Indonesia -KKR Insights 130627
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Transcript of Indonesia -KKR Insights 130627
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2 KKR InsIGhTs: Global macro Trends
Indonesia: TransitioningPotential Into RealityIn a world increasingly starved for growth, we believeIndonesia has several substantial macro tailwinds thatwill continue to drive its GDP higher and potentially
with lower than average volatility. However, recenteconomic growth has come at a significant cost, andin our view, the country now needs to address thenotable increases in both its fiscal and current accountdeficits. If the country can successfully address thesechallenges, then we think Indonesia could representone of the more compelling opportunities in the globalcapital markets over the next five to seven years.
KKR global MacRo & asset
allocatIon teaM
henRy h. McVey
Head of Global Macro &
Asset Allocation
+1 (212) 519.1628y.vy@kk.
DaVID R. McnellIs
+1 (212) 519.1629vi.i@kk.
FRances b. lIM
+1 (212) 519.1630f.i@kk.
Rebecca J. RaMsey
+1 (212) 519.1631.y@kk.
MaIn oFFIce
Kg Kvi rt & c. l.P.9 Wt 57t sttsit 4200nw Yk, nw Yk 10019+ 1 (212) 750-8300
coMPany locatIons
Usa nw Yk, s Fi, Wigt,d.c., m Pk, ht eURoPel, Pi asIa hg Kg, bijig,sigp, di, Tky, mi, s
aUstRalIa syy
2013 Kg Kvi rt & c. l.P.a rigt rv.
Unity in Diversity
MPU tantUlaR
hIndu PrIesT (14Th cenTurY)
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KKR InsIGhTs: Global macro Trends
W I fit wt t Ii i 1995, I tkk t bkit lwg i
t st wit y t i fi t gt
i t ift. T ti y, it i f t igigt f y
itti tv. my xt tip t Ii w i 2001, I
pt t i f y ti i bi wit y wif kig
fig t tif t ikig p i t
ty ift.
s igt igi, w I t w i t ty
gt ity, Jkt, fw wk k, t tk g tt
w 100% wk-t, t t iig, tffi w w tiy k t y pvi i. s, I g t
ii tt Ii ti tt, wi i
tk f 14t ty p, i uity i divity. Iptty,
tg, Ii t f ffig i t iit t jt g-
gpy; it ppi t t ty i kp f igi,
ti, t i ivity.
nt, ti tip t w qit I ft t ty
wit tig f wy Ii i ig
iptt ipi i t ti i f t v stt
ai gi i t g y. I, ig t it ity
f pp ivity f , Ii w t
i tjty tt i p t tp-10 yy 2030. Pttiy iptt t ivt i tt Ii
y t ti gt y 2050, tiig
y ci Ii.
bt t fy t wt i gig i Ii, -
ti i tt fk t gt t f Jkt, t ti pi-
t i pw (.g., Jkt t f 20%+ f GdP
gwt1), p ti i iti ik sy m. Wy?
b w iv it giv ivt t ppiti f t
, t ft gwig yi pt f t -
ty y. mv, y viitig xitig pt, ti
tt i t iti, ivt gi tt -
tig f w v ipvt i tgy, ti,
iftt tiy t ipvt i t
ty GdP p pit.
hwv, i i t y t igifi-
t t. aft t f t iipi -
ig -t tt, Ii i w f t fw ai
gig kt (em) ti wit t fi t -
t fiit, wit Ii ig t y t j em ty wit
ti ititi. a ky pit f ti i t ty
f iy pg. a t, t gvt w p 3.7% f
totalGdP f ii t pt iigy v vt-
ig 2
. I viw, ti typ f piy i xty tigt y g t t igifit y ifti
.
by vpig f ii, t ty i iitig
it iit gvt i wy f t iftt, t-
ti iititiv tt t ty pty t
1 dt t m 6, 2013. s: b Pt sttitik.
2 dt t my 31, 2013. s: dpt Kg, bi Pt sttitik,ImFWeo, hv ayti.
ffi it g-t ptti. Ti viwpit i t t -
t, w iv, ity w tt igi pi
ft t , tyig t g-t ptivity
ptti gwt.
Giv t tti -t, I tgt it igt
k t ti f y ipi f y t tip
Ty fw:
Favorable Demographics Will Likely Drive Further Increases in GD
per Capita sii t Ii, Tky bzi, Ii i ft gpi it ti, wit 50% f it pp
ti t g f 30 (Exhibit 17). 2012 GdP p pit w j
$3,596, 3/5 t v f ci y 1/3 t v f bzi (Exh
22). T g w i tt t gp i w wig Ii
GdP p pit (i usd) p t gwt
f 18% tw 2005 20113, w k f ft 40%
gggt i f 2012 t 2017. Giv tg tiwi
Ii i pjt t t ft iggt
i t w y 2030 v jt 18t ty (Exhibit 10). Witi t
kt, w t ty, tptti, i
ti/tiig tttiv kt.
High Corporate Sector Profitability in Fast Growing Region of theWorldIi pi igy pfit, kig g
t t tiv i ai. I ft, t qity f t I
ix f piy t pi i 21.5% v 16.5%
f Ti 13.5% f myi4. I viw, tg pfiti
pt t y xti t i ftiv f t
pitiv tiwi tt Ii jy y ig pt f t
ft-gwig stt ai gi. ay, 70% f Ii
xpt w ty witi ai, wi i igifit t oecd i
pjtig i i t gi t i y
tggig 515% t 3.2 ii y 2030 v 525 ii i 2009
Despite Strong Growth, Credit Penetration and Government Lever
age Are Still at Attractive Levels ev wit 20% caGr v t
pt fiv y, ti it t t pivt t i Ii
w jt 33% f GdP v 55% f Ii 130% f ci i
2012 (Exhibit 13). Ti w ti i iptt it
tt not tifiiy p fw, ,
t gi t it gwt i ti qit ig. mwi
g gvt vg ptg f GdP f t jt 24
i 2012 f 95% i 2000 (Exhibit 14), ggtig tt t gv
t py p , ptiy i
vi iftt. ov, Ii t ttiti
v ipiv w t git t kp f
ty tg 6% iz GdP gwt t (Exhibit 8).
Wt ty ggt t t t i ttt ty vg ptivity i qit tg ik
t i . a t, v t t fiv y ptivity
4.4%, p t 1.6% i ty ik bzi.5
However, There Are Definite Signs of Economic Slippage I 2012
3 Ibid.2.
4 dt t my 31, 2013. s: mscI, Ftt.
5 dt t d 31, 2012. s: bi Pt sttitik, Itittbii Ggfi ettti, hv ayti, KKr Gmaa t
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4 KKR InsIGhTs: Global macro Trends
Ii 2.7% t t fiit, wi it fi fiit
gtiv 2.1% v ty g iit f 3.0%6. I
2013, t i ig t fiit v y gtt
gig. Twi fiit i ft gwig i,
, ty ft pt iit jtt pi,
iig y wk / ifti wi. Giv tt
t F y w fiy witwig x iqiity, Ii
y f t k jtt t it fiit piy t ti
w it t f pit i w t ti t i. extig
t i i t ty g f iy pg, wi w
tt 3.7% f GdP. T pt ti i pptiv, t ty fit t f iy pg i t q i t t
ptg f GdP t wt t gvt w
p pi t ti pg combined7. W
tiy kwg tt t gvt i w i t p
f igig i pig f ii, t ftty it
pp tt t i wi it tw t pg
tt kp it i t t v.
Hard Place to Do Business aig t t W bk e f
dig bi Ix f 2012, Ii i k 128 t f 185
i, igty tt t bzi Ii t iffit
t ci. Iptty, ti kig f ft ft it w
tt fig wig i t kti ppti t y 2018. W pt
f i xtiv t t gwig pw f it
ipt ptig t, gi ptig fxiiity i p-
ti. Fiy, itty t i t p,
pti i gig i i Ii tt fig
ivt t i fy.
