<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------
                                   FORM 20-F
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002       COMMISSION FILE NUMBER 1-13330

                                ----------------
                         PERUSAHAAN PERSEROAN (PERSERO)
                       P.T. TELEKOMUNIKASI INDONESIA TBK.
             (Exact name of Registrant as specified in its charter)
                          TELECOMMUNICATIONS INDONESIA
                (A STATE-OWNED PUBLIC LIMITED LIABILITY COMPANY)
                (Translation of Registrant's name into English)

                                ----------------
                             REPUBLIC OF INDONESIA
         (State or other jurisdiction of incorporation or organization)
                                JALAN JAPATI, 1
                                 BANDUNG 40133
                                   INDONESIA
                              (62) (21) 521-5109*
             (Address of Registrant's principal executive offices)

                                ----------------
    Securities registered or to be registered pursuant to Section 12(b) of the
Act.

<Table>
<Caption>
                          TITLE OF                            NAME OF EACH EXCHANGE ON
                         EACH CLASS                               WHICH REGISTERED
                         ----------                           ------------------------
<S>                                                           <C>
American Depositary Shares representing Series B Shares, par  New York Stock Exchange
value 500 Rupiah per share..................................
Series B Shares, par value 500 Rupiah per share.............  New York Stock Exchange**
</Table>

    Securities registered or to be registered pursuant to Section 12(g) of the
Act.
                                      None

    Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act.
                                      None

    Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:

<Table>
<S>                                                            <C>
Series A Shares, par value 500 Rupiah per share.............                1
Series B Shares, par value 500 Rupiah per share.............   10,079,999,639
</Table>

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes  X   No  __

    Indicate by check mark which financial statement item the Registrant has
elected to follow.

                            Item 17  __   Item 18  X
---------------

 * Investor Relations Unit
** The Series B Shares were registered in connection with the registration of
   the American Depositary Shares. The Series B Shares are not listed for
   trading on the New York Stock Exchange.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                         PAGE
                                                                         ----
<S>       <C>                                                            <C>
DEFINITIONS...........................................................     1
Introduction..........................................................     6

                                PART I
Item  1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS*......     7
Item  2.  OFFER STATISTICS AND EXPECTED TIMETABLE*....................     7
Item  3.  KEY INFORMATION.............................................     7
Item  4.  INFORMATION ON THE COMPANY..................................    17
Item  5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS................    72
Item  6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES..................   119
Item  7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...........   126
Item  8.  FINANCIAL INFORMATION.......................................   134
Item  9.  THE OFFER AND LISTING.......................................   136
Item 10.  ADDITIONAL INFORMATION......................................   139
Item 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...   149
Item 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES*.....   158

                               PART II
Item 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.............   158
Item 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
          USE OF PROCEEDS.............................................   158
Item 15.  CONTROL AND PROCEDURES......................................   158
Item 16.  RESERVED....................................................   158

                               PART III
Item 17.  FINANCIAL STATEMENTS........................................   158
Item 18.  FINANCIAL STATEMENTS........................................   158
Item 19.  EXHIBITS....................................................   158
</Table>

---------------

* Omitted because item is not applicable.

                                        i
<PAGE>

                                  DEFINITIONS

"ADSL"........................   (Asymmetric Digital Subscriber Line) is a
                                 technology that allows combinations of services
                                 including voice, data and one way full motion
                                 video to be delivered over existing copper
                                 feeder distribution and subscriber lines.

"AMPS"........................   (Advanced Mobile Phone System) is an analog
                                 mobile cellular system standard.

"ARPU"........................   (Average Revenue Per User) serves as an
                                 evaluation statistic in connection with a
                                 network operator's subscriber base.

"ASR".........................   (Answer to Seizure Ratio). See "Call Completion
                                 Rate".

"ATM".........................   (Asynchronous Transfer Mode) is a transfer mode
                                 in which the information is organized into
                                 cells. It is asynchronous in the sense that the
                                 recurrence of cells containing information from
                                 an individual user is not necessarily periodic.

"B2B".........................   (Business-to Business Electronic Commerce) is a
                                 technology-enabled application environment to
                                 facilitate the exchange of business information
                                 and automate commercial transaction designed to
                                 automate and optimize interactions between
                                 business partners.

"backbone"....................   refers to the main telecommunications network
                                 consisting of transmission and switching
                                 facilities connecting several network access
                                 nodes. The transmission links between nodes and
                                 switching facilities include microwave,
                                 submarine cable, satellite, optical fiber and
                                 other transmission technology.

"bandwidth"...................   refers to the capacity of a communications
                                 link.

"call completion rate"........   is the percentage of calls that are
                                 successfully completed, as measured by the
                                 number of calls successfully answered divided
                                 by the number of call attempts that are
                                 recognized by the caller's local exchange, in
                                 the case of call completion rates for local
                                 calls, and call attempts that are recognized by
                                 the trunk exchange, in the case of call
                                 completion rates for long-distance calls. Call
                                 completion rate is measured by the answer to
                                 seizure ratio, or "ASR".

"capacity utilization"........   refers to the ratio of lines in service to
                                 local exchange capacity or installed lines.

"CDMA"........................   (Code Division Multiple Access) is a wide-band
                                 spread-spectrum network technology.

"DCS 1800"....................   (Digital Communication System) is a mobile
                                 cellular system using GSM technology operating
                                 in the 1800Mhz frequency band.

"DGPT"........................   Director General Post and Telecommunications.

"distribution point"..........   is the point of interconnection between the
                                 dropwire and the secondary cable running to a
                                 cabinet and/or a local exchange.

"DLD".........................   refers to domestic long-distance
                                 telecommunications services such as
                                 long-distance telephone calls and leased lines
                                 services.

                                        1
<PAGE>

"downlink"....................   refers to the receiving portion of a satellite
                                 circuit extending from the satellite to the
                                 Earth.

"dropwire"....................   is the wire connecting the subscriber's
                                 premises to the distribution point.

"DTR".........................   (Distributable TELKOM Revenues) is the monthly
                                 revenue share payable by each KSO Unit to
                                 TELKOM under the KSO Agreements, being a
                                 specified percentage of total KSO revenues in a
                                 KSO Unit after deduction of specified KSO
                                 operating expenses and MTR.

"dual band"...................   refers to the capability of a mobile cellular
                                 network and mobile cellular handsets to operate
                                 across two frequency bands, for example GSM 900
                                 and GSM 1800.

"earth station"...............   is the antenna and associated equipment used to
                                 receive or transmit telecommunication signals
                                 via satellite.

"existing installations"......   refer to telecommunications facilities,
                                 including telephone lines, network
                                 infrastructure and related assets in existence
                                 in each KSO Division as of the beginning of
                                 each KSO Period plus certain facilities and
                                 equipment constructed or installed by TELKOM in
                                 the KSO Units after such dates to be managed by
                                 a KSO Investor.

"fixed cellular"..............   refers to a form of fixed wireless technology
                                 which uses conventional cellular network
                                 configurations to link a subscriber at a fixed
                                 location to a local exchange.

"fixed wireless"..............   refers to a local wireless transmission link
                                 using cellular, microwave or radio technology
                                 to link a subscriber at a fixed location to a
                                 local exchange.

"fixed wireline"..............   refers to a fixed path (wire or cable) linking
                                 a subscriber at a fixed location to a local
                                 exchange, usually with an individual phone
                                 number.

"frame relay".................   is a packet-switching protocol (in which
                                 messages are divided into packets before they
                                 are sent) for connecting devices on a computer
                                 network that spans a relatively large
                                 geographical area.

"Government"..................   refers to the Government of the Republic of
                                 Indonesia.

"GPRS"........................   (General Packet Radio Service) is a data packet
                                 switching technology that allows information to
                                 be sent and received across a mobile network
                                 and only utilizes the network when there is
                                 data to be sent.

"GSM".........................   (Global System for Mobile Telecommunication) is
                                 a European standard for digital cellular
                                 telephone.

"IDD".........................   (International Direct Dialing) is a service
                                 that allows a subscriber to make an
                                 international call without the assistance or
                                 intervention of an operator from any telephone
                                 terminal.

"installed lines".............   refer to complete lines fully built-out to the
                                 distribution point and ready to be connected to
                                 subscribers.

                                        2
<PAGE>

"intelligent network" or
"IN"..........................   is a service-independent telecommunications
                                 network where the logic functions are taken out
                                 of the switch and placed in computer nodes
                                 distributed throughout the network. This
                                 provides the means to develop and control
                                 services more efficiently allowing new or
                                 advanced telephony services to be introduced
                                 quickly.

"ISDN"........................   (Integrated Services Digital Network) is a
                                 network that provides end-to-end digital
                                 connectivity and allows simultaneous
                                 transmission of voice, data and video.

"Kbps"........................   (Kilobits per second) is a measure of speed for
                                 digital signal transmission expressed in
                                 thousands of bits per second.

"KSO".........................   (Kerjasama Operasi) or Joint Operating Scheme,
                                 is a unique type of Build, Operate, and
                                 Transfer arrangement with a consortium of
                                 international operator(s) and domestic private
                                 company(ies), under which the consortium
                                 invests and operates TELKOM facilities in
                                 regional divisions.

"KSO Agreements"..............   refer to the agreements, as amended from time
                                 to time, between TELKOM and the KSO Investors,
                                 pursuant to which each KSO Unit was
                                 established, and providing for a form of
                                 contractual joint venture under which the KSO
                                 Investor, through the relevant KSO Unit, is
                                 responsible for the operation of the local
                                 network for the KSO Period.

"KSO Investor"................   refers to each of the five private joint
                                 venture companies that are currently a party to
                                 a KSO Agreement with TELKOM.

"KSO Period"..................   refers to the period commencing as under each
                                 KSO Agreement and ending on 31st December,
                                 2010.

"KSO Unit"....................   refers to a regional division of TELKOM managed
                                 and operated by a KSO Investor in the name of
                                 TELKOM, and for and behalf of TELKOM and the
                                 KSO Investor, pursuant to the relevant KSO
                                 Agreement between TELKOM and the KSO Investor.

"leased line".................   is a dedicated telecommunications transmissions
                                 line linking one fixed point to another, rented
                                 from an operator for exclusive use.

"lines in service"............   refer to revenue-generating lines connected to
                                 subscribers, including payphones, but not
                                 including mobile cellular subscribers or lines
                                 used internally by TELKOM.

"local call"..................   is the call among subscribers in the same
                                 numbering area without any prefix number being
                                 required.

"local exchange capacity".....   refers to the aggregate number of lines at a
                                 local exchange connected and available for
                                 connection to outside plant.

"MHz".........................   (Megahertz) is a unit of measure of frequency.
                                 1 MHz is equal to one million cycles per
                                 second.

"microwave transmission"......   is a transmission consisting of electromagnetic
                                 waves in the radio frequency spectrum above 890
                                 million cycles per second and below 20 billion
                                 cycles per second.

                                        3
<PAGE>

"MoC".........................   refers to the Ministry of Communications.

"MoF".........................   refers to the Ministry of Finance.

"MTR".........................   (Minimum TELKOM Revenues) is the specified
                                 minimum amount payable monthly by each KSO Unit
                                 to TELKOM under the KSO Agreements.

"NMT-450".....................   (Nordic Mobile Telephone) is a form of analog
                                 mobile cellular service primarily installed in
                                 vehicles.

"optical fiber"...............   refers to cables using optical fiber and laser
                                 technology whereby modulating light beams
                                 representing data are transmitted through thin
                                 filaments of glass.

"outside plant"...............   is the equipment and facilities used to connect
                                 subscriber premises to the local exchange.

"PBH".........................   (Pola Bagi Hasil) is a type of Build, Operate,
                                 and Transfer arrangement scheme between TELKOM
                                 and domestic private companies. Under this
                                 scheme the private company invests in the
                                 telecommunication facilities to be operated by
                                 TELKOM.

"PSDN"........................   (Packet Switched Data Networks) is a network
                                 using a switch device and sending packets of
                                 data through the network to some remote
                                 location.

"PSTN"........................   (Public Switched Telephone Network) is a
                                 telephone network operated and maintained by
                                 TELKOM and the KSO Units for and on behalf of
                                 TELKOM.

"satellite transponder".......   is the radio relay equipment embedded on a
                                 satellite that receives signals from earth and
                                 amplifies and transmits the signal back to
                                 earth.

"SIM" or "SIM card"...........   (Subscriber Identity Module) is a "smart" card
                                 designed to be inserted into a mobile cellular
                                 telephone that uniquely identifies a GSM
                                 network subscription and that contains
                                 subscriber-related data such as phone numbers,
                                 service details and memory for storing
                                 messages.

"SMS".........................   Short Messaging Service, a technology allowing
                                 the exchange of text messages between mobile
                                 cellular phones.

"switch"......................   is a mechanical, electrical or electronic
                                 device that opens or closes circuits, completes
                                 or breaks an electrical path, or selects paths
                                 or circuits, used to route traffic in a
                                 telecommunications network.

"trunk exchange"..............   refers to a primary, secondary or tertiary
                                 exchange.

"USO".........................   (Universal Service Obligation) the service
                                 obligation imposed by the Government on all
                                 providers of telecommunications services for
                                 the purpose of providing public services in
                                 Indonesia.

"VoIP"........................   (Voice over Internet Protocol) is a means of
                                 sending voice information using the Internet
                                 Protocol.

                                        4
<PAGE>

"VSAT"........................   (Very Small Aperture Terminal) is a relatively
                                 small antenna, typically 1.5 to 3.0 meters in
                                 diameter, placed in the user's premises and
                                 used for two-way communications by satellite.

"WAP".........................   (Wireless Application Protocol) is an open and
                                 global standard of technology platform that
                                 enables mobile users to access and interact
                                 with mobile information services such as
                                 e-mail, Web sites, financial information,
                                 on-line banking, information and entertainment
                                 (infotainment), games and micro payments.

                                        5
<PAGE>

                           FORWARD LOOKING STATEMENTS

     This document contains certain forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with respect to the financial condition, result of
operations and business of Perusahaan Perseroan (Persero) P.T. Telekomunikasi
Indonesia ("TELKOM" or the "Company") and its subsidiaries and certain plans and
objectives of the Company or the Company and its subsidiaries, wherever
applicable, with respect to these items. In particular, among other statements,
certain statements in "Item 5. Operating and Financial Review and Prospects"
including, without limitation, those concerning the Company's expectations and
plans, strategy, management's objectives, trends in market shares, market
standing, overall market trends, risk management, exchange rates and revenues
and general and administration expenses, and forward looking statements
concerning the Company's operations, performance and financial condition. Such
statements can be generally identified by the use of terms such as "believes,"
"expects," "may," "will," "would," "could," "plans," or "anticipates," and the
negatives of such terms or comparable terms. By their nature, forward looking
statements involve risk and uncertainty because they are related to events which
depend on circumstances that will occur in the future. There are a number of
factors that could cause actual results and developments to differ materially
from those expressed or implied by these forward looking statements. Important
information regarding risks and uncertainty is also set forth elsewhere in this
annual report, including in "Item 3D. Risk Factors" and "Item 11. Quantitative
and Qualitative Disclosures About Market Risk".

     In this Annual Report, unless otherwise specified or the context otherwise
requires, all references to "Indonesia" are references to the Republic of
Indonesia and all references to the "U.S." and "United States" are references to
the United States of America. All references to the "Government" herein are
references to the government of the Republic of Indonesia. References herein to
"Rupiah" and "Rp." are to the lawful currency of Indonesia and all references to
"U.S. Dollars" or "US$" are to the lawful currency of the United States of
America. For convenience, unless otherwise specified, certain Rupiah amounts
have been translated into U.S. Dollar amounts, based on the prevailing exchange
rate of Rp.8,913 = US$1.00, being the middle market spot rate of exchange for
Rupiah against U.S. Dollar quoted by Reuters on March 14, 2003. Such
translations should not be construed as representations that the Indonesian
Rupiah or U.S. Dollar amounts referred to could have been, or could be,
converted into Rupiah or U.S. Dollars, as the case may be, at that or any other
rate or at all. The middle market spot rate of exchange for Rupiah against U.S.
Dollar quoted by Bank Indonesia on December 31, 2002 was Rp.8,940 to US$1.00.
See "Exchange Rates" for further information regarding rates of exchange between
Rupiah and U.S. Dollars.

                                        6
<PAGE>

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3.  KEY INFORMATION

A.  SELECTED FINANCIAL DATA

     The Company's Financial Statements for the year 1998, and the Company's
Consolidated Financial Statements for the year 1999, were audited by Prasetio,
Utomo & Co., the member firm of Arthur Andersen & Co. SC in Indonesia. The
Company's Consolidated Financial Statements for the years 2000 and 2001 were
audited by Hans Tuanakotta & Mustofa, a member firm of Deloitte Touche Tohmatsu.
The Company's Consolidated Financial Statements for the year 2002 have been
audited by the Eddy Pianto, registered public accountant, the audit firm
constituent of an Indonesian Accounting and Audit Services Practice operated as
a federation of PT Grant Thornton Indonesia, a member firm of Grant Thornton
International as indicated in their report appearing on page F-1 herein. Such
Financial Statements were prepared in accordance with Indonesian GAAP, which
differs in certain significant respects from U.S. GAAP. See "Item 11.
Quantitative and Qualitative Disclosures About Market Risk -- Summary of
Material Differences between Indonesian GAAP and U.S. GAAP" and Notes 57, 58 and
59 to the Company's Consolidated Financial Statements, which provide a
description of the material differences between Indonesian GAAP and U.S. GAAP
and a reconciliation to the approximate amount of U.S. GAAP net income and
stockholders' equity of the Company for and as of the end of each of the periods
indicated in the Consolidated Financial Statements.

     For the year 2002, six companies were consolidated within the Company's
Consolidated Financial Statements, namely: PT Telekomunikasi Selular
("Telkomsel", 65.0%), PT Dayamitra Telekomunikasi ("Dayamitra", 90.32%), PT
Indonusa Telemedia ("Indonusa", 57.5%), PT Infomedia Nusantara ("Infomedia",
51%), PT Graha Sarana Duta ("GSD", 99.99%), and PT Pramindo Ikat Nusantara
("Pramindo", 30.0%).

     The following tables set forth a summary of the financial information of
TELKOM as at and for the years specified. This information should be read in
conjunction with "Item 5. Operating and Financial Review and Prospects", and is
qualified in its entirety by reference to, TELKOM's Consolidated Financial
Statements and the related notes thereto included elsewhere in this Annual
Report.

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                  -----------------------------------------------------
                                                    1998       1999       2000       2001       2002
                                                  --------   --------   --------   --------   ---------
                                                  (RP. IN BILLION, EXCEPT FOR DATA RELATING TO SHARES,
                                                                   DIVIDENDS AND ADS)
<S>                                               <C>        <C>        <C>        <C>        <C>
CONSOLIDATED INCOME STATEMENT DATA
Indonesian GAAP
  Operating revenues(1)
     Telephone
       Fixed phones
          Local and domestic long-distance
            usage...............................     2,903      3,571      4,097      5,225       6,337
          Monthly subscription charges..........       683        799        887        998       1,650
          Installation charges..................       106         68         75         98         167
          Others................................       113         91        119         94         173
                                                  --------   --------   --------   --------   ---------
            Total fixed phones revenues.........     3,805      4,529      5,178      6,415       8,327
</Table>

                                        7
<PAGE>

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                  -----------------------------------------------------
                                                    1998       1999       2000       2001       2002
                                                  --------   --------   --------   --------   ---------
                                                  (RP. IN BILLION, EXCEPT FOR DATA RELATING TO SHARES,
                                                                   DIVIDENDS AND ADS)
<S>                                               <C>        <C>        <C>        <C>        <C>
       Cellular
          Air time charges......................       852      1,458      2,484      3,988       5,454
          Monthly subscription charges..........       212        236        356        582         593
          Features..............................         5          4          7         10           8
          Installation charges..................        20         51         43        128         172
                                                  --------   --------   --------   --------   ---------
            Total cellular revenues.............     1,089      1,749      2,890      4,708       6,227
       Total telephone revenues.................     4,894      6,278      8,068     11,123      14,554
     Joint Operation Scheme
       Minimum TELKOM Revenue (MTR).............     1,433      1,453      1,557      1,474       1,023
       Distributable TELKOM Revenue (DTR).......       143        209        695        733         604
       Amortization of Initial Investor
          Payments..............................        15         15         15         12          11
            Total Revenue under Joint Operating
               Scheme...........................     1,592      1,677      2,267      2,220       1,638
     Interconnection revenues...................       412        706        981      1,387       3,026
     Network....................................       354        343        340        415         326
     Data and Internet..........................        32         54        108        673       1,572
     Revenues under Revenue Sharing
       Arrangement..............................       285        308        308        265         280
     Other telecommunications services..........        21         19         40         47           4
                                                  --------   --------   --------   --------   ---------
       Total Operating Revenues.................     7,590      9,386     12,112     16,131      21,400
                                                  --------   --------   --------   --------   ---------
  Operating expenses
     Personnel..................................       904      1,225      1,610      2,028       4,124
     Depreciation...............................     2,468      2,627      2,419      2,829       3,504
     Operation, maintenance and
       telecommunications services(1)...........       726      1,146      1,386      2,150       2,432
     General and administrative.................       675        571        872      1,288       1,558
     Marketing..................................        51         76        147        220         380
                                                  --------   --------   --------   --------   ---------
       Total Operating Expenses.................     4,824      5,645      6,434      8,515      11,998
                                                  --------   --------   --------   --------   ---------
  Operating Income..............................     2,766      3,741      5,678      7,616       9,402
  Other income (charges)
     Gain on sales of long term investment......         0          0          0          0       3,196
     Interest expense...........................      (981)    (1,492)      (817)    (1,330)     (1,534)
     Interest income............................       744        762        692        572         485
     Gain (loss) on foreign exchange -- net.....    (1,219)       326       (944)      (379)       (517)
     Equity in net income (loss) of associated
       companies................................       (62)       137       (232)       (86)         62
     Others -- net..............................       178        101        412        294         215
  Other Charges -- net..........................    (1,340)      (166)      (889)      (928)      2,941
  Income before Tax.............................     1,426      3,575      4,789      6,687      12,343
  Tax expense...................................       258      1,009      1,466      2,071       2,746
  Income before minority interest in net income
     of subsidiaries and preacquisition loss....     1,168      2,566      3,323      4,617       9,597
  Preacquisition loss...........................         0          0          0        108        (143)
  Minority interest in net income of
     subsidiaries...............................       (15)      (162)      (313)      (475)     (1,109)
  Net Income....................................     1,153      2,404      3,010      4,250       8,345
</Table>

                                        8
<PAGE>

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                  -----------------------------------------------------
                                                    1998       1999       2000       2001       2002
                                                  --------   --------   --------   --------   ---------
                                                  (RP. IN BILLION, EXCEPT FOR DATA RELATING TO SHARES,
                                                                   DIVIDENDS AND ADS)
<S>                                               <C>        <C>        <C>        <C>        <C>
  Weighted average shares outstanding
     (millions).................................     9,333      9,644     10,080     10,080      10,080
     Net income per share.......................    123,47     249.23     298.61     421.64      827.90
     Net income per ADS.........................  2,469.44   4.984.64   5,972.23   8,432.76   16,558.08
     Dividend declared per share................     48.48      50.99     107.76      88.16      210.82
  U.S. GAAP(4)
     Net income.................................       815      2,621      2,952      4,037       9,274
     Net income per share.......................     87.31     271.79     292.87     400.46      920.06
     Net income per ADS.........................  1,746.27   5,435.72   5,857.41   8,009.21   18,401.29
</Table>

<Table>
<Caption>
                                                                    AS OF DECEMBER 31,
                                                        ------------------------------------------
                                                         1998     1999     2000     2001     2002
                                                        ------   ------   ------   ------   ------
                                                                     (RP. IN BILLION)
<S>                                                     <C>      <C>      <C>      <C>      <C>
CONSOLIDATED BALANCE SHEET DATA
Indonesian GAAP
  Total assets........................................  26,040   28,574   32,019   32,470   42,322
  Current liabilities(2)..............................   3,940    4,331    4,510   10,075   10,855
  Other liabilities...................................   2,128    2,153    2,240    2,105    1,753
  Long-term debt......................................   8,537    8,541    9,546    9,731   10,371
  Total liabilities...................................  14,605   15,025   16,296   21,911   22,979
  Minority interest...................................     360      534      814    1,235    3,444
  Capital stock(3)....................................   4,667    5,040    5,040    5,040    5,040
  Total stockholders' equity..........................  11,075   13,015   14,909    9,324   15,899
U.S. GAAP(4)
  Total assets........................................  25,273   27,867   31,204   31,574   41,612
  Total stockholders' equity..........................  10,132   12,290   14,146    8,241   15,745
</Table>

---------------

Notes:
(1) By considering growth of business segment in 2002, TELKOM presented its
    Operating Revenues in more detail than previous years namely Fixed Lines
    Revenues, Cellular Revenues, Joint Operation Schemes Revenues,
    Interconnection Revenues, Network Revenues, Data and Internet Revenues,
    Revenues under Revenue Sharing Arrangements and Other Telecommunications
    Services Revenues. For the comparability purpose, TELKOM also presented the
    previous years figures in the same items as the 2002 presentation.
(2) Includes current maturities of long-term debt.
(3) Issued and Paid-Up Capital Stock consists of one Series A Dwiwarna share
    having a par value of Rp. 500 and 10,079,999,639 Series B shares having a
    par value of Rp. 500 from an authorized capital stock comprising of one
    series A Dwiwarna share and 39,999,999,999 Series B shares.
(4) U.S. GAAP amounts reflect adjustments resulting from differences in the
    accounting treatment of early retirement benefits, foreign exchange
    differences on property under construction, interest capitalized on property
    under construction, revenue sharing arrangements, revaluation of property,
    plant and equipment, deferred tax on the Company's share of net income of
    domestic subsidiaries, pension, share of the Company's net income of
    associated companies, amortization of land rights and stock issuance costs,
    employee bonuses and depreciation of equipment to be installed. See Notes
    57, 58 and 59 to the Company's Consolidated Financial Statements.

EXCHANGE RATE INFORMATION

     Prior to August 14, 1997, Bank Indonesia maintained the value of the Rupiah
based on a basket of currencies of Indonesia's main trading partners. In July
1997 the exchange rate band was widened, and on August 14, 1997 Bank Indonesia
announced it would no longer intervene in maintaining the exchange rate at any
pre-determined level.

     The following table shows the exchange rate of Rupiah to U.S. Dollar based
on the middle exchange rates at the end of each month for the periods indicated.
The Rupiah middle exchange rate is calculated based on Bank Indonesia buying and
selling rates. No representations are made that the

                                        9
<PAGE>

Rupiah or US Dollar amounts referred to herein could have been or could be
converted into U.S. Dollar or Rupiah, as the case may be, at any particular rate
or at all.

<Table>
<Caption>
                                                         AT PERIOD
YEAR                                                        END      AVERAGE(1)   HIGH(2)   LOW(2)
----                                                     ---------   ----------   -------   ------
                                                                     (RP. PER US$1.00)
<S>                                                      <C>         <C>          <C>       <C>
1998...................................................    8,025        9,875     14,900     7,300
1999...................................................    7,100        7,809      8,950     6,726
2000...................................................    9,595        8,534      9,595     7,425
  First quarter........................................    7,590        7,507      7,590     7,425
  Second quarter.......................................    8,735        8,433      8,620     7,945
  Third quarter........................................    8,780        8,691      9,003     8,290
  Fourth quarter.......................................    9,595        9,507      9,595     9,395
2001...................................................   10,400       10,266     11,675     8,865
  First quarter........................................   10,400        9,895     10,400     9,450
  Second quarter.......................................   11,440       11,391     11,440    11,058
  Third quarter........................................    9,675        9,355      9,675    10,350
  Fourth quarter.......................................   10,400       10,422     10,435    10,400
2002...................................................    8,940        9,316     10,473     8,460
  First quarter........................................    9,655       10,192     10,473     9,542
  Second quarter.......................................    8,730        9,109      9,775     8,460
  Third quarter........................................    9,015        8,949      9,218     8,695
  Fourth quarter.......................................    8,940        9,058      9,326     8,815
  October..............................................    9,233        9,152      9,326     9,007
  November.............................................    8,976        9,075      9,228     8,970
  December.............................................    8,940        8,907      8,815     8,983
2003
  January..............................................    8,876        9,058      9,326     8,815
  February.............................................    8,905        8,895      8,970     8,863
  March................................................    8,908        8,930      9,120     8,863
</Table>

---------------

Notes:

(1) The average of the middle exchange rate announced by Bank Indonesia on the
    last day of each month during the period, other than September, October,
    November and December 2002 and January, February and March 2003, which are
    daily averages.

(2) The high and low amounts are determined based upon the month end middle
    exchange rate announced by Bank Indonesia, other than for October, November
    and December 2002 and January, February and March 2003, which are daily
    averages.

Source: Bank Indonesia

     The exchange rates used for translation of monetary assets and liabilities
denominated in foreign currencies are the buy and sell rates published by Bridge
Telerate and Reuters in 2001, 2002 respectively. The buy and sell rates
published by Bridge Telerate were Rp10,400 and Rp10,450 to US$1 as December 31,
2001. The Reuters buy and sell rates, applied respectively to monetary assets
and liabilities, were Rp8,940 and Rp8,960 to US$1 as of December 31, 2002.
Telkomsel applied the Bank Indonesia average buy and sell rate for its monetary
assets and liabilities which was Rp8,940 to US$1 as of December 31, 2002. The
Company does not guarantee that assets and liabilities denominated in foreign
currencies can be converted into Indonesian Rupiah at the rates of exchange as
of December 31, 2002.

     The financial statements are stated in Rupiah. The translations of Rupiah
amounts into United States Dollars are included solely for the convenience of
the readers and have been made using the

                                        10
<PAGE>

average of the market buy and sell rates of Rp8,913 to US$1 published by Reuters
on March 14, 2003. The convenience translations should not be construed as
representations that the Rupiah amounts have been, could have been, or can in
the future be, converted into United States Dollars at this or any other rate of
exchange.

B.  CAPITALIZATION AND INDEBTEDNESS

     Not applicable.

C.  REASON FOR THE OFFER AND USE OF PROCEEDS

     Not applicable.

D.  RISK FACTORS

INDONESIAN ECONOMIC AND POLITICAL RISK

     All of TELKOM's revenues are derived from its business operations
undertaken in Indonesia. Furthermore, all of its assets are located and all of
its services are performed in Indonesia. As a result, TELKOM's performance and
its ability to maintain or increase its subscriber base are dependent on the
health of the overall Indonesian economy. The Asian economic crisis in 1997 and
1998 caused a substantial impact on the Indonesian economy, which has not fully
recovered to its pre-crisis levels. Any continuation or worsening of economic
conditions in Indonesia could adversely affect TELKOM's business, including
TELKOM's ability to maintain or increase its subscriber base and its ability to
implement its business strategy.

     Indonesia had experienced political instability as well as general social
and civil unrest in the past few years. This may affect TELKOM's operations in
the future. There can be no assurance that social and civil disturbances will
not recur in the future. If social and civil disturbances occur, it is possible
that such disturbances could lead to political or economic instability, causing
further damage to TELKOM's infrastructure and its business.

CURRENCY EXCHANGE RISK

     The Government's exchange rate policies and any future changes in the value
of the Rupiah against the U.S. Dollar or other currencies could adversely affect
TELKOM's financial condition and results of operations. On August 14, 1997, Bank
Indonesia permitted the exchange rate for the Rupiah to float without announcing
a level at which it would intervene. From August 1997 to mid-1998, the month-end
value of the Rupiah relative to the U.S. Dollar declined from approximately
Rp.2,600 per U.S. Dollar to as low as approximately Rp.15,000 per U.S. Dollar.
There can be no assurance that the Rupiah will not be subject to continued
depreciation or volatility, that the current exchange rate policy will remain
the same, that the Government will act when necessary to stabilize, maintain or
increase the value of the Rupiah, or that any such action, if taken, will be
successful.

     Continued depreciation or volatility of the Rupiah against the U.S. Dollar
or other currencies could adversely affect general economic conditions in
Indonesia. Rupiah depreciation would also drive up the Rupiah cost of TELKOM's
capital expenditure program since most of the equipment to be used in the
expansion of TELKOM's network capacity is sourced off-shore and priced in
foreign currencies, mainly in U.S. Dollars and Euros, while almost all of
TELKOM's revenues are in Rupiah. Changes in the current exchange rate policy may
result in significantly higher domestic interest rates, liquidity shortages,
capital or exchange controls or the withholding of additional financial
assistance by multilateral institutions. The foregoing consequences, if they
occur, could have a material adverse effect on TELKOM's business. As at March
14, 2003, the exchange rate of Rupiah to U.S. Dollar, based on the Reuters
averages buy and sell rates, was Rp.8,913 per U.S. Dollar.

                                        11
<PAGE>

EXPANSION RISK

     To remain competitive and position TELKOM in gaining market share, TELKOM
has identified its primary business objective as becoming a full service and
network provider. To achieve this objective, TELKOM has determined that it
should increase its focus on multimedia and other types of services in addition
to its present core business concentration on local, domestic long-distance and
mobile cellular services. TELKOM is also considering the possibility of
providing IDD services when this business is opened to competition in August
2003. The implementation of measures designed to achieve this objective could
strain TELKOM's managerial, financial and other resources, which could adversely
affect TELKOM's business, financial condition and prospects.

KSO OPERATIONS RISK

     Under the KSO Agreement, part of TELKOM's fixed line network is managed by
KSO Investors. As a result of the Indonesian economic crisis that began in 1997,
the KSO Investors have experienced substantial difficulties in fulfilling their
obligations to TELKOM under the KSO Agreements, leading to disputes between
TELKOM and certain KSO Investors. TELKOM has explored various options to resolve
the KSO issues and has also sought to negotiate the acquisition of all or a
majority of shares of certain KSO Investors. In 2001, TELKOM acquired a 90.32%
equity interest in Dayamitra, the KSO Investor for KSO VI. On April 19, 2002,
TELKOM entered into a conditional sale and purchase agreement for the purchase
of all of the outstanding equity interests in Pramindo, to be completed in three
stages. As part of the initial closing, it acquired 30% of the shares of
Pramindo in August 2002, and has management control over Pramindo. Under the
agreement, TELKOM is expected to acquire a further 15% of the shares of Pramindo
on September 30, 2003, and the remaining 55% of the shares of Pramindo on
December 31, 2004.

     On May 8, 2002 TELKOM entered into a conditional sale and purchase
agreement for all of the outstanding equity interests in PT AriaWest
International ("AriaWest"), the KSO Investor for KSO III. However AriaWest was
unable to reach agreement with its lenders on the restructuring of its debt
obligations on terms acceptable to TELKOM. As a result, a condition of the sales
and purchase agreement was not satisfied and the transaction was not closed as
contemplated by August 30, 2002. Arbitration between the Company and AriaWest is
proceeding. There can be no assurance that TELKOM will prevail in the
arbitration or litigation proceedings. See "AriaWest Arbitration Risk".

     In relation to KSO IV, TELKOM is in the process of negotiating with the
Shareholders of MGTI for a buy-out option. However as of the date of this annual
report, there has been no agreement with regard to such a transaction. There can
be no assurance that such an agreement can be reached or that TELKOM will be
able to successfully restructure the KSO IV or may require TELKOM to enter into
an arrangement on unfavorable terms.

     Because the KSO investors control the network development and operational
responsibility in the KSO regions, the failure to amicably resolve the issues in
a particular KSO region may result in limited network expansion and impede
TELKOM's access to subscribers and ability to compete effectively in that
region.

ARIAWEST ARBITRATION RISK

     On May 15, 2001, AriaWest, the KSO investor for KSO III, commenced an
arbitration proceeding under the Rules of the International Chamber of Commerce
("ICC") against TELKOM for an allegation of breach of the KSO Agreement between
TELKOM and AriaWest. AriaWest has alleged damages in excess of US$1.3 billion,
but has not specified the amount of damages associated with most of its claims.
TELKOM has denied AriaWest's allegations and claimed that AriaWest has
materially breached the KSO Agreement. TELKOM has not quantified all of its
damages, but has claimed amounts in excess of Rp.528 billion with respect to
non-payment of MTR and Rp.113 billion with respect to non-payment of DTR.

                                        12
<PAGE>

     On May 8, 2002, TELKOM and the shareholders of AriaWest executed a
conditional sale and purchase agreement pursuant to which TELKOM agreed to
acquire all of the shares of AriaWest from the shareholders and to guarantee
certain debt obligations of AriaWest, subject to the restructuring of such debt
obligations. Closing of the transaction was subject to various condition
precedents, including: (i) the release of tax clearance from the tax authority
regarding AriaWest's tax loss carry forward; (ii) approval of the transaction
from TELKOM shareholders; and (iii) the restructuring of AriaWest's debt
obligations on terms acceptable to TELKOM. Although the tax clearance was
released and the Company obtained such approval from its shareholders in the
extraordinary general meeting on June 21, 2002, the transaction was not closed
as contemplated by August 30, 2002 as a condition precedent requiring the
restructuring of certain debt obligations of AriaWest was not satisfied. Certain
of AriaWest's creditors have publicly stated that they have not yet agreed to
restructure AriaWest's debt obligations. Such creditors have asserted that
payments to be made by TELKOM to the AriaWest shareholders to acquire the
AriaWest shares would prejudice their interests if such funds are not used to
service existing debt obligations of AriaWest, and that as a consequence, the
creditors may likely accelerate the loan facility and foreclose on collateral
under the terms of the relevant loan agreement. Because AriaWest is currently
insolvent and in default under a loan facility with an estimated aggregate
outstanding amount of approximately US$291 million as of April 30, 2002, it
appears that the creditors have the right to accelerate the loan facility and
foreclose on collateral under the terms of the relevant loan agreement. Unless
and until TELKOM, AriaWest and the creditors reach agreement on a restructuring
of AriaWest's debt, TELKOM may not have the ability to proceed with the purchase
of the AriaWest shares and to permanently settle the pending arbitration
proceeding on the terms presently contemplated, or at all. Furthermore, TELKOM
intends to vigorously pursue its claims and defenses in the arbitration.
Currently, the ICC proceedings have been suspended until April 17, 2003 by
agreement of the parties. If the closing does not occur, no assurance can be
given that TELKOM will be successful in defending AriaWest's claims for breach
of the KSO Agreement or in pursuing its own claims against AriaWest in the
arbitration. Any adverse ruling in the arbitration proceeding could have a
material adverse effect on TELKOM's business, financial condition and results of
operations.

     Currently, both parties are still attempting to complete the transaction.
However, there can be no assurance that the transaction will be completed.

DIRECT CONTROL BY THE GOVERNMENT OF INDONESIA RISK

     The Government has an aggregate interest of approximately 51.19% of the
issued and outstanding shares of TELKOM, and so has effective control of TELKOM
and the ability to determine the outcome of substantially all actions requiring
the approval of TELKOM shareholders. The Government is also the holder of the
Dwiwarna share of TELKOM, which has special voting rights and veto rights over
certain matters, including the election and removal of the Directors and
Commissioners of TELKOM. Through the MoC, the Government also exercises
regulatory power over the Indonesian telecommunications industry. There might be
situations where the objectives of the Government, as TELKOM's regulator and its
controlling shareholder, conflict with TELKOM's business goals. In addition,
there can be no assurance that the Government will not direct opportunities to
other telecommunication service providers in which it holds an interest.

SYSTEMS FAILURE RISK

     TELKOM's telecommunications services are currently carried through its
fixed line and cellular networks, as well as through its transmission networks
that consist of copper-wire cable, optical fiber cable, microwave, submarine
cable and satellite transmission links. The provision of its services depends on
the stability of this integrated network and is managed through TELKOM's
national network control system. Although TELKOM has its telecommunication's
management network system that minimizes failure through traffic rerouting and
standard disaster recovery procedures, TELKOM's network may be vulnerable to
damage or interruptions in operation due to earthquake, fire, power loss,

                                        13
<PAGE>

telecommunications failures, network software flaws, transmission cable
disruption or similar events. TELKOM carries insurance on its fixed assets, but
does not carry business interruption insurance.

     Any failure of this integrated network, TELKOM's servers, or any link in
the transmission chain that results in an interruption in TELKOM's operations or
the provision of any service, whether from operational disruption, natural
disaster or otherwise, could damage TELKOM's ability to attract and retain
subscribers and adversely affect its results of operations, financial condition
and prospects.

LIQUIDITY RISK

     TELKOM believes that its available cash resources (including the ability to
draw down further on existing debt facilities) and cash from operations will
provide sufficient financial resources to meet its projected capital and other
expenditure requirements and to settle or refinance its projected liabilities.
However, TELKOM may need to raise significant additional funds in order to
support its growth, undertake acquisitions, and develop new or enhanced services
and products. It may also respond to competitive pressures, acquire
complementary businesses, technologies or take advantage of opportunities.
TELKOM cannot be sure that such additional funding, if needed, will be available
on acceptable terms. Furthermore, any debt financing, if available, may involve
restrictive covenants, which may limit TELKOM's operating flexibility with
respect to certain business matters. If adequate funds are not available on
acceptable terms, TELKOM may be unable to develop or enhance its services. It
may also be unable to take advantage of future opportunities or respond to
competitive pressures, any of which could have a material adverse effect on
TELKOM's business, results of operations and financial condition.

CAPITAL EXPENDITURE RISK

     The telecommunications industry is capital intensive in nature. In order to
continue to be competitive and provide service and technology compatible with
other telecommunications service operators as well as customer demand, TELKOM
must continue to expand and modernize its network, which involves substantial
capital investment. TELKOM historically has relied heavily on two-step loans
obtained through the Government and third party financing, including vendor
financing, to support the development of its fixed line network. TELKOM is now
exploring the possibility of implementing an innovative form of revenue sharing,
which TELKOM has termed the "Pay as You Grow" program. If TELKOM is unable to
obtain adequate vendor or other third party financing for its planned capital
expenditures or otherwise fund such expenditures through other financing
arrangements, including internal cash flows, TELKOM may have to forego, delay or
postpone certain of its planned capital expenditures. This may prevent TELKOM
from being able to expand sufficiently and upgrade its network.

EMPLOYEE RISK

     As a result of changes in the socio-political environment in Indonesia and
the newly enacted Employment Act 2003, the employees through their association
may have significant bargaining power. This may cause the modification or delay
in implementation of TELKOM policies that the employees determine may adversely
impact their interests. There can be no assurance that the activities of
employees will not materially and adversely affect TELKOM's business, financial
condition and prospects.

TECHNOLOGICAL RISK

     The telecommunications industry is characterized by rapid and significant
changes in technology. TELKOM may face increasing competition from technologies
currently being developed or that may be developed in the future. New
technologies, services or standards could require significant changes to its
business model, the development of new products or the provision of additional
services. In addition, TELKOM may need to substantially update and expand its
billing and credit control systems to

                                        14
<PAGE>

accommodate growth in its business and the adoption of new technologies and
services. New products and services may be expensive to develop and may result
in the introduction of additional competitors into the marketplace. TELKOM
cannot accurately predict how emerging and future technological changes will
affect its operations or the competitiveness of its services. Similarly, TELKOM
cannot provide any assurances that the technologies it adopts will not become
obsolete or subject to intense competition from new technologies in the future.

REGULATORY RISK

     There is substantial uncertainty in the current regulatory environment for
the Indonesian telecommunications industry. In particular, the Telecom Law No.
36 of 1999 ("Telecom Law") provides key guidelines for industry reforms,
including industry liberalization, facilitation of new entrants and changes to
the industry's competitive structure. The Telecom Law only outlines the
framework and substantive principles for the liberalization of the
telecommunications industry. TELKOM believes that there has been uncertainty in
the Indonesian regulatory environment with regard to, among other things:

     - Interconnection:  TELKOM is obligated to allow other operators to
       interconnect their networks with those of TELKOM subject to entering into
       interconnection agreements with those other operators. Currently,
       TELKOM's ability to negotiate such interconnection agreements is limited
       by the provisions set forth in various Ministerial Decrees governing
       interconnection rates. Following the enactment of the Telecom Law, a
       restructuring of the interconnection policy has been proposed based upon
       a cost-based tariff rather than the revenue sharing scheme as currently
       implemented. As of the date of this Annual Report, the Government has not
       finalized regulations regarding the implementation of the new
       interconnection policy.

     - Licenses:  The Government, with due regard to prevailing laws and
       regulations, may amend the terms of TELKOM's licenses and business
       authority at its discretion. Any breach of the terms and conditions of
       its licenses or business authority or failure to comply with applicable
       regulations may result in such licenses or business authority being
       revoked. Any revocation or unfavorable amendment of the licenses or
       business authority, or any failure to renew them on comparable terms,
       could have a materially adverse effect on TELKOM's business, financial
       condition, results of operations and prospects.

     - Tariffs:  In 1995, the Government, after consulting with the House of
       Representative (DPR), implemented regulation establishing a price cap
       tariff formula to determine annual tariff adjustments for domestic fixed
       line telecommunications services. However, such annual tariff review
       adjustment has not been applied on a consistent basis. In addition,
       amendments to the current price cap policy allow operators to calculate
       yearly tariff adjustments beginning January 1, 2002, based on a formula
       to be stipulated by the Government. On January 29, 2002, the Government
       issued a letter to TELKOM stipulating a 45.49% increase in domestic fixed
       line telephone tariffs to be implemented over three years (2002 -- 2004).
       For the year 2002, the first tariff increase with an average 15% increase
       has been implemented. In January 2003, the Government postponed the
       second tariff increase due to numerous public protests. There is no
       assurance as to when or whether the 2003 tariff increase will be
       implemented by the Government.

     - Independent Regulatory Body (IRB):  The Telecom Law contemplates the
       establishment of a new independent regulatory body to provide input to
       the MoC in the development of telecommunications policies and
       regulations. As of the date of this Annual Report, no IRB has been
       established. Currently, it is anticipated that the MoC will continue to
       be responsible for setting policy, monitoring and controlling the
       telecommunications industry. However, there can be no assurance that the
       independent regulatory body will not influence the MoC to take action
       that may be detrimental to TELKOM's business or prospects or that the
       independent regulatory body

                                        15
<PAGE>

       will not receive regulatory authority in the future. There can be no
       assurance as to the timing and form of the IRB to be established by the
       Government.

     - Competition in the Fixed Line Domestic Telecommunications
       Market:  Historically, TELKOM has had the exclusive right to provide
       fixed line domestic telecommunications services in Indonesia. Pursuant to
       regulations introduced to implement the new telecommunication law 36/1999
       (the "Telecom Law"), the Government plans to end TELKOM's monopoly
       position in providing fixed line domestic telecommunications services. It
       has issued to Indosat, a license to provide local telephone services from
       August 2002, and announced that Indosat will received a license to
       provide domestic long-distance telephone services from August 2003,
       creating a "duopoly system" in Indonesia's fixed line domestic
       telecommunication market. Competition in the fixed line market could lead
       to a decline in TELKOM's existing subscriber base as subscribers choose
       to receive services from other providers, or result in lower revenue from
       competitive pricing policies, increased selling costs to attract or
       replace subscribers, or a decrease in the rate at which TELKOM attracts
       new subscribers for its services, all of which could adversely affect
       TELKOM's profitability.

     - Compensation Risk:  The Telecom Law provides that TELKOM is to be
       compensated for the loss of TELKOM's rights of exclusivity in relation to
       the provision of fixed local and domestic long-distance services in
       Indonesia. The nature and extent of compensation that is payable to
       TELKOM is subject to approval by the Government. The Government has
       determined that compensation for the termination of TELKOM's exclusivity
       right for fixed local and domestic long-distance telecommunication
       network shall be given in a form of an IDD license and in the approval of
       the reissuance of TELKOM's DCS 1800 license from TELKOM to Telkomsel,
       while compensation for the termination of Indosat's exclusivity rights
       for IDD shall be given in the form of DCS 1800, local and domestic
       long-distance license. The Government has appointed a reputable
       Independent Appraiser to resolve any difference of opinion regarding the
       value of the compensation. At present, the independent appraiser has
       finalized its work and has submitted the result to the Government.
       However, as of the date of this Annual Report, TELKOM has not received
       formal notice from the Government regarding the implementation of the
       compensation scheme for the early termination of its exclusivity rights.

     - USO Risk:  All telecommunications network operators and service providers
       are bound by a Universal Service Obligation, or USO, which requires
       provision of certain telecommunications facilities and infrastructure in
       rural and remote areas. As a local network provider, TELKOM is obligated
       to build and operate telecommunications networks in the USO areas.
       Because TELKOM is the local network provider in all parts of Indonesia
       other than those operated by the KSO Units, the USO obligation likely
       burden will TELKOM more than other service providers. Historically,
       TELKOM has been obligated to contribute 5% of its capital expenditures
       for its USO requirements. TELKOM has typically experienced financial
       losses in providing such network capacity for rural and remote areas. As
       of the date of this Annual Report, the Government has not finalized the
       new USO regulation for telecommunication operators in Indonesia.

     There can be no assurance that the amendment or interpretation of
implementation of current laws and regulations, or the introduction of
additional laws or regulations will not adversely affect TELKOM's business,
financial condition and prospects.

CELLULAR OPERATIONS RISK

     TELKOM provides cellular telecommunications services through its
subsidiaries and associated companies including Telkomsel (GSM 900 Mhz and 1800
Mhz), Komselindo (AMPS/CDMA), Telesera (AMPS), Metrosel (AMPS) and Mobisel
(NMT-450). Among these associated companies, Telkomsel has experienced a rapid
growth in its subscriber-base in recent years, and is currently a market leader
in the cellular business in Indonesia with an estimated market share of
approximately 52.3% as of December 31, 2002. Telkomsel's future growth depends
upon its ability to overcome

                                        16
<PAGE>

frequency and physical infrastructure limitations. Telkomsel had capacity and
spectrum constraints in the past and may in the future face such constraint,
which may result in network congestion and reduced service quality. Unresolved
capacity and spectrum constraints may impede Telkomsel's future growth.
Telkomsel's ability to continue to increase and retain its subscriber-base also
depends on the continued expansion of its cellular network capacity. Telkomsel
currently anticipates that over the next three years it will substantially
increase the capacity of its cellular network. The spectrum and capacity are
subject to regulatory approval and allocation.

     The Indonesian cellular telecommunications market is highly competitive.
Currently, Telkomsel competes primarily with Satelindo, Excelcomindo and IM3 in
attracting and retaining subscribers for its mobile cellular telecommunications
services. There are also several other new competitors including new CDMA
cellular operators. Competition between Telkomsel and all of these operators is
based on various factors such as the pricing, network quality and coverage,
range of services offered and customer service. In addition to the current
operators, there is no assurance that the MoC will not issue new licenses for
additional mobile cellular telecommunication service operators in the future
that may compete with Telkomsel.

ITEM 4.  INFORMATION ON THE COMPANY

A.  HISTORY AND DEVELOPMENT OF THE COMPANY

     Perusahaan Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk. ("TELKOM"
or the "Company"), a majority state-owned company, is the principal provider of
fixed line and cellular services in Indonesia. The Company provides a wide range
of telecommunication network and telecommunications services including
fixed-line, mobile, interconnection, network, data and Internet services, and
other telecommunications services. Pursuant to its Articles of Association,
TELKOM was established for an unlimited period of time. The Company's purposes
and objectives are to operate telecommunications networks and provide
telecommunications and information services.

     In 1884, the Dutch colonial government established a private company to
provide postal services and domestic telegraph services and, subsequently,
international telegraph services. Telephone services were first made available
in Indonesia in 1882 and, until 1906, were provided by privately-owned companies
pursuant to a 25-year government license. In 1906, the Dutch colonial government
formed a government agency to assume control of all postal and
telecommunications services in Indonesia. In 1961, most of these services were
transferred to a newly-established state-owned company to provide postal and
telecommunications services in Indonesia, apart from services in Sumatra, which
were transferred in the 1970's. The Government separated postal and
telecommunications services in 1965 into two state-owned companies, PN Pos and
Giro, and PN Telekomunikasi. In 1974, PN Telekomunikasi was further divided into
two state-owned companies, Perusahaan Umum Telekomunikasi ("Perumtel") to
provide domestic and international telecommunications services and PT Inti, to
provide telecommunications equipment manufacturing. In 1980, the international
telecommunications business was transferred to Indosat.

     In 1991, Perumtel was transformed into a "Persero", or state-owned limited
liability corporation with commercial purposes, and renamed Perusahaan Perseroan
(Persero) P.T. Telekomunikasi Indonesia, known as TELKOM. Prior to 1995,
TELKOM's business operation was segregated into 12 regional operating units,
known as "Witels," which were centrally controlled from TELKOM's headquarters in
Bandung, West Java. Each Witel had a management structure responsible for all
aspects of TELKOM's business in their respective regions, from the provision of
telephone services to property management and security. The Company has its
place of domicile in Indonesia and its registered office at No. 1, Jalan Japati,
Bandung, 40133, Indonesia. The name and address of the Company's agent in the
United States is CT Corporation System.

     During 1995, TELKOM restructured its operations (the "Restructuring") by
converting all twelve Witels into seven Regional Divisions (Division I Sumatra;
Division II Jakarta and the surrounding areas; Division III West Java; Division
IV Central Java; Division V East Java; Division VI Kalimantan; and

                                        17
<PAGE>

Division VII Eastern part of Indonesia) and one Network Division. The Company
also entered into KSO Agreements with five private sector consortia, each of
which involved one or more prominent international telecommunication operators,
to develop and manage five of TELKOM's seven regional operating divisions (I,
III, IV, VI, and VII).

     On November 14, 1995, the Government sold TELKOM shares through an initial
public offering. TELKOM shares are listed on the Jakarta Stock Exchange and the
Surabaya Stock Exchange, and its shares in the form of ADS, are listed on the
New York Stock Exchange and the London Stock Exchange. Its shares have also been
publicly offered without listing in the Tokyo Stock Exchange. TELKOM is
currently one of the largest companies by market capitalization in Indonesia,
with a market capitalization of approximately US$3.87 billion as of March 14,
2003.

     For a description of the important events in the development of the
Company's business since the beginning of the Company's last three financial
years to the date of this Annual Report, see "Item 5. Operating and Financial
Review and Prospects -- Overview" and "Item 5 -- Operating and Financial Review
and Prospects -- Recent Developments". A description of the Company's principal
capital expenditures and divestitures, since the beginning of the Company's last
three financial years to the date of this Annual Report is set forth in "Item 5.
Operating and Financial Review and Prospects -- Liquidity and Capital
Resources". Information concerning the principal capital expenditures and
divestitures currently in progress is also described in "Item 5. Operating and
Financial Review and Prospects -- Liquidity and Capital Resources".

B.  BUSINESS OVERVIEW

GENERAL

     TELKOM is the main provider of local and domestic telecommunications
services in Indonesia. The Company also provides a wide range of
telecommunications services as reflected in its revenues structure which is
categorized in Fixed Phone, Cellular, Joint Operating Scheme, Interconnection,
Network, Data & Internet, Revenue Sharing Arrangement, and Other Revenues. See
Item-3 Key Information -- Selected Financial Data.

     For the year 2002, no single customer, other than interconnection
customers, accounted for more than 1% of TELKOM's total operating revenues, and
TELKOM's top 100 customers, other than interconnection customers, together
accounted for less than 5% of its total operating revenues.

MAIN PRODUCTS AND SERVICES

  FIXED-PHONE SERVICES

     TELKOM provides its fixed-phone telecommunications services in seven
regional divisions covering all of Indonesia. See "Item-4 Information on the
Company -- History and Development of the Company". Fixed-phone services mainly
comprise local and domestic long-distance services. Fixed-phone subscribers pay
one time installation charges, ongoing monthly subscription charges, and usage
charges for local and domestic long-distance services. Usage charges are
generally uniform nationwide and are based on call distance, call duration and
time band. In addition, subscribers are provided with a number of value-added
features, which are billed on a monthly basis, such as voicemail and information
services.

     TELKOM's total number of fixed-lines in service, including those in its KSO
regions, has increased from approximately 7.22 million as of December 31, 2001
to approximately 7.75 million as of December 31, 2002, of which 5,965,568 were
for residential customers, 1,361,810 were for business customers, 19,788 were
for social customers, and the remaining 402,869 were for public telephones,
which includes kiosk phones.

                                        18
<PAGE>

     The following table sets forth certain operating statistics relating to the
fixed line business for the periods stated.

<Table>
<Caption>
                                                    AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                                            ---------------------------------------------------------
                                             1998(5)     1999(5)     2000(5)     2001(6)     2002(7)
                                            ---------   ---------   ---------   ---------   ---------
<S>                                         <C>         <C>         <C>         <C>         <C>
OPERATING STATISTICS
Exchange capacity
  Non-KSO Divisions.......................  4,324,024   4,449,552   4,515,615   5,135,108   6,643,688
  KSO Divisions...........................  3,827,993   3,909,179   3,946,407   3,669,336   2,459.950
                                            ---------   ---------   ---------   ---------   ---------
          Total...........................  8,152,017   8,358,731   8,462,022   8,804,444   9,103,638
Installed lines
  Non-KSO Divisions.......................  3,907,036   3,957,815   4,086,298   4,725,268   6,165,770
  KSO Divisions...........................  3,290,063   3,471,447   3,581,779   3,316,406   2,234,892
                                            ---------   ---------   ---------   ---------   ---------
          Total...........................  7,197,099   7.429.262   7,668,077   8,041,674   8,400,662
Lines in service(1)
  Non-KSO Divisions.......................  3,014,824   3,256,992   3,610,363   4,270,243   5,710,427
  KSO Divisions...........................  2,556,820   2,823,201   3,052,242   2,948,695   2,039,608
                                            ---------   ---------   ---------   ---------   ---------
          Total...........................  5,571,644   6,080,193   6,662,605   7,218,938   7,750,035
Lines in service per 100 inhabitants
  Non-KSO Divisions.......................       4.95         5.3         5.7         5.6        4.64
  KSO Divisions...........................       1.78         1.9         2.0         2.0        2.00
                                            ---------   ---------   ---------   ---------   ---------
          Combined........................       2.73         2.9         3.1        3.25        3.45
Subscriber lines
  Non-KSO Divisions.......................  2,888,479   3,101,885   3,394,075   4,005,106   5,394,940
  KSO Divisions...........................  2,466,514   2,709,066   2,923,223   2,831,168   1,952,226
                                            ---------   ---------   ---------   ---------   ---------
          Total...........................  5,354,993   5,810,951   6,317,298   6,836,274   7,347,166
Public telephones
  Non-KSO Divisions.......................    126,345     155,107     216,288     265,137     315,487
  KSO Divisions...........................     90,306     114,135     129,019     117,527      87,382
                                            ---------   ---------   ---------   ---------   ---------
          Total...........................    216,651     269,242     345,307     382,664     402,869
Leased lines in service
  Non-KSO Divisions(2)....................      1,371       2,446       3,300       4,973       8,193
  KSO Divisions...........................      1,760       2,143       2,702       2,631       1,879
                                            ---------   ---------   ---------   ---------   ---------
          Total...........................      3,131       4,589       6,002       7,604      10,072
Subscriber Pulse Production(3)(4)
  (millions)
  Non-KSO Divisions.......................     25,095      25,077      28,231      34,342      44,340
  KSO Divisions...........................     20,810      22,182      24,628      24,047      16,788
                                            ---------   ---------   ---------   ---------   ---------
          Total...........................     45,905      47,259      52,859      58,389      61,128
Call completion rate (%)
  Local
     Non-KSO Divisions....................       68.1        72.0        77.0        75.8        75.8
     KSO Divisions........................       68.1        70.1        71.4        72.5        75.5
                                            ---------   ---------   ---------   ---------   ---------
       Combined...........................       68.1        70.6        73.0        73.9        75.6
  Domestic long-distance
     Non-KSO Divisions....................       62.1        64.0        69.3        65.4        65.5
     KSO Divisions........................       62.0        62.4        64.5        85.6        68.1
                                            ---------   ---------   ---------   ---------   ---------
       Combined...........................       62.0        63.0        65.8        65.7        66.6
</Table>

                                        19
<PAGE>

<Table>
<Caption>
                                                    AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                                            ---------------------------------------------------------
                                             1998(5)     1999(5)     2000(5)     2001(6)     2002(7)
                                            ---------   ---------   ---------   ---------   ---------
<S>                                         <C>         <C>         <C>         <C>         <C>
  Fault rate(4)
     Non-KSO Divisions....................       0.92        0.39        0.42         0.8         4.6
     KSO Divisions........................       2.24        2.02        1.69         3.1         8.9
       Combined...........................       3.81        4.25        4.08        3.94        5.19
  Lines in service per employee
     Non-KSO Divisions....................        157         171         191         209         233
     KSO Divisions........................        135         149         163         174         201
                                            ---------   ---------   ---------   ---------   ---------
       Combined...........................        146         160         177         193         223
</Table>

---------------

Notes:

(1) Lines in service comprise subscribers and public telephone lines, and
    includes the following number of lines in service operated by TELKOM
    pursuant to revenue sharing arrangements as of December 31, 1998: 406,487,
    1999: 405,643, 2000: 409,818, 2001: 430,477 and 2002: 443,316
(2) Excludes leased lines operated by the network division and multimedia
    division.
(3) Consists of pulses generated from local and domestic long-distance calls,
    excluding calls made from payphones and cellular phones.
(4) Faults per 100 connected lines per month. The calculation formula was
    changed to include indoor installation and mass fault. The previous measure
    of fault consists of exchange and outdoor cable.
(5) For 1998, 1999 and 2000, Non-KSO Division refer to Division II and V, while
    KSO Division refer to Division I, III, IV, VI and VII
(6) For 2001, Non-KSO Division refer to Division-II, V, and VI, while KSO
    Division refer to Division I, III, IV, and VII
(7) For 2002, Non-KSO Division refer to Division I, II, V, and VI, while KSO
    Division refer to Division III, IV, and VII

     In 2002, fixed-line telephone revenues contributed Rp.8,327.4 billion
(US$934.3 billion), or 38.9% of total operating revenues.

  MOBILE CELLULAR SERVICES

     TELKOM provides its mobile cellular services mainly through its
majority-owned subsidiary Telkomsel. As of May 16, 2001, TELKOM acquired all of
the shares of Telkomsel previously held by Indosat, comprising 35% of the shares
of Telkomsel, for US$945 million, resulting in TELKOM owning 77.72% of the
shares of Telkomsel. On July 30, 2002, TELKOM completed the sale of the
Company's 12.72% stake in Telkomsel to Singapore Telecom Mobile Pte Ltd
("SingTel Mobile"). As result of this transaction, TELKOM's ownership in
Telkomsel was reduced to 65%, while SingTel increased its ownership to 35%. See
"Item 4B. Business Overview -- Business Strategy -- Capitalized Wireless &
Multimedia Business.

     Telkomsel provides GSM cellular services in Indonesia, through its own
network, and internationally, through 167 international roaming partners in 70
countries. It provides its subscribers with the option of a prepaid (SimPATI)
service, or a postpaid (KartuHALO) service, as well as a variety of value-added
services such as automated telephone information services, cellular banking and
SMS. As at December 31, 2002, Telkomsel had approximately 6.01 million cellular
subscribers.

                                        20
<PAGE>

     The following table sets forth selected historical information on
Telkomsel's subscriber base for the periods indicated:

<Table>
<Caption>
                                                                 AS OF OR FOR THE YEAR ENDED
                                                                        DECEMBER 31,
                                                              ---------------------------------
                                                                2000        2001        2002
                                                              ---------   ---------   ---------
<S>                                                           <C>         <C>         <C>
Cellular subscribers(1)
  KartuHALO (Postpaid)......................................    657,436     865,211     923,005
  SimPATI (Prepaid).........................................  1,029,903   2,386,821   5,087,767
Voluntary deactivations
  KartuHALO (Postpaid)......................................    112,840     177,514     261,648
  SimPATI (Prepaid).........................................    113,763     120,403     470,298
Average monthly churn rate(2)
  KartuHALO (Postpaid)......................................        1.4%        1.7%       2.36%
  SimPATI (Prepaid).........................................        0.9%        0.4%       0.77%
ARPU(3)
  KartuHALO (Postpaid) (Rp.'000)............................        281         287         298
  SimPATI (Prepaid) (Rp.'000)...............................        103         111         103
</Table>

---------------

Notes:
(1) Total number of registered subscribers for KartuHALO and registered SIM
    cards for SimPATI at the end of the relevant period.
(2) The average monthly churn rate for a year is computed by dividing (a) the
    number of subscribers who have deactivated their subscription during the
    year by (b) 12 and dividing that result by the number of subscribers at the
    end of the year.
(3) Refers to Average Revenue per User which is the weighted average for the
    year calculated by taking the sum of the ARPU for each month of the year and
    dividing by twelve. ARPU is computed by dividing total cellular revenues for
    either postpaid or prepaid subscribers (excluding connection fees,
    interconnect revenues, international roaming revenues from visitors and
    dealer discounts) for each month by the respective average number of
    postpaid or prepaid cellular subscribers for that month.

     In July 2001, Telkomsel began operating its GSM 1800 Mhz network, providing
its subscribers with dual band coverage utilizing the 900 MHz and 1800 MHz
bands. Telkomsel's network operates using 7.5 MHz of radio frequency bandwidth
in the 900 MHz band and 7.5 MHz of radio frequency bandwidth in the 1800 MHz
band. Both networks are compatible and operate as a single integrated dual band
network. Telkomsel has roll out GPRS services in six major cities in Sumatra,
Java, and Bali since October 2002.

     In 2002, Telkomsel expanded its network capacity by adding, among other
equipment, 1,488 base transceiver stations and 13,080 transmitting and receiving
exchanges. As of December 31, 2002, Telkomsel's digital network had 3,483 base
transceiver stations, 31 cellular switching centers, 130 base station
controllers and 28,061 transmitting and receiving exchanges, covering
approximately 80% of the population of Indonesia.

     From the date of its incorporation up to December 31, 2002, Telkomsel
incurred capital expenditures developing and expanding its cellular network
totaling approximately US$545 million. Over the period 2002 -- 2004, Telkomsel
intends to invest US$1.5 billion.

     The cellular revenues grew by 32.3% from Rp.4,708 billion for the year
ended December 31, 2001 to Rp.6,226.8 billion (US$698.6 million) for the year
ended December 31, 2002, represented 29.1% of TELKOM's total operating revenues.
Over the same period, the number of Telkomsel's mobile cellular subscribers has
increased from approximately 3.25 million as of December 31, 2001 to
approximately 6.01 million as of December 31, 2002. Based on industry
statistics, this represented an estimated market share in 2002 of approximately
52.3%, making Telkomsel the largest of the four nationwide licensed GSM mobile
cellular operators in Indonesia.

                                        21
<PAGE>

  INTERCONNECTION SERVICES

     TELKOM provides interconnection services through its network division.
TELKOM receives interconnection revenues from operators of other
telecommunications services, such as mobile cellular, local fixed line, and
international long-distance that interconnects with TELKOM's network.
Interconnection agreements between TELKOM and these other operators set the fee
framework applicable for carrying call traffic to and from other operators
through the interconnection facilities and stipulate the procedures for routing
calls through the operators' respective networks. Under the current
interconnection regime, cellular operators may interconnect directly with other
networks without interconnecting with TELKOM's network, thus allowing the
cellular operator to avoid the interconnection payments usually paid to TELKOM
for interconnection with TELKOM's network. See "Item 4L. Tariffs and
Interconnection Charges". In 2002, interconnection revenues, excluding revenues
from KSO divisions III, IV and VII, amounted to Rp.3,025.9 billion (US$339.5
million), or 14.1% of total operating revenues.

     TELKOM interconnection traffic volumes (unconsolidated) are set forth in
the following table for the periods indicated:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                  -----------------------------------------------
                                                   1998      1999      2000      2001      2002
                                                  -------   -------   -------   -------   -------
                                                               (MILLIONS OF MINUTES)
<S>                                               <C>       <C>       <C>       <C>       <C>
MOBILE CELLULAR INTERCONNECTION(1)
Digital
  Incoming paid minutes.........................    920.8   1,396.8   1,988.6   2,284.9   2,757.9
  Outgoing paid minutes.........................    604.8     873.2   1,687.1   2,645.8   3,807.5
Analog
  Incoming paid minutes.........................    119.7      62.9      71.8      70.5      73.0
  Outgoing paid minutes.........................     62.0      24.7      34.0      43.5      47.0
                                                  -------   -------   -------   -------   -------
     Subtotal...................................  1,707.4   2,357.7   3,781.5   5,044.7   6,685.4
FIXED WIRELESS INTERCONNECTION(2)
  Incoming paid minutes.........................     34.2      41.9      72.5      83.7     100.2
  Outgoing paid minutes.........................     29.5      33.1      39.3      30.5      36.3
                                                  -------   -------   -------   -------   -------
     Subtotal...................................     63.6      75.0     111.8     114.2     136.5
                                                  -------   -------   -------   -------   -------
TOTAL CELLULAR PAID MINUTES.....................  1,771.0   2,432.7   3,893.3   5,158.9   6,821.9
FIXED WIRELINE INTERCONNECTION(3)
  Incoming paid minutes.........................      7.4      26.1      30.1      31.9      28.2
  Outgoing paid minutes.........................      0.4       2.9       3.3      10.6       3.3
                                                  -------   -------   -------   -------   -------
     Total paid minutes.........................      7.8      29.0      33.4      42.5      31.5
SATELLITE PHONE INTERCONNECTION
  Incoming paid minutes.........................       --        --        --       2.4      12.6
  Outgoing paid minutes.........................       --        --        --       0.5       5.6
                                                  -------   -------   -------   -------   -------
     Total paid minutes.........................       --        --        --       2.9      18.2
INTERNATIONAL INTERCONNECTION(4)
  Incoming paid minutes.........................    408.2     403.2     345.8     286.8     303.3
  Outgoing paid minutes.........................    309.7     251.1     250.6     241.9     200.3
                                                  -------   -------   -------   -------   -------
     Total paid minutes.........................    717.9     654.3     596.3     528.8     503.6
</Table>

                                        22
<PAGE>

---------------

(1) Includes interconnection with Telkomsel, and excludes interconnection
    between Telkomsel and other operators.

(2) Fixed wireless interconnection minutes are derived from interconnection with
    the network of PT Radio Telepon Indonesia ("Ratelindo").

(3) For 1998, consists only of four months ended December 31, 1998. Fixed
    wireline interconnection minutes are derived from interconnection with PT
    Batam Bintan Telekomunikasi ("BBT").

(4) International interconnection minutes are derived from interconnection with
    Indosat's and Satelindo's international networks, which does not include
    minutes from mobile cellular and fixed wireless operators that interconnect
    directly with international gateways.

 NETWORK SERVICES

     TELKOM network service provides leased lines, satellite transponder leasing
and non-switched services. In 2002, the Company's revenue from network service
amounted to Rp 326.4 billion or 1.5% from the Company's total operating
revenues.

     The Company plans to launch its TELKOM-2 satellite scheduled between
November 1st, 2004 and January 31st, 2005. On November 8, 2002 TELKOM signed a
US$ 62.9 million contract with Arianespace S.A. ("Ariane") which covers the cost
of the launching, financing, and guarantees. The schedule of payments is as
follows:

     - 43.7% or US$27.50 million is to be paid at beginning of 2004;

     - 14.3% or US$9.00 million is to be paid in first quarter of 2004;

     - 31.8% or US$20.00 million is to be paid in second quarter 2004; and,

     - 10.2% or US$6.38 million is to be paid in third quarter 2004.

     In addition, TELKOM has signed a contract with Orbital Sciences Corporation
("Orbital") to manufacture the TELKOM-2 satellite based on Orbital's
state-of-the-art STAR-2 platform, costing approximately US$ 73 million to
replace TELKOM's existing Palapa B-4 satellite due to the expiration its
operational lifespan in late 2004.

     The TELKOM-2 satellite has a capacity of 24 standard C-band transponders
and with specifications of the transponders similar to the transponder of the
TELKOM-1 satellite. TELKOM-2 satellite will be designed for a 15 years in-orbit
life and has an increased coverage of the Asian region and Indian subcontinent
compared to the PALAPA B4. TELKOM believes that the satellite will support
TELKOM's national as well as regional communication network for voice, video and
data communications. The satellite will be launched into geo-synchronous orbit
at 22,300 miles above the earth, at 118 degrees east longitude.

 DATA AND INTERNET SERVICES

     TELKOM's data and internet services include SMS (Short Messages Services),
multimedia dial-up Internet access, dedicated high speed Internet access,
virtual private network services, global network services accessible from more
than 180 countries, including Voice over Internet Protocol (VoIP), secure online
payment gateway services, and web server hosting and co-location services. The
Company is also in the process of developing a broadband access network
utilizing ADSL, wireless local loop, hybrid fiber coaxial cables and satellites.

     By end of December 2002, total fixed phone customers accessing TELKOMNet
Instant were an average 296,963 telephone subscribers' line per month with
60.28% growth compared to the comparable period of last year. Total access usage
of minutes for 2002 amounted to 1.72 million minutes.

     TELKOM provides VoIP services for international call services under the
brand name "TELKOMSave" and "TELKOMGlobal-017". Its VoIP services currently
allow subscribers access to 493 destination points in 230 countries. The Company
plans to increase the number of access points from which its customers are able
to access its VoIP services, in areas and cities in Indonesia. TELKOM Save and

                                        23
<PAGE>

TELKOMGlobal users were an average 66,058 telephone subscribers per month with
19.92% growth for the last 12 months.

     Certain information about TELKOM VoIP services are set forth in the
following table:

<Table>
<Caption>
ITEM                                          TELKOMGLOBAL             TELKOMSAVE
----                                          ------------             ----------
<S>                                           <C>                      <C>
Tariff......................................  60% of normal IDD rate   40% of normal IDD rate
Dial........................................  One stage                Two stage
Quality/Technology..........................  Premium VoIP             Standard VoIP
</Table>

     In 2002, revenues from its data and internet service amounted to Rp.1,571.5
billion (US$176.3 million), or 7.3% of total operating revenues.

  OTHER TELECOMMUNICATIONS SERVICES

     The Company also provides a variety of other services such as:

     - cable and pay television and related services, which it provides through
       its majority-owned subsidiary, Indonusa;

     - telex and telegram services

NETWORK INFRASTRUCTURE

  GENERAL

     TELKOM's fixed line network comprises a hierarchy of exchanges ranging from
the local exchange through trunk exchanges, namely the secondary and tertiary
exchanges. Each local exchange is connected to the subscriber's premises by
equipment and facilities called outside plant. Outside plant includes wireline
and wireless local transmission links and the distribution facilities joining
them.

     All of TELKOM's switching facilities at the local and trunk exchanges have
been digitalized. TELKOM believes that digitalization substantially increases
network efficiency, performance, and call routing flexibility.

     The following table sets forth certain information relating to the
Company's fixed line network as of December 31, 2002.
<Table>
<Caption>
                        DIVISION I   DIVISION II   DIVISION III   DIVISION IV    DIVISION V   DIVISION VI    DIVISION VII
                        ----------   -----------   ------------   ------------   ----------   ------------   ------------
                                                    (WEST JAVA
                                                       AND          (CENTRAL       (EAST                        (EAST
                        (SUMATRA)     (JAKARTA)      BANTEN)         JAVA)         JAVA)      (KALIMANTAN)    INDONESIA)
                        ----------   -----------   ------------   ------------   ----------   ------------   ------------
<S>                     <C>          <C>           <C>            <C>            <C>          <C>            <C>
Local Exchange
  Capacity............  1,264,324     3,316,552      879,004        770,289      1,660,456      402,356        810,657
Total Lines in
  Service.............  1,115,875     2,824,556      672,597        646,701      1,427,660      342,336        720,310
Capacity Utilization
  (%).................      88.26         85.17        76.52          83.96          85.98        85.08          88.86
Installed Lines.......  1,193,793     3,079,884      726,219        728,752      1,521,452      370,641        779,921
Installed Lines
  Utilization Rate....      93.47         91.71        92.62          88.74          93.84        92.36          92.36
Employees(1)..........      5,302         8,433        2,773          3,033          4,282        1,299          4,329
Population
  (millions)(2).......      47.36         26.01        25.89          44.16          36.21        13.40          31.85
Line
  Penetration(%)(3)...       2.36         10.86         2.60           1.46           3.94         2.55           2.26

<Caption>

                          TOTAL
                        ---------
<S>                     <C>
Local Exchange
  Capacity............  9,103,638
Total Lines in
  Service.............  7,750,035
Capacity Utilization
  (%).................      85.13
Installed Lines.......  8,400,662
Installed Lines
  Utilization Rate....      92.26
Employees(1)..........     34,678
Population
  (millions)(2).......     224.89
Line
  Penetration(%)(3)...       3.45
</Table>

---------------

(1) Total TELKOM employees as of December 31, 2002 were 34,678 including 5,227
    employees in the Supporting Division and Corporate Office.
(2) Source: Indonesian Central Bureau of Statistics (projected figures).
(3) Based on projected population figures.

                                        24
<PAGE>

     Transmission facilities refer to all kinds of transmission media that link
exchanges together. TELKOM and the KSO divisions use copper wire, optical fiber,
microwave radio, hybrid fiber coaxial and satellite systems to access and link
the network.

     The Company also operates the TELKOM-1 and a Palapa B-4 satellite, and 155
earth stations including one satellite control system. TELKOM-1 has 36
transponders including 12 extended C-band transponders and 24 standard C-band
transponders, while Palapa B-4 has 24 standard C-band transponders. TELKOM uses
its satellites for (i) providing network backbone transmission, (ii) providing
rural telecommunications services, (iii) providing back-up transmission capacity
for the national telecommunication network and (iii) satellite up-linking and
down-linking, VSAT, and multimedia services. The Company also leases satellite
transponder capacity and provides earth station satellite uplinking and
downlinking services to domestic and international users.

     The following table sets forth certain information on the transmission
capacity of TELKOM's backbone transmission facilities as of December 31, 2002.

<Table>
<Caption>
                                                               CAPACITY    PERCENTAGE
                                                              (NUMBER OF    OF TOTAL
TRANSMISSION MEDIUM                                           CIRCUITS)     CAPACITY
-------------------                                           ----------   ----------
<S>                                                           <C>          <C>
Optical fiber cable.........................................   221,460         56.2
Microwave...................................................   115,626         29.3
Submarine cable.............................................    45,600         11.6
Satellite...................................................    11,450          2.9
                                                               -------       ------
          Total.............................................   394,136       100.00
</Table>

  NETWORK DEVELOPMENT

     The Company continues to develop and expand its network infrastructure,
including backbone transmission infrastructure, and switching and access
infrastructure.

     During 2002, the Company has completed several projects including: (i) the
development of a Internet protocol data backbone; (ii) the acquisition of high
performance ATM switching equipment to further develop its data communications
infrastructure; and (iii) the introduction of Network Integration and Quality
Improvement program (NIQI).

     The Company also has several ongoing network developments projects, which
include the development of: (i) fiber optic backbone infrastructure in Sumatra
to provide additional backbone capacity and extends to Batam, which will
facilitate connections in the future from Batam to Singapore; (ii) fiber optic
regional junction in Surabaya, East Java. TELKOM has finished detail survey and
is currently conducting design review; and (iii) fiber optic regional junction
in greater Jakarta. See Notes 52h and 52s to Financial Statements.

     In 2002, the Company plans to deploy 1.6 million lines through fixed
wireless CDMA-2000 1x technology nationwide. On December 23, 2002, TELKOM has
signed a Master of Procurement Partnership Agreement (MPPA) with Samsung
Electronics Consortium and Ericsson Consortium. TELKOM has also procured the
TELKOM-2 satellite, a geosynchronous communication satellite, manufactured based
on Orbital's state-of-the-art STAR-2 platform. See Item 10 "Additional
Information -- Material Contract".

     To further develop its other communications services, TELKOM also plans to
(i) implement soft switch technologies to move towards a next generation network
(NGN); (ii) expand a broadband access network utilizing ADSL, which currently
only covers Regional Division II Jakarta and Regional Division V East Java;
(iii) enhance its network through the progressive replacement of its old cooper
access network with optical access network; (iv) develop and promote additional
advanced telephony services and features; and (v) continuation of the Network
Integration and Quality Improvement (NIQI) program.

                                        25
<PAGE>

PARTNERSHIP ARRANGEMENTS AND JOINT VENTURES

     TELKOM has three types of partnerships with private investors namely
Revenue Sharing Arrangements ("PBH"), Joint Operation Scheme ("KSO"), and Joint
Venture Companies ("JVC").

  REVENUE SHARING ARRANGEMENTS (PBH)

     Under the revenue sharing arrangements, the investors finance the costs
incurred in developing telecommunications facilities. Upon completion of the
construction, TELKOM manages and operates the facilities. The investors retain
legal rights to the property, plant and equipment constructed by them during the
revenue-sharing periods and transfers the ownership of the facilities to TELKOM
at the end of the revenue-sharing period. TELKOM typically bears the cost of
repairs and maintenance of the facilities during the revenue-sharing period. The
revenue-sharing periods range from one year and seven months to 15 years from
the start of commercial operations, and end on various dates until 2009. The
revenue-sharing period may be either fixed or extendable to ensure full
investment returns to the investors. In the latter, the revenue-sharing period
is determined on the basis of the internal rates of return agreed by both
parties, and the internal rates of return range from 24% to 30%.

     All revenues earned from the customers in the form of line installation
charges are for the account of the investors. The revenues from outgoing
telephone pulse and monthly subscription charges are shared between the
investors and TELKOM. In the case of revenues earned from analog mobile cellular
services, TELKOM is entitled to all of the revenues from international outgoing
pulses.

     Historically, TELKOM provided analog cellular services through
revenue-sharing arrangements with several private investors. Currently, all but
one of the analog cellular revenue-sharing schemes have been restructured into
joint venture companies in which TELKOM has a minority shareholding. Telesera,
of which TELKOM owns 100%, is currently the only remaining investor engaged in
the provision of analog cellular service under such revenue-sharing
arrangements.

     In 2002, revenues from revenue-sharing schemes amounted to Rp.280.1 billion
(US$31.4 million) or 1.31% of TELKOM's total operating revenues.

  JOINT OPERATION SCHEMES (KSO)

  Overview

     TELKOM provides its fixed line telecommunications services in seven
regional divisions covering all of Indonesia. In 1996, TELKOM transferred the
management and operation of five of its seven regional divisions to certain KSO
Investors. These regional divisions were to be operated and managed by the
respective KSO Investor, in the name of TELKOM and for and on behalf of TELKOM
and the respective KSO Investor, pursuant to the KSO Agreements. The five
regional divisions the management and operations of which were transferred to
the KSO Investors were divisions I, III, IV, VI and VII. TELKOM retained
divisions II and V, its two largest divisions.

     The KSO Agreements provide for a form of contractual joint venture under
which each KSO Investor, through the respective KSO Unit, is responsible for the
operation of the local network of the KSO Unit for the duration of the KSO
Period, and for the construction of a specified number of installed lines, as
further detailed in the construction agreement between TELKOM and each of the
KSO Investors (each a "KSO Construction Agreement"), during a construction
period specified in the relevant KSO Agreements which ended on March 31, 1999
(the "KSO Construction Period"). The main terms of each KSO Agreement are
substantially similar, except for certain financial terms as described below.

     Due to Indonesia's recent economic crisis, the KSO investors had
difficulties in fulfilling their obligations under the KSO Agreements. In order
to assist the KSO Investors in meeting their obligations and to maintain the
continuity of the KSO Agreements, all of the KSO Investors entered into a
memorandum of understanding (the "MOU") with TELKOM on June 5, 1998 to provide
short-

                                        26
<PAGE>

term relief and to amend certain terms of each of the KSO Agreements. These
amendments included a reduction in the minimum line construction target of the
KSO Investors, a decrease in TELKOM's revenue share in 1998 and 1999, and the
cancellation of TELKOM's option to purchase the assets of the KSO Investor after
December 31, 2005. Pursuant to an audit by the Directorate General Post and
Telecommunications on behalf of the MoC, all KSOs Investors, except the KSO III
Investor, were stated to have met their reduced line construction targets during
the KSO Construction Period. Beginning January 1, 2000, the parties have
reverted to the terms of the original KSO Agreements with respect to MTR and DTR
payments.

     Certain difficulties remain in the conduct of the KSO operations and TELKOM
has experienced disputes with various KSO Investors. TELKOM has explored various
options to resolve the KSO Issues and has also sought to negotiate the
acquisition of all or a majority of shares of certain KSO Investors in part as
an attempt to resolve certain of the KSO Issues. See "Joint Operation Schemes
(KSOs) -- Issues and Developments Relating to the KSO Investors and KSO Units".

     In 2002, the Company's revenues under the KSO Agreements amounted to
Rp.1,637.8 billion (US$183.8 million), or 7.7% of total operating revenues.
TELKOM's portion (unconsolidated) on KSO Division revenues for the last three
years (2000 -- 2002) are indicated in the following table:

<Table>
<Caption>
                                                  2000               2001(1)             2002(2)
                                            -----------------   -----------------   -----------------
KSO DIVISION                                  MTR       DTR       MTR       DTR       MTR       DTR
------------                                --------   ------   --------   ------   -------   -------
                                            (RP. IN BILLION)    (RP. IN BILLION)    (RP. IN BILLION)
<S>                                         <C>        <C>      <C>        <C>      <C>       <C>
Division I (Sumatra)......................    488.2    206.5      497.9    259.8      507.9     336.8
Division III (West Java and Banten).......    344.0     79.9      366.3    117.8      390.1     158.1
Division IV (Central Java)................    355.8    107.9      371.3    133.6      387.5     182.8
Division VI (Kalimantan)..................    137.0    101.9      139.1    111.9      141.2     137.7
Division VII (Eastern Indonesia)..........    231.7    198.9      238.7    221.8      245.8     262.7
                                            -------    -----    -------    -----    -------   -------
          Total...........................  1,556.7    695.1    1,613.3    844.8    1,672.6   1,078.2
                                            =======    =====    =======    =====    =======   =======
</Table>

---------------

Notes:
(1) TELKOM consolidated the KSO VI Unit as of and for the year ended December
    31, 2001, following its acquisition of 90.32% equity interest in Dayamitra
    on May 17, 2001.
(2) TELKOM consolidated the KSO VI and KSO I Units as of and for the year ended
    December 31, 2002, following its acquisition of 90.32% equity interest in
    Dayamitra on May 17, 2001 and 30% equity interest in Pramindo on August 15,
    2002.

                                        27
<PAGE>

     The following table sets forth certain information concerning the KSOs.
Such information has been derived from the KSO Agreements, amendments to the KSO
Agreements and other related sources.

<Table>
<Caption>
                                  DIVISION I     DIVISION III    DIVISION IV     DIVISION VI      DIVISION VII       TOTAL
                                --------------  --------------  --------------  --------------  -----------------  ---------
<S>                             <C>             <C>             <C>             <C>             <C>                <C>
KSO Investor..................  Pramindo        AriaWest        Mitra Global    Dayamitra       Bukaka             --
                                Ikat            International   Telekomunikasi  Telekomunikasi  SingTel
                                Nusantara                       Indonesia
Participants in the KSO
 Investor
 Foreign Telecommunications
   Operator...................  France Cables   MediaOne        Telstra Global  TM              Singapore          --
                                et Radio SA     International   Ltd. (20.37%)   Communications  Telecommunication
                                (28%)           I BV (35%)      Nippon          (H.K.) Ltd.     International
                                                                Telegraph and   (9.68%)         Pte. Ltd. (40%)
                                                                Telephone
                                                                Corporation
                                                                (15.27%)
                                                                Itochu
                                                                Corporation
                                                                (1.25%)
                                                                Sumitomo
                                                                Corporation
                                                                (1.25%)
 Indonesian and Other
   Participant................  PT.             PT Aria         PT Widya Duta   PT.             PT Bukaka          --
                                Telekomunikasi  Infotek         Informindo      Telekomunikasi  Telekomindo
                                Indonesia, Tbk  (formerly       (31.31%)        Indonesia, Tbk  International
                                (30%)           known as PT     Indosat         (90.32%)        (60%)
                                PT Astratel     Artimas         (30.55%)
                                Nusantara       Kencana)
                                (24.5%)         (52.5%)
                                Indosat (9.1%)  The Asian
                                Marubeni        Infrastructure
                                Corporation     Fund (12.5%)
                                (5.6%)
                                International
                                Finance
                                Corporation
                                (2.1%)
                                NMP Singapore
                                Pte. Ltd.
                                (0.7%)
 Minimum new line
   Installation(1)............  290,000         290,000         350,000         115,000         223,000            1,268,000
 Initial investor payment To
   TELKOM(2) (US$ millions)...  $35             $30             $10             $20             $10                $105
 Minimum TELKOM Revenue
   (2002)(3) (Rp. Millions)...  507.9           390.1           387.5           141.2           245.8              1,672.6
 TELKOM's Revenue Sharing
   (2002)(4)..................  30%             30%             30%             30%             35%                --
 Distributable TELKOM Revenues
   (2002)(5) (Rp Million).....  336.0           157.8           183.2           138.5           262.6              1,078.1
</Table>

---------------

Notes:
(1) Minimum new line installation by the KSO Investors during the KSO
    Construction Period.
(2) This is a one time initial compensation payment to TELKOM.

