General CAPITAL RATIO BEFORE DEDUCTION OF GOVERNMENT’S SHARE OF BI’S

BANK INDONESIA Notes to Financial Statements As at December 31, 2008 10

B. Significant Accounting Policies

The presentation of the Annual Financial Statements of Bank Indonesia for the year 2008 was in accordance with the Circular Letter of Bank Indonesia Number 882INTERN dated December 26, 2006 concerning the Financial Statements of Bank Indonesia. The accounting policies adopted by Bank Indonesia are regulated in Bank Indonesia Financial Accounting Guidance Pedoman Akuntansi Keuangan Bank Indonesia - PAKBI. PAKBI is in conformity with the Indonesian Financial Accounting Standards Standar Akuntansi Keuangan - SAK, International Accounting Standards IAS, Bank Indonesia’s internal regulations and best practices in other central banks, as well as the agreements among Bank Indonesia, the Supreme Audit Board of the Republic of Indonesia Badan Pemeriksa Keuangan Republik Indonesia – BPK RI and the Financial Accounting Standards Board of the Indonesian Institute of Accountants Ikatan Akuntan Indonesia - IAI. In order to maintain its updated conformity with SAK and IAS, PAKBI has been continuously revised, most recently as declared in the Circular Letter Number 850INTERN dated September 28, 2006 concerning Bank Indonesia Financial Accounting Guidance. The significant accounting policies that have been consistently applied by Bank Indonesia on the Financial Statements for the period of January 1 to December 31, 2008 are as follows:

1. Basis for Preparation of Financial Statements

The financial statements of Bank Indonesia are presented in millions of Rupiah, and prepared on the accrual basis using the historical cost concept, except for certain accounts that are presented using other measurements as stated in the accounting policy of each account.

2. Management Estimations

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimations and assumptions that may affect the amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of financial statements and the amount of revenues and expenses reported during the year. The actual results may differ from those estimations.

3. Recognition of Interest Income

Interest income from investment of Bank Indonesia’s funds is recognized on accrual basis. Accrued interest income that was previously recognized is reversed at the time when the placements are classified as nonperforming.

4. Transactions in Foreign Currencies

Transactions in foreign currencies are recorded in Rupiah using exchange rate prevailing at transaction date. For the financial reporting purposes, assets and liabilities in foreign currencies are translated into Rupiah using exchange rates prevailing at the balance sheet date. The differences of amount arising from the periodical translations are recorded at the Exchange Rate Revaluation Reserves account, which is presented on the balance sheet in the Exchange Rate and Foreign Security Revaluation Reserves BANK INDONESIA Notes to Financial Statements As at December 31, 2008 11 under Equity section, until the foreign exchanges are decreased. Bank Indonesia uses Net Currency Position NCP method in administrating and recording foreign currency assets and liabilities. With this method, the result of the revaluation of foreign currency assets and liabilities is calculated from the multiplication of the net position of the foreign currency assets and liabilities with the difference between the balance sheet exchange rate and average cost of the foreign exchange currencies. The rates of major foreign exchanges as at December 31, 2008 were IDR10,950.00USD, IDR15,432.40EUR, IDR15,802.51GBP, IDR16,948.52SDR and IDR12,122.90JPY100.00.

5. Related Parties

Related parties of Bank Indonesia are as follows: a. Institutionsentities that are controlled or directed by Bank Indonesia. These include among others entities in which Bank Indonesia’s ownership is more than 20. b. The employees of Bank Indonesia and entitiesfoundationsenterprises that represent interests of the employees of Bank Indonesia. These include among others Bank Indonesia Pension Fund Dana Pensiun Bank Indonesia – DAPENBI and Bank Indonesia Employees Welfare Foundation Yayasan Kesejahteraan Karyawan Bank Indonesia – YKK-BI. c. Entitiesinstitutionsfoundations that are established to support activities of Bank Indonesia. These include among others Indonesian Banking Development Foundation Yayasan Pengembangan Perbankan Indonesia – YPPI. All significant transactions with related parties, whether or not made under similar terms and conditions as those conducted with third parties, are disclosed in the financial statements.

6. Gold

Gold consists of gold bars, gold time deposits, and gold marketable securities, which are revalued periodically at fair market values. The differences due to the changing of market price of Gold are recorded in the Gold Revaluation Reserves account in Exchange Rate and Marketable Securities Revaluation Reserves item under Equity section.

7. Foreign Currencies

Foreign Currencies are presented on the balance sheet at nominal value.

8. Special Drawing Rights

Special Drawing Rights SDRs represent mandatory reserves in the International Monetary Fund IMF denominated in SDR. SDRs are presented on the balance sheet at nominal value that are added with accrued interest on holding and remuneration.

9. Demand Deposits

Demand Deposits in foreign currencies in other central banks or correspondent banks are presented on the balance sheet at nominal value.