Need to Translate Recent Commodity Economy Into a New Ser-
vices-based EconomyI viw, t ty v ft
t pitiz t igifit pptity t vg it t
ity ivi it t f t y, iig
vi iftt. at t t, Ii jt 39%
f it ity i vi v 56% i Ii 68% i bzi
(Exhibit 16). T ik f iig ti pptity i igifit
t y ti 35% f tt pyt t t gi-
t; v, 74% f t i i xpt i 2011 w iv
y pi, t v (Exhibit 46). rt t t ft ti
viw 1Q13 GdP f t 6.0% y/y f 6.8% i 4Q2010, iv
gy y i i t pi f , i, p i
8. a wit ci w iftig it gwt piiti tw
pit-itiv gwt, t i y igt ik tt
Ii y v y i it wiw f pptity.
s wt i tt i Ii? sipy tt, i w
w it i iigy t fi gwt, w tik tt sttai, Ii i pti, pt f t pig
g-t ivtt titi. uik y f t g
ig pfi em ti, Ii -
y, it t i w, it i i i y
it t ig pfi gig kt ik ci,
Ii, bzi. a wit ptivity, Ii GdP
6 Ibid.2.
7 Ibid.2.
8 dt t my 6, 2013. s: bg.
gwt i igt t tiv t i.
exhIbIt 1
Indonesian Equities Have Re-rated Since 2004
May-1315.3
Avg, 11.2
+1
-1
4
6
8
10
12
14
16
18
01 02 03 04 05 06 07 08 09 10 11 12 13
Indonesia: Forward Price-to-Earnings
dt t my 31, 2013. s: Ftt agggt.
exhIbIt 2
But Indonesian Equities are No Longer Cheap
May-133.9
Avg, 2.8
+1
-1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
91 93 95 97 99 01 03 05 07 09 11 13
Indonesia: Trailing Price-to-Book
dt t my 31, 2013. s: mscI, Ftt.
I t -t tg, t v wy p-
ti kptii i qi. Pi vti w i
y it t ti w igifit wg gwt i gi-
ig t p gi. a wit u.s. itt t iig, t
ptiti f pit i w gig p, it i iky t p
gig kt i itt t i t ft. Fi
w tik GdP gwt i Ii i iky t ippit i t
t, iv gy y w ity pi wk xp
gwt.
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KKR InsIGhTs: Global macro Trends
exhIbIt 3
Given the Countrys Imbalances, the Indonesian Rupiahis Now Beginning to Depreciate
8500
8700
8900
9100
9300
9500
9700
9900
10100
10300
10500Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13
Indonesian Rupiah Spot Exchange Rate
(USDIDR)
Weaker Rupiah
dt t J 18, 2013. s: bg.
exhIbIt 4
Its Sovereign Bonds Are Now Too Under Pressure
-50
-25
0
25
50
75
100
125
150
175
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13
YTD Change in 10-Year Govt Yields (bp)
U.S. Indonesia China
Korea Malaysia Singapore
Thailand
dt t J 20, 2013. s: bg.
o t pivt i, t ty i v px. F
vtg pit, p i iky qi, t t i
gi t t p tt t i if fftig t ivtt ii i-
t t gi. a, giv tt t t f pit
i w w tiv t ity, pivt qity fi ig
t jt ti pit ; ty g pt wit
tg pti piiti ity xpti. eqy
iptt, pivt qity ivt y t wk wit
t iti i wi ty ivt t vigt t
t tw iig gvt itvti, tii
i qity.
exhIbIt 5
Large Subsidies and Weak Tax Collection Have WideneIndonesias Imbalances
0
5
10
15
20
25
-3
-2
-1
0
1
2
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Indonesia: Fiscal Balance % of GDP (Left)
Indonesia: Government Revenue % GDP (Right)
Indonesia: Government Expenditure % GDP (Right)
dt t J 19, 2013. s: dpt Kg, bi Ptsttitik, ImF Weo, hv ayti.
exhIbIt 6
Indonesia Has Rigid Employment Policies
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
U.S.
Russia
Brazil
India
China
Greece
Indonesia
Mexico
Turkey
OECD Employment Protection Index, 2008
(Scale 0-6, a higher score indicates more restrictions)
dt t d 31, 2008. s: oecd. T fi t tt tgy t t t oecd pyt pttiiit, www..g/pyt/ptti.
GDP: Consistently Strong
I w f iig i itiity, t p
pttiy iptty t ti f Ii
gwt t i t pit f ititi. I 2012, f xp,
t ty iti 6.2% gwt t, pit t ft tt
pt w ty gtiv f t fit ti i igt y (Exh
8).
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6 KKR InsIGhTs: Global macro Trends
a v t t 12 y, t ty g t wt
vtiity yiity f GdP i t j i w fw.
o t tiity t f t i t i
Exhibits 7 and 8 w.
exhIbIt 7
Relatively Low Volatility or High Single Digit GDP Growth
Laos
China
CambodiaKorea
Indonesia
Brazil
Singapore
Turkey
EuropeanUnion
0
1
2
3
4
5
6
0 2 4 6 8 10
StdevofRealGDP2000to2012(%)
Average Real GDP 2013 to 2018 (%)
Real GDP vs. Volatility
dt t api 16, 2013. s: ImF tit, KKr G m &at ati ti.
exhIbIt 8
Despite the Net Export Drag, Real GDP Was 6.2% in2012
-4
-2
0
2
4
6
8
00 01 02 03 04 05 06 07 08 09 10 11 12
Indonesia: Real GDP Y/y (%)
Statistical Discrepancy Net Exports
Gross Fixed Capital Formation Government
Private Consumption Real GDP
Net exports a drag to growth
for the first time in eight years
Fiscal stimulus and
strong credit
growth off set weak
external conditions
dt t my 6, 2013. s: bi Pt sttitik, hv ayti.
a jor reo for Ioei cce i tht the ecooy i ot
too epeet o oe ector or proct. I prticlr, the Ioei
ecooy h it ow virt oetic coptio ecooy. by
coprio, y eergig rket we viit re either overly relit
o low-e export /or high fixe ivetet. If there i hort-
coig i GdP copoitio, we wol rge tht it i the gover-
et low peig rtio. a oe c ee i Exhibit 9, Ioei
goveret cotritio to GdP ttilly lg tht of it peer.
exhIbIt 9
Indonesia Has a Relatively Balanced Economy...
60
21 20
-1
57
20
28
-6
56
9
34
1
35
14
48
3
Consumption Government Investment Net Exports
GDP Composition (2012)
Brazil India Indonesia China
PPP=pig pw pity. dt t J 4, 2013. s:Ititt bii Ggfi ettti, Ii ct sttitiogizti, bi Pt sttitik, ci nti b fsttiti.
exhIbIt 10
And By 2030 Should House the Worlds Fourth LargesConsumption Market
ToP 10 CoUnTRIeS: MIDDle ClASS ConSUMPTIon
(TRIllIonS of 2005 PPP DollARS)
2009 2020 2030
1 u.s. 4.4 chIna 4.5 IndIa 12.
2 JaPan 1.8 u.s. 4.3 chIna 10.
3 GermanY 1.2 IndIa 3.7 u.s. 4.0
4 France 0.9 JaPan 2.2 IndonesIa 2.5
5 u.K. 0.9 GermanY 1.4 JaPan 2.3
6 russIa 0.9 russIa 1.2 russIa 1.4
7 chIna 0.9 France 1.1 GermanY 1.3
8 ITalY 0.7 IndonesIa 1.0 meXIco 1.2
9 meXIco 0.7 meXIco 1.0 braZIl 1.2
10 braZIl 0.6 u.K. 1.0 France 1.1
World 21.3 World 35.0 World 55.
PPP = pig pw pity. dt t Jy 2010. s:bkig Ititti, oecd dvpt ct Wkig Pp n.28deV/doc (2010).
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KKR InsIGhTs: Global macro Trends
exhIbIt 11
Productivity in Indonesia Is Relatively High
-14
-12
-10
-8
-6
-4
-2
02
46
8
10
12
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
Indonesia: Real GDP Y/y (%)
Labor Force Productivity Real GDP
President
Susilo
Bambang
Yudhoyono
2004-current
1998 Habibie
1999 Wahid
2001 Megawati
President
Suharto
1968-1998
(1) r GdP f 2012. s: bi Pt sttitik, hv ayti.(2) Ppti tit f my 11, 2011. s: uit nti
W Ppti Ppt, hv ayti.
exhIbIt 12
Growth in Smaller Cities Will Outpace Jakarta
5.9
5.9
5.3
5.9
6.4
6.7
5.8
Indonesia
Rural
Other cities
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8 KKR InsIGhTs: Global macro Trends
exhIbIt 14
As Is Government Leverage
23
24
34
36
42
44
5255
67
68
107
111
238
China
Indonesia
Korea
Turkey
Philippines
Mexico
VietnamMalaysia
India
Brazil
U.S.