                                        28
<PAGE>

(3) The 2002 MTR amounts shown are the amounts provided for by the KSO
    Agreements and accrued. All such amounts have been paid except for certain
    amounts due from the KSO III since amount payable is in dispute between
    TELKOM and the KSO III Investor.
(4) The 2002 TELKOM Revenue Sharing percentages shown are the percentages
    provided for by the KSO Agreements or amendments to the KSO Agreements.

  Structure, Operation and Ownership

Overview

     Each KSO Unit is managed and operated by the KSO Investor in the name of
TELKOM and for and on behalf of TELKOM and the KSO Investor. Each KSO Unit is
managed and operated in accordance with a management and operating plan that is
prepared and approved annually by the general manager of the KSO Unit after
consultation with TELKOM. Under the KSO Agreements, each KSO Investor, through
the respective KSO Unit, must manage, operate, repair and maintain the services
and network facilities of the respective KSO Unit during the KSO Period. In
addition, the KSO Agreements require each of the KSO Investors to undertake the
planning, design, engineering, financing and construction of a specified minimum
number of installed lines during the KSO Construction Period.

     At the end of the KSO Period, all rights, titles and interests of each KSO
Investor in existing installations and all work in progress, inventories,
equipment, materials, plans and data relating to any approved additional new
installation projects that are uncompleted or do not successfully meet standard
requirements, will be sold and transferred to TELKOM without requiring any
further action by any party, upon payment by TELKOM to each KSO Investor of
Rp.100.

     The KSO Investors are granted permits by the MoC to operate fixed wireline
and fixed wireless services in the respective regions under the terms of
exclusivity granted to TELKOM, for and on behalf of TELKOM. The KSO Investors
are accountable for the achievement of specific operational performance targets
during the KSO Period relating to the expansion and quality of
telecommunications services.

     Under the KSO Agreements, each KSO Unit is (i) operated as a separate
entity for accounting purposes, (ii) responsible for certain payments to TELKOM
and the KSO Investor, (iii) entitled to revenues generated from all lines in
service within the geographical KSO Unit on a sender-keep-all basis, and (iv)
responsible for all costs associated with operation of the KSO Unit. Under the
KSO Agreements, TELKOM is entitled to receive (i) a one-time initial
compensation payment from the KSO Investor, (ii) guaranteed monthly MTR payments
from the KSO Unit and (iii) DTR payments from the KSO Unit.

     The KSO Units provide a broad range of telecommunications services,
principally comprising local, domestic long-distance and access to international
long-distance services, throughout their respective regions. The KSO Units also
receive interconnection revenues from operators of other telecommunications
services such as mobile cellular, fixed line, and international long-distance,
that interconnect with TELKOM's network. In addition, the KSO Units also provide
other telecommunications services, including Internet services, telex and
telegram services and circuit leasing. Internet access is provided through
cooperation with TELKOM's multimedia division on a revenue sharing basis.

  Other Terms of the KSO Agreements

MTR and DTR

     Under the KSO Agreement, MTR payments refer to guaranteed minimum amounts
payable monthly by the KSO Unit to TELKOM. The MTR payments are scheduled to be
made by the KSO Unit to TELKOM until December 2010. TELKOM and the KSO Investors
agreed in the MOU to limit the maximum growth rate of the MTR payments for the
calendar years 1998 and 1999 to 1% and 1.5%,

                                        29
<PAGE>

respectively. As of January 1, 2000, MTR payments are scheduled to increase
annually at various rates according to the various KSO Agreements.

     Each KSO Unit is also required to pay to TELKOM on a monthly basis, DTR
payments, which comprise a revenue share of 30% (35% in the case of the KSO Unit
VII) of the difference of Total KSO Revenues (as defined below) for the month
less the MTR payment less the KSO Operating Expenses (as defined below) for the
month (such resulting amount is referred to as the "Distributable KSO
Revenues"). TELKOM does not expect the amount of the adjustments to be material
individually or in the aggregate in any given month or over time.

     "Total KSO Revenues" means the total collected revenues of the KSO unit
from the operation of the KSO Unit, which are essentially based on a
sender-keep-all structure where the KSO Unit is entitled to collect revenues
from the operation of the KSO Unit and all interest earned thereon, including
installation charges, monthly subscription charges and charges for other
telecommunications services offered to subscribers, pulse charges (except in the
case of international calls where only TELKOM's portion of the subscriber
revenues collected on pulse charges will be included), TELKOM's portion of any
interconnection payments for international calls originating from or terminating
in the KSO Unit, all revenues derived from basic (wireline) telecommunications
services under revenue sharing arrangements, an agreed portion of
interconnection payments from third party telecommunications service providers
such as interconnecting wireless telecommunications operators, and payments from
public telecommunications kiosks and payphone operators.

     At the end of every month, the Distributable KSO Revenues are shared
between TELKOM and each KSO Investor at the rates of 30% and 70%, respectively,
except with respect to the KSO VII Unit, which applies the rates of 35% and 65%,
respectively. Based on the MOU, the ratio of sharing for the period from January
1, 1998 to December 31, 1999 was changed to 10% and 90% between TELKOM and the
KSO Investor, respectively. As of January 1, 2000, the ratio of sharing reverted
back to the original rates provided under the KSO Agreements, except with
respect to the KSO VII Unit, which applies the rates of 35% and 65% for TELKOM
and the KSO Investor, respectively. For financial statement reporting purposes,
the net income as reported in the statements of revenues and expenses is
allocated between TELKOM and the KSO Investor based on the above ratios of
sharing. The KSO Unit is also responsible for all expenses directly incurred by
the KSO Unit in its region, except for depreciation, amortization, interest or
financing charges in respect of either new installations or existing
installations (the "KSO Operating Expenses"), which will be borne by the KSO
Investor.

                                        30
<PAGE>

     Set forth below is a chart illustrating the payment flows under the KSO
Agreements.

                             KSO UNIT PAYMENT FLOWS

                         (KSO UNIT PAYMENT FLOWS CHART)

  Employees and Management of the KSO

     Each KSO Unit is headed by a General Manager appointed by the relevant KSO
Investor, with the consent of TELKOM. The General Manager may not be an employee
of TELKOM for so long as he is General Manager. A five-member KSO Committee,
consisting of a chairman appointed by the MoC, two members appointed by the KSO
Investors and two members appointed by TELKOM, has the responsibility to set
management and operational plans, fix the salary and benefits payable to the
General Manager, and review audit reports and transfers of TELKOM employees. The
KSO Committee is also the forum for consultation and resolution of disputes
between the KSO Investors and TELKOM regarding the KSO Units. The KSO Committee
is to meet at least quarterly. TELKOM appoints and employs a KSO chairman to act
as the non-executive chairman of each KSO Unit to supervise and monitor on
behalf of TELKOM the implementation of the KSO Agreements, the performance of
the KSO Units and the completion of TELKOM's existing projects.

     Each KSO Unit is staffed by TELKOM employees who are paid by, and under the
management and responsibility of, the KSO Unit. Each KSO Unit is supplemented by
additional staff hired by the KSO Investor. These additional employees remain
the employees of the KSO Investor and are paid in part by the KSO Investor.
Compensation and other benefits payable to TELKOM KSO employees are determined
by the KSO Unit's management. However, any reduction in compensation or benefits
or dismissal of a TELKOM KSO employee is required to be made in accordance with
the applicable rules and policies of TELKOM and to be approved by TELKOM.

     During the KSO Period, each KSO Unit is required to devote a minimum of
1.5% of its total collected revenues for educational and training programs for
the respective KSO Unit's Indonesian employees and 1% for telecommunications
research and development activities in Indonesia (reduced under the MOU for 1998
and 1999). If the actual amount of the expenditures for education and training
is less than the commitment for that year, the difference can be deducted from
the share of the KSO Investor in the Distributable KSO Revenues and paid to
TELKOM to be used to retain a third party to conduct education and training
programs. Any amount under-spent based on the commitment for research and
development activities for that year will likewise be deducted from the share of
the KSO Investor in the Distributable KSO Revenues and will be paid to an
institution that will be determined by the MoC.

                                        31
<PAGE>

  Early Termination

     A KSO Agreement may be terminated by either party upon a material breach of
the other party's obligations under the KSO Agreement or the KSO Construction
Agreement. In addition, TELKOM may terminate a KSO Agreement in certain specific
circumstances, including a KSO Investor's failure to (i) make payments when due
or (ii) complete construction and successfully pass an interconnection test
prior to the end of the KSO Construction Period.

  Additional New Installations

     Under the KSO Agreements, the KSO Investors have the exclusive right until
March 31, 2004 to construct additional new installations of public switched
telephone facilities (subject to existing installations) in the KSO Units.
Thereafter, for the remainder of the KSO Period, the KSO Investors have a first
right of negotiation to construct additional new installations in their KSO
Units. Construction of additional new installations is subject to agreement by
TELKOM and the approval of the MoC. The period in which the KSO Investor is
entitled to the Distributable KSO Revenues attributable to such new
installations (the "Payback Period") and revenue shares with respect to such
additional new installations are to be agreed by TELKOM and the KSO Investors
and approved by the MoC.

  Issues and Developments Relating to the KSO Investors and KSO Units

     Stemming in part from Indonesia's economic crises beginning in late 1997
and from changes in the economic and regulatory environment, most of the KSOs
have experienced, and continue to experience, operational and financial
problems, of which the more significant include:

     - Loss of Exclusivity.  Under the KSO Agreements, the KSO Investors have
       the exclusive right until March 31, 2004 to construct additional new
       installations of public switched telephone facilities (subject to
       existing installations) in the KSO Units. Thereafter, for the remainder
       of the KSO Period, the KSO Investors have a first right of negotiation to
       construct additional new installations in their KSO Units. However, in
       connection with the restructuring of the Indonesian telecommunications
       industry and based on the Telecom Law, the Government has issued a
       license to Indosat to provide local telephone services since August 2002
       and announced its intention to issue a license to Indosat to provide
       domestic long-distance telephone services from August 2003. TELKOM and
       the remaining KSO Investors have not reached any agreement or settlement
       in relation to the loss of the exclusivity rights under the KSO
       Agreements.

     - Tariffs.  Tariffs is the primary factor that provides some guarantee of
       feasible return for the KSO Investors. The Government has declared a
       tariff increase for the three consecutive years since 2002. For further
       discussion please see "Item 4B Business Overview -- Tariffs and
       Interconnection Charges -- Tariffs for the Provision of Telecommunication
       Services".

     - Agreements Relating to Additional New Installations.  Under the KSO
       Agreements, additional new installations are new telecommunications
       facilities, including related supporting facilities, constructed by the
       KSO Investor following agreement with TELKOM to supplement the KSO
       Construction Agreement and approval by the MoC. The Payback Periods and
       revenue shares with respect to such additional new installations are to
       be agreed by TELKOM and the KSO Investor and approved by the MoC, as
       these are not provided for in the KSO Agreements.

     TELKOM has explored various options to resolve the KSO issues and has also
sought to negotiate the acquisition of all or a majority of shares of certain
KSO Investors in part as an attempt to resolve certain of the KSO issues. The
key rationale for TELKOM seeking to regain control of certain of the regional
divisions from the KSO Investors is that with the advent of anticipated
competition, TELKOM believes that the acquisitions will (i) vest development
control of the network in relevant regional divisions directly in TELKOM and
facilitate in part the continued construction of access lines and infrastructure
to meet demand in the relevant regional divisions; and (ii) give TELKOM direct
access to

                                        32
<PAGE>

a significantly larger base of end-users and potential customers, particularly
corporate customers. TELKOM is continuing to seek a resolution of the KSO issues
and problems with respect to the remaining KSOs. The following is a summary of
the developments relating to the resolution of the KSO issues.

<Table>
<Caption>
                                                STATUS
                ----------------------------------------------------------------------
<C>             <S>
    KSO I       TELKOM and the shareholders of Pramindo, the KSO I Investor entered
  (SUMATRA)     into the conditional sale and purchase agreement dated as of April 19,
                2002, pursuant to which TELKOM will acquire all of the shares of
                Pramindo (the "Pramindo Sale Shares") from the shareholders of
                Pramindo, namely France Cables et Radio SA, PT Astratel Nusantara,
                Indosat, Marubeni Corporation, International Finance Corporation
                ("IFC") and NMP Singapore Pte. Ltd. The aggregate purchase price is
                represented by a payment of approximately US$9.3 million, which was
                made after the release of certain share pledges, and the issue by
                TELKOM of promissory notes with an aggregate face value of
                approximately US$372.2 million, plus an amount representing interest
                on a certain component of the purchase price, paid or to be paid in 10
                unequal quarterly instalments beginning September 15, 2002.

                On August 15, 2002, TELKOM completed the initial purchase of 30% of
                Pramindo's share in the initial closing and obtained full control over
                the operations of Pramindo. The initial closing is part of the
                agreement to acquire 100% of Pramindo in three stages. Under the
                agreement, 15% of the shares of Pramindo will be acquired in the
                second stage, which is expected to be on September 30, 2003, and 55%
                of the shares of Pramindo will be acquired in the third stage, which
                is expected to be on December 31, 2004.

                In accordance with the agreement, TELKOM has also advanced loans
                totalling (US$86 million) to Pramindo in August and September 2002 to
                partially repay loans made by IFC to Pramindo. To fund the repayment
                of promissory notes, TELKOM is required under the agreement to pay
                monthly installments to an escrow account of US$12.8 million beginning
                October 1, 2002 through August 1, 2003, and US$15.0 million from
                September 1, 2003 to December 1, 2004.

                The initial closing is part of the agreement to acquire 100% Pramindo
                in three transactions, which shall be followed by the next
                transactions on September 2003 (15%) and December 2004 (55%).

KSO III (WEST   TELKOM and the shareholders of AriaWest (the "AriaWest Shareholders"),
   JAVA AND     the KSO III Investor, entered into a conditional sale and purchase
   BANTEN)      agreement dated as of May 8, 2002 (the "AriaWest Purchase Agreement"),
                pursuant to which TELKOM agreed to (a) acquire all of the shares of
                AriaWest (the "AriaWest Shares"), and (b) guarantee certain debt
                obligations of AriaWest, subject to the restructuring of such debt
                obligations. The aggregate purchase price is represented by a payment
                of US$20 million to be made promptly after the receipt on or before
                May 17, 2002 of certain moneys to be received by TELKOM from the KSO
                III Unit, a further payment of US$24.5 million to be made at closing
                and the issue by TELKOM of promissory notes with an aggregate face
                value of US$120 million to be paid in 11 equal semi-annual instalments
                beginning six months after the closing date. In addition, upon
                closing, TELKOM will contemporaneously (i) purchase the AriaWest
                Shares and (ii) AriaWest have agreed to enter into a settlement
                agreement that will permanently settle the pending arbitration
                proceeding between TELKOM and AriaWest relating to the KSO III Unit.
                See "Item 7 -- Material Litigation". The closing of the transaction is
                subject to various conditions precedent, including the approval of the
                transaction from an extraordinary general meeting of shareholders of
                TELKOM on June 4, 2002, the restructuring of AriaWest's loan agreement
                on terms acceptable to TELKOM and the receipt of certain tax clearance
                from the tax authority. TELKOM obtained approval from its shareholders
                on June 21, 2002.
</Table>

                                        33
<PAGE>

<Table>
<Caption>
                                                STATUS
                ----------------------------------------------------------------------
<C>             <S>
                In addition, TELKOM and the AriaWest Shareholders entered into an
                interim management agreement dated as of May 8, 2002 (the "Interim
                Management Agreement"). Pursuant to the Interim Management Agreement,
                the KSO III Unit, on or before May 17, 2002, paid to TELKOM US$41.75
                million. Promptly thereafter, TELKOM paid to each AriaWest Shareholder
                such AriaWest Shareholder's pro-rata share (in proportion to their
                respective shareholdings in AriaWest) of US$20 million as an advance
                payment for the AriaWest Shares. TELKOM also lent US$1.75 million to
                the AriaWest Shareholders in proportion to their shareholdings in
                AriaWest (the "TELKOM Loan").

                The Interim Management Agreement also provided that upon provision by
                AriaWest to TELKOM of tax clearance letters from relevant Indonesian
                tax authorities evidencing that as of December 31, 2001, AriaWest had
                available tax loss carryforwards of at least Rp.1.71 trillion, the KSO
                III Unit would, on that date (the "Effective Date") or as soon as
                practicable thereafter, pay to TELKOM the Rupiah equivalent
                (determined by reference to a current spot rate) of US$50 million.
                Under the terms of the Interim Management Agreement, from the
                Effective Date until the closing or termination of the AriaWest
                Purchase Agreement, TELKOM has agreed with the AriaWest Shareholders
                that TELKOM, without risk of incurring liability under the KSO III
                Agreement, will be permitted to take certain actions, including:

                (i)   to cause the KSO Unit to continue implementing the Interim
                Management Measures including the payment of KSO Unit operating
                      expenses;

                (ii)  to receive the Rupiah equivalent of US$50,000,000 from the KSO
                      Unit;

                (iii) at its own cost and expense, to construct, or cause the KSO Unit
                to construct, new telecommunications facilities in the KSO Territory
                      necessary to connect up to 20,000 lines, and

                (iv) at its own cost and expenses, to transfer employees in and out of
                     the KSO Unit.

                Pursuant to the Interim Management Agreement, the arbitration
                proceeding was pending between TELKOM and AriaWest before the
                International Chamber of Commerce Court of Arbitration (the
                "Arbitration") was stayed until August 30, 2002. The stay was extended
                to December 31, 2002, and further extended to April 17, 2003 by
                agreement of the parties.

                AriaWest is currently insolvent and in default under a loan with an
                estimated aggregate outstanding amount of approximately US$291 million
                as of April 30, 2002 (the "AriaWest Loan"). The AriaWest Loan is
                provided to AriaWest International Finance BV, a wholly-owned
                subsidiary of AriaWest, and guaranteed by AriaWest. It is a condition
                to TELKOM's obligation to complete the purchase of the AriaWest Shares
                that the AriaWest Loan shall have been restructured on terms
                acceptable to TELKOM in its sole and absolute discretion and that all
                breaches and defaults under the loan shall have been irrevocably
                waived and forever released by the lenders. TELKOM has agreed that it
                will guarantee the AriaWest Loan if these conditions are satisfied.

                The closing under the AriaWest Purchase Agreement is scheduled to
                occur three business days after the conditions to closing have been
                satisfied, or on such other date as may be agreed by the parties. At
                the closing:

                (i)   TELKOM will acquire all of the issued and outstanding shares of
                      AriaWest;

                (ii)  TELKOM will pay to each AriaWest Shareholder its pro-rata share
                of US$24.5 million as part of the purchase price for the AriaWest
                      Shares;
</Table>

                                        34
<PAGE>

<Table>
<Caption>
                                                STATUS
                ----------------------------------------------------------------------
<C>             <S>
                (iii) TELKOM will issue to each AriaWest Shareholder its pro-rata
                     share of promissory notes with an aggregate principal amount of
                      US$120 million in payment of the balance of the purchase price
                      for the AriaWest Shares (the "Promissory Notes"). The Promissory
                      Notes will be payable in 11 equal semi-annual instalments
                      beginning on the date falling six months after the closing date.
                      Except to a limited extent with respect to US$10 million
                      principal amount of Promissory Notes, the Promissory Notes will
                      not be subject to restrictions on transfer and TELKOM will not
                      have any right to set off amounts payable under the Promissory
                      Notes to satisfy obligations of or claims against the AriaWest
                      Shareholders, including claims under the AriaWest Purchase
                      Agreement;

                (iv) TELKOM will guarantee the AriaWest Loan pursuant to the terms of
                     the restructuring to be agreed with AriaWest's lenders; and

                (v)  TELKOM and AriaWest will enter into a settlement agreement
                     pursuant to which TELKOM will pay AriaWest US$20 million to
                     settle the Arbitration and enter into a mutual waiver and release
                     of all claims between TELKOM and AriaWest. In addition (i) TELKOM
                     will enter into a mutual waiver and release agreement with the
                     AriaWest Shareholders and (ii) the AriaWest Shareholders will
                     enter into a mutual waiver and release with AriaWest. The waivers
                     and releases will not discharge or release obligations arising
                     out of TELKOM's purchase of the AriaWest Shares under the
                     AriaWest Purchase Agreement and the related transaction
                     documents.

                The closing is subject to certain conditions precedent, including the
                approval of the transaction from an extraordinary meeting of
                shareholders of TELKOM. In addition, TELKOM's obligation to effect the
                closing is subject to certain condition precedent, including:

                (i)   AriaWest having tax loss carryforwards available to it of not
                     less than Rp.1.71 trillion;

                (ii)  AriaWest and the AriaWest Shareholders, on or prior to June 30,
                     2002, having paid in full all liabilities of AriaWest, the KSO
                      III Unit, TELKOM and their respective affiliates to
                      PriceWaterhouseCoopers in respect of the forensic audit of the
                      KSO III Unit conducted by PriceWaterhouseCoopers;

                (iii) financial statements of AriaWest as of and for the year ended
                     December 31, 2001 and unaudited financial statements of AriaWest
                      as of and for the three months ended March 31, 2002 having been
                      delivered to TELKOM and, subject to certain limited exceptions
                      with respect to disputed items, being satisfactory to TELKOM in
                      its sole and absolute discretion; and

                (iv) the AriaWest Loan having been restructured on terms acceptable to
                     TELKOM in its sole and absolute discretion and all breaches and
                     defaults under the AriaWest Loan shall have been irrevocably
                     waived and forever released by the lenders.

                The AriaWest Purchase Agreement may be terminated in certain
                circumstances, including by TELKOM or the AriaWest Shareholders, on or
                after August 30, 2002, if the closing has not occurred by the time of
                termination (but only if the failure to close is not the result of a
                breach of a covenant by the terminating party). See "Item 5A.
                Operating Results -- Recent Developments -- Potential Requisition of
                AriaWest and Settlement of AriaWest Arbitration".

                The AriaWest transaction was not closed on the August 30, 2002
                deadline set forth in the SPA among TELKOM and AriaWest Shareholders,
                due to the failure of AriaWest Shareholders to reach an agreement on
                the restructuring of the AriaWest debt to their lenders.
</Table>

                                        35
<PAGE>

<Table>
<Caption>
                                                STATUS
                ----------------------------------------------------------------------
<C>             <S>
                On September 5, 2002, TELKOM received the tax clearance letter (Surat
                Ketetapan Pajak/"SKP") issued by the tax authority -- from AriaWest.
                By receiving SKP, TELKOM will be entitled to implement the Interim
                Management Agreement.

                Currently, the AriaWest Shareholders and their Lenders are in the
                process of pursuing an agreement for the debt restructuring, although
                there can no be assurance that such debt can be restructured on term
                acceptable to TELKOM.

    KSO IV      The Sale and Purchase Agreements of KSO IV Business and Assets was
(CENTRAL JAVA)  terminated as of January 31, 2002 as certain condition precedents set
                forth in the Agreement were not satisfied. As a result of the
                termination of the KSO IV transaction TELKOM became obligated to pay,
                and paid, to Indosat the remaining balance of the purchase price in
                certain other related cross-ownership transactions between TELKOM and
                Indosat amounting to US$375 million, as such balance was originally
                intended to be set off from the proceeds from Indosat to TELKOM of the
                sale of the KSO IV business and asset.

                TELKOM and the shareholders of PT Mitra Global Telekomunikasi
                Indonesia ("MGTI"), the KSO IV Investor, are presently in the early
                stages of negotiations for the sale of shares of MGTI to TELKOM.

    KSO VI      As of May 17, 2001, TELKOM had acquired 90.32% of the issued and fully
 (KALIMANTAN)   paid shares of Dayamitra, the KSO VI Investor, for approximately
                US$130.9 million, and also purchased a call option and granted a put
                option with respect to the remaining shares of Dayamitra. An initial
                payment of US$18.3 million was paid on the closing date of the
                transaction on May 17, 2001, US$8.9 million was paid on August 10,
                2001 as an adjustment to the purchase price based on Dayamitra's
                adjusted working capital, with the balance of US$103.6 million to be
                paid through an escrow account in eight quarterly instalments of
                US$13.0 million each between August 17, 2001 to May 17, 2003.

   KSO VII      On June 11, 2002, TELKOM and PT Bukaka SingTel International ("Bukaka
   (EASTERN     SingTel"), the KSO VII Investor, have signed an MOU that allows both
  INDONESIA)    parties to build additional new lines in the KSO VII region under
                certain terms and conditions including certain revenue sharing
                arrangement. The agreement is intended to solve the issue relating to
                the development of KSO VII region prior to the termination of the
                construction period as stated on the KSO agreement, which had ended up
                to March 31, 1999. Under the agreement, Bukaka Singtel has is entitled
                to appoint the project investor.

                In 2002, TELKOM and Bukaka SingTel launched the MAM@ project (Manado
                Millennium Area) in Manado for the development of 55,000 lines
                including the development of fiber optic in the Manado area. In 2003,
                they plan to develop several new projects, including the FORMA Project
                (Fiber Optic Ring Makasar) in Makasar that will involve the
                development of 69,345 lines including 1,221,208 km of fiber optic
                which will connects all of the Makasar city area. TELKOM also plans to
                deploy fixed wireless CDMA -- based systems for 146,700 lines in Bali,
                Manado, Makasar, Kupang and Mataram.
</Table>

  JOINT VENTURES

     TELKOM has minority interests in several joint venture companies that
provide analog mobile cellular services and other telecommunication related
services. The joint venture companies that provide analog mobile cellular
services are PT Metro Selular Nusantara ("Metrosel"), PT Mobile Selular
Indonesia ("Mobisel") and PT Komunikasi Selular Indonesia ("Komselindo").
TELKOM's revenues from joint venture companies are derived from the use by the
joint venture company of TELKOM's infrastructure, including interconnection
fees, and from dividends, if any. TELKOM has written down or written off the
value of a number of its joint venture investments.

                                        36
<PAGE>

BUSINESS STRATEGY

     The Company's vision is to become a dominant InfoCom player in the region,
with a mission to provide one-stop services with excellent quality and
competitive price, and to manage its business through best practices,
competitive advantages and synergies.

     TELKOM believes that Indonesia's telecommunications market is
under-penetrated with below 3.5 lines per 100 inhabitants for both the fixed
line telephone and 4.4 lines per 100 inhabitants for mobile cellular markets,
based on projected population figures. TELKOM believes that the strong demand
for telephone services has largely been responsible for the growth of its fixed
line telephone and mobile cellular business in recent years, and will continue
to offer favorable growth opportunities in the future. TELKOM expects that fixed
line telephone services and mobile cellular services will continue to provide
the substantial majority of its operating revenues for the foreseeable future,
although it plans to increase the proportion of its revenues derived from its
other communications services. It has developed broad strategies to retain its
existing customers, to acquire new and lost customers, and to further penetrate
the market, through customer relationship management, product leadership and
diversification, pricing, and one-gate distribution channels.

     The key elements of TELKOM's strategy are:

  IMPROVING PRODUCTIVITY AND STRENGTHENING FIXED LINES BUSINESS

     Indonesia has one of the lowest fixed line penetration in the region. As of
December 31, 2002, the line penetration rate was 4.64% and 2.00% for Non-KSO
Division and KSO Division, respectively, and 3.45% nationally. The following
table represents the penetration rate for each regional division:

<Table>
<Caption>
                       DIVISION I   DIVISION II   DIVISION III   DIVISION IV   DIVISION V   DIVISION VI   DIVISION VII      TOTAL
                       ----------   -----------   ------------   -----------   ----------   -----------   ------------   -----------
<S>                    <C>          <C>           <C>            <C>           <C>          <C>           <C>            <C>
LIS..................   1,115,875    2,824,556        672,597       646,701    1,427,660       342,336        720,310      7,750,035
Population...........  47,364,639   26,009,810     25,888,678    44,160,324    36,215,344   13,400,801     31,853,965    224,893,561
Density..............        2.36        10.86           2.60          1.46         3.94          2.55           2.26           3.45
</Table>

     As of December 31, 2002, approximately 44.81% of total lines in service
were in the major metropolitan areas of Jakarta, Surabaya, Semarang, Bandung,
Medan, and Denpasar. The following table represents the average number of line
in service among the 6 major metropolitan areas:

<Table>
<Caption>
                                     JAKARTA    SURABAYA    SEMARANG     BANDUNG      MEDAN     DENPASAR     TOTAL
                                    ---------   ---------   ---------   ---------   ---------   --------   ----------
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>        <C>
LIS...............................  1,890,802    763,508     198,558     387,617      271,235   193,830     3,705,550
Population........................  8,948,463   2,600,039   1,548,849   2,159,437   2,312,545   558,073    18,127,406
Density...........................      21.13      29.37       12.82       17.95        11.73     34.73         20.44
</Table>

     TELKOM aims to increase the penetration rate while achieving lower capital
expenditure per line through the rapid roll-out of fixed wireless technology and
through Build Operate and Transfer Schemes (BOT) or other revenue sharing
arrangement.

     TELKOM has new strategy which it calls "Focus 20". Focus 20 aims to
increase productivity by concentrating on surfacing high revenue clients in key
areas. Under the Focus 20 strategy, TELKOM will concentrate on its top 20
products in the top 40 cities, targeting the top 20% of clients which has high
ARPU more than Rp.150,000 per subscriber. TELKOM plans to increase the quality
of service for "blue chip customer" by providing multiservice bundling,
broadband access, customer care service center for enterprise, price packaging,
and other benefits.

     In addition to strengthening it's fixed line business, TELKOM plans to
focus more on its interconnection business along with the significant
contribution to Company's revenue year on year and the growth of telecom
industry in Indonesia.

     TELKOM is eager to minimize the local tariff deficit through tariff
rebalancing methods and to protect its domestic long-distance traffic from VoIP
competitors. Additionally the Company will also promote the role of kiosk phone
as a point of sale for TELKOM's services.

                                        37
<PAGE>

     TELKOM expects to enter the IDD market by August 2003. TELKOM established
its international services project in 2001 to prepare for its entry into the IDD
market, when it is expected that TELKOM will receive a license to provide IDD
services. See "Item 4B. Business Overview -- Competition -- Fixed Line
Services". The international services project unit is in the process of
establishing network capacity to link with telecommunication operators in
Singapore, Malaysia, Thailand, Hong Kong and the Philippines, and is also
collaborating with Singapore Telecommunications Limited on the deployment of a
radio link between Singapore and Batam for leased line services.

  STRENGTHENING BACKBONE NETWORK

     TELKOM will continue to increase the capacity and quality of its network in
order to provide a better service to its customer by using an optical network
for high speed backbone transmission infrastructure and by launching a new
satellite called TELKOM 2 to replace the existing Palapa B4 satellite (which
ends its operation around 2004). In addition, TELKOM aims to manage synergies
among utility providers in Indonesia in order to enhance backbone capacity and
access network penetration.

  CAPITALIZED WIRELESS & MULTIMEDIA BUSINESS

  Maintaining Telkomsel's Dominant Position in the Industry

     The Company regards the mobile cellular business as having the greatest
opportunity for revenue growth. The Company provides its mobile cellular
services primarily through Telkomsel, a market leader in the cellular business
in Indonesia. Telkomsel holds over 50% market share. TELKOM has committed to
certain strategic decisions that it believes will promote the further
development of Telkomsel's business, including product and market bundling and
approving Telkomsel's capital expenditure program for the next three years.

     TELKOM has sold a 12.72% stake in Telkomsel to Singapore Telecom Mobile Pte
Ltd (SingTel Mobile). TELKOM believes that such a transaction will increase
Telkomsel's ability to access SingTel Mobile's technological and commercial
expertise as appropriate, as well as increase opportunities for cooperation
between Telkomsel and SingTel Mobile in developing new products, and thereby
strengthen and better position Telkomsel to meet competition from other mobile
cellular operators.

  Divestment of non-GSM Mobile Cellular Business

     In order to increase focus on second wave technology and decrease business
risk, TELKOM will divest from it's non-GSM affiliates namely Telesera, Metrosel,
Komselindo and Mobisel.

  Scaling up Data and Internet Business

     As part of the Company's restructuring, several business projects such as
B2B and VoIP have been merged into the Multimedia Division to increase the
opportunities for business synergies among the different businesses. In
addition, TELKOM is currently reviewing several of its affiliates such as
Napsindo, Metra and Citra Sari Makmur (CSM). The Company aims to acquire a
significant portion of the market share for IDD traffic by 2006 through TELKOM
Global 017 (VoIP based) service and plans to roll out bundled services on pay
TV, high speed internet, and VoIP.

  Creating New Business (Fixed Wireless)

     TELKOM plans to expand its fixed wireless networks in all of its regional
divisions by building CDMA digital fixed wireless networks. As CDMA networks are
generally more cost-effective and as the deployment time for CDMA networks is
significantly faster than that of fixed line networks, TELKOM believes this
deployment will be significant in the light of anticipated increased competition
in the fixed line market.

                                        38
<PAGE>

     Since December 2002, TELKOM has operated a CDMA (code digital multiple
access)-based fixed wireless telephone system called TELKOMFlexi in the three
cities, in Surabaya (East Java), Denpasar (Bali) and Balikpapan (East
Kalimantan). The development of the fixed wireless CDMA telephone system is part
of the T-21 Partnership project packages between TELKOM and world-class foreign
telecom companies, namely Samsung and Ericsson. CDMA-based fixed wireless
technology enables fast roll-out and development of telephone networks with
lower capital expenditure amounting to US$170 per subscriber.

  EFFICIENT USE OF CAPITAL AND LIQUIDITY THROUGH NEW TERM OF PAYMENT
  ALTERNATIVES WITH LOWER RISK

  Pay as You Grow

     TELKOM recognizes that, in the increasingly competitive Indonesian
telecommunications market, internally generated cash flows and direct borrowing
from banks and other lenders may not be sufficient to fund its aggressive plans
to expand and upgrade its various businesses. As a result, TELKOM has recently
begun to explore innovative alternative forms of term of payment in the context
of alternative approaches to procurement contracts for network access equipment.
TELKOM broadly groups these alternative forms of term of payment under the term
"pay as you grow".

     As presently formulated, the "Pay as you Grow" concept would involve a
structure under which the timing of payment to vendors for equipment installed
would depend on actual revenue streams from the equipment following its
integration into TELKOM's network, and procurement volumes will remain flexible
within the terms of an umbrella contract. Under this proposal, these vendors
would be jointly involved with TELKOM in the planning and design review process,
and would participate in network design, capacity demand assessment and the
determination of procurement volumes. TELKOM believes that the successful
implementation of this proposal would reduce demands placed on its cash flows
and, to a certain extent, share the risk of investment with its vendors and
thereby reduce its own risk of investment with respect to financing, commercial,
operational, technical and capacity risks. TELKOM expects that this approach is
likely to involve relationships with a relatively small number of equipment
vendors who would be invited to supply a substantial portion of TELKOM's
infrastructure and other equipment needs, which TELKOM hopes will reduce network
costs per subscriber through economies of scale.

  T-21

     TELKOM implemented the T-21 Project as part of TELKOM's policy to seek new
approaches for procurement contracts. The T-21 project is a partnership based
procurement program development of the fixed wireless access networks, the PSTN,
and back bone transmission infrastructure (2003-2005), with three main
objectives:

     -- Capex Efficiency

        Develop a partnership approach to reduce the Capex burden by inviting
        local investors to participate in the T-21 program and Improve Capex
        Efficiency per subscriber.

     -- Asset Turnover

        Optimize asset acquisition and consider various alternatives to reduce
        the asset base, by implementing the "pay as you grow" procurement
        concepts, and out-sourcing of non-core businesses (i.e. contents,
        application and CPE); optimize network investment in gaining higher
        revenue stream; and sourcing unproductive parts of the network to other
        parties such as regional companies.

                                        39
<PAGE>

     -- Risk Mitigation

        Mitigate risk across 5 key risk areas i.e. Financing, Commercial,
        Operational, Technical and Capacity. Allocate the 5 key risks to the
        party best placed to mange by developing a risk sharing mechanism.

     The T-21 program was carried out in an effort to cut down the capital
expenditure for the installation of a telephone unit. By applying this
technology, the Company is able to reduce investment cost to only about US$200
per telephone unit as compared to cable telephone which reached some US$700 per
unit. On a large scale basis in the long run, the installation cost per unit is
expected to reach a rate below US$200. The T-21 project -- worth US$1.8
billion -- is divided into different packages whose development is expected to
be completed between 2002 and 2005. World class telcom companies such as
Samsung, Ericsson consortium, Alcatel, Hyundai Corporation, Siemens consortium,
Lucent consortium, NCE, Hua We and Motorola are now taking part in the tender of
the project. The tender for the development of two packages of the project,
namely public switch telephone network and fibre optics transmission link, is
now still under process.

  HUMAN RESOURCES AND ORGANIZATIONAL DEVELOPMENTS

     TELKOM has human resources strategies including competence-based HR
management, new organization business structure and right sizing strategy.

     Organizational Development is built on Good Corporate Governance and
Quality Management Principles, implementation of a code of conduct, board
charter, remuneration and nomination committee, revitalize on corporate
communication and to adopt value based management by using the Malcolm Baldridge
Quality Management approach. The Malcolm Baldridge is a guidance to achieve
excellence company performance consisting of several criteria namely leadership,
strategic planning, customer and market focus, information and analysis, human
resource focus, process management and business result.

     TELKOM believes that by implementing all the above strategic initiatives,
it will create a strong position to tap business opportunities and win market
share in the current relatively limited competition era.

PRODUCT DEVELOPMENT

     In 2002, TELKOM has further developed its other communications services,
which include VoIP services, fixed wireless services, POT value added services,
satellite services and international services.

  VOICE OVER INTERNET PROTOCOL (VOIP)

     TELKOM regards VoIP as an important new product and expects that it will
eventually become a significant new business area, as it allows a
telecommunications operator to decrease the cost of voice telephony services.

     TELKOM began providing trial VoIP services in October 2001, based on an
in-principle license, under the brand name "TELKOMSave" and "TELKOMGlobal-017",
and currently provides both VoIP services commercially in several cities in
Indonesia. The Company is initially focusing on the provision of VoIP services
which allow Indonesian subscribers to make international calls. Its VoIP
services currently allow subscribers access to 493 destination points in over
230 countries, through agreements which TELKOM has entered into with Global
Communications Inc. and Singapore Telecommunications Limited that allow TELKOM
to access their international networks. The Company plans to increase the number
of access points from which its customers can access its VoIP services, in areas
and cities in Indonesia as well as outside of Indonesia. Currently the Company
focuses its VoIP services for international calling service.

                                        40
<PAGE>

  FIXED WIRELESS CDMA

     Beginning December 2002, TELKOM has operated a CDMA (code digital multiple
access)-based fixed wireless telephone network in three cities of Surabaya (East
Java), Denpasar (Bali) and Balikpapan (East Kalimantan) using the brand name
TELKOMFlexi. CDMA-based fixed wireless technology enabled rapid development of
telephone networks.

     The objective of fixed-wireless telephone development by using CDMA
technology is to reduce the capital expenditures per line by obviating the need
for the installation of underground cables.

     On October 9, 2002 TELKOM signed a contract to develop fixed-wireless
telephone systems consisting of 40,000 lines and 16 Base Services Stations
("BSS") with Samsung Electronics Co., for a total amount of US$14.7 million. The
project will use CDMA2000-1X technology at frequency 825 -- 830 MHz, covering
Base Subscriber Station ("BSS") in the cities of Surabaya for 25,000 lines and
10 BTSs, Denpasar for 10,000 lines and 4 BTSs, and Balikpapan for 5,000 lines
and 2 BTSs. Phase-1 of the project involving the installation of 5,000 lines in
Surabaya was completed in November 2002, and phase-2 of the project is estimated
to complete by end of December 2002 covering Surabaya (20,000 lines), Denpasar
(10,000 lines), and Balikpa pan (5,000 lines) was completed in December 2002.

     On December 23, 2002, TELKOM signed Master of Procurement Partnership
Agreements (MPPA) with Samsung Electronics Consortium and Ericsson Consortium.
Both of Agreements includes system planning, manufacturing, delivery, and total
construction of 1.6 million lines as well as service level agreement. The period
of the agreement is 42 months until mid 2006. The MPPA between TELKOM and
Samsung provide for the construction of 802,000 lines of BSS for Regional
Divisions IV, V, VI and VII at US$ 116 per line, while the MPPA with Ericsson
provide for the construction of 631,800 lines of BSS at US$ 116 per line.

  VALUE ADDED SERVICES

     In December 24, 2002, TELKOM launched new value added services that enable
TELKOM's fixed line customers to send short messages to other fixed line
terminals using the brand name TELKOMSms (short messages service). Currently,
TELKOM only provides this service in the Surabaya area. The Company plans to
expand this services to other major cities, as well as interconnect to cellular
subscribers.

  SATELLITE

     In 2002, TELKOM signed a contract with Orbital Sciences Corporation
("Orbital"), a US company that develops and manufactures affordable space
systems for commercial, civil government and military customers, to develop
TELKOM-2 satellite. TELKOM-2 satellite is a geosynchronous communication
satellite, manufactured based on Orbital's state-of-the-art STAR-2 platform, to
replace TELKOM's existing Palapa B-4 satellite due to its operational expiration
in late 2004.

     TELKOM-2 satellite has a capacity of 24 standard C-band transponders and
with specification of the transponders being the same as TELKOM-1 satellite.
TELKOM-2 satellite will be designed for a 15-year in-orbit life with an
expansion of its coverage area of Asian region and Indian subcontinent in
addition to its current Indonesian capacity. The satellite has a high
reliability to fulfill voice, video and data communications to support TELKOM's
national as well as regional communication network. The Satellite will be
launched into geo-synchronous orbit at 22,300 miles above the earth, at 118
degrees east longitude.

  INTERNATIONAL SERVICES

     TELKOM established its international services project in 2001 to prepare
for its entry into the IDD market, should it decide to do so after August 2003
when it is expected that TELKOM will receive a license to provide IDD services.
See "Item 4B. Business Overview -- Competition -- Fixed Line Services". The
international services project unit is in the process of establishing network
capacity to

                                        41
<PAGE>

link with telecommunication operators in Singapore, Malaysia, Thailand, Hong
Kong and the Philippines, and is also collaborating with Singapore
Telecommunications Limited on the deployment of a radio link between Singapore
and Batam for leased line services.

CUSTOMER SERVICE, SALES AND MARKETING, BILLING AND PAYMENT

  CUSTOMER SERVICE

     TELKOM provides the following means of accessing customer services,
excluding mobile cellular services, which Telkomsel provides directly:

     - walk-in customer services points.  Customer service points provide
       convenient and comprehensive access to TELKOM's customer services, and
       handle product and service information requests and complaints,
       activation of services, customer billing, payments, account suspensions,
       service features, and marketing promotions. TELKOM has more than 100
       customer service points in total, including eight large centers in
       Jakarta and two in Surabaya and customer service points operated by its
       KSO Units;

     - call centers and Internet.  TELKOM operates call centers in many cities
       in Indonesia, including in the KSO regions. Customers are provided a toll
       free number to speak directly to customer service operators who are
       trained to handle customer requests and complaints and to provide up-to-
       date information on matters such as customer bills, promotions and
       service features. Billing information may also be obtained through the
       Internet for customers in Jakarta. Customers are also provided access to
       directory services for which a charge is levied. TELKOM intends to
       promote the use of call centers and the Internet over walk-in customer
       service points for its retail customers; and

     - enterprise center and account management teams.  TELKOM regards the top
       20% of its customers, particularly corporations with national operations,
       as its most important customers. To focus on these customers, TELKOM has
       set up an enterprise center in Jakarta, which seeks to develop its
       business in this segment of the market. TELKOM provides these customers
       with account management teams, each comprising an account manager
       supported by personnel from the relevant operational departments, to
       provide a single point of contact for all of the customer's
       communications needs. To cater to such customers, the enterprise center
       works on integrating various product and service offerings to provide
       total communications solutions, including Internet access and customized
       data communications related products and services. TELKOM has also set up
       similar account management teams at a regional level, in regional
       divisions II and V, to focus on corporations with regional operations
       within Indonesia. TELKOM currently has over 16 national level account
       management teams, and over 23 regional level account management teams
       that cover divisions II and V. It plans to further increase the number of
       such teams.

     TELKOM has implemented a service level guarantee program for its fixed line
customers in regional divisions II and V since May 2001, and plans to implement
a service level guarantee program on a national basis from around June 2002. The
service level guarantee program provides guarantees of certain minimum levels of
services relating to new line installations, restoration of disconnected lines
and billing complaints and provides for non-cash compensation, such as free
subscription for a certain period to be awarded to customers where such minimum
service levels are not met.

  SALES, MARKETING AND DISTRIBUTION

     TELKOM distributes and sells its principal products and services, excluding
mobile cellular services, through six primary distribution channels:

     - walk-in customer service points.  These offer comprehensive access to
       information on certain of its products and services as well as its
       products and services. See "Item 4B. Business Overview -- Customer
       Service, Sales and Marketing, Billing and Payment";

                                        42
<PAGE>

     - account management teams.  See "Item 4B. Business Overview -- Customer
       Service, Sales and Marketing, Billing and Payment";

     - public telecommunications kiosks.  Small businesses in cooperation with
       TELKOM have established public telecommunications kiosks, or "Wartels"
       and "Warnets", throughout Indonesia. Customers can access basic
       telecommunications service and make local, domestic long-distance and
       international telephone calls, send facsimiles, telex and telegrams,
       access the Internet and purchase phone-cards, and in a declining number
       of kiosks, send telex and telegrams. TELKOM generally provides discounts
       to such kiosks ranging from 20% to 30% compared with subscriber telephone
       rates. Kiosks operate on a non-exclusive basis and may provide the
       products and services of other operators;

     - independent dealers and retail outlets.  These are located throughout
       Indonesia and primarily sell calling cards and phone-cards. Independent
       dealers and retail outlets pay a discount to face value for all products
       they receive, operate on a non-exclusive basis, and may also sell the
       products and services of other operators; and

     - website.  Through its website, customers can obtain information on
       TELKOM's major products and services and access certain of its multimedia
       products; and

     - public telephones.  Customers can make local, domestic long-distance and
       international telephone calls through public telephones.

     TELKOM is developing its marketing communications program to promote all of
its core businesses as it evolves into a full service and network provider. Its
broad strategy is to retain existing customers, acquire new customers and
increase penetration of its markets, through customer relationship management,
product leadership, pricing and evolution towards single point distribution
channels.

     TELKOM's marketing communications program includes the use of print and
television advertising and special promotional campaigns to strengthen its brand
name, increase its profile and educate the general public about itself and its
products and services.

  BILLING, PAYMENT AND COLLECTION

     TELKOM's customers are billed on a monthly basis. Customers are billed
according to the regional division in which they are in, although they may
request for bills from several regions to be combined. The billing process is
computerized within each region. Payment can be made within the respective
regions at any of TELKOM's customer service points, through designated automated
teller machines, at post offices and banks with whom TELKOM has an arrangement
as collecting agents, and in certain areas by direct deposit via telephone
transfer in certain areas or by automatic debit through banks. TELKOM issues
bills on the fifth day of each month and payment of the bill is due by the
twentieth day of that same month. If payment is not received by the due date of
the bill, customers are provided with reminders by way of automated telephone
calls and reminder letters, nominal late fees are levied and increasing levels
of call barring are implemented. Services will be terminated if no payment is
received after three months from the due date, although TELKOM does not cut off
service to its Government subscribers. After an account is terminated, the
customer may only re-subscribe for services after making the overdue payment,
including late fees, and by making a completely new application.

                                        43
<PAGE>

     The following is a summary of TELKOM's overdue payment policy:

<Table>
<Caption>
STAGE      OVERDUE PAYMENT         CHARGE                           PENALTY
-----      ---------------   ------------------   --------------------------------------------
<S>        <C>               <C>                  <C>
I........  1 -- 10 days      Rp.5,000
II.......  11 -- 40 days     2% of overdue bill   Out-going isolation (only receive)
                             Minimum Rp.10,000
III......  41 -- 70 days     5% of overdue bill   Total isolation
                             Minimum Rp.15,000
IV.......  > 70 days         Terminated           - customer must fulfill overdue payment
                                                  - Reinstallment charge:
                                                   -- 50% of installation fee (< 3 months)
                                                   -- 100% of installation fee (> 3 months)
</Table>

     TELKOM currently provides billing services for Indosat and Satelindo in
connection with their IDD services, for which it charges a flat fee for each
bill, although it may start billing directly after Indosat enters the domestic
market and if TELKOM enters the IDD market.

  Management of Customer Receivables

     TELKOM does not screen its customers for creditworthiness and does not
collect deposits from subscribers, although its call barring procedures for
non-payment of bills have contributed towards the reduction of bad debt. TELKOM
has also recently implemented a system in regional division II which enables the
telephone usage of a customer to be tracked at the customer's request. An
integrated system analyzes such data to monitor for unusual usage.

     In the case of retail customers, TELKOM provisions 100% of the outstanding
debt where the amount has been outstanding for more than three months. In the
case of corporate and Government customers, TELKOM provisions 25% of the
outstanding debt where the amount has been outstanding between seven and 12
months, 50% where the amount has been outstanding between 13 and 24 months, and
100% where the amount has been outstanding for more than 24 months.

INSURANCE

     As at December 31, 2002, TELKOM's property, plant and equipment, including
vehicle insurance but excluding cables, were insured against the risk of fire,
theft and other specified risks for a coverage value of Rp.20,270.3 billion
(US$2,274.2 million) and US$1,367.6 million. Additional insurance coverage of
US$71.8 million exists for the Palapa B-4 and TELKOM-1 satellites. TELKOM does
not maintain business interruption insurance.

     TELKOM's subsidiaries separately insure their property in such amounts and
in accordance with the policies determined and implemented by the subsidiaries
themselves.

REGULATIONS

  OVERVIEW

     The legal framework for the telecommunications industry is based on
specific laws, government regulations and ministerial decrees enacted and issued
from time to time. The regulatory reforms of the Indonesian telecommunications
sector have their foundation in Law No. 36 of 1999 (the "Telecom Law") which
replaced the old telecommunications law as contained in Law No. 3 of 1989 (the
"Previous Telecom Law").

     The Government's telecommunications reform policy is formulated in its
"Blueprint of the Indonesian Government's Policy on telecommunications" dated
September 17, 1999 ("Blueprint"). The policies as stated in this Blueprint are
to: (i) increase the sector's performance in the era of globalization; (ii)
liberalize the sector with a competitive structure by removing monopolistic
practices; (iii) increase transparency and predictability of the regulatory
framework; (iv) create opportunities for

                                        44
<PAGE>

national telecommunications operators to form strategic alliances with foreign
partners; and (v) create business opportunities for small and medium enterprises
and to facilitate new job opportunities.

     The overall program of telecommunications sector deregulation is closely
linked to the national economic recovery program supported by the International
Monetary Fund (the "IMF"). The national plan is documented in the Memorandum of
Economic and Financial Policies (the "MEFP"), as further clarified in Letters of
Intent to the IMF in January and May 2000, as amended. The main focus of the
MEFP is to stabilize the economy through a comprehensive plan based on: (i)
deregulation; (ii) promotion of competition; (iii) liberalization; (iv)
restructuring; (v) improving market access; and (vi) market oriented
regulations. This includes the Government's commitment to transform the
telecommunications sector into a fully competitive business environment.

     The Government exercises both regulatory authority and supervisory control
over the telecommunications industry in Indonesia, in addition to being the
controlling shareholder of TELKOM. Prior to March 1998, the Ministry of Tourism,
Post and Telecommunications ("MTPT") was responsible for the regulation of
telecommunications in Indonesia but with the reorganization of the Government
following the general elections, these were re-assigned to the MoC. The MoC is
responsible for the overall supervision and regulation of the industry. Within
the MoC, various directorates and bureaus carry out specific regulatory duties.
The MoC is the governmental body that has been granted the authority to issue
implementing decrees, thereby giving the MoC considerable latitude in
implementing regulatory policy. Pursuant to such decrees, the MoC defines the
scope of exclusivity, formulates and approves tariffs, determines universal
service obligations and controls many factors affecting TELKOM's competitive
position, operations and financial condition. The MoC as regulator has the
authority to grant new licenses for the establishment of new joint ventures and
other arrangements, particularly in the telecommunications sector.

     Through the Directorate General Post and Telecommunications ("DGPT"), a
directorate under the MoC, the Government regulates the allocation of
Indonesia's radio frequency spectrum. TELKOM and other operators are required to
obtain a license from the DGPT for each of their services that utilize radio
frequency spectrum. All telecommunications operators are also required to pay
for radio frequency spectrum usage. The Government also requires all
telecommunications operators, including TELKOM to pay a concession license fee
of 1% of its collected operating revenues.

  TELECOM LAW NO. 36 OF 1999

     The Telecom Law No. 36 of 1999, which came into effect on September 8, 2000
(the "Telecom Law"), provides key guidelines for industry reforms, including
industry liberalization, facilitation of new entrants and changes to the
industry's competitive structure. Under the Indonesian regulatory framework, a
law only outlines the substantive principles of the subject matter.
Implementation guidelines will be further made by way of government regulations,
ministerial decrees and other forms of decrees. Therefore, the Telecom Law only
outlines the framework and substantive principles for the liberalization of the
telecommunications industry.

                                        45
<PAGE>

<Table>
<Caption>
DESCRIPTION                             LAW 3/1989 (REVOKED)                 LAW 36/1999
-----------                            -----------------------   -----------------------------------
<S>                                    <C>                       <C>
OPERATOR.............................  The Government through    State-owned companies, private and
                                       Organizing Body           cooperatives

SERVICE CATEGORY.....................  Basic and Non-Basic       Telecommunications Network,
                                       Services, and Special     Telecommunications Services, and
                                       Telecommunications        Special Telecommunications

COOPERATION FRAMEWORK................  Joint Venture             Business driven
                                       Companies, KSO, and
                                       Management Contract

BUSINESS MODE........................  Through cooperation       Based on business viability
                                       with Organizing Body

EXCLUSIVITY..........................  Monopoly and duopoly      Exclusivity is maintained as
                                       exclusivity               scheduled. Acceleration is possible
                                                                 through compensation

TARIFFS..............................  Determined by the         Determined by the Operators based
                                       Government                on formula determined by the
                                                                 Government

INTERCONNECTION AGREEMENT............  Interconnection tariff    All aspects of interconnection left
                                       structure, determined     to network providers to negotiate
                                       by the Government and     with the Government as arbitrator.
                                       payable to TELKOM, in
                                       the mobile and
                                       international telephone
                                       market

REGULATOR............................  Government                Government assisted by an
                                                                 Independent Regulatory Body (to be
                                                                 established)

TECHNOLOGY...........................  Circuit-switched          Fixed and mobile telecommunications
                                       networks for voice        networks for multimedia
                                       communications and        communications: flexibility to
                                       second-generation         accommodate technological
                                       mobile cellular           innovations
                                       networks.
</Table>

---------------

Source: Blue Print of the Indonesian Government's Policy on Telecommunications

  ELIMINATION OF ORGANIZING BODY CONCEPT

     The Telecom Law eliminates the concept of state-owned companies as
Organizing Bodies, thus ending TELKOM's status as one of the Organizing Bodies
for the industry based on the Previous Telecom Law. Upon the full implementation
of the Telecom Law, TELKOM will be required to obtain the requisite licences to
provide telecommunications services. This is further clarified in the MoC Decree
No. KM20/2001 and MoC Decree No. KM21/2001.

  NEW SERVICE CATEGORIES

     The Telecom Law classifies telecommunications operations into three service
categories: (i) telecommunication network operations, (ii) telecommunications
services operations, and (iii) special telecommunications operations. Under
these categories, telecommunications network operation and/or provision of
Telecommunications services may be carried out by a legal entity established for
the purpose on the basis of the applicable regulation. These legal entities
include state-owned enterprises (BUMN), regional business companies (BUMD),
privately owned companies, and

                                        46
<PAGE>

cooperatives. On the other hand, special telecommunications operations may be
conducted by individuals, Government institutions, special agencies, and legal
entities. Licenses are required for each category of telecommunications service.

     A telecommunications network provider is licensed to own and/or operate a
telecommunications network. Telecommunications service providers are licensed to
provide services and are not required to own a network for such purpose. Such
providers may therefore choose to either construct their own network or lease
those belonging to a network operator. Special telecommunications licenses are
for providers of private services or purposes relating to broadcasting and
national security interests.

     Currently, TELKOM provides local and domestic long-distance
telecommunications services based on Government Regulation No. 25/1991 on the
establishment of Perusahaan Perseroan (Persero) TELKOM, which permits TELKOM to
provide basic and non-basic telecommunication services. The existing KSO
Investors also hold licenses for providing telecommunications services in joint
operation with TELKOM and to carry out their activities as a foreign investment
company.

     Ministerial Decree No. KM 20/2001 implements the provisions in the Telecom
Law with regard to the new category of telecommunication network operations, and
Ministerial Decree No. KM 21/2001 implements the Telecom Law with regard to the
new category of telecommunication services operations. Under the transitional
provisions of such decrees, operators that were already licensed at the
effective date of the decrees on May 31, 2001 are required to adjust their
licenses under the new licensing regime not later than May 31, 2002. TELKOM has
already submitted its application for the new licenses.

  EXCLUSIVITY

     In 1995, TELKOM was granted a monopoly to provide domestic local fixed line
telecommunications services until December 31, 2010 and domestic long-distance
telecommunications services until December 31, 2005. Indosat and Satelindo also
were granted a duopoly for exclusive provision of basic international
telecommunications services until 2004.

     The Telecom Law issued in 1999 did not expressly terminate the existing
exclusivity rights of TELKOM, Indosat and Satelindo. In order to uphold the
undertakings of TELKOM and Indosat during their respective initial public
offerings and to maintain Indonesia's credibility among foreign investors, the
Government has announced that termination of the exclusivity rights is to be
subject to agreement between the relevant incumbent and the Government, whereby
the incumbent will be eligible for an amount of compensation to be agreed
between the incumbent and the Government.

     However, on August 1, 2001, the Government, through the DGPT, announced the
early termination of TELKOM's exclusivity rights for local and domestic
long-distance telecommunication services. The announcement stated the
Government's intention that Indosat will receive a license to provide local
telephone services from August 2002 and a license to provide domestic
long-distance telephone services from August 2003, and that TELKOM will receive
a license to provide IDD services from August 2003. The Government prematurely
terminated the exclusivity rights of TELKOM and Indosat in 2001, through MoC
Decree No. KM 21/2001 on Operation of Telecommunications Services.

     Prospective new operators, including TELKOM and Indosat, will be required
to satisfy technical requirements following an inspection by the DGPT of their
proposed network, in order to secure the requisite operational licenses.

     TELKOM is to be compensated for the loss of it's exclusivity rights. The
nature and extent of compensation that is payable to TELKOM is subject to the
approval of the Government. The Government fully consider the interest of TELKOM
and Indosat shareholders. The Government has determined that compensation for
TELKOM's termination of exclusivity right for fixed local and domestic
long-distance telecommunication network shall be given in a form of an IDD
license and in the approval of the reissuance of TELKOM's DCS1800 license to
Telkomsel, while compensation for Indosat's exclusivity rights for IDD shall be
given in the form of DCS 1800, local and domestic long-

                                        47
<PAGE>

distance license. The Government has appointed a reputable Independent Appraisal
to resolve difference of opinion regarding the value of the compensation. At
present, the independent appraisal has finalized its work and has submitted the
final result to the Government. However, as of the date of this Annual Report,
TELKOM have not received any formal notice from the Government regarding the
implementation of the compensation scheme due to early termination of
exclusivity right for TELKOM and Indosat

  COMPETITION

     As a consequence of the Organizing Body concept under the Previous Telecom
Law, TELKOM and Indosat maintained joint ownership in most telecommunications
companies in Indonesia. The Blueprint calls for the progressive elimination of
these joint shareholdings to promote competition and to avoid any actual or
potential conflicts of interest in a more competitive telecommunications
environment. Several of these joint shareholdings were unwound in 2001.

  Mobile cellular services

     Following the transactions in 2001 in which (i) TELKOM acquired all of
Indosat's shares in Telkomsel, equivalent to 35% of the issued and paid shares
of Telkomsel and (ii) TELKOM sold to Indosat all of its shares in Satelindo,
equivalent to 22.5% of the issued and paid shares of Satelindo, TELKOM acquired
majority control of Telkomsel and Indosat acquired majority control of
Satelindo. This has resulted in the GSM mobile cellular market becoming fully
competitive as contemplated in the Blueprint. Tariffs on mobile phone services
will continue to be determined by a formula set by the Government.

  Fixed line services

     With the enactment of the Telecom Law, it is expected that the market will
be open to full competition with interconnection tariffs determined by the
network providers based on a formula set by the Government. On August 2002,
Indosat was granted an in-principle approval for the development of domestic
fixed line telecommunications and obtained an operational license to operated in
the Jakarta and Surabaya area. It is expected that Indosat will received a
nationwide license for long-distance services after the settlement of
compensation for the early termination of its exclusivity right.

     TELKOM also faces direct and indirect competition from mobile cellular
services, fixed cellular services, SMS, VoIP services and e-mail, although it
also benefits from interconnection charges on mobile cellular and fixed cellular
traffic transiting its network. TELKOM expects that the increasing use of SMS,
VoIP services, e-mail and mobile cellular services may negatively impact future
demand for its domestic long-distance services.

  Domestic Long-distance services

     The cessation of TELKOM's exclusivity over the provision of domestic
long-distance services in August 2003 is expected to result in direct
competition between TELKOM and Indosat.

  IDD services

     It is expected that the market for provision of IDD services will become
more competitive in August 2003 with the termination of Indosat's and
Satelindo's exclusivity rights. It is expected that TELKOM will then be allowed
to provide IDD services in competition with Indosat and Satelindo.

  TARIFFS

     Tariffs for telecommunications networks and telecommunications services are
determined by providers based on the tariff category, structure, formula set by
the Government. Tariff for domestic fixed line telecommunication services are
determined based on a price cap formula set forth in general

                                        48
<PAGE>

terms and is calculated by reference to Indonesia's consumer price index and an
efficiency factor that is determined by the MoC, taking into account
improvements in costs efficiency, the interests of the telecommunications
operator and the level of public affordability. See "Item 4B. Business
Overview -- Tariffs and Interconnection Charges -- Tariffs for the Provision of
Telecommunications Services".

  INTERCONNECTION

     The regulation of interconnection is required in creating telecommunication
industry structure based on the principle of efficient resource usage,
synchronization of the telecommunication equipment and systems, as well as
improvement of service quality.

     Interconnection is conducted not only in the physical form of network
connection, but also includes interworking in distributing services to
customers. Interconnection can be classified into traffic sensitive and
non-traffic sensitive interconnection. Traffic sensitive interconnection is
generally conducted so that every customer can be connected or connect to
another operator's customer worldwide. Non-traffic sensitive interconnection
relates primarily to renting of network elements and other facilities. The
regulation in Indonesia only provides for voice traffic based interconnection,
while data traffic based interconnection is not provided for.

     Telecom Law and Government Regulation no.52/2000 stated that every
telecommunications network operator, upon request, is obligated and entitled to
interconnect its network with other network operators. The implementation of
this obligation is guided by the following principles: (i) efficient source
utilization, (ii) telecommunications system and equipment compatibility, (iii)
improvement of service quality, and (iv) fair competition.

     TELKOM expects the Government will decide the new interconnection scheme so
that TELKOM can maintain a manageable and fair competitive environment. See Item
4B "Business Overview -- Tariffs Interconnection Charges -- Tariffs for
Interconnection and Access"

  INDEPENDENT REGULATORY BODY

     The Telecom Law contemplates the establishment of an independent regulatory
body. The role of the Government, assumed by MoC, remains in the area of
industry policy, regulation, monitoring and control. Under certain
circumstances, the above function can be mandated to a regulatory body.

     However, in administering its role, the Government is called upon to invite
participation from the public in the form of an independent body consisting of
telecommunications users, operators, suppliers and experts. This independent
body is expected to provide input in the process of the development of
telecommunications policies and regulations. Combined with further privatization
of the state-owned public telephone operators, the establishment of such an
independent body is intended to reduce the Government's role in the
telecommunications industry from that of being the telecommunications industry's
financier, operator, regulator and licensor to becoming primarily the industry's
licensor and participating regulator. As of the date of this Annual Report, this
independent regulatory body has not been established.

  CONSUMER PROTECTION

     Under the Telecom Law, each operator must also provide guarantees for
consumer protection in relation to quality of services, usage or service fees,
compensation and other matters. The law also allows customers injured or damaged
by negligent operations to file claims against negligent providers.

  UNIVERSAL SERVICE OBLIGATION

     Under the Telecom Law, all telecommunications network operators and service
providers are bound by a Universal Service Obligation ("USO"), which requires
provision of certain telecommunications facilities and infrastructure in USO
areas. The local network provider will likely be responsible for

                                        49
<PAGE>

network installation in the USO areas. TELKOM currently is the local network
provider in all parts of Indonesia other than those controlled by the KSO Units.

     Thereafter, cost arising from providing networks in the USO areas will be
assumed by other network and service providers that send traffic to the
recipient network providers, in the form of USO fees. A specific implementing
regulation is expected to be issued shortly in order to implement this USO
scheme. No such implementing regulation has been issued to date.

  IMPLEMENTING REGULATIONS

     To date, the Government has issued several implementing regulations
relating to the Telecom Law, including Government Regulation No. 52/2000 on the
Operation of Telecommunications and Government Regulation No. 53/2000 on
Utilization of Radio Frequency Spectrum and Satellite Orbit, as well as a number
of ministerial decrees, among others, the Decrees of the Minister of
Communications No. KM 20/2001 on Operation of Telecommunications Networks, and
No. 21/2001 on Operation of Telecommunications Services, No. KM 12/2002 on
Completing MTPT Decree No. KM.79/PR-301/MPPT-95 on Procedures for the Tariff
Adjustment of Domestic Basic Telecommunications Services. The MoC and DGPT are
still in the process of finalizing a number of additional ministerial decrees
that are intended to implement other aspects of the Telecom Law, among others,
Special Telecommunications Operation and Universal Service Obligation.

     Further, on January 16, 2001 the Government issued the National Fundamental
Technical Plan through Ministerial Decree No. 4/2001. The National Fundamental
Technical Plan sets numerous technical plans that regulate technical aspects for
both telecommunications networks and service providers, comprising plans
relating to: (i) numbering, (ii) interconnection, (iii) charging, (iv) routing,
(v) transmission, (vi) signaling, (vii) switching, (viii) synchronization, (ix)
subscriber access, (x) network management, (xi) technical availability, and
(xii) service operation.

     On October 31, 2002, the Government issued Ministerial Decree No. 84/2002
on Clearing House which will become effective 18 months after its enactment. The
Government will select a Clearing House which will serve as a telecommunication
traffic clearing house on behalf of the DGPT.

GOVERNMENT POLICY

     The Government's development policies have historically been set forth in
consecutive five-year development plans known as "Repelitas." Each Repelita
assesses the current level of economic progress, establishes priorities for the
next five-year plan and realigns those previously made for future Repelitas. To
date, Indonesia has completed five Repelitas. In Repelita VI, the Government's
general goals for the domestic telecommunications sector are to increase the
accessibility, affordability and quality of telecommunications services in
Indonesia. The Company takes into account the Government's Repelita targets when
setting its own development plans, although it is not formally obligated to meet
such targets

     Due to Indonesia's continuing economic turmoil, the Government has not
announced detailed plans for Repelita VII, which may result in amendments to the
long-term plan shown above. Since there are no detailed plans from the
Government, TELKOM has arranged its own long-term plans, internally known as
Corporate Strategic Scenario (CSS).

                                        50
<PAGE>

     The following table provides certain basic measures of the development of
the Indonesian domestic telecommunications network in fixed-phone.

<Table>
<Caption>
                                                                                        COMPOUND
                                                                                         ANNUAL
                                             YEAR ENDED DECEMBER 31,                     GROWTH
                            ---------------------------------------------------------   RATE (%)
                              1998        1999        2000        2001        2002      1998-2002
                            ---------   ---------   ---------   ---------   ---------   ---------
<S>                         <C>         <C>         <C>         <C>         <C>         <C>
Lines in service..........  5,571,644   6,080,193   6,662,605   7,218,938   7,750,035      8.60
Population
  (millions)(1)...........      204.4       207.4       216.8       222.0       224.9      2.41
Lines in service per 100
  Inhabitants.............       2.73        2.93        3.07        3.25        3.45      6.03
Call completion rate(%)(2)
  Local...................      68.07       70.63       72.97       73.92       75.64      2.67
  Domestic long-distance
     (DLD)................      62.04       62.98       65.82       65.67       66.61      1.79
Fault rate(3).............       3.81        4.25        4.08        3.94        5.19      8.03
Digitalization (%)(4)
  Switching
     Local exchanges......         99         100         100         100         100      0.25
     Trunk exchanges......        100         100         100         100         100      0.00
  Transmission............       93.8        95.6        96.6        98.3        98.8      1.31
Number of public
  telephones..............    216,651     269,242     345,307     382,664     402,869     16.78
Domestic call volume
  (billions of pulses)....       45.9        47.3        52.9        58.4        61.1      7.42
</Table>

---------------

Notes:
(1) Source: Indonesian Central Bureau of Statistics.
(2) As measured by ASR.
(3) Faults per 100 connected lines per month.
(4) Expressed as a percentage of switching or transmission capacity, as
    applicable.

COMPETITION

  FIXED LINE SERVICES

     See "Item 4B. Business Overview -- Regulation -- Competition -- Fixed line
Services".

  MOBILE CELLULAR

     Telkomsel is one of the four nationwide licensed GSM mobile cellular
operators in Indonesia. The other three are Satelindo, Excelcomindo and IM3.
Currently, the market is dominated by Telkomsel, Satelindo and Excelcomindo,
which, as of December 31, 2002, had a combined estimated market share of
approximately 93.6%, of which Telkomsel had approximately 52.3%. Although IM3 is
licensed to provide GSM 1800 services nationwide, and has an allocated 15 Mhz of
radio frequency bandwidth in the GSM 1800 band, it currently has relatively
limited coverage and presence in Indonesia as it only began operations in late
2001. In addition, there are four licensed analog mobile cellular operators in
Indonesia, which generally operate on a regional basis.

                                        51
<PAGE>

     The following sets forth summary information on each of the three dominant
nationwide licensed GSM mobile cellular operators as of December 31, 2002:

         NATIONWIDE LICENSED GSM MOBILE CELLULAR OPERATORS IN INDONESIA

<Table>
<Caption>
OPERATOR                    TELKOMSEL             SATELINDO                 EXCELCOMINDO
--------                   ------------   -------------------------   -------------------------
<S>                        <C>            <C>                         <C>
System...................  GSM            GSM                         GSM
Launch date..............  May 1995       November 1994               October 1996
Licensed frequency
  bandwidth (GSM 900 &
  1800)..................  30 MHz(2)      15 MHz                      15 MHz
Licensed coverage........  Nationwide     Nationwide                  Nationwide
Network coverage.........  Nationwide     Major cities in             Jakarta and primary
                                          significantly populated     business cities in Java,
                                          areas of Java and Bali,     Bali, Lombok, Medan and
                                          as well as major cities     Batam
                                          in Sumatra, Sulawesi and
                                          Kalimantan
Estimated market share
  (as of December 31,
  2002)(1)...............  52.3%          27.0%                       13.8%
Subscribers (as of
  December 31,
  2002)(1)...............  6.01 million   3.07 million                1.57 million
</Table>

---------------

Notes:
(1) Based on TELKOM's estimates.
(2) TELKOM's DCS 1800 license was reissued to Telkomsel. Upon such transferred,
    Telkomsel received an additional 15 MHz of radio frequency bandwidth in the
    1800 MHz band. See "Item 4B. Business Overview -- Mobile Cellular Business
    of Telkomsel".

     GSM mobile cellular operators compete principally on the basis of brand,
network coverage, distribution, technology and service quality. During the last
two years, competition among cellular operators has intensified. TELKOM believes
that Telkomsel is able to compete effectively in the Indonesian mobile cellular
market due to the quality and coverage of its mobile cellular network and the
strength of its brand name.

     See "Item 4B. Business Overview -- Mobile Cellular Business of Telkomsel --
Competition".

  OTHERS

     During the last three years, competition with respect to multimedia,
Internet and data communications related services has intensified principally
due to the issuance of new licenses as a result of the deregulation of the
Indonesian telecommunications industry. TELKOM expects competition to continue
to intensify. Multimedia, Internet and data communications related services
providers in Indonesia compete principally on the basis of price, range of
services provided, network quality, network coverage and customer service
quality.

     TELKOM's VoIP competitors include four other operators namely Indosat,
Satelindo, Atlasat and Gaharu, as well as other unlicensed VoIP operators. The
other competitor are VoIP operators in other countries with services that may be
accessed through the Internet as well as from software that allow PC to PC voice
communications through the Internet.

LICENCES

     Currently, TELKOM provides local and domestic long-distance
telecommunications services based on Government Regulation No. 25/1991, which
permits TELKOM to provide basic and non-basic

                                        52
<PAGE>

telecommunications. The Telecom Law requires telecommunication network operators
and telecommunication service operators, including TELKOM, to be licensed to
provide these services. See "Item 4B. Business Overview -- Regulations -- New
Service Categories". Under the transitional provisions of Ministerial Decree No.
KM 20/2001 and No. KM 21/2001, which implement the relevant provisions of the
Telecom Law, operators that were already licensed at the effective date of the
decrees on May 31, 2001 are required to be licensed under the new licensing
regime not later than May 31, 2002. TELKOM has already submitted its application
for the new licenses. TELKOM also currently holds an in-principle license, and
will require an operating license to provide international long-distance call
operations from August 2003.

     The Government through the Telecommunications Sector Restructuring Team has
approved the commencement of the new scheme for the provision of local, domestic
long-distance and international telecommunication network in accordance with
Telecommunications Law No. 36/1999. As stated under the agreed schedule, as of
August 1 2002, TELKOM's exclusivity right for local network provider has been
terminated. The exclusivity right was terminated simultaneously with the
issuance of operating license for the fixed-local telecommunication network
provision to Indosat on August 1, 2002.

     The meeting chaired by Coordinator Minister of Economics, attended by the
Minister of Communication and representatives from other institutions which are
members of the team, which are: Ministry of Finance, State Ministry for
State-owned Enterprise, BAPPENAS (National Planning Agency), the President of
TELKOM and the President of Indosat, General Director of Laws of the Ministry of
Justice and Human Right, Chairman of KPPU (Competition Oversight Committee), and
Chairman of BAPEPAM.

     The objective on the issuance of the operating license for fixed-local
network provider to Indosat is to increase the penetration of telecommunication
service, particularly fixed line telephone, so as to deliver more services and
choice to the people.

     The termination of the exclusivity right for fixed-local network, will be
implemented under the following conditions:

     1. Compensation:

       a. The Government will fully consider the interest of TELKOM and Indosat
          shareholders

       b. Based on TELKOM and Indosat proposal, compensation for the termination
          of exclusivity right shall be settled between the Government with
          TELKOM and the Government with Indosat.

       c.  The Government determined that:

         1) Compensation for TELKOM's termination of exclusivity right for fixed
            local and domestic long-distance telecommunication network shall be
            given in a form of an IDD and the approval of the reissuance of
            TELKOM's DCS 1800 license to Telkomsel.

         2) Compensation for Indosat's exclusivity rights for IDD shall be given
            in a form of DCS 1800, local and domestic long-distance license.

       d. To resolved difference of opinion regarding the value of the
          compensation, a reputable Independent Appraiser shall be appointed
          before November 30, 2002.

       e. The Independent Appraiser's final result is binding on TELKOM and
          Indosat as well as Government.

     2. During the initial stage, the operating license for fixed local network
        provider given to Indosat shall start from TELKOM's operational region
        in Jakarta and Surabaya. Subsequent stages shall be implemented in other
        regions in accordance with the compensation calculation and Indosat
        roll-out.

                                        53
<PAGE>

     3. With the operating license in the two regions above, Indosat is allowed
        to finalize technical matters such as system integration, in preparation
        for commercial operation.

     4. After November 30, 2002, Indosat's operating license for fixed-local
        network shall be renewed to permit national coverage based upon the
        result of the compensation calculation.

     5. The Government is committed to promote fair, healthy and continuing
        competition through a series of regulation which shall guarantee the
        implementation of equal treatment and equal access.

     6. During the early stage after the termination of the monopoly system, the
        current regulation will still be representative of the Government
        policy. Meanwhile, the ideal regulation for a competitive system is
        currently being prepared in accordance with the readiness of all
        telecommunications provider in Indonesia.

     7. With the end of the monopoly for local-fixed line services, the
        Government through the Restructuring Team shall establish a Coordinating
        Team on Competition Supervision which shall involve TELKOM and Indosat
        and KPPU (Competition Oversight Committee), in order that any emerging
        issues may be resolved transparently.

     The existing KSO Investors also hold licenses for providing
telecommunications services in joint operation with TELKOM and to carry out
their activities as foreign investment companies. See "Item 4B. Business
Overview -- Regulations -- Telecom Law".

     On July 22, 2002, the Government has approved the reissuance of TELKOM's
Nationwide DCS-1800 Operation License and License for Nationwide DCS-1800 Radio
Frequency Spectrum Utilization to Telkomsel. The approval of the license
transfer is considered as part of TELKOM's compensation for the early
termination of its exclusivity right. Telkomsel shall be liable for the
obligations relating to the above mentioned license.

     Telkomsel currently holds licenses to operate a nationwide GSM mobile
cellular telephone network, to use 7.5 MHz of radio frequency bandwidth in the
900 MHz band and to use 22.5 MHz of radio frequency bandwidth in the 1800 MHz
band.

     Telkomsel also holds licences from BKPM which relate to investment by
Telkomsel for the development of cellular phone line services with national
coverage, including the expansion of its network capacity. In addition,
Telkomsel holds permits and licences from and registrations with certain
regional governments and/or governmental agencies, primarily in connection with
its operations in such regions, the properties it owns and/or the construction
and use of its base transceiver stations.

     Previously, Telkomsel's license from BKPM allowed for a capacity of 3.9
million subscribers. With increased subscriber demand, Telkomsel has applied to
BKPM for an increased capacity licence. On November 29, 2002, Telkomsel has
received BKPM approval which allows for additional capacity within a period of
three years, which three-year period may be extended by application to, and
approval of, BKPM.

     TELKOM also holds licenses to provide multimedia services, which includes
the provision of Internet services, cal centre services and VoIP services.

TARIFFS AND INTERCONNECTION CHARGES

     Based on Government Regulation No 52/2000 on the Operation of
Telecommunications, tariffs are divided into two categories:

          - tariffs for the provision of telecommunications services; and

          - tariffs for provision of telecommunications networks.

                                        54
<PAGE>

     The type and structure for each category is as follows:

<Table>
<Caption>
TELECOMMUNICATION OPERATION             TYPE OF TARIFF               STRUCTURE OF TARIFF
---------------------------     ------------------------------  ------------------------------
<S>                             <C>                             <C>
1. Telecommunication Network    a. Tariff for network lease     a. Access charge
   Provider                     b. Tariff for interconnection   b. Usage charge
                                                                c. USO charge
2. Telecommunication Service
   provider
   2.1 Fixed-line and Fixed-    a. Tariff for basic             a. Installation charge
wireless service provider        telecommunication service      b. Monthly subscription charge
                                (includes local, DLD, and IDD)  c. Usage charge
                                b. Tariff for value added       d. Additional
                                   telecommunication service    facilities/features charge
                                c. Tariff for multimedia
                                   service
   2.2 Mobile-service provider  a. Tariff for air-time
                                b. Tariff for roaming
                                c. Tariff for multimedia
                                   service
</Table>

     Under the New Telecom Law, tariffs for the telecommunications networks and
telecommunications services are determined by providers based on tariff
category, structure and a formula set by the Government. Pursuant to MoC Decree
No. 12 of 2002, the MoC determines the parameters relating to increases in
tariffs for domestic fixed line telephone service including the percentage of
the average tariff increase and the range for any re-balancing of the tariff
structure. Telecommunications operators has the flexibility of setting the
actual tariff rate structure, provided that it is within the parameters
specified by and reported to the MoC.

     In practice, TELKOM differentiates between tariff rates and the actual
price that it charges customers for the products and services that it provides.
The MoC sets the tariff rates that represents the maximum prices that TELKOM can
charge its customers. The prices can therefore be set below the tariff rate for
marketing purposes, although it is more common to charge prices according to the
applicable tariff rate. In this regard, TELKOM's operating divisions have
authority to make adjustments to prices based on guidelines from TELKOM's
management. These guidelines allows operating divisions the flexibility of
adjusting prices based on among others things, specific market conditions and
can result in discounts being given to customers based on volume of usage or the
provision of bundled services.

  TARIFFS FOR THE PROVISION OF BASIC TELECOMMUNICATIONS SERVICES

  Domestic Fixed Line Telephone Tariffs

     Current Tariffs  Effective February 1, 2002, the tariff rate structure for
TELKOM's domestic fixed line telephone services is as follows (based on TELKOM's
Board of Directors Decree of January 31, 2002):

             TARIFF RATE STRUCTURE EFFECTIVE FROM FEBRUARY 1, 2002:

<Table>
<Caption>
ACCESS CHARGES(1)                         BUSINESS          RESIDENTIAL           SOCIAL
-----------------                     -----------------   ----------------   -----------------
                                            (RP.)              (RP.)               (RP.)
<S>                                   <C>                 <C>                <C>
INSTALLATION (NO INCREASE)..........  175,000 -- 450,000  75,000 -- 295,000  50,000 -- 205,000
MONTHLY SUBSCRIPTION................   30,700 -- 46,100   16,500 -- 26,100    11,100 -- 16,500
</Table>

                                        55
<PAGE>

<Table>
<Caption>
                                                              BEGINNING FEBRUARY 1, 2002
                                                              --------------------------
                                                                PRICE
USAGE CHARGES(2)                                              PER PULSE   PULSE DURATION
----------------                                              ---------   --------------
                                                                (RP.)
<S>                                                           <C>         <C>
LOCAL
up to 20 km.................................................     195          3 min
Over 20 km..................................................     195          2 min
</Table>

<Table>
<Caption>
                                                                 PRICE      ROUNDING TIME
                                                              PER MINUTE    BLOCK DURATION
                                                              -----------   --------------
<S>                                                           <C>           <C>
DOMESTIC LONG DISTANCE
0-20 km.....................................................    69 -- 102       1 min
20-30 km....................................................   102 -- 136       1 min
30-200 km...................................................  327 -- 1,627      6 sec
200-500 km..................................................  463 -- 2,271      6 sec
Over 500 km.................................................  570 -- 2,842      6 sec
</Table>

---------------

Notes:
(1) The range in prices is a function of differentiated prices for certain
    geographic categories that have different tariff levels based on certain
    network and socio-economic factors.
(2) Usage tariffs reflect the range of rates differentiated by time of day,
    Sundays and public holidays.

     Legal Basis for Tariff Structure  Ministerial Decree No. 79/1995 (the
"Price Cap Decree") governs tariff rates for domestic fixed line telephone
service in Indonesia. According to the Price Cap Decree, tariff adjustments are
determined by a price cap formula that calculates the maximum total percentage
increase in tariffs for a particular year. The price cap percentage equals the
Indonesian Consumer Price Index (CPI) for the preceding year, as published by
the Indonesian Central Bureau of Statistics, minus an efficiency factor (the
"X-factor"). In determining the X-factor, the Government takes into
consideration certain factors including improvements in the cost efficiency of
the services resulting from technological improvements, the interests of
affected telecommunications operators and the purchasing power of subscribers to
the services.

     The price cap applies to monthly subscription and local and domestic
long-distance usage charges. In calculating the adjustment to these prices, each
service is weighted in proportion to the contribution it made to total operating
revenues from all services. The weighted average increase in prices charged for
the services for any year must be equal to or less than the price cap
percentage. This formula is used for tariff rebalancing on the purpose of cost
alignment and forming a subsidy-free-tariff.

     Although the Price Cap Decree provides for an annual tariff review,
conditions in Indonesia led to the freezing of tariffs in 2000 and 2001. In
addition, in 1999, the MoC reduced the announced tariff increase of 24% to 15%,
following a review by the Government and the House of Representatives.

     On January 29, 2002, the Government issued Ministerial Decree No. 12/2002
(the "Amendment to Price Cap Decree") that set an X-factor of 38.15% for year
2000 to 2002 (3 years). The maximum tariff adjustment is based on Price Cap
calculation and implemented gradually. Tariff adjustment considers the cost in
operating the telephony services. The decree also determined the obligation for
basic telephony service provider to compensate for the tariff adjustment by:

     a. Increasing the successful call ratio

     b. Increasing quality and maintenance of damaged telephone facilities,
        especially public phones

     c. Increasing performance of repair handling of subscriber's phone

                                        56
<PAGE>

     On the same date, the MoC issued a letter to TELKOM (the "MOC Letter")
stipulating a 45.49% increase in domestic fixed line telephone tariffs to be
implemented over three years. For the year 2002, the increase was an average of
15% with the following re-balanced structure:

     - monthly subscription charges increased by an average of 15%, with the
       charges for the business sector increasing from 17.62% to 17.90%;
       residential from 13.79% to 13.97%; and social from 4.72% to 5.10%;

     - local charges increased by 17%;

     - domestic long-distance charges increased by 13%;

     - the rate of tariff increase was calculated based on the prevailing
       tariff;

     - local calls for distances in excess of 30 kilometers are to be treated as
       "local 2" calls, i.e. (local calls for distances between 20 km and 30
       km);

     - proposed increases in local single zone charges in the 021 area code
       (Jakarta area) are not to be implemented;

     - pulse as a unit of measure for long-distance calls to be replaced by
       minute as a unit of measure;

     - domestic long-distance usage tariffs in excess of 30 km are to be
       calculated in six-second units.

     On December 17, 2002, the Minister of Communication through letter
Number.PR.304/2/4-PHB2002, in principle, approved the implementation of a tariff
adjustment for Domestic Fixed Line Service for the year 2003 which among other
things should: (i) implement rebalancing method; (ii) realize of the development
of lines in service. The timing of the tariff adjustment will be decided upon by
the MoC after adequate publicity has been given to the public.

     Prior to the Government's approval of the Tariff Adjustment for Domestic
Fixed Line Service for the Year 2003, TELKOM announced its tariff adjustment
that was effective beginning January 1, 2003. The tariff adjustments include a
decrease of long-distance call charges of 3.97%, and an increase in local call
charges of 33.33% as well as monthly subscription charge of 31.10%. The MoC has
not determined the allocation of the remaining 30.49% tariff increase between
2003 and 2004.

     In response to public protest, the telephone tariff adjustment was
suspended by the MoC on January 16, 2003, after consultation with the House of
Representative. As a result, on January 17, 2003, the BoD of TELOM suspended the
implementation of telephone tariff adjustment and set back all rates to the
previous tariff (as of 1 February, 2002). There has been no indication from the
regulator as to whether the telephone tariff adjustments will be re-implemented
or not.

                                        57
<PAGE>

     The tariff adjustment that was suspended would have changed the tariffs as
described below.

