cut of date, in which the old
PNS (prior to cut of date) shall be treated under pay as you go system as currently applied.
But, for the new PNS (after cut of date) they shall be treated under fully funded system. Thus,
the Government will be no longer charged with past service liability, however, still required
to allocate fund to pay pension for the old PNS.
For Pension and Old Age Insurance (THT ) program, its funding is thus far from PNS salary
cut [contribution], i.e. 3.25 percent. The benefits to be paid are subject to factors, which one
of them is PNS salary. The Government policy to rise PNS salary brings consequence of fiscal
risk consisting of unfunded liability (UFL). Based on calculation made by PT Taspen, the
outstanding UFL until 2008 reached Rp4.09 trillion. In 2009 following PNS salary increase
in accordance with Government Regulation No. 8 of 2009 dated 16 January 2009
concerning the Eleventh Amendment to Government Regulation No. 7 of 1977 concerning
PNS Salary Regulations, the UFL is to upsurge by Rp2.98 trillion. If there is no any change in
benefit formula and the Government plans to raise the basic salary of PNS by 15 percent, the
potential UFL is expected to amount Rp3.65 trillion.
Since UFL accumulation correlates with the currently applied system, significant change to
THP Program system for PNS will be therefore paramount. One alternative to settle this
problem is that of amended provision concerning the benefits of THT PNS that shall be set
up no longer based on service term and salary, instead the accumulated contributions and
their investment. In order to make this new formula reflect more fairness and PNS will
accept this change, the Government as employer will also provide contributions.

17
6.4.3.3 Financial Sector
a. Bank Indonesia
According to Law No. 23 of 1999 concerning Bank Indonesia as amended with Law No. 3
year 2004, about the capacity of central bank, Bank Indonesia has a single goal, i.e. to pursue
and maintain the stability of rupiah. Stable rupiah connotes two aspects, i.e. stable to goods
and services, and stable to the currencies of other countries. The first aspect is reflected from
inflation rate trend and the second aspect is from rupiah exchange rate trend to other foreign
currencies. To realize such goal, Bank Indonesia is assigned with three tasks: (1) decide and
exercise monetary policies, (2) regulate and maintain payment system, and (3) regulate and
supervise banks.
As provided for in article 6 paragraph (1) Law on BI to perform the above tasks, capital for
Bank Indonesia is established minimum of Rp2 trillion. In case of risks arising from the
implementation of tasks and duties of Bank Indonesia resulting such capital to decrease less
than Rp2 trillion (Article 62), the Government shall be required to replenish the shortage
subject to endorsement of House of Representatives (DPR).
Apart from the foregoing laws, the capital of Bank Indonesia is also regulated in article 3
paragraph 2 point (f) Memorandum of Understanding between the Government and Bank
Indonesia concerning Bank Indonesia Liquidity Assistance Settlement (BLBI) and Financial
Relation of the Government and Bank Indonesia signed on 1 August 2003 stating that if
capital to monetary liabilities ratio of Bank Indonesia is less than 3 percent, it is agreed that
the Government will pay charge to Bank Indonesia in amount equal to the shorfalls required.
However, in contrast, if the capital to monetary liabilities ratio of Bank Indonesia reaches
more than 10 percent, Bank Indonesia shall share some part of such surplus as established in
laws on BI. Historical data on Bank Indonesia capital from 2006-2008 and its projection for
2009 and 2010 can be seen in Graph VI.3.
GRAPH VI.3
CAPITAL TO MONETARY OBLIGATIONS RATIO
OF BANK INDONESIA
14,00
12,36
12,00
10,38 9,85
10,00
8,04
8,00 6,68
Percent

6,00
4,00
2,00
0,00
2006 2007 2008 2009(Est.) 2010(Est.)
Year
Note:
Minimum limit of capital to monetary obligations ratio (3%).
Source: Bank Indonesia.