Singapore
Japan
2012 Gross Government Debt % GDP
dt t api 16, 2013. s: ImF Weo, hv ayti.
o tip ft wit t itit ipi tt t i
j pptity t k t ty iig git
t ptiv. a Exhibits 15 and 16 itt, gitpyt t f f 35% f tt pyt, t jt
t 15% f tt GdP. Iptty, t gvt i tt-
ig t it pt, pig viy f ipv fig tiq,
iig ftiiz ipvt pitit ig.
ri i ti t ty tp p, t giv gig ,
t ty i ti t ipt t 2012. T ty i
w t w gt p f p i, it i
g t i pti.
T i igifit pptity f GdP gwt i t -
ty vi t. a Exhibit 16 w, Ii vi
t i ti tivy t 39% f GdP. by pi, ci,
Ii bzi v vi t tt tw 6 t 29
ptg pit f GdP highert Ii. a ky i
tt it ptti i tivy w, wit w it pt-
ti t GdP p pit, t ty ti ig
gt f t vi kt ti i ti ify tiv t
y t gig kt ti.
exhIbIt 15
The Agriculture Sector Is Still Relatively Large
17
25
32
35
35
51
52
Brazil (2009)
Turkey (2011)
Philippines (2012)
China (2011)
Indonesia (2012)
India (2010)
Vietnam (2009)
Agriculture % Total Employment
dt t d 2009-2012. s: W bk, hv ayti
exhIbIt 16
While the Services Sector Is Relatively Small
14
47
39
10
45 45
17
26
56
5
26
68
Agriculture & Livestock Manufacturing,Construction & Mining
Services
2012 GDP by Industry (%)
Indonesia
China
India
Brazil
Indonesia servicessector is still
relatively small
dt t api 15, 2013. s: bi Pt sttitik, Ii ctsttiti ogizti, ci nti b f sttiti, ImF, hvayti.
s wi t i wk t i t f f
gvt pig t t giz t pivt t
i ptip wit t gvt t iftt
ft, w iv t Ii GdP gwt ty i t iky t
ff t igifit ww i GdP tt w -
ig i Ii, ci bzi. T , xpt gwt ik titi itti t i iky t ippit i t
-t, t wg iig, pig i gwig, GdP p
pit i tikig ig. eqy iptt, t ty y
g it t k it pt t g
y t t it gwt ft. a t, w tik tt t
g-t tk f t ty k it tttiv titi
f gig kt-it gwt pit.
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KKR InsIGhTs: Global macro Trends
Consumption: Demographic Tailwinds Are Favorable
Some people want it to happen, some wish it would happen, others
make it happen. bkt t mi J
W it t pti, wi i y t gt pt f
t Ii y t 56%, t i qti tt Ii
i i t mi J k it pp tgy. I, Ex-
hibit 17w, Ii t y yg ppti t
gwig , wit g pti ptti. Iptty, ti
t i iky t gi t , w w Exhibit18, Ii wkig ppti i t iky t pk ti 2036.
a ik ty ik ci, wi t g v
t p, Ii ptty g tw vig
pti.
exhIbIt 17
A Young and Growing Population, Fourth Largest in theWorld
Cambodia
Spain
Russia
Australia
U.S.
China
TurkeyMexico
Hong
Kong
VietnamBrazil
Indonesia
India
Philippines
Japan
Germany
Singapore
-20
-10
0
10
20
30
40
50
20 30 40 50 60 70
TotalPopulationGrowth2030vs
2010(%)
Percent of Population Under Age 30 (%)
Young and
growing
population
dt t spt 26, 2012. s: uit nti WPpti Ppt, hv ayti.
exhIbIt 18
The Demographic Dividend Crests in 2036
2036
2016
2052
2032
80
100
120
140
160
180
2000
2004
2008
2012
2016
2020
2024
2028
2032
2036
2040
2044
2048
2052
2056
2060
Working Age Population Indexed: 2000 = 100
Indonesia China India Brazil
Indonesias workingage population willonly peak in 2036
dt t spt 26, 2012. s: uit nti WPpti Ppt, hv ayti.
I gggt, Ii i i xpt t gw t 95-
ii pp, 35-45% f t tt ppti y 2030 v ii, 18% f t tt ppti ty (Exhibit 20). a if
t ti pti t k t t 2050, Ii wi v
t ti gt i ppti i t w, i y
ci Ii (Exhibit 21).
exhIbIt 19
The Current Middle Class Is Only About 45 Million
0
200
150
100
50
Pakistan
Egypt
Colombia
Philippines
Peru
Malaysia
Thailand
SaudiArabia
Indonesia
Argentina
Poland
Russia
Turkey
Mexico
Brazil
India
China
2011: Size of Middle Class Population
(millions)
Chinas middle class is
estimated at 300-400 million
s: hsbc pt c i 2050 t ot 2012.
Twin decits are rare in astgrowing EM economies, and
as such, they oten portend animminent adjustment period.
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10 KKR InsIGhTs: Global macro Trends
exhIbIt 20
But it Is Growing Rapidly
45
95-125
245
280
2012 2030
Indonesia: Population (millions)
Middle Class Population Total Population
Middle classis 18% total
population
Middle class is35-45% total
population
s: ati y aii Pg Ii t ot 8, 2012qtig dpty Fi miit m sig.
exhIbIt 21
By 2050, Indonesia Will Have the Third Largest MiddleClass Among Emerging Markets
0100
200
300
400
500
600
700
800
Poland
Argentina
Malaysia
SaudiArabia
Peru
Turkey
Colombia
Pakistan
Thailand
Mexico
Russia
Philippines
Egypt
Brazil
Indonesia
China
India
2050: Size of Middle Class Population
(millions)
Third largest middle
income population among
emerging markets
s: hsbc pt c i 2050 t ot 2012.
exhIbIt 22
GDP per Capita Should Grow by 40%, or 7.4% AnnuallyOver the Next Five Years
1998, 517
20123,596
20175,136
0
1,000
2,000
3,000
4,000
5,000
6,000
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
Indonesia: GDP per Capita (US$)
Indonesia
Estimate
14.9% CAGR
7.4% CAGR
dt t api 16, 2013. s: bi Pt sttitik, ImF, hvayti.
Giv it tg gpi pfi iftig i iv-, w xpt t t tw iig GdP p pit t it
tg t v t xt fiv t v y. at t
izti i y 51-52% f t tt ppti (Exhibi
23). W iv ti iy ti t i
i y 70-80 p, ig 57% pt v t xt fiv t
v y. s ik t t-p i izti tt
ftig i Ii t ig tt ftig
ci, t Ii ty i y t tyig t , i
ig tiy iftig GdP p pit vi izti fft i
f it iti.
exhIbIt 23
Urbanization Moving in Sync with China
51.5
51.8
31.7
85
0
1020
30
40
50
60
70
80
90
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020
Urban Population % of Total
Indonesia
China
India
Brazil
dt t m 18, 2013. s: W bk, hv ayti.
The long-term outlook or the
country makes it a highlyattractive destination or emerging
market-oriented growth capital.
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KKR InsIGhTs: Global macro Trends
exhIbIt 24
Given Current Urbanization Trends in Indonesia, GDPper Capita Can Still Move Higher
3,596
1,543
6,076
11,478
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
GDP per Capita (US$)
Indonesia India China Brazil
dt t api 16, 2013. s: W bk, bi Pt sttitik, Iict sttiti ogizti, ci nti b f sttiti,F Ititt, b ct bi, ImF, hv ayti.
ov, w k , viw i tt gpi
t, iig t iz i i t ty i
tg 2030, iky t k Ii f t t p-
ig gwt ti i t g y. Iptty,
t ty t t y t f xt f
t f. rt, it jt t f tw g, t f
wi w tik iv. Fit, it xt iig
t i g vi, iig iftt, ti,
t. s, t ty t w it -
gpi f t p iv it y wy f titi
git iti tw vi v-
xpt.