                    BREAKDOWN OF TELKOM'S TARIFF ADJUSTMENTS

                             MONTHLY SUBSCRIPTIONS:

<Table>
<Caption>
CATEGORY                                                   PREVIOUSLY    NEW        INCREASE
--------                                                   ----------   ------   --------------
1                                                              2          3        4        5
-                                                          ----------   ------   ------   -----
                                                             (RP.)       RP.      RP.       %
<S>                                                        <C>          <C>      <C>      <C>
Business-1...............................................    46,100     60,400   14,300   31.02
Business-2...............................................    38,500     50,500   12,000   31.17
Business-3...............................................    38,500     50,500   12,000   31.17
Business-4...............................................    30,700     40,200    9,500   30.94
Business-5...............................................    30,700     40,200    9,500   30.94
Residential-1............................................    26,100     34,200    8,100   31.03
Residential-2............................................    23,000     30,200    7,200   31.30
Residential-3............................................    23,000     30,200    7,200   31.30
Residential-4............................................    16,500     21,600    5,100   30.91
Residential-5............................................    16,500     21,600    5,100   30.91
Social-1.................................................    16,500     21,600    5,100   30.91
Social-2.................................................    13,750     18,000    4,250   30.91
Social-3.................................................    13,750     18,000    4,250   30.91
Social-4.................................................    11,100     14,600    3,500   31.53
Social-5.................................................    11,100     14,600    3,500   31.53
</Table>

                                  LOCAL CALLS:
                                   PER PULSE

<Table>
<Caption>
DISTANCE (KM)                              TIME-BAND     DURATION     PREVIOUSLY   NEW     INCREASE
-------------                             -----------   -----------   ----------   ---   -------------
1                                              2             3            4         5      6       7
-                                         -----------   -----------   ----------   ---   -----   -----
                                                                         RP.       RP.   (RP.)     %
<S>                                       <C>           <C>           <C>          <C>   <C>     <C>
0 -- 20.................................  00:00-09:00     3 minutes      195       260    65     33.33
                                          09:00-15:00     2 minutes      195       260    65     33.33
                                          15:00-24:00     3 minutes      195       260    65     33.33
> 20....................................  00:00-09:00     2 minutes      195       260    65     33.33
                                          09:00-15:00   1,5 minutes      195       260    65     33.33
                                          15:00-24:00     2 minutes      195       260    65     33.33
</Table>

       CALLS FROM DIFFERENT AREA CODE WITH TARIFF EQUALS TO LOCAL CALLS:

<Table>
<Caption>
DISTANCE (KM)                              TIME-BAND     DURATION     PREVIOUSLY   NEW     INCREASE
-------------                             -----------   -----------   ----------   ---   -------------
1                                              2             3            4         5      6       7
-                                         -----------   -----------   ----------   ---   -----   -----
                                                                         RP.       RP.   (RP.)     %
<S>                                       <C>           <C>           <C>          <C>   <C>     <C>
0 -- 20.................................  08:00-18:00      1 minute      102       135    33     32.35
                                          18:00-08:00      1 minute       69       90     21     30.43
20 -- 30................................  08:00-18:00      1 minute      136       180    44     32.35
                                          18:00-08:00      1 minute      102       135    33     32.35
</Table>

                                        58
<PAGE>

                  LONG-DISTANCE CALLS PER ZONE AND TIME-BAND:

<Table>
<Caption>
                                                 MONDAY TO SATURDAY                             SUNDAY AND PUBLIC HOLIDAY
                               ------------------------------------------------------   -----------------------------------------
DISTANCE (KM)                   TIME-BAND    DURATION   PREV.    NEW      DECREASE       TIME-BAND    PREV.   NEW     DECREASE
-------------                  -----------   --------   -----   -----   -------------   -----------   -----   ---   -------------
1                                   2           3         4       5       6       7          8          9     10     11      12
-                              -----------   --------   -----   -----   -----   -----   -----------   -----   ---   -----   -----
                                                         RP.     RP.    (RP.)     %                    RP.    RP.   (RP.)     %
<S>                            <C>           <C>        <C>     <C>     <C>     <C>     <C>           <C>     <C>   <C>     <C>
30 -- 200 Km.................  06:00-07:00   1 minute     649     620    -29    -4.47   06:00-23:00     649   620    -29    -4.47
Zone-1.......................  07:00-08:00   1 minute   1,299   1,250    -49    -3.77   23:00-06:00     327   315    -12    -3.67
                               08:00-18:00   1 minute   1,627   1,560    -67    -4.12
                               18:00-20:00   1 minute   1,299   1,250    -49    -3.77
                               20:00-23:00   1 minute     649     620    -29    -4.47
                               23:00-06:00   1 minute     327     315    -12    -3.67
200 -- 500 Km................  06:00-07:00   1 minute     915     880    -35    -3.83   06:00-23:00     915   880    -35    -3.83
Zone-2.......................  07:00-08:00   1 minute   1,819   1,750    -69    -3.79   23:00-06:00     463   445    -18    -3.89
                               08:00-18:00   1 minute   2,271   2,180    -91    -4.01
                               18:00-20:00   1 minute   1,819   1,750    -69    -3.79
                               20:00-23:00   1 minute     915     880    -35    -3.83
                               23:00-06:00   1 minute     463     445    -18    -3.89
> 500 km.....................  06:00-07:00   1 minute   1,135   1,090    -45    -3.96   06:00-23:00   1,135   1,090  -45    -3.96
Zone-3.......................  07:00-08:00   1 minute   2,271   2,180    -91    -4.01   23:00-06:00     570   550    -20    -3.51
                               08:00-18:00   1 minute   2,842   2,730   -112    -3.94
                               18:00-20:00   1 minute   2,271   2,180    -91    -4.01
                               20:00-23:00   1 minute   1,135   1,090    -45    -3.96
                               23:00-06:00   1 minute     570     550    -20    -3.51
</Table>

                           DOMESTIC BIROFAX SERVICES:
                             (PER PAGE OF A4 PAPER)

<Table>
<Caption>
                                                      TEXT                       PICTURE
                                           --------------------------   --------------------------
DISTANCE (KM)                              PREVIOUSLY    NEW            PREVIOUSLY    NEW
-------------                              ----------   -----           ----------   -----
1                                              2          3       4         5          6       7
-                                          ----------   -----   -----   ----------   -----   -----
                                              RP.        RP.      %        RP.        RP.      %
<S>                                        <C>          <C>     <C>     <C>          <C>     <C>
0 s/d 30.................................      925      1,225   32.43     1,850      2,450   32.43
>30 s/d 200..............................    2,475      2,375   -4.04     4,950      4,750   -4.04
>200 s/d 500.............................    3,375      3,225   -4.44     6,750      6,450   -4.44
> 500....................................    4,275      4,100   -4.09     8,600      8,200   -4.65
</Table>

---------------

Notes:

1. No changes for Installation Charges.
2. Local Calls from Public Phone / Coin Phone Rp.100,- per pulse (No change).
3. Local Calls from Public Phone / Phone Card Rp.200,- per pulse (No change).
4. Birofax submission charge Rp.500,- (No change).
5. Local call charge rounded per duration period refers to duration column on
   the local calls table.
6. Long-distance call for less than 30 Km is rounded to 60 seconds.
7. Long-distance call for more than 30 Km is rounded to 6 seconds. (Tariff for 6
   seconds equals to one tenth of tariff per minute)

     Future Basis for Tariffs.  As of the date of this Annual Report, the
Government has not announced such amendment for the Price Cap Decree.

                                        59
<PAGE>

  Mobile Cellular Tariff

     The structure of the mobile cellular tariff consists of activation, monthly
subscription and usage charges. The following table sets forth the mobile
cellular tariff for postpaid services, effective February 25, 1998, as provided
for under MoC Decree No. 27 of 1998:

                MOBILE CELLULAR TARIFF (MAXIMUM POSTPAID TARIFF)

<Table>
<S>                                                           <C>
Activation..................................................                    Rp.200,000
Monthly Charge (including frequency charge).................               Rp.65,000/month
Usage Charge:
  Air Time..................................................                 Rp.325/minute
  Roaming...................................................                 Rp.1,000/call
  Local Cellular Conversation...............................  50% PSTN local tariff/minute
  DLD Cellular Conversation.................................        PSTN DLD tariff/minute
</Table>

     Current Government regulations allow cellular telecommunications operators
to set their own tariffs, subject to the specified maximum limits set forth
above. Monthly subscription charges include the fee related to the frequency
usage of the outstation, while the usage charge consists of air time charge and
a charge related to the type of service, for example local or direct
long-distance. Prior to the amendments in 1998 to implement the current cellular
tariff structure, the Government amended the cellular tariff structure in 1997
and 1994.

     Prepaid tariff rates have been set in accordance with MoC Decree No. 79 of
1998, which stipulates that the prepaid activation charge may be freely
determined by the cellular operators while usage charges are limited to a
maximum of 140% above the peak usage charge for postpaid services.

     The Government has announced that it intends to move towards a
formula-based tariff structure for cellular services. As of the date of this
Annual Report, the Government has not announced the proposed framework for such
formula or details regarding any such amendment to the current cellular tariff
structure.

  Leased Line Tariffs

     The following table sets forth the current leased line tariff structure,
effective January 1, 1998, as provided for under MoC Decree No.
162/PR.30/MPPT-97:

<Table>
<Caption>
                                                                     MAXIMUM TARIFF
                                                               ---------------------------
                                                                          (RP.)
<S>                                                            <C>
INSTALLATION CHARGE
- Customer access...........................................   600,000 -- 700,000(1)
- Other operator access.....................................   900,000
MONTHLY SUBSCRIPTION CHARGE
- Analog line
  -- Local (or < 25 km).....................................   60,000 -- 250,000(2)
  -- Inter-local (> 25 km)..................................   779,400 -- 3,557,750(3)
- Digital line (speed available between 9.6 -- 140000 kbps)
  -- Local (or < 25 km).....................................   380,000 -- 172,268,000(4)
  -- Inter-local (> 25 km)..................................   1,009,850 -- 2,308,628,250(5)
</Table>

---------------

Notes:
(1) Price differs by completeness in the level of installed component
(2) Price differs by user (private, other licensed operator, or government) and
    usage of junction
(3) Price differs by user (private, other licensed operator, or government) and
    distance range
(4) Price differs by user (private, other licensed operator, or government) and
    used speed
(5) Price differs by user (private, other licensed operator, or government),
    used speed, and distance range.

                                        60
<PAGE>

     Historically, the Government has determined tariffs for leased lines. The
Government has reduced leased line tariffs substantially over the past five
years. On January 1, 1997, the Government decreased tariffs for leased lines by
an average of 52%. Leased line tariffs for other telecommunications operators
and Government bodies were further reduced by up to 30% effective January 1,
1998.

     Under the Telecom Law, while tariffs for the operation of leased line
services are to be contractually agreed between operators, such tariffs are
required to be calculated based on a formula stipulated by the Government. As of
the date of this Annual Report, the Government has not announced the proposed
framework for such formula.

  VoIP Tariffs

     Pursuant to Ministerial Decree No. 23 of 2002, there are no fixed tariffs
for the provision of VoIP services. Charges for VoIP services are to be set by
the VoIP operator and calculated according to a cost-based approach. Subject to
the general principle of using a cost-based approach, there are no limitations
on the tariffs which may be charged by VoIP operators.

     TELKOM has launched it's VoIP services with a tariff of 60% and 40% of
normal IDD rates for TELKOM Global-017 and TELKOM Save, respectively.

  Kiosk-phone Tariffs

     On January 16, 2002, TELKOM implemented a new tariff policy for its kiosk
phone business. TELKOM changed the previous commission-based structure to a
fee-based system that requires the kiosk-phone owner to pay usage fees to
TELKOM. On August 7, 2002, the Government enacted a new regulation on
kiosk-phone business through the MoC Decree 46/2002. Accordingly, TELKOM treats
kiosk-phones as the Company's reseller for its basic telephone service, with a
minimum tariff of 70% of the normal subscriber tariff.

  Tariffs for Other Services

     Currently, the operators sets tariffs for other services such as telex,
telegram, value added services and multimedia services based upon cost and
market price. Under the Telecom Law, tariffs for the operation of these services
are to be determined by the operators, based on a formula stipulated by the
Government. As of the date of this Annual Report, the Government has not
announced the proposed framework for such formula.

  TARIFF FOR INTERCONNECTION AND ACCESS

     Following the passing of the Telecom Law and issuance of Government
Regulation No. 52 of 2000, restructuring of the interconnection policy has been
proposed. The new concept used is a "termination charge" which will be developed
on a cost-based approach. As of the date of this Annual Report, the Government
has not finalized regulations regarding the implementation of the proposed
interconnection policy.

  Interconnection with Fixed Line (PSTN)

     The National Fundamental Technical Plan sets out the technical requirements
and routing plan for interconnection of the networks of various
telecommunications operators among themselves and with the Public Switched
Telephone Network (PSTN). Under the National Fundamental Technical Plan, mobile
and fixed cellular operators are permitted to interconnect with the PSTN for
access to the PSTN and other networks, such as international gateways and the
networks of other cellular operators. In addition, cellular operators may
interconnect directly with other networks without connecting to the PSTN. For
each interconnection with the PSTN, TELKOM or the relevant KSO Unit receives the
applicable interconnection charge set out in the Interconnection Decree and
Decree No. 37 of 1999.

                                        61
<PAGE>

  Cellular Interconnection

     In respect of local interconnection calls between a mobile cellular network
and the PSTN, TELKOM receives a share of a local interconnection call tariff
amounting to 50% of the prevailing tariff for local pulse per minute. Cellular
operators receive an air time charge of Rp.325 per minute.

     The existing Interconnection Decree, effective April 1, 1998, assumes that
it is possible for long-distance calls to be carried by more than one network.
Pursuant to the Interconnection Decree, for direct long-distance ("DLD") calls
which originate on the PSTN, TELKOM is entitled to retain a portion of the
prevailing DLD tariff, which ranges from 40% in cases where the entire DLD
portion is carried by a mobile cellular operator and up to 85% of the tariff, in
cases where the entire DLD portion is carried by the PSTN. For domestic
long-distance calls that originate from a mobile cellular operator, TELKOM is
entitled to retain a portion of the prevailing DLD tariff, which ranges from 25%
where the call originates from a mobile cellular subscriber to another that
transits the PSTN and the entire DLD portion is carried by a mobile cellular
operator and up to 85% in cases where the entire DLD portion is carried by the
PSTN and terminates at the PSTN.

     Fixed cellular networks may interconnect with the PSTN at the local
exchange and the DLD network levels, and may interconnect directly with the
international gateways. Currently, Ratelindo is the only fixed cellular service
provider in Indonesia, apart from TELKOM and the KSO Units. Local calls between
PSTN and Ratelindo's network are operated on a "sender keeps all" basis. For DLD
calls that originate on Ratelindo's network and transit the PSTN, TELKOM is to
receive 35% of the prevailing DLD tariff from such calls. For DLD calls that
originate on the PSTN, TELKOM is to retain 65% of the revenue from such calls.

  Fixed Wireline Interconnection

     Since September 1, 1998, TELKOM has been receiving a share of Batam Bintan
Telekomunikasi's ("BBT") revenue for each successful call that interconnects
with the PSTN. Under the interconnection agreement, TELKOM is to receive 75% of
the prevailing DLD tariff for DLD calls that originate and terminate at the
PSTN. For local interconnection calls, revenues are shared on a "sender keeps
all" basis. For calls originating from BBT and terminating at a mobile cellular
network and vice versa which transit through the PSTN, TELKOM is to receive 50%
of the local interconnection call tariff which amounts to 50% of the prevailing
tariff for local pulse per minute for local calls and 60% of the prevailing DLD
tariff for DLD calls. For DLD calls that originate from BBT terminating at a
fixed cellular network which transit through the PSTN, TELKOM is to receive 50%
of the prevailing DLD tariff. In addition, BBT is to receive 50% of TELKOM's
interconnection revenue (access and usage), for all incoming and outgoing
international calls from and to BBT that transit through TELKOM's network.

  International Interconnection

     Interconnection for international calls consists of access charges, usage
charges and charges for Universal Service Obligation (USO). The following table
sets forth the international interconnection tariff from the PSTN, effective as
of December 1, 1998, pursuant to Ministerial Decree No. 37 of 1999:

<Table>
<Caption>
DESCRIPTION                                                               TARIFF
-----------                                                    -----------------------------
<S>                                                            <C>
Access Charge...............................................   Rp.850/successful call
Usage Charge................................................   Rp.550/successful paid minute
USO.........................................................   Rp.750/successful call
</Table>

  Local Fixed Line Interconnection with Indosat

     In line with the new duopoly system, since August 2002, Indosat has been
granted the right to provide local fixed line services. As a result, TELKOM must
provide interconnection services to Indosat as a new entrant. In September 2002,
TELKOM and Indosat signed an agreement for local fixed line interconnection,
with the tariff for local interconnection being Rp57 per minute.

                                        62
<PAGE>

  Satellite Phone Interconnection

     Since the fourth quarter of 2001, TELKOM has been receiving a share of
revenues arising from interconnection transactions with PSN, a national
satellite operator. Under the agreement, in respect of the interconnection of
calls between TELKOM and PSN, TELKOM receives Rp.800/minute for network charges
and an additional Rp.300/minute if the call originates from TELKOM, as an
originating fee.

  VoIP Interconnection

     Pursuant to Ministerial Decree No. 23 of 2002, access charges and network
lease charges for the provision of VoIP services are to be agreed between the
network operator and the VoIP provider. TELKOM will receive connection fees for
calls that originate and terminate on TELKOM's network. TELKOM and some VoIP
providers have signed an agreement on VoIP interconnection using a cost based
method as follows:

     - Originating local = Rp.240 per minute

     - Terminating local = Rp.240 per minute

     - Transit divided into 3 zones = Rp.525 per minute (zone-1), Rp.870 per
       minute (zone 2) and Rp.1170 per minute (zone 3).

     Under Ministerial Decree No. 23 of 2002, a clearing house will be
established for the purpose of any kind of interconnection calculation in order
to determine any financial rights and obligations among network operators and
VoIP providers.

                                        63
<PAGE>

C.  BUSINESS AND ORGANIZATIONAL STRUCTURE

BUSINESS STRUCTURE

     During 2002, TELKOM restructured its business portfolio into 7 (seven)
business groups that are classified based upon its significant role, prospects
and financial contribution. The 7 (seven) business groups are:

<Table>
<Caption>
NO.         BUSINESS GROUP                   NATURE OF BUSINESS                   BUSINESS TYPE
---  -----------------------------   -----------------------------------   ----------------------------
<C>  <S>                             <C>                                   <C>
1.   Core Businesses..............   -- the largest financial              Fixed-line business
                                        contributor
                                     -- stable potential growth
2.   Growth Businesses............   -- high potential growth              Mobile business (GSM/DCS)
3.   Platform Businesses..........   -- provide support-technology for     Multimedia and other
                                        core and growth business groups.   convergence business
                                                                           technology
                                                                           (telecommunication,
                                                                           information, media and
                                                                           electronic)
4.   Ballast Businesses...........   -- negative financial contributor     Non GSM Mobile Business
                                        due to of obsolescence of          (AMPS-Mobile, NMT-450)
                                        technology
5.   Support Businesses...........   -- provide individual and             Research & Development,
                                        organizational capability          Training, Information
                                        support                            System, Construction,
                                                                           Maintenance Service,
                                                                           Management Consulting,
                                                                           Career Development Support.
6.   Distribution Chanels.........   -- as insource in customer-           Enterprise Service, Carrier
                                        relationship for core business     and Interconnection Service.
                                        group with customer based
                                        organization
7.   New Businesses...............   -- new potential businesses that      Cable TV, Calling Card.
                                        the company enters into
                                     -- Influenced by the changing of
                                        business environment.
</Table>

     The seven business groups are classified into four types of business units
namely: (i) division, which refers to a stand alone business unit responsible
for operation of core, growth and platform business; (ii) business project,
which refers to a temporary unit business unit (incubator) set up to prepare new
businesses that TELKOM is planning to enter. Such temporary business unit have a
specific purpose and is set up for a limited time only; (iii) center, which
provides operational and business support for other businesses; and (iv)
associated companies, which are responsible for the growth of, and provide a
platform for other business unit.

                                        64
<PAGE>

     The following diagram illustrates TELKOM's current business structure:

                              (BUSINESS STRUCTURE)
---------------

* Consolidated as of December 31, 2002

     Currently, the Company has seven regional divisions, a network division,
which provides domestic long-distance interconnection services through the
operations of TELKOM's nationwide backbone network, a multimedia division, which
provides multimedia, Internet and data communications related services, and
several business support units. Each of the seven regional divisions, the
network division, the multimedia division, and the fixed wireless division are
operating divisions that function under a separate decentralized management team
and as a separate profit center. As part of

                                        65
<PAGE>

the Corporate Business Restructuring and Reorganization program, TELKOM also
merged it's B2B and VoIP business project unit into Multimedia Divisions, while
two other business project, namely, Intelligent Network and International (IDD
and international network provider) business project, are merged into the
Long-Distance Division. Its business support divisions provide various
supporting services to its operating divisions, including information
technology, training, property, construction, repair, research and development.
TELKOM also primarily provides its mobile cellular services through Telkomsel
and its cable television service through Indonusa.

INFORMATION ON SUBSIDIARIES AND ASSOCIATED COMPANIES

     As of December 31, 2002, TELKOM had ownership interests in 18 companies.
Net income from subsidiaries, net of minority interest, amounted to Rp.2,159.1
billion (US$242.2 million), while associated companies contributed Rp.62.5
billion (US$7.0 million).

     The following table sets forth TELKOM's ownership interest in companies as
of December 31, 2002. TELKOM's ownership interests in associated companies may
be increased or diluted as a result of TELKOM's planned restructuring of its
ownership interests in these companies.

<Table>
<Caption>
                                         TELKOM'S
COMPANY                                  OWNERSHIP             BUSINESS OPERATIONS
-------                                  ---------   ---------------------------------------
                                            (%)
<S>                                      <C>         <C>
Percentage of ownership more than 50%:
  PT Dayamitra Telekomunikasi
     ("Dayamitra").....................    90.32     Telecommunications (KSO-VI Kalimantan)
  PT Graha Sarana Duta ("GSD").........    99.99     Real estate, construction and services
  PT Indonusa Telemedia ("Indonusa")...    57.50     Multimedia (Pay TV, internet)
  PT Infomedia Nusantara
     ("Infomedia").....................    51.00     Telecommunications information services
  PT Telekomunikasi Selular
     ("Telkomsel").....................    65.00     Telecommunications (GSM cellular)
  PT Telekomindo Selular Raya
     ("Telesera")......................   100.00     Telecommunications (AMPS cellular)
Percentage of ownership between 20% to
  50%
  PT Napsindo Primatel Internasional
     ("Napsindo")(1)...................    32.00     Network Access Point
  PT Citra Sari Makmur ("CSM").........    25.00     VSAT and consulting services
  PT Komunikasi Selular Indonesia
     ("Komselindo")....................    14.20     Telecommunications (AMPS cellular)
  PT Menara Jakarta....................    20.00     Infrastructure for multimedia services
  PT Metro Selular Nusantara
     ("Metrosel")......................    20.17     Telecommunications (AMPS cellular)
  PT Mobile Selular Indonesia
     ("Mobisel").......................    25.00     Telecommunications (NMT-450 cellular)
  PT Multimedia Nusantara ("Metra")....    31.00     Multimedia
  PT Pasifik Satelit Nusantara
     ("PSN")...........................    22.57     Satellite transponder and
                                                     communications
  PT Patra Telekomunikasi Indonesia
     ("Patrakom")......................    30.00     Petroleum industry satellite
                                                     communications services
  PT Pramindo Ikat Nusantara
     ("Pramindo")......................    30.00     Telecommunications (KSO-I Sumatra)
</Table>

                                        66
<PAGE>

<Table>
<Caption>
                                         TELKOM'S
COMPANY                                  OWNERSHIP             BUSINESS OPERATIONS
-------                                  ---------   ---------------------------------------
                                            (%)
<S>                                      <C>         <C>
Percentage of ownership less than 20%
  PT Batam Bintan Telekomunikasi
     ("BBT")...........................     5.00     Telecommunications (in Batam and Bintan
                                                     islands)
  PT Pembangunan Telekomunikasi
     Indonesia ("Bangtelindo").........     3.18     Construction and consulting of
                                                     telecommunications facilities
  Medianusa Pte. Ltd.(2)...............     9.44     Sales agent of advertiser for telephone
                                                     directory
  PT Radio Telekomunikasi Indonesia
     ("Ratelindo").....................       --     Domestic fixed wireless network
                                                     provider
New associated company
PT Pro Infokom Indonesia ("PII")(3)....    51.00     B2B (e-Government)
</Table>

---------------

(1) By the end of January 2003, the ownership in Napsindo increase to 60%
(2) Medianusa is an associated company of Infomedia Nusantara
(3) PT Pro Infokom Indonesia ("PII") was established on January 29, 2003, in
    Jakarta, Indonesia. The shareholders of PII are TELKOM (51%), PT Perusahaan
    Listrik Negara (25%) and PT Prima Infokom Indonesia (24%).

  CONSOLIDATED COMPANIES

  PT Graha Sarana Duta ("GSD")

     TELKOM acquired 100% ownership of GSD from Koperasi Mitra Duta and Dana
Pensiun Bank Duta in April 2001. GSD is engaged in construction and real estate
services,. In order to comply with Law No. 1 of 1995 regarding Limited Liability
Companies which requires a minimum two shareholders to maintain the status of a
Limited Liability Company, on November 28, 2001, TELKOM sold 0.01% of its share
ownership in GSD to a related party, Bambang Suselo, the Chairman of GSD's Board
of Commissioners.

  PT Dayamitra Telekomunikasi ("Dayamitra")

     Dayamitra is TELKOM's KSO partner operating in Regional Division VI
Kalimantan. Following the acquisition of ownership interest from Cable &
Wireless plc, PT Intidaya Sistelindomitra and PT Mitracipta Sarananusa, TELKOM
currently holds 90.32%, while TM Communications (HK) Ltd. holds a 9.68%
ownership interest. "See Item 4. Information on the Company -- Business
Overview -- Partnership Arrangements and Joint Ventures -- Joint Operating
Scheme (KSO) -- Issues and Developments Relating to the KSO Investors and KSO
Units".

  PT Telekomunikasi Selular ("Telkomsel")

     Telkomsel was officially incorporated in May 1995 and provides GSM cellular
service in Indonesia, with the option of postpaid and prepaid service, as well
as a variety of value added services such as automated telephone information
service, cellular banking and SMS. "See Item 4. Business Overview -- Main
Product and Services".

     On April 3, 2002, TELKOM and Telkomsel entered into an agreement for the
sale and purchase of TELKOM's assets relating to TELKOM's DCS 1800 mobile
cellular business operated through its TELKOMMobile unit (the "TELKOMMobile
Unit"). Under the agreement, TELKOM has agreed to, for a consideration of
approximately Rp. 139.7 billion transfer the TELKOMMobile Assets and Contracts
to Telkomsel.

                                        67
<PAGE>

     On July 22, 2002, the Government approved the reissuance of TELKOM's
Nationwide DCS-1800 Operation License and License for Nationwide DCS-1800 Radio
Frequency Spectrum Utilization to Telkomsel. The approval of the license
reissuance will be considered as part of TELKOM's compensation for the early
termination of its exclusivity right. Telkomsel shall be liable for the
obligations relating to the above mentioned license. Upon transfer of the DCS
1800 license, Telkomsel received an additional 15 MHz of Radio frequency
bandwidth in the 1800 MHz band to operate a DCS 1800 nationwide mobile cellular
network to further strengthen its operation, and in particular, its ability to
operate a dual band network and enhance Telkomsel competitive position. See
"Item 4. Business Overview -- Business Strategy -- Capitalized Wireless &
Multimedia Business".

     On July 30, 2002, TELKOM completed the Sales and Purchase Agreement to sell
12.72% of the Company's share in Telkomsel to SingTel Mobile for US$429 million.
As a result of this transaction, currently TELKOM's ownership is 65% while
SingTel Mobile's ownership of Telkomsel is 35%.

  PT Indonusa Telemedia ("Indonusa")

     Indonusa was officially incorporated in May 1997. Indonusa is principally
engaged in the operation and provision of multimedia broadband services using
both Hybrid Fiber Coaxial (HFC) and satellite (DTH = Direct to Home) network. It
is currently owned by TELKOM (57.5%), PT Rajawali Citra Televisi Indonesia
(32.86%), PT Datakom Asia (5.36%), and PT Megacell Media (4.28%).

     Indonusa has operated Pay TV services in several major cities in Indonesia
using the brand name "TELKOM Vision" since 1999. As of December 31, 2002,
Indonusa had a total of approximately 10,040 unit subscribers, 71.5% of whom
were residential subscribers, 26.7% apartment and hotel subscribers, and 1.8%
office subscribers. The average capital expenditure per home pass is
approximately US$155.

  PT Infomedia Nusantara ("Infomedia")

     TELKOM's stake in Infomedia (previously known as "Elnusa Yellow Pages") was
initially acquired in September 1995 by applying the royalties earned from
Infomedia to the subscription price of the shares. TELKOM earns a royalty under
a cooperation agreement with Infomedia on publishing telephone directories.
Infomedia is engaged in providing telecommunications information and other
information services in the form of printed and electronic media. Since October
7, 1999, TELKOM has held a 51% equity interest in Infomedia, while PT Elnusa Tbk
has held a 49% interest. Infomedia is incorporated in Indonesia.

  PT Pramindo Ikat Nusantara ("Pramindo")

     Pramindo is TELKOM's KSO partner operating in Regional Division I Sumatra.
On August 15, 2002, TELKOM completed the initial closing for acquisition of 30%
shares of PIN, TELKOM's KSO partner in Division I Sumatra. The initial closing
is.part of the agreement to acquire 100% of Pramindo in three stages. Under the
agreement, TELKOM is expected to acquire a further 15% of the shares of Pramindo
on September 30, 2003, and the remaining 55% of the shares of Pramindo on
December 31, 2004. "See Item 4. Information on the Company -- Business
Overview -- Partnership Arrangements and Joint Ventures -- Joint Operating
Scheme (KSO) -- Issues and Developments Relating to the KSO Investors and KSO
Units"

  ASSOCIATED COMPANIES

  PT Telekomindo Selular Raya ("Telesera")

     TELKOM increased its ownership interest in Telesera to 100% by acquiring
30.23% of Telesera shares from TELKOM Pension Fund on September 29, 2002.
Telesera provides AMPS cellular networks in Bali, Kalimantan and Southern
Sumatra and had a total of 9,671 subscribers as of December 31, 2002.
Notwithstanding the 100.00% equity interest, Telesera's financial statements is
not consolidated due to

                                        68
<PAGE>

TELKOM's control over Telesera is expected to be temporary. The management has
completed the valuation process and is currently in the process of negotiating
the sale of Telesera.

  PT Komunikasi Selular Indonesia ("Komselindo")

     Komselindo was established in November 1995 by TELKOM (35%) and PT
Elektrindo Nusantara ("Elektrindo") (65%) to operate an AMPS mobile cellular
network which was previously operated pursuant to a revenue sharing arrangement
between TELKOM and Elektrindo.

     In March 2002, Komselindo submitted a request to postpone debt settlement
to Commercial Court. Commercial Court in Central Jakarta State Court through its
decision No 02/PKPU/2002/ PN.NIAGA/JKT.PST dated May 2, 2002 granted Komselindo
to postpone its debt settlement for the period of six months after the date of
decision. On June 4, 2002, Komselindo proposed a settlement plan to its
creditors for debt restructuring through debt to equity with conversion debt
amounted to Rp117.304 million and US$171.323.044. The debt conversion also
included Komselindo liabilities to the Company amounted to Rp19.397 million. The
plan is approved by the creditors through the Restructuring and Settlement
Agreement dated August 30, 2002. On August 30, 2002 Komselindo's shareholders
through Extra Ordinary Shareholders Meeting approved equity call for debt
restructuring which is included in the Settlement Agreement and the Termination
and Release Agreement dated August 30, 2002. The Company released and waived the
pre-emptive right to subscribe newly issued shares. It resulted the dilution of
Company's ownership in Komselindo to 14.20%.

     Komselindo had a total of 35,637 subscribers in Jakarta, Bandung, Medan,
Manado and Ujung Pandang areas as of December 31, 2002. TELKOM has decided to
divest its ownership in Komselindo and is in the process negotiating with a
certain potential purchaser.

  PT Napsindo Primatel Internasional("Napsindo")

     Napsindo was established on October 30, 1998. Napsindo's primary business
is Network Access Point (NAP) for Internet Traffic Consolidation in Indonesia.
On January 8, 2003 TELKOM increase the ownership by acquiring 28% interest from
other shareholder parties (PT Info Asia Sukses Mandiri) therefor ownership goes
to 60%.

  PT Multimedia Nusantara ("Metra")

     Metra established in May 1997, provides pay television and multimedia
telecommunications services. Metra is currently owned by TELKOM (31%), Indosat
Mega Media (15%), TVRI Foundation (5%), and Indocitra Grahabawana (49%). As
Indosat Mega Media is a subsidiary of Indosat, there exists a cross-ownership in
Multimedia. TELKOM intend to increase its ownership to become a single majority
in Metra through a swap agreement with Indocitra. See "Item 6. Information on
Associated Companies -- Menara Jakarta".

  PT Patra Telekomunikasi Indonesia ("Patrakom")

     Patrakom was established in September 1995 and is currently owned by TELKOM
(30%), Indosat (10%), Elnusa (40%), and Tanjung Mustika (20%). Patrakom provides
satellite communication and related services and facilities to the petroleum
industry. Following a continuous process of evaluation and restructuring by
TELKOM of the status of its affiliates, as well as the government policy to
eliminate cross-ownership between TELKOM and Indosat. Currently, TELKOM is in
the process of negotiation with other shareholders regarding a possible decrease
or increase of ownership in Patrakom.

  PT Mobile Selular Indonesia("Mobisel")

     Mobisel was established in November 1995 by TELKOM (25%), TELKOM's Pension
Fund (5%) and PT Rajasa Hazanah Perkasa ("Rajasa") (70%). As result of the
conditional debt equity swap

                                        69
<PAGE>

transaction, Mobisel's shares as of December 31, 2002, are held by TELKOM
(4.92%), Rajasa (2.84%), Dapentel (0.2%), Deltona SD (3.37%), PT Gelora Bhakti
(0.3%), Brighton Corp. (23.82%), and Nissho Iwai Corp. (19.56%), while INQUAM
and Astratel are ongoing process of negotiation to acquire 53% of ownership. See
"Item 5. Material Contractual and Obligation-Mobisel".

     Mobisel currently provides NMT-450 services formerly provided by TELKOM and
Rajasa pursuant to a PBH in Java, Bali, Lombok, Sumatra and Lampung. Mobisel is
in the process of negotiating a new strategic partnership with INQUAM to inject
capital and CDMA-450 technology. As at December 31, 2002, Mobisel had
approximately 6,823 subscribers. TELKOM has decided to divest its ownership in
Mobisel and is in the process of identifying purchasers for its existing stake.

  PT Citra Sari Makmur ("CSM")

     CSM was established in February 1996 and is currently owned by TELKOM
(25%), Subagio W. (38.29%), and Bell Atlantic Indonesia Inc. (36.71%). CSM is
incorporated in Indonesia and provides consultancy services relating to VSAT
applications and other telecommunications technology and related facilities.
TELKOM intends to divest its ownership in CSM.

  PT Pasifik Satelit Nusantara ("PSN")

     PSN was established in July 1991 and is currently owned by TELKOM (22.57%),
Elektrindo Nusantara (21.12%), Skaisnetindo Teknotama (8.66%), Primaupaya
Lintasswara (7.71%), Hughes Space and Communications International (7.23%),
Telesat Canada (7.23%), and others (25.48%) (including holders of ADSs who own
19.68% of PSN). PSN provides satellite-based communication services to countries
within the Asia Pacific region. As at December 31, 2002, PSN had approximately
20,000 mobile satellite subscribers. PSN conducted an initial public offering of
its common stock on NASDAQ in June 1996, but was delisted on November 6, 2001
due its failure to meet certain Nasdaq National Market Listing requirement.

     Currently TELKOM is in the process of negotiation with other shareholders
regarding a possible increase of ownership in PSN to develop a retail satellite
based service. However, if the negotiations fail to reach an agreement, TELKOM
will also consider the possibility of selling its 22.5% ownership in the
Company.

  PT Metro Selular Nusantatra ("Metrosel")

     Metrosel was established in November 1995 and is currently owned by TELKOM
(20.17%), PT Centralindo Panca Sakti ("CPS") (37.03%), Asia Link (35%), TELKOM's
Pension Fund (3%) and others (4.8%). Metrosel provides the AMPS services
previously provided by TELKOM and CPS pursuant to a revenue sharing arrangement
in Central and East Java. TELKOM transferred the switching operations of this
PBH to Metrosel in 1996 as payment for the purchase price of its equity interest
in the company. As at December 31, 2002, Metrosel had a total of approximately
56,196 subscribers. TELKOM has decided to divest its ownership in Metrosel and
is in the process negotiating with a certain potential buyer.

  PT Menara Jakarta ("MJ")

     MJ was established in November 1996 and is currently owned by TELKOM
(21.34%), PT Indocitra Grahabawana ("Indocitra") (54.43%), PT Indosat Mega Media
(21.34%), and Yayasan Televisi Republik Indonesia (2.88%). MJ planned to
construct and operate building towers and related telecommunications facilities.
Since 1999, MJ has terminated its construction projects, pending improvement in
the economic and social situation in Indonesia.

     TELKOM plans to divest its 21.34% ownership in MJ to Indocitra through a
swap-share transaction for exchange of Indocitra's 49% equity interest in Metra.

                                        70
<PAGE>

  PT Batam Bintan Telekomunikasi ("BBT")

     BBT was established in June 1996 and is currently owned by TELKOM (5%) and
Batamindo Investment (95%). BBT provides telephony fixed line telecommunications
services at Batamindo Industrial Park at Muka Kuning, Batam Island and at Bintan
Beach International Resort and Bintan Industrial Estate in Bintan Island which
are special economic and tourist development zones on those islands. As at
December 31, 2002, BBT had approximately 2,635 subscribers.

  PT Bangtelindo("Bangtelindo")

     Bangtelindo was established in December 1993 in Indonesia. The shareholders
of Bangtelindo are TELKOM (3.18%), TELKOM's Pension Fund (82%), and others
(14.82%). Bangtelindo's primary business is providing consultancy services on
the installation and maintenance of telecommunications facilities.

  PT Pro Infokom Indonesia ("PII")

     PII was established on January 29, 2003, in Jakarta, Indonesia. The
shareholders of PII are TELKOM (51%), PT Perusahaan Listrik Negara, through its
subsidiary, PT ICON+ (25%) and PT Prima Infokom Indonesia (24%). PII was
established to develop a national information network system as the backbone for
the development of the Indonesian e-Government. PII will act as a service
provider that manages the Government Secure Intranet and Government Information
Center management where all government institutions, including state-owned
companies, will be expected to take advantage of this network. PII will work
together with Korea Telecom Consortium ("KTC"), which will provide financial
support, while Korea Telecom ("KT") will provide technical support. KT may plan
to acquire a portion of PT Prima Infokom Indoneia's equity interest in PII.

  PT Radio Telekomunikasi Indonesia ("Ratelindo")

     On March 28,2002, TELKOM and CMA Fund Management Ltd., have signed a Sale
and Purchase Agreement for the sale of TELKOM's 12.86% share ownership in
Ratelindo to CMA Fund Management Ltd. for Rp.14 billion including taxes. TELKOM
no longer holds any ownership interest in Ratelindo.

  Medianusa Pte. Ltd. ("Medianusa")

     Medianusa is an associated company of Infomedia, a subsidiary of TELKOM.
Medianusa is incorporated in Singapore. It's principal business is to act as a
sales agent, in promoting to advertisers for telephone directories.

ORGANIZATIONAL STRUCTURE

     In order to anticipate the changes in its business environment such as
technology convergence, deregulation, the demand changes on telecommunication
network and services, TELKOM has restructured its organization. The objectives
of the restructuring are to move towards a customer centric model.

                                        71
<PAGE>

     The following diagram illustrates the organizational structure of the
Company management:

                         COMPANY ORGANIZATION STRUCTURE

                       [CHART OF ORGANIZATION STRUCTURE]

D.  PROPERTY, PLANTS AND EQUIPMENT

     TELKOM, excluding its subsidiaries, currently owns approximately 3,000
properties. TELKOM holds certificated titles for the majority of its real
property and has submitted or is in the process of submitting the relevant
applications for the remainder. Title to real property in Indonesia is generally
subject to restrictions in time or purpose of use. TELKOM's title to its real
property ranges from 10 years with extensions of up to 20 years. Title to
certain pieces of real property is unlimited in time if used solely for the
purposes of conducting telecommunications operations.

     In addition, TELKOM also leases certain real property, commonly from
state-owned companies under the purview of the Ministry of Forestry. Most of
TELKOM's real property is used as sites that host network equipment of various
kinds for the provision of telecommunications operations including exchanges,
transmission stations and microwave radio equipment. TELKOM holds registered
titles for the majority of its real property and has submitted or is in the
process of submitting the relevant applications for the remainder. None of
TELKOM's properties are mortgaged or otherwise encumbered. TELKOM is not aware
of any environmental issues which may affect the utilization of its properties.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     The following discussion and analysis should be read in conjunction with
the audited consolidated financial statements of TELKOM for the three years
ended December 31, 2000, 2001 and 2002 included elsewhere in this Annual Report.
These financial statements were prepared in accordance with Indonesian GAAP,
which differs in certain material respects from U.S. GAAP. See Notes 57 through
59 to the consolidated financial statements for U.S. GAAP Reconciliation.

                                        72
<PAGE>

A.  OPERATING RESULTS

OVERVIEW

     TELKOM is the principal provider of local and domestic telecommunications
services in Indonesia, as well as the leading provider of mobile cellular
services, through its majority owned subsidiary Telkomsel. TELKOM's objective is
to become a leading full service and network provider in Indonesia through the
provision of a wide range of communications services. At December 31, 2002,
TELKOM had approximately 7.75 million fixed lines in service and Telkomsel had
approximately 6.01 million mobile cellular subscribers. TELKOM also provides a
wide range of other communication services, including telephone network
interconnection services, multimedia, Internet and data communication-related
services, satellite transponder leasing, leased line, intelligent network and
related services, cable television and VoIP services.

     The Company believes that the Indonesian economic and industry factors that
have materially affected TELKOM, as well as the environment in which it operates
during the three-year period from 2000 to 2002 include (i) economic situation in
Indonesia; and (ii) limited increases in tariffs.

  ECONOMIC SITUATION IN INDONESIA

     TELKOM has been significantly affected by a severe economic crisis that
Indonesia has experienced since the second half of 1997. As a result of the
crisis, the Rupiah has depreciated significantly and has experienced periods of
significant volatility. From August 1997 to mid 1998, the month-end value of the
Rupiah relative to the U.S. Dollar declined from approximately Rp.2,600 per U.S.
Dollar to a low of Rp.15,000 per U.S. Dollar. As of March 14, 2003, the Bank
Indonesia's middle exchange rate was Rp.8,910 per US$1.00. Indonesia has also
experienced higher rates of inflation and interest rates in recent years. For
the years ended December 31, 2000, 2001 and 2002 the annual inflation rate was
9.35%, 12.55% and 10.03%, respectively, while the interest rate on a one-month
Bank Indonesia Certificate (SBI) at December 31, 2000, 2001 and 2002 was 14.53%,
17.62% and 12.93%, respectively. At March 14, 2003, the interest rate on a
one-month Bank Indonesia Certificate (SBI) was 11.58%. See "Investment
Considerations -- Indonesian economic and political risk", "Investment
Considerations -- Currency exchange risk" and "Exchange Rates".

  LIMITED INCREASES IN TARIFFS

     Since 1995, Indonesian law has provided for domestic fixed line tariff
adjustments to be determined by a price cap formula that calculates the maximum
total percentage increase in tariffs for a particular year. The price cap
percentage equals to the Indonesian Consumer Price Index for the preceding year
minus an efficiency factor. Although the regulations provide for an annual
tariff review and adjustment, economic conditions in Indonesia led to tariffs
being frozen in 2000 and 2001. The MoC has not increased these maximum limits
since 1998.

     On January 29, 2002, The Minister of Communication announced a 45.49%
increase in domestic fixed line telephone tariffs to be implemented over three
years from 2002 to 2004. For the year 2002, the first tariff increase with an
average 15% increase has been implemented. For 2003 the timing for the
implementation of the second tariff increase is being reviewed by the
government, although TELKOM has announced the new tariff increase with
rebalanced structure. See "Regulation of the Indonesian Telecommunications
Industry, Tariffs and Interconnection Charges -- Tariffs and Interconnection
Charges".

  CHANGES IN TELKOM'S REVENUE CLASSIFICATIONS

     For the year ended 2002, TELKOM has reclassified its revenue to eight major
revenue streams along with the company's business progress, namely fixed phone,
mobile phone, revenue under JOS (KSO), interconnection, network, data and
Internet, revenue sharing arrangement, and others. For the

                                        73
<PAGE>

purpose of comparability, TELKOM has also presented the previous years figures
in the same items as the 2002 presentation.

  SALE TRANSACTION OF 12.72% EQUITY INTEREST IN TELKOMSEL TO SINGTEL

     On July 30, 2002, TELKOM completed the sale of 12.72% in Telkomsel to
Singapore Telecom Mobile Pte Ltd ("SingTel Mobile") resulting in TELKOM reducing
its ownership in Telkomsel to 65%, while SingTel increased its ownership up to
35%. TELKOM received US$429 million in cash for the sale. As of result, TELKOM
booked an accounting gain of Rp.3,196,381 million related to the transaction,
which was calculated as the difference between transaction value over the book
value of equity in Telkomsel. The real pre-tax gain of its transaction was
Rp.30,295 million which came from the difference between the selling and the
acquisition cost. As a consequence, TELKOM also booked a 30% tax from the real
gain.

     As summary, the calculation are as follow:

<Table>
    <S>                                                           <C>   <C>
    -  Tax calculation
       Selling price = US$429 million x Rp.9,205 (exchange rate)    =   Rp.3,948,945 million
       Acquisition cost = 12.72%/35% x US$945 million x
          Rp.11,410                                                 =   Rp.3,918,650 million
                                                                        --------------------
       Real gain for tax purposes                                       Rp.   30,295 million
                                                                        ====================
    -  Net Accounting Gain calculation
       -- Transaction amount = US$429 millions which is
           equivalent to                                            =   Rp.3,948,945 million
       -- Book value of 12.72% equity                               =   Rp.  752,564 million
                                                                        --------------------
       -- Accounting gain                                               Rp.3,196,381 million
       -- Tax (30% X Rp.30,295 million)                             =   Rp.    9,088 million
                                                                        --------------------
       -- Net accounting gain                                           Rp.3,187,292 million
                                                                        ====================
</Table>

RECENT DEVELOPMENTS

     From December 31, 2002 to the date of this report, a number of developments
have occurred or may (occur), in the future that could have a material impact on
TELKOM's results of operations and financial condition. These developments
include: (i) postponement of domestic fixed line tariff increases for 2003; (ii)
the progress of the Company's early retirement program; (iii) establishment of
new company of PT Pro Infokom Indonesia (iv) Signed Master of Procurement with
Motorola.

  POSTPONEMENT OF DOMESTIC FIXED LINE TARIFF INCREASES IN 2003

     Prior to the Government's approval of the Tariff Adjustment for Domestic
Fixed Line Service for the Year 2003, TELKOM's implemented a tariff adjustment
that was to be effective beginning January 1, 2003. The tariff adjustments
include a decrease in long-distance call charges of 3.97%, and an increase in
local call charge of 33.33%, as well as in the monthly subscription charge of
31.10%. However, in light of public protests towards the government policy of
tariff increase for several public utilities such as fuel, electricity and
telephone, the Minister of Communication through letter No. PR.304/1/1-PHB2003,
dated January 16th, 2003, requested TELKOM as a Domestic Fixed Line Service
Operator to postpone the implementation of tariff adjustment for Domestic Fixed
Line Service.

  THE PROGRESS OF THE COMPANY'S EARLY RETIREMENT PROGRAM

     On March 2002, TELKOM implemented a voluntary early retirement program for
2,288 employees. TELKOM continued a voluntary early retirement program for
approximately 2,377 employees on March 31, 2003. TELKOM expects that an
aggregate of approximately 7,000 employees will take early retirement over the
three-year period from 2002 to 2004. In 2002, TELKOM has accrued Rp.906 billion

                                        74
<PAGE>

(US$101.6 million) for costs associated with its early retirement program in
2003. The following early retirement program will be implemented depending on
the Company's cash availability.

BASIS OF PRESENTATION

  CONSOLIDATION OF TELKOM'S FINANCIAL STATEMENTS

     TELKOM consolidates its financial statements and those of subsidiaries in
which TELKOM has direct ownership interest of more than 50% or significantly
controls the subsidiaries.

     TELKOM consolidates Pramindo's financial statements into its financial
statements, even though TELKOM holds only a 30% interest, because TELKOM has
full control over the management of Pramindo pursuant to the Conditional Sale
and Purchase Agreement with the other shareholders of Pramindo.

     See Note 2b to the consolidated financial statements. Unless otherwise
noted, all figures presented in this discussion and analysis are presented on a
consolidated basis and have been restated as noted.

  FOREIGN EXCHANGE TRANSLATIONS

     In the consolidated financial statements, the exchange rates used for
translation of monetary assets and liabilities denominated in foreign currencies
are the buying and selling rates published by Reuters in 2002 and Bridge
Telerate in 2001. The buying and selling rates, applied respectively to monetary
assets and liabilities, were Rp.10,400 and Rp.10,450 to U.S.$1.00 as of December
31, 2001, and Rp.8,940 and Rp.8,960 to U.S.$1.00 as of December 31, 2002. These
rates differ from the rates used for convenience translations in this Annual
Report, including in the tables appearing in the discussion and analysis below.
See Note 2d and 3 to the consolidated financial statements and "Presentation of
Information".

     The financial statements are stated in Rupiah. The translations of Rupiah
amounts into United States Dollars are included solely for the convenience of
the readers and have been made using the average of the market buy and sell
rates of Rp.8,913 to US$ 1 published by Reuters on March 14, 2003. The
convenience translations should not be construed as representations that the
Rupiah amounts have been, could have been, or can in the future be, converted
into United States Dollars at this or any other rate of exchange.

                                        75
<PAGE>

TELKOM'S OPERATING REVENUES

     The following table sets out TELKOM's operating revenues, itemized
according to main products and services, for the three years 2000 through 2002,
with each item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                                  YEAR ENDED DECEMBER 31,
                                   -------------------------------------------------------------------------------------
                                           2000                    2001                    2002                2002
                                   ---------------------   ---------------------   ---------------------   -------------
                                   RP. (BILLION)     %     RP. (BILLION)     %     RP. (BILLION)     %     US$ (MILLION)
<S>                                <C>             <C>     <C>             <C>     <C>             <C>     <C>
OPERATING REVENUES
Telephone
  Fixed lines....................     5,177.9       42.8      6,415.1       39.8      8,327.4       38.9        934.3
  Cellular.......................     2,890.0       23.9      4,708.0       29.2      6,226.8       29.1        698.6
Revenue under Joint Operation
  Scheme.........................     2,267.2       18.7      2,219.6       13.8      1,637.8        7.7        183.8
Interconnection revenues.........       981.0        8.1      1,387.4        8.6      3,025.9       14.1        339.5
Data and Internet................       107.9        0.9        673.2        4.2      1,571.5        7.3        176.3
Network..........................       340.0        2.8        414.9        2.5        326.4        1.5         36.6
Revenue sharing arrangement......       308.4        2.5        265.2        1.6        280.1        1.3         31.4
Other telecommunications
  services.......................        39.6        0.4         47.4        0.3          3.8        0.1          0.4
                                     --------      -----     --------      -----     --------      -----      -------
         Total Operating
           Revenues..............    12,112.0      100.0     16,130.8      100.0     21,399.7      100.0      2,400.9
                                     ========      =====     ========      =====     ========      =====      =======
</Table>

     The Company's exclusive right to provide domestic local service was
terminated in August 1, 2002, while that for domestic long-distance and
long-distance service will be terminated on August 31, 2003. As a result, new
competitors will likely enter into the market. The Company expects that revenue
from providing interconnection services to these new entrants will increase and
its market share of fixed line services will decrease in the future because of
the liberalization of the market. The Company expects to receive an operational
license to provide IDD business in August 2003.

  FIXED LINE TELEPHONE REVENUES

     The components of fixed line revenues are local and domestic long-distance
usage charges, monthly subscription charges, installation charges, phone-kiosks,
phone cards and others.

     Local and domestic long-distance usage, and monthly subscription charges
are determined by telecommunications operators based on a formula set by the
Government that determines maximum tariff levels. The maximum tariff levels
apply uniformly throughout Indonesia. TELKOM's monthly subscription charges are
based on a uniform schedule of charges that vary according to type of user and
the type of services provided. Local and domestic long-distance usage charges
vary depending on the distance called, duration, and time band, while
installation charges, phone cards and other services charges are set by
individual operators. See "-- Overview -- Industry and Economic
Factors -- Limited Increases in Tariffs".

     Most fixed line revenues are recognized as services as provided, except the
installation charges are recognized as revenue when a fixed line (referred to as
an "installation" into the consolidated financial statements) is placed in
service. Revenues from phone cards are recognized as the stored value is used by
the purchasers.

                                        76
<PAGE>

     Fixed line telephone revenues for the three years 2000 through 2002 are set
out below, with each item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31,
                                ----------------------------------------------------------------------------------
                                        2000                   2001                   2002               2002
                                --------------------   --------------------   --------------------   -------------
                                RP. (BILLION)    %     RP. (BILLION)    %     RP. (BILLION)    %     US$ (MILLION)
<S>                             <C>             <C>    <C>             <C>    <C>             <C>    <C>
FIXED LINE TELEPHONE REVENUES
Local and domestic
  long-distance usage.........     4,097.1      33.9      5,225.7      32.4      6,337.4      29.7       711.1
Monthly subscription
  charges.....................       887.4       7.3        997.6       6.2      1,649.6       7.7       185.1
Installation charges..........        75.4       0.6         98.0       0.6        166.7       0.8        18.7
Phone cards...................        34.4       0.3         25.5       0.2         54.7       0.2         6.1
Others........................        83.6       0.7         68.3       0.4        119.0       1.5        13.3
                                   -------      ----      -------      ----      -------      ----       -----
  Total.......................     5,177.9      42.7      6,415.1      39.8      8,327.4      38.9       934.3
                                   =======      ====      =======      ====      =======      ====       =====
</Table>

  CELLULAR TELEPHONE REVENUES

     The main components of cellular telephone revenues in 2002 were air time
charges and monthly subscription charges, which totalled Rp.5,453.6 billion
(US$611.9 million) and Rp.593.3 billion (US$66.6 million), respectively.
Cellular telephone revenues also include features and connection fee charges.

     Air time charges and monthly subscription charges are determined by
telecommunications operators based on maximum tariff levels fixed by the
Government. The maximum tariff levels apply uniformly throughout Indonesia. See
"-- Overview -- Industry and Economic Factors -- Limited Increases in Tariffs".
Connection fee charges are determined by individual operators. Only postpaid
subscribers pay connection and monthly subscription fees, while prepaid
customers generally pay higher air time usage charges. In TELKOM's consolidated
statements of income, a portion of revenues from sales of prepaid starter packs
is also recorded as connection fees.

     In the case of postpaid subscribers, monthly subscription charges are
recognized when earned (i.e., in the month to which they apply), while
connection fee revenue is recognized as income when connections take place. In
the case of prepaid subscribers, revenues from SIM cards are recognized upon
delivery to distributors, dealers or directly to customers, while revenues from
pulse refill vouchers are recognized initially as unearned income and thereafter
recognized proportionately as revenue based on successful calls made using the
stored value of the voucher or when the unused stored value has expired.
Revenues recognized are net of dealer discounts.

     Cellular telephone revenues for the three years 2000 through 2002 are set
out below, with each item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31,
                                ----------------------------------------------------------------------------------
                                        2000                   2001                   2002               2002
                                --------------------   --------------------   --------------------   -------------
                                RP. (BILLION)    %     RP. (BILLION)    %     RP. (BILLION)    %     US$ (MILLION)
<S>                             <C>             <C>    <C>             <C>    <C>             <C>    <C>
CELLULAR TELEPHONE REVENUES
Air time charges..............     2,484.5      20.5      3,987.7      24.7      5,453.6      25.4       611.9
Monthly subscription
  charges.....................       356.0       2.9        581.6       3.6        593.3       2.8        66.6
Connection fee charges........        42.7       0.4        128.5       0.8        172.3       0.8        19.3
Features......................         6.8       0.1         10.2       2.1          7.6       0.1         0.8
                                   -------      ----      -------      ----      -------      ----       -----
  Total.......................     2,890.0      23.9      4,708.0      29.2      6,226.8      29.1       698.6
                                   =======      ====      =======      ====      =======      ====       =====
</Table>

                                        77
<PAGE>

  JOINT OPERATION SCHEME ("KSO") REVENUES

     KSO revenues consist of:

     - Initial payment made by the KSO Investors, which is amortized over the
       life of the KSO Agreement;

     - Minimum TELKOM Revenues (MTR), being a specified minimum payment, which
       is payable monthly; and

     - Distributable TELKOM Revenues (DTR), being a specified percentage of KSO
       revenues after deduction of operating expenses and MTR obligation, which
       is payable monthly.

     KSO Revenues for the three years 2000 through 2002 are set out below, with
each item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31,
                                ----------------------------------------------------------------------------------
                                        2000                   2001                   2002               2002
                                --------------------   --------------------   --------------------   -------------
                                RP. (BILLION)    %     RP. (BILLION)    %     RP. (BILLION)    %     US$ (MILLION)
<S>                             <C>             <C>    <C>             <C>    <C>             <C>    <C>
KSO REVENUES
Minimum TELKOM Revenues.......     1,556.7      12.9      1,474.2       9.1      1,023.5       4.8       114.8
Distributable TELKOM
  Revenues....................       695.1       5.7        733.0       4.6        603.6       2.8        67.7
Amortization of unearned
  initial investor payments
  under Joint Operation
  Scheme......................        15.4       0.1         12.4       0.1         10.8       0.1         1.2
                                   -------      ----      -------      ----      -------      ----       -----
  Total.......................     2,267.2      18.7      2,219.6      13.8      1,637.8       7.7       183.8
                                   =======      ====      =======      ====      =======      ====       =====
</Table>

  INTERCONNECTION REVENUES

     Interconnection revenues consist primarily of fees charged to other
domestic and international carriers when calls originating in their networks
interconnect with TELKOM's fixed line network and Telkomsel's mobile cellular
network. Interconnection revenues also include international roaming by overseas
operators visit to Telkomsel's mobile cellular network.

     Fees charged for interconnection are determined contractually between
operators, subject to maximum fee levels established by the Government
regulation. Revenues from interconnection with other domestic and international
telecommunications carriers are recognized as incurred and are presented on a
net basis. Interconnection revenues are typically accrued initially and settled
among operators quarterly, and can fluctuate significantly as a result of
adjustments among operators to accrued amounts at the time of settlement.

     Interconnection revenues for the three years 2000 through 2002 are set out
below, with each item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                           --------------------------------------------------------------------------------------
                                   2000                    2001                    2002                 2002
                           ---------------------   ---------------------   ---------------------   --------------
                           RP. (BILLION)     %     RP. (BILLION)     %     RP. (BILLION)     %     US$ (MILLION)
<S>                        <C>              <C>    <C>              <C>    <C>              <C>    <C>
INTERCONNECTION REVENUES
Telkom(1)................     1,094.1        9.0      1,521.8        9.4      2,934.9       13.7       329.3
Telkomsel(2).............      (113.1)      (0.9)      (134.4)      (0.8)        91.0        0.4        10.2
                               ------       ----      -------       ----      -------       ----       -----
          Total..........       981.0        8.1      1,387.4        8.6      3,025.9       14.1       339.5
                               ======       ====      =======       ====      =======       ====       =====
</Table>

---------------

(1) After elimination of unconsolidated net interconnection revenues with
    Telkomsel.
(2) After elimination of unconsolidated net interconnection revenues (expense)
    with TELKOM.

                                        78
<PAGE>

  DATA AND INTERNET REVENUES

     Data and Internet revenue for the three years 2000 through 2002 are set out
below, with each item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                              ----------------------------------------------------------------------------------
                                      2000                   2001                   2002               2002
                              --------------------   --------------------   --------------------   -------------
                              RP. (BILLION)    %     RP. (BILLION)    %     RP. (BILLION)    %     US$ (MILLION)
<S>                           <C>             <C>    <C>             <C>    <C>             <C>    <C>
DATA AND INTERNET REVENUE
SMS.........................       24.5        0.2        344.6       2.1        997.2       4.7       111.9
Multimedia..................       64.5        0.5        218.3       1.4        349.7       1.6        39.2
VoIP........................         --         --         25.6       0.2        160.1       0.7        18.0
ISDN........................       18.9        0.2         84.7       0.5         64.5       0.3         7.2
                                 ------       ----      -------      ----      -------      ----       -----
          Total.............      107.9        0.9        673.2       4.2      1,571.5       7.3       176.3
                                 ======       ====      =======      ====      =======      ====       =====
</Table>

  NETWORK REVENUES

     Network revenue for the three years 2000 through 2002 are set out below,
with each item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                              ----------------------------------------------------------------------------------
                                      2000                   2001                   2002               2002
                              --------------------   --------------------   --------------------   -------------
                              RP. (BILLION)    %     RP. (BILLION)    %     RP. (BILLION)    %     US$ (MILLION)
<S>                           <C>             <C>    <C>             <C>    <C>             <C>    <C>
NETWORK REVENUE
Satellite transponder.......      183.3        1.5        203.5       1.1        190.2       0.9        21.3
Leased line.................      156.7        1.3        211.4       1.4        136.2       0.6        15.3
                                 ------       ----      -------      ----      -------      ----       -----
          Total.............      340.0        2.8        414.9       2.5        326.4       1.5        36.6
                                 ======       ====      =======      ====      =======      ====       =====
</Table>

  REVENUES UNDER REVENUE SHARING ARRANGEMENTS

     Network revenue for the three years 2000 through 2002 are set out below,
with each item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                              ----------------------------------------------------------------------------------
                                      2000                   2001                   2002               2002
                              --------------------   --------------------   --------------------   -------------
                              RP. (BILLION)    %     RP. (BILLION)    %     RP. (BILLION)    %     US$ (MILLION)
<S>                           <C>             <C>    <C>             <C>    <C>             <C>    <C>
REVENUES UNDER REVENUE
  SHARING ARRANGEMENT
Net share in revenue earned
  under Revenue Sharing
  Arrangement...............      170.2        1.4        191.5       1.2        177.0       0.8        19.9
Amortization of unearned
  income under Revenue
  Sharing Arrangement.......      138.2        1.1         73.7       0.4        103.1       0.5        11.6
                                 ------       ----      -------      ----      -------      ----       -----
          Total.............      308.4        2.5        265.2       1.6        280.1       1.3        31.4
                                 ======       ====      =======      ====      =======      ====       =====
</Table>

  OTHER TELECOMMUNICATIONS SERVICES REVENUES

     The component of other telecommunications services revenues represents
telex and telegram revenues. Due to the fact that technology development in the
telecommunication industry is growing rapidly so that telex and telegram
revenues are in decline.

                                        79
<PAGE>

TELKOM'S OPERATING EXPENSES

     The following table sets out TELKOM's operating expenses, itemized
according to functional type, for the three years 2000 through 2002, with each
item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                               ----------------------------------------------------------------------------------
                                       2000                   2001                   2002               2002
                               --------------------   --------------------   --------------------   -------------
                               RP. (BILLION)    %     RP. (BILLION)    %     RP. (BILLION)    %     US$ (MILLION)
<S>                            <C>             <C>    <C>             <C>    <C>             <C>    <C>
OPERATING EXPENSES
Depreciation.................     2,419.1      20.0      2,828.6      17.5      3,504.2      16.4        393.1
Operation, maintenance and
  telecommunications
  services...................     1,385.7      11.4      2,149.9      13.3      2,432.2      11.4        272.9
Personnel....................     1,610.2      13.3      2,028.8      12.6      4,124.1      19.3        462.7
General and administrative...       871.7       7.2      1,287.8       8.0      1,557.8       7.3        174.8
Marketing....................       147.1       1.2        220.0       1.4        379.8       1.7         42.6
                                  -------      ----      -------      ----     --------      ----      -------
          Total Operating
            Expenses.........     6,433.8      53.1      8,515.1      52.8     11,998.1      56.1      1,346.1
                                  =======      ====      =======      ====     ========      ====      =======
</Table>

  DEPRECIATION

     Depreciation expense relates to TELKOM's property, plant and equipment.
TELKOM depreciates its property, plant and equipment, except land, using the
straight-line method, based on the useful lives of the assets, commencing the
month after such assets were placed into service. See notes 2j and 14 to the
Consolidated Financial Statements.

     In accordance with Indonesian GAAP, TELKOM capitalizes interest costs and
unrealized foreign exchange gains or losses for assets under construction, and
depreciates these amounts over the useful lives of the assets to which they
relate. In 2000, 2001 and 2002, TELKOM capitalized interest costs for assets
under construction of Rp.62.5 billion, Rp.8.1 billion and Rp.21.5 billion
(US$2.4 million), respectively. In 2000 and 2001, TELKOM capitalized unrealized
foreign exchange losses for assets under construction of Rp.179.2 billion and
Rp.1.7 billion, respectively, and in 2002, capitalized an unrealized foreign
exchange gain of Rp.27.6 billion (US$3.1 million).

                                        80
<PAGE>

  OPERATION, MAINTENANCE AND TELECOMMUNICATIONS SERVICES EXPENSE

     Operation, maintenance and telecommunications services expense for the
three years 2000 through 2002 are set out below, with each item also expressed
as a percentage of operating revenues:

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                             ----------------------------------------------------------------------------------
                                     2000                   2001                   2002               2002
                             --------------------   --------------------   --------------------   -------------
                             RP. (BILLION)    %     RP. (BILLION)    %     RP. (BILLION)    %     US$ (MILLION)
<S>                          <C>             <C>    <C>             <C>    <C>             <C>    <C>
OPERATION, MAINTENANCE AND
  TELECOMMUNICATIONS
  SERVICES EXPENSE
Operation and maintenance..       575.6       4.8        891.4       5.5      1,018.2       4.8       114.3
Radio frequency usage
  charges..................        16.7       0.1        101.3       0.6        298.1       1.4        33.5
Electricity, gas and
  water....................       116.5       1.0        157.1       1.0        241.7       1.1        27.1
Cost of phone cards........        47.1       0.4        173.4       1.1        198.2       0.9        22.2
Concession fees............        78.5       0.6         63.6       0.4        167.8       0.8        18.8
Insurance..................        98.6       0.8         67.8       0.4        156.2       0.7        17.5
Leased line................        34.7       0.3         82.9       0.5        115.8       0.5        13.0
Motor vehicle..............        15.7       0.1         38.2       0.2         88.3       0.4         9.9
Travel.....................        11.0       0.1         15.7       0.1         19.8       0.1         2.2
Distributors and telephone
  kiosks' commissions......       372.3       3.0        521.0       3.2           --        --          --
Others.....................        19.0       0.2         37.5       0.3        128.1       0.7        14.4
                                -------      ----      -------      ----      -------      ----       -----
          Total............     1,385.7      11.4      2,149.9      13.3      2,432.2      11.4       272.9
                                =======      ====      =======      ====      =======      ====       =====
</Table>

  PERSONNEL EXPENSE

     The main components of personnel expenses in 2002 were salaries and related
allowances, and vacation pay, incentives and other allowances, which totalled
Rp.1,212.8 billion (US$136.1 million) and Rp.1,086.1 billion (US$121.9 million),
respectively.

                                        81
<PAGE>

     Personnel expense for the three years 2000 through 2002 are set out below,
with each item also expressed as a percentage of operating revenues:

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                             ----------------------------------------------------------------------------------
                                     2000                   2001                   2002               2002
                             --------------------   --------------------   --------------------   -------------
                             RP. (BILLION)    %     RP. (BILLION)    %     RP. (BILLION)    %     US$ (MILLION)
<S>                          <C>             <C>    <C>             <C>    <C>             <C>    <C>
PERSONNEL EXPENSE
Salaries and related
  allowances...............       703.6       5.8        882.6       5.5      1,212.8       5.7       136.1
Vacation pay, incentives
  and other allowances.....       297.6       2.5        364.7       2.3      1,086.1       5.1       121.9
Severance for early
  retirement plan..........          --        --        140.8       0.8        906.7       4.2       101.7
Net periodic pension
  cost.....................        72.6       0.6         86.2       0.5        367.3       1.7        41.2
Employee income tax........       196.6       1.6        132.9       0.8        215.3       1.0        24.2
Net periodic
  post-retirement benefit
  cost.....................       165.1       1.4        187.8       1.2        205.1       0.9        23.0
Housing....................        75.4       0.6         95.7       0.6        105.4       0.5        11.8
Medical....................        57.7       0.5         81.7       0.5          7.4       0.1         0.8
Others.....................        41.6       0.3         56.4       0.4         18.0       0.1         2.0
                                -------      ----      -------      ----      -------      ----       -----
          Total............     1,610.2      13.3      2,028.8      12.6      4,124.1      19.3       462.7
                                =======      ====      =======      ====      =======      ====       =====
</Table>

  GENERAL AND ADMINISTRATIVE EXPENSE

     The main components of general and administrative expenses in 2002 were
provision for doubtful accounts and inventory obsolescence and professional
fees, which totalled Rp.512.4 billion (US$57.5 million) and Rp.256.1 billion
(US$28.7 million), respectively.

                                        82
<PAGE>

     General and administrative expenses for the three years 2000 through 2002
are set out below, with each item also expressed as a percentage of operating
revenues:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                             -----------------------------------------------------------------------------------
                                     2000                   2001                   2002                2002
                             --------------------   --------------------   --------------------   --------------
                             RP. (BILLION)     %    RP. (BILLION)     %    RP. (BILLION)     %    US$ (MILLION)
<S>                          <C>              <C>   <C>              <C>   <C>              <C>   <C>
GENERAL AND ADMINISTRATIVE
  EXPENSE
Provision for doubtful
  accounts and inventory
  obsolescence.............      348.4        2.9        342.9       2.1        512.4       2.4        57.5
Professional fees..........       43.4        0.4        325.3       2.0        256.1       1.2        28.7
Collection expenses........      131.5        1.1        181.9       1.1        232.2       1.1        26.1
Training, education and
  recruitment..............      114.7        0.9        147.3       0.9        154.0       0.7        17.3
Travel.....................       65.9        0.5         92.8       0.6        119.5       0.6        13.4
Security and screening.....       35.2        0.3         48.8       0.3         85.2       0.4         9.6
Printing and stationery....       32.2        0.3         37.6       0.2         47.4       0.2         5.3
Meetings...................       17.7        0.1         26.5       0.2         33.3       0.2         3.7
Research and development...       33.1        0.3         39.6       0.3          9.0       0.1         1.0
Amortization of deferred
  stock issuance costs.....       22.4        0.2           --        --           --        --          --
Others.....................       27.2        0.2         45.1       0.3        108.7       0.4        12.2
                                 -----        ---      -------       ---      -------       ---       -----
          Total............      871.7        7.2      1,287.8       8.0      1,557.8       7.3       174.8
                                 =====        ===      =======       ===      =======       ===       =====
</Table>

  MARKETING EXPENSE

     Marketing expenses consist of advertising, customer education, promotions
and customer research expenses.

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                             -----------------------------------------------------------------------------------
                               AS RESTATED 2000             2001                   2002                2002
                             --------------------   --------------------   --------------------   --------------
                             RP. (BILLION)     %    RP. (BILLION)     %    RP. (BILLION)     %    US$ (MILLION)
<S>                          <C>              <C>   <C>              <C>   <C>              <C>   <C>
MARKETING EXPENSE
Advertising................      116.0        1.0       169.8        1.1       312.9        1.4        35.1
Customer education.........       24.5        0.2        40.6        0.3        53.6        0.3         6.0
Others.....................        6.6        0.0         9.6        0.0        13.3        0.0         1.5
                                 -----        ---       -----        ---       -----        ---        ----
          Total............      147.1        1.2       220.0        1.4       379.8        1.7        42.6
                                 =====        ===       =====        ===       =====        ===        ====
</Table>

RESULTS OF OPERATIONS

  YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

  Operating Revenues.

     Total operating revenues grew by Rp.5,268.9 billion, or 32.7%, from
Rp.16,130.8 billion in 2001 to Rp.21,399.7 billion (US$2,400.9 million) in 2002.
Operating revenues increased for fixed line and cellular interconnection, data
and internet, and revenue sharing arrangement revenue items. The decline in KSO
revenue was primarily due to the elimination of MTR and DTR revenue recognized
by TELKOM for the KSO I Unit as a result of TELKOM's acquisition of Pramindo in
2002.

                                        83
<PAGE>

Fixed Line Revenues.

     Fixed line revenues grew by Rp.1,912.3 billion, or an increase of 29.8%,
from Rp.6,415.1 billion in 2001 to Rp.8,327.4 billion (US$934.3 million) in
2002. Local revenue for 2002 increase by Rp.447.7 billion, or an increase of
24.8%, from Rp.1,801.7 billion in 2001 to Rp.2,249.4 billion (US$252.4 million)
in 2002. Domestic long-distance revenue for 2002 increased by Rp.664.0 billion,
or an increase of 19.4%, from Rp.3,424.0 billion in 2001 to Rp.4,088.0 billion
(US$458.7 million) in 2002. Monthly subscription charges increased by Rp.652
billion, or an increase of 65.4%, from Rp.997.6 billion in 2001 to Rp.1,649.6
billion (US$185.1 million) in 2002. Installation charges increased by Rp.68.7
billion, or an increase of 70.1%, from Rp.98.0 billion in 2001 to Rp.166.7
billion (US$18.7 million) in 2002.

     The increases were primarily attributable to:

     - 7.36% growth in fixed lines in service in the non-KSO and KSO regions,
       including kiosk phones, from 7,218,938 lines at December 31, 2001 to
       7,750,035 lines at December 31, 2002, particularly 8.20% growth in the
       non-KSO regions.

     - 7.51% growth in average monthly revenue per fixed line in service in the
       non-KSO regions, from Rp.164,124 per month in 2001 to Rp.176,455 per
       month in 2002, reflecting higher average usage per line and a 15% tariff
       increase in February 2002.

     - the consolidation of KSO I Unit revenues, as a result of TELKOM's
       acquisition of Pramindo, which contributed Rp.789.1 billion (US$88.5
       million) to the increase in operating revenues.

     Revenues from phone cards for 2002 increased by Rp.29.2 billion to Rp.54.7
billion (US$6.1 million), an increase of 114.5% compared to 2001. The increase
primarily reflected a termination payment to a vendor that previously issued
phone cards on behalf of TELKOM on a revenue sharing basis. Revenue from others
increased by Rp.50.7 billion to Rp.119.0 billion (US$13.3 million), an increase
of 74.2%.

Cellular Telephone Revenues.

     Cellular telephone revenues grew by Rp.1,518.8 billion, or an increase
32.3%, from Rp.4,708.0 billion in 2001 to Rp.6,226.8 billion (US$698.6 million)
in 2002. Air time charges for 2002 increased by Rp.1,465.9 billion to Rp.5,453.6
billion (US$611.9 million), an increase of 36.8% compared to 2001. Monthly
subscription charges increased by Rp.11.7 billion to Rp.593.3 billion (US$66.6
million), an increase of 2.0%. Connection fee charges increased by Rp.43.8
billion to Rp.172.3 billion (US$19.3 million), an increase of 34.1%.

     The increases were attributable to:

     - 84.8% growth in total cellular subscribers, from 3,252,032 subscribers in
       2001 to 6,010,772 subscribers in 2002, which was caused by 76.3% growth
       in net-addition subscribers from 1,564,693 subscribers in 2001 to
       2,758,740 subscribers in 2002. In addition, 6.68% growth in postpaid
       subscribers to 923,005 subscribers, and 113.16% growth in prepaid
       subscribers to 5,087,767 subscribers at December 31, 2002; and

     - 3.83% growth in postpaid monthly ARPU to Rp.298 thousand (US$33.4), and
       7.21% decline in prepaid monthly ARPU to Rp.103 thousand (US$11.6) in
       2002.

     As a result of the higher rate of growth in the number of prepaid
subscribers, the proportion of prepaid subscribers increased from 73.4% in 2001
to 84.6% in 2002. As a result of the change in the subscriber mix, and despite
an increase in prepaid monthly ARPU, blended monthly ARPU decreased from
approximately Rp.170,000 in 2001 to approximately Rp.145,000 (US$16.3) in 2002.

                                        84
<PAGE>

Interconnection Revenues.

     Interconnection revenues grew by Rp.1,638.5 billion, or an increase of
118.1%, from Rp.1,387.4 billion in 2001 to Rp.3,025.9 billion (US$339.5 million)
in 2002.

     The increase in interconnection revenues was attributable to:

     - net interconnection revenues for interconnections to and from TELKOM's
       fixed line network (after eliminating net interconnection revenues for
       interconnections with Telkomsel's mobile cellular network) for 2002
       increased by Rp.1,378.3 billion to Rp.2,934.9 billion (US$329.3 million),
       an increase of 88.5% compared to 2001; and

     - net interconnection expense from interconnections to and from Telkomsel's
       mobile cellular network (after eliminating net interconnection expense
       from interconnections with TELKOM's fixed line network) increased by
       Rp.225.4 billion to Rp.91.0 billion (US$10.2 million), an increase of
       167.7%.

     The increase in both TELKOM's net interconnection revenues and Telkomsel's
net negative interconnection revenues primarily reflected an increase in
traffic. The increase in TELKOM's net interconnection revenues was also partly
attributable to the consolidation of KSO I Unit interconnection revenues in
2002, as a result of TELKOM's acquisition of a 30% interest in Pramindo.

     In 2002 as compared to 2001, interconnection revenues involving
international direct dialing IDD calls increased 195.3%, from Rp.116.8 billion
to Rp.344.9 billion (US$38.7 million), reflecting an increase in international
long-distance telephone traffic.

KSO Revenues.

     KSO revenues declined by Rp.581.8 billion, or 26.2%, from Rp.2,219.6
billion in 2001 to Rp.1,637.8 billion (US$183.8 million) in 2002. MTR decreased
by Rp.450.7 billion, or 30.6% from Rp.1,474.2 billion in 2001 to Rp.1,023.5
billion (US$114.8 million) in 2002. DTR decreased by Rp.129.4 billion, or 17.7%
from Rp.733.0 billion in 2001 to Rp.603.6 billion (US$67.7 million) in 2002.
Amortization of unearned initial payments decreased by Rp. 1.6 billion to
Rp.10.8 billion (US$1.2 million), a decrease of 12.9%.

     The decrease in KSO revenues was attributable to the acquisition of KSO
Units I in 2002 and primarily reflected consolidated KSO revenues from KSO Unit
I that were consolidated to TELKOM resulting in an accounting elimination and
that would otherwise have been previously treated as KSO revenue.

     Fixed lines in service in the KSO regions increased 7.0%, from 3,269,033
lines at December 31, 2001 to 3,497,819 lines at December 31, 2002, if KSO I
Unit and KSO VI Unit are included, or 5.1%, from 1,941,227 lines to 2,039,608
lines, if KSO I Unit and KSO VI are excluded.

Data and Internet Revenues.

     Data and Internet revenues grew by Rp.898.3 billion, or 133.4%, from
Rp.673.2 billion in 2001 to Rp.1,571.5 billion (US$176.3 million) in 2002,
mainly attributed from the significant growth in SMS and VoIP businesses. SMS
revenues for 2002 increased by Rp.652.6 billion to Rp.997.2 billion (US$111.9
million), an increase of 189.4%. Multimedia revenues for 2002 increased by
Rp.131.4 billion to Rp.349.7 billion (US$39.2 million), an increase of 60.2%
compared to 2001 that was driven by additional subscribers. VoIP revenues for
2002 increased by Rp.134.5 billion to Rp.160.1 billion (US$18 million), an
increase of 525.4% compared to 2001. ISDN revenues for 2002 declined by Rp.19.5
billion to Rp.64.5 billion (US$7.2 million), a decline of 23.2%.

                                        85
<PAGE>

Network Revenues.

     Network revenues declined by Rp.88.5 billion, or 21.3%, from Rp.414.9
billion in 2001 to Rp.326.4 billion (US$36.6 million) in 2002. Satellite
transponder revenues for 2002 declined by Rp.13.3 billion to Rp.190.2 billion
(US$21.3 million), a decline of 6.5% compared to 2001, primarily due to the 7%
decline in transponder lease. Leased line revenues for 2002 declined by Rp.75.2
billion to Rp.136.2 billion (US$15.3 million), a decline of 35.6% compared to
2001 as a result of further elimination due to the consolidation of Pramindo and
increase of intracompany lease revenue from Telkomsel.

Revenues under Revenue Sharing Arrangement ("PBH").

     Revenues under Revenue Sharing Arrangement grew by Rp.14.9 billion, or
5.7%, from Rp.265.2 billion in 2001 to Rp.280.2 billion (US$31.4 million) in
2002, mainly contributed by the consolidation of KSO I revenue and tariff
increase in February 2002. Net share for revenue earned under revenue sharing
arrangement for 2002 declined by Rp.14.5 billion to Rp.177.0 billion (US$19.9
million), a decline of 7.5% compared to 2001 due to the termination of Revenue
Sharing Arrangement period in 2002. Amortization of unearned income under
revenue sharing arrangement for 2002 increased by Rp.29.4 billion to Rp.103.1
billion (US$11.6 million), an increase of 39.9% compared to 2001.

Other Telecommunications Service Revenues.

     Subsequent to the reclassification of revenues, other telecommunications
service revenues declined by Rp.43.6 billion, or 92%, from Rp.47.4 billion in
2001 to Rp.3.8 billion (US$0.4 million) in 2002. The Company believes that the
decline in other telecommunications service revenues is partly due to the
increase usage of facsimile, SMS and e-mail, which substitute telex and telegram
usage.

  Operating Expenses

     Total operating expenses grew Rp.3,483 billion, or 40.9%, from Rp.8,515.1
billion in 2001 to Rp.11,998.1 billion (US$1,346.1 million) in 2002, generally
in line with the increase in operating revenues. The increase was mainly
attributable to the components of personnel, general and administrative, and
operation and maintenance expense.

Depreciation.

     Depreciation expenses grew by Rp.675.6 billion, or 23.9%, from Rp.2,828.6
billion in 2001 to Rp.3,504.2 billion (US$393.1 million) in 2002, primarily as a
result of the consolidation of Pramindo's depreciation expense that amounted to
Rp.219.8 billion, as well as the increase of Telkomsel's depreciation expense
that amounted to Rp.467.9 billion.

Operation, Maintenance and Telecommunications Services Expense.

     Operation, maintenance and telecommunications services expenses grew by
Rp.282.3 billion, or 13.1%, from Rp.2,149.9 billion in 2001 to Rp.2,432.2
billion (US$272.9 million) in 2002. The increase was mainly attributable to:

     - the consolidation of relevant Pramindo and KSO I Unit expenses in the
       various components of operation, maintenance and telecommunications
       services expenses in 2002, which amounted to Rp.252.3 billion;

     - total radio frequency usage charges (consolidated) increased by Rp.196.8
       billion, mainly contributed from the increase in Telkomsel by Rp.131
       billion (US$14.7 million) or 221%, in line with the 74.6% increase in the
       number of BTS from 1,995 in 2001 to 3,483 in 2002.

     - total concession fees (consolidated) increased by Rp.104.3 billion or
       163.8% compared to 2001;

                                        86
<PAGE>

     - fuel, gas, electricity and water charges increased by 53.9% reflecting
       primarily higher electricity and gas charges as a result of higher rates
       charged by the Government for these services in 2002;

     - total insurance expense increased by Rp.88.4. billion, or 130.4%, and

     - cost of phone cards increased by Rp.24.8 billion to Rp.198.2 billion
       (US$22.2 million), an increase of 14.3%, reflecting higher procurement of
       phone cards to supply increased sales of SIM cards and refill vouchers
       for Telkomsel's prepaid mobile cellular services;

     Due to the Company's policy of applying the 70% rate of normal tariff for
kiosk-phones instead of expense the commissions, consistently TELKOM no longer
recognize kioskphone commission.

     Other components of operation, maintenance and telecommunications service
expense did not contribute significantly to operating expenses in 2002.

Personnel Expense.

     Personnel expenses grew by Rp.2,095.3 billion, or 103.3%, from Rp.2,028.8
billion in 2001 to Rp.4,124.1 billion (US$462.7 million) in 2002. The main
contributor to the increase are:

     (i) The increase of non-recurring employee expenses:

     - severance for early retirement plan increased by Rp.765.9 billion to
       Rp.906.7 billion (US$101.7 million), an increase of 544% compared to
       2001, primarily reflecting early retirement that accrued in 2002, which
       include retirement in relation to the outsourcing of call center service
       in 2003;

     - net periodic pension cost increased Rp.281.1 billion to Rp.367.3 billion
       (US$41.2 million), an increase of 326.1%, reflecting the increase of
       pension benefit.

     - first implementation for bonuses, so bonus incurred for the period of
       2001 is charged in 2002 which amounted to Rp.138 billion.

     (ii) The increase of recurring employee expenses:

     - vacation pay (mainly long-leave allowances), incentives and other
       allowances increased by Rp.721.4 billion to Rp.1,086.1 billion (US$121.9
       million), an increase of 197.8%, reflecting primarily the consolidation
       of KSO I Unit vacation pay, incentives and other allowances;

     - net periodic post-retirement benefit cost increased by Rp.17.3 billion to
       Rp.205.1 billion (US$23.0 million), an increase of 9.2%, reflecting
       primarily higher imputed interest cost resulting from the benefits being
       underfunded (see Note 45 to the consolidated financial statements); and

     Meanwhile, employee income tax decreased by Rp.82.4 billion to Rp.215.3
billion (US$24.2 million), a decrease of 62%, reflecting primarily lower
applicable rates of individual income taxation, which offset the year-over-year
impact of an increase in base salaries effected in August 2000.

     Other components of personnel expenses did not contribute significantly to
operating expenses in 2002.

General and Administrative Expense.

     General and administrative expenses grew by Rp.270 billion, or 21%, from
Rp.1,287.8 billion in 2001 to Rp.1,557.8 billion (US$174.8 million) in 2002. In
2002:

     - provision for doubtful accounts and inventory obsolescence increased by
       Rp.169.5 billion to Rp.512.4 billion (US$57.5 million), an increase of
       49.4%, reflecting a Rp.186.3 billion (US$18.9 million) increase related
       to the dispute with KSO III, increase of provision for doubtful account
       in Telkomsel by Rp.106 billion or 321%; and consolidation of KSO I, which
       was offset by the decrease of Rp.60 billion in provision of other
       receivable.

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     - collection expenses increased by Rp.50.3 billion to Rp.232.2 billion
       (US$26.1 million), an increase of 27.7%, generally in line with the
       growth in TELKOM's fixed line subscriber base and Telkomsel's mobile
       cellular subscriber base, but also reflecting higher fees charged by
       third party collection agents used in some regional divisions; and

     - security and screening increased by Rp.36.4 billion to Rp.85.2 billion
       (US$9.6 million), an increase of 74.6% reflecting human resources in
       2002.

     Other components of general and administrative expenses did not contribute
significantly to operating expenses in 2002.

Marketing Expense.

     Marketing expenses grew by Rp.159.8 billion, or 72.6%, from Rp.220.0
billion in 2001 to Rp.379.8 billion (US$42.6 million) in 2002. The main
contributor to the increase were the TELKOM Group marketing campaign which also
include telkomsel and infomedia, the consolidation of Pramindo and KSO I
marketing expense that amounted to Rp.10.8 billion and the increase of marketing
expense in several associated companies such as Telkomsel, which increase by
Rp.50.8 billion or 58%, and in Infomedia from zero in 2001 to Rp.87.4 billion in
2002.

  Operating Income and Operating Margin

     As a result of the foregoing, operating income grew by Rp.1,786 billion, or
23.5%, from Rp.7,615.7 billion in 2001 to Rp.9,401.7 billion (US$1,054.8
million) in 2002. TELKOM's operating margin decreased from 47.2% in 2001 to
43.9% in 2002 due to the higher growth of operating expense (40.9%) compared to
the growth of operating revenue (32.7%).

  Other Income and Charges

     Other income (net) grew by Rp.3,869.3 billion, or 416.8%, from a net charge
of Rp.928.4 billion in 2001 to a net income of Rp.2,940.9 billion (US$330
million) in 2002. The main components of other income and charges are gain on
sale of long-term investment and interest expenses. TELKOM's interest expenses
increased significantly in 2002, but this increase was offseted by the gain on
sales of long-term investment and the net gain on foreign exchange in 2002.
There is no assurance that future interest expenses will be similarly offset.