The above graph shows that in 2009 and 2010 BI capital ratio is expected to decrease by 9.85
percent and 6.68 percent respectively. This lower capital ratio is attributed to deficit coming
from exceeding monetary fees (marked with SBI volume projected to hit Rp230 trillion)

18
borne to Bank Indonesia, which is also tasked to maintain macroeconomic stability.
Nevertheless, the internal financial condition within Bank Indonesia in 2009 and 2010 is
predicted in sustain condition. In view of the above financial performance of BI, the
Government is not necessary to allocate charge fund for Bank Indonesia in APBN 2010.
b. Indonesia Deposit Insurance Corporation (LPS)
According to Law No. 24 of 2004 concerning Indonesia Deposit Insurance Corporation
(LPS), a function that shall be played by LPS is to insure customers’ deposits in banks.
Another function is to actively participate in maintaining banking system stability based on
the given authorities, in this case bank restructuring. The insured deposits since 13 October
2008 is a maximum of Rp2 billion per customer per bank. This amount is to rise from
previous ceiling, i.e. Rp100 million per customer per bank. To play its functions, LPS
receives initial capital from the Government i.e. Rp4 trillion. Until the end of 2008, capital
(equity) of LPS develops to Rp8.68 trillion.
Based on Law No. 24 of 2004 concerning LPS, if LPS capital is decreasing until less than its
initial capital, the Government with endorsement of House of Representatives shall
replenish the shortfalls. Similarly, when LPS sustains liquidity problems, it will receive loans
from the Government, Graph VI. 4 illustrates total deposits insured and capital position in
2009 and 2010 projection.
GRAPH VI.4
TOTAL INSURED DEPOSIT AND LPS' CAPITAL
POSITION

1.000
1.093,5 1.208,2
819,1
512,2 624,3

100
Trillion Rp

8,6 10,5
10 5,6 6,9

1
2006 2007* 2008* 2009** 2010***
Year

Insured Deposit Capital

Source : LPS.
Notes:
* Based on Financial Statement of LPS for 2008.
** Based on Work Plan and Annual Budget of LPS for 2009.
*** Capital Positions of 2010 can not be estimated yet.
Total claims for payable deposits and/or restructuring costs for default banks that must be
paid by LPS in 2009 and 2010 can’t be estimated since the business permits of default banks
will be revoked by Bank Indonesia and default banks for recapitulation in 2009 and 2010
can’t be estimated [at present]. Thus, it is uncertain whether the Government has to allocate
charge fund for LPS or not.

19
c. Indonesia Export Financing Institution /LPEI (Indonesia Eximbank)
Indonesia Export Financing Institution/LPEI formerly Indonesia Export Bank (BEI) is a
non-banking financial institution with function to support national export program with
export financing. Such export financing is provided in financing, guarantee and/or insurance.
According to Law No. 2 of 2009 concerning LPEI, the initial capital for LPEI is set at a
minimum of Rp. 4 trillion. Should such initial capital decrease until less than Rp4 trillion,
the Government replenishes the shortfalls from its APBN based on the applicable
mechanism. Graph VI.5 illustrates the position of LPEI capital in 2009 and 2010. In 2010,
LPEI capital is expected to amount Rp4.8 trillion. This sum is only sufficient to support
export financing, i.e. Rp14.4 trillion for financing, Rp545.0 billion for guarantee and Rp72.0
billion for insurance. To develop national export especially for products potential for export,
the Government plans to develop the export financing capacity of LPEI by allocating
additional capital consisting of Government Capital (PMN) in sum of Rp2.0 trillion.
GRAPH VI.5
EXPORT FINANCING ACTIVITIES AND FINANCING POSITION OF
THE INDONESIA EXIMBANK
2008 - 2010

16
14
12
Trillion Rp

10
8
6
4
2
0
2008 (Real.) 2009 (est.) 2010(est.)
Financing 9,577 12,693 14,437
Underwriting 0,268 0,408 0,545
Insurance - - 0,072
Capital 3,000 4,473 4,754

Financing Underwriting Insurance Capital

Source: Ministry of Finance.