Industry: Focus on Middle Class Beneciaries
a pt f tip t Ii, w pt ti tkig wit ig
xtiv i gvt ffii t wi t
w fit f t gig g w ig i t
ty gpi pfi. T , kw xty
w ig f t ty i wi xty py t
v t xt , t w iv tt k -
pti ft ig iti pi t ft
wi t iky t t t pf. nt piigy,
y f t iti w viw fvy i t pt
f t y. Iptty, ti viwpit i itt wit pp t t ig gig i, tg w
i w vy ty piti, i i
t wi t py ttti.
T ti , w p ti i ti ti igigtig -t-
t tt w tik y fit ti i-t t,
iig ti tiig, t, ti, ig/
fii vi. P t, wv, tt w t
Ii iftt pptity i vig ivtt
ti, giv tt it i g g f gvt ivv-
t.
Education and Training o f t gt ii f viitig
gig kt ik Ii t y i tt, pit it
ig f gwt, t i ti tg f ki
i y t f t y. at t t, t py
t i Ii i jt 5.9%, w f 8.5% fiv y g.9
hwv, ft tkig wit ig xtiv vity
t i Jkt, w tgy f tt t pyt t
tt wt w tik i g gwig i: t iit
f y i t fi wk wit t qi t xpti t pt i iigy ptitiv y.
i ptitiv w t iv ft g-t
gwt, tg viw i tt Ii t iity
ivt ggivy i ig-v ti v
ti ity tiig iititiv.
o w tt Ii f tip i i t
f ig ti. a w w i Exhibit 25, ti pi
i Ii i ti w w y f it gig kt p
p pit i. Py iptt tg, t i t
y 7% f t pt pt-y ti (Exhibit 26
exhIbIt 25
Public Spending on Education Is Just 3% o GDP
2.73.0
3.3 3.3
5.35.6 5.8
6.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Public Spending on Education % GDP
Government
spending on
education is just
3.0% of GDP
unesco ttiti t d 31, 2010, xpt ci p oecd2008 tit. s: unesco, oecd.
9 dt t m 31, 2013. s: bi Pt sttitik.
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12 KKR InsIGhTs: Global macro Trends
exhIbIt 26
and Higher Education Is Lacking
38
23
1614
97
0
5
10
15
20
25
30
35
40
U.S. France Chile Mexico Brazil Indonesia
% Adults Completing Post Secondary Education
s: JPmg eti i bzi pt t Fy24, 2011;unesco G eti digt 2010.
o ttiv tt iig f fft Ii
ig i t ti ki t t uit stt ep fig ti. hwv, ti pp y t
w t ty wi wit t 50 ii i
Ii w g t ipv ti tig i t g
wkf. If t i gig t, w tik tt it i ik
t t ft tt tt giig t gi v-
ti pg (Exhibit 27). Iptty, w viw t t tw
gt ptiipti i ig ti vti tiig
, t yi, tt i iky t j pptity
f pivt pit, wi p t xpit ti pt f
ti gwt, iig fiiti, piig, ti t-
gy.
exhIbIt 27
O Late, More Students Have Enrolled in VocationalTraining
18
20
22
24
26
28
30
32
34
36
38
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000
1,600,000
1,700,000
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Shareofvocationalstudentstot
otal
s e c o n d a r y s t u d e n t s ( % )
Numberofvocationalstuden
ts
Vocational School Enrolment 1992 - 2007
Number of Vocational Students (Left)Share of Vocational Students to Total Secondary Students (Right)
dt t d 31, 2009. s: nw sy,
2009 ( s).
Healthcare Witt qti, ft t t tip t I
i, w tik tt t gw tiy ft
t GdP p pit v t xt 5-10 y. Ky t tikig
i tt GdP p pit i Ii i itiy t v w
w typiy pivt t pti tt t g tk
f w gvt- fiiti. b t i
gti f piig qity f vi, t ppt-
ity f qity pivt pi t i y fwig v
ti i igifit. mv, itiz t t f
wkf tg i izti, t pig,
ptiy wit pvi, fit ty. W
tip tt fig t t pvi
y gi t t ty v t xt t t fiv y
wi p t ipv t v f pig t
vi tgt t ty.
agit ti kp, w xpt t ptg f
GdP t i igfy v ti t. Ti ttt i
y t tt i, giv tt Ii t g t w
t f y ptg f GdP t t. I,
Exhibit 28 w, t pig ptg f GdP i
t 1%, wi p fvy wit bzi Tky
v Ii.
The greatest wildcard
surrounding the question othe countrys growth trajectory
is whether the currentadministrationand its successor
government in 2014has the near-term courage to make the rightlong-term decisions that addresssome o the countrys structural
shortcomings.
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KKR InsIGhTs: Global macro Trends
exhIbIt 28
Health Care Spending Should Rise
0.9 1.21.4
2.7 2.9 3.0 3.1
4.1 4.1
5.0
7.4
8.2
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2011: Public Health Care Spending % GDP
dt f 2011. s: W bk, hv ayti.
exhIbIt 29
As We Now Expect the Inormal Economy To Begin toShrink More Quickly
32.6
42.3
62.1
68.2
70.1
72.5
78.4
83.6
86.4
China
Thailand
Sri Lanka
Vietnam
Philippines
Indonesia
Pakistan
India
Nepal
Informal Employment as a Share of Non-
Agricultural Employment, Most Recent Year (%)
s: Itti l ogizti (Ilo): sttiti pt pyt i t if y (Gv, J 2012); ntittiti ffi, ttp://t.i.g/if_y_e.t
exhIbIt 30
Healthcare Facilities and Services Are Defcient
6 917 23
30 3038
103
137
2 720 18 24
2818 20 21
Indonesia
India
Mexico
Brazil
U.S.
U.K.
China
Korea
Japan
Hospital Beds (per 10,000 People)
Physicians (per 10,000 People)
Just 6 beds and 2
physicians per
10,000 people
dt t api 17, 2013. ltt vi t p ptiv ty p t W bk. s: W bk, hv ayti.
exhIbIt 31
Indonesias Healthcare Spending Is Among the Lowest Emerging Markets
1.2 1.42.3
4.4 3.1 4.06.9
4.1
8.2 8.3
1.1 2.8
2.3
1.6 3.32.9
1.64.9
1.6
9.1
2.4
4.2 4.6
6.1 6.46.9
8.59.0
9.8
17.4
Indonesia
India
China
Turkey
Mexico
Korea
Japan
Brazil
U.K.
U.S.
Public & Private Expenditure
on Health Care % GDP
Public Private
dt i 2009 tt vi y. s: ogizti fei c-pti dvpt (oecd), Ftk 2011:ei, evit si sttiti - Isbn 978-92-64-111509 - oecd 2011.
lkig , viw i tt wt t,
gwig ptg f t ppti wi igt twpivt ii pit. Ti t i pyig t iy i
t t gig kt w viit, , w xpt
t ii t i Ii i t ig y. Ip
tty tg, t Ii gvt ift tw f
tiz tt i 2001 iky tt t pivt
t y ifti i t p t i
t em ti. spty, w xpt v t
v t i, wi t pptity f
py i t t ppy iti, iig ttig
pvttiv pti.
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14 KKR InsIGhTs: Global macro Trends
Retail/Restaurants/QSR I ty, tivig fit
pi tt t, f t y g t p-
p. bt i Exhibit 32, t v ti kt i
Ii i gy tt. a if w Ii gy
tiig pxy f v tiig, i Exhibit 33
tt it i qit it. a t I ft, Ii v-
i t, ypkt t ptt t y
pt 2-4% f tt ti . I t vpig
kt, y pi, pi 10% f tt ti
10.
exhIbIt 32
The Indonesian Market Is Still Young and Far FromSaturated
0
10
20
30
40
50
60
70
Mexico
Malaysia
China
Brazil
Turkey
Vietnam
Indonesia
Kuwait
India
The 2011 Global Retail Development Index: Market
Saturation
(0=saturated, 100=not saturated)
s: T 2011 a.T. Ky G rti dvpt Ix, ttp://www.tky.