Gain on Sales of Long Term Investment

     Gain on sale of subsidiary represents gain on sale of 12.72% of TELKOM's
shares in Telkomsel, which amounted to Rp.3,196.4 billion (US$358.6 million),
for which there was no comparable amount in 2001.

Interest Income.

     Interest income declined by Rp.86.2 billion, or 15.1%, from Rp.571.6
billion in 2001 to Rp.485.4 billion (US$54.5 million) in 2002, reflecting
primarily lower average interest rates offered in 2002 compared to 2001.

Interest Expense.

     Interest expenses grew by Rp.205 billion, or 15.4%, from Rp.1,329.6 billion
in 2001 to Rp.1,534.6 billion (US$172.2 million) in 2002, reflecting primarily
to the: (i) additional interest payable on new indebtedness to selling
shareholders of Pramindo in 2002, as a result of TELKOM's purchase of a 30%
equity interest in Pramindo; (ii) additional interest expense borne from bonds
(TELKOM and Telkomsel) and new credit facilities; and (iii) additional expenses
related to liabilities to Indosat for the remaining balance from cross-ownership
transaction.

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Gain or Loss on Foreign Exchange (Net).

     Net realized and unrealized loss on foreign exchange increased by Rp.895.4
billion, or 236.4%, from a net loss of Rp.378.7 billion in 2001 to a net gain of
Rp.516.7 billion (US$58 million) in 2002, reflecting primarily Rupiah
appreciation during 2002 compared to 2001.

Equity in Net Income (Loss) of Associated Companies.

     TELKOM's equity in the net income (loss) of associated companies increased
by Rp.147.9 billion, or 172.6%, from a net loss of Rp.85.7 billion in 2001 to a
net income of Rp.62.2 billion (US$7 million) in 2002, reflecting the recognition
of an additional share in the net income of Komselindo of Rp.57.6 billion
(US$6.5 million).

     Other components of equity in net income (loss) of associated companies did
not contribute significantly to Other Income and Charges in 2002.

Others (Net).

     Others (net) declined by Rp.74.2 billion, or 26.9%, from Rp.294.1 billion
in 2001 to Rp.214.9 billion (US$24.1 million) in 2002. In 2002, Others (net)
included the following significant income and expense items:

     - Rp.181.1 billion (US$20.3 million) in income from fines from subscribers,
       a decrease of Rp.48.2 billion, or 36.3% from 2001;

     - Rp.172.2 billion (US$19.3 million) in income from Infomedia, a subsidiary
       of TELKOM, an increase of Rp.40.4 billion, or 30.7%, from 2001;

     - Rp.190.6 billion (US$21.4 million) in amortization expense, an increase
       of 108.8 billion, or 133% from 2001, reflecting amortization of
       intangible asset from the acquisition of a 30% equity interest in
       Pramindo and 90.32% equity interest in Dayamitra; and

     - Rp.292 billion (US$29.8 million) in income related to the sales and
       dispose of non-performing assets of Rp.185.8 billion.

     Other components of Others (Net) did not contribute significantly to Other
Income (Charges) in 2002.

  Income Before Tax and Pre-Tax Margin

     As a result of the foregoing, income before tax grew by Rp.5,655.3 billion,
or 84.6%, from Rp.6,687.3 billion in 2001 to Rp.12,342.6 billion (US$1,384.8
million) in 2002. Pre-tax margin increased from 41.5% in 2001 to 57.7% in 2002.

  Income Tax Expense

     Income tax expense grew by Rp.675.2 billion, or 32.6%, from Rp.2,070.7
billion in 2001 to Rp.2,745.9 billion (US$308.1 million) in 2002. The effective
tax rate declined from 31% of income before tax in 2001 to 22.2% of income
before tax in 2002. The decrease in effective tax rate was partially
attributable to low real pre-tax gain on sale of 12.72% TELKOM equity interest
in Telkomsel compared to sizable accounting gain.

  Pre-Acquisition Income of Subsidiaries

     Although TELKOM's acquisition of a 30% equity interest in Pramindo occurred
on August 15, 2002, revenue and expense items of Pramindo were consolidated into
TELKOM's consolidated statements of income for all of 2002. The net income of
Pramindo of Rp.142.8 billion (US$16.0 million) arising prior to that date was
recorded (net of MTR and DTR payable to TELKOM) as Pre-Acquisition Income of
Subsidiaries. See "-- Basis of Presentation -- Consolidation of Pramindo and the
KSO I Unit".

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  Minority Interest in Net Income of Subsidiaries

     Minority interest in the net income of subsidiaries increased by Rp.634
billion, or 133.6%, from Rp.474.6 billion in 2001 to Rp.1,108.6 billion
(US$124.4 million) in 2002. The increase was primarily due to the decrease in
ownership after the sale of 12.72% interest in Telkomsel, and additional
recognition for the minority related to the acquisition of Pramindo in 2002.

  Net Income

     As a result of the foregoing, net income grew by Rp.4,095.2 billion, or
96.4%, from Rp.4,250.1 billion in 2001 to Rp.8,345.3 billion (US$936.3 million)
in 2002. TELKOM's margin increased from 26.3% in 2001 to Rp.39% in 2002. The
higher net income resulted in an increase in basic earnings per share from
Rp.421.64 in 2001 to Rp.827.9 in 2002.

  Equity

     Total shareholders' equity increased by Rp.6,575.6 billion, or 70.5%, from
Rp.9,323.6 billion in 2001 to Rp.15,899.2 billion (US$1,783.8 million) in 2002.
The increase in equity was attributable primarily to net income for the year
2002 of Rp.8,345.3 billion (US$936.3 million) and decrease of difference value
under common control amounted to Rp.369.9 billion due to the adjustment from
deferred tax liabilities related to the ownership in Telkomsel. TELKOM declared
a cash dividend of Rp.2,125.1 billion (US$238.4 million) in 2002.

Retained Earnings.

     Appropriated and unappropriated retained earnings grew by Rp.6,220.2
billion, or 61.6%, from Rp.10,090.7 billion in 2001 to Rp.16,310.9 billion
(US$1,830 million) in 2002.

  YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

  Operating Revenues.

     Total operating revenues grew by Rp.4,018.8 billion, or 33.2%, from
Rp.12,112.0 billion in 2000 to Rp.16,130.8 billion (US$1,551.0 million) in 2001.
Operating revenues increased for all revenue items, except KSO revenue, which
showed a slight decline in operating revenues. The decline in KSO revenue was
primarily due to the elimination of MTR and DTR revenue recognized by TELKOM for
the KSO VI Unit as a result of TELKOM's acquisition of a 90.32% equity interest
in Dayamitra in 2001.

Fixed Line Revenues.

     Fixed line revenues grew by Rp.1,237.2 billion, or 23.9%, from Rp.5,177.9
billion in 2000 to Rp.6,415.1 billion (US$616.8 million) in 2001. Local and
domestic long-distance usage charges for 2001 increased by Rp.1,128.6 billion to
Rp.5,225.7 billion (US$502.5 million), an increase of 27.5% compared to 2000.
Monthly subscription charges increased by Rp.110.2 billion to Rp.997.6 billion
(US$95.9 million), an increase of 12.4%. Installation charges increased by
Rp.22.6 billion to Rp.98.0 billion (US$9.4 million), an increase of 30.0%. The
increases were primarily attributable to:

          - the consolidation of KSO VI Unit revenues, as a result of TELKOM's
            acquisition of a 90.32% interest in Dayamitra in 2001;

          - 9.4% growth in fixed lines in service in the non-KSO regions,
            including kiosk phones, from 3,610,363 lines at December 31, 2000 to
            3,949,905 lines at December 31, 2001, if KSO VI Unit is excluded, or
            9.1% growth, from 3,913,311 lines to 4,270,243 lines at the same
            dates, respectively, if KSO VI Unit is included; and

          - 5.0% growth in average monthly revenue per fixed line in service in
            the non-KSO regions, from Rp.121,000 per month in 2000 to Rp.127,000
            per month in 2001, reflecting higher average usage per line.

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     Revenues from phone cards for 2001 decreased by Rp.8.9 billion to Rp. 25.5
billion (US$2.4 million), a decrease of 25.9% compared to 2000. The decrease
primarily reflected a termination payment to a vendor that previously issued
phone cards on behalf of TELKOM on a revenue sharing basis. Revenue from others
decreased by Rp.15.3 billion to Rp.68.3 billion (US$6.6 million), a decrease of
18.3%.

Cellular Telephone Revenues.

     Cellular telephone revenues grew by Rp.1,818.0 billion, or 62.9%, from
Rp.2,890.0 billion in 2000 to Rp.4,708.0 billion (US$452.7 million) in 2001. Air
time charges for 2001 increased by Rp.1,503.2 billion to Rp.3,987.7 billion
(US$383.4 million), an increase of 60.5% compared to 2000. Monthly subscription
charges increased by Rp.225.6 billion to Rp.581.6 billion (US$55.9 million), an
increase of 63.4%. Connection fee charges increased by Rp.85.8 billion to
Rp.128.5 billion (US$12.4 million), an increase of 200.9%. The increases were
attributable to:

     - 31.6% growth in postpaid subscribers to 865,211 subscribers at December
       31, 2001, and 131.8% growth in prepaid subscribers to 2,386,821
       subscribers; and

     - 2.1% growth in postpaid monthly ARPU to Rp.287,000 (US$27.6) in 2001, and
       7.8% growth in prepaid monthly ARPU to Rp.111,000 (US$10.7).

     As a result of the higher rate of growth in the number of prepaid
subscribers, the proportion of prepaid subscribers increased from 61% in 2000 to
73.4% in 2001. As a result of the change in the subscriber mix, and despite the
higher growth rate for prepaid than postpaid monthly ARPU, blended monthly ARPU
decreased from approximately Rp.172,000 in 2000 to approximately Rp. 157,000
(US$15.2) in 2001.

     Revenues from Features for 2001 increased by Rp.3.4 billion to Rp.10.2
billion (US$1.0 million), an increase of 50.0%. Previously revenues from
Features also included SMS revenues, which were then classified as part of Data
and Internet revenues starting in 2002.

KSO Revenues.

     KSO revenues declined by Rp.47.6 billion, or 2.1%, from Rp.2,267.2 billion
in 2000 to Rp.2,219.6 billion (US$213.4 million) in 2001. MTR for 2001 decreased
by Rp.82.5 billion to Rp.1,474.2 billion (US$141.8 million), a decrease of 5.3%
compared to 2000. DTR increased by Rp.37.9 billion to Rp.733.0 billion (US$70.5
million), an increase of 5.5%. Amortization of unearned initial payments
decreased by Rp.3.0 billion to Rp.12.4 billion. The decrease in MTR payments
partly reflected, as did all of the decrease in amortization of unearned initial
payments, TELKOM's acquisition of a 90.32% equity interest in Dayamitra in 2001,
and the resulting accounting elimination in 2001 of revenues that would
otherwise have been treated as KSO revenues.

     Fixed lines in service in the KSO regions increased 7.1%, from 3,052,242
lines at December 31, 2000 to 3,269,033 lines at December 31, 2001, if KSO VI
Unit is included, or 7.3%, from 2,749,294 lines to 2,948,695 lines, if KSO VI
Unit is excluded.

Interconnection Revenues.

     Interconnection revenues grew by Rp.406.4 billion, or 41.4%, from Rp.981.0
billion in 2000 to Rp.1,387.4 billion (US$133.4 million) in 2001. In 2001:

     - net interconnection revenues for interconnections to and from TELKOM's
       fixed line network (after eliminating net interconnection revenues for
       interconnections with Telkomsel's mobile cellular network) for 2001
       increased by Rp.427.7 billion to Rp.1,521.8 billion (US$146.3 million),
       an increase of 39.1% compared to 2000; and

     - net interconnection expense from interconnections to and from Telkomsel's
       mobile cellular network (after eliminating net interconnection expense
       from interconnections with TELKOM's

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       fixed line network) increased by Rp.21.3 billion to Rp.134.4 billion
       (US$12.9 million), an increase of 18.8%.

     The increase in both TELKOM's net interconnection revenues and Telkomsel's
net negative interconnection revenues primarily reflected increased traffic. The
increase in TELKOM's net interconnection revenues was also partly attributable
to the consolidation of KSO VI Unit interconnection revenues in 2001, as a
result of TELKOM's acquisition of a 90.32% interest in Dayamitra.

     In 2001 as compared to 2000, interconnection revenues involving
international direct dialing IDD calls declined 50.5%, from Rp.235.9 billion to
Rp.116.8 billion (US$11.2 million), which TELKOM believes is partly due to the
increased popularity of VoIP technology in the market for international
long-distance services.

Other Telecommunications Services Revenues.

     Other telecommunications services revenues grew by Rp.7.8 billion, or
19.7%, from Rp.39.6 billion in 2000 to Rp.47.4 billion (US$4.6 million) in 2001.
Previously other telecommunications services revenues also include the following
revenues:

     - revenues under revenue sharing arrangements which decreased by Rp.43.2
       billion to Rp.265.2 billion (US$25.5 million) in 2001, a decrease of
       14.0% compared to 2000. Revenues under revenue sharing arrangements then
       classified as a separate classification of operating revenues starting in
       2002;

     - multimedia revenues which increased by Rp.153.8 billion to Rp.218.3
       billion (US$21.0 million), an increase of 238.4%, reflecting primarily
       increased numbers of subscribers for various of TELKOM's multimedia
       services. Multimedia revenues then classified as part of Data and
       Internet revenues starting in 2002;

     - satellite transponder revenues which increased by Rp.20.2 billion to
       Rp.203.5 billion (US$19.6 million), an increase of 11.0%, reflecting
       primarily a 19.8% increase in leased transponder capacity. Satellite
       transponder revenues then classified as part of Network revenues starting
       in 2002;

     - leased line revenues which increased by Rp.54.7 billion to Rp.211.4
       billion (US$20.3 million), an increase of 34.9%, reflecting primarily
       increase in circuits leased. Leased line revenues then classified as part
       of Network revenues starting in 2002; and

     - Revenues from TELKOM ISDN which increased by Rp.65.8 billion, or 348.1%,
       from Rp.18.9 billion in 2000 to Rp.84.7 billion (US$8.1 million) in 2001.
       Revenues from TELKOM ISDN then classified as part of Data and Internet
       revenues starting in 2002.

     Other components of other telecommunications service revenues did not
contribute significantly to operating revenues in 2001.

  Operating Expenses

     Total operating expenses grew Rp.2,081.3 billion, or 32.3%, from Rp.6,433.8
billion in 2000 to Rp.8,515.1 billion (US$818.8 million) in 2001, generally in
line with the increase in operating revenues. Operating expenses as a proportion
of operating revenues decreased to 52.8% in 2001, compared to 53.1% in 2000.

Depreciation.

     Depreciation expenses grew by Rp.409.5 billion, or 16.9%, from Rp.2,419.1
billion in 2000 to Rp.2,828.6 billion (US$272.0 million) in 2001. The increase
in depreciation was principally attributable to the consolidation, following
TELKOM's acquisition of a 90.32% equity interest in Dayamitra in 2001, of
depreciation relating to cable network, switching equipment and other fixed
assets used by KSO VI

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Unit, as well as higher gross fixed assets. Gross fixed assets increased 15.5%
at December 31, 2001 compared to 2000, primarily as a result of the continuing
development of Telkomsel's mobile cellular telecommunications network, as well
as the consolidation of gross fixed assets of Dayamitra.

Operation, Maintenance and Telecommunications Services Expense.

     Operation, maintenance and telecommunications services expenses grew by
Rp.764.2 billion, or 55.1%, from Rp.1,385.7 billion in 2000 to Rp.2,149.9
billion (US$206.7 million) in 2001. The increase was partly attributable to the
consolidation of relevant KSO VI Unit expenses in the various components of
operation, maintenance and telecommunications services expense in 2001, as a
result of TELKOM's acquisition of a 90.32% interest in Dayamitra. In addition,
in 2001:

     - operation and maintenance expenses increased by Rp.315.8 billion to
       Rp.891.4 billion (US$85.7 million) in 2001, an increase of 54.9% compared
       to 2000, reflecting primarily upward movement in the price of fuel used
       for power generation, higher wages for contract labor resulting from an
       increase in the Indonesian minimum wage and the cost of leasing
       additional cellsites for Telkomsel's continuing network development;

     - distributors' and telephone kiosks' commissions increased by Rp.148.7
       billion to Rp.521.0 billion (US$50.1 million), an increase of 40.0%,
       reflecting primarily an increase in the number of telephone kiosks in
       service in 2001;

     - cost of phone cards increased by Rp.126.3 billion to Rp.173.4 billion
       (US$16.7 million), an increase of 268.2%, reflecting higher procurement
       of phone cards to supply increased sales of SIM cards and refill vouchers
       for Telkomsel's prepaid mobile cellular services;

     - electricity, gas and water charges increased by Rp.40.6 billion to
       Rp.157.1 billion (US$15.1 million), an increase of 34.8%, reflecting
       primarily higher electricity and gas charges as a result of higher rates
       charged by the Government for these services in 2001; and

     - radio frequency usage charges increased by Rp.84.6 billion to Rp.101.3
       billion (US$9.7 million), reflecting an increase in the number of base
       stations for Telkomsel's continuing network development and a
       Government-directed change in the basis for calculating the frequency
       charges, which resulted in higher average frequency charges per base
       station.

     Other components of operation, maintenance and telecommunications service
expenses did not contribute significantly to operating expenses in 2001.

Personnel Expense.

     Personnel expenses grew by Rp.418.6 billion, or 26.0%, from Rp.1,610.2
billion in 2000 to Rp.2,028.8 billion (US$195.1 million) in 2001. In 2001:

     - salaries and related allowances increased by Rp.319.8 billion to
       Rp.1,023.4 billion (US$98.4 million) in 2001, an increase of 45.5%
       compared to 2000, reflecting primarily the implementation in 2001 of an
       early retirement program (at a cost of Rp.140.0 billion (US$13.5 million)
       in 2001), a 50.0% increase in base salaries implemented in August 2000,
       which affected 2001 personnel expenses for the entire year, compared to
       only five months in 2000, and the consolidation of KSO VI Unit employee
       salaries and related allowances in 2001 as a result of TELKOM's
       acquisition of a 90.32% interest in Dayamitra;

     - vacation pay, incentives and other allowances increased by Rp.67.1
       billion to Rp.364.7 billion (US$35.1 million), an increase of 22.5%,
       reflecting primarily the consolidation of KSO VI Unit vacation pay,
       incentives and other allowances;

     - net periodic post-retirement benefit cost increased by Rp.22.7 billion to
       Rp.187.8 billion (US$18.1 million), an increase of 13.7%, reflecting
       primarily higher imputed interest cost

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       resulting from the benefits being underfunded (see Note 39 to the
       consolidated financial statements); and

     - employee income tax decreased by Rp.63.7 billion to Rp.132.9 billion
       (US$12.8 million), a decrease of 32.4%, reflecting primarily lower
       applicable rates of individual income taxation, which offset the
       year-over-year impact of an increase in base salaries effected in August
       2000.

     Other components of personnel expenses did not contribute significantly to
operating expenses in 2001.

General and Administrative Expense.

     General and administrative expenses grew by Rp.416.1 billion, or 47.7%,
from Rp.871.7 billion in 2000 to Rp.1,287.8 billion (US$123.8 million) in 2001.
In 2001:

     - provision for doubtful accounts and inventory obsolescence decreased by
       Rp.5.5 billion to Rp.342.9 billion (US$33.0 million), a decrease of 1.6%,
       reflecting a 67.0% decrease in provisions for receivables from Mobisel,
       Komselindo, Metrosel and other associated companies from Rp.200.6 billion
       in 2000 to Rp.66.1 billion (US$6.4 million) in 2001, which offset a
       substantial increase in provisions for unpaid MTR and DTR from the KSO
       III Unit, from Rp.14.3 billion to Rp.155.5 billion (US$15.0 million) (see
       "Business of TELKOM -- Joint Operation Schemes (KSOs) -- Issues and
       Developments Relating to the KSO Investors and the KSO Units -- KSO
       III");

     - professional fees increased by Rp.281.9 billion to Rp.325.3 billion
       (US$31.3 million), an increase of 649.5%, reflecting primarily higher
       fees for financial, accounting and legal advisors in connection with the
       cross-ownership transactions involving Indosat, TELKOM's purchase of a
       90.32% equity interest in Dayamitra and the arbitration proceedings with
       AriaWest;

     - collection expenses increased by Rp.50.4 billion to Rp.181.9 billion
       (US$17.5 million), an increase of 38.3%, generally in line with the
       growth in TELKOM's fixed line subscriber base and Telkomsel's mobile
       cellular subscriber base, but also reflecting higher fees charged by
       third party collection agents used in some regional divisions; and

     - training, education and recruitment increased by Rp.32.6 billion to
       Rp.147.3 billion (US$14.2 million), an increase of 28.4%, reflecting
       primarily the costs of financial information systems software training
       undertaken in 2001 and programs undertaken by Telkomsel.

     Other components of general and administrative expenses did not contribute
significantly to operating expenses in 2001.

  Operating Income and Operating Margin

     As a result of the foregoing, operating income grew by Rp.1,937.5 billion,
or 34.1%, from Rp.5,678.2 billion in 2000 to Rp.7,615.7 billion (US$732.3
million) in 2001. TELKOM's operating margin increased from 46.9% in 2000 to
47.2% in 2001.

  Other Income and Charges

     Other charges (net) grew by Rp.39.4 billion, or 4.4%, from a net charge of
Rp.889.0 billion in 2000 to a net charge of Rp.928.4 billion (US$89.3 million)
in 2001. TELKOM's interest expenses increased significantly in 2001, but this
increase was substantially offset by a decrease in the net loss on foreign
exchange. There is no assurance that future interest expenses will be similarly
offset.

Interest Income.

     Interest income declined by Rp.120.4 billion, or 17.4%, from Rp.692.0
billion in 2000 to Rp.571.6 billion (US$55.0 million) in 2001, reflecting
primarily smaller balances on average of cash and

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cash equivalents and in temporary investments during 2001 compared to 2000. The
lower average balance of these current assets in 2001 offset the positive impact
on income of higher interest rates generally paid on cash equivalents and on
temporary investments as a result of higher interest rates paid on Bank
Indonesia Certificates (SBI).

Interest Expense.

     Interest expenses grew by Rp.512.9 billion, or 62.8%, from Rp.816.7 billion
in 2000 to Rp.1,329.6 billion (US$127.8 million) in 2001, reflecting primarily:

     - higher interest expenses on long-term liabilities (principally two-step
       loans) denominated in Rupiah, due to higher interest generally prevailing
       on loans denominated in Rupiah in 2001 compared to 2000; and

     - additional interest payable on new indebtedness to Indosat and to former
       shareholders of Dayamitra in 2001 incurred as a result of the
       cross-ownership transactions and TELKOM's purchase of a 90.32% equity
       interest in Dayamitra, respectively.

Gain or Loss on Foreign Exchange (Net).

     Net realized and unrealized loss on foreign exchange declined by Rp.565.4
billion, or 59.9%, from a net loss of Rp.944.1 billion in 2000 to a net loss of
Rp.378.7 billion (US$36.4 million) in 2001. In both years, the net foreign
exchange losses arose principally as a result of the impact of the continued
depreciation of the Rupiah on the amount, expressed in Rupiah, of long-term
liabilities (principally two-step loans) denominated in foreign currencies
(principally the U.S. Dollar). The reduced net foreign exchange loss in 2001
principally reflected the relatively lower depreciation of the Rupiah in 2001 as
compared to 2000. See "Exchange Rates".

Equity in Net Income(Loss) of Associated Companies.

     TELKOM's equity in the net loss of associated companies declined by
Rp.146.3 billion, or 63.1%, from a net loss of Rp.232.0 billion in 2000 to a net
loss of Rp.85.7 billion (US$8.2 million) in 2001. In 2001, TELKOM:

     - recognized an additional share in the net loss of Komselindo of Rp.92.8
       billion (US$8.9 million), reflecting TELKOM's share of Komselindo's net
       loss for 2001, which TELKOM recognized as a result of TELKOM's converting
       in 2001 that amount of interconnection receivables into equity (leaving
       unchanged Komselindo's nil carrying value);

     - did not recognize any further share in the net loss of PSN (TELKOM
       recognized in 2000 a Rp.60.3 billion share in PSN's net loss that year),
       but instead expensed in 2001 the decline in value of TELKOM's investment
       in PSN under Others (Net) (see "-- Others (Net)" below); and

     - did not recognize any further share in the net loss of Satelindo (TELKOM
       recognized in 2000 a Rp.184.4 billion share in Satelindo's net loss that
       year), as a result of TELKOM's nil carrying value in Satelindo as at
       December 31, 2000.

     Other components of equity in net income (loss) of associated companies did
not contribute significantly to Other Income and Charges in 2001.

Others (Net).

     Others (net) declined by Rp.117.9 billion, or 28.6%, from Rp.412.0 billion
in 2000 to Rp.294.1 billion (US$28.3 million) in 2001. In 2001, Others (net)
included the following significant income and expense items:

     - Rp.131.8 billion (US$12.7 million) in income from Infomedia, a subsidiary
       of TELKOM, an increase of Rp.97.0 billion, or 278.7%, from 2000;

                                        95
<PAGE>

     - Rp.132.9 billion (US$12.8 million) in income from fines from subscribers,
       a decrease of Rp.42.3 billion, or 31.8%;

     - Rp.101.8 billion (US$9.8 million) in income from gain on the swap share
       transactions (see Note 11 to the consolidated financial statements), for
       which there was no equivalent amount in 2000;

     - Rp.136.0 billion (US$13.1 million) in income from an accounting
       adjustment reversing excess accrual of interest expense in 1999;

     - Rp.81.8 billion (US$7.9 million) in expense for the amortization of
       intangible assets from the acquisition of a 90.32% equity interest in
       Dayamitra in 2001, for which there was no equivalent amount in 2000;

     - Rp.77.6 billion (US$7.5 million) in expense for the decline in value of
       TELKOM's investment in PSN, resulting in a nil carrying value in PSN, and
       for which there was no equivalent amount in 2000; and

     - Rp.55.7 billion (US$5.4 million) in accrued expense for fines potentially
       payable to the Government because of late payment of cash dividends
       declared in 2000.

     Other components of Others (Net) did not contribute significantly to Other
Income (Charges) in 2001.

  Income Before Tax and Pre-Tax Margin

     As a result of the foregoing, income before tax grew by Rp.1,898.1 billion,
or 39.6%, from Rp.4,789.2 billion in 2000 to Rp.6,687.3 billion (US$643.0
million) in 2001. Pre-tax margin increased from 39.5% in 2000 to 41.5% in 2001.

  Income Tax Expense

     Income tax expense grew by Rp.604.4 billion, or 41.2%, from Rp.1,466.3
billion in 2000 to Rp.2,070.7 billion (US$199.1 million) in 2001. The effective
tax rate increased from 30.6% of income before tax in 2000 to 31.0% of income
before tax in 2001. The increase in tax expense was partially attributable to
capital gains tax of Rp.747.3 billion (US$71.9 million) payable in relation to
gains realized on the disposition of TELKOM's equity interests in Satelindo and
Lintasarta.

  Pre-Acquisition Loss of Subsidiaries

     Although TELKOM's acquisition of a 90.32% equity interest in Dayamitra
occurred on May 17, 2001, revenue and expense items of Dayamitra were
consolidated into TELKOM's consolidated statements of income for all of 2001.
The net loss of Dayamitra of Rp.108.1 billion (US$10.4 million) arising prior to
that date was recorded (net of MTR and DTR payable to TELKOM) as Pre-Acquisition
Loss of Subsidiaries. See "-- Basis of Presentation -- Consolidation of
Dayamitra and the KSO VI Unit".

  Minority Interest in Net Income of Subsidiaries

     Minority interest in the net income of subsidiaries increased by Rp.161.7
billion, or 51.7%, from Rp.312.9 billion in 2000 to Rp.474.6 billion (US$45.6
million) in 2001. The increase was primarily attributable to an increase of
51.9% in minority interest in the net income of Telkomsel from Rp.299.8 billion
in 2000 to Rp.455.3 billion (US$43.8 million) in 2001.

  Net Income

     As a result of the foregoing, net income grew by Rp.  1,240.1 billion, or
41.2%, from Rp.3,010.0 billion in 2000 to Rp.4,250.1 billion (US$408.7 million)
in 2001. TELKOM's margin increased from 24.9% in

                                        96
<PAGE>

2000 to Rp.26.3% in 2001. The higher net income resulted in an increase in basic
earnings per share from Rp.298.61 in 2000 to Rp.421.64 in 2001.

  Equity

     Total equity declined by Rp.5,585.6 billion, or 37.5%, from Rp.14,909.2
billion in 2000 to Rp.9,323.6 billion (US$896.5 million) in 2001. The decline in
equity was attributable primarily to a reduction in equity arising from the
accounting treatment for the cross-ownership transactions, which offset
increases in equity from retained earnings, change of equity in associated
companies and a translation adjustment. TELKOM declared a cash dividend of
Rp.888.7 billion (US$85.5 million) in 2001.

Cross-Ownership Transactions.

     Both TELKOM and Indosat are controlled by the Government. As a result,
TELKOM's acquisition of Indosat's 35% equity interest in Telkomsel, and its
divestment to Indosat of its 22.5% equity interest in Satelindo and 37.66%
equity interest in Lintasarta, were accounted for as a reorganization of
entities under common control. Under this accounting treatment, the aggregate
difference of Rp.7,402.3 billion (US$711.8 million) (net of tax) between the net
consideration paid by TELKOM to Indosat and the net book value of assets
acquired or carrying value of assets transferred by TELKOM was recorded on
TELKOM's Consolidated Balance Sheets for 2001 as a difference in value of
restructuring transactions between entities under common control. This amount
was subtracted directly from equity, and did not result in the creation of any
goodwill or other amortizing asset. On November 18, 2002, TELKOM paid to Indosat
the balance of the purchase price relating to the cross-ownership transactions
amounting to Rp.389,167 billion. See "-- Basis of Presentation -- Accounting
Treatment of TELKOM's Acquisition of Indosat's 35% Equity Interest in
Telkomsel".

Change of Equity in Associated Companies.

     In 2001, as a result of TELKOM's divestment of its equity interest in
Satelindo in the cross-ownership transactions, TELKOM reversed increased equity
of Rp.203.3 billion (US$19.5 million) (net of deferred tax) recognized in prior
years from changes of equity in Satelindo.

     In 2001, TELKOM's share of change of equity in Telkomsel was Rp.119.3
billion (US$11.5 million) (net of deferred tax).

Retained Earnings.

     Appropriated and unappropriated retained earnings grew by Rp.3,119.7
billion, or 44.8%, from Rp.6,971.0 billion in 2000 to Rp.10,090.7 billion
(US$970.3 million) in 2001.

RECONCILIATION TO U.S. GAAP

     TELKOM prepares its financial statements in accordance with Indonesian
GAAP, and prepares a reconciliation of net income and equity in accordance with
the requirements of the U.S. Securities and Exchange Commission. The following
table sets out net income for the years ended, and equity as of, December 31,
2000, 2001 and 2002 in accordance with Indonesian GAAP and U.S. GAAP:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                           -------------------------------------------------------------
                                               2000            2001            2002            2002
                                           -------------   -------------   -------------   -------------
                                           RP. (BILLION)   RP. (BILLION)   RP. (BILLION)   US$ (MILLION)
<S>                                        <C>             <C>             <C>             <C>
NET INCOME IN ACCORDANCE WITH:
Indonesian GAAP..........................     3,010.0         4,250.1         8,345.3           936.3
U.S. GAAP................................     2,952.1         4,036.6         9,274.2         1,040.5
</Table>

                                        97
<PAGE>

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                           -------------------------------------------------------------
                                               2000            2001            2002            2002
                                           -------------   -------------   -------------   -------------
                                           RP. (BILLION)   RP. (BILLION)   RP. (BILLION)   US$ (MILLION)
<S>                                        <C>             <C>             <C>             <C>
EQUITY IN ACCORDANCE WITH:
Indonesian GAAP..........................    14,909.2         9,323.6        15,899.2        1,783.8
U.S. GAAP................................    14,146.2         8,240.6        15,745.2        1,766.5
</Table>

     Note 57 to the consolidated financial statements summarizes the material
differences between Indonesian GAAP and U.S. GAAP as they pertain to TELKOM's
financial statements. Note 58 to the consolidated financial statements sets out
the reconciliation of net income and equity.

B.  LIQUIDITY AND CAPITAL RESOURCES

     TELKOM expects to have substantial liquidity and capital resources
requirements in 2003 and 2004 as it continues to develop and expand its existing
businesses, including entering into new businesses and acquiring certain of its
KSOs. TELKOM expects that these expenditures will be important factors in
preparing to face tight competition as the Indonesian telecommunications market
has been deregulated and may engage during the next few years.

     In 2003 and 2004, TELKOM expects its principal liquidity and capital
resources requirements, aside from its requirements for working capital and to
make payments of dividends and taxes, will at least consist of the following:

     - capital expenditures for existing and new network and backbone
       infrastructure, including a satellite, a fiber optic transmission
       backbone from Jakarta to Medan, fiber optic transmission networks in
       Jakarta and Surabaya, installation and upgrading of fixed lines, and
       increased capacity in its mobile cellular service conducted through
       Telkomsel (see "-- Capital Expenditures");

     - debt service requirements relating to existing indebtedness, including
       two-step loans and indebtedness of subsidiaries;

     - instalment payments of the purchase price for shares in Pramindo, that
       were acquired in 2002;

     While still uncertain, liquidity and capital resources may be required in
2003 and 2004 to finance:

     - the acquisition of the AriaWest; and

     - the acquisition of all or some of the equity interests held by
       shareholders of KSO Investors other than those that TELKOM has previously
       purchased or is in the process of purchasing (see "Business of
       TELKOM -- Joint Operation Schemes (KSOs) -- Issues and Developments
       Relating to the KSO Investors and the KSO Units").

     Primary sources of financing available to TELKOM consist of: (i) cash flow
from operating activities; (ii) financing from the bond issuance; (iii)
financing from banks or export credit agencies (including financing procured by
vendors); and (iv) deferred vendor payment terms.

     TELKOM believes that these sources of financing will be sufficient to fund
planned capital expenditures, anticipated working capital needs and likely
contractual obligations and commitments in 2003 and 2004. Nonetheless, if global
or Indonesian economic conditions worsen or do not improve and/or competition or
product substitution accelerate beyond current expectations, TELKOM's net cash
flow from operating activities may decrease and negatively impact its liquidity.

     TELKOM manages the liquidity for all of its business segments, including
KSOs controlled by TELKOM, on a total group basis. Telkomsel manages its own
liquidity and accesses capital resources independently of TELKOM. TELKOM is not
responsible for managing the liquidity and capital resources of the KSO units,
other than the KSO I and KSO VI Unit. See "Business of TELKOM -- Joint Operation
Schemes (KSOs) -- Issues and Developments Relating to the KSO Investors and the
KSO

                                        98
<PAGE>

Units". Should TELKOM succeed in acquiring Ariawest, TELKOM will become
responsible for managing the liquidity and capital resources of the KSO III
Unit, which is controlled by AriaWest.

NET CASH FLOWS

     The following table sets forth information concerning TELKOM's consolidated
cash flows, as set out in (and prepared on the same basis as) the consolidated
financial statements, except for foreign exchange convenience translations (see
"-- Basis of Presentation -- Foreign Exchange Translations"):

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                 -------------------------------------------------
                                                   2000       2001       2002           2002
                                                 --------   --------   --------   ----------------
                                                        (RP. IN BILLION)          (US$ IN MILLION)
<S>                                              <C>        <C>        <C>        <C>
Net cash flows:
  from operating activities....................   6,875.8    7,012.6   10,460.3       1,173.6
  from investing activities....................  (4,801.6)  (6,039.2)  (5,259.5)       (590.1)
  from financing activities....................  (2,110.0)  (1,662.8)  (3,145.9)       (353.0)
Change in cash and cash equivalents............     (35.8)    (689.4)   2,054.9         230.5
Cash and cash equivalents, beginning of
  period.......................................   4,369.5    4,333.7    3,644.2         408.9
Cash and cash equivalents, end of period.......   4,333.7    3,644.2    5,699.1         639.4
</Table>

  NET CASH FLOWS FROM OPERATING ACTIVITIES

     TELKOM's primary source of liquidity in recent years was cash flows from
operating activities as well as from financing activities. Net cash flows from
operating activities totalled Rp.6,875.8 billion in 2000, Rp.7,012.6 billion in
2001, and Rp.10,460.3 billion (US$1,173.6 million) in 2002. The growth in
operating cash flows principally resulted from higher cash receipts from
operating revenues as a result of the expansion of TELKOM's various
telecommunications businesses, and in particular its mobile cellular business
conducted through Telkomsel. These higher cash receipts were partially offset by
rising cash paid for operating expenses.

  Year ended December 31, 2002 compared to year ended December 31, 2001.

     In 2002 compared to 2001, net cash flows from operating activities
increased by Rp.3,447.7 billion, or 49.2%, primarily due to:

     - an increase of Rp.6,367.3 billion, or 55.1%, in cash receipts from
       telephone services and net interconnection services, which enhanced cash
       inflows from operating activities;

     - a decrease of Rp.970.5 billion, or 56.5%, in cash receipts from joint
       operation scheme, which had the countervailing effect of reducing cash
       inflows from operating activities; and

     - an increase of Rp.2,611.3 billion, or 49.1%, in cash payments for
       operating expenses, which had the effect of increasing cash outflows from
       operating activities.

     - an increase of Rp.830.4 billion in cash receipt from KSO Unit III for
       advance payment related to the conditional sales and purchase agreement
       for buy out KSO Unit III.

     On balance, the foregoing movements in cash flows were partially
attributable to the consolidation of Dayamitra's cash flows into TELKOM's
consolidated financial statements in 2001, Pramindo's in 2002 and the related
elimination entries for MTR and DTR paid by Dayamitra and Pramindo. Cash inflows
in 2002 were also partly offset by a reduction in interest received of Rp.25.1
billion, or 4.2%, increases in income tax paid of Rp.1,296.7 billion or 61.8%,
and reduction in interest paid of Rp.335 billion or 26.7%.

  Year ended December 31, 2001 compared to year ended December 31, 2000.

     In 2001 compared to 2000, net cash flows from operating activities
increased by Rp.136.8 billion, or 2.0%, primarily due to the increase of
Rp.3,706.1 billion, or 41.3%, in cash receipts from telephone

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<PAGE>

services and net interconnection services, which enhanced cash inflows from
operating activities; a decrease of Rp.219.5 billion, or 16.5%, in cash receipts
from MTR, which had the countervailing effect of reducing cash inflows from
operating activities; a decrease of Rp.14.0 billion, or 2.2%, in cash receipts
from DTR, which also had the countervailing effect of reducing cash inflows from
operating activities; and an increase of Rp.2,272.1 billion, or 74.7%, in cash
payments for operating expenses, which had the effect of increasing cash
outflows from operating activities.

     The movements in cash flows were partially attributable to the
consolidation of Dayamitra's cash flows into TELKOM's consolidated financial
statements in 2001, and the related elimination entries for MTR and DTR paid by
Dayamitra. Cash inflows in 2001 were also partly offset by a reduction in
interest received of Rp.134.5 billion, or 18.5%, and increases in income tax
paid and interest paid of Rp.455.5 billion and Rp. 399.4 billion, respectively,
or 27.7% and 46.6%.

  NET CASH FLOWS FROM INVESTMENT ACTIVITIES

     Net cash flows used in investment activities totalled Rp.4,801.6 billion,
Rp.6,039.2 billion and Rp.5,259.5 billion (US$590.1 million) in 2000, 2001 and
2002, respectively. In 2000, the rising trend also reflected increasing
investments in marketable securities and time deposits. In 2001, sizeable net
cash flows were used for acquisitions of subsidiaries, which were partly
financed by reduced investments in marketable securities and time deposits.
Liability for cross-ownership transactions is treated as an investment activity
for purposes of the consolidated statements of cash flows. In 2002, the
reduction trend reflected sizeable cash receipts from the sale of 12.72% TELKOM
equity interest in Telkomsel and decrease of the remaining payment for
cross-ownership transaction to Indosat.

     Apart from cash on hand and cash in banks, TELKOM invests substantially all
of its excess cash from time to time in time deposits. At December 31, 2002,
15.9% of time deposits having a maturity greater than three months and
denominated in Rupiah.

  Year ended December 31, 2002 compared to year ended December 31, 2001.

     In the year ended December 31, 2002 compared to the year ended December 31,
2001, net cash flows used in investment activities decreased by Rp.779.7
billion, or 12.9%, primarily due to:

     - a significant cash receipt of Rp.3,948.9 billion (US$443.1 million) from
       the sale of 12.72% TELKOM equity interest in Telkomsel; and

     - a decrease of Rp.3,634.1 billion, or 58.2%, in cash expenditures for the
       payment of the purchase price relating to the cross-ownership transaction
       in 2002 compared to 2001.

     - an increase of 747.8 billion in cashout for the payment related to the
       acquisition of Dayamitra and Pramindo.

     In 2002, payment of advance for investment in shares of stock reflects the
payment for option of Tomen's share in Dayamitra and payment to AriaWest's
shareholders related to the CSPA for buy out KSO Unit III.

  Year ended December 31, 2001 compared to year ended December 31, 2000.

     In the year ended December 31, 2001 compared to the year ended December 31,
2000, net cash flows used in investment activities increased by Rp.1,237.6
billion, or 25.8%, primarily due to a significant cash expenditure of Rp.6,243.3
billion (US$600.3 million) for the acquisition of subsidiaries, for which no
equivalent cash expenditure occurred in 2000, reflecting primarily net cash
outflows for the acquisition in 2001 of Indosat's 35% equity interest in
Telkomsel and the acquisition of a 90.32% interest in Dayamitra; an increase of
Rp.1,224.9 billion, or 51.8%, in cash expenditures for the acquisition of
property, plant and equipment; and an increase of Rp.2,774.5 billion, or 54.2%,
in proceeds from investments and maturity of time deposits, and a decrease of
Rp.3,312.3 billion, or 43.1%, in purchases of marketable securities and
placements in time deposits.

                                       100
<PAGE>

     In 2001, advances and others represented a net cash inflow of Rp.263.9
billion (US$25.4 million), reflecting a increase in advances received from
customers and suppliers and a decrease in advances to suppliers.

  NET CASH FLOWS FROM FINANCING ACTIVITIES

     Net cash flows used in financing activities totalled Rp.2,110.0 billion,
Rp.1,662.8 billion and Rp.3,145.9 billion (US$353 million) in 2000, 2001 and
2002, respectively. In all three years, net cash flows from financing activities
were driven primarily by repayment of long-term liabilities and by cash
dividends.

  Repayment of Current Indebtedness.

     At December 31, 2000, 2001 and 2002, approximately 45.8%, 63.2% and 38.5%,
respectively, of TELKOM's current indebtedness for borrowed money (consisting of
current maturities of long-term liabilities and short-term bank loan, as
liability for cross-ownership transactions was treated as an investment activity
for cash flow purposes) were denominated in foreign currencies, principally the
U.S. Dollar, such that the Rupiah amount of TELKOM's cash flows used for the
repayment of long-term liabilities was significantly affected by the
depreciation in the value of the Rupiah in 2001 compared to 2000 and in 2002
compared to 2001.

     In 2000, 2001 and 2002, TELKOM made net repayments of current indebtedness
for borrowed money of Rp.895.0 billion, Rp.1,233.0 billion and Rp.2,753.5
billion (US$308.9 million), respectively. Cash outflows in 2002 were reflecting
payments for two-step loans of Rp.778.6 billion, liability for acquisition of
Dayamitra and Pramindo of Rp.465.0 billion and Rp.301.9 billion, respectively,
long term bank loan of Rp.19.5 billion, Telkomsel's short-term bank loan from
Deutsche Bank of Rp.500.0 billion, repayment of suppliers credit loan and others
owed by Dayamitra of Rp.313.4 billion, and related foreign exchange effect for
repayment of two-step loans and liability for acquisition of subsidiaries
amounted to Rp.375.1 billion.

  Payment of Cash Dividends and General Reserve.

     TELKOM paid cash dividends and set up general reserve, as determined by the
company's annual shareholder meeting, as follows:

<Table>
<Caption>
                                                 DIVIDEND    TOTAL CASH     DIVIDEND       GENERAL
DATE OF AGM                                        YEAR       DIVIDEND      PER SHARE      RESERVE
-----------                                      --------   -------------   ---------   -------------
                                                            (RP. BILLION)     (RP.)     (RP. BILLION)
<S>                                              <C>        <C>             <C>         <C>
April 7, 2000..................................    1999       1,086.161      107.76         21,723
May 10, 2001...................................    2000         888.654       88.16        126,950
June 21, 2002..................................    2001       2,125,055      210.82        425,011
</Table>

     In 2000, 2001 and 2002, the amount of cash dividends paid was effectively
determined by the Government, which holds a majority of TELKOM's issued and
outstanding common shares. TELKOM believes that the Government considers various
factors, including the views of TELKOM's board of directors and the Government's
own funding needs, in determining the portion of each year's net income to be
paid out as cash dividends.

  Escrow Account.

     In 2002, TELKOM recorded a net increase in escrow account of Rp.126.2
billion, which represented the funding of a contractually-required escrow
accounts established on May 17, 2001 and August 14, 2002 for the repayment of
indebtedness related to the acquisition of Dayamitra and Pramindo, respectively.

                                       101
<PAGE>

WORKING CAPITAL

     Net working capital, calculated as the difference between current assets
and current liabilities, was negative Rp.2,766.8 billion (US$266.0 million) at
December 31, 2001 and positive Rp.125.6 billion (US$14.1 million) at December
31, 2002. The change in net working capital principally due to fund receipts
from issuing bonds, selling of 12.72% Telkomsel and deposit from KSO III in
connection with buy out KSO Unit III, while in the other hand, TELKOM has paid
the liability for cross ownership transactions with Indosat in 2002. By year end
2002, there was significant accrual for the early retirement program which
implemented in 2003.

  CURRENT ASSETS

     Current assets were Rp.7,308.5 billion at December 31, 2001 and Rp.10,980.5
billion (US$1,232 million) at December 31, 2002, reflecting an increase of
Rp.3,672 billion, or 50.2%. The increase in current assets was primarily due to:

     - an increase in temporary investments of Rp.724.1 billion, or 207.5%, from
       Rp.348.9 billion at December 31, 2001 to Rp.1,073 billion (US$120.4
       million) at December 31, 2002; and

     - an increase in cash and cash equivalents of Rp.2,054.9 billion, or 56.4%,
       from Rp.3,644.2 billion at December 31 2001 to Rp.5,699.1 billion
       (US$639.4 million) at December 31, 2002.

     The increase in cash and cash equivalents and in temporary investments
primarily reflected the proceed from the sale by TELKOM of 12.72% of the equity
in Telkomsel, the receipt of deposit from KSO Unit III, the issuance of TELKOM's
Rupiah bond and Telkomsel's notes payable.

     At December 31, 2000, 2001 and 2002, approximately 10.9%, 13.3% and 32.4%,
respectively, of TELKOM's current assets were denominated in foreign currencies,
principally the U.S. Dollar, such that the depreciation of the Rupiah across
these years did not significantly affect TELKOM's current assets.

  TRADE ACCOUNTS RECEIVABLE.

     Trade accounts receivable from related parties (net of allowance for
doubtful accounts) grew by Rp.270.9 billion, or 26.1%, from Rp.1,037.2 billion
at December 31, 2001 to Rp. 1,308.1 billion (US$146.8 million) at December 31,
2002. Trade accounts receivable from third parties (net of allowance for
doubtful accounts) increased by Rp.475 billion, or 33.6%, from Rp.1,415.7
billion to Rp.1,890.7 billion (US$212.1 million), at the same dates. In the case
of trade accounts receivable from related parties, the increase was primarily
due to the cessation of monthly payments of MTR and DTR from KSO Unit III since
May 2000 and February 2001, respectively. In the case of trade accounts
receivable from third parties, the increase was primarily due to increased
accounts receivable from fixed line and mobile cellular subscribers, in line
with growth in these businesses. The increase in trade accounts receivable from
related parties and in trade accounts receivable from third parties had the
effect of increasing current assets.

     The allowance for doubtful accounts for trade accounts receivables from
related parties increased Rp.250.5 billion, or 76.9%, higher at December 31,
2002 compared to 2001, from Rp.325.9 billion at to Rp.576.4 billion (US$64.7
million), primarily as a result of unpaid MTR and unpaid DTR from KSO Unit III.
At December 31, 2002 compared to December 31, 2001, the allowance for doubtful
accounts for trade receivables from third parties increased Rp.144.9 billion, or
57.3%, higher, from Rp.252.9 billion to Rp.397.8 billion (US$44.6 million),
because the average collection period in 2002 was longer than in 2001.

  Other Current Asset and Escrow Accounts.

     At December 31, 2002, Rp.145.8 billion (US$16.4 million), of TELKOM's
deposits were restricted for security interests in favor of other parties, of
which US$1.8 million was used to secure Napsindo's borrowings, an associated
company. TELKOM also had a credit balance of Rp.55.9 billion

                                       102
<PAGE>

(US$6.3 million) in escrow account to be funded from time to time for payments
of the purchase price for the 90.32% equity interest in Dayamitra acquired in
2001 and for the repayment of indebtedness owed by Dayamitra to former
shareholders, and a credit balance of Rp.242 billion (US$27.2 million) for
payments of the purchase price for a 30% equity interest in Pramindo acquired in
2002. See "-- Long-Term Indebtedness -- Acquisition Indebtedness and Option
Purchase Price" and "-- Dayamitra's Indebtedness".

  Current Liabilities

     Current liabilities were Rp.10,075.3 billion at December 31, 2001 and
Rp.10,855 billion (US$1,217.9 million) at December 31, 2002, reflecting an
increase of Rp.779.7 billion, or 7.7%. The increase in current liabilities
primarily arose from the deposits received from the KSO Unit III, increase of
current maturities of long term liabilities and accrued expenses.

     At December 31, 2000, 2001 and 2002, approximately 22.8%, 20.5% and 28.2%,
respectively, of TELKOM's current liabilities were denominated in foreign
currencies, principally the U.S. Dollar, such that the depreciation of the
Rupiah across these years significantly affected TELKOM's current liabilities.

     In relation with the process of closing transaction for the buy out of KSO
Unit III and the related CSPA, as of December 31, 2002, TELKOM has received
payments from KSO Unit III amounting to US$91.8 million of which payment
amounting to US$41.8 million was received upon the signing of CSPA and US$50
million upon the receipt of AriaWest's tax clearance. At December 31, 2002, the
Rupiah equivalent of the receipts was Rp.830.4 billion and recorded as part of
Advance from Customers and Suppliers.

  Current Maturities of Long-term Liabilities.

     Current maturities of long-term liabilities increased by Rp.469,651
billion, or 30.4%, from Rp.1,542.6 billion at December 31, 2001 to Rp.2,012.3
(US$225.8 million) at December 31, 2002. This increase was primarily due to
payments aggregating US$74 million (Rp.659.9 billion) owed by TELKOM in 2003 for
its acquisition of Pramindo in 2002.

  Accrued Expenses.

     Accrued expenses increased by Rp.1,072.8 billion, or 74.6%, from Rp.1,437.6
billion at December 31, 2001 to Rp.2,510.4 billion (US$281.7 million) at
December 31, 2002. This increase was primarily due to an increase of Rp.574.9
billion in accrued expenses for early retirement benefits, which primarily
reflected the accrual of expenses of Rp.714.9 billion (US$80.2 million) expected
to be incurred in 2003 for TELKOM's continued early retirement program that
enacted June 11, 2001. The increase also reflected an increase of Rp.306.1
billion in accrued expenses for salaries and employee bonuses and increase of
Rp.142.4 billion (US$14.5 million) in accrued expense for post retirement
benefit. The increase of salaries and bonuses primarily due to the accrual of
bonuses amounted to Rp.171.2 billion (US$17.4 million) which was no equivalent
compared to 2001. The increase in accrued net periodic post-retirement benefit
cost was primarily due to an increase in unfunded post-retirement healthcare
benefits provided to TELKOM employees.

                                       103
<PAGE>

LONG-TERM INDEBTEDNESS

     Consolidated total long-term indebtedness (consisting of long-term
liabilities, current maturities of long-term liabilities, short-term bank loan
and liability for cross-ownership transactions) and short-term bank loan at
December 31, 2000, 2001 and 2002, was as follows:

<Table>
<Caption>
                                                                    AT DECEMBER 31,
                                                        ----------------------------------------
                                                          2000       2001     2002(1)    2002(1)
                                                        --------   --------   --------   -------
                                                             (RP. IN BILLION)(2)           US$
<S>                                                     <C>        <C>        <C>        <C>
Indonesian Rupiah.....................................   4,327.7    6,890.6    4,606.5     700.3
U.S. Dollar(2), (3)...................................   4,187.9    5,660.7    6,241.4     516.8
Japanese Yen(4).......................................   1,502.8    1,452.1    1,358.9     152.5
French Franc(5).......................................     264.2      190.9      157.5      17.7
Others(6).............................................      82.2       70.3       58.3       6.5
                                                        --------   --------   --------   -------
          Total.......................................  10,364.8   14,264.6   12,422.6   1,393.8
                                                        ========   ========   ========   =======
</Table>

---------------

(1) Including imputed interest on liabilities for the acquisition of a 90.32%
    equity interest in Dayamitra and 30% equity interest in Pramindo.
(2) Amounts at December 31, 2000, 2001 and 2002 translated into Rupiah at
    Rp.9,675, Rp.10,450 and Rp.8,960 = US$1, respectively, being the prevailing
    exchange rates for buying U.S. Dollars at each of those dates.
(3) Amount at December 31, 2002 includes imputed interest on liability for
    acquisition of subsidiary (which relates to Dayamitra and Pramindo) of
    US$8.4 million (Rp.74.9 billion) and US$1.0 million (Rp.9.2 billion), being
    imputed interest for installment payments of the liability.
(4) Amounts at December 31, 2000, 2001 and 2002 translated into Rupiah at
    Rp.84.3, Rp.79.6 and Rp.75.5 = Y1, respectively, being the prevailing
    exchange rates for buying yen at each of those dates.
(5) Amounts at December 31, 2000, 2001 and 2002 translated into Rupiah at
    Rp.1,374.2, Rp.1,409.3 and Rp.1,206.1 = FRF 1, respectively, being the
    prevailing exchange rates to buy French francs at each of those dates.
(6) Comprises amounts expressed in Netherland Guilders and others. Amount at
    December 31, 2002 translated into Rupiah at Rp.3,590.2 = NLG 1, being the
    prevailing exchange rates to buy Euro at the date.

     Of total long-term indebtedness and short term borrowings at December 31,
2002, Rp.2,051.5 billion, Rp.1,161.5 billion and Rp.9,209.6 billion was
scheduled for repayment in 2003, 2004, 2005-2025, respectively. Of these
amounts, Rp.40.1 billion of the indebtedness scheduled to be repaid in 2003,
Rp.0.1 billion to be repaid in 2004 and Rp.1,337.5 billion be repaid in 2007 by
Telkomsel, while Rp.267.9 billion, Rp.227.8 billion and Rp.1.3 billion was to be
repaid by Dayamitra in 2003, 2004 and 2005, respectively. TELKOM expects
scheduled repayments of indebtedness, including that of Telkomsel and Dayamitra,
to be financed primarily from net cash flows from operating activities of, and
re-financing by, TELKOM, Telkomsel and Dayamitra, respectively.

     At December 31, 2002, approximately 62.1% of TELKOM's Rupiah denominated
indebtedness, and approximately 21.0% of its U.S. Dollar denominated
indebtedness bore interest at variable rates. TELKOM's Rupiah denominated
floating rate indebtedness bore interest rates between 17.17% and 19.00%, with
rates generally based on a margin over interest rates on three-month
Certificates of Bank Indonesia (SBI) plus a margin of between 0.75% and 2.0%.
The weighted average interest rate on Rupiah denominated floating rate
indebtedness at December 31, 2002 was 17.23%. TELKOM's U.S. Dollar denominated
floating rate indebtedness was subject to interest rates between 3.59% and
8.85%, with rates generally based on LIBOR plus a margin of between 0.75% and
4.5%. The weighted average interest rate on U.S. Dollar denominated floating
rate indebtedness at December 31, 2002 was 7.52%. TELKOM's Rupiah denominated
fixed rate indebtedness at that date bore a weighted average interest rate of
14.96%, while its U.S. Dollar denominated fixed rate indebtedness bore a
weighted average interest rate of 7.65%. All of TELKOM's Japanese yen
denominated indebtedness was fixed rate and bore a weighted average interest
rate at December 31, 2002 of 3.11%.

     At December 31, 2002, TELKOM had the following outstanding significant
indebtedness:

     - Rp.8,530.6 billion (US$957.1 million) (including current maturities) in
       two-step loans through the Government;

                                       104
<PAGE>

     - Rp.1,337.5 billion (US$130.1 million) in guaranteed notes payable which
       is owed by Telkomsel;

     - Rp.1,000.0 billion (US$112.2 million) IDR bond issued by TELKOM; and

     - US$90.7 million (Rp.808.0 billion) in acquisition indebtedness relating
       to TELKOM's acquisition of 90.32% equity interest in Dayamitra and
       acquisition of 30% equity interest in Pramindo.

     In addition, TELKOM, on its own and through Telkomsel and Dayamitra, has
entered into several new bank facilities in 2002, and owes amounts under various
other facilities through Indonesian Rupiah (IDR) Bond Issuance and other bank
facilities. TELKOM has also entered into conditional sale and purchase
agreements pursuant to which it may increase its acquisition indebtedness in
2003.

  TWO-STEP LOANS

     Since 1982, TELKOM has entered into a series of two-step loans in which the
Government borrows money from supranational lenders and foreign export credit
agencies, such as the World Bank and the U.S. Export-Import Bank, for on-lending
to TELKOM to fund investment in property, plant and equipment. TELKOM obtained
its last two-step loan in 1997, and, as a public company, is no longer eligible
to obtain Government-assisted financing of this type. For a table of scheduled
repayments of two-step loans, see "-- Liquidity and Capital
Resources -- Contractual Obligations and Commitments".

     At December 31, 2002, TELKOM's outstanding principal indebtedness under the
two-step loans totalled Rp.8,530.6 billion (US$957.1 million), of which US$386.3
million (Rp.3,461.1 billion) was denominated in U.S. Dollars, Euro 23,007
million (Rp.215.8 billion) was denominated in Euro and Y17.8 billion (Rp.1,344.1
billion) was denominated in Japanese yen. As of December 31, 2002, TELKOM has
used all facilities of two-step loans and the draw period for the two-step loan
has expired.

     Two-step loans bear fixed or floating rates. Floating rates are determined
by reference to interest rates on Certificates of Bank Indonesia (SBI) plus 1.0%
or the interest rate offered by offshore lenders plus 0.5%. Repayments of
principal are due on the loans at various dates through 2025. For the years 2003
through 2006, aggregate scheduled repayments of principal range from Rp.764.1
billion to Rp.868.6 billion per year, and average Rp.832.3 billion per year.

     The Company must maintain financial ratios as follows:

     - Projected net revenue to projected debt service ratio should exceed 1.5:1
       and 1.2:1 for two-step loans originating from World Bank and Asian
       Development Bank ("ADB"), respectively.

     - Internal financing (earnings before depreciation and interest expenses)
       should exceed 50% and 20% compared to capital expenditures for loans
       originally from the World Bank and ADB, respectively.

     As of December 31, 2002, the Company was in compliance with the above
covenants. Also See "Telkomsel's Indebtedness -- Guaranteed Notes Payable".

  GUARANTEED NOTES

     In April 2002, Telekomunikasi Selular Finance Limited ("TSFL"), Telkomsel's
wholly-owned subsidiary, issued US$150 million in guaranteed notes ("Notes").
The notes bear interest at 9.75%, payable semi-annually on April 30 and October
30 of each year, and will be due on April 30, 2007.

     On April 23, 2002, TSFL entered into subscription agreements with UBS AG
("UBS") whereby UBS agreed to subscribe and pay for the notes at an issue price
equal to 99.709% of the principal amount of the notes, less any fees. TSFL has
further authorized UBS to have the notes listed in the Singapore Exchange
Securities Trading Limited (the "Singapore Exchange").

                                       105
<PAGE>

     Based on the "On-Loan Agreement" dated April 30, 2002, between the
Telkomsel and TSFL, the proceeds from the subscription of the notes were loaned
to Telkomsel at an interest rate of 9.765% per annum, payable in the same terms
as above.

     TSFL may, on the interest payment date falling on or about the third
anniversary of the issue date redeem the notes, in whole or in part, at 102.50%
of the principal amount of such notes, together with interest accrued to the
date fixed for redemption. If only part of the notes are redeemed, the principal
amount of the notes outstanding after such redemption must be at least US$100
million.

  IDR BOND ISSUANCE

     On July 16, 2002, TELKOM issued bonds denominated in Rupiah amounted to
Rp.1,000 billion (US$112.2 million). The bonds were issued at par value and have
a term of five years. The bonds bear interest at a fixed rate of 17% per annum,
payable quarterly beginning October 16, 2002. The bonds are traded in the
Surabaya Stock Exchange. The bonds mature on July 15, 2007. Net proceeds after
expenses from the bond issued amounted to Rp.980.8 billion (US$110.0 million)
while the total bond issuance cost were Rp.26.4 billion (US$3.0 million).

     As of December 2002, the usage of bond proceeds was Rp.137.3 billion
(US$15.4 million) or 14% of bond proceed. The planned usage of the bond proceeds
were approximately 84% for the CDMA project and approximately 16% for the access
network.

     The Company must maintain the following consolidated financial ratios:

     - Debt service coverage ratio must exceed 1.5:1

     - Debt to equity ratio must not exceed (i) 3:1 for the period January 1,
       2002 to December 31, 2002; (ii) 2.5:1 for the period January 1, 2003 to
       December 31, 2003; and (iii) 2:1 for the period January 1, 2004 to the
       date the bonds are redeemed; and

     - Debt to EBITDA ratio must not exceed 3:1

     As of December 31, 2002, the Company was in compliance with these
covenants.

  ACQUISITION INDEBTEDNESS AND OPTION PURCHASE PRICE

  Dayamitra

     At December 31, 2002, TELKOM owed the following amounts to the former
shareholders of Dayamitra:

     - US$25.9 million (Rp.232.2 billion), representing the unpaid portion of
       the purchase price for a 90.32% equity interest in Dayamitra acquired on
       May 17, 2001, is payable in eight quarterly instalments of US$13.0
       million each started on August 17, 2001 through May 17, 2003. This amount
       includes imputed interest at 14.0% per annum; and

     - US$1.8 million (Rp.16.3 billion), representing the unpaid portion of the
       option purchase price payable to TM Communications (HK) Ltd, which TELKOM
       believes to be a unit of Tomen Corporation, for the right to purchase the
       remaining 9.68% equity interest in Dayamitra held by TM Communications,
       is payable in six quarterly instalments of US$0.9 million each started on
       August 17, 2001 through May 17, 2003. Instalments of the option purchase
       price are recorded as they are paid in TELKOM's Consolidated Balance
       Sheets as Advances and Other Noncurrent Assets. Future instalments of the
       purchase price are not recorded as liabilities.

     TELKOM is required to make monthly deposits of US$6.3 million into an
escrow account for the purpose of funding the foregoing amounts and certain
indebtedness of Dayamitra. See "-- Overview -- Changes in TELKOM's Business --
Acquisition of 90.32% Interest in Dayamitra and Tomen Option" and Note 5 to the
Consolidated Financial Statements.

                                       106
<PAGE>

     TELKOM has also unconditionally guaranteed Dayamitra's outstanding
indebtedness to its former shareholders and the J-Exim Bank in proportion to
TELKOM's shareholding in Dayamitra. See "-- Long-Term
Indebtedness -- Dayamitra's Indebtedness".

     Pursuant to the Option Agreement between TELKOM and Tomen, the Company has
a call option upon Tomen's shares valid in the period of March 25, 2003 to five
days before March 26, 2006. TELKOM intends to exercise the call option by
sending a letter to Tomen regarding the matter.

  Pramindo

     At December 31, 2002, TELKOM owed the following amounts to the former
shareholders of Pramindo.

     - US$29.5 million (Rp.264.0 billion), representing the unpaid portion of
       the purchase price for France Cable et Radio;

     - US$25.8 million (Rp.231.0 billion), representing the unpaid portion of
       the purchase price for Astratel;

     - US$9.6 million (Rp.85.8 billion), representing the unpaid portion of the
       purchase price for Indosat;

     - US$5.9 million (Rp.52.8 billion), representing the unpaid portion of the
       purchase price for Marubeni;

     - US$2.2 million (Rp.19.9 billion), representing the unpaid portion of the
       purchase price for IFC USA; and

     - US$0.7 million (Rp.6.6 billion), representing the unpaid portion of the
       purchase price for NMP Singapore.

  RECENTLY INCURRED INDEBTEDNESS

     As of December 31, 2002, TELKOM has entered into agreements that still
undisbursed as follows:

  Loan Facility from Citibank N.A. and Citibank International Plc

     On April 10, 2002, TELKOM entered into a "Loan Agreement" with Citibank,
N.A ("arranger") and Citibank International Plc ("agent") supported by an export
credit guarantee of Instituto per I Servizi Assicurativi del Commercio Estero
(SACE-Italy), providing a total facility of US$21 million. The facility was
obtained to fund up to 85% of the cost of supplies and services sourced in Italy
relating to the design, manufacture, construction, installation and testing of
Sub-System VI, part of the high performance backbone network. This facility was
secured by TELKOM's assets under construction that related to project pursuant
to the "Partnership Agreement". This facility bears a fixed interest rate of
4.14% per annum.

 Junction Regional Division V Project

     On June 21, 2002, TELKOM entered into loan agreement with consortium for
financing junction project in Regional V. The repayment is in 14 quarterly
installments starting from April 2004.

     TELKOM is processing amendment to reduce the loan facility to Rp.150
billion.

  TELKOMSEL'S INDEBTEDNESS

     On July 12, 2002, Telkomsel entered into an opening LC and Trust Receipt
Loan Agreement with Citibank NA providing a total facility of US$ 40 million to
finance Telkomsel's capital expenditure in connection with the procurement
contracts with three strategic partners and a strategic supplier. Amount drawn
bears interest amounted to bank's as cost of fund plus 2.5% per annum. The loan
will

                                       107
<PAGE>

mature on July 12, 2003. The balance of the loan as of December 31, 2002, was
US$ 4.4 million (Rp.39.2 billion).

     On July 19, 2002, Telkomsel entered into an Opening LC Agreement with
Standard Chartered Bank, Jakarta. The agreement requires Telkomsel to deposit an
amount equal to the LC amount prior to the issuance of the LC.

     On October 29, 2002, Telkomsel entered into a Banking Facilities Credit
Agreement with Standard Chartered Bank which cover import facilities (US$25
million), local LC facility (Rp.100 billion), Bank Guarantee (US$25 million),
and other foreign exchange facilities. The loan drawn from the facility bears
interest on the basis of SIBOR plus 2.5% per annum for US Dollar facilities and
of the indicative three-month SBI plus 2% per annum for Indonesia Rupiah
facilities.

  Hermes Export Facility

     On December 2, 2002, pursuant to the Partnership Agreement with Siemens
Aktiengesellschaft (AG), Telkomsel entered into a Hermes Export Facility
Agreement with Citibank International plc (as Arranger and Agent) covering a
total facility of Euro76.2 million divided into several tranches.

     The interest rate on the facility is the aggregate of the applicable
margin, EURIBOR and mandatory cost, if any. Interest will be paid semi-annually
starting on the facility is drawn.

  EKN-Backed Facility

     On December 2, 2002, pursuant to the partnership agreement with PT Ericsson
Indonesia, Telkomsel obtained an EKN-Backed Facility with Citibank International
plc (as Arranger and Agent) covering a total facility of US$70.48 million
divided into several tranches.

     The interest rate on the facility is the aggregate of the applicable
margin, CIRR (Commercial Interest Reference Rate) and mandatory cost, if any.
Interest will be paid semi-annually, starting on the date the facility is drawn.

  DAYAMITRA'S INDEBTEDNESS

     As of December 31, 2002, Dayamitra had outstanding the following
significant indebtedness:

     - US$10.7 million (Rp.95.5 billion), representing a bridging loan payable
       by Dayamitra to Cable and Wireless Plc. and Bridge Facility;

     - US$37.8 million (Rp.338.7 billion), representing supplier's loan payable
       by Dayamitra to Cable and Wireless Plc. and Tomen; and

     - US$7.0 million (Rp.62.7 billion), representing a long-term bank loan
       payable by Dayamitra to the Export-Import Bank of Japan.

  Suppliers' Credit Loans.

     The supplier's credit loans are repayable in semi-annual instalments from
2000 through 2005. Aggregate scheduled annual repayments of principal under the
loans in 2003, 2004 and 2005 are US$18.2 million, US$19.5 million and US$0.08
million, respectively. This loan is secured proportionally with collateral for
bridging loan facility Cable & Wireless Plc. The loan bears interest at LIBOR
plus 4.5% per annum.

  Bridging Facility.

     The bridging facility is repayable in semi-annual instalments from 2000
through 2005. Aggregate scheduled annual repayments of principal under the loans
in 2003, 2004 and 2005 are US$4.7 million, US$5.9 million, and US$0.06 million,
respectively. This loan is secured by an assignment of KSO revenues and bank
accounts, fiduciary transfer of Dayamitra's movable assets, assignment of
proceeds
                                       108
<PAGE>

of early termination of the KSO license by TELKOM and assignment of insurance
proceeds. The loan bears interest at LIBOR plus 4%. See Note 22 to the
consolidated financial statements.

  J-Exim Loan.

     The J-Exim loan is repayable in five semi-annual instalments from March 25,
2001. TELKOM has unconditionally guaranteed this loan in proportion to TELKOM's
shareholding in Dayamitra. The loan bears interest at LIBOR plus 1%.

MARKET RISK MANAGEMENT

     TELKOM is exposed to market risks primarily from: (i) changes in foreign
currency exchange rates; (ii) changes in interest rates; and (iii) equity price
risk on the value of its long-term investments.

     TELKOM generally does not enter into forward foreign exchange contracts or
foreign currency swap contracts to hedge its foreign currency liabilities, as it
believes that the expenses associated with fully hedging such liabilities is not
justified. TELKOM hedges its foreign currency exposures through time deposit
placement, mainly in U.S. Dollars. As of December 31, 2002, TELKOM's deposits in
U.S. Dollars totalled US$364.8 million (Rp.3,261.5 billion), which covered
approximately 41.7% of all obligations related to borrowings in foreign
currencies from January 1, 2001 to December 31, 2002. TELKOM generally does not
enter into interest rate swap agreements or any other type of hedging
arrangement to manage its exposure to interest rate fluctuations. TELKOM manages
such exposure through maintaining a mix of fixed and variable rate liabilities
and assets, including short-term fixed rate assets, rates for which are reset
periodically.

     TELKOM's exposure to market risks fluctuated significantly during 1999,
2000 and 2001 as the Indonesian economy was affected by a significant
fluctuation in the Rupiah exchange rate and interest rates. TELKOM is not able
to predict whether similar conditions will continue in 2003 or thereafter.

  EXCHANGE RATE SENSITIVITY

     TELKOM's exposure to exchange rate fluctuations results primarily from
long-term debt obligations and accounts receivable and payable, which are
primarily paid for through draw downs under the two-step loans from the
Government and are expressed in U.S. Dollars, Japanese Yen, French Franc,
Deutsche Mark and Netherlands Guilder. For a description of TELKOM's foreign
currency assets and liabilities, see Note 54 to the Consolidated Financial
Statements included elsewhere in this Annual Report. Part of these obligations
might be offset by increases in the value of foreign currency time deposits and
by increases in the value of foreign currency accounts receivable, assuming that
the counter-parties are able to meet their foreign currency obligations to
TELKOM at market rates.

  INTEREST RATE SENSITIVITY

     TELKOM's exposure to interest rate fluctuations results primarily from
floating rate long-term indebtedness pursuant to two-step loans from the
Government used to finance TELKOM's capital expenditures and which bear interest
at rates based on the average for the preceding six months for three month
certificates issued by Bank Indonesia, and from floating rate long-term
indebtedness of TELKOM's consolidated subsidiary, Dayamitra, which bear interest
at LIBOR plus a certain percentage ranging from 1.0% to 4.5% per annum. See
Notes 24, 25, 26, and 29 to the Consolidated Financial Statements included
elsewhere in this Annual Report. To the extent interest rates in Indonesia
fluctuate significantly, TELKOM's interest obligations under its long-term
indebtedness may decrease.

  EQUITY PRICE RISK

     TELKOM's long-term investments consist primarily of minority investments in
the equity of private Indonesian companies. The financial performance of these
companies have been and are likely

                                       109
<PAGE>

to continue to be affected by difficult macroeconomic and social conditions in
Indonesia. See "-- Overview -- Industry and Economic Factors -- Economic
situation in Indonesia".

CAPITAL EXPENDITURES

     At December 31, 2002, TELKOM spent on it's capital expenditures of Rp.2.1
trillion (US$233.2 million), which almost absorbed by 100% compared the Capex
plan 2002 of Rp.2.2 trillion, and Telkomsel spent Rp.5 trillion for network
infrastructure and other investments.

     TELKOM groups its capital expenditures into the following categories for
planning purposes:

     - Infrastructure, which consists of transmission network, access network,
       data backbone and fixed line network backbone infrastructure;

     - Phone, which consists of fixed wireline and fixed wireless telephone
       services;

     - Mobile, which consists of GSM and analog mobile wireless telephone
       services, and is presently conducted principally through Telkomsel;

     - Multimedia, which consists of cable and satellite direct to home (DTH)
       television, Internet access, VoIP services, data services and B2B
       commerce; and

     - Service-Net, which consists of various commercial services intended to
       increase traffic on TELKOM's network, including interconnection,
       I-network and third party call centers.

     At December 31, 2002 the Company had committed but unincurred Capex of
Rp.6,574 billion which are expected to be incurred in 2003, 2004 and to be
financed mostly by internal cash generation.

                                       110
<PAGE>

     The following table sets out TELKOM's historical and planned capital
expenditure requirements for the periods indicated, including historical and
planned capital expenditures for Telkomsel, Dayamitra and TELKOM's other
consolidated subsidiaries:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                  -----------------------------------------------
                                                  2000(1)   2001(1)   2002(2)   2003(2)   2004(2)
                                                  -------   -------   -------   -------   -------
                                                                 (RP. IN BILLION)
<S>                                               <C>       <C>       <C>       <C>       <C>
TELKOM:
Infrastructure:
  Transmission Network and Backbone(3)..........    161.2      78.2     337.1   1,360.2   1,200.4
  Access Network................................  1,004.6     661.0     862.9   2,043.9   2,500.8
     Subtotal Infrastructure....................  1,165.8     739.2   1,200.0   3.404.1   3,701.2
Commercial Services:
  Phone(4)......................................    528.0     285.5     523.6     222.1     500.1
  Mobile Cellular(5)............................       --    263.90        --        --        --
  Multimedia(6).................................     99.0     113.7     154.7     103.6     300.1
  Services-Net..................................    107.4     275.6      59.8     153.9     250.1
     Subtotal Commercial Services...............    734.4     938.7     738.1     479.6   1,050.3
  Supporting Services...........................    203.1     196.3     140.2     195.8     250.1
     Subtotal TELKOM............................  2,103.3   1,874.3   2,078.4   4.079.6   5,001.6
TELKOMSEL(7)....................................       --   2,964.0   4,531.0   4.860.0     3,720
DAYAMITRA(8),(9)................................       --      30.2      40.6      32.0      47.0
                                                  -------   -------   -------   -------   -------
INFOMEDIA NUSANTARA.............................                         25.9      35.0      14.3
                                                  -------   -------   -------   -------   -------
PRAMINDO IKAT NUSANTARA.........................                        109.4      21.9      30.0
                                                  -------   -------   -------   -------   -------
INDONUSA TELEMEDIA..............................                          2.6      18.0      28.1
                                                  -------   -------   -------   -------   -------
GRAHA SARANA DUTA...............................                          0.8      32.2      14.5
                                                  =======   =======   =======   =======   =======
Total...........................................  2,103.3   4,868.5   6,788.7   9,078.7   8,855.5
                                                  =======   =======   =======   =======   =======
</Table>

---------------

(1) Amounts for 2000, 2001 and 2002 are actual expenditures.
(2) Amounts for 2003 and 2004 are planned capital expenditures.
(3) Consists of data backbone and fixed-line network backbone
(4) Consists of capital expenditures by TELKOM and subsidiaries other than
    Dayamitra and Pramindo.
(5) Consists of capital expenditures by TELKOM and subsidiaries other than
    Telkomsel. TELKOM's investment in its GSM mobile cellular business has been
    entirely through Telkomsel since April 3, 2002.
(6) Consists of view and internet services
(7) Consists of capital expenditures by Telkomsel. Amounts not shown for years
    prior to Telkomsel's becoming a consolidated subsidiary of TELKOM in 2001.
(8) Consists of capital expenditures by Dayamitra. Amounts not shown for years
    prior to Dayamitra's becoming a consolidated subsidiary of TELKOM in 2001.
(9) Amount for 2003 and 2004 is subject to downward adjustment.

     Actual future capital expenditures may differ from the amounts indicated
above due to various factors, including but not limited to the Indonesian
economy, the availability of vendor or other financing on terms acceptable to
TELKOM, technical or other problems in obtaining or installing equipment and
whether TELKOM enters any new lines of business. In particular, TELKOM's ability
to make substantial future capital expenditures will depend on whether it is
successful in implementing one or more forms of an innovative approach to
revenue sharing, which TELKOM refers to as "pay as you grow". See "Investment
Considerations -- Capital Expenditure Risk", "-- Capital Expenditures --
Financing" and "Business of TELKOM -- Business Strategy -- Seek New Approaches
for Procurement Contracts".

                                       111
<PAGE>

  PLANNED INVESTMENTS IN 2003

     In 2003, TELKOM plans to make capital investments in infrastructure,
commercial services and supporting services.

  Planned Investments in Infrastructure

     TELKOM's planned capital investments in infrastructure in 2003 total
Rp.3.404.1 billion, allocated as follows:

     - Rp.1,139.2 billion for capital investments in transmission
       infrastructure, which are expected to include investments in a fiber
       optic transmission network in the cities of Jakarta and Surabaya, a
       backbone/long haul transmission network on the island of Sumatra and an
       additional ground satellite segment in Jakarta;

     - Rp.2,043.9 billion for capital investments in access infrastructure,
       which are expected to include investments in fiber optic cable fixed
       line, copper wire fixed line and CDMA wireless access networks;

     - Rp.1.2 billion for capital investments in TELKOM's data backbone
       infrastructure, which are expected to include investments in router
       backbone infrastructure, frame relay equipment and ATM equipment; and

     - Rp.219.8 billion for capital investments in fixed line network, which are
       expected to include investments in signaling and trunk networks.

     For a more complete discussion of TELKOM's planned infrastructure
investments, see "Business of TELKOM -- Network Development".

  Planned Investments in Commercial Services

     In 2003, TELKOM also plans to spend Rp.479.6 billion for capital
investments in commercial services, allocated as follows:

     - Rp.222.1 billion for capital investments in Phone-Net, which include
       additional capacity, service enhancements and upgrades, including to its
       value added services and software and mechanical and electrical systems;

     - Rp.8.4 billion for capital investments in View-Net, or cable television,
       which include for a hybrid fiber/coax (HFC) system and cable television
       (CATV) system;

     - Rp.95.2 billion for capital investments in Inter-net, which include for a
       remote access server (RAS) system, increase the number of TELKOM's VoIP
       access points, Internet multiplexing (IMUX) system for Internet and data
       access, Internet data center (IDC) and Internet value added services such
       as B2B e-commerce; and

     - Rp.153.9 billion for capital investments in Services-net, including
       customer care, including call center facilities, billing system and
       TELKOM's business enterprise project, which caters to the largest 20% by
       value of TELKOM's corporate clients, as well as better network management
       and management information systems.

  Planned Investments in Supporting Services

     TELKOM's planned capital investments in supporting services, which include
research and development, building facilities and office facilities, totals
Rp.195.8 billion in 2003.

  FINANCING

     In common with many Indonesian state-owned enterprises, TELKOM has
historically relied on two-step loans financed by the Government and revenue
sharing with co-investors to fund investment
                                       112
<PAGE>

in property, plant and equipment. In recent years, however, TELKOM has funded
its capital investments largely through internally generated cash flows from
operating activities. On July 16, 2002, TELKOM issued a fixed rate IDR Bond in
the amount of Rp.1.0 trillion with tenor of five years with fixed interest rate
of 17%. TELKOM is presently in the process of exploring alternative sources of
financing for capital investment, including vendor-procured and other bank
financing, as well as other potential sources of borrowed funds.

  Two-Step Loans

     Since 1982, TELKOM has entered into a series of two-step loans in which the
Government borrows money from supranational lenders and foreign export credit
agencies for on-lending to TELKOM to fund investment in property, plant and
equipment. TELKOM obtained its last two-step loan in 1997, and, as a public
company, is no longer eligible to obtain Government-assisted financing of this
type. See "-- Liquidity and Capital Resources -- Long-Term
Indebtedness -- Two-Step Loans".

  Revenue Sharing

     Until recently, TELKOM made use of revenue sharing arrangements to develop
fixed line networks in heavily populated urban areas of Indonesia, public
card-phone booths and its analog mobile cellular networks. Under revenue sharing
arrangements, investors finance the costs incurred in procuring and installing
equipment, while TELKOM manages and operates the equipment after installation.
Investors legally retain rights to the equipment during the revenue-sharing
period but transfer ownership to TELKOM at the end of the revenue-sharing
period. Revenue sharing ratios and periods vary and are generally designed to
provide investors an agreed rate of return. TELKOM no longer favors the use of
revenue sharing arrangements to finance capital investments, because of the
difficulty of assuring the achievement of agreed rates of return to investors in
the increasingly volatile Indonesian telecommunications industry. TELKOM entered
into its last revenue sharing agreement providing for a fixed rate of return in
1994 and does not expect to enter into any new revenue sharing agreements on
this basis in the future. See "Business of TELKOM -- Revenue Sharing
Arrangements and Joint Ventures".

     TELKOM funded Rp.102.4 billion of capital investments in fixed line
telephone services in 1999 through revenue sharing arrangements. It did not fund
any other capital investments through revenue sharing arrangements in 1999, 2000
or 2001, and does intend to do so in the future, except in the context of its
efforts to promote a "pay as you grow" approach to funding capital investments.
See "-- Capital Expenditures -- Financing -- Pay as you Grow".

  Direct Borrowing

     Beginning in 2002, TELKOM intends to fund a significant portion of its
capital expenditures through vendor-procured and other direct borrowing from
banks and other lenders, including the capital markets. On February 25, 2002,
TELKOM borrowed US$4.0 million and Rp.90.0 billion from a consortium of
Indonesian banks to finance the development of an Internet protocol backbone.
TELKOM had never previously borrowed directly from a commercial bank to finance
capital expenditures. On April 10, 2002, TELKOM borrowed US$44.4 million and
Rp.173.0 billion from Citibank N.A. and PT Bank Central Asia to finance the
development of a high performance backbone on Sumatra. On June 21, 2002, TELKOM
entered into a loan agreement with several Indonesian banks in which Bank
Bukopin acting as facility agent with loan facility amounting to Rp.150.0
billion to fund the development of regional junction Regional Division V
project. A substantial portion of these loans were supported by export credit
agency guarantees procured by the equipment vendors for the project. Prior to
this transaction, TELKOM had not previously borrowed with the support of export
credit agency guarantees, except in the two-step loans extended through the
Government.

                                       113
<PAGE>

  Pay as You Grow

     See: "Item 4 Information on the Company -- Business Strategy -- Maintaining
Sustainability of Financial Performance"

  IDR Bond Issuance

     See: "Item 5 B Liquidity and Capital Resources -- Long-term Indebtedness"

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     The following summarizes TELKOM's contractual cash obligations at December
31, 2002, and the effect such obligations are expected to have on liquidity and
cash flow in future periods:

<Table>
<Caption>
                                                   PAYMENT DUE BY PERIOD (IN MILLION RUPIAH)
                                          ------------------------------------------------------------
                                                     LESS THAN
CONTRACTUAL OBLIGATION                     TOTAL      1 YEAR     1-3 YEARS   4-5 YEARS   AFTER 5 YEARS
----------------------                    --------   ---------   ---------   ---------   -------------
<S>                                       <C>        <C>         <C>         <C>         <C>
Two-step loan(1)........................   8,530.6      836.1     1,728.9     1,434.1       4,531.5
Guaranteed notes(2).....................   1,337.5         --          --     1,337.5            --
Bonds(2)................................   1,000.0         --          --     1,000.0            --
Liability for acquisition of a
  subsidiary(3).........................     808.0      808.0                      --            --
Suppliers' credit loans(4)..............     338.7      163.1       175.6          --            --
Long-term bank loan(2)..................     247.4      162.1        85.3          --            --
Bridging loans(5).......................      95.5       42.1        53.4          --            --
Short-term bank loan....................      39.2       39.2          --          --            --
Project cost payable....................      15.5         --          --          --          15.5
Others..................................      10.2        9.0         1.2          --           9.3
                                          --------    -------     -------     -------       -------
          Total.........................  12,422.6    2,051.5     2,043.2     3,771.6       4,556.3
                                          ========    =======     =======     =======       =======
</Table>

---------------

(1) Relates to a series of two-step loans from the Government. See "-- Liquidity
    and Capital Resources -- Long-Term Indebtedness -- Two-Step Loans" and Note
    24 to the Consolidated Financial Statements included elsewhere in this
    Annual Report.
(2) See Note 28 to the Consolidated Financial Statements included elsewhere in
    this Annual Report.
(3) Includes capitalized interest of liabilities incurred in the acquisition of
    90.32% equity interest in Dayamitra and 30% equity interest in Pramindo. See
    "-- Overview -- Changes in TELKOM's Business -- Acquisition of 90.32%
    interest in Dayamitra and Tomen Option" and Notes 5 and 27 to the
    Consolidated Financial Statements included elsewhere in this Annual Report.
(4) Relates to supplier and credit loans of Dayamitra guaranteed by TELKOM. See
    "-- Liquidity and Capital Resources -- Long-Term Indebtedness -- Dayamitra's
    Indebtedness" and Note 25 to the Consolidated Financial Statements included
    elsewhere in this Annual Report.
(5) Relates to a bridging facility of Dayamitra guaranteed by TELKOM. See
    "-- Liquidity and Capital Resources -- Long-Term Indebtedness -- Dayamitra's
    Indebtedness" and Note 26 to the Consolidated Financial Statements included
    elsewhere in this Annual Report.

OTHER CONTRACTUAL OBLIGATIONS AND COMMITMENTS

  NAPSINDO

     The Company pledged its time deposits of US$1.8 million as collateral for
the loan facility granted to Napsindo. The time deposits will mature on August
28, 2003.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

     TELKOM's consolidated financial statements are prepared in accordance with
accounting principles that are generally accepted in Indonesia. The consolidated
financial statements include the financial statements of the Company and its
subsidiaries if the Company has direct or indirect controlling interest of more
than 50% or has significant control, although TELKOM does not consolidate

                                       114
<PAGE>

a subsidiary if control is expected to be temporary. Subsidiaries acquired that
are accounted for using the purchase method are consolidated from the time the
Company obtains control on such subsidiaries. The preparation of these financial
statements requires TELKOM's management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses as well
as the disclosure of contingent assets and liabilities. TELKOM's management
continually evaluates its estimates and judgments including those related to
revenue recognition, allowances for doubtful accounts, allowance for inventory
obsolescence, useful lives of property, plant and equipment, useful lives of
property, plant and equipment under revenue sharing arrangements, investments,
pension and post-retirement benefits and income taxes. TELKOM's management bases
its estimates and judgments on historical experience and other factors that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. TELKOM also
provides a summary of significant differences between accounting principles
followed by TELKOM and its subsidiaries and U.S. generally accepted accounting
principles. TELKOM believes that of its significant accounting policies, the
following may involve a higher degree of judgment or complexity.