6.4.3.4 Legal Claims to the Government

Generally, claims lodged to the Government c.q. the Ministry of Finance mostly concern
about civil matters in respect of tender, assets owned by foreign country/China, import duty
charge, land and/building assets, judicial review of regulations lower than law concerning
state revenue and other cases relevant to former Indonesia Banking Restructuring Agency
(BPPN). These cases will affect to the Government fiscal, i.e. to reduce state revenue, to
increase public expenditure as the result of obligations to pay compensation and the loss of
state owned assets.
With regard to cases relating to the performance of tasks and functions of the Ministry of
Finance, compensation claims filed to the Government reach Rp909.5 billion consisting of
material compensation Rp212.9 billion and immaterial compensation Rp696.5 billion. For
legal cases involving former BPPN, they can be differentiated into two types, i.e. civil case
and advocacy for former BPPN officials and employees whose testmony is required. In

20
respect of civil cases, there is case relating to Governement Guarantee Program and the
settlement of shareholders obligations/PKPS. As to the former, there are some cases
requiring the Government to make payments, including:
a. Five (5) cases requiring the Government to pay in amount of Rp516.4 billion and
USD104.7 million.
b. Twenty one (21) cases potential to cause losses for the state with values of Rp629.5
billion and USD38.2 million.
Meanwhile, cases in Shareholder’s Obligation Settlement (PKPS), BPPN (and Bank
Indonesia) will require the Government, among other things, to pay Rp23.5 billion. However,
the plaintiffs still have obligations to the State, i.e. shareholder obligation (JKPS) worth of
Rp88.2 billion (before deducted with payment made by the plaintiffs and the sales of group
loan).
Moreover, the Government c.q. the Ministry of Energy and Mineral Resources has to deal
with lawsuits in connection with the development of some power generation plants that are
potential to arise liabilities to the Government, including Water-Driven Power Plant (PLTA)
Koto Panjang and PLTA Riam Kana in amount of respectively Rp63 billion (plus forced
money Rp500,000 per day since the date of court judgment until its enforcement) and
Rp1.15 trillion.

6.4.3.5 Membership in International Financial Organizations and Agencies

The membership of Indonesia in international financial organizations and agencies can
cause fiscal risk from the Government committment to provide contribution and co-
financing to such international financial organizations and agencies.
In 2010, it is expected that budget allocated by the Government to pay contribution and
cofinancing in international financial organizations and agencies reach Rp1,094.7 billion.
Contribution to international organizations is extended under DIPA for the Ministry of
Foreign Affairs as provided for in Keppres No. 64 of 1999 in amount of approx. Rp300
billion. Meanwhile contribution, co-financing and trust fund in international financial
organizations and agencies will be allocated in DIPA the Ministry of Foreign Affairs worth of
Rp794.7 billion. The breakdowns of contribution, co-financing and trust fund of the
Government to the above international financial organizations and agancies can be seen in
Table VI.8.

21
 TABLE VI.8
GOVERNMENT FUND CONTRIBUTION AND CAPITAL PARTICIPATION ON INTERNATIONAL FINANCIAL
AGENCIES AND INSTITUTIONS OF 2010
Jumlah
International Financial Equivalent to
No. Remark
Agencies and Institutions Foreign Currency Rp
(billion Rp)
Capital Participation
1 Islamic Development Bank (IDB) 145.56 8th and 9th installment
ID8,562,400*
of IDB’s 2nd GCI
2 International Bank for Reconstruction 171.52 Outstanding promissory
and Development (IBRD) drawdown accumulation
in
rupiah
3 Asian Delopment Bank (ADB) 3.98 Non yet disbursed
promissory note
remnant
446.4 1st installment GCI 5th
ADB
4 International Fund for Agricultural USD1,500,000 16.5 1st installment
Development (IFAD) replenishment
8th IFAD
Contribution
5 ASEAN+3 Finance Cooperation Fund USD 2,000 0.022
(AFCF)
6 Group of Experts (GoE) USD12,500 0.138
7 ASEAN Finance Minister Investor 0.150
Seminar (AFMIS)
8 OECD Development Centre EUR31,500 0.425
Trust Fund
9 USAID Trust Fund 10.0 Contribution payment to
USAID
trust fund in rupiah
(total similar to 3 years
latest payment)
Total 794.7
Source: Ministry of Finance.