10 s: JPmg Indonesia Retailers: Organizing the shelf, filling theshopping baskett m 10, 2013, eit.
exhIbIt 33
Services as a Percentage o GDP Are Still Small as theBasic Retail Segment Is Far From Fully Developed
1425
4253
71 7684 88
8675
5847
29 2416 12
Indonesia
Philippines
Thailand
Malaysia
Singapore
SouthKorea
U.S.
U.K.
Breakdown in Grocery Retailing
Modern Traditional
s: JPmg Ii rti: ogizig t f, fiig tppig kt t m 10, 2013, eit.
agit ti kp, w tik pivt qity ty p
gt wy t ti t. spifiy, viw
tt Qsr (qik vi tt), ki k-
f pt ittig pivt qity ivtt ppt
ti, ptiy w t gti ift i pivt
py wip ity wit gt t w
g t it gt ppti f ti iti.
Housing and Financial Services a f fii vi
yt, I wy viw t kig t t if f y
y. T g w f Ii wi w fi
viit i tt t k i gt p. mv, wi
t i tt- pt t pt f t kig t, it
p i pi t wt w i y f t g gi
i. ov, it w, gi tg
gwt i vi.
lkig t t ti, it ptti i tt i Ii i j
32% f GdP, f wi tgg ptti i jt 5% f GdP (E
hibit 34). spty, tt i ptti i tiv
w y g t i Ii. m y g pi
witt ptg f GdP, ptti i y 1.7% v,
p wit t w vg f 6.6% i 2011 (Exhibit 35).
Importantly, Indonesia has been
able to grow its economy withoutthe use o leverage rom either the
government or private sector.
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KKR InsIGhTs: Global macro Trends
exhIbIt 34
Credit Penetration Is Low
5 10 5 4 20 732 38 32 42
16
6384
2732 45 47 35 55
69 67 8074 111
73
111
Indones
ia
Mex
ico
Tur
key
India
Po
lan
d
Braz
il
Korea
Germany
Ma
lays
ia
France
China
Swe
den
U.S.
Credit to Private Sector % GDP
Mortgages % GDP Other Credit % GDP
dt t 2012 tt vi. s: rptiv tittiti gi.
exhIbIt 35
As Is Insurance Penetration
2.8%
1.1%
3.8%
0.6%
Global Indonesia Global Indonesia
FY11 Insurance Penetration in Indonesia
Life Insurance Pentration Non-Life Insurance Pentration
*I ptti fi g i pi witt ptg f GdP. s: W I i 2011, swi r sig.
exhIbIt 36
Interest Rates Are Now At 6.00% rom 12.75% in 2005
Dec-0512.75
6.00
Oct-0514.68
Feb-124.25
5.25
B3
B2
B1
Ba3
Ba2
Moody'sUpgrade to
Baa3
2
4
6
8
10
12
14
16
05 06 07 08 09 10 11 12 13
Bank Indonesia Policy Rate (%)
Jakarta Interbank Rate (JIBOR) 3-Month (%)
dt t J 13, 2013. s: bk Ii, bg, hvayti.
exhIbIt 37
Fueling Credit Growth, Which Remains Strong at 23%
Aug-069.2
Oct-0838.5
Nov-095.5
Jan-1323.1
0
5
10
15
20
25
30
35
40
04 05 06 07 08 09 10 11 12 13
Indonesia: Credit Growth Y/y (%)
dt t Jy 31, 2013. s: bk Ii, hv ayti.
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16 KKR InsIGhTs: Global macro Trends
exhIbIt 38
The Loan Loss Ratio Appears to Be Structurally MuchBetter Since the Asian Financial Crisis
34.431.9
24.0
6.84.5
7.4 6.14.0 3.2 3.3 2.5 2.1 2.1
2012 Indonesia: Bank Nonperfoming Loans to Total
Gross Loans (%)
dt t api 17, 2013. s: W bk, hv ayti.
hwv, vti wit i xtiv i t fii
vi ity t iv tt it gwt i w fiy
ptig g f , wg gw
izti gi t ft t. citt wit tiviw, w tt ig i ti pt f t
kt tt i ttig t gw iy. F xp, w I w i
sy, I viit g ity vpt f y 60-70
t f ig it wit pig i-
ti, y f wi w ii t t wt-ty
wig. n t, t ity I viit w t xp-
ti t t ( w w pty f ty t t fi ti
viwpit), t it tiy pvi wit wiw wy I
tik ig tgg-t tivity -
igf pt f t y.
If t i i, it i tt t kig yt -t-pit
ti i vig p t qiky (Exhibit 39). o p xtiv
wit w w pk iv tt k f gvt pig
ivtt w pt f t p. Ky t i tikig i tt
pit tt titiy igt fw tg t kig yt vi
pit t p fi ptiv g-t ivt-
t w ty ig it tw p-
ti-it pg, iig ii. W t t wit
ti gi, ptiy t ty pit-t-GdP ti i w
t wt i t ai (Exhibit 40).
exhIbIt 39
Loan-to-Deposit Ratio Has Risen to 84% From 54% Overthe Past 10 Years
Jan-0353.8
Jan-0760.6
Jan-1072.1
Jan-1383.9
50
55
60
65
70
75
80
85
90
03 04 05 06 07 08 09 10 11 12 13
Indonesia: Loan-to-Deposit Ratio (%)
dt t m 6, 2013. s: bk Ii, hv ayti.
exhIbIt 40
Indonesia Suers From Too Few Deposits, Not Too ManLoans
36
168
145
63
89
0
20
40
60
80
100
120
140
160
180
04 05 06 07 08 09 10 11 12 13
Deposits as a % of GDP
Indonesia China Singapore
India Brazil
No growth in deposits as a % of GDP
dt t Jy 31, 2013. s: bk Ii, bi Ptsttitik, Pp bk f ci, ci nti b f sttiti,mty atity f sigp, sigp dptt f sttiti,
rv bk f Ii, Ii ct sttiti ogizti, bct bi, Ititt bii Ggfi ettti, hvayti.
ov, tg w viw t fii vi yt pitivy,
w tik t piy t k, wi xpiv, y
pt v t f ivt kig t ptiipt i t
Ii gwt ty tt w ftig. F pivt iv
t, w tik i, pyt, t fi t i
vi wty f iti.
The recent trend towardsincreased government intervention
is certainly worthy o investorattention.
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KKR InsIGhTs: Global macro Trends
The Role o Government in the Economy: More and Less Re-
quired
For every benefit you receive, a tax is levied. rp W e
Giv tt t ty t ty t iti 50 ii
w i- tw w 2030, t y
igifit pptiti f t gvt t p tt
Ii GdP-p-pit ty iti it t t.
by t f iy i tt w v y fgg, t
gvt t t iz f it tx v. I, w w i Exhibit 41, Ii tx v
t 15-17% f GdP fiity pp w v t -
ti. Pt t wy ( ty t wt rp W e
ggt), it pp tt Ii i ty f t fw
ti w f vy fit iv, tx i ty not
iy vi.
s wt pp? W iv tt t gvt
t t xp it f igi py, tt it
f i pg iftt. a wy t pi
ti witt ivy iig tx i t xp t tx
f qifi iivi. a i Exhibit 42, t if
t f t y i Ii i tiz, wi t tty iity t ppy pt tx v.
exhIbIt 41
Revenue Collection as a Percent o GDP is ExtremelyLow
Indonesia
Spain
TurkeyBrazil
China
Norway
U.S.Japan
Germany
Singapore
Saudi Arabia
Revenue =Expenses
Line
IndiaVietnam
10
15
20
25
30
35
40
45
50
55
60
10 20 30 40 50 60
GovernmentExpenditure%
GDP
Government Revenue % GDP
Government
revenues are
extremely low
dt t api 16, 2013. s: ImF Weo tit f 2013.
exhIbIt 42
Due to the Large Inormal Sector
Indonesia
Vietnam
Brazil
Philippines
India
Thailand
Turkey
10
15
20
25
30
35
40
45
20 30 40 50 60 70 80 90
GovernmentRevenue%G
DP
Informal Jobs % Total Employment (%)
dt t api 16, 2013. s: sttiti pt pyti t if y y Itti l ogizti (Ilo)dptt f sttiti t J 2012, ttp://t.i.g/
if_y_e.t, ImF Weo tit f 2013.