  REVENUE RECOGNITION

     TELKOM records revenue for fixed line telephone, cellular telephone and
other operating revenue transactions. TELKOM recognizes revenue from
installations (fixed line telephone) at the time the installations are placed in
service while those from usage charges are recognized as customers incur the
charges.

     Revenues from service connections (connection fee) are recognized as income
at the time the connection takes place, while those from airtime and monthly
subscription charges are recognized when earned. Revenues from prepaid card
customers, which consist of sale of starter packs, also known as Subscriber
Identification Module (SIM) cards and pulse reload vouchers, are recognized as
follows:

     - Sales of starter packs are recognized as revenue upon delivery of the
       starter packs to distributors, dealers or directly to customers, and

     - Sales of pulse reload vouchers are recognized initially as unearned
       income and recognized proportionately as revenue based on successful
       calls made by the subscribers or whenever the unused stored value of the
       voucher has expired.

     Other operating revenues such as revenue from network interconnection with
other domestic and international telecommunication carriers are recognized as
incurred and are presented on a net basis.

     Revenue earned under revenue-sharing arrangements is recognized on the
basis of TELKOM's share as provided in the agreement.

     TELKOM's share of distributable KSO revenue (revenue earned under Joint
Operation Schemes) is recognized on the basis of the agreed TELKOM's percentage
share of the KSO revenues, net of Minimum TELKOM Revenue (MTR) and operational
expenses of the KSO Units, as provided in the KSO agreements.

  ALLOWANCES FOR DOUBTFUL ACCOUNTS

     An allowance for doubtful account is provided based on a review of the
status of the individual receivable accounts at end of the year. TELKOM
maintains allowances for doubtful accounts for estimated losses that result from
the inability of TELKOM's customers to make required payments. TELKOM bases its
allowances on the likelihood of recoverability of accounts receivable based on
past experience and taking into account current collection trends that are
expected to continue. If economic or specific industry trends worsen beyond
TELKOM's estimates, TELKOM would increase its allowances for doubtful accounts
by recording additional expense.

                                       115
<PAGE>

  ALLOWANCES FOR INVENTORY OBSOLESCENCE

     Inventory is stated at cost or net realizable value, whichever is lower.
Cost is determined using the weighted average method, except for PT Graha Sarana
Duta (GSD), a subsidiary, which uses the first-in, first-out (FIFO) method.
TELKOM maintains allowances for inventory obsolescence for estimated losses that
result from net realizable value of the inventory.

  ESTIMATED USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT -- DIRECT ACQUISITIONS

     TELKOM estimates the useful lives of property, plant and equipment in order
to determine the amount of depreciation and amortization expense to be recorded
during any reporting period. The useful lives are estimated at the time the
asset is acquired and are based on historical experience with similar assets as
well as taking into account anticipated technological or other changes. If
technological changes were to occur more rapidly than anticipated or in a
different form than anticipated, the useful lives assigned to these assets may
need to be shortened, resulting in the recognition of increased depreciation and
amortization expense in future periods. Alternatively, these technological
changes could result in the recognition of an impairment charge to reflect the
write-down in value of the asset. TELKOM reviews these types of assets for
impairment annually, or when events or circumstances indicate that the carrying
amount may not be recoverable over the remaining lives of the assets. In
assessing impairments, TELKOM uses cash flows that take into account
management's estimates of future operations.

     The cost of maintenance and repairs is charged to operations as incurred;
expenditures which extend the useful life of the asset or result in increased
future economic benefits such as increase in capacity and improvement in the
quality of output or standard of performance are capitalized. When assets are
retired or otherwise disposed of, their carrying values and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in the current operations.

     Computer software used for data processing is added to the value of the
computer hardware to which it is attributed.

     Property under construction is stated at cost, which includes all borrowing
costs during construction on debts incurred to finance the construction. Gain on
foreign exchange that can be attributed to the property under construction is
adjusted to the foreign exchange differential and capitalized as a borrowing
cost. Property under construction is transferred to the respective property,
plant and equipment account when completed and ready for use.

  PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE SHARING-ARRANGEMENTS

     Under Indonesian Statement of Financial Accounting Standards ("PSAK") No.
35, "Accounting for Income from Telecommunications Services", assets under
revenue-sharing arrangements are to be capitalized by the party (the organizing
body) to whom ownership of such assets shall be transferred at the end of the
revenue-sharing period, if the following criteria are met:

     - there is a certainty that the organizing body will acquire the assets,
       the ownership of which will be transferred at the end of the
       revenue-sharing period;

     - the organizing body will be free from any claims from third parties with
       respect to the acquisition of such assets; and

     - the agreement covering the revenue-sharing arrangements is irrevocable.

     TELKOM records such assets as "Property, Plant and Equipment under
Revenue-Sharing Arrangements" (with a corresponding initial credit to "Unearned
Income under Revenue-Sharing Arrangements" presented under liabilities) based on
the costs incurred by the investors as agreed upon in the contracts entered into
by TELKOM and the investors. Property, plant and equipment are depreciated over
their estimated useful lives using the straight-line method.
                                       116
<PAGE>

     Property, plant and equipment and unearned income are recorded at the
beginning of the revenue-sharing period. The unearned income related to the
acquisition of the property, plant and equipment under revenue-sharing
arrangements is amortized over the revenue-sharing period using the straight-
line method.

     At the end of the revenue-sharing period, the respective property, plant
and equipment under revenue-sharing arrangements are reclassified to the
"Property, Plant and Equipment" account. When property, plant and equipment
under revenue-sharing arrangements are acquired by TELKOM before the end of the
revenue-sharing period, the net book value of the assets is reclassified to the
"Property, Plant and Equipment" account, and the balance of the related unearned
income is reflected as gain or loss in current operations.

  INVESTMENTS

     Investments in available for sale securities are stated at fair value.
Unrealized gains or losses from the increase or decrease in fair value are
recorded as part of equity and recognized as income or expenses of the period
when realized.

     Investments in shares of stock with ownership interest of 20% to 50%,
directly or indirectly owned, are accounted for using the equity method whereby
TELKOM's proportionate share in the income or loss of the associated company
after the date of acquisition is added to or deducted from, and the dividends
received are deducted from, the acquisition cost of the investments. Equity in
net income or losses is adjusted for the straight-line amortization, over five
years, of any goodwill recorded upon acquisition of associated companies. The
carrying amount of the investments is written down to recognize any permanent
decline in the value of individual investments. Any such write down is charged
directly to current operations.

     Investments in shares of stock with ownership interest of less than 20%
that do not have readily determinable fair values and are intended for long-term
investments are stated at cost. The carrying amount of the investments is
written down to recognize any more than temporary declines in the value of the
individual investments. Any such write down is charged directly to current
operations.

     Changes in the value of investments due to changes in the equity of
associated companies arising from capital transactions of such associated
companies with other parties are recognized in equity as "Difference Due to
Change of Equity in Associated Companies", and recognized as income or expenses
in the period in which the investments are disposed.

  PENSION AND POST-RETIREMENT BENEFITS

     TELKOM established a defined benefit pension plan covering all its
permanent employees.

     Current service cost is charged to operations in the current period. Past
service cost, actuarial adjustments and the effect of changes in assumptions for
active participants are amortized using the straight-line method over the
estimated average residual employment period that has been determined by the
actuary.

     The method used by the actuary for the actuarial calculation is the
Projected-Unit-Credit method.

     Early retirement benefits are recognized at the time TELKOM makes a strong
commitment to provide early retirement benefits as a result of an offer made in
order to encourage voluntary redundancy. TELKOM is demonstrably committed to a
termination when, and only when, TELKOM has a detailed formal plan for the early
retirement and such plan is without realistic possibility of withdrawal.

     TELKOM also recognizes the cost of providing post-retirement healthcare
plan benefits over the working lives of its employees based on actuarial
computations. This practice is similar to that provided by Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Post-retirement Benefits Other than Pensions" ("SFAS 106"), of U.S. GAAP.
                                       117
<PAGE>

     The amounts recognized in TELKOM's consolidated financial statements
related to pension and post-retirement benefits are determined on an actuarial
basis, which utilizes many assumptions in the calculation of such amounts. A
significant assumption used in determining TELKOM's net pension credit (income)
and post-retirement expense is the expected long-term rate of return on pension
fund assets. In 2002, TELKOM assumed an expected long-term rate of return on
pension fund assets of 13% with a salary growth rate of approximately 6.0%.

     Another estimate that affects TELKOM's net pension credit and
post-retirement expense is the discount rate used in the annual actuarial
valuations of pension and post-retirement benefit plan obligations. At the end
of each year, TELKOM determines the appropriate discount rate, which represents
the interest rate that should be used to determine the present value of future
cash flows currently expected to be required to settle the pension and
post-retirement benefit obligations. The discount rate is generally based on the
yield on high-quality corporate fixed-income investments. At December 31, 2002,
TELKOM's discount rate was 13.0%.

  INCOME TAXES

     Current tax expense is determined based on taxable income for the year
computed using prevailing tax rates.

     Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax liabilities are recognized for all taxable temporary
differences and deferred tax assets are recognized for deductible temporary
differences to the extent that it is probable that taxable income will be
available in future periods against which the deductible temporary differences
can be utilized.

     Deferred tax is calculated at the tax rates that have been enacted or
substantively enacted at the balance sheet date. Deferred tax is charged or
credited in the statement of income, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also charged or
credited directly to equity.

     Deferred tax assets and liabilities are offset in the balance sheet, except
if these are for different legal entities, in the same manner the current tax
assets and liabilities are presented.

C.  RESEARCH AND DEVELOPMENT AND INTELLECTUAL PROPERTY

     TELKOM makes significant investments to improve its product and service
offerings. Such expenditure amounted to approximately Rp.33.1 billion in 2000,
Rp.39.5 billion in 2001 and Rp.9.0 billion (US$1 million) in 2002.

     TELKOM does not at present own any registered patents, although it is in
the process of registering a patent on a smart phone terminal that it has
developed which allows subscribers to enjoy subscription features, including
caller line identification, SMS, and message waiting indicator. It has also
registered or is in the process of registering its trade and service marks in
Indonesia.

     TELKOM also has developed an in-house software application to aid in the
development of new telecommunication services and an in-house web-based software
application to aid in project management.

D.  TREND INFORMATION

     A number of developments have had an may have in the future a material
impact on TELKOM's results of operations, financial condition and capital
expenditures. These developments include:

     - increasing relative contribution of Telkomsel to our consolidated
       revenues;

     - higher domestic fixed line tariffs beginning in 2002;

                                       118
<PAGE>

     - commencement of an early retirement program in 2002;

     - ongoing issues with KSO Investors;

     - acquisition of a 30% equity interest in Pramindo;

     - conditional acquisition of AriaWest and settlement of AriaWest
       arbitration; and

     See "Item 5A. Operating Results -- Overview and -- Recent Developments".

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.  DIRECTORS AND SENIOR MANAGEMENT

     In accordance with Indonesian law, the Company adopt a two-tier board
structure, consisting of a Board of Commissioners and a Board of Directors. The
executive management functions are conducted by the Board of Directors, whose
members are comprised of the top executives of the Company, comparable to the
chief executive officer, chief financial officer and other such officers of
corporations incorporated under the laws of the States of the United States.

BOARD OF COMMISSIONERS

     TELKOM's Articles of Association (the "Articles"), referring to the
Indonesian Company Law, states that the principal statutory duties of the Board
of Commissioners is to supervise the policies of the Board of Director in the
operation and management of the Company and to give advice to the Board of
Director. In carrying out its supervisory activities, the Board of Commissioners
is accountable to the general meeting of shareholders.

     The Board of Commissioners, which supervises the management of TELKOM and
the implementation of TELKOM business plan by the Board of Director, does not
have day-to-day management functions or authority, except in limited
circumstances where all members of the Board of Directors have been suspended
for any reason.

     The Articles provide that the Board of Commissioners shall consist of at
least two (2) members, one of whom shall be the President Commissioner. The
current Board of Commissioner of TELKOM consist of five (5) members, two of whom
are independent commissioners.

     Pursuant to the Articles, each Commissioner is appointed for a term
commencing from the date of the appointment by the general meeting of
shareholders until the closing of the third annual general meeting of
shareholders following the date of appointment, without prejudice to the right
of the general meeting of shareholders to discharge a Commissioner at any time
before his or her term of office expires. If the position of a Commissioner
becomes vacant for any reason, the Articles further provide that within 60 days
as of the occurrence of such vacancy, an announcement that there will be notice
for a general meeting of shareholders must be made to nominate a successor.

     Pursuant to the Articles, meetings of the Board of Commissioners shall be
presided over by the President Commissioner. To fulfills where the President
Commissioner is absent, another member of the Board of Commissioners chosen from
the Commissioners present shall preside over the meeting.

     Meetings of the Board of Commissioners must be held at least once every
three months and at any other time (i) upon request of the President
Commissioner, (ii) upon request of one-third of the members of the Board of
Commissioners, (iii) upon written request of the Board of Directors, or (iv)
upon request of a shareholder or a group of shareholders holding at least
one-tenth of the outstanding shares of TELKOM with valid voting rights. The
quorum for all Board of Commissioners meetings is more than one-half of the
total number of the Commissioners then represented in person or by proxy granted
to one of the other Commissioners of TELKOM at such meeting.

     Resolutions of a meeting of the Board of Commissioners shall be by
consensus. If consensus cannot be reached, it shall be by the affirmative vote
of a majority of the members of the Board of

                                       119
<PAGE>

Commissioners present or represented at the meeting. In the event of a tie, the
proposed resolution shall be deemed to have been rejected.

     The current members of the Board of Commissioners of the Company are as
follows:

<Table>
<Caption>
                    NAME                      AGE            TITLE                 SINCE
                    ----                      ---   ------------------------   -------------
<S>                                           <C>   <C>                        <C>
Bacelius Ruru...............................  53    President Commissioner     April 7, 2000
P. Sartono..................................  58    Independent Commissioner   June 21, 2002
Arif Arryman................................  47    Independent Commissioner   June 21, 2002
Agus Haryanto...............................  49    Commissioner               June 21, 2002
Djamhari Sirat..............................  56    Commissioner               June 21, 2002
</Table>

  BACELIUS RURU

     Mr. Ruru has been President Commissioner of TELKOM since April 7, 2000. In
addition, he has served as Chairman of the Jakarta Initiative Task Force since
2000. Prior to that time, Mr. Ruru served in various positions with the Ministry
of Finance from 1973 to 2000. Mr. Ruru graduated with a degree in law from the
University of Indonesia and with an LLM degree from Harvard Law School. Mr. Ruru
is also the Chairman of Capital Market.

  P SARTONO

     Mr. P Sartono has been an Independent Commissioner of TELKOM since June 21,
2002. He joined TELKOM in 1990 and has held several positions at TELKOM
including Head of Sub-directorate of Legal and Overseas Relations Corporate
Secretary, as well as President Director of PT Telekomindo Primabhakti. Mr. P
Sartono holds a degree in law from Trisakti University and a Master of
Management (Marketing) from IPWI Jakarta.

  ARIF ARRYMAN

     Mr. Arryman has been an Independent Commissioner of TELKOM since June 21,
2002. In addition he has served as Independent Commissioner of PT Bank BNI since
2001. Previously, he served as an advisor to the Coordinating Minister of
Economy and a member of the assistance team to the Ministry of Finance. Mr.
Arryman graduated with a degree in Technical Industry from Bandung Institute of
Technology, a Master degree in Engineering from Asia Institute of Technology,
Bangkok, Diploma d'Etude Approfondie from University Paris-IX Dauphine France,
and a Ph.D degree in Economics from University of Paris-IX Dauphine France.

  AGUS HARYANTO

     Mr. Haryanto has been a Commissioner of TELKOM since June 21, 2002. In
addition, he has served as the Secretary General of Department of Finance since
2002. Previously, Mr. Sidhi served in various positions in the Department of
Finance. Mr. Haryanto graduated with a degree in Law from University of
Indonesia, an MA and Phd degree in Economics from University of Colorado, USA.

  DJAMHARI SIRAT

     Mr. Sirat has been a Commissioner of TELKOM since June 21, 2002. In
addition, he currently serves as the Director General of Post and
Telecommunications. Previously, Mr. Sirat served in various positions in the
Department of Tourism, Post and Telecommunications. graduated with a degree in
Electrical Engineering from University of Indonesia, an MSc and Phd degree from
University of Manchester, England.

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<PAGE>

BOARD OF COMMISSIONERS' COMMITTEES

     The Board of Commissioners has currently two standing committees: the Audit
Committee and the Nomination and Remuneration Committee. An Independent
Commissioner chairs both committees, while the committees other members consist
entirely of external and non affiliated members.

     The Audit Committee of the Board of Commissioners currently composed of 3
(three) members, Mr. Arif Arryman, an Independent Commissioner is the Chairman;
Mr. Ghazali Latief, an independent external member, is the financial and
accounting expert; and Mr. Sutardi, an independent external member, is the
corporate and legal affairs expert. An Audit Committee Charter (the "Charter")
that has been adopted by the Board of Commissioners and Board of Directors
governs the committee. The Charter outlines the committee's purpose, function
and responsibilities and specify that the committee is responsible for:

     - overseeing the Company's financial reporting process on behalf of the
       Board of Commissioners. As part of its responsibilities, the committee
       will recommend to the Board of Commissioners, subject to shareholder
       approval, the selection of the TELKOM's external auditor;

     - discussing with the internal auditors and the external auditor the
       overall scope and specific plans for their respective audits. The
       committee will also discussed the TELKOM's consolidated financial
       statements and the adequacy of the TELKOM's internal controls;

     - meeting regularly with TELKOM's internal auditors and external auditor,
       without management present, to discuss the results of their examinations,
       their evaluation of TELKOM's internal controls, and the overall quality
       of TELKOM's financial reporting; and

     - carrying out additional tasks that are assigned by the Board of
       Commissioners, especially on financial and accounting related matters.

     The Nomination and Compensation Committee of the Board of Commissioners was
established on September 19, 2002. Currently the committee is composed of four
(4) members. Mr Petrus Sartono, an Independent Commissioner is the chairman; Mr.
Budi W. Soetjipto, Mr. Ferdinand T Siagaan and Mr. Wustari H. Mangunwidjaya are
the other independent members. The independent members are human resource and
compensation system experts contracted for a limited period. Based on the Board
of Commissioner decree, the Nomination and Compensation Committee's main task
and responsibility include the following:

     - formulating selection criteria and nomination procedure for Commission
       and Directors;

     - selecting and nominating the candidates for Commissioners and Directors;

     - establishing selection criteria and requirements for Senior Managers;

     - establishing criteria and procedure for evaluating Director's
       performance;

     - evaluating Commissioners performance using peer review;

     - evaluating and overseeing the practice of Good Corporate Governance in
       the selection and nomination system;

     - formulating a compensation system for Commissioners and Directors; and

     - developing and evaluating a company-wide compensation system.

     The Commissioners' business address is Jalan Gatot Subroto No. 52, Jakarta
12570, Indonesia.

BOARD OF DIRECTORS

     The Board of Directors consists of one President Director and four
Directors. Directors are elected and dismissed by shareholders' resolutions at a
general meeting of shareholders, which meeting must be attended by the holder of
the Dwiwarna Share and which resolution must be approved by the

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<PAGE>

holder of the Dwiwarna Share. Each Director is appointed for a term commencing
from the date of appointment by the general meeting of shareholders from
candidates nominated by the holder of the Series A Dwiwarna Share until the
closing of the fifth annual general meeting of shareholders after the date of
appointment, without prejudice to the right of the general meeting of
shareholders to discharge a Director at any time before his/her term of office
expires.

     The principal functions of the Board of Directors are to lead and manage
TELKOM and to control and manage TELKOM's assets. The Board of Directors is
responsible for the day-to-day management of TELKOM under the supervision of the
Board of Commissioners. The Articles provide that the Board of Directors shall
consist of at least two Directors, one of whom shall be the President Director.

     The President Director, or in case of his absence, another Director as
provided for in the Articles shall have authority to represent TELKOM and
execute documents on behalf of TELKOM, subject to the provisions of the
Articles. The President Director shall preside over meetings of the Board of
Directors or in his absence, any other member of the Board of Directors
appointed from among and by those present may preside over such meetings.

     The Articles provide that meetings of the Board of Directors may be held
whenever considered necessary upon the request of (i) the President Director,
(ii) at least one-third of the members of the Board of Directors, (iii) the
Board of Commissioners, or (iv) any shareholder or a group of shareholders
holding at least one-tenth of the outstanding shares of TELKOM with valid voting
rights. The Articles further provide that the quorum for all Directors' meetings
is more than one-half of the members of the Board of Directors present or
represented in person or by proxy granted to another Director of TELKOM in such
meeting. At Directors' meetings, each Director shall have one vote and one
additional vote for each other Director he represents as proxy.

     Resolutions of a meeting of the Board of Directors shall be by consensus.
If consensus cannot be reached, it shall be by the affirmative vote of a
majority of the members of the Board of Directors present or represented at the
meeting. In the event of a tie, the matter shall be determined by the Chairman
of the meeting.

     The current members of the Board of Directors are as follows:

<Table>
<Caption>
NAME                    AGE                        TITLE                             SINCE
----                    ---   ------------------------------------------------   -------------
<S>                     <C>   <C>                                                <C>
Kristiono.............  49    President Director                                 June 21, 2002
Agus Utoyo............  50    Director of Human Resources and Support Business   June 21, 2002
Guntur Siregar........  51    Director of Finance                                June 21, 2002
Garuda Sugardo........  53    Director of Telecommunications Service Business    June 21, 2002
Suryatin Setiawan.....  48    Director of Telecommunications Network Business    June 21, 2002
</Table>

  KRISTIONO

     Mr. Kristiono has been the President Director of TELKOM since June 21,
2002. He joined TELKOM in 1978 and has held several positions in various
departments. He previously served as Director of Technology and Planning of
TELKOM and Head of Regional Division V Surabaya. Mr. Krisiono graduated with a
degree in Electrical Engineering from Surabaya Institute of Technology.

  AGUS UTOYO

     Mr. Utoyo has been the Director of Human Resources and Support Business of
TELKOM since June 21, 2002. Since 1975 he has held various positions in TELKOM.
Mr. Utoyo holds a degree in Electrical Engineering from Maranatha Christian
University. Mr. Utoyo was previously the Head of the Regional Division I
Sumatra.

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<PAGE>

  GUNTUR SIREGAR

     Mr. Siregar has been the Director of Finance of TELKOM since June 21, 2002.
Previously, he served in as Director of Commerce of PT Indosat and TELKOM's Head
of Regional Division II Jakarta. Mr. Siregar holds a degree in Electrical
Engineering from Bandung Institute of Technology.

  GARUDA SUGARDO

     Mr. Sugardo has been the Director of Telecommunications Service Business of
TELKOM since June 21, 2002. Previously, he served in as Director of Operation
and Technical of PT Indosat well as a number of positions at TELKOM from 1977 to
2000. Mr. Sugardo holds a degree in Electrical Engineering from University of
Indonesia.

  SURYATIN SETIAWAN

     Mr. Setiawan has been the Director of Telecommunications Network Business
of TELKOM since June 21, 2002. Previously, he served as head of TELKOM's
Research and Technology Division from 1995 to 2001. In addition, Mr. Setiawan
currently served as the President Commissioner for Telkomsel. Mr. Setiawan
graduated with a degree in Electrical Engineering from Bandung Institute of
Technology.

     None of the Directors has a service contract with the Company nor are any
such contracts proposed. The Directors' business address is Jalan Japati, 1,
Bandung 40133, Indonesia. None of the Directors or Commissioners is related to
one another.

B.  COMPENSATION

     Each Commissioner is granted a monthly honorarium and certain other
allowances and is paid an annual bonus if TELKOM surpasses certain financial
operating targets, the amounts of which are determined by the shareholders at
the general meeting of shareholders. Each Commissioner also receives a lump-sum
bonus paid at the end of the Commissioner's term pursuant to an MOF letter which
applies to all state-owned companies. Each Director is granted a monthly salary
and certain other allowances (including a pension if such Director is otherwise
eligible). Each Director also receives an annual bonus (tantiem) if TELKOM
surpasses certain financial and operating targets, the amounts of which are
determined by the shareholders at the general meeting of the shareholders.
Bonuses are budgeted annually and are based on the recommendation of the Board
of Directors which recommendation must be approved by the Board of Commissioners
before submission to the shareholders. No fees are paid to the Commissioners or
Directors for their attendance at their respective board meetings. In addition,
Directors receive certain other in-kind benefits, such as housing, car and
driver. For the year ended December 31, 2002, the aggregate compensation paid by
the Company to all Commissioners and Directors as a group was Rp.10.09 billion
(US$1.1 million) (including bonuses and the cost of benefits provided to
Directors, such as housing facilities and transportation allowances).

C.  BOARD PRACTICES

     Individual Directors are charged with specific responsibilities. In the
event that a vacancy occurs in the Board of Directors, so long as the position
remains vacant, one of the other directors will be nominated by the Board of
Commissioners to perform the work of the absent director. If, for any reason,
the Company ceases to have any Directors, the Board of Commissioners is to
assume the ongoing obligations of the Board of Directors and must convene a
general meeting of shareholders to elect a new Board of Directors within at
least 60 days.

     The Board of Directors is required to obtain the written approval of the
Board of Commissioners for the following actions: buying or selling the shares
of listed companies in excess of the amount stipulated by the Board of
Commissioners; participating in or disposing of other capital investments;
establishing subsidiaries; entering into licensing agreements, management
contracts or similar agreements with other entities for a period of more than
one year; selling or otherwise disposing of fixed

                                       123
<PAGE>

assets; ceasing to collect or writing off bad debts from the Company's books or
inventory in excess of the amount stipulated by the Board of Commissioners;
binding the Company as surety in excess of the amount stipulated by the Board of
Commissioners; and assuming or granting intermediate or long-term loans and
assuming short-term loans not in the ordinary course of business in excess of
the amount stipulated in the Company's work plan and budget, as approved by the
Board of Commissioners. In addition, any of the above transactions which
involves 5% or more of the Company's revenues or 10% or more of stockholders'
equity or such other amount as specified in Indonesian capital market
regulations must be authorized by the shareholders at the general meeting of
shareholders. In the performance of its duties, the Board of Directors must act
in the interests of the Company.

     The Articles provide that members of the Board of Directors are prohibited
from assuming the following: (i) a position as director of another state-owned
corporation or private companies, (ii) any position within the structural or
functional department of the central or district government, or (iii) other
positions outside TELKOM which may directly or indirectly raise conflicts of
interest with TELKOM and/or which violate the provisions of applicable laws and
regulations. The Articles further provide that if members of the Board of
Directors wish to assume any other position not prohibited above or wish to
obtain an exemption from the foregoing prohibitions, such Director would require
permission from the Board of Commissioners. In addition, such appointment shall
be reported to the general meeting of shareholders.

     In addition, the Articles prohibit a Director with conflicting interests
representing TELKOM in the issues causing such conflict of interest. In such
cases, TELKOM shall be represented by another member of the Board of Directors
with the consent of the Commissioners. In the event that TELKOM faces a conflict
of interest with all members of its Board of Directors, TELKOM shall be
represented by the Board of Commissioners or a member of the Board of
Commissioners chosen by the Commissioners in the issues causing such conflict.

     None of the Directors or Commissioners has any substantial interest, direct
or indirect, in any company carrying on a similar trade as TELKOM.

D.  EMPLOYEES

     As of December 31, 2002, the Company had 34,678 employees, of which 24,543
and 10,135 personnel were employed in TELKOM and KSO Regions respectively. As of
December 31, 2001, the Company had 37,422 employees, of which 18,926 and 18,496
personnel were employed in TELKOM and KSO Regions respectively. As of December
31, 2000 the Company had 37,705 employees, of which 18,917 and 18,788 were
employed in TELKOM and KSO regions respectively.

     The table below sets forth a breakdown of TELKOM's employees by position as
at December 31, 2002:

<Table>
<Caption>
                                                            TELKOM REGIONS         KSO REGIONS
                                                                 AS AT                AS AT
                                                           DECEMBER 31, 2002   DECEMBER 31, 2002(1)
                                                           -----------------   --------------------
<S>                                                        <C>                 <C>
Senior management........................................          178                     2
Middle management........................................        1,808                   305
Supervisors..............................................        5,910                 2,128
Others...................................................       16,647                 7,700
                                                                ------                ------
          Total..........................................       24,543                10,135
                                                                ======                ======
</Table>

---------------

Note:
(1) This includes employees in KSO I (Pramindo) and KSO III (AriaWest), both of
    which are subject to conditional sale and purchase agreements.

                                       124
<PAGE>

     TELKOM's KSO Employees remain employees of TELKOM and are subject to all
employment rules and policies of TELKOM in force at that time, except to the
extent that rules and policies are supplemented, in favor of the employee, by
the rules and policies of the KSO Unit. Additional KSO Employees are the
employees of the KSO Investor, and TELKOM has no obligation to continue their
employment at the end of the KSO Period.

     In general, TELKOM employees receive a base salary and salary-related
allowances, a bonus and various benefits, including a pension plan, medical
benefits for themselves and certain members of their immediate family, housing
allowance, other allowances and certain other benefits, including those related
to performance of the employee's working unit.

     Bonuses are budgeted in advance by the Board of Directors and the Board of
Commissioners and are paid out in the year following the year in which they are
earned. Over the past five years, the size of the annual bonus pool has ranged
from Rp.134 billion to Rp.197 billion. Bonuses paid by TELKOM are allocated only
to Non-KSO Division employees. After the size of the bonus pool is determined,
management allocates the pool among the Divisions depending upon their
respective performances, and uniform bonuses for employees at each staff level
for each Division are then determined.

     Pursuant to TELKOM's initial public offering in 1995, 116,667,000 shares of
Common Stock were reserved for mandatory sale to employees of the Company. The
Company paid for such shares (which were sold at the same per share price as the
public offering price of shares of Common Stock sold in Indonesia pursuant to
the Initial Public Offering (i.e., Rp.2,050 per share)) on behalf of its
employees as follows: 90% of the purchase price was deducted from employee cash
bonuses that had been previously allocated but not paid; the Company paid the
balance of the purchase price plus taxes payable by its employees on the
purchase of such shares (amounting to approximately 15% of the purchase price)
and reported those payments as additional vacation pay, employee incentives and
other allowances. TELKOM does not otherwise maintain an employee share scheme
for any of its employees or senior management.

     TELKOM'S mandatory retirement age for all employees is 56. Upon reaching
56, employees and their dependents are entitled to a pension under a defined
benefit plan depending on their length of service to TELKOM. The amount of the
pension entitlement is based on the employee's years of service and salary level
upon retirement and is transferable to dependents upon the employee's death. The
main sources of pension fund are the contributions from the employees and
TELKOM. Employees contribute 8.4% of basic salary and TELKOM contributes the
remaining amount required to fund the plan. TELKOM's contributions to the
pension fund were Rp.228.5 billion, Rp.129.3 billion and Rp.327.8 billion
(US$36.8), respectively, for the years ended 2000, 2001 and 2002. See Note 45 to
the Consolidated Financial Statements.

     On July 1, 2002, TELKOM has increased the minimum pension benefit for
retired employee to approximately Rp.425,000 per month effective as of January
1, 2003. Current employees who effectively retired since July 2002 receive an
increase of monthly pension benefit amounting to twice the amount of it's basic
monthly salary. This policy applied to employees who retired at normal pension
age (56).

     TELKOM also provides post-retirement healthcare benefits for all of its
retired employees, including their immediate family. There are two types of
funding for post-retirement healthcare benefits: (i) for employees hired before
November 1, 1995 and have 20 years of service, will be funded by TELKOM
Healthcare Foundation; (ii) for employees hired after November 1, 1995, will be
insuranced by Company through Insurance Company. TELKOM's contributions to the
plan were Rp.82.9 billion, Rp.40.3 billion and Rp.55 billion (US$6.2),
respectively, for 2000, 2001, and 2002. See Note 46 to the Consolidated
Financial Statements.

     In May 2000, TELKOM employees formed a union named "Serikat Karyawan
TELKOM" or "SEKAR". The formation of SEKAR is in accordance with the
Presidential Decree No. 83 of 1998 regarding ratification of ILO Convention No.
87 of 1948 concerning the freedom to form a union and the protection of the
right to form an organization. As of December 31, 2002, approximately 90% of

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<PAGE>

TELKOM's employees were members of SEKAR. Such membership is not compulsory.
Although TELKOM believes that its relations with SEKAR are good, SEKAR has held
various protests and work stoppages, mainly in relation to the transfer of KSO
IV assets to Indosat and operational disputes between AriaWest and TELKOM
employees in the KSO III region.

E.  SHARE OWNERSHIP

     All the directors and commissioners individually beneficially own less than
one percent of the shares of the Company and their respective beneficial share
ownership in the Company has not been disclosed to shareholders or otherwise
made public.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.  MAJOR SHAREHOLDERS

GENERAL

     At March 14, 2003, to the Company's knowledge, apart from the Government,
there were no shareholders beneficially owning more than 5% of the Company's
Common Stock.

     The following table sets forth certain information as of December 31, 2002
with respect to (1) persons known to the Company to be the owner of more than 5%
of the Company's Common Stock (whether directly or beneficially through ADSs);
and (2) the total amount of any class of the Company's Common Stock owned by the
Commissioners and Directors of the Company as a group.

<Table>
<Caption>
                         IDENTITY OF
TITLE OF CLASS         PERSON OR GROUP   AMOUNT OWNED    PERCENT OF CLASS
--------------         ---------------   -------------   ----------------
<S>                    <C>               <C>             <C>
Series A                 Government                 1           100%
Series B                 Government      5,160,235,355        51.19%
</Table>

     As of December 31, 2002, a total of 36,054,553 American Depositary Shares
("ADSs") and 10,079,999,639 series B shares (including the series B shares
represented by these ADSs) were outstanding.

     The Government holds a majority of the outstanding series B shares of
TELKOM. In addition, the Government is the holder of the series A Dwiwarna
share, which has special voting rights. See "Item 7. Major Shareholders and
Related Party Transactions -- Relationship with the Government -- Government as
Shareholder".

     The Government holds a majority of the outstanding Common Stock of the
Company and so retains control of the Company and has the power to elect all of
its Board of Commissioners and all of its Board of Directors and to determine
the outcome of substantially all actions requiring the approval of the
shareholders. In addition, the Company's Common Stock is also owned by Pension
Funds, Insurance Funds and other Institutions, owned or controlled, directly or
indirectly, by the Government.

     The Government is also the holder of the Dwiwarna Share, which has special
voting rights. The material rights and restrictions which are applicable to the
Common Stock are also applicable to the Dwiwarna Share, except that the
Government may not transfer the Dwiwarna Share and it has a veto with respect to
(i) election and removal of Directors; (ii) election and removal of
Commissioners; and (iii) amendments to the Articles of Association, including
amendments to merge or dissolve the Company prior to the expiration of its term
of existence, increase or decrease its authorized capital, and reduce its
subscribed capital. Accordingly, the Government will have effective control of
these matters even if it were to beneficially own less than a majority of the
outstanding shares of Common Stock.

     TELKOM's total number of shares immediately prior to its initial public
offering was 8,400,000,000, which consisted of 8,399,999,999 series B shares and
1 series A Dwiwarna share, all of which were owned by the State of the Republic
of Indonesia. On November 14, 1995, the Government sold some of its TELKOM
shares through an initial public offering on the Jakarta Stock Exchange and
Surabaya Stock Exchange. The shares offered consisted of 933,333,000 new series
B shares and 233,334,000

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<PAGE>

series B shares owned by the State of the Republic of Indonesia. The Government
also conducted a global share offering listed on the New York Stock Exchange and
the London Stock Exchange for 700 million series B shares owned by the State of
the Republic of Indonesia, which were converted into 35 million ADSs. Each ADS
represents 20 series B shares.

     In December 1996, the Government of the Republic of Indonesia completed a
block sale of 388 million series B shares. In 1997, the Government distributed
2,670,300 series B shares as an incentive to stockholders who did not sell their
shares within one year from the date of the initial public offering.

     In May 1999, the Government completed another block sale of 898 million
series B shares.

     Under Law No.1/1995 on Limited Liability Companies, the minimum total par
value of TELKOM's issued share capital has to be at least 25% of the total par
value of TELKOM's authorized share capital, or in TELKOM's case, Rp.5 trillion.
To comply with the law, it was resolved at the annual general meeting of
shareholders on April 16, 1999 to increase the issued share capital by way of
capitalization of certain additional paid in capital. The bonus shares were
distributed to the then existing shareholders in August 1999.

     In December 2001, the Government conducted another block-sale of 1,200
million shares (or 11.90% of the total outstanding series B shares).

     In July 16, 2002, the Government sold 312 million B shares (3.1% of total
listed B shares) through an accelerated placement of the Company's shares to
institutional investors in Indonesia and globally at Rp.3,635 per share.

RELATIONSHIP WITH THE GOVERNMENT

  GOVERNMENT AS SHAREHOLDER

     As of December 31, 2002, the Government held approximately 51.19% of
TELKOM's Common Stock and the Series A share (the "Dwiwarna Share"), which
carries special voting rights. As its largest shareholder, the Government is
interested in TELKOM's performance both in terms of the benefits it provides to
the nation as well as its ability to operate on a commercial basis. The
Government is also the holder of the Series A share (the "Dwiwarna Share"),
which has special voting rights. The material rights and restrictions that are
applicable to the Common Stock are also applicable to the Dwiwarna Share, except
that the Government may not transfer the Dwiwarna Share and as the holder of the
Dwiwarna Share has a veto with respect to (i) the nomination, election and
removal of Directors; (ii) the nomination, election and removal of
Commissioners; (iii) the issuance of new shares; and (iv) amendments to the
Articles, including actions to merge or dissolve TELKOM, increase or decrease
its authorized capital, or reduce its subscribed capital. Accordingly, the
Government will have effective control of these matters even if it were to
beneficially own less than a majority of the outstanding shares of Common Stock.
The Government's rights with respect to the Dwiwarna Share will not terminate
unless the Articles of Association of the Company are amended, which would
require the consent of the Government as holder of such Dwiwarna Share.

     It is the policy of the Company not to enter into transactions with
affiliates unless the terms thereof are no less favorable to the Company than
those which could be obtained by the Company on an arm's-length basis from an
unaffiliated third party. The State Minister of State-owned Enterprise ("SMSOE")
has advised the Company that the MoF, in its capacity as controlling shareholder
of the Company, will not cause the Company to enter into transactions with other
entities under its control unless the terms thereof are consistent with the
Company's policy set forth in the preceding sentence. The Company anticipates
that the SMSOE will adopt a similar policy.

     Under regulations of Badan Pengawas Pasar Modal ("BAPEPAM"), Indonesia's
capital markets supervisory agency, because the Company is listed on Indonesia's
stock exchanges, any transaction in which there is a conflict of interest (as
defined below) must be approved by a majority of the holders of

                                       127
<PAGE>

shares of Common Stock who do not have a conflict of interest in the proposed
transaction, unless the conflict existed before the Company was listed and was
fully disclosed in the offering documents. A conflict of interest is defined in
BAPEPAM regulations to mean the difference between the economic interests of the
Company and its shareholders, on the one hand, and the personal economic
interests of the members of the board of commissioners, board of directors or
principal shareholders (a holder of 20% or more of the issued shares), and their
respective affiliates jointly or separately on the other. A conflict of interest
also exists when members of the board of commissioners, board of directors or a
principal shareholder of the Company or their respective affiliates is involved
in a transaction in which their personal interests may be in conflict with the
interest of the Company. BAPEPAM has powers to enforce this rule; shareholders
of the Company may also be entitled to seek enforcement or bring enforcement
action based on this rule.

     Transactions between TELKOM and other state-owned or controlled enterprises
could constitute "conflict of interest" transactions under the BAPEPAM
regulations, and the approval of disinterested shareholders would have to be
obtained if a conflict of interest were to exist. TELKOM believes that many
transactions conducted with state-owned or controlled enterprises in the
ordinary course of their businesses and TELKOM's business are on an arms-length,
commercial basis and do not constitute "conflict of interest" transactions for
which a disinterested shareholder vote would be required. Such transactions
might include the sale by TELKOM of telephone services to state-owned or
controlled enterprises or the purchase by TELKOM of electricity from a
state-owned enterprise. Moreover, the BAPEPAM regulations do not require TELKOM
to obtain disinterested shareholder approval of any transaction, the principal
terms of which were disclosed in the Indonesian prospectus for the Initial
Public Offering. TELKOM expects, however, in light of the substantial presence
enterprises owned or controlled by the Government, through the MOF, SMSOE, or
one of its or their affiliates have in Indonesia, it may be desirable, in
connection with the development and growth of TELKOM's business, for TELKOM to
enter into joint ventures, arrangements or transactions with such enterprises
from time to time. Under such circumstances, TELKOM may seek to consult BAPEPAM
in determining whether the proposed joint venture, arrangement or transaction
would require a vote of disinterested shareholders under the terms of the
BAPEPAM regulations. If BAPEPAM were of the view that the proposed joint
venture, arrangement or transaction would not require a vote of disinterested
shareholders under its regulations, TELKOM would proceed without seeking
disinterested shareholder approval. If, however, BAPEPAM were to take the
position that the proposal would require a vote of disinterested shareholders
under its rule, TELKOM would either seek to obtain the requisite disinterested
shareholder approval or abandon the proposal.

  GOVERNMENT AS REGULATOR

     The Government regulates the telecommunications sector through the MoC. In
particular, the MoC has authority to issue decrees implementing laws, which are
typically broad in scope, thereby giving the Ministry considerable latitude in
implementing and enforcing regulatory policy. Pursuant to such decrees, the MoC
defines the industry structure, determines the tariff formula, determines
TELKOM's USO obligations and otherwise controls many factors that may affect
TELKOM's competitive position, operations and financial condition. Through the
DGPT, the Government regulates frequency and bandwidth allocation, and TELKOM
must obtain a license from the DGPT for each of its services as well as the
utilization of frequency and bandwidths. The Company and other operators are
also required to pay radio frequency usage fees. Telkomsel also holds several
licenses issued by the MoC for the provision of its cellular services and from
BKPM relating to investment by Telkomsel for the development of cellular phone
line services with national coverage, including the expansion of its network
coverage. The Government through the MoC, as regulator has the power to grant
new licences for the establishment of new joint ventures and other arrangements,
particularly in the telecommunications sector

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<PAGE>

  GOVERNMENT AS LENDER

     As of December 31, 2002, the Government has sub-loaned borrowings from
foreign lenders amounting to Rp. 8,389.04 billion (US$ 936.28 million). TELKOM
is obligated to pay to the Government interest and principal repayment that is
subsequently remitted by the Government to the respective lenders. At the end of
December 2002, foreign currency loans represented 59.33% of the outstanding
total of such loans. The remaining 40.67% of such outstanding loans is
denominated in Rupiah. In 2002, the annual interest rates charged on loans
repayable in Rupiah range from 12.25% to 17.75%, on those repayable in U.S.
Dollar range from 4.0% to 8.8% and on those repayable in Japanese Yen range from
3.1% to 3.20%.

  GOVERNMENT AS CUSTOMER

     The Government purchases services from the Company on a commercial basis.
Government entities, in the aggregate, constitute the largest user of the
Company's services. The Company, however, deals with the various departments and
agencies of the Government as separate customers, and the provision of services
to any single department or agency does not constitute a material part of
TELKOM's revenues. The Government and government agencies are treated for tariff
purposes as "residential". which rates are lower than the business service
rates.

OTHER

  PROPORTION OF SECURITIES OF TELKOM HELD IN INDONESIA AND OUTSIDE INDONESIA

     As of December 31, 2002, 15,678 persons, including the Government, were
registered as holders of 10,079,999,640 shares of TELKOM's Common Stock in
Indonesia. There were a total of 36,054,553 ADSs held by 175 registered holders
as of December 31, 2002. Such ADSs are traded on the NYSE and the LSE.

  CHANGE IN CONTROL

     There are no arrangements which are known to the Company which may result
in a change in control to the Company.

B.  RELATED PARTY TRANSACTIONS

     TELKOM is a party to certain agreements and engages in transactions with a
number of entities that are related to the Company, such as joint venture
companies, cooperatives and foundations, as well as the Government and entities
that are related to or owned or controlled by the Government, such as
state-owned entities. See Note 47 to the Company's Consolidated Financial
Statements. The most significant of these transactions include:

  GOVERNMENT OF THE REPUBLIC OF INDONESIA

     The Company obtained "two-step loans" from the Government of the Republic
of Indonesia, the Company's majority shareholder.

     The Company and its subsidiaries pay concession fees for telecommunication
services provided and radio frequency usage charges to the Ministry of
Communication (formerly, Ministry of Tourism, Post and Telecommunication) of the
Republic of Indonesia. Concession fees amounted to Rp78.5 billion, Rp63.6
billion and Rp70.6 billion in 2000, 2001 and 2002, respectively. Concession fees
reflected 1.2%, 0.7% and 0.6% of total operating expenses in 2000, 2001, and
2002, respectively. Radio frequency usage charges amounted to Rp16.7 billion,
Rp101.3 billion and Rp11.9 billion in 2000, 2001 and 2002, respectively. Radio
frequency usage charges reflected 0.3%, 1.2%, and 0.1% of total operating
expenses in 2000, 2001, and 2002, respectively.

                                       129
<PAGE>

  COMMISSIONERS AND DIRECTORS REMUNERATION

     The Company and its subsidiaries provide honorarium and facilities to
support the operational duties of the Board of Commissioners. Total of such
benefits amounted to Rp4.8 billion, Rp7.2 billion, and Rp9 billion in 2000, 2001
and 2002, respectively, which reflected 0.1%, 0.1%, and 0.1% of total operating
expenses in 2000, 2001, and 2002, respectively.

     The Company and its subsidiaries provide salaries and facilities to support
the operational duties of the Board of Directors. Total of such benefits
amounted to Rp22,650 million, Rp30,329 million, and Rp42.7 billion in 2000, 2001
and 2002, respectively, which reflected 0.4%, 0.4%, and 0.4% of total operating
expenses in 2000, 2001, and 2002, respectively.

  INDOSAT

     The Company has an agreement with Indosat, a majority state-owned
international telecommunication services company, for the provision of
international telecommunication services to the public. The principal matters
covered by the agreement are as follows:

     - The Company provides a local network for customers to make or receive
       international calls. Indosat provides the international network for the
       customers, except for certain border towns, as determined by the Director
       General of Post and Telecommunication of the Republic of Indonesia. The
       international telecommunication services include telephone, telex,
       telegram, package switched data network, television, teleprinter,
       Alternate Voice/Data Telecommunication (AVD), hotline and
       teleconferencing. The Company receives compensation for the services,
       based on the interconnection tariff determined by the Minister of
       Tourism, Post and Telecommunication of the Republic of Indonesia.

     - The Company has also entered into an interconnection agreement between
       the Company's PSTN network and Indosat's STBS network in connection with
       the implementation of Indosat Multimedia Mobile services and the
       settlement of the related interconnection rights and obligation. Pursuant
       to the Minister of Communication Decree regarding the transfer of license
       of Indosat's mobile cellular network operation from Indosat to PT Indosat
       Multimedia Mobile ("IM3"), the Company agreed to transfer all
       interconnection rights and obligations to IM3 based on Interconnection
       Cooperation Agreement, as regulated in the Amendment of Agreement in the
       side letter No. 656 dated March 18, 2002.

     - The Company's compensation relating to leased lines/channel services,
       such as IBS, AVD and printers is calculated at 15% of Indosat's revenues
       from such services. Indosat also leases circuits from the Company to link
       Jakarta and Medan.

     - The Company has been handling customer billing and collection for
       Indosat. Indosat is gradually taking over the activities and performing
       its own direct billing and collection. The Company receives compensation
       from Indosat computed at 1% of the collections made by the Company
       beginning January 1, 1995, plus the billing process expenses which are
       fixed at a certain amount per record.

     Telkomsel also entered into an agreement with Indosat for the provision of
international telecommunication services to GSM mobile cellular customers. The
principal matters covered by the agreement are as follows:

     - Telkomsel's GSM mobile cellular telecommunication network is connected
       with Indosat's international gateway exchanges to make outgoing or
       receive incoming international calls through Indosat's international
       gateway exchanges.

     - Telkomsel receives as compensation for the interconnection, a specific
       percentage of Indosat's revenues from the related services made through
       Indosat's international gateway exchanges.

                                       130
<PAGE>

     - Billings for international calls made by customers of GSM mobile cellular
       telecommunication are handled by Telkomsel. Telkomsel is obliged to pay
       Indosat's share of revenue although billings to customers have not been
       collected.

     - The agreement dated March 29, 1996, was initially valid for one year, but
       extendable for one-year periods as agreed by both parties. The latest
       extension expired on February 28, 2003. Telkomsel is still negotiating a
       new agreement In the interim, interconnection revenue was charged based
       upon the previous agreement.

     The Company and its subsidiaries earned net interconnection revenues from
Indosat of Rp.93.2 billion, Rp.54.0 billion and Rp.158 billion in 2000, 2001 and
2002, respectively, reflecting 0.8%, 0.3%, and 0.7% of total operating revenues
in 2000, 2001, 2002, respectively.

     Telkomsel also has an agreement for the usage of Indosat's
telecommunication facilities. The agreement, which was made in 1997, is valid
for eleven years, and subject to change based on an annual review and agreement
by both parties. The charges for the usage of the facilities amounted to Rp.11.8
billion, Rp.13.4 billion and Rp.12.7 billion in 2000, 2001 and 2002,
respectively, reflecting 0.2%, 0.2%, and 0.1% of total operating expenses in
2000, 2001, and 2002, respectively.

     Other agreement between Telkomsel and Indosat are as follows:

  Development and maintenance for Jakarta-Surabaya cable system agreement
("J -- S Cable System").

     Telkomsel, Lintasarta, Satelindo and Indosat ("the parties") entered into
the Development and Maintenance for Cable System Agreement. The parties formed a
management committee, to direct the development of the cable system that was
completed in 1998. Based on the agreement, Telkomsel shares 19.325% of total
development cost. Telkomsel shares the total cost of operation and maintenance
based on the agreed formula.

     Telkomsel's share of the cost of operation and maintenance amounted to
Rp.0.9 billion and Rp.1,359 million for the year 2002 and 2001, respectively.

  Indefeasible Right of Use Agreement

     On September 21, 2000, Telkomsel entered into an agreement with Indosat for
the use of SEA -- ME -- WE 3 and tail link in Jakarta and Medan. Based on the
agreement, Telkomsel was granted an irrevocable right to use a certain capacity
of the network commencing from September 21, 2000 to 2015 by prepaying
compensation amounting to US$2,727,273. Beside the aforementioned prepayment,
Telkomsel is also charged annual operation and maintenance costs amounting to
US$136,364.

  Indosat, on behalf of IM3, on November 1, 2001 entered into an interconnection
agreement with Telkomsel.

     Telkomsel's GSM cellular mobile network transferred to IM 3's network, that
enable Telkomsel's customer to make or receive a call from or to IM 3's
customers.

     - Supply and installation of interconnection tools needed is Telkomsel's
       responsibility.

     - The agreement is effective upon the signing date and extendable for a
       period agreed by both parties.

     Based on the amendment upon the above agreement, since December 14, 2001,
Telkomsel's customers are able to send and receive short message services from
IM3's customers.

     The Company and its subsidiaries incurred net interconnection costs from
IM3 of Rp.421 million in 2002 and earned net interconnection revenue from IM3 of
Rp.157 million in 2001.

                                       131
<PAGE>

  SATELINDO

     The Company has an agreement with Satelindo, an Indosat subsidiary, whereby
both parties agreed, among other matters, on the following:

     - Interconnection of the Company's PSTN with Satelindo's international
       gateway exchange, enabling the Company's customers to make outgoing or
       receive incoming international calls through Satelindo's international
       gateway exchange.

     - Billings for the international telecommunication services used by
       domestic customers through Satelindo's international gateway exchange
       will be handled by the Company.

     The Company also has an agreement with Satelindo for the interconnection of
Satelindo's GSM mobile cellular telecommunication network with the Company's
PSTN, enabling the Company's customers to make outgoing calls to or receive
incoming calls from Satelindo's customers.

     Interconnection revenues earned from Satelindo were Rp.227.2 billion,
Rp.293.7 billion and Rp.459.3 billion in 2000, 2001 and 2002, respectively,
reflecting 1.9%, 1.8%, and 1.1% of total operating income for 2000, 2001, and
2002, respectively.

     The Company leases international circuits from Satelindo. Payments made in
relation to the lease amounted to Rp.19.6 billion, Rp.28.1 billion and Rp.32.2
billion in 2000, 2001 and 2002, respectively, which was 0.3%, 0.3%, and 0.3% of
total operating expenses for 2000, 2001, and 2002, respectively.

     Based on an agreement entered into among the Company, PT Bimagraha
Telekomindo and Indosat in 1993, at the time of Satelindo's establishment, the
Company agreed to transfer to Satelindo, its so-called B2P, B2R and B4 Palapa
satellites and other assets relating to the Company's satellite control station
located in Jakarta. These transfers are to be covered in a separate agreement
between Satelindo and the Company. The separate agreement regarding the
transfers of these satellites and other assets has not been made. However, the
useful life of the B2P and B2R Palapa satellite had expired. In November 2000,
the Company entered into an agreement with a third party, in which the Company
agreed to sell the expired B2R Satellite, or to lease the satellite to such
third party if the sale is not consummated.

     In 1994, the Company transferred to Satelindo the right to use a parcel of
Company-owned land located in Jakarta that had been previously leased to
Telekomindo, an associated company. Based on the transfer agreement, Satelindo
is given the right to use the land for 30 years and can apply for the right to
build properties thereon. The ownership of the land is retained by the Company.
Satelindo agreed to pay Rp.43.0 billion to the Company for the thirty-year
right. Satelindo paid Rp.17.2 billion in 1995 and the remaining Rp.25.8 billion
has not been paid because the Utilization Right ("Hak Pengelolaan Lahan") on the
land could not be delivered as provided in the transfer agreement. In 2000, the
Company and Satelindo agreed on an alternative solution by accounting for the
above payment as lease expense up to 2006. In 2001, Satelindo paid the remaining
amount as lease expense up to 2024.

  AGREEMENT WITH GOVERNMENT AGENCIES AND ASSOCIATED COMPANIES

     The Company has entered into agreements with Government agencies and
associated companies, Lintasarta, CSM and Patrakomindo, for utilization of the
Company's Palapa B4 and Telkom 1 satellite transponders or frequency channels.
Revenues earned from these transactions amounted to Rp.86.3 billion, Rp.89.5
billion and Rp.44,108 million in 2000, 2001 and 2002, respectively, which was
0.7%, 0.6%, and 0.2% of total operating revenues in 2000, 2001, and 2002,
respectively.

     The Company provides leased lines to associated companies and Indosat's
subsidiaries -- CSM, Lintasarta, Satelindo, Komselindo, Excelcomindo Pratama,
Mobisel, Metrosel and PSN. The leased lines can be used by the associated
companies permanently or temporarily for telephone, telegraph, data, telex,
facsimile or other telecommunication services. Revenue earned from these
transactions amounted to Rp.17.4 billion, Rp.19.8 billion and Rp.199.7 billion
in 2000, 2001 and 2002, respectively, which was 0.1%, 0.1%, and 0.9% of total
operating revenues in 2000, 2001, and 2002.
                                       132
<PAGE>

     The Company provides a data communication network system for
Lintasarta -- (an Indosat subsidiary) and operates a telemetry tracking and
command station for PSN -- (an associated company). Revenues earned by the
Company from these transactions amounted to Rp.16,384 million, Rp.28 billion and
Rp. nil in 2000, 2001 and 2002, respectively which was, 0.1%, 0.2%, and 0% of
total operating revenues in 2000, 2001, and 2002.

     The Company purchases property and equipment including construction and
installation services from a number of related parties. These related parties
include PT Industri Telekomunikasi Indonesia ("PT Inti"), Lembaga Elektronika
Nasional, PT Adhi Karya, PT Pembangunan Perumahan, PT Nindya Karya, PT Boma
Bisma Indra, PT Wijaya Karya, PT Waskita Karya which are all state-owned
companies, PT Gratika which is an associated company of Dana Pensiun Telkom,
Telekomindo and PT Bangtelindo which are associated companies and Koperasi
Pegawai Telekomunikasi, a related party cooperative. Purchases made from these
related parties amounted to Rp.104.7 billion, Rp.100.4 billion and Rp.164.6
billion in 2000, 2001 and 2002, respectively, which was 1.6%, 1.2%, and 1.4% of
total operating expenses in 2000, 2001, and 2002, respectively.

     Inti is also a major contractor and supplier providing equipment, including
construction and installation services for Telkomsel. Total purchases from Inti
in 2000, 2001 and 2002 amounted to Rp.405.3 billion, Rp.663.6 billion and
Rp.34.7 billion, respectively, reflecting 6.3%, 7.8%, and 0.3% of total
operating expenses in 2000, 2001, and 2002, respectively.

     The Company and its subsidiaries carry insurance (on their property, plant
and equipment against property losses and on employees' social security)
obtained from PT Asuransi Jasa Indonesia, PT Asuransi Tenaga Kerja and PT
Persero Asuransi Jiwasraya, which are state-owned insurance companies. Insurance
premiums amounted to Rp.109.8 billion, Rp.83.9 billion and Rp.110.5 billion in
2000, 2001 and 2002, respectively, reflecting 1.7%, 1%, and 0.9% of total
operating expenses in 2000, 2001, and 2002, respectively.

     The Company and its subsidiaries maintain current accounts and time
deposits in several state-owned banks. In addition, some of those banks are
appointed as collecting agents for the Company. As of December 31, 2001, the
Company also had an investment in mutual funds managed by Danareksa, a
state-owned company. Total placements in the form of current accounts and time
deposits in state-owned banks amounted to Rp.3,778,099 and Rp.6,097,618 million
as of December 31, 2001 and 2002, respectively, which was 11.5% and 14.4% of
total assets as of December 31, 2001 and 2002, respectively.

     The Company has revenue-sharing arrangements with Telekomindo. Revenues
earned under these arrangements amounted to Rp.5.4 billion, Rp.6 billion and
Rp.10.2 billion in 2000, 2001 and 2002, respectively, which was 0.1%, 0.1%, and
0.1% of total operating revenues in 2000, 2001, and 2002, respectively.

     The Company leases buildings, purchases materials and construction
services, and utilizes maintenance and cleaning services from Dana Pensiun
Telkom and PT Sandhy Putra Makmur, a subsidiary of Yayasan Sandikara Putra
Telkom -- a foundation managed by Dharma Wanita Telkom. Total charges from these
transactions amounted to Rp.35.1 billion, Rp18.7 billion and Rp.15.9 billion in
2000, 2001 and 2002, respectively, which was 0.5%, 0.2%, and 0.1% of total
operating expenses in 2000, 2001, and 2002, respectively.

     The Company purchased encoded phone cards from Perusahaan Umum Percetakan
Uang Republik Indonesia, a state-owned company. Expenses arising from this
transaction amounted to Rp.2.2 billion, Rp.1.8 billion and Rp.1.4 billion in
2000, 2001 and 2002, respectively, which was 0.1%, 0.1%, and 0.1% of total
operating expenses for 2000, 2001, and 2002, respectively.

     In 1991, the Company granted loans to Koperasi Telekomunikasi ("Koptel")
amounting to Rp.1 billion to support Koptel's activities in providing housing
loans to the Company's employees. The balance of the loans amounted to Rp.0.2
billion as of December 31, 2001 and Rp.0.1 billion as of December 2002, which is
immaterial to the Company's total assets as of December 31, 2001 and 2002.

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<PAGE>

     The Company and its subsidiaries earned interconnection revenues from
Komselindo, Excelcomindo Pratama, Metrosel, Mobisel, Ratelindo, BBT, PSN and
Patrakomindo, which are associated companies, totaling Rp.671.6 billion,
Rp.345.3 billion and Rp.213.1 billion in 2000, 2001 and 2002, respectively,
which was 5.5%, 2.1%, and 1% of total operating revenues in 2000, 2001, and
2002, respectively.

     In addition to revenues earned under the KSO Agreement (see Note 49), the
Company also earned income from building rental, repairs and maintenance
services, and training services provided to the KSO Units, amounting to Rp.95.3
billion, Rp.114.2 billion and Rp.47.2 billion in 2000, 2001 and 2002,
respectively, which was 0.8%, 0.7%, and 0.2% of total operating revenues in
2000, 2001, and 2002.

     The Company provides a defined benefit pension plan and a postretirement
health care plan for its pensioners through Dana Pensiun Telkom and YKPT (see
Notes 45 and 46).

     The Company has also seconded a number of its employees to related parties
to assist them in operating their business. In addition, the Company provides
certain of its related parties with the right to use its buildings free of
charge.

C.  INTEREST OF EXPERTS AND COUNSEL

     Not applicable.

ITEM 8.  FINANCIAL INFORMATION

A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

     See "Item 17. Financial Statements" incorporated herein by reference.

MATERIAL LITIGATION

     On May 15, 2001, AriaWest commenced arbitration proceedings against TELKOM,
and each of TELKOM and AriaWest have submitted claims for breach of the KSO III
Agreement for resolution by arbitration.

     On May 15, 2001, AriaWest alleged in its Request for Arbitration (the
"Request") that TELKOM materially breached the KSO III Agreement by, among other
things, (i) terminating certain exclusive rights allegedly granted to AriaWest;
(ii) failing to transfer control of the KSO III Unit's finances, employees and
management to AriaWest and interfering with AriaWest's efforts to exercise
management control over the KSO III Unit; (iii) preventing the Government from
implementing certain tariff increases in 1999 and 2000; and (iv) failing to
negotiate the terms of certain construction projects proposed by AriaWest and
certain amendments to the KSO III Agreement requested by AriaWest. AriaWest has
alleged damages in excess of US$1.3 billion, but has not specified the amount of
damages associated with most of its claims.

     On August 20, 2001, TELKOM submitted its Answer and Counterclaims to
AriaWest's Request for Arbitration (the "Answer"). In the Answer, TELKOM denied
the claims and allegations in the Request. It also asserted counterclaims
against AriaWest, including claims that AriaWest breached the KSO Agreement and
related agreements by (i) failing to timely pay MTR, DTR and late payment
charges; (ii) wrongfully rejecting TELKOM's termination of the KSO III Agreement
and related agreements and abandoning its obligations under the KSO Agreement;
(iii) mismanaging the KSO III Unit; (iv) failing to construct the minimum number
of new and non-defective telecommunication facilities required under the KSO III
Agreement; and (v) failing to refund to TELKOM certain overpayments of operating
capital expenditures AriaWest received from TELKOM. In an Amended Supplemental
Counterclaim dated November 6, 2001, TELKOM also alleged that AriaWest breached
its duty of confidentiality under the KSO Agreement and committed defamation by
disclosing to the press the results of a "forensic audit" conducted by
PriceWaterhouseCoopers. TELKOM has not quantified all of its damages, but has
claimed amounts in excess of Rp.528 billion with respect to non-payment of MTR
and

                                       134
<PAGE>

Rp.113 billion with respect to non-payment of DTR. TELKOM has not received from
the KSO III Unit MTR payments from May 2000 and DTR payments from at least as
early as January 2001.

     On July 9, 2001, TELKOM notified AriaWest that it was terminating the KSO
III Agreement, including AriaWest's rights to manage and control the KSO III
Unit. AriaWest refused to accept TELKOM's termination, and claimed that TELKOM
had wrongfully claimed control of the KSO III Unit and interfered with its right
to manage the KSO III operations. TELKOM claimed that AriaWest's failure to
properly manage and operate the KSO III Unit prior to termination, as well as
its conduct subsequent to termination, resulted in a severe operational crisis
in the KSO III Unit, including, among other things, service disruptions,
employee unrest and customer complaints. TELKOM claimed that AriaWest's failure
to properly manage and operate the KSO III Unit prior to termination, as well as
its conduct subsequent to termination, resulted in a severe operational crisis
in the KSO III Unit, including, among other things, service disruptions,
employee unrest and customer complaints.

     By a letter dated October 8, 2001, TELKOM informed AriaWest that it
intended to immediately implement certain interim management measures as a
conservatory measure to address the severe operational crisis faced by the KSO
III Unit. The interim management measures were intended, among other things, to
prevent further disruption to telecommunications services both inside and
outside the KSO III region, ensure the prompt restoration of service within the
KSO III region, prevent further harm to the telecommunications infrastructure in
the KSO III region, protect the financial value of the KSO system and its assets
and infrastructure, avoid further employee unrest arising from non-payment of
salaries, and mitigate damages to the KSO III Unit from potential third-party
lawsuits.

     The interim management measures were implemented through the Deputy General
Managers of the KSO III Unit, based on guidelines issued by TELKOM on October 9,
2001, and authorized the Deputy General Managers to, among other things, (i)
ensure that customer repairs and complaints were processed and addressed as soon
as possible; and (ii) direct the employees in the KSO III Unit who were
signatories on the KSO III Unit accounts to access such accounts for the
following limited purposes:

     - to access up to Rp.30 billion per month for the payment of specified
       operating expenses of the KSO III Unit;

     - to pay past due taxes to the local government; and

     - to pay past due amounts to suppliers and vendors.

     The guidelines did not authorize the KSO III Unit employees to access the
KSO III Unit's revenues to pay MTR to TELKOM or Distributable KSO Revenues to
TELKOM and AriaWest, or to reimburse either TELKOM or AriaWest for any claimed
expenses.

     In a December 14, 2001 amendment to the Request, AriaWest asserted several
additional claims against TELKOM, including, among other things, that TELKOM
breached the KSO III Agreement and related agreements by allegedly (i)
wrongfully terminating the KSO III Agreement without proper cause; (ii)
wrongfully implementing the interim management measures; and (iii) failing to
pay amounts allegedly due and owing under the "forensic audit" conducted by
PriceWaterhouseCoopers. The parties jointly requested a stay of the arbitration
prior to the date that TELKOM was required to answer AriaWest's new claims or
assert any new counterclaims.

     Pursuant to the conditional sale and purchase agreement relating to the
AriaWest shares and related agreements, the arbitration proceedings will be
stayed from the date of the AriaWest Purchase Agreement until August 30, 2002,
and the parties have agreed that, from the date of receipt of certain tax
letters until the closing or termination of the AriaWest Purchase Agreement,
TELKOM may implement the interim management measures in its sole and absolute
discretion and without being subjected to any liability or obligation to the KSO
III Unit or AriaWest and its shareholders and affiliates. Subject to the parties
proceeding to closing, on the closing date, TELKOM and AriaWest will

                                       135
<PAGE>

submit a joint notice to the arbitration tribunal that the claims and
counterclaims in the arbitration have been settled.

     Apart from the above, TELKOM is not a party to any other litigation or
legal proceedings which it believes would, individually or taken as a whole,
have a material adverse effect on its business, financial condition and results
of operations.

B.  SIGNIFICANT CHANGES

     See Note 56 to the Company's Consolidated Financial Statements in relation
to material subsequent events occurring after December 31, 2002.

ITEM 9.  THE OFFER AND LISTING

A.  OFFER AND LISTING DETAILS

     The table below sets forth, for the periods indicated, the reported high
and low quoted prices for the currently outstanding Common Stock on the JSX.

                            SHARE PRICE INFORMATION

<Table>
<Caption>
                                                              PRICE PER SHARE
                                                              ---------------
CALENDAR YEAR                                                  HIGH     LOW
-------------                                                 ------   ------
                                                                (IN RUPIAH)
<S>                                                           <C>      <C>
1998........................................................  4,629    1,204
1999........................................................  4,629    2,407
2000........................................................  4,350    2,025
First Quarter...............................................  4,350    3,325
Second Quarter..............................................  3,775    2,675
Third Quarter...............................................  3,325    2,600
Fourth Quarter..............................................  2,890    2,025
2001........................................................  3,400    1,825
First Quarter...............................................  3,150    1,775
Second Quarter..............................................  3,200    2,175
Third Quarter...............................................  3,525    2,650
Fourth Quarter..............................................  3,250    2,425
2002
First Quarter...............................................  4,300    2,825
Second Quarter..............................................  4,725    3,700
Third Quarter...............................................  3,900    3,125
Fourth Quarter..............................................  4,000    2,350
  October...................................................  3,450    2,350
  November..................................................  3,550    3,000
  December..................................................  4,000    3,450
2003
First Quarter
  January...................................................  3,800    3,225
  February..................................................  3,700    3,300
  March.....................................................  3,750    3,150
</Table>

                                       136
<PAGE>

     On December 27, 2002 (at last trading in JSX), the closing price for a
share of Common Stock was Rp.3,850.

     The table below sets forth, for the periods indicated, the reported high
and low quoted prices of the ADSs on the NYSE and LSE.

                             ADS PRICE INFORMATION

<Table>
<Caption>
                                                               PRICE PER ADS      PRICE PER ADS
                                                                  (NYSE)              (LSE)
                                                              ---------------    ---------------
CALENDAR YEAR                                                  HIGH      LOW      HIGH      LOW
-------------                                                 ------    -----    ------    -----
                                                              (IN US DOLLAR)     (IN US DOLLAR)
<S>                                                           <C>       <C>      <C>       <C>
1998........................................................   9.78     2.49      9.77     2.38
1999........................................................  13.63     5.27     13.17     5.37
2000........................................................  12.00     4.13     12.15     4.27
First Quarter...............................................     12      9.1      12.1      9.2
Second Quarter..............................................    9.7      6.4       9.6      6.4
Third Quarter...............................................    8.0      5.9       7.9      6.1
Fourth Quarter..............................................    6.3      4.1       6.4      4.3
2001........................................................   7.06     3.65      7.05     3.80
First Quarter...............................................    6.7      4.0       6.5      3.9
Second Quarter..............................................    5.6      3.7       5.6      3.8
Third Quarter...............................................    7.1      5.5       7.1      5.5
Fourth Quarter..............................................    5.8      4.7       6.1      4.8
2002........................................................   9.77     5.56      9.82     5.27
First Quarter...............................................    8.6      5.5       8.6      5.5
Second Quarter..............................................    9.8      8.4       9.8      8.4
Third Quarter...............................................    8.7      7.0       8.7      7.1
Fourth Quarter..............................................    8.9      5.6       8.9      5.3
  October...................................................    7.8      5.3       7.4      5.3
  November..................................................    7.9      6.4       7.8      6.6
  December..................................................    8.5      7.6       8.8      7.8
2003........................................................   8.44     7.30      8.53     7.27
First Quarter
  January...................................................   8.41     7.71      8.37     7.52
  February..................................................   8.15     7.50      8.17     7.52
  March.....................................................   8.44     7.30      8.53     7.27
</Table>

     On December 31, 2002, the closing price for an ADS was US$8.49 on the NYSE
and US$ 8.6 on the LSE.

B.  PLAN OF DISTRIBUTION

     Not applicable.

C.  MARKETS

     TELKOM's Common Stock is listed on the Jakarta Stock Exchange ("JSX") and
the Surabaya Stock Exchange ("SSX"). The JSX is the principal non-U.S. trading
market for the Company's Common Stock. In addition, American Depositary Shares
("ADSs"), each representing twenty shares of

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Common Stock, are listed on the New York Stock Exchange ("NYSE") and the London
Stock Exchange ("LSE").

THE INDONESIAN SECURITIES MARKET

     Currently there are two stock exchanges in Indonesia. The primary market is
the JSX located in Jakarta and the other is the SSX located in Surabaya, East
Java. The JSX is the larger and more prominent of the two exchanges, with an
aggregate equity market capitalization of Rp.268.4 trillion at year end 2002 as
compared to Rp.229.2 million for the SSX. Total trading value on the JSX during
2002 was Rp.120.7 trillion, compared with Rp.11,1 trillion on the SSX.

 OVERVIEW OF THE JSX

     There are currently two daily trading sessions from Monday to Thursday,
9:30 a.m. to 12:00 noon, and 1:30 p.m. to 4:00 p.m. There are two trading
sessions on Friday, from 9:30 a.m. to 11:30 a.m. and from 2:00 p.m. to 4:00 p.m.

     Trading is divided into three market segments: regular market, negotiation
market, and cash market. The regular market is the mechanism for trading stock
in standard lots on a continuous auction market during exchange hours. With
respect to the trading of stock, the round lots consist of 500 shares for non
banking and of 5000 shares for banking sectors. The price movements should be in
multiples of Rp.5,- and each price movement should be no more than Rp.200,-.
Auctioning takes place according to price priority and time priority. Price
priority gives priority to buying orders at a lower price or selling orders at a
higher price. If buying or selling orders are placed at the same price, priority
is given to the buying or selling order placed first (time priority).

     The negotiation market trading consists of (i) block trading, i.e. lots of
200,000 shares or more; (ii) odd lot trading with round lots of less than 500
shares or less than 5000 shares for banking companies; (iii) crossing by an
exchange member receiving buying and selling orders for the same number of
shares at the same price; and (iv) foreign board trading in stocks where foreign
ownership has reached 49% of listed shares. Odd lots may not be traded more than
5% above or below the latest price on the regular market. Odd lot dealers may
set prices within a range of not more than 7% above or below the regular market
price, and must buy or sell stock directly to and from customers in crossing
without charging commission. In the case of newly listed or newly traded shares
which have yet to establish a market price, the price referred to is the initial
public offering price.

     Transactions on the JSX regular market and negotiation market are required
to be settled no later than the fourth trading day after the transactions. In
case of a default by an exchange member on settlement upon the due date, the
Indonesian Clearing and Guarantee Corporation, PT Kliring Penjaminan Efek
Indonesia ("KPEI") may perform the obligations or rights of such a defaulting
exchange member, by, for example, buying and/or selling shares in the cash
market in order to settle the defaulted transaction. Any such action by KPEI
does not eliminate the liabilities of the defaulting party which effected the
transaction. All cash market transactions must be reported to the JSX. An
exchange member defaulting in settlement is liable to a fine of 0.25% for the
first day and thereafter a fine of 0.5% of the transaction value payable to his
counterpart in the transaction, and shall also be issued with a warning. Delay
in payment of the fine is also liable to a penalty equal to 1% of the fine for
each calendar day of delay.

     The JSX board of directors may cancel a transaction if proof exists of
fraud, manipulation or the use of insider information. The JSX board of
directors may also suspend trading if there are indications of bogus
transactions or jacking up of share prices, misleading information, use of
insider information, counterfeit securities or securities blocked from trading,
upon the occurrence of other important events that may affect investment
decisions.

     Exchange members may charge a fee for their services based on an agreement
with the clients up to a maximum of 1% of the transaction value. When conducting
stock transactions on the JSX, exchange

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members are required to pay a transaction fee equal to the cumulative
transaction value for each month based on 0.04% (subject to a minimum fee of Rp.
250,000) of transaction for stocks and other registered securities.

     Shareholders or their appointees may request the issuer or a Securities
Administration Bureau appointed by the issuer at any time during working hours
to register their shares in the issuer's Registry of Shareholders.

  TRADING ON THE NYSE AND LSE

     The Bank of New York serves as depositary (the "Depositary") with respect
to the ADSs traded on the NYSE and the LSE. Each ADS represents twenty shares of
Common Stock. As of December 31, 2002, 36,054,553 ADSs were outstanding in the
United States and there were 175 registered voters of ADSs.

D.  SELLING SHAREHOLDERS

     Not applicable.

E.  DILUTION

     Not applicable.

F.  EXPENSES OF THE ISSUE

     Not applicable.

ITEM 10.  ADDITIONAL INFORMATION

A.  SHARE CAPITAL

     Not applicable.

B.  MEMORANDUM AND ARTICLES OF ASSOCIATION

     The Company's articles of association ("Articles") have been registered
with the Ministry of Justice in accordance with the Limited Liability Company
Law No. 1 Year 1995 and was announced by Ministerial Decree number
C2-7468.HT.01.04.TH.97 year 1997. According to article 3, the objects and
purposes of the Company are to operate telecommunications networks and provide
telecommunications and information services.

     In accordance with Indonesian company law, TELKOM has a Board of
Commissioners and a Board of Directors. The two Boards are separate and no
individual may be a member of both Boards. See "Item 6. Directors, Senior
Management and Employees -- Directors and Senior Management". The articles of
association among others states that any transaction involving a conflict of
interest between the Company and directors, commissioners and shareholders
should be approved by a shareholders meeting, in which approval is required from
a majority of independent shareholders.

     Each director also receives an annual bonus and other incentives if TELKOM
surpasses certain financial and operating targets, the amounts of which are
determined by the shareholders at the general meeting of shareholders. Bonuses
and incentives are budgeted annually and are based on the recommendation of the
Board of Directors which recommendation must be approved by the Board of
Commissioners before submission to the shareholders. Each commissioner is
granted a monthly honorarium and certain other allowances and is paid an annual
bonus if TELKOM surpasses certain financial operating targets, the amounts of
which are determined by the shareholders at the general meeting of shareholders.
Each commissioner also receives a lump sum bonus paid at the end of the
commissioner's term pursuant to a letter of the Ministry of Finance which
applies to all state-owned

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companies. No fees are paid to the Commissioners or Directors for attendance at
their respective board meetings.

     The directors are tasked with the responsibility of leading and managing
the Company in accordance with its objects and purposes and to control, preserve
and manage the assets of the Company. Within such broad scope of responsibility,
the directors are authorized to cause the Company to borrow such sums as it may
require from time to time subject to obtaining the approval of the Board of
Commissioners for (i) long or medium term loans, or (ii) short terms loans which
exceed an amount specified in the Company's business plan as approved by the
Board of Commissioners. The borrowing powers of the directors may only be varied
through an amendment to the Articles.

     The Articles do not contain any requirement for (i) the directors to retire
by a specified age, or (ii) the directors to own any or a specified number of
shares of the Company. The rights, preferences and restrictions attaching to
each class of the shares of the Company in respect of specified matters are set
forth below:

     - dividend rights.  Dividends are to be paid based upon the financial
       condition of TELKOM and in accordance with the resolution of the
       shareholders in general meeting, which will also determine the form of
       and time for payment of the dividend;

     - voting rights.  The holder of each voting share is entitled to one vote
       at a general meeting of shareholders;

     - rights to share in the Company's profits.  See dividend rights;

     - rights to share in any surplus in the event of liquidation.  Shareholders
       are entitled to surplus in the event of liquidation in accordance with
       their proportion of shareholding, provided the nominal value of the
       Common Stock that they hold is fully paid-up;

     - redemption provisions.  There are no stock redemption provisions in the
       Articles;

     - sinking fund provisions.  Retained earnings up to a maximum of 20% of the
       issued capital of the Company is to be set aside to cover potential
       losses suffered by the Company. If the amount in the sinking fund exceeds
       20% of the issued capital of the Company, the shareholders in general
       meeting may authorize the Company to utilize such excess funds.

     - liability to further capital calls.  Shareholders of the Company may be
       asked to subscribe for new shares in the Company from time to time. Such
       right is to be offered to shareholders prior to being offered to third
       parties and may be transferred at the option of the shareholder. The
       Directors of the Company are authorized to offer the new shares to third
       parties in the event that the existing shareholder is unable or unwilling
       to subscribe for such new shares.

     - provisions discriminating against any existing or prospective holder of
       such securities as a result of such shareholder owning a substantial
       number of shares.  The Articles do not contain any such provision.

     In order to change the rights of holders of stock, an amendment to the
relevant provisions of the Articles would be required. Any amendment to the
Articles requires the approval of the holder of the Series A Dwiwarna share and
two thirds of the holders of the Series B shares present at a general meeting.
Such meeting must also be attended by the holder of the Series A Dwiwarna share.

     General meetings of shareholders may only be convened upon the issue of the
requisite notice by the Company. The notice is to be published in at least 2
newspapers having general circulation within Indonesia, one of which must be in
Indonesian and the other in English. The notice period for convening annual
general meetings and extraordinary general meetings is 21 days (not including
the date the meeting was called and the date of the meeting) and 14 days (not
including the date the meeting was called and the date of the meeting)
respectively. The quorum for general meetings is shareholders representing at
least 50% of the outstanding share capital of the Company. In the event that
quorum is not achieved, another meeting is to be held, which meeting does not
require the issue of
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a notice. At the second meeting, the quorum for the meeting is shareholders
representing one third of the outstanding share capital of the Company. In the
event that quorum is not achieved at the second meeting, a third meeting may be
held, the quorum for which shall be determined by a district head of justice
("Ketua Pengadilan Negeri"). Shareholders may vote by proxy. All resolutions are
to be passed by consensus. If consensus cannot be reached, resolutions are
passed by simple majority, unless a larger majority is required by the Articles.

     The Articles do not contain any limitations on the right of any person, to
own shares of the Company. Indonesian capital market regulations do not contain
any limitation on the right of any person, whether local or foreign, to own
shares in a company listed on an Indonesian stock exchange.

     Any takeover of the Company is required to be approved by the holder of the
Series A Dwiwarna share and a majority constituting 75% of the holders of the
Series B shares at a general meeting of shareholders that must be attended by
the holder of the Series A Dwiwarna share. There are no other provisions in the
Articles that would have the effect of delaying, deferring or preventing a
change in control of the company.

     There are no ownership thresholds above which shareholder ownership is
required to be disclosed. TELKOM believes that the Articles are not
significantly different from those generally prevailing in Indonesia in respect
of public companies listed on an Indonesian stock exchange. TELKOM also believes
that the provisions in the Articles relating to changes in the capital of TELKOM
are not more stringent than that required by Indonesian law.

C.  MATERIAL CONTRACTS

INTEGRATION OF DCS 1800 TO TELKOMSEL

     Prior to 2002, TELKOM had been working on the construction of a DCS 1800
network and the setting up of a DCS 1800 mobile cellular business through its
TELKOMMobile Unit and had been granted 15 MHz of radio frequency bandwidth in
the 1800 MHz band. On April 3, 2002, TELKOM and Telkomsel entered into an
agreement for the sale and purchase of TELKOM's assets relating to the
TELKOMMobile Unit. Under the agreement, TELKOM will, for a consideration of
approximately Rp.139.7 billion (i) transfer to Telkomsel specified assets of
TELKOM relating to the business of the TELKOMMobile Unit; (ii) transfer its
employees under its TELKOMMobile Unit to Telkomsel; and (iii) transfer to
Telkomsel or novate TELKOM's rights and obligations under the TELKOMMobile
Assets and Contracts. In connection with such transaction and pursuant to the
Cooperation Agreement, TELKOM has agreed to apply to the MoC to have its DCS
1800 license cancelled and reissued to Telkomsel in order that Telkomsel would
have an additional 15 MHz of radio frequency in the 1800 MHz band.

ARIAWEST TRANSACTION

     TELKOM entered into a Conditional Sale and Purchase Agreement dated as of
May 8, 2002, pursuant to which TELKOM has agreed to (a) acquire 100% of the
issued and fully paid shares of AriaWest owned by PT Aria Infotek (formerly
known as PT Artimas Kencana Mumi), MediaOne International I BV, and The Asian
Infrastructure Fund, and (b) guarantee certain debt obligations under a loan
with an estimated aggregate outstanding amount of approximately US$291 million
as of April 30, 2002 provided to AriaWest International Finance BV, a
wholly-owned subsidiary of AriaWest, and guaranteed by AriaWest, subject to the
restructuring of such loan. The aggregate purchase price is represented by a
payment of US$20 million to be made promptly after the receipt on or before May
17, 2002 of certain moneys to be received by TELKOM from the KSO III Unit, a
further payment of US$24.5 million to be made at closing and the issue by TELKOM
of promissory notes with an aggregate face value of US$120 million to be paid in
11 equal semi-annual instalments beginning six months after the closing date. In
addition, upon closing, TELKOM and AriaWest have agreed to enter into a

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settlement agreement pursuant to which TELKOM will pay AriaWest US$20 million to
settle the pending arbitration proceedings between the parties.

     The AriaWest transaction was not closed on the August 30, 2002 deadline set
forth in the SPA among TELKOM and AriaWest shareholders, due to the failure of
AriaWest shareholders to reach an agreement on the restructuring of the AriaWest
debt to their lenders.

SALE OF SHARES IN TELKOMSEL

     On July 30, 2002, TELKOM completed the sale of the Company's stake in
Telkomsel to Singapore Telecom Mobile Pte, Ltd ("SingTel Mobile"), a
wholly-owned subsidiary of SingTel based on a Sales and Purchase Agreement dated
April 3, 2002. As a result of this transaction, TELKOM maintained 65% ownership
in Telkomsel, while SingTel Mobile increased its ownership up to 35%. TELKOM
received a full cash of US$429 million.

PRAMINDO TRANSACTION

     On August 15, 2002, TELKOM completed the initial closing for acquisition of
30% shares of PT Pramindo Ikat Nusantara (Pramindo), TELKOM's KSO partner in
Division I Sumatra. The initial closing is part of the agreement to acquire 100%
Pramindo in three transactions, which shall be followed by the next transactions
on September 2003 (15%) and December 2004 (55%). The present value of the
transaction will be US$425 million, consisting of loan payment to IFC for the
amount of US$86.2 million and equity to Pramindo shareholders of US$372.23
million including interest of US$33.43 million (interest rate of 8.85% per
year).

     Loan payment to IFC consists of TELKOM payment amounting US$53.9 million
and Pramindo payment paid on August 15, 2002. The balance of will be paid by
TELKOM to IFC on September 15, 2002. Meanwhile equity shall be paid by
promissory notes beginning October 1, 2002 through August 1, 2003, in the amount
of US$12.8 million per month, and from September 2003 up to December 15, 2004 in
the amount of US$15 million per month. As of this day, TELKOM management holds
control over the operation and service in PRAMINDO. See "Item 4B. Business
Overview -- Revenue Sharing Arrangements, Joint Operation Schemes and Joint
Ventures -- Joint Operating Schemes (KSO) -- Issues and Developments relating to
the KSO Investors and KSO Units".

INTERCONNECTION AGREEMENT WITH INDOSAT

     On September 4, 2002, TELKOM signed an Interconnection Agreement with
Indosat. This Agreement shall provide Customer Base Growth which allow Indosat
customers to integrate with TELKOM's network. TELKOM expects that
interconnection between TELKOM and Indosat will generate an increase in
interconnection traffic which in turn shall increase TELKOM's Interconnection
Revenue. The Agreement was made through a mutual business deal. Rate for
Interconnection Tariff is set in accordance to regulation using cost based
system. The Interconnection Agreement only regulates local fixed wireline in
Jakarta and Surabaya area. TELKOM still holds exclusive rights for domestic
long-distance fixed wire line until August 2003. This Agreement signals a
positive step toward achieving a fair competition in the Indonesian
telecommunication Industry.

CONTRACT WITH ORBITAL SCIENCES CORPORATION

     On October 24, 2002, TELKOM signed a contract with Orbital Sciences
Corporation ("Orbital"), a US company which develops and manufactures affordable
space systems for commercial, civil government and military customer, to develop
the TELKOM-2 satellite. The TELKOM-2 satellite is a geosynchronous communication
satellite, manufactured based on Orbital's state-of-the-art STAR-2 platform,
costing approximately US$73 million to replace TELKOM's existing Palapa B-4
satellite due to its operational expiration in late 2004. The TELKOM-2 satellite
has a capacity of 24 standard C-band transponders and with specifications of the
transponders similar to the transponder of the TELKOM-1 satellite. TELKOM-2
satellite will be designed for a 15 years in-orbit life with an expansion of its
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<PAGE>

coverage area of Asian region and Indian subcontinent in addition to its current
Indonesian capacity. TELKOM intends that the satellite will support TELKOM's
national as well as regional communication network for voice, video and data
communications. The satellite will be launched into geo-synchronous orbit at
22,300 miles above the earth, at 118 degrees east longitude.

CONTRACT WITH ARIANESPACE

     On November 8, 2002 TELKOM signed a US$62.9 million contract with
Arianespace S.A. ("Ariane") which covers the cost of the launching, financing,
and guarantees. The schedule of payments is as follows:

     - US$27.50 million will be paid on January 13, 2004;

     - US$9.00 million will be paid on March 1, 2004;

     - US$20.00 million will be paid on April 1, 2004; and,

     - US$6.38 million will be paid on September 1, 2004.