6.4.3.6 Natural Disaster

Indonesia is a country vulnerable to natural disasters. One of contributing factors for this
vulnerability is its geographical conditions. Out of various catastrophes, floods and
earthquakes are the most frequent disasters aggravating this country. Natural disaster events
in 2004 to 2008 are listed in Table VI.9.

TABLE VI.9
DISASTER EVENTS IN INDONESIA 2004-2008

Total Events
Natural Disaster Total
2004 2005 2006 2007 2008
Earthquake 11 9 20 12 8 60
Earthquake and Tsunami 1 1 2
Volcano Eruption 5 2 5 4 1 17
Landslide 54 50 73 56 39 272
Flood and Landslide 9 13 31 45 22 120
Flood 285 248 328 152 197 1,210
Storm 65 47 84 75 56 327
Tidal Wave/Abration 8 6 14 29 8 65
Technology Fault 8 7 18 6 3 42
Total 446 382 574 379 334 2,115

Source: National Board for Disaster Management.

22
The most dominant catastrophes, i.e. floods and earthquakes, generate huge impacts.
However, more alertness should be given to earthquake than flood because of its suddent
and unpredicted occurence. Unfortunately, this lethal catastrophe can’t be predicted
accurately. As to flood, it is much more predictable, i.e. when rainy season reaching its peak.
This will enable the Government and communities to take anticipative measures, such as
save the assets and move to safer place. Death toll of earthquake are normally much higher
than fatalities claimed by flood. Total casualties from 2004-2008 can be seen in Table
VI.10.
TABLE VI.10
CASUALTIES FROM DISASTER IN INDONESIA 2004 – 2008
Casualties
Bencana Alam Total
2004 2005 2006 2007 2008
Earthquake 150 953 5,784 102 12 7,001
Earthquake and Tsunami 165.945 - 683 - - 166,628
Volcano Eruption 2 - 2 - - 4
Landslide 135 212 214 73 73 707
Flood and Landslide 45 77 228 346 54 750
Flood 100 68 379 122 68 737
Storm 11 4 11 24 3 53
Tidal Wave/Abration - - - 3 - 3
Technology Fault 78 277 562 248 30 1,195
Total 166,466 1,591 7,863 918 240 177,078

Source: National Board for Disaster Management.

The table indicates that the dead toll for the last five years are relatively enormous, i.e.
177,078 persons. Out of them, 94 percent was casualities of earthquake and tsunami
devastating Aceh in 2004. With regard to earthquake, further observation against data from
1963 through 2000 indicated that total cumulative earthquake incidences record liniear
increase. However, from 2000 to 2007, the cumulative earthquake events did not follow the
previous pattern, instead show sharp increase toward asymptotic pattern. The changing
pattern in cumulative earthquake incidences from 2000 can be seen in Graph VI.6.
GRAPH VI.6
CHANGES OF EARTHQUAKE PATTERNS THROUGHOUT SURFACE
LONGITUDE OF SUMATERA 1965 - 2007

Source: National Board for Disaster Management, processed.

The estimated financial losses from earthquake can be seen in Table VI.11.