Ittigy, t vy i , pitii g-
t wit w w pk iit tt t t fi pii
iig tx tiz ii, w ti
t t t g-t t f t ty. hwv, wit tg
y, w pyt, fiit i t t
t i g tyt f ti t wy t i
pt ig pi f i tif. a, giv tt t gv
t y w t v t 3% fi fiit, y pp
f tt ti i t itti tt wi qiky pi t f t
o xpi wv, ggt ti pp t
t i i iky wt. Ky t tikig i wt w
ig f i t Ii bzi. sii t Ii, t
t ti v ii gpi kp. uft
ty, p i i v ft t ti wi
w t xpt gwt t ig t xpt ifti. T
j i, w iv, i tt i t it t gvt
v-tit i gwt vi t-t f ii
-ff i pig ft t 2008 Gt ri. s
fii? lt y i ft, bzi gw jt 0.9% y v y v
pk f 6.1% i 2007, wi Ii gw 6.2% v pk
6.5% i 201111. Iptty, t t v ti it 201
wit t ti ippitig y gi i 1Q13.
s w w g f ? o viw i tt, I
vp, f t wi t y
g if y tt t iipt. a, GdP
p pit ti t i, t t f tx v
gw ty. hwv, t t t tw
i gvt itvti i tiy wty f iv-
t ttti. I pti, wi gvt ppt f i
11 dt t my 29, 2013. s: Ititt bii Ggfi ettti, ct sttiti offi, Ii, hv ayti.
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18 KKR InsIGhTs: Global macro Trends
iptt i y vpig ty, t i gwig ik tt t
gvt y vtp it i, ivig p t ty
t f pit ivig t t fig it ivtt tt i
y t f y f it gwt iititiv.
Exports and Imports: Period o Transition
F t y vtg pit, Ii tg t i-
. T ty i i i ky t , iig ,
pp, i, g, p i . a t, tw-ti f t tt
xpt f ity t , wi t tw-ti f ipt f -ity t it (Exhibits
43 and 44).
at ky iigt w ig tip i tt titi
fi iigy viwig Ii t y titi
f pt t f ti stt ai i.
Ti ttgi pitiig i igifit, i viw, i iky t
ft t fig it ivtt it iptt
ik ftig.
exhIbIt 43
Two-Thirds o Indonesias Exports Are CommodityRelated
53
62 63 63 6264
6763
47
38 37 37 38
36 3337
20
25
30
3540
45
50
55
60
65
70
2005 2006 2007 2008 2009 2010 2011 2012
Indonesia: Export Composition (% Total)
Commodity Related Products Other
dt t my 01, 2013. s: bk Ii, hv ayti.
exhIbIt 44
While One Third o Indonesias Imports Are CommodRelated
34 3335
3329
32
3633
66 67 6567
7168
6467
20
30
40
50
60
70
2005 2006 2007 2008 2009 2010 2011 2012
Indonesia: Import Composition (% Total)
Commodity Related Other
dt t my 27, 2013. s: bk Ii, hv ayti.
hwv, gwt i t xpt y i Ii tit ig ity pi, t ptivity gi i
t t. aig t wk y y g F li
f 74% f t tt xpt i i 2011 f pi,
v (Exhibit 46). Ti tt i igifit ity xpt
pt 60-70% f tt xpt v (Exhibit 43). o
f ti t tt 2012 i ty t tt f
ti. by pi, t 60% f t ty ipt
-ity t, wit iy tpt qipt
tig f y f f tt tt (Exhibit 44).
Demographic trends, including
the sizeable increase in thecountrys middle class through
2030, are likely to make Indonesione o the most compelling
consumer growth stories in theglobal economy.
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KKR InsIGhTs: Global macro Trends
exhIbIt 45
Indonesias Exports Have Been Commodity Dependent
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Korea
Taiwan
HongKong
Singapore
India
China
Philippines
Thailand
Indonesia
Malaysia
2012 Commodity Trade Balance (% of GDP)
Food & live animals Beverages & tobacco
Crude materials Mineral fuels & lubricants
Animal, veg oils & fats All Commodities
dt t my 9, 2013. s: mg sty r, ceIc dt.
exhIbIt 46
But Export Growth Has Primarily Been From PriceAppreciation
-40
-30
-20
-10
0
10
20
30
40
50
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Indonesia: Exports Growth Y/y (%)
Volume Impact Price Impact Exports Value Y/y
In 2012, volumes
rose 3.6% but pricesfell 4.7%
In 2011, 74% due to
price appreciation
dt t my 30, 2013. s: bk Ii, ImF, hv ayti.
I pii, Ii t v ft gyett
vg it t i iti t ft tt t
t pt f it y. nw, wit ci wig
p i pi vig f y 20% , y pt f it xp
y w fig t pi. I ft, i 2012 xpt w
ty gtiv. Tt t w (Exhibit 46).
T g w i tt t ig tt t itti i tig
pitiv, w ty v fi tt t gv
pivt t wkig tgt t i t i
t ftig xpt t. Ittigy, w fit ig t ci viit tt ft w itt
ig pt f ti v-i ig tf t Jv f
st ci. Ti t i ptiy t wit fig -
pti i t f tptti qipt iy
a t, t t f 2012, ti gt t f 15% f Fd
(Exhibit 48). Itti ivt v y tk t f ti
t, fig it ivtt i t t
lkig , w tik t xpt-t ftig ty
i Ii i ti, tg tikig i tt t ty
v t ivify it xpt y. If it , t
it wi f t fw gig kt ti wit t y
- y t tt pt tivy i g t kt i f t ftt gwig gi
i t w.
exhIbIt 47
Foreign Direct Investment Remains Strong
Jun-01-3.1
Mar-062.9
Mar-12.1
-4
-3
-2
-1
0
1
2
3
83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Indonesia: Trailing 12 Months Foreign Direct
Investment % of GDP
dt t 1Q2013. s: bk Ii, bi Pt sttitik, hvayti.
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20 KKR InsIGhTs: Global macro Trends
exhIbIt 48
Particularly In Manuacturing
44 63 34 35 25 32 36 42 46
0%
10%
20%
30%
40%
50%60%
70%
80%
90%
100%
04 05 06 07 08 09 10 11 12
Indonesia: 2012 Foreign Direct Investment
Breakdown (%Total)
Other
FinancialIntermediation
Wholesale & Retail
Transportation, Storage,Communication
Mining & Quarrying
Manufacturing
dt t m 31, 2013. s: bk Ii.
Savings and Investment: More Inrastructure Needed
a iptt pi f y pzz w viw w ig
ty-v i t tiip tw vig
ivtt. If ty t v g, it y t ff
t p g t ivtt qi t iv g-t,
ti gwt. Iptty, i t gig kt, t ky
t ivtt i y t iftt pt f t ivtt
p. Tg it i w gig, ti i w Ii
iy pt. I ft, iftt pig
tkig t y 3-4% f GdP 12. I t y pi t t ai
Fii cii, Ii w pig 7%, p t
t t 6-8% i Ii y 10% i ci, ig t t
Pi Wk miity (Exhibit 49).
bt t t p t kw Ii
k i iftt. a qik tip i f t Jkt ipt,
wi i y fi wit g f tffi v
p iti, i f t iftt g
t ty f. Ti i t w w. Wt i pi ,
wv, w w tip xtiv wit w w pk t
f ppig wt t ti i Jkt, it w ti t p-
vi t t y t gvt.
12 dt t my 11, 2011. s: mg sty r, IiIftt: a us$250 opptity t my 11, 2011 y dyi T. =mg sty r tit; f = mg sty r ft.
exhIbIt 49
Inrastructure Spending Lagging Even India...
