Indonesia’s DB 2008 rankings Indonesia’s overall ranking improved 2007 – 135/175 2008 – 123/178 Reasons for improvement Dealing with licenses (from 131 to 99) Faster processing of building permits in Jakarta Getting credit (83 to 68) Broader coverage of BI’s credit bureau (all loans have to reported now compared to only loans above Rp. 50 million earlier) Protecting investors (60 to 51) Bapepam’s regulation on disclosure of related party transactions Setback Starting a business (161 to 168) Time to start a business increased from 97 to 105 Delegation of authority to provincial offices of Ministry of Justice 1

Indonesia is the 2nd best reformer in Asia

But further reform is needed 3

Overall message There has been slow but steady progress in improving Indonesia’s business environment. But reform is starting from a very low base. Faster reform is needed. Key reforms have supported this improvement: Macro stability has been achieved. Three policy packages were issued in 2006. A follow up package on the real sector was released in June 2007. A new investment law has been passed by Parliament and a new tax administration law. Tax and customs reforms are gaining momentum, with the time to issue VAT refunds and to clear imports declining. Local governments are improving service through one stop shops. 4

Business perceptions of Indonesia’s investment climate are improving Percent of respondents who view obstacles as moderate to very severe 5 Only infrastructure, financial access and land procurement have worsened

Obstacles and Actions ACTIONS TO ADDRESS THESE OBSTACLES: The biggest obstacles perceived by businesses are macroeconomic instability, infrastructure, corruption, and economic policy uncertainty. ACTIONS TO ADDRESS THESE OBSTACLES: Macro stability has been maintained but cannot be taken for granted. Low inflation and a stable currency are important for the business environment. Infrastructure: Clarify land acquisition procedures. Improve inter-agency coordination for infrastructure projects. Improve the framework for public private partnership in infrastructure. Economic policy uncertainty: Pass a new mining law clarifying the replacement for the existing Contract of Work system. 6

Specific actions that can be taken Reduce bureaucratic red tape, including the time and cost to start a business: Yesterday the government announced major new initiatives designed to cut business start up time to 25 days. Investors will welcome the supporting regulations and rapid implementation. Additional steps: eliminate the minimum capital requirement for limited companies. Indonesia’s new Company Law raises the MCR which will hurt Indonesia’s rankings next year. Regional and global trend is to eliminate MCR (India, Vietnam, Japan). Switch from sequential to parallel processing (e.g., allow application for key business licenses to start before company legalization, based on the Deed of Establishment). Streamline business licensing: Combine redundant or overlapping licenses such as the HO, Izin Lokasi and Izin Prinsip (nuisance permit, location permit, principle permit). Simplify requirements for licenses. 7

Other actions Implement the June 2007 Real Sector Policy Package Pass the two tax laws currently in Parliament (VAT law and Income Tax law) Pass the Cyberlaw (to allow paperless approvals and licensing) and a law on Special Economic Zones (scheduled to be sent to Parliament in November 2007). Issue remaining implementing regulations for the investment law (on investment procedures and one stop shops) and issue operating procedures at Ministries. Issue an investor guidebook for the July 2007 investment negative list and clarify uncertainty about grandfathering, SMEs and partnerships. There’s no magic bullet – reform needs to be a ongoing process – and the environment needs to be continuously improved That’s what Indonesia’s competitors are doing!! 8