23
 TABLE VI.11
ESTIMATION OF FINANCIAL LOSSES CAUSED BY EARTHQUAKE
Estimation of Financial
Magnitude
Earthquake Location Losses
(Reichter Scale)
(billion rupiah)
5 1,559.89
High Economic Activities 6 12,946.95
7 52,127.33
7 5.70
Medium Economic Activities 8 113.96
9 693.65
7 2.16
Low Economic Activities 8 27.12
9 12.48
Source: Estimation based on Catastrophe Model
Notes:
Earthquake simulation is made in 3 different regions, based on the relevant region economic capacity
(high, medium and lower). Simulation of earthquake spot (epicenter) ranges from magnitude 7, 8, and
9. Model simulation results will be different for the different epicenter and magnitude. Other factors
include longitude, latitude, and depth.
Law No. 24 of 2007 concerning Natural Disaster Management puts this responsibility to
Central Government and Regional Government. As for Central Government, the
responsibilities in natural disaster management shall include:
a. mitigate disaster risk and integrate disaster risk with development program;
b. protect the affected communities from the impacts of disasters;
c. assure the right fulfilment of the affected communities and refugees in fair manner
d. according to minimum service standard;
e. condition recovery;
f. allocate adequate natural disaster management budget in APBN;
g. allocate natural disaster management budget consisting of standby fund; and
h. maintain authentic and credible files/documents from the threats and impacts of
disaster.
Budget for natural disaster management in APBN is allocated for activities performed during
pre-disaster stage, emergency response stage, and post-disaster stage. This natural disaster
management budget in APBN is taken among other from disaster contingency fund. Fund
allocated and the realization can be seen in Graph VI.7. Besides allocating part of disaster
contingency fund in APBN, another way that can be used to lessen fiscal risk from natural
disaster is to encourage the participation of people under Public Private Partnership (PPP)
scheme with regard to Natural Disaster Awarenes Campaign and risk transfer to insurance
companies.

24
 GRAPH VI.7
NATURAL DISASTER CONTINGENCY FUND

3.500

3.000

2.500

2.000
Billion Rp

1.500

1.000

500

0
2004 2005 2006 2007 2008 2009 2010

Ceilings on State Budget Realization

6.4.4 Fiscal Decentralization: Region Subdivision

Fiscal decentralization policy is to accelerate the realization of prosperous people with
improved service, empowerment and community participation as well as improved regional
competitiveness inspired by democracy, equality, privilege and uniqueness of a region within
the unitary state of the republic of Indonesia. In the field, this policy on top of positive
impacts is potential to bring fiscal risk.
The another side of fiscal decentralization is regional subdivision phenomenon. Since the
introduction of decentralization, the number of new autonomous regions is steadily
increasing. It is followed with more APBN budget for transfer to regions. In 2008, the
proceeds of transfer to regions amounted Rp666.41 trillion (67 percent of APBN) and in
2009 it reaches Rp587.62 trillion (56.7 percent).

6.4.4.1 Regional Subdivision

Regional subdivision is basically a tool to speed up the realization of goals from the
introduction of decentralization. The more streamlined control span is expected to make
public service be delivered in more effective and efficient way. In the field this lofty thought
is hampered by many constraints, and if not appropriately manage it will be potential to add
fiscal burdens.
Since the introduction of decentralization policy through 2009, the number of autonomous
regions is 524 regions consisting of 33 provinces, 398 districts and 93 cities. This trend was
addressed by the Government with the issuance of Government Regulation (PP) No. 78 of
2007 concerning Procedures for the Establishment, Dissolution, and Amalgamation of
Regions. Such PP contains tighter requirements that must be complied with for the
formation of new regions. It is expected that this PP be the main screen so as to achieve
effective regional subdivision.

25
 GRAPH VI.8
TOTAL AUTONOMOUS REGIONS
91 93
85 87
81
398
69
347 368

267
31 32 33 33
28

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year

Province City Regency

Source: Ministry of Finance.

Based on the above Graph VI.8, while the said PP contains tighter requirements for new
region formation, the number of new autonomous regions is constantly to increase.