MASTER OF PROCUREMENT PARTNERSHIP AGREEMENT (MPPA) WITH SAMSUNG ELECTRONICS
CONSORTIUM AND ERICSSON CONSORTIUM

     On December 23, 2002, TELKOM has signed Master of Procurement Partnership
Agreement (MPPA) with Samsung Electronics Consortium and Ericsson Consortium.
Both of Agreement includes system planning, manufacturing, delivery, and total
construction of 1.6 million lines as well as service level agreement. Period of
the agreement is 42 months until mid of 2006. MPPA between TELKOM and Samsung
consist of construction of 1,652,300 lines of NSS for nationwide and 802,000
lines of BSS for Division Regional IV, V, VI and VII for US$ 116 per line for
BSS and US$ 34 perline for NSS, while MPPA with Ericsson consist of construction
of 631,800 lines of BSS for US$ 116 per line.

PSTN EXCELLENCE REGIONAL JUNCTION IN JAKARTA AREA

     On February 8, 2002, TELKOM signed an agreement with Olex-Lucent-Brimbun, a
contract value of US$28.8 million and Rp.102.8 billion, for the procurement of
SDH Transmission, fiber optic, MMS, and others.

MASTER OF PROCUREMENT PARTNERSHIP AGREEMENT (MPPA) WITH MOTOROLA

     On March 24, 2003, TELKOM has signed a Master of Procurement Partnership
Agreement (MPPA) with Motorola, Inc. By this agreement, Motorola shall be
obligated to undertake and be jointly responsible for the demand for cash and
solely responsible for the survey, design, development, manufacture, delivery,
supply, installation, integration and commissioning of the network, including
all project management, training and other related services of BSS CDMA 2000-1X
system as a service level agreement that covers operation and management
support, spare part support and software update support.

     MPPA between TELKOM and Motorola consist of 225,500 lines of BSS (radio
system) for regional division I Sumatra for US$116 per line (conversion rate
US$1 = Rp.10,173). The agreed unit price does not include service level
agreement, training for technical staff and documentation. The NSS system will
use nationwide Samsung's NSS as already contracted on December 23, 2002. The
period of Agreement is 42 months until approximately mid of 2006, as well as
Samsung and Ericsson period.

D.  EXCHANGE CONTROLS

FOREIGN EQUITY OWNERSHIP RESTRICTIONS

     Prior to September 1997, foreign investors were only permitted to purchase
up to 49% of shares offered in a public offering and up to 49% of the publicly
listed shares of any Indonesian listed

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company regardless of the nature of their activities. On September 4, 1997, such
restrictions were removed for most Indonesian companies, including TELKOM.

FOREIGN EXCHANGE

     Foreign exchange controls were abolished in 1971 and Indonesia now
maintains a liberal foreign exchange system that permits the free flow of
foreign exchange. Capital transactions, including remittances of capital,
profits, dividends and interest, are free of exchange controls. A number of
regulations, however, have an impact on the exchange system. Only banks
authorized to deal in foreign exchange, for example, can execute exchange
transactions related to the import and export of goods. Prior approval by the
Government is also required for foreign loans with maturities of one year or
longer made to any public enterprise or public entity.

     Bank Indonesia holds the authority to issue Rupiah currency and has
responsibility for maintaining the stability of the Rupiah. Prior to August 14,
1997, Bank Indonesia maintained stability of the Rupiah through a trading band
policy, pursuant to which Bank Indonesia would enter the foreign currency market
and buy or sell Rupiah, as required, when trading in the Rupiah exceeded bid and
offer prices announced by Bank Indonesia on a daily basis. On August 14, 1997
Bank Indonesia terminated the trading band policy, effectively free floating the
Rupiah against other currencies. Since that date, the Rupiah has depreciated
significantly against world currencies.

     During the past 20 years, the value of the Rupiah has been devalued three
times against the U.S. Dollar. These downward adjustments occurred in November
1978, when the exchange rate was realigned from 415 to 623 Rupiah to the U.S.
Dollar; in March 1983, when the rate went from 703 to 970 Rupiah to the U.S.
Dollar; and in September 1986, when the rate fell from 1,134 to 1,644 Rupiah to
the U.S. Dollar. Between the time of the 1986 devaluation and August 14, 1997
the value of the Rupiah has gradually adjusted downward in value against the
U.S. Dollar by about 4% annually. Since the free floating regime was implemented
in August 1997, the Rupiah fluctuation has been significant. During 2002, the
average rate of Rupiah to the U.S. Dollar was Rp.9,316 the highest and lowest
rates being Rp.10,473 and Rp.8,460 respectively.

E.  TAXATION

     The following summary of Indonesian, and United States federal income tax
matters contains a description of the principal Indonesian and U.S. federal tax
consequences of the purchase, ownership and disposition of ADSs or shares of
Common Stock. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS ABOUT THE INDONESIAN
AND UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR SHARES OF COMMON STOCK.

INDONESIAN TAXATION

     The following is a summary of the principal Indonesian tax consequences of
the ownership and disposition of Common Stock or ADSs to a non-resident
individual or non-resident entity that holds Common Stock or ADSs (a
"Non-Indonesian Holder"). As used in the preceding sentence, a "non-resident
individual" is a foreign national individual who is not physically present in
Indonesia for 183 days or more during any twelve month period or present for any
period with the intent to reside in Indonesia, during which period such
non-resident individual receives income in respect of the ownership or
disposition of Common Stock or ADSs, and a "non-resident entity" is a
corporation or a non-corporate body that is established, domiciled or organized
under the laws of a jurisdiction other than Indonesia and does not have a fixed
place of business or otherwise conducts business or carries out activities
through a permanent establishment in Indonesia during an Indonesian tax year in
which such non-Indonesian entity receives income in respect of the ownership or
disposition of Common Stock or ADSs. In determining the residency of an
individual or entity, consideration will be given to the provisions of any
applicable double taxation treaty to which Indonesia is a party.

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  DIVIDENDS

     Dividends declared by the Company out of retained earnings and distributed
to a Non-Indonesian Holder in respect of Common Stock or ADSs are subject to
Indonesian withholding tax, currently at the rate of 20%, on the amount of the
distribution (in the case of cash dividends) or on the shareholders'
proportional share of the value of the distribution. A lower rate provided under
double taxation treaties may be applicable provided the recipient is the
beneficial owner of the dividend and has provided to the Company (with a copy to
the Indonesian Office of Tax Services where the Company is registered) a
Certificate of Tax Residence issued by the competent authority, or its designee,
of the jurisdiction where the Non-Indonesian Holder is domiciled (the
"Certificate of Residence"). Indonesia has concluded double taxation treaties
with a number of countries, including Australia, Belgium, Canada, France,
Germany, Japan, Malaysia, Mauritius, The Netherlands, Singapore, Sweden,
Switzerland, the United Kingdom and the United States of America. Under the
U.S.-Indonesia double taxation treaty, the withholding tax on dividends is
generally, in the absence of a 25% voting interest, reduced to 15%.

  CAPITAL GAINS

     The sale or transfer of Common Stock through an Indonesian stock exchange
is subject to a final withholding tax at the rate of 0.1% of the value of the
transaction. The broker executing the transaction is obligated to withhold such
tax. The holding of founder shares or the sale or transfer of founder shares
through an Indonesian stock exchange may, under current Indonesian tax
regulations, be subject to additional 0.5% final income tax.

     Subject to the promulgation of implementing regulations (which have not yet
been issued to date), the estimated net income received or accrued from the sale
of movable assets in Indonesia, which may include Common Stock not listed on an
Indonesian stock exchange or ADSs, by a Non-Indonesian holder (with the
exception of the sale of assets under Article 4 paragraph (2) of the Indonesian
income tax law) may be subject to Indonesian withholding tax at the rate of 20%.
In 1999, the Ministry of Finance issued a Decision that stipulates the estimated
net income for the sale of shares in a non-public company to be 25% of the sale
price, resulting in an effective withholding tax rate of 5% of the sales price.
This is a final withholding tax and the obligation to pay lies with the buyer
(if it is an Indonesian taxpayer) or the Company (if the buyer is a non-resident
taxpayer). Exemption from withholding tax on income from the sale of shares in a
non-public company may be available to non-resident sellers of shares depending
on the provisions of the relevant double taxation treaties. In order to benefit
from the exemption under the relevant double taxation treaty, the non-resident
seller must provide the Certificate of Tax Residence to the buyer or the Company
and to the Indonesian Tax Office that has jurisdiction over the buyer or the
Company (if the buyer is a non-resident taxpayer).

     In cases where a purchaser or Indonesian broker will be required under
Indonesian tax laws to withhold tax on payment of the purchase price for Common
Stock or ADSs, that payment may be exempt from Indonesian withholding or other
Indonesian income tax under applicable double taxation treaties to which
Indonesia is a party (including the U.S.-Indonesia double taxation treaty).
However, except for the sale or transfer of shares in a non-public company, the
current Indonesian tax regulations do not provide specific procedures for
removing the purchaser's or Indonesian broker's obligation to withhold tax from
the proceeds of such sale. To take advantage of the double taxation treaty
relief, Non-Indonesian Holders may have to seek a refund from the Indonesian Tax
Office by making a specific application accompanied by a Certificate of
Residence issued by the competent tax authority, or its designee; of the
jurisdiction in which the Non-Indonesian Holder is domiciled.

  STAMP DUTY

     Any documents that are prepared in the transactions in common stock in
Indonesia, which documents will be used as evidence in Indonesia, are subject to
stamp duty of Rp.6,000. Generally, the stamp duty is due at the time the
document is executed.

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<PAGE>

UNITED STATES FEDERAL INCOME TAXATION

     The following is a general description of the principal United States
federal income tax consequences to a U.S. Holder, as defined below, of the
purchase, ownership and disposition of the ADSs or shares of Common Stock. This
description is for general information purposes only and is based on the United
States Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly retroactively. The tax treatment of a holder of
ADSs or shares of Common Stock may vary depending upon his particular situation.
Certain holders (including, but not limited to, insurance companies, tax-exempt
organizations, financial institutions, persons subject to the alternative
minimum tax, broker-dealers, persons that have a "functional currency" other
than the U.S. Dollar and persons owning, directly or indirectly, 10% or more of
the voting shares of the Company) may be subject to special rules not discussed
below. Except as indicated, the following summary is limited to U.S. Holders, as
defined below, who will hold the ADSs or shares of Common Stock as "capital
assets" within the meaning of Section 1221 of the Code and not as part of a
"hedge," "straddle" or "conversion transaction" within the meaning of Sections
1221, 1092 and 1258 of the Code and the regulations thereunder. The discussion
below does not address the effect of any state or local tax law on a holder of
the ADSs or shares of Common Stock.

     As used herein, the term "U.S. Holder" means a holder of ADSs or shares of
Common Stock who is, or which is, a United States Person. As used herein, the
term "United States Person" means (i) a citizen or resident (as defined below)
of the United States for United States federal income tax purposes, (ii) a
corporation, a partnership or other entity created or organized under the laws
of the United States or any State thereof (unless, in the case of a partnership,
Treasury Regulations otherwise provide), (iii) an estate the income of which is
subject to United States federal income tax without regard to its source or (iv)
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.

     A "resident" of the United States includes an individual that (i) is
lawfully admitted for permanent residence in the United States, (ii) is present
in the United States for 183 days or more during a calendar year, or (iii)(a) is
present in the United States for 31 days or more during a calendar year, (b) is
present in the United States for an aggregate of 183 days or more, on a weighted
basis, over the 3-year period ending in such calendar year, and (c) does not
have a closer connection to a "tax home" that is located outside the United
States.

     Holders of ADSs evidencing Common Stock will be treated as the owners of
the Common Stock represented by those ADSs. Accordingly, no gain or loss will be
recognized upon the exchange of ADSs for the holder's proportionate interest in
the shares of Common Stock, a holder's tax basis in the withdrawn shares of
Common Stock will be the same as his tax basis in the ADSs surrendered
therefore, and the holding period in the withdrawn shares of Common Stock will
include the period during which the holder held the surrendered ADSs.

  TAXATION OF DIVIDENDS

     The gross amount of a distribution with respect to ADSs or shares of Common
Stock, without reduction for Indonesian taxes withheld, will be treated as a
dividend taxable as ordinary income on the date of receipt by the Depositary or
the holder of such shares, respectively, to the extent of the Company's current
and accumulated earnings and profits as determined for U.S. federal income tax
purposes. Distributions, if any, in excess of such current and accumulated
earnings and profits will constitute a non-taxable return of capital and will be
applied against and reduce such holder's tax basis in such ADSs or shares of
Common Stock. To the extent that such distributions are in excess of such basis,
the distributions will constitute capital gain as discussed below. U.S.
corporate holders will generally not be eligible for the dividends received
deduction otherwise allowed under Section 243 of

                                       146
<PAGE>

the Code for distributions to domestic corporations in respect of distributions
on ADSs or shares of Common Stock.

     A pro rata stock dividend by the Company will not be considered a taxable
dividend.

     If a distribution is paid with respect to ADSs or shares of Common Stock in
Rupiah, the amount of the distribution will generally equal the U.S. Dollar
value of the Rupiah distribution, including the amount of any Indonesian tax
withheld, calculated by reference to the exchange rate in effect on the date the
distribution is actually or constructively received by the Depositary or the
holder of such shares of Common Stock, respectively, regardless of whether the
payment is in fact converted into U.S. Dollars on that date. Any subsequent gain
or loss in respect of such Rupiah arising from exchange rate fluctuations will
be ordinary income or loss. This gain or loss will generally be treated as
United States source income for United States foreign tax credit limitation
purposes. If the Depositary converts the Rupiah to U.S. Dollar on the date it
receives such Rupiah, United States persons will not recognize any such gain or
loss.

     Subject to the limitations and conditions set forth in the Code, U.S.
Holders may elect to claim a credit against their United States federal income
tax liability for Indonesian tax withheld from dividends received in respect of
the ADSs or shares of Common Stock. Under the Code, the limitation on foreign
taxes eligible for credit is calculated separately with respect to specific
classes of income. For this purpose, dividends will generally constitute
non-U.S. source "passive income" or "financial services income." In certain
circumstances, a U.S. Holder may be denied foreign tax credits for foreign taxes
imposed on a dividend if the U.S. Holder (i) has not held the ADSs or shares of
Common Stock for at least 16 days in the 30-day period beginning 15 days before
the ex-dividend date, or (ii) is obligated to make related payments with respect
to positions in substantially similar or related property. The rules relating to
the determination of the foreign tax credit are complex and prospective
purchasers should consult their personal tax advisors to determine whether and
to what extent they would be entitled to such credit. U.S. Holders that do not
elect or are not permitted to claim foreign tax credits may instead claim a
deduction for Indonesian tax withheld.

  TAXATION OF CAPITAL GAINS

     The sale or other disposition of ADSs or shares of Common Stock (or
preemptive rights with respect to such ADSs or shares) by a U.S. Holder will
generally result in the recognition of U.S. source gain or loss in an amount
equal to the difference between the amount realized on the sale or other
disposition and the holder's adjusted basis in such ADSs or shares. This will
result in a long-term or short-term capital gain or loss, depending on whether
the ADSs or shares of Common Stock have been held for more than one year.
Long-term capital gain of a non-corporate holder is currently subject to a
maximum tax rate of 20% in respect of property with a holding period of more
than one year. The deductibility of a capital loss is subject to limitations.
Any gain will be U.S. source for foreign tax credit purposes. Any loss will
generally be allocated against U.S. source income.

  PASSIVE FOREIGN INVESTMENT COMPANY STATUS

     Special adverse United States federal income tax rules apply to holders of
equity interests in a corporation classified as a passive foreign investment
company ("PFIC") under the Code. A foreign corporation will constitute a PFIC
for United States federal income tax purposes if 75% or more of its gross income
for a taxable year consists of passive income (generally, interest, dividends,
rents, royalties and net gain from the disposition of assets that give rise to
such income) or 50% or more of its average assets held during a taxable year
consists of passive assets. Passive assets are defined as assets that give rise,
or that reasonably could give rise during the reasonably foreseeable future, to
passive income.

     Based on the Company's existing and anticipated future operations, the
Company believes that it is not, and anticipates that it will not become in the
foreseeable future, a PFIC. If the Company is not

                                       147
<PAGE>

operated in the manner currently anticipated, however, the Company may be
considered a PFIC for the current or for a subsequent year depending upon the
composition of the Company's income or assets.

     If the Company is or becomes a PFIC, any "excess distribution" realized by
a U.S. Holder with respect to its ADSs or shares of Common Stock would be
allocated over the entire period during which the U.S. Holder held such ADSs or
shares of Common Stock and would be subject to a "deferred tax amount" to the
extent not allocated to the current year. Any "excess distribution" allocated to
the current year would be treated as ordinary income. The "deferred tax amount"
consists of a tax imposed at the highest rate applicable to the year or years to
which an "excess distribution" is allocated plus interest on such tax computed
from the due date of the U.S. Holder's tax return for the year or years to which
such "excess distribution" is allocated.

     In general, an "excess distribution" is any distribution with respect to
the Company's ADSs or shares of Common Stock to the extent it exceeds 125% of
the average annual distributions with respect to such ADSs or shares of Common
Stock received by the U.S. Holder over the prior three years or, if shorter, the
U.S. Holder's holding period for the ADSs or shares of Common Stock. An "excess
distribution" also includes any gain recognized by the U.S. Holder with respect
to its ADSs or shares of Common Stock.

     If the Company is classified as a PFIC, it may be possible to avoid the
adverse tax consequences associated therewith but only if (i) the U.S. Holder
elects to annually mark-to-market the ADSs or shares of Common Stock and
recognize ordinary gain or loss therefrom, or (ii) assuming certain conditions
are met (which is not likely to be the case with respect to the Company), the
U.S. Holder elects to include in income annually its share of the ordinary
earnings and capital gain of the Company. Should the Company ever be classified
as a PFIC, U.S. Holders are advised to consult their tax advisors concerning the
United States federal income tax consequences of holding ADSs or shares of
Common Stock and of making the mark-to-market election. A U.S. Holder who owns
ADSs or shares of Common Stock during any year that the Company is a PFIC must
file with the IRS Form 8621.

  UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS

     Except for the possible imposition of United States backup withholding tax
(see "United States Backup Withholding and Information Reporting" below),
payments of any dividend on an ADS or share of Common Stock to a holder who is
not a United States Person (a "non-U.S. Holder") will not be subject to United
States federal income tax, and gain from the sale, redemption or other
disposition of an ADS or share of Common Stock will not be subject to United
States federal income tax, provided that:

     (a) such income items are not effectively connected with the conduct by the
         non-U.S. Holder of a trade or business within the United States (or, if
         a treaty applies, such non-U.S. Holder has no permanent establishment
         in the United States to which such income items are attributable);

     (b) there is no present or former connection between such non-U.S. Holder
         and the United States, including, without limitation, such non-U.S.
         Holder's status as a citizen or former citizen thereof or resident or
         former resident thereof; and

     (c) in the case of a gain from the sale, redemption or other disposition of
         an ADS or share of Common Stock by an individual, the non-U.S. Holder
         is not present in the United States for 183 days or more in the taxable
         year of the sale or certain other conditions are met.

     If a non-U.S. Holder is engaged in a trade or business in the United States
and dividend or gain with respect to an ADS or share of Common Stock of such
non-U.S. Holder is effectively connected with the conduct of such trade or
business (and, where a treaty applies, the non-U.S. Holder has a United States
permanent establishment to which such dividend, gain or income is attributable),
the non-U.S. Holder may be subject to United States income taxes on such
dividend, gain or income at the statutory rates provided for United States
Persons after deduction of deductible expenses allocable to such effectively
connected dividend, gain or income. In addition, if such a non-U.S. Holder is a
foreign
                                       148
<PAGE>

corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for the taxable year, as adjusted for
certain items, unless a lower rate applies under a United States income tax
treaty with the non-U.S. Holder's country of residence. For this purpose,
dividends, gain or income in respect of an ADS or share of Common Stock will be
included in earnings and profits subject to the branch profits tax if the
dividend, gain or income is effectively connected with the conduct of the United
States trade or business of the non-U.S. Holder.

  UNITED STATES BACKUP WITHHOLDING AND INFORMATION REPORTING

     Payments made by a United States paying agent or other United States
intermediary in respect of the ADSs or shares of Common Stock may be subject to
information reporting to the IRS and a backup withholding tax. The backup
withholding rate is 30% for payments made in 2002 and 2003, 29% for payments
made in 2004 and 2005, and 28% for payments made in 2006 and thereafter. Backup
withholding will not apply, however, (i) to a holder who furnishes a correct
taxpayer identification number and makes any other required certification, or
(ii) to a holder who is otherwise exempt from backup withholding. Generally, a
U.S. Holder will provide such certification on Form W-9 (Request for Taxpayer
Identification Number and Certification) and a non-U.S. Holder will provide such
certification on Form W-8 (Certificate of Foreign Status).

     Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a refund or a credit against such holder's United
States federal income tax, provided that the holder has complied with applicable
reporting obligations.

F.  DIVIDENDS AND PAYING AGENTS

     Not applicable.

G.  STATEMENT BY EXPERTS

     Not applicable.

H.  DOCUMENTS ON DISPLAY

     You may read and copy the registration statement, including the attached
exhibits, the reports, statements or other information that we file at the
Commission's public reference room in Washington D.C., which is located at Room
1024, 450 Fifth Street, N.W., Washington, D.C., 20549. These documents are also
available at the Commission's regional offices located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, 60661. You can request
copies of these documents, upon payment of a duplicating fee, by writing to the
Commission at 450 Fifth Street, N.W., Washington D.C., 20549. Please call the
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. In addition, you may also obtain the reports and other
information we file at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York, 10005.

I.  SUBSIDIARY INFORMATION

     Not applicable.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

A.  DISCLOSURE ABOUT MARKET RISK

GENERAL

     The Company is exposed to market risks primarily from changes in foreign
currency exchange rates, changes in interest rates and equity price risk on the
value of its long-term investments. The Company does not generally hedge its
monetary assets and liabilities against its foreign currency liabilities, which
have a maturity of between 15 to 20 years, as it believes that the expenses
associated

                                       149
<PAGE>

with fully hedging such liabilities is not justified. Instead the Company hedged
its obligations for the current year. As of December 31, 2002 foreign currency
time deposits provided 200% coverage against current maturities of foreign
currency denominated long term liabilities. The Company's exposure to interest
rate risk is managed through maintaining a mix of fixed and variable rate
liabilities and assets, including short term fixed rate assets, rates for which
are reset periodically. The Company's exposure to such market risks fluctuated
significantly during 2000, 2001 and 2002 as the Indonesian economy has been
affected by a significant fluctuation of the Rupiah and interest rates. The
Company is not able to predict whether such conditions will continue during the
remainder of 2003 or thereafter.

  INTEREST RATE SENSITIVITY

     The Company's exposure to interest rate fluctuations results primarily from
floating rate long-term debt pursuant to loans under the Government on-lending
program which have been used to finance the Company's capital expenditures which
bears interest at rates based on the average for the preceding six months for
three month certificates issued by Bank Indonesia plus 1%, and from floating
rate long-term debts of the Company's consolidated subsidiary, Dayamitra, which
bear interests at LIBOR plus a certain margin of 4% and 4.5% per annum. See
Notes 24, 25 and 26 to the Company's Consolidated Financial Statements. To the
extent interest rates in Indonesia fluctuate significantly, as they did from
13.95% in early 2002 to approximately 10.95% in early 2003, the Company's
interest obligations under its long-term debt could increase.

     The table below provides information about the Company's material financial
instruments that are sensitive to changes in interest rates. For debt
obligations and time deposits, the table presents principal cash flows and
related weighted average interest rates by expected maturity dates. The
information is presented in Rupiah equivalents, which is the Company's reporting
currency. The instrument's actual cash flows are denominated in Rupiah, U.S.
Dollar, Netherlands Guilder, French Franc, Deutsche Mark, and Japanese Yen, as
appropriate and as indicated in the table. The information presented in the
table has been determined based on the following assumptions: (i) fixed interest
rates on Rupiah time deposits are based on average interest rates offered in
effect as of March 14, 2003 by the banks where such deposits were located; (ii)
variable interest rates on Rupiah denominated long-term liabilities are
calculated as of December 31, 2002 and are based on contractual terms setting
interest rates based on average rates for the preceding six months on three
month certificates issued by Bank Indonesia; (iii) variable interest rates on
U.S. Dollar and French Franc are based on interest rates offered by the various
lending institutions to the Republic of Indonesia as of December 31, 2002; and
(iv) the value of marketable securities is based on the value of such securities
at December 31, 2002. However, no assurance can be given that such assumptions
will be correct for future periods. Such assumptions and the information
described in the table may be influenced by a number of factors, including
changes in interest rates in Indonesia and other monetary and macro economic
factors affecting Indonesia. Such assumptions are different from the rates used
in the Company's Consolidated Financial Statements,

                                       150
<PAGE>

and accordingly amounts shown in the table may vary from amounts shown in the
Company's Consolidated Financial Statements.
<Table>
<Caption>
                                OUTSTANDING BALANCE AS AT
                                    DECEMBER 31, 2002
                             --------------------------------               EXPECTED MATURITY DATE
                                FOREIGN                                  -----------------------------
                               CURRENCY       RP. EQUIVALENT     RATE      2003       2004      2005
                             -------------   ----------------   ------   ---------   -------   -------
                             (IN THOUSAND)   (RP. IN MILLION)    (%)            (RP IN MILLION)
<S>                          <C>             <C>                <C>      <C>         <C>       <C>
ASSETS
FIXED RATE
Cash and Cash equivalents
  Time deposit
  Rupiah
    Principal..............                     2,137,419                2,137,419
    Interest...............                                     11.875
  U.S. Dollar
    Principal..............      364,826        3,261,550                3,261,550
    Interest...............                                      1.625
Temporary Investments
  Time deposits
  Rupiah
    Principal..............                     1,023,000                1,023,000
    Interest...............                                       11.0
  Available for Sale
    Securities
    Rupiah.................                        50,000                   50,000
LIABILITIES
SHORT TERM BANK LOAN(1)
  U.S. Dollar
    Principal..............        4,385           39,205                   39,205
    Interest...............                                       7.03       1,449
LONG-TERM DEBT(2)
VARIABLE RATE
  Rupiah
    Principal..............                     2,556,658                  320,134   308,165   277,336
    Interest...............                                      17.23     422,011   373,835   323,816
  French Franc
    Principal..............       36,539           44,071                    6,760     6,760     6,760
    Interest...............                                       8.45       2,988     2,425     1,850
  U.S. Dollar
    Principal..............      377,577        3,383,090                1,225,286   467,980   230,789
    Interest...............                                       7.52     193,324   159,439   131,264

<Caption>

                                 EXPECTED MATURITY DATE
                             -------------------------------
                              2006       2007      2008-2025
                             -------   ---------   ---------
                                     (RP IN MILLION)
<S>                          <C>       <C>         <C>
ASSETS
FIXED RATE
Cash and Cash equivalents
  Time deposit
  Rupiah
    Principal..............
    Interest...............
  U.S. Dollar
    Principal..............
    Interest...............
Temporary Investments
  Time deposits
  Rupiah
    Principal..............
    Interest...............
  Available for Sale
    Securities
    Rupiah.................
LIABILITIES
SHORT TERM BANK LOAN(1)
  U.S. Dollar
    Principal..............
    Interest...............
LONG-TERM DEBT(2)
VARIABLE RATE
  Rupiah
    Principal..............  213,758     192,385   1,244,881
    Interest...............  281,055     248,473   1,240,431
  French Franc
    Principal..............    6,760       6,760      17,158
    Interest...............    1,281         712         143
  U.S. Dollar
    Principal..............  178,416     131,549   1,149,069
    Interest...............  113,114     100,008     388,529
</Table>

                                       151
<PAGE>
<Table>
<Caption>
                                OUTSTANDING BALANCE AS AT
                                    DECEMBER 31, 2002
                             --------------------------------               EXPECTED MATURITY DATE
                                FOREIGN                                  -----------------------------
                               CURRENCY       RP. EQUIVALENT     RATE      2003       2004      2005
                             -------------   ----------------   ------   ---------   -------   -------
                             (IN THOUSAND)   (RP. IN MILLION)    (%)            (RP IN MILLION)
<S>                          <C>             <C>                <C>      <C>         <C>       <C>
FIXED RATE
  Rupiah
    Principal..............                     2,049,853                  117,368    93,111    72,609
    Interest...............                                      14.96     281,258   269,197   259,359
  French Franc
    Principal..............       94,011          113,389                   15.944    15.944    15.944
    Interest...............                                       7.33       8,023     6,862     5,718
  U.S. Dollar
    Principal..............      314,967        2,819,114                  384,034   171,705   180,647
    Interest...............                                       7.65     234,768   204,851   193,134
  Japanese Yen
    Principal..............   18,001,129        1,358,920                   28,306    57,290    86,275
    Interest...............                                       3.11      39,589    38,832    36,576
  Netherland Guilder
    Principal..............       16,237           58,293                   12,751    12,751    12,751
    Interest...............                                       7.65       3.482     2.670     1.843

<Caption>

                                 EXPECTED MATURITY DATE
                             -------------------------------
                              2006       2007      2008-2025
                             -------   ---------   ---------
                                     (RP IN MILLION)
<S>                          <C>       <C>         <C>
FIXED RATE
  Rupiah
    Principal..............   68,934      68,934   1,628,896
    Interest...............  251,175     200,677     346,819
  French Franc
    Principal..............   15.944      15.944      51,393
    Interest...............    4,541       3,380       2,894
  U.S. Dollar
    Principal..............  180,647   1,264,323     637,757
    Interest...............  181,435     102,576     163,039
  Japanese Yen
    Principal..............   86,275      86,275   1,014,499
    Interest...............   34,003      31,429     254,744
  Netherland Guilder
    Principal..............   12,751       7,288
    Interest...............    1.023         203
</Table>

---------------

Note:
(1) Long-term debt consists of loans which are subject to interest; namely
    two-step loans, suppliers' credit loans, bridging loans, and long-term bank
    loans, in each case including their current maturities. Long-term debt, for
    the purpose of this table, excludes liability for acquisition of a
    subsidiary which is subject to capitalized interest.

  EXCHANGE RATE SENSITIVITY

     The Company's exposure to exchange rate fluctuations results primarily from
long-term debt obligations and accounts receivable and payable, which are
primarily paid for through draw downs under the Government on-lending program
and are expressed in U.S. Dollar, Japanese Yen, French Franc, Deutsche Mark and
Netherlands Guilder. For a description of the Company's foreign currency assets
and liabilities, see Note 47 to the Company's Consolidated Financial Statements.
Part of these obligations might be offset by increases in the value of foreign
currency time deposits and by increases in the value of foreign currency
accounts receivable, assuming that the counter-parties are able to meet their
foreign currency obligations to TELKOM at market rates.

     The table below provides information about the Company's financial
instruments by functional currency and presents such information in Rupiah
equivalents, which is the Company's reporting currency. The information on
instruments and transactions that are sensitive to foreign exchange rates,
including U.S. Dollar, Netherlands Guilder, French Franc, Deutsche Mark, and Yen
debt obligations and term deposits and the Company's accounts payable and
receivable. The table presents principal cash flows by expected maturity dates.
The information presented in the table has been determined based on the
assumptions the exchange rates for U.S. Dollar as well as other currencies are
based on the selling and buying rates quoted by Reuters on December 31, 2002,
applied respectively to monetary assets and liabilities. The buying and selling
rates as of December 31, 2002 were Rp.8,940 and Rp.8,960 to US$1, respectively.
Telkomsel applied the Bank Indonesia average buy and sell rate for its monetary
asset and liabilities which was Rp.8,940 to US$1.00 as of December 31, 2002.
However, no assurance can be given that such assumptions will be correct for
future periods. Such assumptions and the

                                       152
<PAGE>

information described in the table may be influenced by a number of factors,
including a fluctuation and/or depreciation of the Rupiah in future periods.

<Table>
<Caption>
                                    OUTSTANDING BALANCE
                                           AS AT
                                     DECEMBER 31, 2002
                                  -----------------------                       EXPECTED MATURITY DATE
                                   FOREIGN        RP.       ---------------------------------------------------------------
                                   CURRENCY    EQUIVALENT     2003       2004      2005      2006       2007      2008-2025
                                  ----------   ----------   ---------   -------   -------   -------   ---------   ---------
                                     (IN        (RP. IN                            (RP. IN MILLION)
                                  THOUSAND)     MILLION)
<S>                               <C>          <C>          <C>         <C>       <C>       <C>       <C>         <C>
ASSETS
Cash and Cash Equivalents
  U.S. Dollar...................    342,017    3,060,076    3,060,076
  Japanese Yen..................         36            3            3
  Euro..........................     25,305      237,148      237,148
Trade Accounts Receivable
  U.S. Dollar...................     17,400      155,717      155,717
Other Account Receivable
  U.S. Dollar...................      9,972       89,149       89,149
Other Current Asset
  U.S. Dollar...................      1,800       16,092       16,092
Advances and Other Noncurrent
  Assets U.S. Dollar............      7,041       62,950       62,950
Unearned revenue
  U.S. Dollar...................        220        1,972        1,972
  Euro..........................          3           25           25
Escrow Account
  U.S. Dollar...................     33,235      297,118      297,118
LIABILITIES
Trade Accounts Payable
  U.S. Dollar...................     94,699      848,069      848,069
  Japanese Yen..................     35,332        2,667        2,667
  Great Britain Pound
    Sterling....................        319        4,494        4,494
  Euro..........................     28,256      264,762      264,762
  Singapore Dollar..............          1            3            3
Other account payable
  U.S. Dollar...................          8           77           77
Accrued expenses
  U.S. Dollar...................     18,055      161,620      161,620
  Japanese Yen..................    252,601       19,069       19,069
  French Franc..................      3,514        4,238        4,238
  Netherland Guilder............        407        1,461        1,461
  Euro..........................      9,033       84,636       84,636
Long Term Debt(1)
  U.S. Dollar...................    692,544    6,202,204    1,609,302   639,685   411,436   359,063   1,395,872   1,786,826
  Japanese Yen..................  18,001,129   1,358,420       28,306    57,290    86,275    86,275      86,275   1,014,499
  Netherland Gulden.............     16,237       58,293       12,751    12,751    12,751    12,751       7,288          --
  Third Parties(2)
    French Franc................    130,550      157,406       22,704    22,704    22,704    22,704      22,704      68,551
</Table>

---------------

Notes:
(1) Long-term debt for the purpose of this table consists of loans denominated
    in foreign currencies namely, two-step loans, suppliers' credit loan,
    bridging loan, liability for acquisition of a subsidiary, long-term bank
    loan and project cost payable, in each case including their current
    maturities.
(2) Include in long-term debt are Liabilities to third parties in 2002 amounting
    to US$696.9 million, Y18,001.1 million, FRF130.6 million and NLG16.2
    million, of project cost payable, the expected maturity date of which depend
    on the withdrawal authorization to be issued pursuant to the two-step loan
    program with the Government. For the purpose of classifying into expected
    maturity date, the balance of project cost payable is included in 2003
    maturity.

  EQUITY PRICE RISK

     The Company's long-term investments consist primarily of minority
investments in the equity of private Indonesian companies. With respect to the
Indonesian companies in which the Company has
                                       153
<PAGE>

investments, the financial performance of such companies may be affected by the
fluctuation of macro economic and social conditions such as the level of
economic activity, Rupiah exchange rates against other currencies, inflation,
and interest rates.

SUMMARY OF MATERIAL DIFFERENCES BETWEEN INDONESIAN GAAP AND U.S. GAAP

     The Company's consolidated financial statements have been prepared in
accordance with Indonesian GAAP which differs in certain respects from U.S.
GAAP. The material differences are described in the approximations in Notes 57
to the Company's Consolidated Financial Statements.

     The material differences between Indonesian and U.S. GAAP as applied to the
Company's consolidated income statements are in the treatment of termination
benefits, foreign exchange differences on property under construction, interest
capitalized on property under construction, revenue sharing arrangements,
revaluation of property, plant and equipment, deferred tax on excess of
financial reporting basis over tax basis of subsidiaries, pension, share in net
income of associated companies, land rights, stock issuance costs, employee
bonuses, equipment to be installed, revenue recognition, goodwill and capital
lease. The cause of the differences are as discussed below:

  TERMINATION BENEFITS

     Under Indonesian GAAP, termination benefits are recognized as liabilities
when certain criteria are met (e.g. the enterprise is demonstratively committed
to provide termination benefits as a result of an offer made in order to
encourage voluntary redundancy).

     The Company has elected to adopt early the provisions of Statement of
Financial Accounting Standards (SFAS) No. 146, "Accounting for the Costs
Associated with Exit or Disposal Activities". Under SFAS No. 146, benefits
offered for voluntary termination of employment are recognized upon the
employees' acceptance of the offer.

     As a result, on a U.S. GAAP basis, the Company's consolidated income before
tax would have been Rp.140.0 billion and Rp.574.9 billion higher for 2001 and
2002, respectively.

  FOREIGN EXCHANGE DIFFERENCES ON PROPERTY UNDER CONSTRUCTION

     Under Indonesian GAAP, the foreign exchange difference resulting from loans
used to finance property under construction is capitalized. Capitalization of
foreign exchange differences cease when the construction is substantially
completed and the constructed property is ready for its intended use.

     Under U.S. GAAP, foreign exchange differences are charged to current
operations. Consequently, on a U.S. GAAP basis, the Company's consolidated
income before tax would have been Rp.122.9 billion lower in 2000, Rp.80.3
billion higher in 2001 and Rp.107.6 billion higher in 2002.

  INTEREST CAPITALIZED ON PROPERTY UNDER CONSTRUCTION

     Under Indonesian GAAP, one of the criteria for capitalizing interest cost
into a qualifying asset (i.e. property under construction) is that the interest
should be attributable to the qualifying asset.

     Under U.S. GAAP, the borrowing need not be directly linked to the
construction of a qualifying asset. Interest cost is capitalized on qualifying
assets (i.e. property under construction) based upon the Company's overall
effective interest rate and the average balance of qualifying assets for the
period.

     As a result, on a U.S. GAAP basis, the Company's consolidated income before
tax would have been Rp.15.3 billion higher in 2001 and Rp.44.4 billion higher in
2002, respectively.

  REVENUE-SHARING ARRANGEMENTS

     Under Indonesian GAAP, property, plant and equipment built by an investor
under revenue-sharing arrangements are recognized as property, plant and
equipment under revenue-sharing arrangements in the books of the party to whom
ownership in such properties shall be transferred at the end of

                                       154
<PAGE>

the revenue-sharing period, with a corresponding initial credit to unearned
income. The property, plant and equipment are depreciated over their useful
lives, while the unearned income is amortized over the revenue-sharing period.
The Company records its share of the revenues earned on a net basis.

     Under U.S. GAAP, the accounting for revenue-sharing arrangements depends on
whether or not the investor will receive a guaranteed minimum return. When there
is no guaranteed investment return to the investors, the accounting treatment is
similar to that under Indonesian GAAP. The property is depreciated, unearned
income is amortized and the Company records its contractual share of the
earnings for the period. When there is a guaranteed minimum return to the
investors, the transaction is accounted for as the acquisition of property by
the Company under a capital lease. In lieu of unearned income, the Company
records a capital lease obligation equal to the fair value of the property. The
capital lease obligation is increased by the guaranteed return and decreased by
the investor's share of earnings. The revenue is recorded gross.

     In connection with the different treatment of revenue sharing arrangements
under U.S. GAAP and Indonesian GAAP, the Company's consolidated income before
tax would have been Rp.23.3 billion lower in 2000 and Rp.5.4 billion higher in
2001, respectively.

  REVALUATION OF PROPERTY, PLANT AND EQUIPMENT

     While Indonesian GAAP does not generally allow companies to recognize
increases in the value of property, plant and equipment that occur subsequent to
acquisition, an exception is provided for revaluations made in accordance with
Government regulations. The Company revalued its property, plant and equipment
that were used in operations as of January 1, 1979 and January 1, 1987.

     Under U.S. GAAP, property, plant and equipment may not be stated at more
than their historical acquisition cost. The effect of the previous revaluations
fully reversed in 2002 such that there is no remaining difference in equity at
December 31, 2002.

     Consequently, on a U.S. GAAP basis, the Company's consolidated income
before tax would have been Rp.4.1 billion, Rp.4.1 billion, and Rp.3.9 billion
higher for each respective year 2000, 2001 and 2002.

  DEFERRED TAX ON EXCESS OF FINANCIAL REPORTING BASIS OVER TAX BASIS OF
SUBSIDIARIES

     Under Indonesian GAAP, deferred tax liabilities are not recognized for the
excess of the parent's carrying amount of its equity investment in a domestic
subsidiary over its tax basis if the parent company is able to control the
timing of the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.

     Under U.S. GAAP, the excess of the parent's carrying amount of its equity
investment in a domestic subsidiary over its tax basis is a temporary
difference. However, if the tax law provides a means by which the investment can
be recovered tax-free and the parent ultimately plans to utilize such means to
recover its investment, the temporary difference is non-taxable and no deferred
taxes are recorded. Generally, no benefit is recorded for the excess of a
parent's tax basis in its subsidiary over its carrying amount for financial
reporting purposes. At December 31, 2002, the Company intends to recover
tax-free its investment in its Indonesian subsidiaries and such actions will not
require the Company to incur a significant cost. Accordingly, no deferred taxes
have been provided for the basis difference.

     As a result, on a U.S. GAAP basis, the Company's consolidated net income
would have been Rp.362.7 billion lower in 2001 and Rp.362.7 billion (US$40.7
million) higher in 2002, respectively.

  PENSION

     The Company and a subsidiary, for purposes of Indonesian GAAP, use a method
of accounting for pensions that is substantially consistent with the
requirements of U.S. GAAP.

                                       155
<PAGE>

     As stated in its pension plan regulations, the Company does not provide
regular pension increases. However, in 1994, 1998 and 2002 the Company provided
for increases in pension benefits for pensioners, which were considered prior
service costs. Based on PSAK No. 24, the prior service costs attributable to the
increases in pension benefits for pensioners were directly charged to expense in
those years. Under SFAS 87, such prior service costs should be deferred and
amortized systematically over the estimated average future working periods of
active employees.

     The subsidiary is amortizing past service cost using the double-declining
method for Indonesian GAAP, while under U.S. GAAP, past service cost is
amortized using the straight-line method.

     The Company's consolidated income before tax would have been Rp.95.1
billion higher in 2000, Rp.19.7 billion lower in 2001, and Rp.132.2 billion
higher in 2002 under U.S. GAAP reporting.

  SHARE IN NET INCOME OF ASSOCIATED COMPANIES

     The Company records its equity in net income of associated companies based
on the associates' financial statements that have been prepared under Indonesian
GAAP.

     For U.S. GAAP reporting purposes, the Company conforms the associates'
earnings to U.S. GAAP prior to recording their share of earnings or loss. The
primary difference has historically related to land rights held by associates.

     As a result, on a U.S. GAAP basis, the Company's consolidated income before
tax would have been Rp.2.4 billion higher in 2000, Rp.3.8 billion lower in 2001
and Rp.0.2 billion higher in 2002.

  LAND RIGHTS

     In Indonesia, the title of land rests with the State under the Basic
Agrarian Law No. 5 of 1960. Land use is accomplished through land rights whereby
the holder of the right enjoys the full use of the land for a stated period of
time, subject to extensions. The land rights generally are freely tradable and
may be pledged as security under borrowing agreements. Under Indonesian GAAP,
land ownership is not depreciated unless it can be foreseen that the possibility
for the holder to obtain extension or renewal of rights is remote.

     Under U.S. GAAP, the cost of acquired land rights is amortized over the
period the holder is expected to retain the land rights.

     The Company's consolidated income before tax would have been Rp.218 million
lower in 2000, Rp.939 million lower in 2001, and Rp.1,801 million lower in 2002
under U.S. GAAP reporting.

  STOCK ISSUANCE COSTS

     Under Indonesian GAAP, stock issuance costs are deferred and amortized over
a certain period of time. The Company amortized deferred stock issuance costs
over five years using the straight-line method.

     Effective 2000, the Capital Market Supervisory Agency (Bapepam) requires
that stock issuance costs be recorded as part of additional paid-in capital.

     Under U.S. GAAP, stock issuance costs are offset against the proceeds from
the stock issuance.

     As a result of this difference, the Company's consolidated income before
tax under U.S. GAAP would have been Rp.22.4 billion higher in 2000. Deferred
stock issuance costs was fully amortized in 2000.

  EMPLOYEE BONUSES

     In 2000, a subsidiary (Telkomsel) has charged to retained earnings employee
bonuses of Rp.26,714 million.

                                       156
<PAGE>

     Under U.S. GAAP, personnel and related costs, including bonuses are charged
to income. Consequently the Company's consolidated income before tax under U.S.
GAAP would have been Rp.20.8 billion lower in 2000.

  EQUIPMENT TO BE INSTALLED

     Under Indonesian GAAP, equipment is depreciated beginning when the asset is
ready for its intended use. Temporarily idle equipment or equipment that is
awaiting installation is not depreciated.

     Under U.S. GAAP equipment is depreciated when it is ready for its intended
use. Equipment that is part of a network is depreciated when the network or the
applicable component of the network is ready for its intended use. Temporarily
idle equipment continues to be depreciated. When the equipment is expected to be
idle for protracted periods, the equipment is written down to its estimated
realizable value. If the equipment is held for sale, depreciation ceases.
However, if the equipment is held for future use, depreciation continues.

     Consequently the Company's consolidated income before tax under U.S. GAAP
would have been Rp.4.3 billion lower in 2000 and Rp.6.3 billion higher in 2002,
respectively.

  REVENUE RECOGNITION

     Under Indonesian GAAP, revenue from cellular service connection fees are
recognized as income when the connection takes place (for postpaid service) or
at the time of delivery of starter packs to distributors, dealers or customers
(for prepaid service). Installation fees for wire line services are recognized
at the time of installation.

     Under U.S. GAAP, revenue from front-end fees are deferred and recognized
over the longer of the expected term of the customer relationship or the
contractual term. Costs incurred related to the installation or connection
activities are deferred, but only to the extent of deferred revenues. The cost
of provisioning wire line services far exceeds the fee charged by the Company
thus the reconciling item relates solely to the Company's cellular operations.

     Consequently the Company's consolidated income before tax under U.S. GAAP
would have been Rp.66.4 billion lower in 2002.

  GOODWILL

     Under Indonesian GAAP, goodwill is amortized over the period expected to be
benefited by the acquisition.

     Under U.S. GAAP, goodwill is not amortized but rather subjected to a test
for impairment. The Company has an immaterial amount of goodwill on its balance
sheet (Rp.72,672 million or approximately US$8 million).

  CAPITAL LEASE

     The criteria for a capital lease under Indonesian GAAP differ from U.S.
GAAP. Under Indonesian GAAP, a lease is capitalized if the lessee has a fixed
price purchase option, the lease provides for a return of the cost of the asset
with profit-thereon to the lessor, and the lease term exceeds two years.

     Under U.S. GAAP, a lease is capitalized if there is an automatic transfer
of ownership, a bargain purchase option, the lease terms is for 75% of the
economic life of the asset or the lease payments are at least 90% of the fair
value of the asset measured on a present value basis.

     Consequently the Company's consolidated income before tax under U.S. GAAP
would have been Rp.9.3 billion higher in 2002.

                                       157
<PAGE>

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     Not applicable.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS

     Not applicable.

ITEM 15.  CONTROL AND PROCEDURES

     Pursuant to rules adopted by the Securities and Exchange Commission as
directed by Section 302 of the Sarbanes-Oxley Act of 2002, the Company is
providing the following information:

     As of a date within 90 days of the date of the filing of this Form 20-F
Annual Report (the "Evaluation Date") the Company conducted an evaluation (under
the supervision and with the participation of the Company's chief executive
officer and chief financial officer), pursuant to Rule 13a-15 promulgated under
the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of the
effectiveness of design and operation of the Company's disclosure controls and
procedures. Based on this evaluation, the Company's chief executive officer and
chief financial officer have concluded that as of the Evaluation Date such
disclosure controls and procedures were reasonably designed to ensure that
information required to be disclosed by the Company in reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.

     Since the last evaluation by the Company of the Company's internal controls
there have not been any significant changes in the internal controls, or in
factors that could significantly affect the internal controls.

ITEM 16.  RESERVED

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

     See pages F-1 through F-120 incorporated herein by reference.

ITEM 18.  FINANCIAL STATEMENTS

     Not applicable.

ITEM 19.  EXHIBITS

SUMMARY OF MATERIAL CONTRACTS:

<Table>
<S>     <C>
10.1.   Procurement of Telkom -- 2 Satellite, No:K.TEL.
        191/HK.810/UTA-00/2002 dated: October 24th 2002
10.2.   Launch Service Agreement, No. K.TEL.198/HK.910/UTA-00/2002
        dated 8th November 2002 between TELKOM and ARIANESPACE S.A.
        General.
10.3.   Cooperation Agreement on PSTN Development, No. TELKOM:
        PKS.14 /HK.810/UTA-00/2002 dated FEBRUARY 8, 2003 between
        TELKOM and Consortium Olex -- Lucent -- Brimbun
</Table>

                                       158
<PAGE>

        PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA TBK
                                AND SUBSIDIARIES

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Report of Independent Auditors..............................    F-2
Financial Statements
  1. Consolidated Balance Sheets............................    F-7
  2. Consolidated Statements of Income......................   F-10
  3. Consolidated Statements of Changes in Equity...........   F-11
  4. Consolidated Statements of Cash Flows..................   F-14
  5. Notes to Consolidated Financial Statements.............   F-16
</Table>

                                       F-1
<PAGE>

                          (GRANT THORNTON LETTERHEAD)

                         REPORT OF INDEPENDENT AUDITORS

REPORT NO. 008/2003

THE STOCKHOLDERS, BOARD OF COMMISSIONERS AND DIRECTORS
PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK

     We have audited the accompanying consolidated balance sheet of Perusahaan
Perseroan (Persero) PT Telekomunikasi Indonesia Tbk and its subsidiaries ("The
Company") as of December 31, 2002, and the related consolidated statements of
income, changes in equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the balance sheets of PT Telekomunikasi Selular
(Telkomsel), PT Dayamitra Telekomunikasi (Dayamitra), PT Indonusa Telemedia
(Indonusa) and PT Graha Sarana Duta (GSD) as of December 31, 2002, or the
related statements of income, changes in equity, and cash flows for the year
then ended, which statements reflect total assets constituting 29% of
consolidated total assets as of December 31, 2002, and total revenues
constituting 38% of consolidated total revenues for the year then ended. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for
Telkomsel, Dayamitra, Indonusa, and GSD, is based solely on the reports of such
other auditors. The consolidated financial statements of the company and its
subsidiaries for the year ended December 31, 2001, were audited by other
auditors whose reports, dated February 28, 2002, expressed an unqualified
opinion on those statements and included explanatory paragraphs concerning a
dispute between the Company and an investor in a Joint Operation Scheme and the
effects of the economic conditions in Indonesia on the Company and its
subsidiaries.

     We conducted our audit in accordance with auditing standards established by
the Indonesian Institute of Accountants and auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the reports of
other independent auditors provide a reasonable basis for our opinion.

     In our opinion, based on our audit and the reports of other independent
auditors, the 2002 consolidated financial statements present fairly, in all
material respects, the financial positions of Perusahaan Perseroan (Persero) PT
Telekomunikasi Indonesia Tbk and its subsidiaries as of December 31, 2002, and
the results of their operations, changes in their equity, and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in Indonesia.

     As described in Notes 49 and 53 to the consolidated financial statements,
the Company and an investor in a Joint Operation Scheme (AriaWest) have
submitted various claims against each other for resolution in arbitration
proceedings under the Rules of the International Chamber of Commerce. On May 8,
2002, the Company and the shareholders of AriaWest entered into a Conditional
Sales and Purchase Agreement (CSPA) in connection with the buyout of 100%
AriaWest shares. According to the CSPA, both parties have agreed to resolve all
disputes with AriaWest on the date the CSPA becomes effective. So far up to the
date of this report, the CSPA is not effective yet because some closing

                                       F-2
<PAGE>

conditions have not yet been fulfilled by the shareholders of AriaWest. During
the process of the dispute resolution, ICC has agreed to postpone the
arbitration process until April 17, 2003.

     Note 55 to the consolidated financial statements includes a summary of the
effects the economic conditions in Indonesia have had on the Company and its
subsidiaries, as well as measures the Company and its subsidiaries have
implemented or plan to implement in response to the economic conditions. The
accompanying consolidated financial statements include the effects of the
economic conditions to the extent they can be determined and estimated.

     Accounting principles generally accepted in Indonesia vary in certain
respects with those in the United States of America. A description of the
significant differences between the U.S. and Indonesian generally accepted
accounting principles and the approximate effects of those differences on the
net income for the year ended December 31, 2002 and equity as of December 31,
2002 are set forth in Notes 57 and 58, respectively, to the consolidated
financial statements.

     Our audit procedures also included the translation of Rupiah amounts into
the U.S. Dollar currency and, in our opinion, such translation has been made in
conformity with the basis stated in Note 3 to the consolidated financial
statements. Such U.S. Dollar amounts are presented solely for the convenience of
the readers.

EDDY PIANTO
License No. 98.2.0136

/s/ E.PIANTO

DRS. EDDY PIANTO SIMON
License No. 98.1.0166

March 25, 2003

                                       F-3
<PAGE>

                         (PricewaterhouseCoopers Logo)

<Table>
<S>                                       <C>
  KANTOR AKUNTAN PUBLIK
  DRS. HADI SUTANTO & REKAN
  Gedung PricewaterhouseCoopers
  Jl. H.R. Rasuna Said, Kav C-3
  Jakarta 12920 - INDONESIA
  P.O. Box 2473 JKP 10001
  Telephone: +62 21 5212901-06
  Facsimile: +62 21 5212911/12
</Table>

                          INDEPENDENT AUDITORS' REPORT
                             TO THE STOCKHOLDERS OF

                    PT TELEKOMUNIKASI SELULAR AND SUBSIDIARY

     We have audited the accompanying consolidated balance sheet of PT
Telekomunikasi Selular (the "Company") and its subsidiary (collectively the
"Group") as at December 31, 2002, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Group's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The financial statements of the Company
as of December 31, 2001 and for the year then ended were audited by other
independent auditors whose report dated February 28, 2002, expressed an
unqualified opinion on those statements and included an explanatory paragraph
that referred to the economic conditions prevailing in Indonesia.

     We conducted our audit in accordance with auditing standards by the
Indonesian Institute of Accountants and generally accepted auditing standards in
the United States of America. These standards require that we plan and perform
the audit to obtain reasonable assurance that the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the management, as well as evaluating the overall presentation of the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Group as at December 31, 2002 and the consolidated results of their
operations, and their consolidated cash flows for the year then ended, in
conformity with generally accepted accounting principles in Indonesia.

     Generally accepted accounting principles in Indonesia vary in certain
respects with those in the United States of America. A description of the
differences between those two generally accepted accounting principles and the
effects of those differences on net income and stockholders' equity are set
forth in Notes 34 and 35, respectively to the consolidated financial statements.

JAKARTA
18 February 2003

/s/ IRHOAN TANUDRIREDJA
DRS. IRHOAN TANUDIREDJA BAP
License of Public Accountant No. 99.1.0683
--------------------------------------------------------------------------------

The accompanying consolidated financial statements are not intended to present
the consolidated financial position, results of operation and cash flows in
accordance with accounting principles and practices generally accepted in
countries and jurisdictions other than Indonesia. Accordingly the accompanying
consolidated balance sheets, related consolidated statements of income, changes
in stockholders' equity and cash flows and their utilisation are not designed
for those who are not informed about Indonesian accounting principles,
procedures and practices.

The standards, procedures and practices utilised in Indonesia to audit such
financial statements may differ from those generally accepted in countries and
jurisdictions other than Indonesia.

                                       F-4
<PAGE>

                             [DELOITTE LETTERHEAD]

                          INDEPENDENT AUDITORS' REPORT

NO. 280202 TI LSW SAR

THE STOCKHOLDERS, BOARD OF COMMISSIONERS AND DIRECTORS
PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA TBK

     We have audited the accompanying consolidated balance sheet of Perusahaan
Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk and its subsidiaries as of
December 31, 2001, and the related consolidated statements of income, changes in
equity, and cash flows for the years ended December 31, 2000 and 2001, all
expressed in Rupiah. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated financial statements
give retroactive effect to the Company's acquisition of a controlling interest
in PT Telekomunikasi Selular (Telkomsel), in a transaction between entities
under common control that has been accounted for as a pooling of interests as
described in Notes 4 and 49 to the consolidated financial statements. We did not
audit the balance sheet of Telkomsel as of December 31, 2001, or the related
statements of income, changes in equity, and cash flows for the years ended
December 31, 2000 and 2001, which statements reflect total assets constituting
23% of consolidated total assets at December 31, 2001, and total revenues
constituting 27% and 35%, respectively, of consolidated total revenues for the
years ended December 31, 2000 and 2001. We also did not audit the financial
statements of PT Dayamitra Telekomunikasi (Dayamitra), a subsidiary acquired in
2001, which statements reflect total assets constituting 3% of consolidated
total assets at December 31, 2001. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for Telkomsel and Dayamitra is based solely on
the reports of such other auditors.

     We conducted our audits in accordance with auditing standards established
by the Indonesian Institute of Accountants and auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.

     Previously, we have issued our report No. 280202 TI LSW SA, dated February
28, 2002, with an unqualified opinion. In relation to the filing of the annual
report on Form 20-F required by the U.S. Securities and Exchange Commission, the
Company has reissued its financial statements. There is no change in account in
principles or material matters between the previous and reissued financial
statements, except as described in Note 54 concerning subsequent events after
reporting date.

                                       F-5
<PAGE>

HANS TUANAKOTTA & MUSTOFA

     In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Perusahaan Perseroan (Persero) P.T.
Telekomunikasi Indonesia Tbk and its subsidiaries as of December 31, 2001, and
the results of their operations, changes in their equity, and their cash flows
for the years ended December 31, 2000 and 2001 in conformity with accounting
principles generally accepted in Indonesia.

     As described in Note 46 to the consolidated financial statements, the
Company and an investor in a Joint Operation Scheme have submitted various
claims against each other for resolution in arbitration proceedings under the
Rules of the International Chamber of Commerce.

     Note 48 to the consolidated financial statements includes a summary of the
effects the economic conditions in Indonesia have had on the Company and its
subsidiaries, as well as measures the Company and its subsidiaries have
implemented or plan to implement in response to the economic conditions. The
accompanying consolidated financial statements include the effects of the
economic conditions to the extent they can be determined and estimated.

     Generally accepted accounting principles in Indonesia vary in certain
respects with those in the United States of America. A description of the
significant differences between those two generally accepted accounting
principles and approximate effects of those differences on the net income for
the years ended December 31, 2000 and 2001 and equity as of December 31, 2001
are set forth in Notes 51 and 52, respectively, to the consolidated financial
statements.

     Our audits also comprehended the translation of Rupiah amounts into United
States Dollar and, in our opinion, such translation has been made in conformity
with the basis stated in Note 3 to the consolidated financial statements. Such
United States Dollar amounts are presented solely for the convenience of the
readers.

HANS TUANAKOTTA & MUSTOFA

/s/ LUDOVICUS SENSI
Ludovicus Sensi W, SE, MM, BAP
License No. 99.1.0705

February 28, 2002, except for Note 54 as to which the date is May 8, 2002

                                       F-6
<PAGE>

         PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK
                                AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2002
 (FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH AND THOUSANDS OF UNITED
                                 STATES DOLLAR)

                                     ASSETS

<Table>
<Caption>
                                                     NOTES         2001                 2002
                                                   ----------   ----------   --------------------------
                                                                    RP           RP       US$ (NOTES 3)
<S>                                                <C>          <C>          <C>          <C>
CURRENT ASSETS
  Cash and cash equivalents......................   2e,6,47      3,644,213    5,699,070       639,411
  Temporary investments..........................   2f,7,47        348,915    1,073,000       120,386
  Trade accounts receivable......................  2g,8,9,47
     Related parties -- net of allowance for
       doubtful accounts of Rp325,930 million in
       2001 and Rp576,374 million in 2002........                1,037,154    1,308,102       146,763
     Third parties -- net of allowance for
       doubtful accounts of Rp252,855 million in
       2001 and Rp397,810 million in 2002........                1,415,686    1,890,679       212,126
  Other accounts receivable -- net of allowance
     for doubtful accounts of Rp26,964 million in
     2001 and Rp20,326 million in 2002...........    2g,47         196,664      285,920        32,079
  Inventories -- net of allowance for
     obsolescence of Rp48,997 million in 2001 and
     Rp53,795 million in 2002....................    2h,10         191,092      139,682        15,672
  Prepaid expenses...............................      2i          335,720      353,656        39,680
  Prepaid taxes..................................      11               --       84,674         9,500
  Other current assets...........................      12          139,075      145,761        16,353
                                                                ----------   ----------     ---------
          Total Current Assets...................                7,308,519   10,980,544     1,231,970
                                                                ----------   ----------     ---------
NONCURRENT ASSETS
  Long-term investments -- net...................    2f,13         191,382      183,147        20,548
  Property, plant and equipment -- net of
     accumulated depreciation of Rp15,929,614
     million in 2001 and Rp19,718,913 million in
     2002........................................   2j,2k,14    22,288,766   27,645,780     3,101,737
  Property, plant and equipment under revenue-
     sharing arrangements -- net of accumulated
     depreciation of Rp840,918 million in 2001
     and Rp840,949 million in 2002...............   2l,15,50       452,733      379,637        42,594
  Advances and other noncurrent assets...........   2n,7,47        694,879      528,568        59,303
  Intangible assets..............................  1b,2c,5,16    1,356,144    2,052,126       230,240
  Advance payment for investment in shares of
     stock.......................................     5,49              --      247,548        27,773
  Escrow accounts................................   5,17,49        171,080      297,928        33,426
  Property not used in operations................                    6,777        6,889           772
                                                                ----------   ----------     ---------
          Total Noncurrent Assets................               25,161,761   31,341,623     3,516,393
                                                                ----------   ----------     ---------
TOTAL ASSETS.....................................               32,470,280   42,322,167     4,748,363
                                                                ==========   ==========     =========
</Table>

    See accompanying notes to consolidated financial statements which are an
            integral part of the consolidated financial statements.

                                       F-7
<PAGE>

         PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK
                                AND SUBSIDIARIES

                   CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
                           DECEMBER 31, 2001 AND 2002
 (FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH AND THOUSANDS OF UNITED
                                 STATES DOLLAR)

                             LIABILITIES AND EQUITY

<Table>
<Caption>
                                                    NOTES           2001                 2002
                                                --------------   ----------   --------------------------
                                                                                           US$ (NOTES 3)
                                                                     RP           RP       -------------
<S>                                             <C>              <C>          <C>          <C>
CURRENT LIABILITIES
  Trade accounts payable......................      18,47
     Related parties..........................                      721,009    1,032,942       115,892
     Third parties............................                    1,056,644    2,356,284       264,365
  Other accounts payable......................        47             49,392       58,708         6,588
  Taxes payable...............................      2r,19         1,875,023    1,212,575       136,046
  Dividends payable...........................                        1,411        1,494           168
  Accrued expenses............................     4,20,47        1,437,575    2,510,402       281,656
  Unearned income.............................        2o            271,928      498,801        55,963
  Advances from customers and suppliers.......      21,49           213,432    1,132,319       127,041
  Short-term bank loan........................        22            500,000       39,205         4,399
  Current maturities of long-term
     liabilities..............................    2k,5,23,24
                                                25,26,27,29,47    1,542,600    2,012,251       225,765
  Liability for cross-ownership
     transactions.............................        4           2,406,309           --            --
                                                                 ----------   ----------     ---------
          Total Current Liabilities...........                   10,075,323   10,854,981     1,217,883
                                                                 ----------   ----------     ---------
NONCURRENT LIABILITIES
  Deferred tax liabilities -- net.............      2r,42         1,767,759    1,521,209       170,673
  Unearned income on revenue-sharing
     arrangements.............................   2l,15,38,50        225,714      165,978        18,622
  Unearned initial investor payments under
     joint operation scheme...................     2m,35,47         111,834       66,117         7,418
  Long-term liabilities -- net of current
     maturities
     Two-step loans -- related party..........      24,47         8,637,340    7,694,445       863,284
     Suppliers' credit loans..................     5,17,25          395,020      175,625        19,704
     Bridging loan............................     5,17,26          111,401       53,405         5,992
     Project cost payable.....................                      242,809       15,513         1,740
     Bond payable and guaranteed notes........        28                 --    2,337,518       262,259
     Bank loan................................        29             73,150       85,355         9,576
     Other long-term debt.....................        2k             10,181        9,275         1,041
     Liability for acquisition of a
       subsidiary.............................     5,17,27          260,840           --            --
                                                                 ----------   ----------     ---------
          Total Noncurrent Liabilities........                   11,836,048   12,124,440     1,360,309
                                                                 ----------   ----------     ---------
MINORITY INTEREST IN NET ASSETS OF
  SUBSIDIARIES................................        30          1,235,334    3,443,563       386,353
                                                                 ----------   ----------     ---------
</Table>

    See accompanying notes to consolidated financial statements which are an
            integral part of the consolidated financial statements.

                                       F-8
<PAGE>

         PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK
                                AND SUBSIDIARIES

                   CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
                           DECEMBER 31, 2001 AND 2002
 (FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH AND THOUSANDS OF UNITED
                                 STATES DOLLAR)

                             LIABILITIES AND EQUITY

<Table>
<Caption>
                                                    NOTES           2001                 2002
                                                --------------   ----------   --------------------------
                                                                                           US$ (NOTES 3)
                                                                     RP           RP       -------------
<S>                                             <C>              <C>          <C>          <C>
EQUITY
  Capital stock -- Rp500 par value per Series
     A Dwiwarna share and Series B share
     Authorized -- one Series A Dwiwarna share
       and 39,999,999,999 Series B shares
     Issued and fully paid -- one Series A
       Dwiwarna share and 10,079,999,639
       Series B shares........................        31          5,040,000    5,040,000       565,466
  Additional paid-in capital..................        32          1,073,333    1,073,333       120,423
  Difference in value of restructuring
     transactions between entities under
     common control...........................       2c,4        (7,402,343)  (7,032,455)     (789,011)
  Difference due to change of equity in
     associated companies.....................      2f,13           342,425      342,425        38,419
  Translation adjustment......................      2d,13           179,672      164,966        18,508
  Unrealized loss on decline in value of
     securities...............................       2f,7              (207)          --            --
  Retained earnings
     Appropriated.............................        44            320,392      745,403        83,630
     Unappropriated...........................                    9,770,303   15,565,511     1,746,383
                                                                 ----------   ----------     ---------
          Total Equity........................                    9,323,575   15,899,183     1,783,818
                                                                 ----------   ----------     ---------
TOTAL LIABILITIES AND EQUITY..................                   32,470,280   42,322,167     4,748,363
                                                                 ==========   ==========     =========
</Table>

    See accompanying notes to consolidated financial statements which are an
            integral part of the consolidated financial statements.

                                       F-9
<PAGE>

         PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK
                                AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
 (FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH AND THOUSANDS OF UNITED
                                 STATES DOLLAR,
                           EXCEPT SHARE AND ADS DATA)

<Table>
<Caption>
                                                NOTES        2000         2001                 2002
                                             -----------  ----------   ----------   ---------------------------
                                                              RP           RP           RP       US$ (NOTES 3)
<S>                                          <C>          <C>          <C>          <C>          <C>
OPERATING REVENUES
  Telephone................................     2o,33
    Fixed lines............................                5,177,864    6,415,156    8,327,378       934,296
    Cellular...............................                2,890,002    4,707,998    6,226,801       698,620
  Interconnection..........................   2o,34,47       980,985    1,387,363    3,025,906       339,494
  Joint operation scheme...................  2m,2o,35,49   2,267,154    2,219,586    1,637,809       183,755
  Data and internet........................      36          107,934      673,184    1,571,470       176,312
  Network..................................      37          340,034      414,929      326,412        36,622
  Revenue-sharing arrangements.............      38          308,365      265,173      280,158        31,433
  Other telecommunications services........     2l,2o         39,658       47,400        3,803           427
                                                          ----------   ----------   ----------     ---------
         Total Operating Revenues..........               12,111,996   16,130,789   21,399,737     2,400,959
                                                          ----------   ----------   ----------     ---------
OPERATING EXPENSES
  Personnel................................      39        1,610,196    2,028,812    4,124,064       462,702
  Depreciation.............................  2j,2k,2l,14   2,419,069    2,828,603    3,504,201       393,156
  Operation, maintenance and
    telecommunication services.............      40        1,385,735    2,149,921    2,432,176       272,880
  General and administrative...............      41          871,683    1,287,747    1,557,789       174,777
  Marketing................................                  147,160      220,006      379,823        42,614
                                                          ----------   ----------   ----------     ---------
         Total Operating Expenses..........                6,433,843    8,515,089   11,998,053     1,346,129
                                                          ----------   ----------   ----------     ---------
OPERATING INCOME...........................                5,678,153    7,615,700    9,401,684     1,054,830
                                                          ----------   ----------   ----------     ---------
OTHER INCOME (CHARGES)
  Gain on sales of long term investment....      2f               --           --    3,196,380       358,620
  Interest income..........................   2e,2f,47       691,962      571,587      485,356        54,455
  Interest expense.........................      47         (816,749)  (1,329,642)  (1,534,568)     (172,172)
  Gain (loss) on exchange rate
    differences -- net.....................     2d,54       (944,077)    (378,720)     516,699        57,971
  Equity in net income (loss) of associated
    companies..............................     2f,47       (232,044)     (85,686)      62,167         6,975
  Others -- net............................                  411,955      294,050      214,856        24,106
                                                          ----------   ----------   ----------     ---------
  Other income (charges) -- net............                 (888,953)    (928,411)   2,940,890       329,955
                                                          ----------   ----------   ----------     ---------
INCOME BEFORE TAX..........................                4,789,200    6,687,289   12,342,574     1,384,785
TAX EXPENSE
  Current tax..............................     2r,42     (1,228,199)  (2,174,401)  (2,838,573)     (318,476)
  Deferred tax.............................     2r,42       (238,068)     103,747       92,716        10,402
                                                          ----------   ----------   ----------     ---------
                                                          (1,466,267)  (2,070,654)  (2,745,857)     (308,074)
INCOME BEFORE MINORITY INTEREST IN NET
  INCOME OF SUBSIDIARIES AND PRE
  ACQUISITION (INCOME) LOSS................                3,322,933    4,616,635    9,596,717     1,076,711
PRE ACQUISITION (INCOME) LOSS OF
  SUBSIDIARIES.............................                       --      108,080     (142,817)      (16,023)
MINORITY INTEREST IN NET INCOME OF
  SUBSIDIARIES.............................      30         (312,930)    (474,605)  (1,108,626)     (124,383)
                                                          ----------   ----------   ----------     ---------
NET INCOME.................................                3,010,003    4,250,110    8,345,274       936,305
                                                          ==========   ==========   ==========     =========
BASIC EARNINGS PER SHARES..................   2s,43,44
  Net income per share.....................                   298.61       421.64       827.90          0.09
                                                          ==========   ==========   ==========     =========
  Net income per ADS
  (20 Series B shares per ADS).............                 5,972.23     8,432.76    16,558.08          1.86
                                                          ==========   ==========   ==========     =========
</Table>

    See accompanying notes to consolidated financial statements which are an
                              integral part of the
                       consolidated financial statements.

                                       F-10
<PAGE>

                         PERUSAHAAN PERSEROAN (PERSERO)
                PT TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
            (FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH)
<Table>
<Caption>
                                                                   DIFFERENCE DUE TO     UNREALIZED LOSS
                                                                   CHANGE OF EQUITY       ON DECLINE IN
                                      CAPITAL      ADDITIONAL        IN ASSOCIATED          VALUE OF         TRANSLATION
DESCRIPTION                            STOCK     PAID-IN CAPITAL       COMPANIES           SECURITIES        ADJUSTMENT
-----------                          ---------   ---------------   -----------------   -------------------   -----------
                                        RP             RP                 RP                   RP                RP
<S>                                  <C>         <C>               <C>                 <C>                   <C>
Balance as of January 1, 2000......  5,040,000      1,073,333           430,722               (159)            162,299
Equity resulting from
 restatement.......................         --             --                --                 --                  --
Difference due to change of equity
 in Telkomsel and PSN -- net of
 deferred tax effect of Rp1,853
 million...........................         --             --            (4,325)                --                  --
Unrealized loss on decline in value
 of securities.....................         --             --                --                 (6)                 --
Increase in investment in CSM and
 PSN resulted from currency
 translation adjustment from US
 Dollar to Rupiah -- net of
 deferred tax effect of Rp6,349
 million...........................         --             --                --                 --              14,815
Resolved during the Annual General
 Meeting of the Stockholders on
 April 7, 2000:
 Declaration of cash dividend......         --             --                --                 --                  --
 Appropriation for general
   reserve.........................         --             --                --                 --                  --
Net income for the year -- as
 restated..........................         --             --                --                 --                  --
                                     ---------      ---------           -------               ----             -------
Balance as of December 31, 2000....  5,040,000      1,073,333           426,397               (165)            177,114
                                     =========      =========           =======               ====             =======

<Caption>
                                       EQUITY
                                      RESULTING          RETAINED EARNINGS
                                        FROM       -----------------------------     TOTAL
DESCRIPTION                          RESTATEMENT   APPROPRIATED   UNAPPROPRIATED     EQUITY
-----------                          -----------   ------------   --------------   ----------
                                         RP             RP              RP             RP
<S>                                  <C>           <C>            <C>              <C>
Balance as of January 1, 2000......     791,302      171,719         5,346,395     13,015,611
Equity resulting from
 restatement.......................     430,231           --          (470,992)       (40,761)
Difference due to change of equity
 in Telkomsel and PSN -- net of
 deferred tax effect of Rp1,853
 million...........................          --           --                --         (4,325)
Unrealized loss on decline in value
 of securities.....................          --           --                --             (6)
Increase in investment in CSM and
 PSN resulted from currency
 translation adjustment from US
 Dollar to Rupiah -- net of
 deferred tax effect of Rp6,349
 million...........................          --           --                --         14,815
Resolved during the Annual General
 Meeting of the Stockholders on
 April 7, 2000:
 Declaration of cash dividend......          --           --        (1,086,161)    (1,086,161)
 Appropriation for general
   reserve.........................          --       21,723           (21,723)            --
Net income for the year -- as
 restated..........................          --           --         3,010,003      3,010,003
                                      ---------      -------        ----------     ----------
Balance as of December 31, 2000....   1,221,533      193,442         6,777,522     14,909,176
                                      =========      =======        ==========     ==========
</Table>

    See accompanying notes to consolidated financial statements which are an
             integral part of the consolidated financial statements

                                       F-11
<PAGE>

                         PERUSAHAAN PERSEROAN (PERSERO)
                PT TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY -- (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
            (FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH)
<Table>
<Caption>
                                                             DIFFERENCE IN
                                                                VALUE OF
                                                             RESTRUCTURING
                                                              TRANSACTIONS    DIFFERENCE DUE TO     UNREALIZED LOSS
                                                                BETWEEN       CHANGE OF EQUITY       ON DECLINE IN
                                CAPITAL      ADDITIONAL      ENTITIES UNDER     IN ASSOCIATED          VALUE OF         TRANSLATION
DESCRIPTION                      STOCK     PAID-IN CAPITAL   COMMON CONTROL       COMPANIES           SECURITIES        ADJUSTMENT
-----------                    ---------   ---------------   --------------   -----------------   -------------------   -----------
                                  RP             RP                RP                RP                   RP                RP
<S>                            <C>         <C>               <C>              <C>                 <C>                   <C>
Balance as of January 1,
 2001........................  5,040,000      1,073,333                --          426,397               (165)            177,114
Difference in value of
 restructuring transactions
 between entities under
 common control..............         --             --        (7,402,343)              --                 --                  --
Reversal of difference due to
 change of equity in
 Satelindo -- net of deferred
 tax effect of Rp87,133
 million.....................         --             --                --         (203,309)                --                  --
Difference due to change of
 equity in Telkomsel -- net
 of deferred tax effect of
 Rp51,144 million............         --             --                --          119,337                 --                  --
Unrealized loss on decline in
 value of securities.........         --             --                --               --                (42)                 --
Foreign currency translation
 of CSM -- net of deferred
 tax effect of Rp1,096
 million.....................         --             --                --               --                 --               2,558
Resolved during the Annual
 General Meeting of the
 Stockholders on May 10, 2001
 Declaration of cash
   dividend..................         --             --                --               --                 --                  --
 Appropriation for general
   reserve...................         --             --                --               --                 --                  --
Net Income for the year......         --             --                --               --                 --                  --
                               ---------      ---------        ----------         --------               ----             -------
Balance as of December 31,
 2001........................  5,040,000      1,073,333        (7,402,343)         342,425               (207)            179,672
                               =========      =========        ==========         ========               ====             =======

<Caption>

                                 EQUITY
                                RESULTING          RETAINED EARNINGS
                                  FROM       -----------------------------     TOTAL
DESCRIPTION                    RESTATEMENT   APPROPRIATED   UNAPPROPRIATED     EQUITY
-----------                    -----------   ------------   --------------   ----------
                                   RP             RP              RP             RP
<S>                            <C>           <C>            <C>              <C>
Balance as of January 1,
 2001........................   1,221,533      193,442         6,777,522     14,909,176
Difference in value of
 restructuring transactions
 between entities under
 common control..............  (1,221,533)          --          (241,725)    (8,865,601)
Reversal of difference due to
 change of equity in
 Satelindo -- net of deferred
 tax effect of Rp87,133
 million.....................          --           --                --       (203,309)
Difference due to change of
 equity in Telkomsel -- net
 of deferred tax effect of
 Rp51,144 million............          --           --                --        119,337
Unrealized loss on decline in
 value of securities.........          --           --                --            (42)
Foreign currency translation
 of CSM -- net of deferred
 tax effect of Rp1,096
 million.....................          --           --                --          2,558
Resolved during the Annual
 General Meeting of the
 Stockholders on May 10, 2001
 Declaration of cash
   dividend..................          --           --          (888,654)      (888,654)
 Appropriation for general
   reserve...................          --      126,950          (126,950)            --
Net Income for the year......          --           --         4,250,110      4,250,110
                               ----------      -------        ----------     ----------
Balance as of December 31,
 2001........................          --      320,392         9,770,303      9,323,575
                               ==========      =======        ==========     ==========
</Table>

    See accompanying notes to consolidated financial statements which are an
             integral part of the consolidated financial statements

                                       F-12
<PAGE>

                         PERUSAHAAN PERSEROAN (PERSERO)
                PT TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY -- (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
            (FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH)
<Table>
<Caption>
                                                                        DIFFERENCE IN
                                                                           VALUE OF
                                                                        RESTRUCTURING                            UNREALIZED
                                                                         TRANSACTIONS    DIFFERENCE DUE TO         LOSS ON
                                                                           BETWEEN       CHANGE OF EQUITY        DECLINE IN
                                           CAPITAL      ADDITIONAL      ENTITIES UNDER     IN ASSOCIATED          VALUE OF
DESCRIPTION                       NOTES     STOCK     PAID-IN CAPITAL   COMMON CONTROL       COMPANIES           SECURITIES
-----------                       -----   ---------   ---------------   --------------   -----------------   -------------------
                                             RP             RP                RP                RP                   RP
<S>                               <C>     <C>         <C>               <C>              <C>                 <C>
Balance as of January 1, 2002...          5,040,000      1,073,333        (7,402,343)         342,425               (207)
Decline of investment in CSM as
 a result of foreign currency
 translation of CSM -- net of
 deferred tax effect of Rp6,303
 million........................  2d,13          --             --                --               --                 --
Sales of mutual
 fund -- Seruni.................     7           --             --                --               --                207
Reversal of deferred tax
 liability on restructuring
 transactions between entities
 under common control...........     4           --             --           369,888               --                 --
Resolved during the Annual
 General Meeting of the
 Stockholders on June 21, 2002:
 Declaration of cash dividend...    44           --             --                --               --                 --
 Appropriation for general
   reserve......................    44           --             --                --               --                 --
Net Income for the year.........                 --             --                --               --                 --
                                          ---------      ---------        ----------         --------               ----
Balance as of December 31,
 2002...........................          5,040,000      1,073,333        (7,032,455)         342,425                 --
                                          =========      =========        ==========         ========               ====

<Caption>

                                                      RETAINED EARNINGS
                                  TRANSLATION   -----------------------------     TOTAL
DESCRIPTION                       ADJUSTMENT    APPROPRIATED   UNAPPROPRIATED     EQUITY
-----------                       -----------   ------------   --------------   ----------
                                      RP             RP              RP             RP
<S>                               <C>           <C>            <C>              <C>
Balance as of January 1, 2002...    179,672       320,392         9,770,303      9,323,575
Decline of investment in CSM as
 a result of foreign currency
 translation of CSM -- net of
 deferred tax effect of Rp6,303
 million........................    (14,706)           --                --        (14,706)
Sales of mutual
 fund -- Seruni.................         --            --                --            207
Reversal of deferred tax
 liability on restructuring
 transactions between entities
 under common control...........         --            --                --        369,888
Resolved during the Annual
 General Meeting of the
 Stockholders on June 21, 2002:
 Declaration of cash dividend...         --            --        (2,125,055)    (2,125,055)
 Appropriation for general
   reserve......................         --       425,011          (425,011)            --
Net Income for the year.........         --            --         8,345,274      8,345,274
                                    -------       -------        ----------     ----------
Balance as of December 31,
 2002...........................    164,966       745,403        15,565,511     15,899,183
                                    =======       =======        ==========     ==========
</Table>

    See accompanying notes to consolidated financial statements which are an
             integral part of the consolidated financial statements

                                       F-13
<PAGE>

         PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
 (FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH AND THOUSANDS OF UNITED
                                 STATES DOLLAR)

<Table>
<Caption>
                                                    2000         2001                 2002
                                                 ----------   ----------   --------------------------
                                                     RP           RP           RP       US$ (NOTES 3)
<S>                                              <C>          <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Cash receipt from operating revenues
     Telephone and interconnection -- net
     Fixed line................................   4,883,551    6,310,052    9,784,115     1,097,735
     Cellular..................................   2,832,332    5,237,087    8,130,370       912,192
     Joint Operation Scheme....................   1,950,693    1,717,154      746,748        83,782
     Interconnection -- net....................   1,252,742    1,127,545    1,753,270       196,709
     Other services............................     771,480      697,348      620,416        69,608
                                                 ----------   ----------   ----------     ---------
          Total cash receipt from operating
            revenues...........................  11,690,798   15,089,186   21,034,919     2,360,026
  Cash payments for operating expenses.........  (3,149,770   (5,321,836)  (7,933,104)     (890,060)
                                                 ----------   ----------   ----------     ---------
  Cash generated from operations...............   8,541,028    9,767,350   13,101,815     1,469,966
                                                 ----------   ----------   ----------     ---------
  Interest received............................     725,489      590,966      565,876        63,489
  Income tax payments..........................  (1,642,818)  (2,098,272)  (3,394,955)     (380,899)
  Interest paid................................    (856,961)  (1,256,404)    (921,448)     (103,382)
Cash receipt of advance from KSO III...........          --           --      830,431        93,171
Cash receipt from customer and advances........     109,021        8,949      278,587        31,256
                                                 ----------   ----------   ----------     ---------
Net Cash Provided by Operating Activities......   6,875,759    7,012,589   10,460,306     1,173,601
                                                 ----------   ----------   ----------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from investments and maturity of
     time deposits.............................   5,118,034    7,892,554    1,497,883       168,056
  Proceeds from sale of property, plant and
     equipment.................................       5,950       10,944      204,008        22,889
  Payment for cross ownership transactions.....          --   (6,243,279)  (2,609,145)     (292,735)
  Purchases of marketable securities and
     placements in time deposits...............  (7,682,827)  (4,370,479)  (2,279,362)     (255,735)
  Sale of ownership in Telkomsel...............          --           --    3,948,945       443,055
  Acquisitions of property, plant and
     equipment.................................  (2,366,450)  (3,591,449)  (5,057,610)     (567,442)
  Decrease in advances and others..............     137,721      263,881       57,485         6,450
  Payment of advance for investment in shares
     of stock..................................          --           --     (272,548)      (30,579)
  Acquisitions of long-term investment.........     (14,000)      (1,400)    (749,184)      (84,055)
                                                 ----------   ----------   ----------     ---------
Net Cash Used in Investing Activities..........  (4,801,572)  (6,039,228)  (5,259,528)     (590,096)
                                                 ----------   ----------   ----------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Security deposit.............................          --           --      (16,092)       (1,806)
  Proceeds from bonds..........................          --           --    2,365,314       265,378
  Repayment of long term liabilities...........    (894,998)  (1,231,322)  (2,753,533)     (308,934)
  Cash dividends paid..........................  (1,218,009)  (1,023,355)  (2,443,749)     (274,178)
  Net distributed to social institution........          --       (1,721)        (615)          (69)
  Decrease (increase) in escrow account........       3,034     (171,077)    (297,246)      (33,350)
  Decrease in other non current assets.........          --      264,664           --            --
  Receipts from Bank Loan......................          --      500,000           --            --
                                                 ----------   ----------   ----------     ---------
Net Cash Used in Financing Activities..........  (2,109,973)  (1,662,811)  (3,145,921)     (352,959)
                                                 ----------   ----------   ----------     ---------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS..................................     (35,786)    (689,450)   2,054,857       230,546
CASH AND CASH EQUIVALENTS AT BEGINNING OF
  YEAR.........................................   4,369,449    4,333,663    3,644,213       408,865
                                                 ----------   ----------   ----------     ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......   4,333,663    3,644,213    5,699,070       639,411
                                                 ==========   ==========   ==========     =========
</Table>

                                       F-14
<PAGE>
         PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK
                                AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
 (FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH AND THOUSANDS OF UNITED
                                 STATES DOLLAR)

<Table>
<Caption>
                                                    2000         2001                 2002
                                                 ----------   ----------   --------------------------
                                                     RP           RP           RP       US$ (NOTES 3)
<S>                                              <C>          <C>          <C>          <C>
SUPPLEMENTAL CASH FLOWS INFORMATION
Acquisition of subsidiaries:
  Acquisition cost.............................          --   12,430,716    1,075,295       120,643
  Cash payment.................................          --    6,425,057      288,799        32,402
  Bank balance and cash acquired...............          --     (181,778)          --            --
                                                 ----------   ----------   ----------     ---------
  Cash outflow for acquisition of
     subsidiaries..............................          --    6,243,279      288,799        32,402
                                                 ----------   ----------   ----------     ---------
Noncash investing and financing activities:
  Increase in property under construction
     through the incurrence of long-term
     debt......................................     580,584       60,341      190,080        21,326
  Increase in property and equipment through
     lease liabilities.........................          --        2,483           --            --
  Capitalization of borrowing costs during
     construction:
     Gain (loss) on foreign exchange net.......     179,207        1,746      (27,568)       (3,093)
     Interest..................................      62,534        8,089        9,528         1,069
  Conversion of receivable to long-term
     investment................................          --       92,750           --            --
  Changes from equity transactions of
     associated companies affecting the
     following accounts:
     Long-term investments.....................      14,986      174,135           --            --
     Foreign currency translation adjustment of
       CSM's financial statements..............      14,815        2,558       14,706         1,650
     Deferred tax liability....................       4,496       52,240           --            --
     Difference due to change of equity in
       associated companies....................      (4,325)     119,337           --            --
     Decrease in property, plant and equipment
       and unearned income under
       revenue-sharing arrangement.............          --           --      (73,065)       (8,198)
</Table>

    See accompanying notes to consolidated financial statements which are an
                              integral part of the
                       consolidated financial statements

                                       F-15
<PAGE>

                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

1. GENERAL

  a. Establishment and General Information

     Perusahaan (Persero) P.T. Telekomunikasi Indonesia Tbk (the "Company") was
originally a part of "Post en Telegraafdienst", which was established in 1884
under the framework of Decree No. 7 dated March 27, 1884 of the Governor General
of the Dutch Indies and published in State Gazette of the Dutch Indies No. 52
dated April 3, 1884.

     In 1991, based on Government Regulation No. 25 year 1991, the status of the
Company was changed into a state-owned limited liability corporation
("Persero"). The Company was established based on notarial deed No. 128 dated
September 24, 1991 of Imas Fatimah, S.H. The deed of establishment was approved
by the Minister of Justice of the Republic of Indonesia in his decision letter
No. C2-6870.HT.01.01.Th.1991 dated November 19, 1991, and was published in State
Gazette of the Republic of Indonesia No. 210 dated January 17, 1992, Supplement
No. 5. The Articles of Association have been amended several times, the most
recent amendment was made through Deed No. 4 dated January 10, 2002, of Notary
A. Partomuan Pohan, S.H., LL.M., concerning the change in the Company's
objective, scope of activities, directors' scope of authorities and the
composition of the Company's board of commissioners. The notarial deed was
approved by the Minister of Justice and Human Rights of the Republic of
Indonesia in his decision letter No. C-00682HT.01.04.Th.2002 dated January 15,
2002.