0%
2%
4%
6%
8%
10%
12%
2005 2006 2007 2008 2009 2010 2011 2012
India China Indonesia
Infrastructure spend (% of GDP)
dt t d 31, 2012. s: ceIc dt mg styr.
exhIbIt 50
But Estimates Are For It to Increase From Here
US$B
2008e
2009e
2010f
2011f
2012f
2013f
2014f
2015f
20
20
CA
elecTrIc-ITY
5.7 6.7 8.9 11.2 13.7 16.6 20.1 24.222
Telecom 7.3 5.9 7.7 8.6 9.4 10.4 11.5 12.8 10
roads 4.6 6.2 8.2 9.7 11.4 13.3 15.6 18.2 17
raIlWaYs 0.1 0.1 0.3 0.7 1.3 1.9 2.7 3.7 65
aIrPorTs 0.5 0.6 0.9 1.3 1.7 2.2 2.9 3.6 32
seaPorTs 0.4 0.7 1.0 1.4 1.9 2.4 3.0 3.8 30
WaTer 0.4 0.7 1.0 1.3 1.6 1.9 2.3 2.8 22
ToTAl 19.0 21.0 27.9 34.1 40.9 48.9 58.2 69.1 19
AS A %
GDP3.7 3.9 4.0 4.3 4.7 5.1 5.5 5.9
dt t my 11, 2011. s: mg sty r, IiIftt: a us$250 opptity t my 11, 2011 y dyiT. = mg sty r tit; f = mg styr ft.
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KKR InsIGhTs: Global macro Trends
exhIbIt 51
China Leads the World in Both Rate o Savings andInvestment % o GDP
50
3032
1614
47
35 36
1917
0
10
20
30
40
50
60
China India Indonesia Brazil U.S.
2013 Estimated Gross National Savings % of GDP
2013 Estimated Investment % of GDP
High gross national savings
should support investment
dt t api 16, 2013. s: ImF Weo tit f t y 2013.
exhIbIt 52
But Investment per Capita Still Lags Behind Brazil andChina
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
India Indonesia China Brazil U.S.
2013 Estimated Investment Per Capita US$
1980
1990
2000
2013
2000-2013
CAGR
17%
2000-2013
CAGR 1%
2000-2013
CAGR
10%
2000-2013
CAGR
13%
2000-2013CAGR
19%
dt t api 16, 2013. s: ImF Weo tit f t y 2013.
aig t ptiiti pt y t g ivtt k
mg sty, t ty wi p $250 ii v t fiv-y pi ig i 201513. If t, t iftt
pig w i t 6% f GdP, p f 4% i 2010, wit
tiity tig f v 50% f t tt i-
t i (Exhibit 50). Tt i t g w.
13 Ibid.12.
T w i ttt tt iftt p
w i . T gvt i-t p,
wi f 70% f t $150 ii ti t ivt
i iftt f 2010-2014 t f t pivt t
t pp. T Pi Wk miity kwg tt
Pivt Ptip P (PPP) t wk, it i w g-
givy kig g t ipv t itti, iig
gvt fig gt i itiv f t piv
t.
Ittigy, t k f iftt ivtt i t ik tit w vig t k f xt pit. a Exhibits
53 and 54 w, Ii ty t. Wt pp
tg, i tt t f t pivt t pit wt it ig
t iig ivtt it i iftt -
vi qi t t t f t ty ig i
. a, w ti i, gvt v
igt tiv t y i, t gvt titi
iftt pig iit.
T iti qik wt iig. spif
y, Ii w y t dt f 1826 t 1949
ity tt, dt-pi ti jy
iftt i-t t t v y ti ikt uit Kig. s, ii t bzi, Ii
vi ti tt itiy pvt it f kig w
ig -ty ( v i) ivtt. Ti, w
ti v, xti tw t gvt pivt
t ippitig, t tt xt
tiz gvt tt tt it
t gt tig .
exhIbIt 53
A High Savings Rate Is Needed to Support Investment
Investment running
ahead of savings
Indonesia
Mexico
Turkey
Brazil
China
India
U.S.
Japan
Germany
Singapore
Saudi Arabia
Savings =Investment
Line
10
15
20
25
30
35
40
45
50
0 10 20 30 40 50 60
2
013EstimatedInvestment%G
DP
2013 Estimated Gross National Savings % GDP
etit f 2013. dt t api 16, 2013. s: ImF Weo api2012.
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22 KKR InsIGhTs: Global macro Trends
exhIbIt 54
But Foreign Direct Investment Is Needed Too
0
50
100
150
200
250300
350
400
450
500
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
Indonesia Malaysia
Philippines Singapore
Thailand Vietnam
Myanmar Cambodia
LTM Inward Direct Investment US$: Indexed 1Q07=100
dt t 1Q2013 tt vi. s: bk Ii, myidptt f sttiti, bk ng myi, ct bk f tPiippi, sigp dptt f sttiti, mty atity
f sigp, bk f Ti, ai dvpt bk, Gsttiti offi f Vit, Itti mty F, hvayti.
lkig , vti wit t t gvt
pivt t t iv tt w t tt
i t f i iftt xti. I t wk, t
gvt vpig it ttgy f wkig wit
t pivt t, ii i Jkt wit vity
f iftt fk t iv tt xptti v
w t pppit v. mv, w
i pivt t itt i tig pit tw
ippig, , t pw. T iititiv wi tiy t
pp vigt, t w iv tt xptti w
iti, t tgt , t gvt
f gy i w igt.
Capital Markets, Currency and Infation Outlook: A Potential
Near-Term Achilles Heel?
a ivt itt i Ii gw, it pit kt
v vp iy. I pti, w w i Exhibit
55, it kt pitizti ptg f GdP i w
p wit t vg f it ai p. Ti -tig
k , giv t ty tg gwt, ig pfitiity
pwf gpi. hwv, w iv tt t qityty i f f v (Exhibit 56), ptiyif t gvt
ig i it fiit.
exhIbIt 55
Indonesian Market Cap Percentage o GDP Has SlowlyConverged With Asian Average
55
3/31/2060%
0%
20%
40%
60%
80%
100%
120%
2003 2005 2007 2009 2011 2013
Indonesia Total East Asia*
Market Cap % of GDP
dt t m 31, 2013. *GdP-wigt vg f ci, s. K,Ii, Tiw, Ti, myi, Piippi, Vit, sigp. s: bg, ImF, hv ayti.
exhIbIt 56
Indonesia Market Cap Percentage of GDP Is Above Chiand Vietnam, But Far Below Many Other Asian Peers
MARKeT CAP, % of GDP (3/31/13)
1 sInGaPore 224%
2 TaIWan 173%
3 malaYsIa 149%
4 ThaIland 119%
5 Korea 95%
6 PhIlIPPInes 95%
7 InDoneSIA 55%
8 chIna 37%
9 VIeTnam 30%
dt t m 31, 2013. s: bg, ImF, hv ayti.
o t fix i i, t ty i pit. I
i viy fig ivt t v it fi fiit (Ex-
hibit 57). uti ty, ti p w t y i.
hwv, tigtig y i ik t uit stt
ep, t Ii f i wi. e
tig t i i tt Ii y $100 ii
i v14. a w w i Exhibit 58, it xt fig t
tiv t it v i t y K i t ai k
14 dt t m 31, 2013. s: ImF, hv ayti.
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KKR InsIGhTs: Global macro Trends
exhIbIt 57
There is High Foreign Ownership o Indonesian Bonds...
0
5
10
15
20
25
30
35
40
03 04 05 06 07 08 09 10 11 12 13 14
Foreign Ownership of Government Debt Securities (% Total)
Indonesia Malaysia Thailand
dt f api 30, 2013. s: Ii ditt G f dtmgt. bk ng myi, bk f Ti, hv ayti.
exhIbIt 58
and the Short-term External Debt Load Is High
8
11
14
25
26
31
31
34
42
Philippines
Brazil
China
Thailand
India
Malaysia
Mexico
Indonesia
Korea
2011 Short Term External Debt / FX Reserves (%)
dt t m 19, 2013. s: W bk, hv ayti.
I or view, the Ioei cpitl rket fce everl ie throgh
which ivetor hol work. Firt, thogh they hve correcte oe-
wht i recet week, oth et pre eqity trig ltiple
i Ioei re qite rich reltive to oth hitory their peer grop.
so, everythig ee to cotie to go right for it to perit i i-
tiig ch prei vltio. seco, Ioei i likely goig to
feel oe otle ipct fro the cotry rectio i it fel -
iy over tie, we elieve tht ltitely it i fel price icree
tht y ce ifltio to rie. accorig to the ivetet kmorg stley, every 10% rie i retil fel price wol 80 p
to helie ifltio, with 22-44% icree ig 290 p, rigig
helie ifltio to i-8% territory15. not rpriigly, rectio i
the fel iy y lo ct like tighteig, etig coptio o
the rgi. Thir, iteret rte re ovig i lie with the u.s.
o the verge of cig tighteig cycle.