6.4.4.2 Impacts to Fiscal

From fiscal wise, new autonomous regions will have influence over APBN in respect of: (1)
General Allocation Fund (DAU); (2) Special Allocation Fund (DAK); and (3) Vertical
Institution Needs Any additional autonomous region will reduce the real DAU allocation to
other autonomous regions. If hold harmless (e.g. DAU allocation of a region may not less
than its last year’s DAU) policy is introduced again in 2010, either in whole or in part, the
lower DAU allocation will bring consequence to APBN, i.e. need of allocating adjustment
fund.
Governance services and infrastructure in regions are verily needed by new autonomous
region, Starting from 2003, the Government allocates DAK fund for governance instructure
to support the operation of regional governance in the newly established regions. The
beneficiary of this fund include those sustaining the impacts of regional subdivision (new
autonomous region and parent region). From 2003 to 2009, DAK allocated for the provision
of this governance infrastructure ranges from Rp3.27 billion to Rp5.46 billion per beneficiary.
For any new autonomous region, the Government will need the same amount. DAK
allocation for governance infrastructure from 2003 through 2009 can be seen in Graph
VI.9.

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 GRAPH VI.9
ALLOCATION OF DAK OF GOVERNMENTAL
INFRASTRUCTURES, 2003 - 2009
600 562
539
500 448,6

400 362
Billion Rp

300
228
200 148 159
135
88 106 103
100 57
22 34
0
2003 2004 2005 2006 2007 2008 2009

Allocation Of DAK of Governmental Infrastructures

Source: Ministry of Finance Total Beneficiary Regions (District/City)

Another consequence of regional subdivision to public finance is additional offices for

vertical institutions to perform governance activities under the responsibilities of Central
Government, including: defense, security, religion, justice, and finance. With the opening of
such offices, the Central Government must allocate fund for the associated facilities and
infrastructure. Indeed, the Central Government has to allocate fund for the procurement of
office facilities and infrastructure, personnel and other operational expenditures. Based on
Work and Budget Plan of Ministries/Agencies (RKA-KL) 2005-2009 total APBN fund
allocated to new autonomous region ranged from Rp6.30 trillion to Rp14.27 trillion. Budget
allocation for vertical institutions in new autonomous region from 2005 to 2009 can be seen
in Graph VI.10.

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 GRAPH VI.10
ALLOCATION OF VERTICAL INSTITUTIONS BUDGET IN
NEW AUTONOMOUS REGIONS, 2005 - 2009
16.000
14.015 14.272
14.000

12.000
Billion Rp

10.000
8.714
8.090
8.000
6.304
6.000

4.000

2.000

0
2005 2006 2007 2008 2009
Personnel Expenditure Material Expenditure Capital Expenditure
Social Assistance Total

Source: Ministry of finance

6.4.4.3 Other Problems
Apart from fiscal, the bifurcation of region is potential to bring about other negative impacts.
Many studies on regional subdivision by various institutions of government or
nongovernment arrived at conclusions that there were still a lot of things to be dealt with in
respect of this region bifurcation. Formula used to compute revenue sharing (DBH) from
natural resources contains weakness that can be availed by the producing region to bifurcate
its region solely on the grounds of higher portion to be received. Another problem is the
switching of producing region from the parent region to the new region. This may spur new
conflict. They (parent and new regions) will tussle the recognition as producing region. In
connection with revenue allocation, new region claiming as producing region but not
established as producing region in Decree of Minister of Energy and Mineral Resources may
get suspension for its transfer to region allocation since the relevant budget documents must
be revised accordingly.
There will be additional sectors in DAK, i.e. traditional market sector and underdeveloped
region development sector consisting of rural infrastructure development. Consequently, the
Government has to allocate additional budget. Changing oil and gas price will affect APBN in
terms of state revenue and public expenditure. Any additional state revenue from oil and gas
price increase will be transfered to regions either under DBH oil and gas mechanism or DAU
in the formulated sums. However, additional public expenditure from the same ground must
be shouldered by Central Government, for example, increase in fuel subsidy following the
soaring oil price. In other words, any additional state revenue will be distributed to regions,
but any additional public expenditure will be charged to Central Government. Unless the
current allocation method is changed, the Government will be potential to shoulder
significant financial burdens when the oil and gas price is skyrocketing as experienced in
2007 and 2008.

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