     The Company's principal business is the provision of domestic
telecommunication services, including telephone, telex, telegram, satellite,
leased lines, electronic mail, mobile communication and cellular services. In
order to accelerate the construction of telecommunication facilities, to make
the Company a world-class operator, and to increase the technology as well as
the knowledge and skills of its employees, the Company has entered into
agreements with investors to develop, manage and operate telecommunication
facilities under Joint Operation Schemes (known as "Kerja Sama Operasi" or
"KSO") (see Note 49).

     Under Law No. 3/1989 on Telecommunications which took effect on April 1,
1989, Indonesian legal entities are allowed to provide basic telecommunications
services in cooperation with the Company as the domestic telecommunications
organizing body (or "badan penyelenggara"). Other Indonesian legal entities are
also allowed to individually provide non-basic telecommunications services. In
providing telecommunications services, these entities are required to obtain
licenses from the Minister of Communications of the Republic of Indonesia (the
Ministry of Communications assumed responsibility for the telecommunications
sector from the now defunct Ministry of Tourism, Post and Telecommunication in
March 1998). Government Regulation No. 8/1993 concerning the provision of
telecommunications services, further provides that cooperation which provides
basic telecommunications services can be in the form of joint venture, joint
operation or contract management and that the entities cooperating with the
domestic telecommunications organizing body must use the organizing body's
telecommunications networks. If the telecommunications networks are not
available, the Government Regulation requires that the cooperation be in the
form of a joint venture that is capable of constructing the necessary networks.

     The Minister of Tourism, Post and Telecommunications of the Republic of
Indonesia ("MTPT"), through his two decision letters both dated August 14, 1995,
reaffirmed the status of the Company as the organizing body for the provision of
domestic telecommunications services. Further, effective from January 1, 1996,
the Company was granted the exclusive right to provide local wireline and fixed

                                       F-16
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

wireless services for a minimum period of 15 years and the exclusive right to
provide domestic long-distance telecommunications services for a minimum period
of 10 years. The exclusive rights also apply to telecommunications services
provided for and on behalf of the Company through a KSO. This grant of rights
does not affect the Company's right to provide other domestic telecommunications
services.

     On September 8, 1999, the Government issued Law No. 36/1999 on
Telecommunications to replace Law No. 3/1989. Under the new Law, which took
effect from September 2000, telecommunications activities cover:

          i. Telecommunications networks

          ii. Telecommunications services

          iii. Special telecommunications

     National state-owned companies, regional state-owned companies,
privately-owned companies and cooperatives are allowed to provide
telecommunication networks and services. Special telecommunications services can
be provided by individuals, government agencies and legal entities other than
telecommunication networks and service providers.

     Under Law No. 5/1999, activities that result in monopolistic practices and
unhealthy competition are prohibited. In connection with this law, Government
Regulation No. 52/2000 was issued, which provides that interconnection fees
shall be charged to originating telecommunications network operators where
telecommunications service is provided by two or more telecommunications network
operators.

     Based on press release No. 05/HMS/JP/VIII/2000 dated August 1, 2002 from
the Director General of Post and Telecommunications and the correction thereto
No. 1718/UM/VII/2000 dated August 2, 2000, the period of exclusive rights
granted to the Company to provide local wireline and fixed wireless services was
shortened to expire on August 2002 and August 2003 for domestic long-distance
telecommunications services. In return, new operators are required to pay
compensation to the Company, the amount of which is to be estimated by an
independent appraiser. It is expected that as part of the compensation given to
the Company, they will be granted a permit to provide international
telecommunications services effective from August 2003.

     Based on the press release from the Coordinating Minister of Economics
dated July 31, 2002, the Government decided to terminate Telkom's exclusive
rights as the network provider for local and long-distance service effective
August 1, 2002. On August 1, 2002, PT Indonesian Satellite Corporation Tbk
("Indosat") was granted a license to provide local and long-distance
telecommunications services.

     The Company's head office is located in Jalan Japati No. 1, Bandung, West
Java. In 1996, five of the Company's seven regional divisions started to operate
as separate units (known as "KSO Units") under Joint Operation Schemes.

     According to Article 3 of its Articles of Association, the scope of the
Company's activities is as follows:

     1. The Company's objective is to provide telecommunication and information
        facilities and services, in accordance with prevailing regulations.

                                       F-17
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     2. To achieve the above objective, the Company is involved in the following
        activities:

          i. Planning, building, providing, developing, operating, marketing or
     selling, leasing and maintaining telecommunication and information networks
     in accordance with prevailing regulations.

          ii. Planning, developing, providing, marketing or selling and
     improving telecommunication and information services in accordance with
     prevailing regulations.

          iii. Performing activities and other undertakings in connection with
     the utilization and development of the Company's resources and optimizing
     the utilization of the Company's property, plant and equipment, information
     systems, education and training, and repairs and maintenance facilities.

     As of December 31, 2001 and 2002, the Company had 37.422 employees and
34.678 employees, respectively, including those in the KSO Units.

     Based on the resolution of Annual Stockholders' General Meeting, the
minutes of which have been notarized by Deed No. 17 dated May 10, 2001 of A.
Partomuan Pohan, S.H., LL.M., the composition of the Company's Board of
Commissioners from 2001 to 2004 is as follows:

<Table>
<S>                      <C>   <C>
President Commissioner   :     Bacelius Ruru
Commissioners            :     Noor Fuad
                         :     Purnomo Sidhi
                         :     Andi Siswaka Faisal
                         :     Rahardjo Tjakraningrat
</Table>

     Based on the resolution of the Stockholders' Extraordinary General Meeting,
the minutes of which have been notarized by deed No. 6 dated April 7, 2000 of
the same notary, the composition of the Board of Directors from 2000 to 2005 is
as follows:

<Table>
<S>                      <C>   <C>
President Director       :     Muhammad Nazif
Directors                :     Mursyid Amal
                         :     Taufik Akbar
                         :     Komaruddin Sastrakoesoemah
                         :     Kristiono
</Table>

     Based on the resolution of the Stockholders' Extraordinary General Meeting,
the minutes of which have been notarized by Deed No. 37 dated June 21, 2002 of
A. Partomuan Pohan, S.H., LL.M., the composition of the Company's board of
commissioners from 2002 to 2004 is as follows:

<Table>
<S>                        <C>   <C>
President Commissioner     :     Bacelius Ruru
Commissioner               :     Agus Haryanto
Commissioner               :     Djamhari Sirat
Independent Commissioner   :     Arif Arryman
Independent Commissioner   :     Petrus Sartono
</Table>

                                       F-18
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     Based on the resolution of the Stockholders' Extraordinary General Meeting,
the minutes of which have been notarized by Deed No. 37 dated June 21, 2002 of
the same notary, the composition of the Board of Directors from 2002 to 2005 is
as follows:

<Table>
<S>                                      <C>   <C>
Chief Executive Officer                  :     Kristiono
Chief Financial Officer                  :     Guntur Siregar
Director for Telecommunication
  Services                               :     Garuda Sugardo
Chief Information Officer                :     Agus Utoyo
Director for Telecommunication Network   :     Suryatin Setiawan
</Table>

  b. Consolidated Subsidiaries

     The Company consolidates the following subsidiaries as a result of majority
ownership or its right to control operations.

<Table>
<Caption>
                                                                           PERCENTAGE OF                   TOTAL
                                                                             OWNERSHIP      START OF     ASSETS AT
                                                                           -------------   COMMERCIAL   DECEMBER 31
SUBSIDIARIES                         DOMICILE      NATURE OF BUSINESS      2001    2002    OPERATIONS      2002
------------                        ----------   -----------------------   -----   -----   ----------   -----------
                                                                             %       %                      RP
<S>                                 <C>          <C>                       <C>     <C>     <C>          <C>
PT Infomedia Nusantara............   Jakarta     Data and information      51.00   51.00      1995         260,437
                                                 services
PT Indonusa Telemedia.............   Jakarta     Multimedia                57.50   57.50      1995          49,787
PT Telekomunikasi Selular.........   Jakarta     Telecommunications        77.72   65.00      1995      10,939,421
PT Dayamitra Telekomunikasi.......  Balikpapan   Telecommunications        90.32   90.32      1995         854,007
PT Graha Sarana Duta..............   Jakarta     Real estate,              99.99   99.99      1982          47,368
                                                 construction and
                                                 services
PT Pramindo Ikat Nusantara........    Medan      Telecommunications           --   30.00      1995       1,911,183
                                                 construction & services
</Table>

     The Company has an indirect investment through its subsidiary in the
following company:

<Table>
<Caption>
                                                                                         PERCENTAGE OF
                                                                                           OWNERSHIP      START OF
                                                                           NATURE OF     -------------   COMMERCIAL
NAME OF COMPANY                                 OWNER         DOMICILE      BUSINESS     2001    2002    OPERATIONS
---------------                           -----------------   ---------   ------------   -----   -----   ----------
                                                                                           %       %
<S>                                       <C>                 <C>         <C>            <C>     <C>     <C>
Telekomunikasi Selular Finance
  Limited...............................  PT Telekomunikasi   Mauritius   Fund Raising     --     100       2002
                                            Selular
</Table>

  PT Infomedia Nusantara ("Infomedia")

     Infomedia is engaged in providing telecommunication information services
and other information services in the form of print and electronic media. In
2002, Infomedia established a new line of business to provide call center
services.

  PT Indonusa Telemedia ("Indonusa")

     Indonusa is engaged in providing multimedia telecommunication services.

                                       F-19
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The Company has increased its investment in Indonusa from 35% in 2000 to
57.5% in 2001, by acquiring 2,800,000 new shares for Rp28,000 million. This
acquisition resulted in goodwill of Rp654 million.

  PT Telekomunikasi Selular ("Telkomsel")

     Telkomsel is engaged in providing telecommunication facilities and mobile
cellular services using Global System for Mobile Communication ("GSM")
technology on a nationwide basis.

     Until December 31, 2000, the investment in Telkomsel was accounted for
using the equity method. The Company's cross-ownership transaction with Indosat
in 2001 has increased the Company's ownership interest in Telkomsel to 77.72%.
The accounting treatment of the cross-ownership transaction is discussed further
in Notes 4.

     On April 3, 2002, the Company entered into a Conditional Sale and Purchase
Agreement ("CSPA") with Singapore Telkom Mobile Pte. Ltd. ("Singtel"). The CSPA
covers the sale of a portion of the Company's shares in Telkomsel.

     The Company sold 23,223 ordinary registered shares Telkomsel, numbered from
107,278 to 130,500 with a par value of Rp1,000,000. These shares represent
12.72% of Telkomsel. This transaction diluted the Company's ownership in
Telkomsel from 77.72% to 65%.

     The sale of the shares closed on July 30, 2002 and resulted in a gain of
Rp3,196,380 million for book purposes and Rp30,295 million for tax purposes. The
difference resulted from the accounting for the acquisition of Telkomsel at its
carryover basis because of the common control transaction.

  PT Dayamitra Telekomunikasi ("Dayamitra")

     Dayamitra is the investor in KSO VI, the joint operating scheme that
provides telecommunication services in Kalimantan. The Company's acquisition of
a 90.32% ownership interest in Dayamitra was effective on May 17, 2001, the date
when the Deed of Share Transfer was signed.

     Details of this acquisition are discussed further in Note 5.

  PT Graha Sarana Duta ("GSD")

     GSD is engaged in providing construction, sales and leasing of offices,
housing and hotels together with their related facilities.

     The Company acquired a 100% ownership interest in GSD from Koperasi Mitra
Duta (Dalam Penyelesaian) and Dana Pensiun Bank Duta (Dalam Penyelesaian), for
purchase consideration of Rp119,000 million, based on the Sale and Purchase
Agreement Deed No. 7 dated April 6, 2001 of Notary Imas Fatimah, S.H. This
acquisition resulted in goodwill of Rp106,348 million.

     Based on the Share Sale and Purchase Agreement dated November 28, 2001, the
Company sold one share to a related party for Rp9.5 million thereby reducing the
Company's ownership interest to 99.99%.

                                       F-20
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  PT Pramindo Ikat Nusantara ("Pramindo")

     Pramindo is the investor in KSO I, the joint operating scheme that provides
telecommunication services in Sumatra.

     On August 15, 2002, the Company entered into a CSPA to acquire Pramindo
through a series of three installment purchases as follows:

<Table>
<Caption>
DATE                                                          PERCENTAGE
----                                                          ----------
<S>                                                           <C>
August 15, 2002.............................................     30%
September 30, 2003..........................................     15%
December 31, 2004...........................................     55%
</Table>

     Effective with the closing of the first installment, the Company was
granted unilateral control over the operations of Pramindo and KSO Unit I. As a
result, the Company has consolidated Pramindo as of January 1, 2002, with
pre-acquisition net income deducted from consolidated income in the accompanying
financial statements.

     Details of this acquisition are discussed further in Note 5.

  Telekomunikasi Selular Finance Limited ("TSFL")

     Telkomsel has a 100% direct ownership interest in TSFL, a company that was
established in Mauritius on April 22, 2002. TSFL's objective is to raise funds
for the development of Telkomsel's business through the issuance of debentures
stocks, bonds, mortgages or any other securities.

  c. Public Offering of Shares of the Company

     The Company's total number of shares immediately prior to its initial
public offering was 8,400,000,000, comprised of 8,399,999,999 series B shares
and 1 series A Dwiwarna share, all of which were owned by the Government of the
Republic of Indonesia. On November 14, 1995, the Government sold the Company's
shares through an initial public offering in the Jakarta Stock Exchange and
Surabaya Stock Exchange. The shares offered consisted of 933,333,000 new series
B shares and 233,334,000 series B shares owned by the Government of the Republic
of Indonesia. A share offering was also conducted in the New York Stock Exchange
and London Stock Exchange for 700,000,000 series B shares owned by the
Government of the Republic of Indonesia, which were converted into 35,000,000
American Depositary Shares (ADS). Each ADS represents 20 series B shares.

     In December 1996, the Government of the Republic of Indonesia sold
388,000,000 series B shares, and later in 1997, the Government distributed
2,670,300 series B shares as an incentive for the stockholders not to sell their
shares within one year from the date of the initial public offering.

     In May 1999, the Government sold 898,000,000 series B shares.

     Under Law No.1/1995 on Limited Liability Companies, the minimum total par
value of the Company's issued shares of capital stock should be 25% of the total
par value of the Company's authorized capital stock, or in the Company's case
Rp5,000,000 million. To comply with the Law, it was resolved at the Annual
Stockholders' General Meeting on April 16, 1999 to increase the issued shares of
capital stock. The share dividend was distributed to existing shareholders in
August 1999.

                                       F-21
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     In December 2001, the Government of the Republic of Indonesia sold
1,200,000,000 shares or 11.9% of the series B shares.

     In July 2002, the Government of the Republic of Indonesia sold of
312,000,000 shares or 3.1% of the series B shares.

     As of December 31, 2002, all of the Company's series B shares have been
listed on the Jakarta Stock Exchange and Surabaya Stock Exchange and 39,717,017
ADS shares have been listed on the New York Stock Exchange and London Stock
Exchange.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  a. Consolidated Financial Statement Presentation

     The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Indonesia ("Indonesian GAAP"), which
differ in certain respects with generally accepted accounting principles in the
United States of America ("U.S. GAAP"). A description of significant differences
and their approximate effects on net income and equity are set forth in Note 57
and 58.

     The consolidated financial statements also include certain additional
disclosures in order to conform more closely to the form and content of
financial statements required by the Securities and Exchange Commission of the
United States of America (the "U.S. SEC" see Note 59).

     The consolidated financial statements, except for the statements of cash
flows, are prepared using the accrual basis of accounting. The measurement basis
used is historical cost, except for certain accounts recorded on the basis
described in the related accounting policies.

     The consolidated statements of cash flows are prepared using the direct
method with classifications of cash flows into operating, investing and
financing activities.

     The reporting currency used in the preparation of the consolidated
financial statements is the Indonesian Rupiah ("Rp").

  b. Principles of Consolidation

     The consolidated financial statements include the financial statements of
the Company and its subsidiaries. The Company consolidates subsidiaries over
which it has control. The usual criterion for control is an ownership interest
of more than 50%. The Company does not consolidate a subsidiary if control is
expected to be temporary. Subsidiaries acquired that are accounted for using the
purchase method are consolidated from the time the Company obtains control of
such subsidiaries.

     Intercompany balances and transactions, including unrealized gains or
losses on intercompany transactions, are eliminated to reflect the financial
position and the results of operations of the Company and its subsidiaries as
one business entity.

  c. Acquisitions and Business Divestitures

     The cross-ownership transactions with Indosat have been accounted for as a
reorganization of entities under common control, because the Company and Indosat
are both controlled by the

                                       F-22
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

Government of the Republic of Indonesia. These transactions have been recorded
at historical cost, in a manner similar to that in pooling of interests
accounting.

     The difference between the consideration paid or received and the related
historical carrying amount, after considering income tax effects, has been
charged to equity as "Difference in Value of Restructuring Transactions Between
Entities Under Common Control".

     The acquisition of a subsidiary from third parties is accounted for using
the purchase method. The excess of acquisition cost over the Company's interest
in the fair value of identifiable assets and liabilities acquired is recorded as
goodwill, which is amortized using the straight-line method over a period not to
exceed five years.

     The acquisition of a KSO investor is accounted for using the purchase
method. The excess of acquisition cost over the Company's interest in the fair
value of identifiable assets and liabilities acquired is recorded as an
intangible asset, which is amortized using the straight-line method over the
remaining KSO period.

  d. Foreign Currency Transactions and Translation

     The books of accounts of the Company and its subsidiaries are maintained in
Indonesian Rupiah. Transactions during the year involving foreign currencies are
recorded at the rates of exchange prevailing at the time of the transactions. At
the balance sheet date, monetary assets and liabilities denominated in foreign
currencies are translated to reflect the rates of exchange prevailing at that
date. The resulting gains or losses are credited or charged to current
operations, except for foreign exchange differences that can be attributed to
qualifying assets, which are capitalized.

     The exchange rates used for translation of monetary assets and liabilities
denominated in foreign currencies are the buy and sell rates published by
Reuters in Bridge Telerate in 2001 and 2002. The buy and sell rates published by
Bridge Telerate were RP10,400 and RP10,450 to US$1 as December 31, 2001. The
Reuters buy and sell rates, applied respectively to monetary assets and
liabilities, were RP8,940 and RP8,960 to US$1 as of December 31, 2002. Telkomsel
applied the Bank Indonesia average buy and sell rate for its monetary assets and
liabilities which was RP8,940 to US$1 as of December 31, 2002. The Company does
not guarantee that assets and liabilities denominated in foreign currencies can
be converted into Indonesian Rupiah at the rates of exchange as of December 31,
2002.

     The functional currency of PT Pasifik Satelit Nusantara and PT Citra Sari
Makmur is the U.S. Dollar. For the purpose of reporting these investments using
the equity method, the assets and liabilities of these companies as of the
balance sheet date are translated into Rupiah using the rates of exchange
prevailing at that date, while revenues and expenses are translated at the
average rates of exchange for the year. The resulting translation adjustments
are shown as part of equity as "Currency Translation Adjustment".

  e. Cash and Cash Equivalents

     Cash and cash equivalents consist of cash on hand and in banks and all
unrestricted time deposits with maturities of three months or less from the date
of placement.

                                       F-23
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  f. Investments

  i. Time deposits

     Time deposits with maturities of more than three months are presented as
temporary investments.

  ii. Investments in securities

     Investments in available for sale securities are stated at fair value.
Unrealized gains or losses from the increase or decrease in fair value are
recorded as part of equity. Realized gains and losses are included in operations
when sold. Other than temporary declines in value are charged to income when
conditions giving rise to the impairment occur.

     Investments in securities that will be held to maturity are stated at cost,
less amortization of premium or discount.

     Investment in trading securities are recorded at fair value with realized
and unrealized gains or losses included in income.

  iii. Investments in associated companies

     Investments in shares of stock of companies in which the Company's
ownership is 20% to 50%, are accounted for using the equity method whereby the
Company's proportionate share in the income or loss of the associated company
after the date of acquisition is added to or deducted from, and the dividends
received are deducted from the acquisition cost of the investments. The carrying
amount of the investments are written down to recognize any other than temporary
decline in the value of individual investments. Any such write down is charged
directly to current operations.

  iv. Other investments

     Investments in shares of stock of companies in which the Company's
ownership is less than 20%, which do not have readily determinable fair values
and which are intended for long-term investment are stated at cost. The carrying
amount of the investment is written down to recognize any other than temporary
decline in the value of the individual investments. Any such write down is
charged directly to current operations.

  v. Change of equity in associated companies

     Changes in the value of investments due to changes in the equity of
associated companies arising from capital transactions of such associated
companies with other parties are recognized in equity as "Difference Due to
Change of Equity in Associated Companies".

  g. Allowance for Doubtful Accounts

     An allowance for doubtful accounts is provided based upon a review of the
status of the individual receivable accounts at the end of the year.

                                       F-24
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  h. Inventories

     Inventories are stated at cost which is determined using the
weighted-average method, except for GSD, which uses the first-in, first-out
(FIFO) method. Provisions are made to reduce the carrying value of inventories
to the lower of cost or net realizable value.

  i. Prepaid Expenses

     Prepaid expenses are amortized over their beneficial periods using the
straight-line method.

  j. Property, Plant and Equipment -- Direct Acquisitions

     Property, plant and equipment directly acquired are stated at cost, except
for certain revalued assets, less accumulated depreciation.

     Property, plant and equipment, except land, are depreciated using the
straight-line method, based on the estimated useful lives of the assets as
follows:

<Table>
<Caption>
                                                              YEARS
                                                              -----
<S>                                                           <C>
Buildings...................................................   20
Switching equipment.........................................  5-15
Telegraph, telex and data communication equipment...........  5-15
Transmission installation and equipment.....................  5-20
Satellite, earth station and equipment......................  3-15
Cable network...............................................  5-15
Power supply................................................  3-10
Data processing equipment...................................  3-10
Other telecommunication peripherals.........................   5
Office equipment............................................  3-5
Vehicles....................................................  5-8
Other equipment.............................................   5
</Table>

     Land is stated at cost and is not depreciated. Property, plant and
equipment not used in operations are stated at the lower of its carrying value
or net realizable value.

     When the carrying amount of an asset exceeds its estimated recoverable
amount, the asset is written down to its estimated recoverable amount, which is
determined based upon the greater of its net selling price or value in use.

     The cost of maintenance and repairs is charged to operations as incurred.
Expenditures, that extend the useful life of the asset or result in increased
future economic benefits such as increases in capacity or improvement in the
quality of output or standard of performance, are capitalized.

     Property, plant and equipment that is no longer used due to technological
change, obsolescence or malfunction, is reclassified into property not used in
operations, thereby accelerating the depreciation of such property, plant and
equipment.

     Any resulting gain or loss from the disposal or sale of property, plant and
equipment is reflected in current operations.

                                       F-25
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     Computer software used for data processing is included with the value of
the associated hardware.

     Property under construction is stated at cost, which includes all borrowing
costs during construction on debts incurred to finance the construction. Gain or
loss on foreign exchange that can be attributed to the property under
construction is capitalized as a borrowing cost. Property under construction is
transferred to the respective property, plant and equipment account when
completed and ready for use.

  k. Leases

     Lease transactions are recorded as capital leases when all the following
criteria are met:

          i. The lessee has the option to purchase the leased asset at the end
     of the lease term at a price mutually agreed upon at the inception of the
     lease agreement.

          ii. Periodic lease payments made by the lessee provide for a return of
     the cost of the leased asset and interest thereon to the lessor.

          iii. The minimum lease period is two years.

     Lease transactions that do not meet the above criteria are recorded as
operating leases.

     Leased assets and obligations under capital leases are recorded at the
present value of the total installments plus residual value (option price).
Leased assets are depreciated using the same method and estimated useful lives
used for directly acquired property and equipment.

  l. Revenue-Sharing Arrangements

     Under Indonesian Statement of Financial Accounting Standards ("PSAK") No.
35, "Accounting for Income from Telecommunication Services", assets under
revenue-sharing arrangements are to be capitalized by the party to whom
ownership of such assets shall be transferred at the end of the revenue-sharing
period (the organizing body), if the following criteria are met:

          i. There is a certainty that the organizing body will acquire the
     assets, the ownership of which will be transferred at the end of the
     revenue-sharing period.

          ii. The organizing body will be free from any claims from third
     parties with respect to the acquisition of such assets.

          iii. The agreement covering the revenue-sharing arrangements is
     irrevocable.

     The Company records such assets as "Property, Plant and Equipment under
Revenue-Sharing Arrangements" (with a corresponding initial credit to "Unearned
Income under Revenue-Sharing Arrangements" presented under Liabilities) based on
the costs incurred by the investors as agreed upon in the contracts entered into
by the Company and the investors. Property, plant and equipment are depreciated
over their estimated useful lives using the straight-line method.

     The unearned income related to the acquisition of the property, plant and
equipment under revenue-sharing arrangements is amortized over the
revenue-sharing period using the straight-line method.

                                       F-26
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     At the end of the revenue-sharing period, the respective property, plant
and equipment under revenue-sharing arrangements are reclassified into the
"Property, Plant and Equipment" account.

     When property, plant and equipment under revenue-sharing arrangements are
acquired by the Company before the end of the revenue-sharing period, the net
book value of the assets are reclassified into the "Property, Plant and
Equipment" account, and the balance of the related unearned income is included
as a gain or loss in the current operations.

     Revenue earned under revenue-sharing arrangements is recognized on the
basis of the Company's share as provided in the agreement.

  m. Joint Operation Schemes

     Revenues from the operations of telecommunication facilities and the
provision of telecommunication services which have been transferred by the
Company to KSO investors includes amortization of the investor's initial
payments, Minimum Telkom Revenues ("MTR") and the Company's share of
Distributable KSO Revenues ("DKSOR").

     The unearned initial investor payments received as compensation from the
KSO Investors are presented net of all direct costs incurred in connection with
the KSO agreement and is amortized using the straight-line method over the KSO
period of 15 years starting January 1, 1996.

     MTR are recognized on a monthly basis based upon the contracted MTR amount
for the current year, in accordance with the KSO agreement.

     The Company's share of distributable KSO revenues is recognized on the
basis of the Company's percentage share of the KSO revenues, net of MTR and
operational expenses of the KSO Units, as provided in the KSO agreements.

     Under PSAK No. 39, "Accounting for Joint Operation Schemes", which
supersedes paragraph 14 of PSAK No. 35, "Accounting for Telecommunication
Services Revenue", the assets built by the KSO Investors under the Joint
Operation Schemes are recorded in the books of the KSO Investors which operate
the assets and are transferred to the Company at the end of the KSO period or
upon termination of the KSO scheme.

  n. Deferred Charges for Land rights

     Expenses related to the legal processing of land rights are deferred and
amortized using the straight-line method over the legal term of the land right,
which is normally shorter than its economic life.

  o. Revenue Recognition

  i. Fixed Line Telephone Revenues

     Revenues from fixed line installations are recognized at the time the
installations are placed in service. Revenues from usage charges are recognized
as customers incur the charges.

                                       F-27
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  ii. Cellular Telephone Revenues

     Revenues from service connections (connection fees) are recognized as
income at the time the connections occur. Revenues from airtime and monthly
subscription charges are recognized when earned. Revenues from prepaid card
customers, which consist of the sale of starter packs, also known as Subscriber
Identification Module ("SIM") cards and pulse reload vouchers, are recognized as
follows:

     1. Sale of starter packs are recognized as revenue upon delivery of the
        starter packs to distributors, dealer or directly to customers.

     2. Sale of pulse reload vouchers are recognized initially as unearned
        income and recognized proportionately as revenue based on successful
        calls made by the subscribers or whenever the unused stored value of the
        voucher has expired.

  iii. Interconnection revenues

     Revenues from network interconnection with other domestic and international
telecommunication carriers are recognized as incurred and are presented on a net
basis.

  p. Pension Plan

  i. Defined Benefit Pension Plan

     The Company and certain subsidiaries established a defined benefit pension
plan covering all their permanent employees.

     Current service cost is charged to operations in the current period. Past
service cost, actuarial adjustments and the effect of changes in assumptions for
active participants are amortized using the straight-line method over the
estimated average residual employment period that has been determined by the
actuary.

     The method used by the actuary for actuarial calculations is the
projected-unit-credit method.

  ii. Early Retirement

     Early retirement benefits are accrued at the time the Company makes a
strong commitment to provide early retirement benefits as a result of an offer
made in order to encourage voluntary redundancy. The Company is demonstrably
committed to a termination when, and only when, the Company has a detailed
formal plan for the early retirement and is without realistic possibility of
withdrawal.

  q. Post-retirement Health Care Plan

     The Company recognizes the cost of providing postretirement health care
plan benefits over the working lives of its employees based on actuarial
computations. This practice is similar to that provided by Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Post-retirement Benefits Other than Pensions" ("SFAS 106"), in U.S. GAAP.

                                       F-28
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  r. Income Tax

     Current tax expense is determined based on the taxable income for the year
computed using prevailing tax rates.

     Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax liabilities are recognized for all taxable temporary
differences and deferred tax assets are recognized for deductible temporary
differences to the extent that it is probable that taxable income will be
available in future periods against which the deductible temporary differences
can be utilized.

     Deferred tax is calculated at the tax rates that have been enacted or
substantively enacted at the balance sheet date. Deferred tax is charged or
credited in the statement of income, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also charged or
credited directly to equity.

     Deferred tax assets and liabilities are offset in the balance sheet, except
those for different legal entities.

  s. Earnings per Share and Earnings per American Depositary Share ("ADS")

     Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding during the year. Net income per
ADS is computed by multiplying basic earnings per share by 20, the number of
shares represented by each ADS. There are no potentially dilutive securities
outstanding.

  t. Segment Information

     The Company and its subsidiaries' segment information is presented based
upon identified business segments.

     A business segment is a distinguishable component that is engaged in
providing an individual product or service or a group of related products or
services that are different from those of other business segments, primarily to
customers outside the Company or its subsidiaries.

     Business segment information is consistent with operating information
routinely reported to the Company's chief operating decision maker.

     Segment information is prepared in conformity with the accounting policies
adopted for preparing and presenting the consolidated financial statements.

  u. Reclassification of Accounts

     Certain accounts in the 2001 financial statements have been reclassified to
conform to the presentation of those accounts in the 2002 financial statements.

                                       F-29
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

3. TRANSLATION OF RUPIAH INTO UNITED STATES DOLLARS

     The financial statements are stated in Rupiah. The translations of Rupiah
amounts into United States Dollars are included solely for the convenience of
the readers and have been made using the average of the market buy and sell
rates of Rp8,913 to US$1 published by Reuters on March 14, 2003. The convenience
translations should not be construed as representations that the Rupiah amounts
have been, could have been, or can in the future be, converted into United
States Dollar at this or any other rate of exchange.

4. CROSS-OWNERSHIP TRANSACTIONS WITH INDOSAT

     On April 3, 2001, the Company signed a Conditional Sale and Purchase
Agreement with Indosat, for a series of transactions to consolidate their
cross-ownership in certain companies. The transactions under the agreement are
as follows:

          i. Acquisition by the Company of Indosat's 35% equity interest in
     Telkomsel for US$945 million ("Telkomsel Transaction");

          ii. Acquisition by Indosat of the Company's 22.5% equity interest in
     PT Satelit Palapa Indonesia ("Satelindo") for US$186 million ("Satelindo
     Transaction");

          iii. Acquisition by Indosat of the Company's 37.66% equity interest in
     PT Aplikanusa Lintasarta ("Lintasarta") for US$38 million and convertible
     bonds of Rp4,051 million issued by Lintasarta ("Lintasarta Transaction");
     and

          iv. The acquisition by Indosat of all of the Company's rights, and
     novation of all of the Company's obligations, under the KSO IV Agreement
     dated October 20, 1995, between the Company and PT Mitra Global
     Telekomunikasi Indonesia ("MGTI"), together with all of the Company's
     assets being used as KSO IV assets, for US$375 million, ("KSO IV
     Transaction").

     Lintasarta's convertible bonds were subsequently converted into shares,
thereby reducing the Company's 37.66% equity interest to 37.21% prior to the
consummation of the Lintasarta Transaction.

     The Telkomsel and Lintasarta transactions, were consummated on May 16, 2001
based on Deed of Share Transfer No. 1/V/2001/triplo and No. 2/V/2001/duplo,
respectively, of Notary Ny. Liliana Arif Gondoutomo, S.H.

     The Satelindo Transaction was consummated on July 23, 2001 after DeTeAsia
Holding GmbH and PT Bimagraha Telekomindo (the other Satelindo's shareholders)
waived their pre-emptive rights on 7.26% and 13.06% of Satelindo's shares,
respectively.

     On February 1, 2002, the Company and Indosat announced the cancellation of
the KSO IV Transaction as certain conditions precedent to the transaction's
closing provided in the Conditional Sale and Purchase Agreement dated April 3,
2001 were not fulfilled.

                                       F-30
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The Telkomsel, Satelindo and Lintasarta transactions have been accounted
for as a restructuring of entities under common control. The difference between
the consideration paid or received and the historical amount of the net assets
of the investee acquired or carrying amount of the investment sold, is included
within equity as "Difference in Value of Restructuring Transactions Between
Entities Under Common Control", as follows:

<Table>
<Caption>
                                       HISTORICAL
                       CONSIDERATION    AMOUNT OF                           DIFFERENCE IN VALUE
                           PAID/       NET ASSETS/     CHANGE IN     ----------------------------------
                        (RECEIVED)     INVESTMENT    EQUITY -- NET     TOTAL        TAX         NET
                       -------------   -----------   -------------   ----------   --------   ----------
                            RP             RP             RP             RP          RP          RP
<S>                    <C>             <C>           <C>             <C>          <C>        <C>
Telkomsel............   10,782,450      1,466,658            --       9,315,792         --    9,315,792
Satelindo............   (2,122,260)            --      (203,309)     (2,325,569)  (636,678)  (1,688,891)
Lintasarta...........     (437,631)       116,834            --        (320,797)   (96,239)    (224,558)
                        ----------      ---------      --------      ----------   --------   ----------
Total................    8,222,559      1,583,492      (203,309)      6,669,426   (732,917)   7,402,343
                        ==========      =========      ========      ==========   ========   ==========
</Table>

     As of December 31, 2001, the Company's net obligation to Indosat for the
cross-ownership transactions was Rp2,406,309 million. The Company has settled
this obligation in 2002.

     In 2002, the Company sold a 12.72% share in Telkomsel. As of December 31,
2002, management had no intention to sell the Company's remaining equity
interest in Telkomsel. In accordance with Indonesia Financial Accounting
Standard No. 46. and Statement of Financial Accounting Standards No. 109
regarding Accounting for Income Taxes, the Company no longer needed to recognize
deferred taxes on the difference between the book and tax basis of its
investment and accordingly adjusted the difference in value of restructuring
transactions between entities under common controls and deferred tax liabilities
by Rp369,888 million.

5. ACQUISITION OF KSO INVESTOR

  a. Dayamitra

     The Conditional Sale and Purchase Agreement pertaining to the transaction
was signed on April 3, 2001. Pursuant to the terms of the agreement, the Company
paid the initial payment amount of US$18,289,800 on May 17, 2001, the closing
date of the transaction, and US$8,937,041 on August 10, 2001 as payment for
Dayamitra's adjusted working capital.

     The remaining amount of US$103,642,200 will be paid through an escrow
arrangement discussed below, in eight quarterly installments of US$12,955,275,
from August 17, 2001 to May 17, 2003.

     This acquisition resulted in an intangible asset of Rp1,344,012 million
which will be amortized over the remaining term of the KSO agreement.

     In connection with the Dayamitra transaction, the Company also entered into
the following agreements:

     1. Option Agreement

     The Company entered into an Option Agreement with TM Communications (HK)
Ltd ("TMC"), providing the Company with an option to acquire the remaining 9.68%
equity interest in Dayamitra, referred to as the Option Share. Under the
agreement, TMC, the selling shareholder, shall grant the

                                       F-31
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

Company an exclusive option to purchase full and legal title to the Option Share
(the "Call Option"), and the Company shall grant the selling shareholder an
exclusive option to sell to the Company full legal title to those shares (the
"Put Option").

     In consideration for the grant of the options, the Company will pay to the
selling shareholder the option purchase price of US$6,300,000, plus US$957,823
as payment for Dayamitra's adjusted working capital, or a total of US$7,257,823.
The amount is payable in eight quarterly instalments of US$907,228, beginning on
August 17, 2001 and ending on May 17, 2003. Payments will be made through the
escrow account established under the Escrow Agreement discussed below.

     The Company may exercise the option any time after Dayamitra has satisfied
all of its obligations under the J-Exim loan, beginning May 17, 2003 and ending
five business days prior to March 26, 2006. The share price payable by the
Company to the selling shareholder for the Option Shares upon exercise of the
option is US$16,200,000, less certain amounts that are stipulated in the Option
Agreement.

     As of December 31, 2002, the option purchase price that has been paid by
the Company amounted to US$5,512,500 (equivalent to Rp49.898 million), which was
presented as part of "Advance Payment for Investment in Shares of Stock".

     2. Escrow Agreement

     An Escrow Agreement dated May 17, 2001, was entered into by and among the
Company, Dayamitra, Intidaya, C&W plc, Mitracipta, TMC, Tomen Corporation
("Tomen"), Citibank Singapore Branch (the Singapore Escrow Agent) and Citibank
Jakarta Branch (the Jakarta Escrow Agent), to establish an Escrow Account and
facilitate the payment of the following:

          i. Purchase price for the Company's acquisition of 41,267,208 ordinary
     shares of Dayamitra from Intidaya, C&W plc and Mitracipta, and certain
     amounts in respect of Dayamitra's indebtedness to C&W plc;

          ii. Option purchase price, share price for the Option Shares, and
     certain amounts in respect of Dayamitra's indebtedness to Tomen.

     The Company is required to fund the escrow account in amounts and on
scheduled dates stipulated in the agreement. The funds will then be used by the
Escrow Agent to make payments on behalf of the Company for the share purchase,
the indebtedness of Dayamitra to C&W plc and Tomen and the option purchase
price, as they fall due.

  b. Pramindo Ikat Nusantara ("Pramindo")

     The acquisition of Pramindo is part of the Company's initiative to
restructure its KSO joint operations schemes.

     The Class A and Class B shares are being acquired from French Cable et
Radio, PT Astratel Nusantara, Indosat, Marubeni Corp Japan, NMP Singapore Pte
Ltd Singapore and International Finance Corp USA ("IFC").

     The aggregate purchase price for the Pramindo shares will be US$384,363,026
(including interest of US$2,864,154). Payment will be made in 27 monthly
installments of US$12,800,000 for the first 11 months and US$15,000,000 for each
of the remaining 16 months. The installments began on
                                       F-32
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

October 1, 2002 and the final payment is due on December 1, 2004. As a result of
the acquisition of Pramindo, the Company has recognized an intangible asset of
Rp895,138 millions which will be amortized over the remaining term of the KSO
agreement.

     Consultancy fees incurred in connection with the Pramindo acquisition
amounting to Rp52,818 million were capitalized as part of the acquisition cost.

     An Escrow Agreement dated August 14, 2002 was entered into by and among the
Company, Pramindo, Astratel, France Cabels et Radio, Indosat, Marubeni Corp, IFC
USA, NMP Singapore and JPMorgan Chase Bank Jakarta Branch (the Escrow Agent), to
establish an Escrow Account and facilitate the payment of the acquisition of
Pramindo by the company.

     The proforma results for 2000 and 2001 assuming the Pramindo acquisition
had occurred on January 1, 2000, would not be significantly different than the
reported amounts.

     The Company has consolidated Pramindo notwithstanding its current lack of
majority ownership because it has been granted unilateral control over Pramindo
and KSO I pursuant to a Conditional Sales and Purchase Agreement entered into
between the Company and the shareholders of Pramindo (see Note 27).

6. CASH AND CASH EQUIVALENTS

<Table>
<Caption>
                                                               2001      2002
                                                              -------   -------
                                                                RP        RP
<S>                                                           <C>       <C>
Cash on hand................................................    9,359    12,696
                                                              -------   -------
Cash in banks
  Related parties
     Rupiah
       Bank Negara Indonesia................................   82,255   152,778
       Bank Mandiri.........................................   41,172    64,540
       Bank Rakyat Indonesia................................    6,609     8,281
       Bank Pos Nusantara...................................    2,008     2,582
                                                              -------   -------
Total.......................................................  132,044   228,181
                                                              -------   -------
     Foreign currencies
       Bank Mandiri.........................................    8,918    29,015
       Bank Negara Indonesia................................    7,615     4,560
       Bank Rakyat Indonesia................................      361       479
                                                              -------   -------
Total.......................................................   16,894    34,054
                                                              -------   -------
Total -- related parties....................................  148,938   262,235
                                                              -------   -------
</Table>

                                       F-33
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                               2001      2002
                                                              -------   -------
                                                                RP        RP
<S>                                                           <C>       <C>
  Third parties
     Rupiah
       Citibank.............................................      546    10,426
       Bank Bukopin.........................................    4,788     6,428
       Bank Central Asia....................................    9,881     5,630
       Bank Niaga...........................................      169       540
       Daichi Bank..........................................       --       142
       ABN Amro Bank........................................      115       140
       Bank Danamon.........................................       30       103
       Lippo Bank...........................................       84        97
       The Chase Manhattan Bank.............................       --        39
       Bank Buana...........................................       --         2
       Bank Internasional Indonesia.........................      116        --
       Mizuho Indonesia Bank (formerly Bank Dai-Ichi Kangyo
        Indonesia)..........................................       80        --
       Standard Chartered Bank..............................       23        --
       American Express Bank................................        6        --
Total.......................................................   15,838    23,547
                                                              -------   -------
     Foreign currencies
       Citibank.............................................      470       940
       Deutsche Bank........................................      384       453
       ABN Amro Bank........................................      111       230
       American Express Bank................................      114        --
       Mizuho Indonesia Bank (formerly Bank Dai-Ichi Kangyo
        Indonesia)..........................................       15        --
       Bank Niaga...........................................       13        --
Total.......................................................    1,107     1,623
                                                              -------   -------
Total -- third parties......................................   16,945    25,170
                                                              -------   -------
Total cash in banks.........................................  165,883   287,405
                                                              -------   -------
</Table>

                                       F-34
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Time deposits
  Related parties
     Rupiah
       Bank Mandiri.........................................  1,447,918     772,833
       Bank Rakyat Indonesia................................    504,836     607,420
       Bank Negara Indonesia................................    587,632     298,565
       Bank Tabungan Negara.................................    122,497     108,480
                                                              ---------   ---------
Total.......................................................  2,662,883   1,787,298
                                                              ---------   ---------
     Foreign currencies
       Bank Mandiri.........................................    619,033   3,022,639
       Bank Negara Indonesia................................        125       2,446
Total.......................................................    619,158   3,025,085
                                                              ---------   ---------
Total -- related parties....................................  3,282,041   4,812,383
                                                              ---------   ---------
  Third parties
     Rupiah
       Standard Chartered Bank..............................         --     142,000
       Bank Mega............................................     23,000     129,757
       Bank Bukopin.........................................     64,630      65,364
       Bank Yudha Bhakti....................................      1,000       6,000
       Bank Niaga...........................................      2,000       5,000
       Bank Internasional Indonesia.........................         --       2,000
       Deutsche Bank........................................     70,500          --
       Bank Umum Tugu.......................................     20,000          --
       Citibank.............................................      3,800          --
       ABN Amro Bank........................................      1,000          --
       Mizuho Indonesia Bank................................      1,000
Total.......................................................    186,930     350,121
                                                              ---------   ---------
     Foreign currencies
       Deutsche Bank........................................         --     236,465
Total.......................................................         --     236,465
                                                              ---------   ---------
Total -- third parties......................................    186,930     586,586
                                                              ---------   ---------
Total time deposits.........................................  3,468,971   5,398,969
                                                              ---------   ---------
Total Cash and Cash Equivalents.............................  3,644,213   5,699,070
                                                              =========   =========
</Table>

     Range of interest rates per annum for time deposits is as follows:

<Table>
<Caption>
                                                           2001              2002
                                                      --------------    --------------
<S>                                                   <C>               <C>
Rupiah............................................     11.00%-18.04%     11.59%-18.45%
Foreign currency..................................       1.75%-6.95%       1.15%-5.03%
</Table>

     As of December 31, 2001, a portion of the Rupiah time deposits amounting to
Rp48.340 million in Bank Mandiri and Bank Negara Indonesia were pledged by
Telkomsel, as collateral for bank guarantees

                                       F-35
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

covering the payment of additional customs duties, if any. These time deposits
and the related bank guarantees matured in January 2002.

7. TEMPORARY INVESTMENTS

<Table>
<Caption>
                                                               2001        2002
                                                              -------    ---------
                                                                RP          RP
<S>                                                           <C>        <C>
Time deposits
  Related parties
     Rupiah
       Bank Mandiri.........................................  171,150      600,000
       Bank Rakyat Indonesia................................       --      423,000
       Bank Negara Indonesia................................  167,650           --
     U.S. Dollar
       Bank Mandiri.........................................    8,320           --
                                                              -------    ---------
Total -- related parties....................................  347,120    1,023,000
                                                              -------    ---------
  Third party...............................................       --           --
                                                              -------    ---------
Total time deposit..........................................  347,120    1,023,000
                                                              -------    ---------
Available for sale securities
  Medium Term Notes -- PSSI.................................       --       50,000
  Investment in mutual fund (Reksa Dana Seruni)
     At cost................................................    2,002           --
     Unrealized loss on decline in value....................     (207)          --
                                                              -------    ---------
     Net....................................................    1,795           --
                                                              -------    ---------
Total available for sale securities.........................    1,795           --
                                                              -------    ---------
Total temporary investments.................................  348,915    1,073,000
                                                              =======    =========
</Table>

     Range of interest rates per annum for time deposits is as follows:

<Table>
<Caption>
                                                                 2001              2002
                                                            --------------    --------------
<S>                                                         <C>               <C>
Rupiah....................................................   12.00%-18.04%     11.14%-14.33%
US Dollars................................................     5.53%-6.13%       6.04%-6.84%
</Table>

     The terms of time deposits range from 3 (three) months to 1 (one) year.

     Medium Term Notes -- PSSI represents medium term notes issued by Persatuan
Sepakbola Seluruh Indonesia (PSSI) amounting to RP 50,000 million for the period
from May 7, 2001 to February 22, 2003. The medium term notes were settled on the
maturity date.

     A time deposit in Citibank of US$6,948,394 was pledged as collateral for a
IP Backbone loan facility given by Citibank for the two-year period ending April
10, 2004. This deposit is presented as "Advance Payments and Other Non-Current
Assets".

     As of December 31, 2001, Infomedia's time deposit of US$800,000 in Bank
Mandiri was used as a guarantee for the Letter of Credit facility granted by the
bank for the payment of Infomedia's foreign suppliers.

                                       F-36
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     Included with Bank Bukopin are time deposits of Rp7,150 million which are
pledged as collateral for the working capital loan facility of Koperasi
Infomedia Nusantara (KOPIN) received from the bank. The facility is used to
provide loans to its subsidiaries' employees. The maximum loan facility was
Rp7,000 million for a term of 3 years ending on April 6, 2003. As of December
31, 2002, this time deposit was recorded as part of "Advance Payments and Other
Non Current Assets".

     The mutual fund investment represents an investment in a mutual fund
certificate of Seruni, which is issued by PT (Persero) Danareksa -- a related
party. The Company earned dividend income on a monthly basis from this
investment. The Company sold this investment in April 2002.

     Investments placed with related parties have similar interest rates, terms
and conditions as those placed with third parties.

8. TRADE ACCOUNTS RECEIVABLE -- RELATED PARTIES

  a. By Debtor

<Table>
<Caption>
                                                                2001         2002
                                                              ---------    ---------
                                                                 RP           RP
<S>                                                           <C>          <C>
KSO Units...................................................  1,052,349    1,606,318
Governments agencies........................................    146,787      181,995
PT Mobile Selular Indonesia.................................     36,388       34,337
PT Radio Telepon Indonesia..................................      4,160       18,747
PT Citra Sari Makmur........................................     76,442       16,261
PT Komunikasi Selular Indonesia.............................      8,602        8,612
PT Batam Bintan Telekomunikasi..............................         --        7,136
PT Metro Selular Indonesia..................................     23,072        5,607
PT Aplikanusa Lintasarta....................................     12,206        3,578
PT Multisaka................................................         --        1,179
PT Gratika..................................................        511          406
PT Pasifik Satelit Nusantara................................        267           --
Others......................................................      2,300          300
                                                              ---------    ---------
Total.......................................................  1,363,084    1,884,476
Allowance for doubtful accounts.............................   (325,930)    (576,374)
                                                              ---------    ---------
Net.........................................................  1,037,154    1,308,102
                                                              =========    =========
</Table>

     Trade accounts receivable from certain related parties are presented net of
the Company's liabilities to such parties.

                                       F-37
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  b. By Age Category

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Up to 6 months..............................................    685,716     795,929
7 to 12 months..............................................    274,461     454,559
13 to 24 months.............................................    291,415     342,507
More than 24 months.........................................    111,492     291,481
                                                              ---------   ---------
Total.......................................................  1,363,084   1,884,476
Allowance for doubtful accounts.............................   (325,930)   (576,374)
                                                              ---------   ---------
Net.........................................................  1,037,154   1,308,102
                                                              =========   =========
</Table>

  c. By Currency

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Rupiah......................................................  1,313,043   1,814,258
U.S. Dollar.................................................     50,041      70,218
                                                              ---------   ---------
Total.......................................................  1,363,084   1,884,476
Allowance for doubtful accounts.............................   (325,930)   (576,374)
                                                              ---------   ---------
Net.........................................................  1,037,154   1,308,102
                                                              =========   =========
</Table>

     Movements in the allowance for doubtful accounts are as follows:

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Beginning balance...........................................    167,669     325,930
Net additions during the year...............................    158,261     250,444
                                                              ---------   ---------
Ending balance..............................................    325,930     576,374
                                                              =========   =========
</Table>

     An allowance for doubtful accounts is provided for amounts that are
overdue, and a full provision is made for receivables from related parties with
significant capital deficiencies.

     Management believes that the allowance for doubtful receivables from
related parties is adequate to cover possible losses on uncollectible accounts.

     The allowance for doubtful accounts included a provision for the MTR and
share in distributable KSO revenue receivable from KSO Unit III. The allowance
was Rp169,830 million in 2001 and Rp511,676 million in 2002.

     Management believes that there are no significant concentrations of credit
risk on these receivables, except the accounts receivable from KSO Unit III.

                                       F-38
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

9. TRADE ACCOUNTS RECEIVABLE -- THIRD PARTIES

  a. By Debtor

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Residential and business subscribers........................  1,554,298   2,106,514
Overseas international carriers.............................     94,029     181,975
Others......................................................     20,214          --
                                                              ---------   ---------
Total.......................................................  1,668,541   2,288,489
Allowance for doubtful accounts.............................   (252,855)   (397,810)
                                                              ---------   ---------
Net.........................................................  1,415,686   1,890,679
                                                              =========   =========
</Table>

  b. By Age Category

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Up to 3 months..............................................  1,436,468   1,890,679
More than 3 months..........................................    232,073     397,810
                                                              ---------   ---------
Total.......................................................  1,668,541   2,288,489
Allowance for doubtful accounts.............................   (252,855)   (397,810)
                                                              ---------   ---------
Net.........................................................  1,415,686   1,890,679
                                                              =========   =========
</Table>

  c. By Currency

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Rupiah......................................................  1,543,492   2,202,990
U.S. Dollar.................................................    125,049      85,499
                                                              ---------   ---------
Total.......................................................  1,668,541   2,288,489
Allowance for doubtful accounts.............................   (252,855)   (397,810)
                                                              ---------   ---------
Net.........................................................  1,415,686   1,890,679
                                                              =========   =========
</Table>

     Movements in the allowance for doubtful accounts are as follows:

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Beginning balance...........................................    261,910     252,855
Net movements during the year...............................     (9,055)    144,955
                                                              ---------   ---------
Ending balance..............................................    252,855     397,810
                                                              =========   =========
</Table>

     Management believes that the allowance for doubtful receivables from third
parties is adequate to cover possible losses on uncollectible accounts.

                                       F-39
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     Management also believes that there are no significant concentrations of
credit risk from third party receivables.

10. INVENTORIES

<Table>
<Caption>
                                                               2001      2002
                                                              -------   -------
                                                                RP        RP
<S>                                                           <C>       <C>
Component:
  Telephone terminals, cards and spare parts................   96,167    69,322
  Cable and transmission installation spare parts...........   34,154    15,226
  Other spare parts.........................................   29,977    11,020
                                                              -------   -------
  Total.....................................................  160,298    95,568
  Allowance for obsolescence................................  (33,168)  (30,331)
                                                              -------   -------
  Net.......................................................  127,130    65,237
                                                              -------   -------
Modules:
  Cable and transmission installation spare parts...........   48,975    54,912
  Telephone terminals, cards and spare parts................   30,629    42,563
  Other spare parts.........................................      187       434
                                                              -------   -------
  Total.....................................................   79,791    97,909
  Allowance for obsolescence................................  (15,829)  (23,464)
                                                              -------   -------
  Net.......................................................   63,962    74,445
                                                              -------   -------
Total.......................................................  191,092   139,682
                                                              =======   =======
</Table>

     Changes in the allowance for obsolescence of inventories are as follows:

<Table>
<Caption>
                                                               2001      2002
                                                              -------   -------
                                                                RP        RP
<S>                                                           <C>       <C>
Beginning balance...........................................   31,723    48,997
Net additions during the year...............................   17,274     4,798
                                                              -------   -------
Ending balance..............................................   48,997    53,795
                                                              =======   =======
</Table>

     Management believes that the established allowance is sufficient to cover
possible losses from declines in inventory value due to obsolescence.

     At December 31, 2002, modules in inventory were insured against fire, theft
and other possible risks for US$750,000 and Rp23,690 million.

11. PREPAID TAXES

<Table>
<Caption>
                                                               2001      2002
                                                              -------   -------
                                                                RP        RP
<S>                                                           <C>       <C>
Income Tax (Article 23).....................................       --       266
Value Added Tax ("VAT").....................................       --    84,408
                                                              -------   -------
Total.......................................................       --    84,674
                                                              =======   =======
</Table>

                                       F-40
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

12. OTHER CURRENT ASSETS

     As of December 31, 2002, this account included time deposits and restricted
funds with details as follows:

     a.  Telkomsel's time deposits of US$9,971,936 or equivalent to Rp89,149
         million in Deutsche Bank and Citibank are used as security for a letter
         of credit facility for procurement contracts (see Note 52.b).

     b.  Telkomsel's time deposits of Rp40,520 million in Bank Mandiri is used
         as security covering the payment of customs duties for procurements.

     c.  The Company's time deposits of US$1,800,000 in Bank Mandiri are used as
         security for Napsindo's borrowings to finance infrastructure
         development (see Note 13.e). The term of this security deposit is up to
         August 28, 2003.

13. LONG-TERM INVESTMENTS -- NET

<Table>
<Caption>
                                                                     2001                                 2002
                                                      ----------------------------------   ----------------------------------
                                                      PERCENTAGE    SHARE IN               PERCENTAGE    SHARE IN
                                                          OF       NET INCOME   CARRYING       OF       NET INCOME   CARRYING
                                          DOMICILE    OWNERSHIP      (LOSS)      AMOUNT    OWNERSHIP      (LOSS)      AMOUNT
                                          ---------   ----------   ----------   --------   ----------   ----------   --------
                                                         %            RP          RP          %            RP          RP
<S>                                       <C>         <C>          <C>          <C>        <C>          <C>          <C>
Equity method:
  PT Citra Sari Makmur..................   Jakarta      25.00         4,793      74,833       25.00        8,445      62,270
  PT Telekomindo Selular Raya...........  Denpasar      69.77            --      87,907      100.00        1,642      26,642
  PT Metro Selular Nusantara............  Surabaya      20.17        (8,120)      1,657       20.17        1,137      16,308
  PT Patra Telekomunikasi Indonesia.....   Jakarta      30.00         5,272      12,133       30.00          710      12,842
  PT Napsindo Primatel Internasional....   Jakarta      32.00        (4,200)     12,030       32.00       (7,337)      4,693
  PT Multimedia Nusantara...............   Jakarta      31.00          (647)      1,928       31.00           --       1,928
  PT Pasifik Satelit Nusantara..........   Bekasi       22.57            --          --       22.57           --          --
  PT Menara Jakarta.....................   Jakarta      20.00            --          --       20.00           --          --
  PT Mobile Selular Indonesia...........   Jakarta      25.00            --          --       25.00           --          --
  PT Komunikasi Selular Indonesia.......   Jakarta      35.00       (92,750)         --       14.20       57,570      57,570(*)
  PT Aplikanusa Lintasarta..............   Jakarta         --         9,966          --          --           --          --
                                                                    -------     -------                   ------     -------
Total...................................                            (85,686)    190,488                   62,167     182,253
                                                                    =======     =======                   ======     =======
Cost method:
  PT Batam Bintan Telekomunikasi........    Batam        5.00                       587        5.00                      587
  PT Bangtelindo........................   Bandung       3.18                       199        3.18                      199
  Medianusa Pte. Ltd....................  Singapura      9.44                       108        9.44                      108
  PT Radio Telepon Indonesia............   Jakarta      12.86                    11,695          --                       --
Decline in value of investments.........                                        (11,695)                                  --
                                                                                -------                              -------
Net.....................................                                            894                                  894
                                                                                -------                              -------
Total...................................                                        191,382                              183,147
                                                                                =======                              =======
</Table>

---------------

(*) As of December 31, 2002, the accounting treatment for Investment in
    Komselindo was changed to the cost method because of dilution in the
    Company's ownership percentage.

                                       F-41
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  a. PT Citra Sari Makmur ("CSM")

     CSM is engaged in providing Very Small Aperture Terminal ("VSAT") net
application services and consulting services on telecommunication technology and
related facilities.

<Table>
<Caption>
                                                                 2001      2002
                                                                ------    -------
                                                                  RP        RP
<S>                                                             <C>       <C>
Beginning balance...........................................    66,386     74,833
Equity in net income of associated company..................     4,793      8,445
Translation adjustment......................................     3,654    (21,008)
                                                                ------    -------
Ending balance..............................................    74,833     62,270
                                                                ======    =======
</Table>

  b. PT Telekomindo Selular Raya ("Telesera")

     In 2001, the Minister of Justice and Human Rights approved the corporate
restructuring of PT Telekomindo Primabhakti ("Telekomindo"), an associated
company engaged in the construction and development of telecommunication
facilities. Pursuant to the restructuring, Telekomindo's authorized and paid-in
capital was reduced and the capital reduction became the paid-in capital of two
new companies: PT Telekomindo Media Informatika ("TMI") and PT Griya Insani
Primabhakti ("GIP").

     Based on a swap share agreement dated December 5, 2001 among the Company,
PT Rajawali Corporation ("RC"), Telekomindo, and TMI, the parties agreed on the
following:

     -  The Company sold its investments (inclusive of shares owned by Dana
        Pensiun Telkom) in Telekomindo, TMI, and GIP to RC for Rp145,968
        million.

     -  TMI sold its investments (inclusive of shares owned by RC and
        Koptelindo) in PT Telekomindo Selular Raya ("Telesera") and PT Multisaka
        Mitra ("MSM") to the Company for Rp126,000 million and Rp25,000 million,
        respectively.

     The sale transactions of the Company's shares in Telekomindo, TMI and GIP
and the purchase of MSM and Telesera were consummated on December 28, 2001 based
on the Deed of Sale and Purchase of Shares No. 8, 9, 10, 11, and 12,
respectively of Notary Emmy Salim, S.H. In 2001, the Company recognized a gain
of Rp101,838 million from the swap transaction as a result of a nil basis in
Telekomindo, TMI, and GIP before the transaction.

     The acquisition cost of MSM's assets is recorded in "Advance Payments and
Other Non-Current Assets" because the transfer of those assets has not been
finalized. As of December 31, 2002, those advances amounted to Rp25,000 million.

     As of December 31, 2002, the Company's investment in Telesera is accounted
for using the equity method because management intends to sell its interest in
Telesera. As of December 31, 2002, the carrying amount of this investment was
Rp26,642 million. Management has completed the valuation process and is
currently in the process of negotiating the sale of Telesera. In 2002, the
Company recognized a loss of Rp.101,000 million from the excess of acquisition
cost over Telesera's net assets value due to the investment was intended to be
temporary.

                                       F-42
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                               2001       2002
                                                              ------    --------
                                                                RP         RP
<S>                                                           <C>       <C>
Beginning balance...........................................      --      87,907
Capital contribution........................................  87,907      38,093
Equity in net income of associated company..................      --       1,642
Acquisition loss............................................      --    (101,000)
                                                              ------    --------
Ending balance..............................................  87,907      26,642
                                                              ======    ========
</Table>

  c. PT Metro Selular Nusantara ("Metrosel")

     Metrosel is engaged in providing national mobile cellular services and
related facilities in Central Java, Yogyakarta, East Java, Maluku and Irian
Jaya. These services were previously provided by the Company under a
revenue-sharing arrangement with PT Centralindo Panca Sakti Cellular (a company
which has taken over the rights and obligations of PT Centralindo Panca Sakti or
"CPS"). The Company's initial capital contribution of Rp10,087 million
represents a 20.17% ownership interest in Metrosel and was made in the form of
property, plant and equipment under the revenue-sharing arrangement between the
Company and CPS. The property, plant and equipment will be transferred to the
Company at the end of revenue-sharing arrangement.

     In February 1997, Metrosel issued 1,250,000 new shares with a par value of
Rp10,000 per share to Asia Link B.V. for US$84,375 thousand. The issuance of the
new shares has no impact on the Company's ownership interest because the Company
was granted 251,940 shares by the Company's Pension Fund (formerly Yayasan Dana
Pensiun Pegawai PT Telekomunikasi Indonesia or "YDPP Telkom"), a shareholder of
Metrosel.

     On May 30, 2002 Metrosel initiated a capital call. The Company made
additional capital contributions of Rp13,514 million to maintain its ownership
interest in Metrosel.

<Table>
<Caption>
                                                               2001      2002
                                                              ------    ------
                                                                RP        RP
<S>                                                           <C>       <C>
Beginning balance...........................................   9,777     1,657
Capital contribution........................................      --    13,514
Equity in net profit (loss) of associated company...........  (8,120)    1,137
                                                              ------    ------
Ending balance..............................................   1,657    16,308
                                                              ======    ======
</Table>

  d. PT Patra Telekomunikasi Indonesia ("Patrakomindo")

     Patrakomindo is engaged in providing satellite communication system
services and related facilities to companies in the petroleum industry.

<Table>
<Caption>
                                                               2001      2002
                                                              ------    ------
                                                                RP        RP
<S>                                                           <C>       <C>
Beginning balance...........................................   6,976    12,133
Equity in net income of associated company..................   5,272       709
Translation adjustment......................................    (115)       --
                                                              ------    ------
Ending balance..............................................  12,133    12,842
                                                              ======    ======
</Table>

                                       F-43
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  e. PT Napsindo Primatel Internasional ("Napsindo")

     Napsindo is engaged in providing "Network Access Point" (NAP), "Voice Over
Data" (VOD) and other related services.

<Table>
<Caption>
                                                               2001      2002
                                                              ------    ------
                                                                RP        RP
<S>                                                           <C>       <C>
Beginning balance...........................................   2,390    12,030
Capital contribution........................................  13,840        --
Equity in net loss of associated company....................  (4,200)   (7,337)
                                                              ------    ------
Ending balance..............................................  12,030     4,693
                                                              ======    ======
</Table>

     In connection with an increase in Napsindo's paid-in capital, the Company
has increased its investment in Napsindo to Rp14,876 million, based on Deed of
Napsindo's Resolution No. 104 dated October 31, 2000 which was notarized by
Elliza Asmawel, S.H. The increase in investment, which was made to maintain the
Company's ownership interest of 32%, was effective on March 29, 2001, the date
the increase in Napsindo's authorized and issued capital was approved by the
Minister of Justice and Human Rights of the Republic of Indonesia. Payment for
the additional investment was made through conversion of the Company's
receivable from Napsindo into equity (see Note 56.a).

     In December 31, 2002, Napsindo received a credit facility from Bank Mandiri
for their infrastructure development. This facility was secured by the Company's
time deposit that will mature on August 28, 2003.

  f. PT Multimedia Nusantara ("Multimedia")

     Multimedia is engaged in providing pay television and multimedia
telecommunication services.

<Table>
<Caption>
                                                              2001     2002
                                                              -----    -----
                                                               RP       RP
<S>                                                           <C>      <C>
Beginning balance...........................................  2,575    1,928
Equity in net loss of associated company....................   (647)      --
                                                              -----    -----
Ending balance..............................................  1,928    1,928
                                                              =====    =====
</Table>

  g. PT Pasifik Satelit Nusantara ("PSN")

     PSN is engaged in providing satellite transponder leasing and
satellite-based communication services in the Asia Pacific Region.

<Table>
<Caption>
                                                               2001      2002
                                                              -------    ----
                                                                RP        RP
<S>                                                           <C>        <C>
Beginning balance...........................................   77,625     --
Decline in value of investment..............................  (77,625)    --
                                                              -------    ---
Ending balance..............................................       --     --
                                                              =======    ===
</Table>

     In 2001, management decided to recognize an other than temporary decline in
value of this investment due to the financial condition of PSN.

                                       F-44
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  h. PT Menara Jakarta ("MJ")

     MJ is engaged in the construction and the operation of towers and related
facilities. The economic difficulties faced by Indonesia have resulted in the
termination of MJ's construction projects at the end of 1997.

  i. PT Mobile Selular Indonesia ("Mobisel")

     Mobisel is engaged in providing mobile cellular services and related
facilities. These services were previously provided by the Company under a
revenue-sharing arrangement with PT Rajasa Hazanah Perkasa ("RHP"). The capital
contribution of the Company amounting to Rp10,398 million, which represents a
25% equity ownership in Mobisel, was made in the form of property, plant and
equipment under a revenue-sharing arrangement.

     On November 12, 2002, Mobisel's shareholders agreed to an equity call and a
debt to equity swap through a Unanimous Written Resolution. Based on the
resolution, all Mobisel debts to the Company were converted to 20,523,079 Series
A shares and promissory notes amounting to Rp4,206 million. The Company released
and waived its pre-emptive right to subscribe to the newly issued shares
resulting in dilution of the Company's ownership interest in Mobisel to 4.92%.
Approval from the Minister of Justice and Human Rights on the Amendment of
Mobisel's Article of Association is still in process, therefore as of December
31, 2002, the dilution of the Company's ownership interest in Mobilsel was not
effective.

  j. PT Komunikasi Selular Indonesia ("Komselindo")

     Komselindo is a joint venture between the Company and PT Elektrindo
Nusantara ("Elektrindo"), and is engaged in providing analog mobile cellular
services. These services were previously provided by the Company under a
revenue-sharing arrangement with Elektrindo.

     Elektrindo transferred its property, plant and equipment acquired under the
revenue-sharing arrangements to Komselindo for Rp188,195 million based on the
appraised value of the assets and the agreement among the Company, Elektrindo
and Komselindo. This transaction is considered as a transaction between entities
under common control since Elektrindo owns 65% of Komselindo.

     Based on the Deed of Komselindo's Extraordinary General Shareholders
Meeting No. 110 dated October 10, 2000, which was notarized by Ny. R. Arie
Soetardjo, S.H., the Company agreed to the conversion of Rp92,750 million of
receivables from Komselindo into equity in order to maintain a 35% ownership
interest.

     In 2001, the Company recorded the conversion of the receivables into equity
and recognized a loss for the new carrying amount of the investment amounting to
Rp92,750 million.

     In March 2002, Komselindo submitted a request to postpone debt settlement
to a Commercial Court. The Commercial Court in Central Jakarta State Court,
through its decision No 02/PKPU/2002/PN.NIAGA/JKT.PST dated May 2, 2002,
permitted Komselindo to postpone its debt settlement for a period of six months
after the date of the decision.

     On June 4, 2002, Komselindo proposed a settlement plan to its creditors for
a debt restructuring through a debt to equity conversion amounting to Rp117.304
million and US$171.323.044. The debt

                                       F-45
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

conversion included Komselindo liabilities to the Company of Rp19.397 million.
The plan was approved by the creditors in the Restructuring and Settlement
Agreement dated August 30, 2002.

     On August 30, 2002 Komselindo's shareholders in its Shareholders
Extraordinary Meeting approved an equity for debt restructuring which is
included in the Settlement Agreement and the Settlement, Termination and Release
Agreement dated August 30, 2002.

     The Company released and waived its pre-emptive right to subscribe to newly
issued shares. This resulted in the dilution of the Company's ownership interest
in Komselindo to 14.20%.

  k. PT Batam Bintan Telekomunikasi ("BBT")

     BBT is engaged in providing fixed line telecommunication services at
Batamindo Industrial Park in Muka Kuning, Batam Island and at Bintan Beach
International Resort and Bintan Industrial Estate in Bintan Island.

     In June 1996, based on a cooperation agreement between the Company and PT
Batamindo Investment Corporation ("BIC"), the Company's investment in BBT was
fully paid by BIC as a donation to the Company.

  l. PT Bangtelindo

     PT Bangtelindo is primarily engaged in providing consultancy services on
the installation and maintenance of telecommunication facilities.

  m. Medianusa Pte. Ltd.

     Medianusa Pte. Ltd. is an associated company of Infomedia, which is engaged
as a sales agent, in search of advertisers for telephone directories.

  n. PT Radio Telepon Indonesia ("Ratelindo")

     Ratelindo is engaged in providing facilities and telecommunication services
using a domestic fixed wireless network.

     As of December 31, 2001, the Company recognized a loss due to an other than
temporary decline in value of this investment because Ratelindo had a capital
deficiency.

     The Company sold its equity interest in Ratelindo for Rp14.000 million on
March 28, 2002, recognizing a gain for this amount because the carrying amount
of the investment in Ratelindo was nil.

  o. Lintasarta

     Lintasarta provides Packet Switch Data Network ("PSDN"), VSAT data, e-mail
and Digital Data Network ("DDN") services. Lintasarta was sold to Indosat in
2001 as part of the cross-ownership transaction (see Note 4).

                                       F-46
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

14. PROPERTY, PLANT AND EQUIPMENT

<Table>
<Caption>
                              JANUARY 1,                                                   DECEMBER 31,
                                 2001      ADDITIONS(*)   DEDUCTIONS   RECLASSIFICATIONS       2001
                              ----------   ------------   ----------   -----------------   ------------
                                  RP            RP            RP              RP                RP
<S>                           <C>          <C>            <C>          <C>                 <C>
At cost or revalued amounts:
  Land......................     124,341       70,899           --               (87)          195,153
  Buildings.................   1,474,238       34,825           14            88,211         1,597,260
  Switching equipment.......   8,193,862      104,070       59,462           604,473         8,842,943
  Telegraph, telex and data
     communication
     equipment..............     206,592           --           --                --           206,592
  Transmission installation
     and equipment..........   4,422,912       19,637        6,585           464,000         4,899,964
  Satellite, earth station
     and equipment..........   3,958,626        5,491        2,240         1,810,457         5,772,334
  Cable network.............   9,621,278    1,222,285       22,682           463,589        11,284,470
  Power supply..............     858,329       19,218          133           121,047           998,461
  Data processing
     equipment..............   1,153,861      293,761        2,299           449,133         1,894,456
  Other telecommunications
     peripherals............     496,937       11,093           --              (378)          507,652
  Office equipment..........     481,289      123,832          296            11,204           616,029
  Vehicles..................     163,681       29,904        5,360              (158)          188,067
  Other equipment...........      61,522        6,402          184               308            68,048
  Property under
     construction:
     Buildings..............      71,796       50,602           --          (104,842)           17,556
     Switching equipment....     398,102      350,736           --          (561,713)          187,125
     Transmission
       installation and
       equipment............     302,384      445,845           --          (456,368)          291,861
     Satellite, earth
       station and
       equipment............     531,428    1,589,051        1,167        (1,812,947)          306,365
     Cable network..........     342,822      421,913           --          (567,788)          196,947
     Power supply...........      32,858      100,321           --          (126,921)            6,258
     Data processing
       equipment............     192,169      438,151           --          (496,777)          133,543
     Other
       telecommunications
       peripherals..........       5,483        3,632           --            (5,623)            3,492
  Leased assets
     Vehicle................          --        3,804           --                --             3,804
                              ----------    ---------      -------        ----------        ----------
  Total.....................  33,094,510    5,345,472      100,422          (121,180)       38,218,380
                              ----------    =========      =======        ==========        ----------
</Table>

                                       F-47
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                              JANUARY 1,                                                   DECEMBER 31,
                                 2001      ADDITIONS(*)   DEDUCTIONS   RECLASSIFICATIONS       2001
                              ----------   ------------   ----------   -----------------   ------------
                                  RP            RP            RP              RP                RP
<S>                           <C>          <C>            <C>          <C>                 <C>
Accumulated depreciation:
  Buildings.................     566,436       90,625           14            (2,451)          654,596
  Switching equipment.......   3,399,503      586,153        3,562             3,396         3,985,490
  Telegraph, telex and data
     communication
     equipment..............     195,845        5,903           --                --           201,748
  Transmission installation
     and equipment..........   1,725,696      350,114           65               (92)        2,075,653
  Satellite, earth station
     and equipment..........   1,507,377      371,925          540            (3,746)        1,875,016
  Cable network.............   3,728,608    1,096,163        2,364          (150,632)        4,671,775
  Power supply..............     581,935       84,498          133             1,315           667,615
  Data processing
     equipment..............     440,115      285,877          447              (123)          725,422
  Other telecommunications
     peripherals............     398,369       41,325           --            (2,084)          437,610
  Office equipment..........     363,576       61,974          110               627           426,067
  Vehicles..................     131,842       20,901        4,922            11,317           159,138
  Other equipment...........      35,744       12,095           --               976            48,815
  Leased assets
     Vehicle................          --          669           --                --               669
                              ----------    ---------      -------        ----------        ----------
  Total.....................  13,075,046    3,008,222       12,157          (141,497)       15,929,614
                              ----------    =========      =======        ==========        ----------
Net Book Value..............  20,019,464                                                    22,288,766
                              ==========                                                    ==========
</Table>

---------------

(*) Including property, plant and equipment of subsidiaries acquired and
    consolidated in 2001: Dayamitra, GSD, Infomedia and Indonusa.

                                       F-48
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                              JANUARY 1,                                                   DECEMBER 31,
                                 2002      ADDITIONS(*)   DEDUCTIONS   RECLASSIFICATIONS       2002
                              ----------   ------------   ----------   -----------------   ------------
                                  RP            RP            RP              RP                RP
<S>                           <C>          <C>            <C>          <C>                 <C>
At cost or revalued amounts:
  Land......................     195,153       52,791           --            13,346           261,290
  Buildings.................   1,597,260       10,868           49           127,028         1,735,107
  Switching equipment.......   8,842,943      592,014       15,606          (947,965)        8,471,386
  Telegraph, telex and data
     communication
     equipment..............     206,592        5,170        3,028             8,646           217,380
  Transmission installation
     and equipment..........   4,899,964      441,932        9,239         9,291,873        14,624,530
  Satellite, earth station
     and equipment..........   5,772,334        5,541           --        (3,228,327)        2,549,548
  Cable network.............  11,284,470    1,241,547        9,037            25,274        12,542,254
  Power supply..............     998,461      157,551          748          (111,071)        1,044,193
  Data processing
     equipment..............   1,894,456      326,428       79,830           666,320         2,807,374
  Other telecommunications
     peripherals............     507,652       49,846          306           153,042           710,234
  Office equipment..........     616,029       71,493       28,968           (47,264)          611,290
  Vehicles..................     188,067        7,685        3,900            (3,066)          188,786
  Other equipment...........      68,048        8,419          365             7,136            83,238
  Property under
     construction:
     Buildings..............      17,556       90,550           --           (44,804)           63,302
     Switching equipment....     187,125      516,684           --          (307,648)          396,161
     Transmission
       installation and
       equipment............     291,861    4,147,745           --        (4,116,454)          323,152
     Satellite, earth
       station and
       equipment............     306,365       58,103           --          (316,374)           48,094
     Cable network..........     196,947      779,471       17,185          (328,181)          631,052
     Power supply...........       6,258        3,932           --            (4,295)            5,895
     Data processing
       equipment............     133,543      558,962           --          (648,387)           44,118
     Other
       telecommunications
       peripherals..........       3,492       34,370           --           (35,476)            2,386
  Leased assets
     Vehicles...............       3,804          215          379               283             3,923
                              ----------    ---------      -------        ----------        ----------
Total.......................  38,218,380    9,161,317      168,640           153,636        47,364,693
                              ----------    =========      =======        ==========        ----------
</Table>

                                       F-49
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                              JANUARY 1,                                                   DECEMBER 31,
                                 2002      ADDITIONS(*)   DEDUCTIONS   RECLASSIFICATIONS       2002
                              ----------   ------------   ----------   -----------------   ------------
                                  RP            RP            RP              RP                RP
<S>                           <C>          <C>            <C>          <C>                 <C>
Accumulated depreciation:
  Buildings.................     654,596      101,513           16            17,848           773,941
  Switching equipment.......   3,985,490      675,541          568          (392,642)        4,267,821
  Telegraph, telex and data
     communication
     equipment..............     201,748        5,151        2,703             2,236           206,432
  Transmission installation
     and equipment..........   2,075,653    1,198,453        1,653         1,013,452         4,285,905
  Satellite, earth station
     and equipment..........   1,875,016      126,658           --          (650,789)        1,350,885
  Cable network.............   4,671,775    1,154,770        1,102          (114,926)        5,710,517
  Power supply..............     667,615       86,428          654            (4,784)          748,605
  Data processing
     equipment..............     725,422      441,203       58,618           (31,071)        1,076,936
  Other telecommunications
     peripherals............     437,610       87,916          327            58,867           584,066
  Office equipment..........     426,067       74,934       16,244            (9,061)          475,696
  Vehicles..................     159,138       17,250        3,363            (3,000)          170,025
  Other equipment...........      48,815       16,770          296             1,063            66,352
  Leased assets
     Vehicles...............         669          837           --               226             1,732
                              ----------    ---------      -------        ----------        ----------
Total.......................  15,929,614    3,987,424       85,544          (112,581)       19,718,913
                              ----------    =========      =======        ==========        ----------
Net Book Value..............  22,288,766                                                    27,645,780
                              ==========                                                    ==========
</Table>

---------------

(*) including property, plant and equipment of Pramindo which was acquired and
    consolidated in 2002.

     Most of the Company's property, plant and equipment acquired up to January
1, 1979 and January 1, 1987 have been revalued in accordance with Decree No.
109/KMK.04/1979 dated March 27, 1979 of the Minister of Finance of the Republic
of Indonesia and Government Regulation No. 45 of 1986, respectively. The
revaluation increments of Rp86,787 million resulting from the 1979 revaluation
and Rp381,908 million resulting from the 1987 revaluation were included in
equity in 1984 and 1988, respectively.

     Depreciation charged to operations amounted to Rp2,321,688 million,
Rp2,747,765 million and Rp3,431,831 million in 2000, 2001 and 2002,
respectively.

     Interest capitalized into property under construction amounted to Rp62,534
million, Rp8,089 million and Rp21,482 million in 2000, 2001 and 2002,
respectively. Capitalization rates are the borrowing rates on debts incurred
related to property under construction.

     Foreign exchange (gains) losses capitalized as part of property under
construction amounted to, Rp179,207 million, Rp1,746 million and (Rp27,568
million) in 2000, 2001 and 2002, respectively.

     Management believes that no impairment in the carrying amount of its assets
has occurred.

                                       F-50
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The Company and its subsidiaries own several parcels of land located
throughout Indonesia with land rights (Hak Guna Bangunan or HGB) for a period of
20 and 30 years, which will expire between 2003-2032. Management believes that
there will be no difficulty in the extension of the land rights since all the
parcels of land are supported by sufficient evidence of ownership.

     Some of the Company's land measuring 1,801,424 m(2) are still under the
name of other parties including, among others, the Ministry of Tourism, Post and
Telecommunication and the Ministry of Communication of the Republic of
Indonesia. As of March 14, 2003, the transfer of the legal title of ownership on
those parcels of land to the Company is still in progress.

     The percentage of completion of construction-in-progress as of December 31,
2002 is between 17% and 95% and the estimated date of completion is between of
January 2003 and June 2003. Management believes that there is no impediment to
the completion of the construction-in-progress.

     All of the Company's property, plant and equipment, except land, were
insured with various insurance companies against fire, theft and other possible
risks for Rp17,877,571 million as of December 31, 2001 and Rp20,270,283 million
and US$1,367,601,558 as of December 31, 2002. In addition, the Palapa B4 and
Telkom-1 Satellite are insured for US$75,640,000 as of December 31, 2001 and
US$71,837,020 as of December 31, 2002, respectively. Management believes that
the insurance coverage is adequate to cover possible losses on the assets
insured.

     All of the subsidiaries' property, plant and equipment, except land, were
insured against fire, theft and other possible risks. The management of the
subsidiaries believes the insurance coverage is adequate to cover possible
losses on those assets.

15. PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS

<Table>
<Caption>
                             JANUARY 1,                                                DECEMBER 31,
                                2001      ADDITIONS   DEDUCTIONS   RECLASSIFICATIONS       2001
                             ----------   ---------   ----------   -----------------   ------------
                                 RP          RP           RP              RP                RP
<S>                          <C>          <C>         <C>          <C>                 <C>
At cost:...................                    --
  Land.....................      3,160         --           --              --              3,160
  Buildings................     23,952         --           --              --             23,952
  Switching equipment......    626,516         --           --          (1,722)           624,794
  Transmission installation
     and equipment.........    107,558         --           --              --            107,558
  Cable network............    334,792         --           --            (447)           334,345
  Other telecommunication
     peripherals...........    201,296         --           --          (1,454)           199,842
                             ---------     ------       ------          ------          ---------
Total......................  1,297,274         --           --          (3,623)         1,293,651
                             ---------     ======       ======          ======          ---------
</Table>

                                       F-51
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                             JANUARY 1,                                                DECEMBER 31,
                                2001      ADDITIONS   DEDUCTIONS   RECLASSIFICATIONS       2001
                             ----------   ---------   ----------   -----------------   ------------
                                 RP          RP           RP              RP                RP
<S>                          <C>          <C>         <C>          <C>                 <C>
Accumulated depreciation:
  Land.....................        988        158           --              --              1,146
  Buildings................      8,198      1,198           --             (62)             9,334
  Switching equipment......    284,485     39,692           --          (1,722)           322,455
  Transmission installation
     and equipment.........     76,387     10,756           --              --             87,143
  Cable network............    192,481     29,000           --            (447)           221,034
  Other
     telecommunication.....                                                                     0
     peripherals...........    201,226         34           --          (1,454)           199,806
                             ---------     ------       ------          ------          ---------
Total......................    763,765     80,838           --          (3,685)           840,918
                             ---------     ======       ======          ======          ---------
Net Book Value.............    533,509                                                    452,733
                             =========                                                  =========
<Caption>
                             JANUARY 1,                                                DECEMBER 31,
                                2002      ADDITIONS   DEDUCTIONS   RECLASSIFICATION        2002
                             ----------   ---------   ----------   -----------------   ------------
                                 RP          RP           RP              RP                RP
<S>                          <C>          <C>         <C>          <C>                 <C>
At cost:
  Land.....................      3,160         --           --              --              3,160
  Buildings................     23,952         --           --            (225)            23,727
  Switching equipment......    624,794         --           --          (1,037)           623,757
  Transmission installation
     and equipment.........    107,558         --           --              --            107,558
  Cable network............    334,345         --           --          (1,157)           333,188
  Other telecommunication
     peripherals...........    199,842         --       69,267          (1,379)           129,196
                             ---------     ------       ------          ------          ---------
  Total....................  1,293,651         --       69,267          (3,798)         1,220,586
                             ---------     ======       ======          ======          ---------
Accumulated depreciation:
  Land.....................      1,146        119           --              --              1,265
  Buildings................      9,334      1,184           --            (106)            10,412
  Switching equipment......    322,455     40,348           --            (594)           362,209
  Transmission installation
     and equipment.........     87,143      8,253           --              --             95,396
  Cable network............    221,034     22,430           --            (993)           242,471
  Other telecommunication
     peripherals...........    199,806         36       69,267          (1,379)           129,196
                             ---------     ------       ------          ------          ---------
Total......................    840,918     72,370       69,267          (3,072)           840,949
                             ---------     ======       ======          ======          ---------
Net Book Value.............    452,733                                                    379,637
                             =========                                                  =========
</Table>

     Depreciation charged to operations amounted to Rp97,381 million, Rp80,838
million and Rp72,370 million in 2000, 2001 and 2002, respectively.

                                       F-52
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     Rights to the property, plant and equipment under revenue-sharing
arrangements are legally retained by the investors until the end of the
revenue-sharing period.

     The unearned income under revenue-sharing arrangements is as follows:

<Table>
<Caption>
                                                                 2001         2002
                                                              ----------   ----------
                                                                  RP           RP
<S>                                                           <C>          <C>
Gross amount................................................   1,297,274    1,293,651
Accumulated amortization....................................  (1,071,560)  (1,127,673)
                                                              ----------   ----------
Net.........................................................     225,714      165,978
                                                              ==========   ==========
</Table>

16. INTANGIBLE ASSETS

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Intangible assets...........................................  1,356,144   2,045,454
License -- net..............................................         --       6,672
                                                              ---------   ---------
Net.........................................................  1,356,144   2,052,126
                                                              =========   =========
</Table>

     Movements of intangible assets during 2002 and 2001 are as follows:

<Table>
<Caption>
                                                                2001
                                        ----------------------------------------------------
                                         INTANGIBLE ASSETS         GOODWILL
                                        -------------------   ------------------
                                           DMT        PIN       GSD     INDONUSA     TOTAL
                                        ---------   -------   -------   --------   ---------
                                           RP         RP        RP         RP         RP
<S>                                     <C>         <C>       <C>       <C>        <C>
Beginning balance.....................         --        --        --       --            --
Additions.............................  1,344,012        --   106,348      654     1,451,014
Impairment............................         --        --        --       --            --
Amortization..........................    (81,804)       --   (12,412)    (654)      (94,870)
                                        ---------   -------   -------     ----     ---------
Ending balance........................  1,262,208        --    93,936       --     1,356,144
                                        =========   =======   =======     ====     =========
<Caption>
                                                                2002
                                        ----------------------------------------------------
                                         INTANGIBLE ASSETS         GOODWILL
                                        -------------------   ------------------
                                           DMT        PIN       GSD     INDONUSA     TOTAL
                                        ---------   -------   -------   --------   ---------
                                           RP         RP        RP         RP         RP
<S>                                     <C>         <C>       <C>       <C>        <C>
Beginning balance.....................  1,262,208        --    93,936       --     1,356,144
Additions.............................         --   895,138        --       --       895,138
Amortization..........................   (140,250)  (44,314)  (21,264)      --      (205,828)
Impairment............................         --        --        --       --            --
                                        ---------   -------   -------     ----     ---------
Ending balance........................  1,121,958   850,824    72,672       --     2,045,454
                                        =========   =======   =======     ====     =========
</Table>

     The intangible assets resulting from the acquisition of Dayamitra and
Pramindo represents the presents value of Dayamitra's and Pramindo's share of
projected Distributable KSO Revenue over the remaining KSO period. Goodwill
resulted from the acquisition of GSD and Indonusa (see Note 2.c).

                                       F-53
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     Total amortization of Rp205.828 million for the year ended December 31,
2002 was reported as other expense under "Other Income (Charges)" in the
consolidated statements of income.

     The license represents the Nationwide DCS 1800 Operations and License for
Nationwide DCS 1800 Radio Frequency Spectrum Utilization held by Telkomsel.
Amortization expense for this license during 2002 amounted to Rp541 million.