15 rti pi f gi i t ik f rp4,500/it trp6,500/it rp5,500/it, ptivy. Ti pt i f44% 22%. s: mg sty Indonesia Economics: Retail Fuel PriceHike What If? y dyi T t my 23, 2013.
lkig , w tik t ty pig ti, it -
iy/ifti i, t tpig f Qtittiv eig i
t u.s. iky t i t vtiity f it pit kt,
w w t pi t t ty tgg itt
t f iig pit / w p it
y. hity w ti ti gi tt pit fw
it t gig kt v qit qiky, ptiy
t ti w t uit stt gi t i t. ay, i
y J, xp, t ty i t t i
t ti titi t w k f ivt
t t t gvt pt.
exhIbIt 59
The Financial Markets in Indonesia Have Room to Grow
0
50
100
150
200
250
Vietnam
Indonesia
China
Thailand
Malaysia
Singapore
2012 Corporate Debt % GDP
2012 Gross Government Debt % GDP
2011 Market Cap % GDP
s: W bk, ai dvpt bk aiboi ttp://ii..g.
lg-t tg, w i ptiiti f tw iptt -
. Fit, w tik tt t iz f t v Ii pit
kt ti igifit ptti f ppiti. a w
i Exhibit 59, t i ti t f ig f Ii t
gw it kt pitizti ptg f GdP, giv
tt GdP gwt i iky t i tg v t ig fiv
t v y, i viw, t i t ptti t t
wy (i.., iig ptg f GdP i iig GdP vi
s, Ii iqi pit kt ty ftiv
t y, wi ifftit it f y f t g em
kt. I t f ty ik bzi, y pi, g
tt- pi it t ix, wi ft t wt k f f gig t. I ft
tt i Exhibit 60, Ii i ty vwigt
tk. I ci, y pi, tk
t t pt f t pit ix. a i t fii
, w iv Ii ty w- k tt
vy wy y gvt if.
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24 KKR InsIGhTs: Global macro Trends
exhIbIt 60
Compared to Global Peers, the Indonesian Market Is Heavily Overweight Financials and Consumer Discretionary, anUnderweight IT, Energy and Industrials
dt f m 31, 2013. s: mscI, Ftt.
Summary
F t y vtg pit, Ii g iig
g i pw. Iptty, i w iigy tv
f gwt, Ii tti tiwi tt wi
ti t iv it GdP ig pttiy wit w t
vg vtiity. agit ti kp, iti ik ti,
t/w, tptti/giti xpt
t gw igfy v g GdP f t xt fiv t 10 y
pt ittig g-t ivtt pptiti f
t pi pivt ivt.
hwv, t xt t y y t y t pt t,
t i iig ik tt Ii itp, ii t wt w
v ty i t gig kt ik ci, Ii
bzi. I y it, it i p ii-kig t t gv-
t v ft t y fv wit ti pivt t if-
tt y w i gwt ig tjti.
I pti, if t ty ti t wit tg gwtig twi fiit ttgy, t w iv t y wi
t jt ww, wi p t y ig
ifti kp. a giv tt t u.s. y t ig
it pwf f Qtittiv eig, t i w gt ipi
ik i t t fig y kt t t
f t pt v y.
Ii tt GdP-p-pit, wi i -
ty $3,600, ti t i t t tti t
w t ftig (Exhibit 22). T wv, it
iity t k t y ivtt i if-
tt ti tt kp ptivity v wg gwt
I iti, it t wk v t fftivy titi
t y it ig v- iti vi i t
f y f git t pt f t if
y. If it t tig, t ti ty p-
t f t pig pptiti i t g pit
kt v t xt fiv t v y.
% InDex WeIGhT InDoneSIA % oveR/(UnDeR) WeIGhT
MSCI InDoneSIA MSCI eM MSCI AC WoRlD vS. MSCI eM vS. MSCI AC WoRlD
consumer dIscreTIonarY 16.6% 7.7% 11.0% 8.9% 5.6%
consumer sTaPles 12.1% 9.4% 10.9% 2.7% 1.1%
enerGY 4.9% 11.6% 9.9% -6.8% -5.0%
FInancIals 34.8% 27.9% 21.5% 6.9% 13.3%
healThcare 2.5% 1.4% 10.2% 1.1% -7.7%
IndusTrIals 3.8% 6.3% 10.3% -2.5% -6.5%
InFo Tech 0.0% 14.1% 11.9% -14.1% -11.9%
maTerIals 7.7% 10.4% 6.5% -2.6% 1.3%
TelecommunIcaTIon serVIces 11.9% 7.5% 4.3% 4.3% 7.5%
uTIlITIes 5.8% 3.6% 3.6% 2.2% 2.2%
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KKR InsIGhTs: Global macro Trends
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26 KKR InsIGhTs: Global macro Trends
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KKR InsIGhTs: Global macro Trends
Important Inormation
T viw xp i ti piti t p- viw f hy mVy f Kg Kvi rt& c. l.P. (tgt wit it ffiit, KKr) t iy ft t viw f KKr itf. Tit i t t tt . Ti t t pt vtijgt wit pt t y fii itt, i-, ity t tt y i f- i t pt f ffiiviw f KKr. Ti t i t it t, t, t pifiy t y ivtt ttgy pt tt KKr ff. It i ig pvi y
t pvi fwk t it i t ipttif ivt w yi ivt wviw t tpi i i.
T viw xp ft t t viw f m.mVy f t t f it m. mVy KKr tk t vi y f y g it viw xp i. I iti, t viwxp t iy ft t pii fy ivtt pfi t KKr, y t ft i t ttgi pt tt KKr ff,iig ttgi pt t wi m. mVypvi ivtt vi f f KKr. It t tt m. mVy wi k ivttti i t ft tt itt witt viw xp i, y f ttiq t f yi i i i
gig it t. KKr it ffiit yv piti (g t) gg i ititti tt t itt wit t if-ti viw xp i ti t.
Ti piti pp y f if-ti pp. T ifti ti ii y t f t t iit, y p y qt kt vt f t. ct gp pvi i fittiv pp y. T ifti i ti -t vp ity / tif iv t i; wv, itKKr m. mVy gt t y, qy pt f ifti. ntig tii titt ivtt, g, tx t vi i it t i i kig ivtt t ii.
T tt ivtt ttgywi f. hiti kt t ti iit f t ft kt vi ft pf f y pti ivttwi y iff tiy, t ip . Tgt ti ti i jt t g. T i tt t tgtti wi iv, t ti y igifity ifft t tt w . Tipiti t viw t ptti iitti f ff t y y iti t pt y ivtt ttgy.
T ifti i ti piti y ti pj-ti t fwkig ttt g-ig ft vt, tgt, ft xpttigig t ttgi i i, i y
t f t t iit. T i tt vt tgt wi iv, y igifity ifft f tt w . Tifti i ti t, iig ttt
ig fii kt t, i kt iti, wi wi ftt y p y qt kt vt f t. Pf f it ii i t tt t i wit ivi ivt. Tii t i y xp, f g g t iivtt.
T ivtt ttgy t i y it f ivt pig tipifi ivtt jtiv fii ittiP t tt g i t t f xg f y y fft t v, pi i f
ivtt vy.
nit KKr m. mVy y ty t, tk t pt fw kig ttt. nptti wty, xp ipi, i giv y f f KKr, m. mVy y tp t t y pt fif t ifti ti i ti piti piiity iiity i pt f y ifti. by ptig ti t, t ipikwg it tig pt f tfgig ttt.
T mscI ifti i ti t i txiv ppty f mscI I. (mscI). mscI kxp ipi wti ptti v iiity wtv wit pt t
mscI t ti i. T mscI t y tft itit i f t i y iti fii pt. Ti pi t ppv, viw p y mscI.
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