17. ESCROW ACCOUNT

     Escrow accounts consist of the following:

  a. Dayamitra Escrow

     This account with Citibank N.A., Singapore ("Dayamitra Escrow Agent"), was
established to facilitate the payment of the Company's obligations under the
Conditional Purchase Agreement and Option Agreement entered into with the
selling shareholders of Dayamitra.

     In accordance with the Escrow Agreement, the Company made the first
installment payment of US$14,343,750 on May 17, 2001. Future monthly
installments of US$6,250,000 for twenty four months are required by the
agreement. The Company is also obliged to make additional installment payments
necessary to settle the obligation on the due dates and to maintain a minimum
balance of US$14,343,750.

     The escrow account earns interest at LIBOR minus 0.75% per annum, which is
computed daily. The interest income earned is included as part of the escrow
fund.

     The remaining funds available will be transferred to the Company after all
of the obligations related to the Dayamitra transaction are satisfied

  b. PIN Escrow

     This escrow account with JPMorgan Chase Bank ("PIN Escrow Agent") was
established to facilitate the settlement of the Company's obligations under its
Conditional Sale and Purchase Agreement for the acquisition of PIN.

     In accordance with the Escrow Agreement, the Company will make installment
payments of US$12,800,000 for eleven months and US$15,000,000 for sixteen
months. The first installment was due on October 1, 2002.

     Escrowed funds earn interest at LIBOR minus 0.4% per annum, which is
computed daily. The interest income earned will be included as part of the
escrow fund.

                                       F-54
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

18. TRADE ACCOUNTS PAYABLE

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Related parties
  Payable to other telecommunications carriers..............    335,602     610,251
  Concession fees...........................................    150,142     351,059
  Purchases of equipment, materials and services............    234,900      71,632
  Other.....................................................        365          --
                                                              ---------   ---------
Total.......................................................    721,009   1,032,942
                                                              ---------   ---------
Third parties
  Purchases of equipment, materials and services............    913,992   2,141,153
  Payable related to revenue-sharing arrangements...........    119,754     112,949
  Payable to other telecommunication providers..............     22,898     102,182
                                                              ---------   ---------
Total.......................................................  1,056,644   2,356,284
                                                              ---------   ---------
Total.......................................................  1,777,653   3,389,226
                                                              =========   =========
</Table>

     Trade accounts payable by currency are as follows:

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Rupiah......................................................  1,184,463   2,722,416
U.S. Dollar.................................................    195,164     396,496
Euro........................................................    197,544     264,974
Japanese Yen................................................      2,064       4,410
Great Britain Pound Sterling................................      3,218         927
Singapore Dollar............................................         --           3
German Mark.................................................    179,401
Swedish Krona...............................................     10,217
French Franc................................................      5,582          --
                                                              ---------   ---------
Total.......................................................  1,777,653   3,389,226
                                                              =========   =========
</Table>

                                       F-55
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

19. TAXES PAYABLE

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Current tax (see Note 36)...................................  1,452,466     888,737
Income tax
  Article 4.................................................        839          --
  Article 21................................................     29,176      20,366
  Article 22................................................      2,771       2,377
  Article 23................................................     55,569      53,327
  Article 25................................................    139,329      81,280
  Article 26................................................      5,556       6,823
VAT.........................................................    189,317     159,665
                                                              ---------   ---------
Total.......................................................  1,875,023   1,212,575
                                                              =========   =========
</Table>

     The amount of VAT Output that has not been remitted to the State Treasury
is reported in the taxes payable account. Based on a circular letter No.
SE-48/PJ.3/1988 dated December 31, 1988, by the Director General of Taxation,
the Company was not allowed to credit the VAT Input against the VAT Output.
However, based on the letter from Director General of Taxation No.
KEP-539/PJ/2000 dated December 29, 2000, the Company was able to credit the VAT
Input against the VAT Output on taxable materials and or services acquired that
are directly related to the Company's operations, starting from January 1, 2001.

     Pursuant to Decision Letter No. KEP-01/WPJ.07/KP.0105/2002 dated March 22,
2002, the Director General of Taxation permitted the Company to pay taxes due on
the cross-ownership transaction in nine monthly installments ending on December
25, 2002.

20. ACCRUED EXPENSES

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Early retirement benefits...................................    140,000     714,884
Post-retirement benefits....................................    517,661     660,066
Salaries and employee bonuses...............................    136,481     442,615
Interest and bank charges...................................    276,953     282,632
General, administrative and marketing.......................    265,987     220,476
Operation, maintenance and telecommunication services.......     79,126     180,740
Other.......................................................     21,367       8,989
                                                              ---------   ---------
Total.......................................................  1,437,575   2,510,402
                                                              =========   =========
</Table>

     Based on the Board of Directors' Resolution No. KD.20/PS900/SDM-10/2001
dated June 11, 2001 concerning Early Retirement, the Company offered an Early
Retirement Program for interested and eligible employees. Employees' rights
under the early retirement program, method of calculation and payments for
compensation and other benefits are provided in the Board of Directors'
Resolution No. KD.35/PS900/SDM-10/01 dated November 30, 2001 entitled Employees'
Rights under Early Retirement Program Year 2002. Accrued early retirement
benefits as of December 31, 2001 have been

                                       F-56
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

fully paid in the first semester of 2002. Accrued early retirement benefits as
of December 31, 2002 represents the continued early retirement program.

     Included in accrued early retirement benefits is a charge of Rp357,100
million in 2002 related to the transfer of call center services to Infomedia in
2002 in connection with the First Amendment of Cooperation Agreement on Business
Synergy in Inter (I) Net and service (S) Net dated February 25, 2002. The
implementation of the transfer needs approval from other Infomedia shareholders.

21. ADVANCES FROM CUSTOMERS AND SUPPLIERS

     As of December 31, 2002, the Company received deposit payments from KSO
Unit III amounting to Rp830,431 million or equivalent to US$91,750,000 related
to the Company's plan to purchase AriaWest. The deposit of US$41,750,000 was
received on May 17, 2002, upon signing the Conditional Sale and Purchase
Agreement and US$50,000,000 upon receipt of AriaWest's Tax Assessment Letter
(see Note 49).

22. SHORT-TERM BANK LOAN

     a. On October 5, 2001, Telkomsel entered into a Transferable Term Loan
Agreement with Deutsche Bank AG, Jakarta Branch (as "Arranger" and "Facility
Agent") covering a loan facility amounting to Rp500,000 million obtained from
banks (collectively as "Lenders"), as follows:

<Table>
<Caption>
                                                              % OF LOAN
NAME OF BANK                                                  ASSIGNED    AMOUNT
------------                                                  ---------   -------
                                                                            RP
<S>                                                           <C>         <C>
PT Bank Central Asia, Tbk...................................     38       190,000
PT Bank Lippo, Tbk..........................................     19        95,000
PT Bank Niaga, Tbk..........................................     19        95,000
PT Bank Bali, Tbk...........................................     10        50,000
Deutsche Bank AG, Jakarta...................................     10        50,000
PT Bank Ekonomi Raharja.....................................      4        20,000
                                                                          -------
                                                                          500,000
                                                                          =======
</Table>

     The loan was obtained to finance Telkomsel's working capital requirements.
The loan bore interest at 3-months Certificates of Bank Indonesia plus 2%. The
loan was settled on October 22, 2002.

     b. On July 12, 2002, Telkomsel entered into an Opening Letter of Credit and
Trust Receipt Loan Agreement with Citibank, N.A. providing for a total facility
of US$40,000,000.

     The facility was obtained to finance Telkomsel's capital expenditures in
connection with procurement contracts with three strategic partners and a
strategic supplier. Amounts drawn from the facility bear interest at the bank's
cost of funds plus 2.5%, and will mature on July 12, 2003. The facility is not
collateralized.

     Total loans drawn from the facility amounted to US$5,280,031. As of
December 31, 2002 the outstanding balance of the loan amounted to US$4,385,295
(equivalent to Rp39,205 million).

                                       F-57
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

23. CURRENT MATURITY OF LONG-TERM LIABILITIES

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Two-step loan...............................................    845,366     836,109
Liabilities for acquisition of subsidiaries.................    466,508     807,980
Suppliers' credit loan......................................     66,880     163,072
Bank loan...................................................    146,300     162,077
Bridging loan...............................................     16,720      42,112
Obligation under capital lease..............................         --         901
Others......................................................        826          --
                                                              ---------   ---------
                                                              1,542,600   2,012,251
                                                              =========   =========
</Table>

24. TWO-STEP LOANS

     Two-step loans are loans obtained by the Government of the Republic of
Indonesia from overseas banks and a consortium of contractors, which are then
re-loaned to the Company. The loans entered into up to July 1994 were recorded
and are payable in Rupiah based on the exchange rate at the date of withdrawal.
Loans entered into after July 1994 are payable in their original currencies and
any resulting foreign exchange gain or loss is borne by the Company.

     The details of the two-step loans are as follows:

<Table>
<Caption>
CREDITORS                                             INTEREST RATE     2001        2002
---------                                             -------------   ---------   ---------
                                                           (%)           RP          RP
<S>                                                   <C>             <C>         <C>
Overseas banks......................................   2.95-18.41     9,118,911   8,231,508
Consortium of contractors...........................   3.20-18.41       363,795     299,046
                                                                      ---------   ---------
Total...............................................                  9,482,706   8,530,554
Current maturities..................................                   (845,366)   (836,109)
                                                                      ---------   ---------
Long-term portion...................................                  8,637,340   7,694,445
                                                                      =========   =========
</Table>

     Details of two-step loans obtained from overseas bank as of December 31,
2002 are as follows:

<Table>
<Caption>
CURRENCIES                                                    INTEREST RATE    AMOUNT
----------                                                    -------------   ---------
                                                                   (%)           RP
<S>                                                           <C>             <C>
US Dollar...................................................   3.85-8.70      3,461,090
Rupiah......................................................  12.00-18.41     3,366,297
Yen.........................................................      2.95        1,188,369
Euro........................................................   7.18-8.30        215,752
                                                                              ---------
Total.......................................................                  8,231,508
                                                                              =========
</Table>

     The acquired loans are intended for the development of telecommunication
infrastructure and supporting equipment. The loans are payable in semi-annual
installments and are due on various dates until 2025.

                                       F-58
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     Detail of two-step loans obtained from consortium contractors as of
December 31, 2002 is as follows:

<Table>
<Caption>
CURRENCIES                                               INTEREST RATE    2001      2002
----------                                               -------------   -------   -------
                                                              (%)          RP        RP
<S>                                                      <C>             <C>       <C>
Yen....................................................      3.20        193,639   155,681
Rupiah.................................................   13.25-18.41    170,156   143,365
                                                                         -------   -------
Long-term portion......................................                  363,795   299,046
                                                                         =======   =======
</Table>

     The consortium of contractors consists of: Sumitomo Corporation, PT NEC
Nusantara Communications and PT Humpuss Elektronika (SNH Consortium). The
acquired loans were intended for the financing of a second digital telephone
exchange project. The loans are payable in semi-annual installments and are due
on various dates until March 15, 2015.

     Two-step loans which are payable in Rupiah bear either a fixed interest
rate or a floating rate based on the average interest rate of 3-month
Certificates of Bank Indonesia during the six-month period preceding the
installment due date, plus 1%. Two-step loans which are payable in foreign
currencies bear either a fixed rate of interest or the floating interest rate
offered by the lenders-plus 0.5%.

     As of December 31, 2002, the Company has used all facilities of two-step
loans and the draw period for two-step loan has expired.

     The schedule of the principal payments on the Company's two-step loans as
of December 31, 2002, is as follows:

<Table>
<Caption>
YEAR                                                              TOTAL
----                                                            ---------
                                                                   RP
<S>                                                             <C>
2003........................................................      836,109
2004........................................................      860,262
2005........................................................      868,587
2006........................................................      764,148
2007........................................................      669,967
2008 - 2025.................................................    4,531,481
                                                                ---------
Total.......................................................    8,530,554
                                                                =========
</Table>

     The Company must maintain financial ratios as follows:

          a. Projected net revenue to projected debt service ratio should exceed
     1.5:1 and 1.2:1 for two-steps loans originating from World Bank and Asian
     Development Bank ("ADB"), respectively.

          b. Internal financing (earnings before depreciation and interest
     expenses) should exceed 50% and 20% of compared to capital expenditures for
     loans originally from the World Bank and ADB, respectively.

     As of December 31, 2002, the Company was in compliance with the above
covenants.

                                       F-59
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

25. SUPPLIERS' CREDIT LOANS

     The detail of suppliers' credits loans is as follows:

<Table>
<Caption>
                                                                 2001        2002
                                                                -------    --------
                                                                  RP          RP
<S>                                                             <C>        <C>
Tomen.......................................................    397,326     290,498
Cable & Wireless plc........................................     64,574      48,199
                                                                -------    --------
Total.......................................................    461,900     338,697
Current maturities..........................................    (66,880)   (163,072)
                                                                -------    --------
Long-term portion...........................................    395,020     175,625
                                                                =======    ========
</Table>

  a. Tomen

     Dayamitra has entered into a Design, Supply, Construction and Installation
Contract dated November 18, 1998 with Tomen, the ultimate holding company of
TMC, which is a shareholder of Dayamitra. Under the terms of the contract, Tomen
is responsible for the construction of the minimum new installations required
under the KSO VI Agreement in which Dayamitra is the investor.

     In connection with the above agreement, Dayamitra entered into a Supplier's
Credit Agreement ("SCA") with Tomen on November 18, 1998. The total commitment
under the SCA was US$54,000,000 of which US$50,444,701 had been drawn down
before the expiration date of the available credit on September 30, 1999.

     Interest accrues on the amounts drawn down at LIBOR plus 4.5% per annum,
and is payable semi-annually in arrears.

     Annual interest rates in 2002 ranged from 5.92% to 6.48%.

     The SCA loan is repayable in ten semi-annual installments commencing on
December 15, 2000. The SCA contains a minimum fixed repayment schedule. However,
additional principal repayments are required on repayment dates in the event
that Dayamitra has excess cash, as defined in the SCA.

     The SCA loan is secured on a pro-rata basis by the security rights provided
under the C&W plc bridging facility loan.

  b. Cable and Wireless plc ("C&W plc")

     Dayamitra entered into a Supplier's Credit Agreement ("SCA") with C&W plc
on May 19, 1999.

     The SCA loan is repayable in ten semi-annual installments commencing on
December 15, 2000. The loan contains a minimum fixed repayment schedule.
However, additional principal repayments are required on repayment dates in the
event that Dayamitra has excess cash, as defined in the SCA.

     Interest on this loan is at the rate of LIBOR plus 4.5%. Annual interest
rates in 2002 ranged from 5.92% to 6.48%.

     The SCA loan is secured on a pro-rata basis by the security rights provided
under the C&W plc bridging facility loan. In addition, any distributions to
shareholders in the form of dividends or repayments of share capital require the
written consent of Tomen and C&W plc.

                                       F-60
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The schedule of the required principal payments on the above loans as of
December 31, 2002 is as follows:

<Table>
<Caption>
YEAR                                                           TOTAL
----                                                          -------
                                                                RP
<S>                                                           <C>
2003........................................................  163,072
2004........................................................  174,914
2005........................................................      711
                                                              -------
Total.......................................................  338,697
                                                              =======
</Table>

26. BRIDGING LOAN

<Table>
<Caption>
                                                                 2001       2002
                                                                -------    -------
                                                                  RP         RP
<S>                                                             <C>        <C>
Total outstanding amount....................................    128,121     95,517
Current maturities..........................................    (16,720)   (42,112)
                                                                -------    -------
Long-term portion...........................................    111,401     53,405
                                                                =======    =======
</Table>

     This loan is owed by Dayamitra to C&W plc under a bridging loan facility
which was assigned from three local Indonesian banks. The loan is repayable in
ten semi-annual installments commencing on December 15, 2000. Interest is
payable on a monthly or quarterly basis, at the option of Dayamitra, at the rate
of LIBOR plus 4% per annum. Annual interest rates in 2002 ranged from 5.42% to
5.98%.

     C&W plc has agreed to the repayment of the bridging loan facility in
proportion to the amounts made available to Dayamitra under this bridging loan
facility and the C&W plc and Tomen Supplier's Credit Loan. The security provided
against the bridging loan facility consists of an assignment of KSO revenues; an
assignment of bank accounts; a security interest in Dayamitra's movable assets;
an assignment of the Tomen construction contract; an assignment of proceeds from
early termination of the KSO license by the Company; and an assignment of
insurance proceeds.

     Distributions to shareholders in the form of dividends or repayment of
share capital require the written consent of C&W plc.

     The schedule of the required principal payments on this bridging loan as of
December 31, 2002 is as follows:

<Table>
<Caption>
YEAR                                                          TOTAL
----                                                          ------
                                                                RP
<S>                                                           <C>
2003........................................................  42,112
2004........................................................  52,864
2005........................................................     541
                                                              ------
Total.......................................................  95,517
                                                              ======
</Table>

                                       F-61
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

27. LIABILITY FOR ACQUISITION OF A SUBSIDIARY

     This amount represents the Company's non-interest bearing obligation to the
selling stockholders of Dayamitra in respect to the Company's acquisition of
90.32% of Dayamitra and to the selling stockholders of Pramindo in respect to
the Company's acquisition of 30% of Pramindo.

<Table>
<Caption>
                                                                2001       2002
                                                              --------   --------
                                                                 RP         RP
<S>                                                           <C>        <C>
Dayamitra transaction
     PT Intidaya Sistelindomitra............................   348,140     99,500
     PT Mitracipta Sarananusa...............................   239,318     68,398
     Cable and Wireless plc.................................   224,838     64,260
     Unamortized deferred interest..........................   (84,948)   (74,915)
                                                              --------   --------
                                                               727,348    157,243
                                                              --------   --------
Pramindo transaction
     France Cable et Radio..................................        --    263,973
     Astratel...............................................        --    230,977
     Indosat................................................        --     85,791
     Marubeni...............................................        --     52,795
     IFC -- USA.............................................        --     19,798
     NMP Singapore..........................................        --      6,599
     Unamortized deferred interest..........................        --     (9,196)
                                                              --------   --------
                                                                    --    650,737
                                                              --------   --------
Total.......................................................   727,348    807,980
Current maturity -- net of unamortized deferred interest....  (466,508)  (807,980)
                                                              --------   --------
Long -- term portion -- net of unamortized deferred
  interest..................................................   260,840         --
                                                              ========   ========
</Table>

     Under the Conditional Sale and Purchase Agreement of Dayamitra, the amount
due to Mitracipta will be paid to Intidaya and C&W plc proportionately based on
their ownership interest in Mitracipta.

28. GUARANTEED NOTES AND BONDS

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Guaranteed Notes............................................         --   1,337,518
Bonds.......................................................         --   1,000,000
                                                              ---------   ---------
                                                                     --   2,337,518
                                                              =========   =========
</Table>

  a. Guaranteed Notes

     In April 2002, (TSFL), Telkomsel's wholly-owned subsidiary, issued US$150
million in guaranteed notes ("Notes"). The notes bear interest at 9.75%, payable
semi-annually on April 30 and October 30 of each year, and will be due on April
30, 2007.

                                       F-62
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     On April 23, 2002, TSFL entered into subscription agreements with UBS AG
("UBS") whereby UBS agreed to subscribe and pay for the notes at an issue price
equal to 99.709% of the principal amount of the notes, less any fees. TSFL has
further authorized UBS to have the notes listed in the Singapore Exchange
Securities Trading Limited (the "Singapore Exchange").

     Based on the "On-Loan Agreement" dated April 30, 2002, between the
Telkomsel and TSFL, the proceeds from the subscription of the notes were loaned
to Telkomsel at an interest rate of 9.765% per annum, payable in the same terms
as above.

     TSFL may, on the interest payment date falling on or about the third
anniversary of the issue date redeem the notes, in whole or in part, at 102.50%
of the principal amount of such notes, together with interest accrued to the
date fixed for redemption. If only part of the notes are redeemed, the principal
amount of the notes outstanding after such redemption must be at least US$100
million.

     As of December 31, 2002, the outstanding balance of the notes and the
unamortized portion of the discount are as follows:

<Table>
<Caption>
                                                     FOREIGN CURRENCY   RUPIAH EQUIVALENT
                                                     ----------------   -----------------
                                                           US$               RP JUTA
<S>                                                  <C>                <C>
Principal..........................................    150,000,000          1,341,000
Discount...........................................       (389,468)            (3,482)
                                                       -----------          ---------
Net................................................    149,610,532          1,337,518
                                                       ===========          =========
</Table>

  b. Bonds

     On July 16, 2002, the Company issued bonds amounting to Rp1,000,000
million. The bonds were issued at par value and have a term of five years. The
bonds bear interest at a fixed rate of 17% per annum, payable quarterly
beginning October 16, 2002. The bonds are traded in the Surabaya Stock Exchange.
The bonds mature on July 15, 2007.

     The Company must maintain the following consolidated financial ratios:

     1. Debt service coverage ratio must exceed 1.5:1

     2. Debt to equity ratio must not exceed:

          a. 3:1 for the period January 1, 2002 to December 31, 2002

          b. 2.5:1 for the period January 1, 2003 to December 31, 2003

          c. 2:1 for the period January 1, 2004 to the date the bonds are
     redeemed

     3. Debt to EBITDA ratio must not exceed 3:1

     As of December 31, 2002, the Company was in compliance with these
covenants.

                                       F-63
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

29. LONG-TERM BANK LOANS

     The detail of bank loans as of December 31, 2002 is as follows:

<Table>
<Caption>
                                             TOTAL            OUTSTANDING        OUTSTANDING
LENDER                       CURRENCY      FACILITY       IN ORIGINAL CURRENCY   (RPMILLION)
------                       --------   ---------------   --------------------   ------------
<S>                          <C>        <C>               <C>                    <C>
Citibank N.A...............    USD            6,950,000        6,950,000            62,272
Hermes Kreditversicherungs
  AG.......................    USD           23,400,000          740,914             6,639
Bank Consortium............    USD            4,000,000        3,288,000            29,460
Bank Consortium............    IDR       90,000,000,000                             60,438
Bank Central Asia..........    IDR      173,000,000,000                             25,903
Tomen......................    USD           35,000,000        7,000,000            62,720
                                                                                   -------
Total......................                                                        247,432
Current maturities of long-
  term bank loans..........                                                        162,077
                                                                                   -------
Long term portion..........                                                         85,355
                                                                                   =======
</Table>

  a. High Performance Backbone ("HP Backbone") Loan

     a. 1 On April 10, 2002, the Company entered into the "Term Loan Agreement
HP Backbone Sumatra Project and Pledge of Right To Deposit" with Citibank, N.A.
providing a total facility of US$6,950,000.

     The facility was obtained to finance the construction of the Sumatra High
Performance Backbone, in connection with the "Partnership Agreements" dated
November 30, 2001, with PT Pirelli Cables Indonesia and PT Siemens Indonesia for
the construction and provision of a high performance backbone in Sumatra.

     Amounts drawn from the facility bear interest of 1% above the interest rate
provided by the Bank on the relevant deposit being pledged to the bank. The
loans are payable in eight monthly installments beginning April 2003. The loans
will mature in January 2004.

     The Company has drawn down the entire facility of US$6,950,000. As of
December 31, 2002, the outstanding balance of the loan amounted to US$6,950,000
(equivalent to Rp62,272 million).

     The loan facility from Citibank NA is secured by a time deposit of
US$6,950,000.

     The schedule of the required principal payments on this HP Backbone loan as
of December 31, 2002 is as follows:

<Table>
<Caption>
YEAR                                                            TOTAL
----                                                            ------
                                                                  RP
<S>                                                             <C>
2003........................................................    60,424
2004........................................................     1,848
                                                                ------
Total.......................................................    62,272
                                                                ======
</Table>

                                       F-64
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     a. 2 On April 10, 2002, the Company entered into a "Loan Agreement" with
Citibank, N.A ("arranger") and Citibank International plc ("agent"), which was
supported by an export credit guarantee of Hermes Kreditversicherungs AG
("lender" and "guarantor"), providing a total facility of US$23,400,000.

     The facility was obtained to fund up to 85% of the cost of supplies and
services sourced in Germany relating to the design, manufacture, construction,
installation and testing of high performance backbone networks in Sumatra
pursuant to the "Partnership Agreement".

     Hermes required a guarantee fee of 8.4% of the total facility. This fee is
payable twice during the agreement period 15% of the guarantee fee is required
to be paid in cash and 85% is included in the loan balance. The outstanding loan
as of December 31, 2002 representing the first installment of the fee was
US$740,914 (equivalent to Rp6,639 million).

     As of December 31, 2002, the Company has drawn US$740,914 from the total
facility. The loans are payable in ten semi-annually installments beginning in
July 2004.

     Amounts drawn from the facility bear interest at LIBOR plus 0.75%.

     a. 3 On April 10, 2002, the Company entered into a "Term Loan Agreement HP
Backbone Sumatra Project" with Bank Central Asia, providing a total facility of
Rp173,000 million. The facility was obtained to fund the Rupiah portion of the
high performance backbone network in Sumatra pursuant to the "Partnership
Agreement".

     Amounts drawn from the facility bear interest of 4.35% plus the 3-month
time deposit rate. The loans are payable in twelve quarterly installments
beginning January 2004. The loans will mature in October 2006.

     Total principal outstanding as of December 31, 2002 is Rp25,903 million.
Total available under the facility as of December 31, 2002 is Rp147,097 million.

     The loan facility from Bank Central Asia was unsecured.

  b. Internet Protocol Backbone ("IP Backbone") Loan

     On February 25, 2002, the Company entered into a ("Facility Funding
Agreement") with Bank DBS Indonesia (syndicated agent), Bank Bukopin (lender)
and Bank Central Asia (lender), providing a total facility of US$4,000,000 and
Rp90,000 million to fund the IP Backbone project in 7 (seven) Regional Divisions
and 6 (six) KSOs.

     Amounts drawn in US Dollar bear interest of 2% plus the highest of 1-,2-or
3-month SIBOR divided by 0.87% for the first year and 2% plus the 3-month SIBOR
divided by 0.87% thereafter. Amounts drawn in Rupiah bear interest of 19% fixed
for the first year and 5% plus the average of BCA and Bukopin interest rates
(the highest of 1,3,6 or 12 month time deposit rate) thereafter.

     The loans are payable in eleven quarterly installments beginning September
2002. The loans will mature on March 15, 2005.

     Total outstanding IP Backbone loans for Rupiah and US Dollar as of December
31, 2002 are Rp60,437 million and US$3,288,000 (equivalent Rp29,460 million),
respectively.

                                       F-65
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The total unused credit facility for the Rupiah and US Dollar facility as
of December 31, 2002 is Rp16,475 million and US$nil, respectively.

     The Company pledged the assets under construction as collateral for the IP
Backbone loan pursuant to Notarial Deed No. 17 dated February 25, 2002 of Notary
Siti Amiretno Diah Wasisti Bagiono, SH on "Fiduciary Collateral". The pledge has
a maximum amount of US$14,587,525.20 and Rp401 million.

     The schedule of the required principal payments on this IP Backbone loan as
of December 31, 2002 is as follows:

<Table>
<Caption>
YEAR                                                          TOTAL
----                                                          ------
                                                                RP
<S>                                                           <C>
2003........................................................  38,934
2004........................................................  38,934
2005........................................................  12,029
                                                              ------
Total.......................................................  89,897
                                                              ======
</Table>

     Average interest rates for the HP Backbone and IP Backbone loans during
2002 were as follows:

<Table>
<Caption>
                                                                   2002
                                                              --------------
<S>                                                           <C>
Rupiah......................................................    17.14% - 19%
U.S. Dollar.................................................    3.5% - 4.38%
</Table>

     Under the Loan Agreements for HP Backbone and IP Backbone, the Company must
maintain quarterly financial ratios as follows:

     1. Debt to equity ratio should not exceed 3:1

     2. EBITDA to interest expense should exceed 5:1

     3. EBITDA to loan installment and interest payment should exceed 1.5:1

     As of December 31, 2002, the Company complied with the above mentioned
ratios.

  c. J-Exim Loan

<Table>
<Caption>
                                                                    2001      2002
                                                                  --------   -------
<S>                                                               <C>        <C>
Total outstanding amount....................................       219,450    62,720
Current maturities..........................................      (146,300)  (62,720)
                                                                  --------   -------
Long-term portion...........................................        73,150        --
                                                                  ========   =======
</Table>

     This represents Dayamitra's obligation under a loan facility agreement it
entered into with Tomen on April 27, 1998. The facility has been fully drawn for
US$35 million, which is repayable in five semi-annual installments of US$7
million commencing on March 25, 2001.

     Interest accrues on the outstanding principal at the rate of LIBOR plus 1%
and is repayable semi-annually, commencing on September 25, 1998. Annual
interest rates in 2002 ranged from 2.75% to 3.58%.

                                       F-66
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     On June 21, 1999, an agreement was entered into between Tomen and The
Export-Import Bank of Japan ("J-Exim") under which the loan and related security
rights were assigned from Tomen to J-Exim.

30. MINORITY INTEREST IN SUBSIDIARIES

<Table>
<Caption>
                                                                  2001         2002
                                                                ---------    ---------
                                                                   RP           RP
<S>                                                             <C>          <C>
Minority interest in net assets of subsidiaries
  Telkomsel.................................................    1,162,720    2,516,181
  Pramindo..................................................           --      847,764
  Infomedia.................................................       45,060       43,744
  Dayamitra.................................................        7,022       22,172
  Indonusa..................................................       20,531       13,700
  GSD.......................................................            1            2
                                                                ---------    ---------
Total.......................................................    1,235,334    3,443,563
                                                                =========    =========
Minority interest in net income (loss) of subsidiaries
  Telkomsel.................................................      455,331      975,511
  Pramindo..................................................           --      104,758
  Infomedia.................................................       15,067       19,031
  Dayamitra.................................................        6,241       15,151
  Indonusa..................................................           --            1
  GSD.......................................................       (2,034)      (5,826)
                                                                ---------    ---------
Total.......................................................      474,605    1,108,626
                                                                =========    =========
</Table>

31. CAPITAL STOCK

<Table>
<Caption>
                                                                2001
                                          -------------------------------------------------
                                                              PERCENTAGE         TOTAL
DESCRIPTION                               NUMBER OF SHARES   OF OWNERSHIP   PAID-UP CAPITAL
-----------                               ----------------   ------------   ---------------
                                                                  %               RP
<S>                                       <C>                <C>            <C>
Series A Dwiwarna share
  State of the Republic of Indonesia....                1           --                --
Series B shares
  State of the Republic of Indonesia....    5,472,235,355        54.29         2,736,118
  Public (below 5% each)................    4,607,764,284        45.71         2,303,882
                                           --------------       ------         ---------
Total...................................   10,079,999,640       100.00         5,040,000
                                           ==============       ======         =========
</Table>

                                       F-67
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                                2002
                                          -------------------------------------------------
                                                              PERCENTAGE         TOTAL
DESCRIPTION                               NUMBER OF SHARES   OF OWNERSHIP   PAID-UP CAPITAL
-----------                               ----------------   ------------   ---------------
                                                                  %               RP
<S>                                       <C>                <C>            <C>
Series A Dwiwarna share
  State of the Republic of Indonesia....                1           --                --
Series B shares
  State of the Republic of Indonesia....    5,160,235,355        51.19         2,580,118
     JPMCB..............................      879,723,798         8.73           439,862
     The Bank of New York...............      610,489,548         6.06           305,245
     Public (below 5% each).............    3,429,550,938        34.02         1,714,775
                                           --------------       ------         ---------
Total...................................   10,079,999,640       100.00         5,040,000
                                           ==============       ======         =========
</Table>

     As of December 31, 2001 and 2002, the Company's commissioners, directors,
and employees owned a total of 23,039,919 and 18,132,681 Company's shares,
respectively.

32. ADDITIONAL PAID-IN CAPITAL

<Table>
<Caption>
                                                                2001        2002
                                                              ---------   ---------
                                                                 RP          RP
<S>                                                           <C>         <C>
Proceeds from sale of 933,333,000 shares with par value of
  Rp2,050 per share through initial public offering in
  1995......................................................  1,446,666   1,446,666
Capitalization into 746,666,640 series B shares in 1999.....   (373,333)   (373,333)
                                                              ---------   ---------
Total.......................................................  1,073,333   1,073,333
                                                              =========   =========
</Table>

33. TELEPHONE REVENUES

<Table>
<Caption>
                                                        2000         2001         2002
                                                      ---------   ----------   ----------
                                                         RP           RP           RP
<S>                                                   <C>         <C>          <C>
Fixed lines
  Local and domestic long-distance usage............  4,097,093    5,225,705    6,337,365
  Monthly subscription charges......................    887,355      997,651    1,649,590
  Installation charges..............................     75,382       98,017      166,722
  Phone cards.......................................     34,426       25,455       54,689
  Others............................................     83,608       68,328      119,012
                                                      ---------   ----------   ----------
Total...............................................  5,177,864    6,415,156    8,327,378
                                                      ---------   ----------   ----------
Cellular
  Air time charges..................................  2,484,518    3,987,738    5,453,597
  Monthly subscription charges......................    356,034      581,566      593,348
  Connection fee charges............................     42,644      128,543      172,302
  Features..........................................      6,806       10,151        7,554
                                                      ---------   ----------   ----------
Total...............................................  2,890,002    4,707,998    6,226,801
                                                      ---------   ----------   ----------
Total Telephone Revenues............................  8,067,866   11,123,154   14,554,179
                                                      =========   ==========   ==========
</Table>

                                       F-68
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

34. INTERCONNECTION REVENUES

<Table>
<Caption>
                                                          2000       2001        2002
                                                         -------   ---------   ---------
                                                           RP         RP          RP
<S>                                                      <C>       <C>         <C>
Cellular...............................................  704,160   1,205,280   2,577,263
International..........................................  235,936     116,770     344,912
Other..................................................   40,889      65,313     103,731
                                                         -------   ---------   ---------
Total..................................................  980,985   1,387,363   3,025,906
                                                         =======   =========   =========
</Table>

35. REVENUE UNDER JOINT OPERATION SCHEMES

<Table>
<Caption>
                                                          2000        2001        2002
                                                        ---------   ---------   ---------
                                                           RP          RP          RP
<S>                                                     <C>         <C>         <C>
Minimum Telkom Revenues...............................  1,556,699   1,474,200   1,023,453
Share in Distributable KSO Revenues...................    695,106     732,960     603,572
Amortization of unearned initial investor payments
  under Joint Operation Schemes.......................     15,349      12,426      10,784
                                                        ---------   ---------   ---------
Total.................................................  2,267,154   2,219,586   1,637,809
                                                        =========   =========   =========
</Table>

     Distributable KSO Revenues represent the entire KSO revenues, less MTR and
operational expenses of the KSO Units. These revenues are shared between the
Company and the KSO Investors based on agreed percentages. The agreed
percentages for revenue distribution between the Company and KSO Investors was
35%:65% for KSO Unit VII and 30%:70% for KSO Unit III and IV, respectively.

36. DATA AND INTERNET REVENUES

<Table>
<Caption>
                                                            2000      2001       2002
                                                           -------   -------   ---------
                                                             RP        RP         RP
<S>                                                        <C>       <C>       <C>
SMS......................................................   24,512   344,600     997,249
Multimedia...............................................   64,527   218,300     349,678
VoIP.....................................................       --    25,589     160,051
ISDN.....................................................   18,895    84,695      64,492
                                                           -------   -------   ---------
TOTAL....................................................  107,934   673,184   1,571,470
                                                           =======   =======   =========
</Table>

37. NETWORK REVENUE

<Table>
<Caption>
                                                             2000      2001      2002
                                                            -------   -------   -------
                                                              RP        RP        RP
<S>                                                         <C>       <C>       <C>
Satellite transponder lease...............................  183,255   203,558   190,220
Leased lines..............................................  156,779   211,371   136,192
                                                            -------   -------   -------
Total.....................................................  340,034   414,929   326,412
                                                            =======   =======   =======
</Table>

                                       F-69
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

38. REVENUE-SHARING ARRANGEMENT REVENUES

<Table>
<Caption>
                                                          2000        2001        2002
                                                        ---------   ---------   ---------
                                                           RP          RP          RP
<S>                                                     <C>         <C>         <C>
Revenue-Sharing Arrangement Revenue-Net...............    170,133     191,478     177,054
Amortization of Unearned Revenue......................    138,232      73,695     103,104
                                                        ---------   ---------   ---------
Total.................................................    308,365     265,173     280,158
                                                        =========   =========   =========
</Table>

39. OPERATING EXPENSES -- PERSONNEL

<Table>
<Caption>
                                                          2000        2001        2002
                                                        ---------   ---------   ---------
                                                           RP          RP          RP
<S>                                                     <C>         <C>         <C>
Salaries and related benefit..........................    703,568     882,620   1,212,720
Vacation pay, incentives and other benefits...........    297,606     364,707   1,086,106
Bonuses...............................................         --     140,789     906,684
Net periodic pension cost.............................     72,643      86,233     367,302
Employee income tax...................................    196,565     132,855     215,251
Net periodic postretirement benefit cost..............    165,103     187,752     205,124
Housing...............................................     75,387      95,733     105,446
Medical...............................................     57,727      81,698       7,447
Others................................................     41,597      56,425      17,984
                                                        ---------   ---------   ---------
Total.................................................  1,610,196   2,028,812   4,124,064
                                                        =========   =========   =========
</Table>

40. OPERATING EXPENSES -- OPERATION, MAINTENANCE AND TELECOMMUNICATION SERVICES

<Table>
<Caption>
                                                          2000        2001        2002
                                                        ---------   ---------   ---------
                                                           RP          RP          RP
<S>                                                     <C>         <C>         <C>
Operation and maintenance.............................    575,647     891,435   1,018,174
Radio frequency usage charges.........................     16,711     101,305     298,076
Electricity, gas and water............................    116,484     157,068     241,740
Cost of phone cards...................................     47,076     173,412     198,192
Concession fees.......................................     78,482      63,561     167,816
Insurance.............................................     98,604      67,783     156,184
Leased lines..........................................     34,656      82,880     115,805
Motor vehicles........................................     15,694      38,235      88,332
Travel................................................     11,029      15,700      19,768
Telephone kiosks' commissions.........................    372,258     520,947          --
Others................................................     19,094      37,595     128,089
                                                        ---------   ---------   ---------
Total.................................................  1,385,735   2,149,921   2,432,176
                                                        =========   =========   =========
</Table>

     Based on the Director's Decree No KD.01/HK.220/OPSAR -- 33/2002 dated
January 16, 2002, the rates for phone kiosks 70% of the normal tariff rate
effective January 1, 2002. Telephone kiosk commissions were no longer collected
in 2002.

                                       F-70
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

41. OPERATING EXPENSES -- GENERAL AND ADMINISTRATIVE

<Table>
<Caption>
                                                          2000       2001        2002
                                                         -------   ---------   ---------
                                                           RP         RP          RP
<S>                                                      <C>       <C>         <C>
Provision for doubtful accounts and inventory
  obsolescence.........................................  348,421     342,900     512,399
Professional fees......................................   43,409     325,268     256,109
Collection expenses....................................  131,449     181,925     232,206
Training, education and recruitment....................  114,723     147,312     153,984
Travel.................................................   65,913      92,828     119,530
Security and screening.................................   35,154      48,792      85,209
Printing and stationery................................   32,150      37,589      47,396
Social contribution....................................       --          --      33,867
Meetings...............................................   17,711      26,498      33,346
General expense........................................       --          --      28,871
Research and development...............................   33,110      39,523       8,995
Deferred stock issuance amortization...................   22,402          --          --
Others.................................................   27,241      45,112      45,877
                                                         -------   ---------   ---------
Total..................................................  871,683   1,287,747   1,557,789
                                                         =======   =========   =========
</Table>

     The provision for doubtful accounts included the provision for the MTR and
share in distributable KSO revenues receivable from the KSO Unit III amounting
to Rp14,322 million, Rp155,508 million, and Rp341,846 million in 2000, 2001, and
2002, respectively.

42. INCOME TAX

     Tax expense of the Company and its subsidiaries consists of the following:

<Table>
<Caption>
                                                          2000        2001        2002
                                                        ---------   ---------   ---------
                                                           RP          RP          RP
<S>                                                     <C>         <C>         <C>
Current tax...........................................  1,228,199   2,174,401   2,838,573
Deferred tax expense/(benefit)........................    238,068    (103,747)    (92,716)
                                                        ---------   ---------   ---------
Total.................................................  1,466,267   2,070,654   2,745,857
                                                        =========   =========   =========
</Table>

                                       F-71
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  a. Current Tax

     A reconciliation between income before tax from the consolidated statements
of income and taxable income is as follows:

<Table>
<Caption>
                                                        2000         2001         2002
                                                      ---------   ----------   ----------
                                                         RP           RP           RP
<S>                                                   <C>         <C>          <C>
Pre-tax income......................................  4,789,200    6,687,289   12,342,574
Minority interest...................................   (880,919)  (1,359,109)  (2,586,468)
Preacquisition loss of subsidiaries.................         --      108,080     (142,817)
                                                      ---------   ----------   ----------
                                                      3,908,281    5,436,260    9,613,289
                                                      ---------   ----------   ----------
Temporary differences:
  Provision for doubtful accounts...................    217,294      226,514      303,495
  Depreciation of property, plant, and equipments...   (349,114)     165,239      214,782
  Provision for early retirement benefits...........         --      140,000      574,884
  Provision for inventory obsolescence..............     61,666       74,059       33,477
  Timing difference of KSO Units....................     14,605       10,694       13,936
  Amortization of land rights.......................       (894)       5,839       (1,524)
  Equity in net income of associate companies.......   (356,575)    (147,633)     432,191
  Net periodic pension costs........................   (155,839)     (46,852)      24,673
  Accounts receivable written off...................         --      (44,423)     (94,234)
  Gain on sale of property, plant, and equipments...   (218,708)     (21,759)      (9,846)
  Gain on sale of Ratelindo shares..................         --           --      (11,695)
  Decline in value of investments...................     18,856      (12,376)          --
  Amortization of deferred stock issuance costs.....     14,428       (5,981)      (4,486)
  Inventory written off.............................     (3,992)      (3,013)     (11,545)
                                                      ---------   ----------   ----------
Total...............................................   (758,273)     340,308    1,464,108
                                                      ---------   ----------   ----------
</Table>

                                       F-72
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                        2000         2001         2002
                                                      ---------   ----------   ----------
                                                         RP           RP           RP
<S>                                                   <C>         <C>          <C>
Non-deductible expenses (nontaxable income):
  Net periodic post-retirement benefit costs........    165,103      186,316      197,428
  Amortization of intangible assets and deferred
     interests......................................         --       94,870      292,162
  Depreciation of property, plant, and equipments
     under revenue-sharing arrangements.............     97,381       80,838       72,322
  Reversal of unrealized share in Telkomsel's net
     income.........................................         --       79,899           --
  Repairs and maintenance on leased
     land/buildings.................................     28,426       60,092       23,587
  Employee benefit..................................     32,048       42,781       48,643
  Non-deductible expenses of KSO Units..............     17,256       27,428         (738)
  Share in net income of subsidiaries...............         --   (1,159,771)  (2,510,905)
  Interest income...................................   (631,646)    (494,332)    (359,049)
  Income from land/buildings rental.................    (58,211)    (116,831)     (78,686)
  Amortization of unearned income on revenue-sharing
     arrangements...................................   (138,232)     (73,695)    (102,823)
  Tax penalty.......................................     16,703           --      143,629
  Adjustment of share in net income of Telkomsel as
     a result of restatement........................   (470,992)    (241,725)          --
  Gain on sale of Telkomsel's shares................         --           --   (3,166,086)
  Others............................................     28,139       31,765       54,004
                                                      ---------   ----------   ----------
Total...............................................   (913,989)  (1,482,365)  (5,386,512)
                                                      ---------   ----------   ----------
Total taxable income of the Company.................  2,236,019    4,294,203    5,690,885
                                                      =========   ==========   ==========
</Table>

     The details of current taxes payable are as follows:

<Table>
<Caption>
                                                      2000         2001         2002
                                                    ---------   ----------   ----------
                                                       RP           RP           RP
<S>                                                 <C>         <C>          <C>
Current tax expense of the Company................    670,796    1,288,243    1,707,248
                                                    ---------   ----------   ----------
Tax payable on cross ownership transactions
  Sale of Satelindo...............................         --      627,678           --
  Sale of Lintasarta..............................         --      119,586           --
                                                    ---------   ----------   ----------
Total.............................................         --      747,264           --
                                                    ---------   ----------   ----------
Total.............................................    670,796    2,035,507    1,707,248
                                                    ---------   ----------   ----------
</Table>

                                       F-73
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                      2000         2001         2002
                                                    ---------   ----------   ----------
                                                       RP           RP           RP
<S>                                                 <C>         <C>          <C>
Less prepaid taxes
Income tax
  Article 22......................................         25           45           --
  Article 23......................................     14,283       40,245      122,736
  Article 25......................................    541,074      900,148      917,983
                                                    ---------   ----------   ----------
Total.............................................    555,382      940,438    1,040,719
                                                    ---------   ----------   ----------
Current tax payable of the Company................    115,414    1,095,069      666,529
Subsidiaries......................................    358,776      357,397      222,208
                                                    ---------   ----------   ----------
Total.............................................    474,190    1,452,466      888,737
                                                    =========   ==========   ==========
</Table>

     Current tax expense in the consolidated statements of income is as follows:

<Table>
<Caption>
                                                      2000         2001         2002
                                                    ---------   ----------   ----------
                                                       RP           RP           RP
<S>                                                 <C>         <C>          <C>
Company...........................................    670,796    1,288,243    1,707,248
Subsidiaries......................................    557,403      886,158    1,131,325
                                                    ---------   ----------   ----------
Total.............................................  1,228,199    2,174,401    2,838,573
                                                    =========   ==========   ==========
</Table>

     The taxable income and current tax payable of the Company for 2001 and 2002
are in accordance with the corporate tax returns filed with the Tax Service
Office.

     In 2002, the Company received a Tax Underpayment Assessment Letter (SKPKB)
from the Tax Service Office for its corporate income tax for fiscal years 2000
and 2001 amounting to Rp34,489 and 19,568, respectively. The additional tax due
was settled in December 2002 and the difference between the recorded amount of
tax liabilities/prepayments and the amount assessed by the Tax Service Office
was charged to current operations.

                                       F-74
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  b. Deferred Tax

     The details of the Company and subsidiaries' deferred tax assets and
liabilities are as follows:

<Table>
<Caption>
                                         DECEMBER 31,    MOVEMENTS     DECEMBER 31,    MOVEMENTS     DECEMBER 31,
                                             2000       FOR THE YEAR       2001       FOR THE YEAR       2002
                                         ------------   ------------   ------------   ------------   ------------
                                              RP             RP             RP             RP             RP
<S>                                      <C>            <C>            <C>            <C>            <C>
The Company
Deferred tax assets:
  Allowance for doubtful accounts......      167,539       56,726          224,265       47,092          271,357
  Allowance for inventory
     obsolescence......................       33,173       22,423           55,596      (43,901)          11,695
  Provision for early retirement
     benefits..........................           --       42,000           42,000      172,465          214,465
  Decline in value of investments......       32,657       (3,713)          28,944      (28,944)              --
  Deferred stock issuance costs........        7,176       (1,794)           5,382       (1,345)           4,037
  Land rights..........................       (1,133)       1,752              619       28,368           28,987
                                          ----------      -------       ----------      -------       ----------
Total deferred tax assets..............      239,412      117,394          356,806      173,735          530,541
                                          ----------      -------       ----------      -------       ----------
Deferred tax liabilities:
  Depreciation of property, plant and
     equipment.........................   (1,562,173)      43,044       (1,519,129)      68,345       (1,450,784)
  Long-term investments................     (414,204)     (82,183)        (496,387)     529,036           32,650
  Net periodic pension costs...........      (30,250)     (14,056)         (44,306)      44,306               --
                                          ----------      -------       ----------      -------       ----------
Total deferred tax liabilities.........   (2,006,627)     (53,195)      (2,059,822)     641,687       (1,418,134)
                                          ----------      -------       ----------      -------       ----------
Net deferred tax
  liabilities -- Company...............   (1,767,215)      64,199       (1,703,016)     815,422         (887,593)
                                          ==========      =======       ==========      =======       ==========
Subsidiaries
Deferred tax assets:
  Loss carryovers......................                                     96,812                        16,254
  Allowance for doubtful accounts and
     inventory obsolescence............                                     25,199                        54,673
  Provision for early retirement
     benefit...........................                                         --                         2,292
  Interest on obligations under capital
     lease.............................                                        106                          (308)
                                                                        ----------                    ----------
Total deferred tax assets..............                                    122,117                        72,911
                                                                        ----------                    ----------
Deferred tax liabilities:
  Depreciation of property, plant and
     equipment.........................                                   (175,241)                     (675,803)
  Amortization of prepaid expenses.....                                     (7,315)                      (21,618)
  Amortization of unearned initial
     investor payments.................                                     (3,778)                       (2,833)
  Rental expense.......................                                       (274)                           --
  Net periodic pension costs...........                                       (232)                       (2,194)
  Capital leases.......................                                        (20)                       (4,079)
                                                                        ----------                    ----------
Total deferred tax liabilities.........                                   (186,860)                     (706,527)
                                                                        ----------                    ----------
Net deferred tax
  liabilities -- subsidiaries..........                                    (64,743)                     (633,616)
                                                                        ----------                    ----------
Total..................................                                 (1,767,759)                   (1,521,209)
                                                                        ==========                    ==========
</Table>

                                       F-75
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     A reconciliation between the total tax expense and the amounts computed by
applying the effective tax rates to income before tax is as follows:

<Table>
<Caption>
                                                      2000         2001         2002
                                                    ---------   ----------   ----------
                                                       RP           RP           RP
<S>                                                 <C>         <C>          <C>
Income before tax per consolidated statements of
  income..........................................  4,789,200    6,687,289   12,342,574
Minority interest in subsidiaries' income before
  tax.............................................   (880,919)  (1,359,109)  (2,586,468)
Preacquisition loss of subsidiaries...............         --      108,080     (142,817)
                                                    ---------   ----------   ----------
Income before tax of the Company..................  3,908,281    5,436,260    9,613,289
                                                    ---------   ----------   ----------
Tax expense at effective tax rates:
  10% X Rp25 million in 2000 and 2001, and Rp50
     million in 2002..............................          3            5            5
  15% X Rp25 million in 2000 and 2001, and Rp50
     million in 2002..............................          4            8            8
  30% X Rp3,175,374 million in 2000, Rp3,908,231
     million in 2001 and Rp9,613,189 million in
     2002.........................................  1,172,469    1,630,848    2,883,957
                                                    ---------   ----------   ----------
Total.............................................  1,172,476    1,630,861    2,883,970
                                                    ---------   ----------   ----------
Tax effect of non-taxable income (nondeductible
  expenses):
  Net periodic post-retirement benefit cost.......     49,531       55,895       59,228
  Amortization of intangible assets...............         --       28,461       87,649
  Depreciation of property, plan and equipment
     under Revenue-Sharing Arrangements...........     29,215       24,251       21,697
  Amortization of deferred interest...............         --       23,970       22,474
  Repairs and maintenance on leased
     land/buildings...............................      8,539       18,028        7,076
  Employee benefits...............................      9,614       12,834       14,593
  Nondeductible expenses of KSO Units.............      5,177        8,228         (222)
  Share in net income of subsidiaries.............         --     (347,931)    (753,272)
  Interest income.................................   (189,494)    (148,300)    (107,715)
  Income from land/building rental................    (17,463)     (35,049)     (23,606)
  Amortization of unearned income under Revenue-
     Sharing Arrangements.........................    (41,470)     (22,109)     (30,847)
  Tax penalty.....................................      5,011           --       43,089
  Reversal of unrealized Telkomsel's net income...         --           --      (57,792)
  Adjustment of share in net income of Telkomsel
     as a result of restatement...................   (141,298)     (72,518)          --
  Gain on sale of Telkomsel's share...............         --           --     (949,826)
  Others..........................................      8,441        9,529       51,519
                                                    ---------   ----------   ----------
Total.............................................   (274,197)    (444,711)  (1,615,955)
                                                    ---------   ----------   ----------
Tax expense of the Company........................    898,279    1,186,150    1,268,015
Tax expense of the Subsidiaries...................    567,988      884,504    1,477,842
                                                    ---------   ----------   ----------
Total Tax Expense.................................  1,466,267    2,070,654    2,745,857
                                                    =========   ==========   ==========
</Table>

                                       F-76
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

43. BASIC EARNINGS PER SHARE

     Net income per share is computed by dividing net income by the average
number of shares outstanding during the year, totaling 10,079,999,640 shares in
2000, 2001 and 2002.

     The Company does not have potentially dilutive ordinary shares.

44. CASH DIVIDENDS AND GENERAL RESERVE

     -  Pursuant to the Annual Shareholders' General Meeting as stated in
        Notarial Deed No. 6 dated April 7, 2000 of Notary A. Partomuan Pohan,
        S.H., LL.M., the stockholders approved cash dividends for 1999 amounting
        to Rp1,086,161 million or Rp107.76 per share, and appropriated Rp21,723
        million for general reserves.

     -  Pursuant to the Annual Shareholders' General Meeting as stated in
        Notarial Deed No. 17 dated May 10, 2001 of Notary A. Partomuan Pohan,
        S.H., LL.M., the stockholders approved cash dividends for 2000 amounting
        to Rp888,654 million or Rp88.16 per share, and appropriated Rp126,950
        million for general reserves.

     -  Pursuant to the Annual Shareholders' General Meeting as stated in
        Notarial Deed No. 16 dated June 21, 2002 of Notary A. Partomuan Pohan,
        S.H., LL.M., the stockholders approved cash dividends for 2001 amounting
        to Rp2,125,055 million or Rp210.82 per share, and appropriated Rp425,011
        million for general reserves.

45. PENSION PLAN

  a. The Company

     The Company provides a defined benefit pension plan for its employees under
which pension benefits to be paid are based on the employee's latest basic
salary and number of years of service. The plan is managed by Dana Pensiun
Telkom, whose deed of establishment was approved by the Minister of Finance of
the Republic of Indonesia in his decision letter No. S.199/MK.11/1984 dated
April 23, 1984.

     The Pension Fund's main sources of funds are the contributions from the
employees and the Company. The employees' contribution is 8.4% of basic salary.
Any remaining amount required to fund the plan is contributed by the Company.

     To increase the pension benefits, the Company has increased the basic
salaries of active employees by 50% effective August 1, 2000.

     The Company doubled pension benefits for employees above 56 years of age,
deceased employees or employees with physical defects. The increase applies to
employees still in active service on July 1, 2002. The Company also increased
pension benefit of employees who retired prior to August 1, 2000 by 50%
effective January 1, 2003

     Pursuant to the Annual Shareholders' General Meeting and the Board of
Commissioners meeting, the stockholders and Board of Commissioners approved a
15% increase in the pension benefit for pensioners and an increase in the basic
salary of active employees effective January 1, 1999.

                                       F-77
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The Company's contributions to the pension fund amounted to Rp228,482
million, Rp129,252 million and Rp327,786 million for the years ended 2000, 2001
and 2002, respectively. The pension contribution of KSO Units during 2002
amounted to Rp30,434 million.

     The composition of the net periodic pension cost charged to income for the
Company's plan (excluding those of KSO Units) is as follows:

<Table>
<Caption>
                                                      2000         2001         2002
                                                   ----------   ----------   ----------
                                                       RP           RP           RP
<S>                                                <C>          <C>          <C>
Return on plan assets............................    (279,302)    (266,324)    (343,121)
Interest cost....................................     216,869      277,077      418,044
Amortization and deferral -- net.................      90,068       17,624      132,928
Increase in amortization of prior service cost...      23,806       23,806       88,786
Service cost (benefits earned during the year)...      21,202       30,216       58,941
                                                   ----------   ----------   ----------
Net periodic pension cost........................      72,643       82,399      355,578
                                                   ==========   ==========   ==========
</Table>

     The pension cost attributable to the KSO Units amounted to Rp18,241
million, Rp29,413 million and Rp31,927 million in 2000, 2001 and 2002,
respectively.

     The funded status of the plan as of December 31, 2000, 2001 and 2002 is as
follows:

<Table>
<Caption>
                                                      2000         2001         2002
                                                   ----------   ----------   ----------
                                                       RP           RP           RP
<S>                                                <C>          <C>          <C>
Projected benefit obligation.....................  (2,209,592)  (2,289,134)  (4,248,110)
Plan assets at fair value........................   2,091,721    2,571,714    3,099,648
                                                   ----------   ----------   ----------
Projected benefit obligation (in excess of) less
  than plan assets...............................    (117,871)     282,580   (1,148,462)
Unamortized net amount resulting from changes in
  plan experience and actuarial assumptions......    (363,314)    (632,536)    (820,394)
Unamortized prior service cost...................     284,838      224,383    1,812,198
Unrecognized net obligation at the date of
  initial application of PSAK No. 24.............     234,792      206,158      177,525
                                                   ----------   ----------   ----------
Prepaid (accrued) pension cost...................      38,445       80,585       20,867
                                                   ==========   ==========   ==========
</Table>

     Plan assets consist mainly of Rupiah time deposits.

     The unrecognized net obligation at the date of initial application of PSAK
No. 24 is amortized over the remaining average future working lives of active
employees. This was 17.2 years, starting from January 1, 1992.

                                       F-78
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The actuarial valuations for the pension plan as of December 31, 2000, 2001
and 2002 were prepared by PT Watson Wyatt Purbajaga, an independent actuary in
association with Watson Wyatt Worldwide, using the projected-unit-credit method
with the following assumptions:

<Table>
<Caption>
                                                              2000   2001   2002
                                                              ----   ----   ----
                                                               %      %      %
<S>                                                           <C>    <C>    <C>
Discount rate...............................................   13     13     13
Expected long-term rate of return on Pension Fund assets....   13     13     13
Salary growth rate..........................................    6      6      6
Defined benefits growth rate................................   --     --     --
</Table>

  b. Telkomsel

     Telkomsel provides a defined benefit pension plan to its employees under
which pension benefits to be paid are based on the employee's latest basic
salary and number of years of service. The plan is managed by PT Asuransi
Jiwasraya, a state-owned life insurance company. The employees contribute 5% of
their basic salaries to the plan and Telkomsel contributes any remaining amount
required to fund the plan.

     Telkomsel's contributions to the pension fund amounted to Rp2,189 million,
Rp3,080 million, and Rp5,163 million for the years ended 2000, 2001, and 2002,
respectively.

     The composition of the net periodic pension cost is as follows:

<Table>
<Caption>
                                                               2000    2001     2002
                                                              ------   -----   ------
                                                                RP      RP       RP
<S>                                                           <C>      <C>     <C>
Service cost................................................   1,418   2,247    4,188
Net amortization and deferral...............................  (1,410)   (943)  (2,070)
                                                              ------   -----   ------
Net periodic pension cost...................................       8   1,304    2,118
                                                              ======   =====   ======
</Table>

     PT Watson Wyatt Purbajaga, an independent actuary in association with
Watson Wyatt Worldwide, prepared the actuarial valuations for 2000, 2001 and
2002, using the "Projected-Unit-Credit" method with the following assumptions:

<Table>
<S>                                                           <C>
Discount rate...............................................  12%
Salary growth rate..........................................  10%
Expected long term return on assets.........................  12%
</Table>

                                       F-79
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The funding status of the plan as of December 31, 2000, 2001 and 2002 is as
follows:

<Table>
<Caption>
                                                             2000      2001      2002
                                                            -------   -------   -------
                                                              RP        RP        RP
<S>                                                         <C>       <C>       <C>
Vested benefits...........................................      976     1,651     3,226
                                                            =======   =======   =======
Accumulated benefit obligation............................    4,798     6,153     8,072
                                                            =======   =======   =======
Projected benefit obligation..............................   11,008    15,001    20,927
Plan assets at fair value.................................   18,526    19,546    27,919
                                                            -------   -------   -------
Excess of plan assets over projected benefit obligation...    7,518     4,545     6,992
Unrecognized past service cost............................    3,272     3,207     3,135
Unrecognized experience adjustment........................   (8,296)   (3,482)   (2,813)
                                                            -------   -------   -------
Prepaid pension cost......................................    2,494     4,270     7,314
                                                            =======   =======   =======
</Table>

     The unrecognized net obligation at the date of initial application of PSAK
No. 24 is being amortized over the estimated average remaining service period of
active employees of 18.87 years as of June 1, 1999.

  c. Infomedia

     Infomedia provides a defined benefit pension plan to its employees. The
Company's contributions to the pension fund amounted to Rp246 million, and Rp274
million for the years ended 2001, and 2002, respectively.

     Pension benefit cost is calculated based on the actuarial valuations from
PT Watson Wyatt Purbajaga, an independent actuary in association with Watson
Wyatt Worldwide dated September 5, 2002 using the "Projected-Unit-Credit" method
with the following assumptions:

<Table>
<S>                                                         <C>
Discount rate...........................................                10%
Salary growth rate......................................                5%
Mortality rate..........................................    Mortality rate in Indonesia
Retirement age..........................................             55 years
</Table>

     Plan assets of the pension fund were maintained by Dana Pensiun Infomedia
Nusantara. As of December 31, 2002, the funded status of the plan was as
follows:

<Table>
<S>                                                             <C>
Fair Value of plan assets...................................     3,212
Projected benefit obligations...............................    (2,364)
                                                                ------
Projected benefit obligation less than plan assets..........       848
                                                                ======
</Table>

  d. Pramindo

     Before acquisition, Pramindo participated in a defined benefit
multi-employers pension scheme ("the scheme") that covers substantially all
Indonesian employees of Pramindo. The scheme provides for benefits to be paid to
eligible employees at retirement based primarily upon the number of years with
Pramindo and average remuneration during the last three years before retirement.
The scheme is

                                       F-80
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

funded through contributions made by the related employees (3.2% of basic
salary) and Pramindo to Dana Pensiun Astra ("the Fund").

     The establishment of the fund was approved by the Ministry of Finance No.
KEP-038/KM.17/1996 of February 6, 1996 and published in Supplement No. 19 to
State Gazette No. 26 of March 5, 1996.

     Contributions charged to operating expenses in 2002 amounted to Rp232
million.

     After the closing date of acquisition, all Pramindo's employees were
terminated and replaced by the Company's employees seconded to Pramindo before
August 15,2002. All the Company's seconded employees are participants in the
Company's Pension Fund Program.

     Pramindo did not apply the accounting policy regarding provision for
settlement of employee termination and severance payment, gratuity, and
indemnity in accordance with the Ministry of Manpower Decree No.
Kep-150/Men/2000 dated June 20, 2000, due to Pramindo's employees being
registered in the Company's Pension Fund Program. Management believes that the
effect of not applying this accounting policy is not significant.

46. POST-RETIREMENT BENEFITS

     The Company provides a post-retirement health care plan for all of its
pensioners who have worked for over 20 years and to their eligible dependents.
The requirement of working for over 20 years does not apply to employees who
retired prior to June 3, 1995. However, the employees hired by the Company
starting from November 1, 1995 will no longer be entitled to this plan. The plan
is managed by Yayasan Kesehatan Pegawai Telkom ("YKPT").

     The Company accounts for the cost of the benefits over the working lives of
its employees based on actuarial computations similar to those provided by
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Post-retirement Benefits Other than Pensions" ("SFAS 106"), of U.S. GAAP. The
transition obligation at the date of initial application was Rp524,250 million
and is being amortized over 20 years beginning on January 1, 1995.

     The Company's contributions to YKPT amounted to Rp82,853 million, Rp40,257
million and Rp55,000 million in 2000, 2001 and 2002, respectively.

     The composition of the net periodic post-retirement benefit cost (excluding
those of KSO Units) is as follows:

<Table>
<Caption>
                                                           2000       2001       2002
                                                         --------   --------   --------
                                                            RP         RP         RP
<S>                                                      <C>        <C>        <C>
Return on plan assets..................................   (39,773)   (49,087)   (54,645)
Service cost...........................................    16,082     17,130     18,810
Interest cost..........................................   149,765    176,460    193,734
Amortization of unrecognized transition obligation.....    26,213     26,213     26,213
Amortization of prior service cost.....................    12,816     15,600     13,316
                                                         --------   --------   --------
Net periodic postretirement benefit cost...............   165,103    186,316    197,428
                                                         ========   ========   ========
</Table>

     Cost of post-retirement benefits attributable to the KSO Units amounted to
Rp16,704 million, Rp17,647 million and Rp19,131 million in 2000, 2001 and 2002,
respectively.

                                       F-81
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The actuarial valuations for the post-retirement benefit plan as of
December 31, 2000, 2001 and 2002 were prepared by PT Watson Wyatt Purbajaga, an
independent actuary in association with Watson Wyatt Worldwide, using the
"projected-unit-credit" method and the following assumptions:

<Table>
<Caption>
                                                              2000   2001   2002
                                                              ----   ----   ----
                                                               %      %      %
<S>                                                           <C>    <C>    <C>
Discount rate...............................................   13     13     13
Expected long-term rate of return of YKPT assets............   13     13     13
Cost trend rate.............................................   10     10     10
</Table>

     The funded status of the plan as of December 31, 2000, 2001 and 2002 is as
follows:

<Table>
<Caption>
                                                          2000        2001        2002
                                                        ---------   ---------   ---------
                                                           RP          RP          RP
<S>                                                     <C>         <C>         <C>
Accumulated postretirement benefit obligation
  Retirees............................................    713,646     728,264     790,331
  Other fully eligible plan participants..............    116,807     179,534     194,835
  Other active plan participants......................    551,411     607,262     659,016
                                                        ---------   ---------   ---------
Total.................................................  1,381,864   1,515,060   1,644,182
Plan assets at fair value.............................   (317,694)   (345,148)   (371,395)
                                                        ---------   ---------   ---------
Unfunded postretirement benefit obligation............  1,064,170   1,169,912   1,272,787
Unrecognized prior service cost.......................     48,180      43,258      38,336
Unrecognized transition obligation....................   (366,972)   (340,759)   (314,546)
Unrecognized net loss.................................   (373,775)   (354,750)   (336,511)
                                                        ---------   ---------   ---------
Accrued postretirement benefit cost...................    371,603     517,661     660,066
                                                        =========   =========   =========
</Table>

     A 1% increase in the cost trend rate would increase service cost and
interest cost, and accumulated postretirement benefit obligation as of December
31, 2000, 2001 and 2002 as follows:

<Table>
<Caption>
                                                          2000        2001        2002
                                                        ---------   ---------   ---------
                                                           RP          RP          RP
<S>                                                     <C>         <C>         <C>
Service cost and interest cost........................    222,659     278,646     308,512
Accumulated post-retirement benefit obligation........  1,619,262   1,792,929   1,960,811
</Table>

     YKPT did not prepare an actuarial calculation of post-retirement benefit
for the year ended December 31, 2002.

47. TRANSACTIONS WITH RELATED PARTIES

     In the normal course of business, the Company and its subsidiaries entered
into transactions with related parties. The following transactions with related
parties have been conducted under terms and conditions, which the Company
believes are the same as if these were conducted with third parties:

  a. Government of the Republic of Indonesia

          i. The Company obtained "two-step loans" from the Government of the
     Republic of Indonesia, the Company's majority shareholder.

                                       F-82
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

          ii. The Company and its subsidiaries pay concession fees for
     telecommunication services provided and radio frequency usage charges to
     the Ministry of Communication (formerly, Ministry of Tourism, Post and
     Telecommunication) of the Republic of Indonesia. Concession fees amounted
     to Rp78,482 million, Rp63,561 million and Rp70,596 million in 2000, 2001
     and 2002, respectively. Concession fees reflected 1.2%, 0.7% and 0.6% of
     total operating expenses in 2000, 2001, and 2002, respectively. Radio
     frequency usage charges amounted to Rp16,711 million, Rp101,305 million and
     Rp11,928 million in 2000, 2001 and 2002, respectively. Radio frequency
     usage charges reflected 0.3%, 1.2%, and 0.1% of total operating expenses in
     2000, 2001, and 2002, respectively.

  b. Commissioners and Directors Remuneration

          i. The Company and its subsidiaries provide honorarium and facilities
     to support the operational duties of the Board of Commissioners. Total of
     such benefits amounted to Rp4,851 million, Rp7,189 million, and Rp8,972
     million in 2000, 2001 and 2002, respectively, which reflected 0.1%, 0.1%,
     and 0.1% of total operating expenses in 2000, 2001, and 2002, respectively.

          ii. The Company and its subsidiaries provide salaries and facilities
     to support the operational duties of the Board of Directors. Total of such
     benefits amounted to Rp22,650 million, Rp30,329 million, and Rp42,693
     million in 2000, 2001 and 2002, respectively, which reflected 0.4%, 0.4%,
     and 0.4% of total operating expenses in 2000, 2001, and 2002, respectively.

  c. Indosat

     The Company has an agreement with Indosat, a majority state-owned
international telecommunication services company, for the provision of
international telecommunication services to the public.

     The principal matters covered by the agreement are as follows:

          i. The Company provides a local network for customers to make or
     receive international calls. Indosat provides the international network for
     the customers, except for certain border towns, as determined by the
     Director General of Post and Telecommunication of the Republic of
     Indonesia. The international telecommunication services include telephone,
     telex, telegram, package switched data network, television, teleprinter,
     Alternate Voice/Data Telecommunication (AVD), hotline and teleconferencing.

          ii. The Company and Indosat are responsible for their respective
     telecommunication facilities.

          iii. Customer billing and collection, except for leased lines and
     public phones located at the international gateways, are handled by the
     Company.

          iv. The Company receives compensation for the services provided in the
     first item above, based on the interconnection tariff determined by the
     Minister of Tourism, Post and Telecommunication of the Republic of
     Indonesia.

     The Company has also entered into an interconnection agreement between the
Company's PSTN network and Indosat's STBS network in connection with the
implementation of Indosat Multimedia Mobile services and the settlement of the
related interconnection rights and obligation.

     Pursuant to the Minister of Communication Decree regarding the transfer of
license of Indosat's mobile cellular network operation from Indosat to PT
Indosat Multimedia Mobile ("IM3"), the

                                       F-83
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

Company agreed to transfer all interconnection rights and obligations to IM3
based on Interconnection Cooperation Agreement, as regulated in the Amendment of
Agreement in the side letter No. 656 dated March 18, 2002.

     The Company's compensation relating to leased lines/channel services, such
as IBS, AVD and printers is calculated at 15% of Indosat's revenues from such
services.

     Indosat also leases circuits from the Company to link Jakarta and Medan.

     The Company has been handling customer billing and collection for Indosat.
Indosat is gradually taking over the activities and performing its own direct
billing and collection. The Company receives compensation from Indosat computed
at 1% of the collections made by the Company beginning January 1, 1995, plus the
billing process expenses which are fixed at a certain amount per record.

     Telkomsel also entered into an agreement with Indosat for the provision of
international telecommunication services to GSM mobile cellular customers. The
principal matters covered by the agreement are as follows:

          i. Telkomsel's GSM mobile cellular telecommunication network is
     connected with Indosat's international gateway exchanges to make outgoing
     or receive incoming international calls through Indosat's international
     gateway exchanges.

          ii. Telkomsel receives as compensation for the interconnection, a
     specific percentage of Indosat's revenues from the related services made
     through Indosat's international gateway exchanges.

          iii. Billings for international calls made by customers of GSM mobile
     cellular telecommunication are handled by Telkomsel. Telkomsel is obliged
     to pay Indosat's share of revenue although billings to customers have not
     been collected.

          iv. The agreement dated March 29, 1996, was initially valid for one
     year, but extendable for one-year periods as agreed by both parties. The
     latest extension expired on February 28, 2003. Telkomsel is still
     negotiating.a new agreement In the interim, interconnection revenue was
     charged based upon the previous agreement.

     The Company and its subsidiaries earned net interconnection revenues from
Indosat of Rp93,175 million, Rp54,024 million and Rp158,100 million in 2000,
2001 and 2002, respectively, reflecting 0.8%, 0,3%, and 0.7% of total operating
revenues in 2000, 2001, 2002, respectively.

     Telkomsel also has an agreement for the usage of Indosat's
telecommunication facilities. The agreement, which was made in 1997, is valid
for eleven years, and subject to change based on an annual review and agreement
by both parties. The charges for the usage of the facilities amounted to
Rp11,821 million, Rp13,372 million and Rp12,703 million in 2000, 2001 and 2002,
respectively, reflecting 0.2%, 0.2%, and 0.1% of total operating expenses in
2000, 2001, and 2002, respectively.

     Other agreement between Telkomsel and Indosat are as follows:

          i. Development and maintenance for Jakarta-Surabaya cable system
     agreement ("J-S Cable System").

     Telkomsel, Lintasarta, Satelindo and Indosat ("the parties") entered into
the Development and Maintenance for Cable System Agreement. The parties formed a
management committee, to direct the

                                       F-84
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

development of the cable system that was completed in 1998. Based on the
agreement, Telkomsel shares 19.325% of total development cost. Telkomsel shares
the total cost of operation and maintenance based on the agreed formula.

     Telkomsel's share of the cost of operation and maintenance amounted to
Rp956 millions and Rp1,359 millions for the year 2002 and 2001, respectively.

          ii. Indefeasible Right of Use Agreement

     On September 21, 2000, Telkomsel entered into an agreement with Indosat for
the use of SEA -- ME -- WE 3 and tail link in Jakarta and Medan. Based on the
agreement, Telkomsel was granted an irrevocable right to use a certain capacity
of the network commencing from September 21, 2000 to 2015 by prepaying
compensation amounting to US$2,727,273. Beside the aforementioned prepayment,
Telkomsel is also charged annual operation and maintenance costs amounting to
US$136,364.

          iii. Indosat, on behalf of IM3, on November 1, 2001 entered into an
     interconnection agreement with Telkomsel.

        -  Telkomsel's GSM cellular mobile network transferred to IM 3's
           network, that enable Telkomsel's customer to make or receive a call
           from or to IM 3's customers.

        -  Supply and installation of interconnection tools needed is
           Telkomsel's responsibility.

        -  The agreement is effective upon the signing date and extendable for a
           period agreed by both parties.

     Based on the amendment upon the above agreement, since December 14, 2001,
Telkomsel's customers are able to send and receive short message services from
IM3's customers.

     The Company and its subsidiaries incurred net interconnection costs from
IM3 of Rp421 million in 2002 and earned net interconnection revenue from IM3 of
Rp157 million in 2001.

  d. Satelindo

     The Company has an agreement with Satelindo, an Indosat subsidiary, whereby
both parties agreed, among other matters, on the following:

          i. Interconnection of the Company's PSTN with Satelindo's
     international gateway exchange, enabling the Company's customers to make
     outgoing or receive incoming international calls through Satelindo's
     international gateway exchange.

          ii. Billings for the international telecommunication services used by
     domestic customers through Satelindo's international gateway exchange will
     be handled by the Company.

     The Company also has an agreement with Satelindo for the interconnection of
Satelindo's GSM mobile cellular telecommunication network with the Company's
PSTN, enabling the Company's customers to make outgoing calls to or receive
incoming calls from Satelindo's customers.

     Interconnection revenues earned from Satelindo were Rp227,253 million,
Rp293,726 million and Rp459,306 million in 2000, 2001 and 2002, respectively,
reflecting 1.9%, 1.8%, and 1.1% of total operating income for 2000, 2001, and
2002, respectively.

                                       F-85
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The Company leases international circuits from Satelindo. Payments made in
relation to the lease amounted to Rp19,611 million, Rp28,111 million and
Rp32,222 million in 2000, 2001 and 2002, respectively, which was 0.3%, 0.3%, and
0.3% of total operating expenses for 2000, 2001, and 2002, respectively.

     Based on an agreement entered into among the Company, PT Bimagraha
Telekomindo and Indosat in 1993, at the time of Satelindo's establishment, the
Company agreed to transfer to Satelindo, its so-called B2P, B2R and B4 Palapa
satellites and other assets relating to the Company's satellite control station
located in Jakarta. These transfers are to be covered in a separate agreement
between Satelindo and the Company. The separate agreement regarding the
transfers of these satellites and other assets has not been made. However, the
useful life of the B2P and B2R Palapa satellite had expired. In November 2000,
the Company entered into an agreement with a third party, in which the Company
agreed to sell the expired B2R Satellite, or to lease the satellite to such
third party if the sale is not consummated.

     In 1994, the Company transferred to Satelindo the right to use a parcel of
Company-owned land located in Jakarta that had been previously leased to
Telekomindo, an associated company. Based on the transfer agreement, Satelindo
is given the right to use the land for 30 years and can apply for the right to
build properties thereon. The ownership of the land is retained by the Company.
Satelindo agreed to pay Rp43,023 million to the Company for the thirty-year
right. Satelindo paid Rp17,214 million in 1995 and the remaining Rp25,809
million has not been paid because the Utilization Right ("Hak Pengelolaan
Lahan") on the land could not be delivered as provided in the transfer
agreement. In 2000, the Company and Satelindo agreed on an alternative solution
by accounting for the above payment as lease expense up to 2006. In 2001,
Satelindo paid the remaining amount as lease expense up to 2024.

  e. The Company provides telecommunication services to Government agencies.

  f. The Company has entered into agreements with Government agencies and
     associated companies, Lintasarta, CSM and Patrakomindo, for utilization of
     the Company's Palapa B4 and Telkom 1 satellite transponders or frequency
     channels. Revenues earned from these transactions amounted to Rp86,305
     million, Rp89,469 million and Rp44,108 million in 2000, 2001 and 2002,
     respectively, which was 0.7%, 0.6%, and 0.2% of total operating revenues in
     2000, 2001, and 2002, respectively.

  g. The Company provides leased lines to associated companies and Indosat's
     subsidiaries -- CSM, Lintasarta, Satelindo, Komselindo, Excelcomindo
     Pratama, Mobisel, Metrosel and PSN. The leased lines can be used by the
     associated companies permanently or temporarily for telephone, telegraph,
     data, telex, facsimile or other telecommunication services.

     Revenue earned from these transactions amounted to Rp17,454 million,
     Rp19,764 million and Rp199,674 million in 2000, 2001 and 2002,
     respectively, which was 0.1%, 0.1%, and 0.9% of total operating revenues in
     2000, 2001, and 2002.

  h. The Company provides a data communication network system for
     Lintasarta -- (an Indosat subsidiary) and operates a telemetry tracking and
     command station for PSN -- (an associated company). Revenues earned by the
     Company from these transactions amounted to Rp16,384 million, Rp27,963
     million and Rpnil in 2000, 2001 and 2002, respectively which was, 0.1%,
     0.2%, and 0% of total operating revenues in 2000, 2001, and 2002.

                                       F-86
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  i. The Company purchases property and equipment including construction and
     installation services from a number of related parties. These related
     parties include PT Industri Telekomunikasi Indonesia ("PT Inti"), Lembaga
     Elektronika Nasional, PT Adhi Karya, PT Pembangunan Perumahan, PT Nindya
     Karya, PT Boma Bisma Indra, PT Wijaya Karya, PT Waskita Karya which are all
     state-owned companies, PT Gratika which is an associated company of Dana
     Pensiun Telkom, Telekomindo and PT Bangtelindo which are associated
     companies and Koperasi Pegawai Telekomunikasi, a related party cooperative.
     Purchases made from these related parties amounted to Rp104,669 million,
     Rp100,459 million and Rp164,651 million in 2000, 2001 and 2002,
     respectively, which was 1.6%, 1.2%, and 1.4% of total operating expenses in
     2000, 2001, and 2002, respectively.

  j. Inti is also a major contractor and supplier providing equipment, including
     construction and installation services for Telkomsel. Total purchases from
     Inti in 2000, 2001 and 2002 amounted to Rp405,351 million, Rp663,587
     million and Rp34,717 million, respectively, reflecting 6.3%, 7.8%, and 0.3%
     of total operating expenses in 2000, 2001, and 2002, respectively.

  k. The Company and its subsidiaries carry insurance (on their property, plant
     and equipment against property losses and on employees' social security)
     obtained from PT Asuransi Jasa Indonesia, PT Asuransi Tenaga Kerja and PT
     Persero Asuransi Jiwasraya, which are state-owned insurance companies.
     Insurance premiums amounted to Rp109,821 million, Rp83,945 million and
     Rp110,477 million in 2000, 2001 and 2002, respectively, reflecting 1.7%,
     1%, and 0.9% of total operating expenses in 2000, 2001, and 2002,
     respectively.

  l. The Company and its subsidiaries maintain current accounts and time
     deposits in several state-owned banks. In addition, some of those banks are
     appointed as collecting agents for the Company. As of December 31, 2001,
     the Company also had an investment in mutual funds managed by Danareksa, a
     state-owned company. Total placements in the form of current accounts and
     time deposits in state-owned banks amounted to Rp3,778,099 and Rp6,097,618
     million as of December 31, 2001 and 2002, respectively, which was 11.5% and
     14.4% of total assets as of December 31, 2001 and 2002, respectively.

  m. The Company has revenue-sharing arrangements with Telekomindo, an
     associated company. Revenues earned under these arrangements amounted to
     Rp5,382 million, Rp6,007 million and Rp10,157 million in 2000, 2001 and
     2002, respectively, which was 0.1%, 0.1%, and 0.1% of total operating
     revenues in 2000, 2001, and 2002, respectively.

  n. The Company leases buildings, purchases materials and construction
     services, and utilizes maintenance and cleaning services from Dana Pensiun
     Telkom and PT Sandhy Putra Makmur, a subsidiary of Yayasan Sandikara Putra
     Telkom -- a foundation managed by Dharma Wanita Telkom. Total charges from
     these transactions amounted to Rp35,103 million, Rp18,680 million and
     Rp15,938 million in 2000, 2001 and 2002, respectively, which was 0.5%,
     0.2%, and 0.1% of total operating expenses in 2000, 2001, and 2002,
     respectively.

  o. The Company purchased encoded phone cards from Perusahaan Umum Percetakan
     Uang Republik Indonesia, a state-owned company. Expenses arising from this
     transaction amounted to Rp2,195 million, Rp1,781 million and Rp1,377
     million in 2000, 2001 and 2002, respectively, which was 0.1%, 0.1%, and
     0.1% of total operating expenses for 2000, 2001, and 2002, respectively.

                                       F-87
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  p. In 1991, the Company granted loans to Koperasi Telekomunikasi ("Koptel")
     amounting to Rp1,000 million to support Koptel's activities in providing
     housing loans to the Company's employees. The balance of the loans amounted
     to Rp200 million as of December 31, 2001 and Rp100 million as of December
     2002, which is immaterial to the Company's total assets as of December 31,
     2001 and 2002.

  q. The Company and its subsidiaries earned interconnection revenues from
     Komselindo, Excelcomindo Pratama, Metrosel, Mobisel, Ratelindo, BBT, PSN
     and Patrakomindo, which are associated companies, totaling Rp671,612
     million, Rp345,284 million and Rp213,092 million in 2000, 2001 and 2002,
     respectively, which was 5.5%, 2.1%, and 1% of total operating revenues in
     2000, 2001, and 2002, respectively.

  r. In addition to revenues earned under the KSO Agreement (see Note 49), the
     Company also earned income from building rental, repairs and maintenance
     services, and training services provided to the KSO Units, amounting to
     Rp95,227 million, Rp114,200 million and Rp47,235 million in 2000, 2001 and
     2002, respectively, which was 0.8%, 0.7%, and 0.2% of total operating
     revenues in 2000, 2001, and 2002.

  s. The Company provides a defined benefit pension plan and a postretirement
     health care plan for its pensioners through Dana Pensiun Telkom and YKPT
     (see Notes 45 and 46).

     The Company has also seconded a number of its employees to related parties
to assist them in operating their business. In addition, the Company provides
certain of its related parties with the right to use its buildings free of
charge.

     Presented below are balances of accounts with related parties:

          a. Cash and cash equivalents (see Note 6).

          b. Temporary investments (see Note 7).

          c. Trade receivables (see Note 8).

<Table>
<Caption>
                                                             2001        2002
                                                           ---------   ---------
                                                              RP          RP
<S>  <C>                                                   <C>         <C>

d.   Other accounts receivable
     KSO Units..........................................     108,128      63,356
     State-owned banks (interest).......................       9,860      12,523
     Employees..........................................      21,186       4,463
     Government agencies................................          --       4,122
     Others.............................................       3,331      58,411
                                                           ---------   ---------
     Total..............................................     142,505     142,875
                                                           =========   =========
e.   Advances and other non-current assets
     PT Multisaka Mitra.................................      17,442      25,000
     PT Industri Telekomunikasi Indonesia...............       6,325          --
     PT Bangtelindo.....................................         231          --
                                                           ---------   ---------
     Total..............................................      23,998      25,000
                                                           =========   =========
</Table>

                                       F-88
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                             2001        2002
                                                           ---------   ---------
                                                              RP          RP
<S>  <C>                                                   <C>         <C>
f.   Trade accounts payable
     Government agencies................................     150,142     350,605
     KSO Units..........................................      73,572     251,644
     Indosat............................................      37,817     147,259
     Excelcomindo.......................................     104,599     103,428
     Satelindo..........................................     118,173      73,378
     Koperasi Pegawai Telkom............................       1,353      14,977
     PT Quantum.........................................          --       8,715
     Mitra PBH..........................................          --       6,531
     PSN................................................          --       5,183
     STB Garuda.........................................          --       4,675
     Inti...............................................     208,629       1,420
     Perusahaan Listrik Negara..........................          --         847
     PT Sandhy Putra Makmur.............................         441         498
     Telekomindo........................................         288          --
     Bangtelindo........................................       6,953          --
     Others.............................................      19,042      63,782
                                                           ---------   ---------
     Total..............................................     721,009   1,032,942
                                                           =========   =========

g.   Other accounts payable
     Employees..........................................       7,804      56,167
     Others.............................................          --       2,542
                                                           ---------   ---------
     Total..............................................       7,804      58,709
                                                           =========   =========

h.   Liability for cross-ownership transactions (see
     Note 4).

i.   Accrued expenses
     Employees..........................................     276,481   1,157,499
     Yayasan Kesehatan Pegawai Telkom...................     517,661     661,390
     Government agencies................................     276,953     219,023
     Dana Pensiun Elnusa Yellow Pages...................          --      18,233
     PT Asuransi Jasa Indonesia.........................         643       7,213
     Singtel............................................          --       4,270
     Others.............................................       2,832       1,771
                                                           ---------   ---------
     Total..............................................   1,074,570   2,069,399
                                                           =========   =========

j.   Deposits
     KSO Unit III.......................................          --     830,431
                                                           =========   =========
</Table>

48. SEGMENT INFORMATION

     The Company and its subsidiaries have two reportable segments: fixed line
and cellular. The fixed line segment provides local and domestic long distance
telephone services and other telecommunica-

                                       F-89
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

tion services (including among others, leased lines, telex, transponder,
satellite, and Very Small Aperture Terminal-VSAT) as well as ancillary services.
The cellular segment provides basic telecommunication services, particularly
mobile cellular telecommunication services.

     In relation with Telkomsel acquisition as described in Note 4, management
has presented segment information based on fixed line and cellular.

<Table>
<Caption>
                                                                     TOTAL                       TOTAL
                                FIXED                               BEFORE                       AFTER
                                 LINE       CELLULAR     OTHER    ELIMINATION   ELIMINATION   ELIMINATION
                              ----------   ----------   -------   -----------   -----------   -----------
                                  RP           RP         RP          RP            RP            RP
<S>                           <C>          <C>          <C>       <C>           <C>           <C>
2000
Revenue from external
  customers.................   8,888,909    3,223,087        --   12,111,996             --   12,111,996
Intersegment revenue........     486,796     (421,630)       --       65,166        (65,166)          --
Interest income.............     631,650       60,312        --      691,962             --      691,962
Interest expense............     816,749           --        --      816,749             --      816,749
Depreciation and
  amortization expense......   2,110,226      331,245        --    2,441,471             --    2,441,471
Equity in net income (loss)
  of associated companies...     356,575           --        --      356,575       (588,619)    (232,044)
Segment result before tax...   3,437,289    1,905,745    34,785    5,377,819       (588,619)   4,789,200
Segment assets..............  28,731,740    4,670,571   186,548   33,588,859     (1,569,919)  32,018,940
Long-term
  investments -- net........   1,806,166           --       108    1,806,274     (1,529,139)     277,135
Capital expenditures for
  property, plant and
  equipment.................   1,769,009    1,365,191    22,424    3,156,624             --    3,156,624
2001
Revenue from external
  customers.................  10,540,681    5,590,108        --   16,130,789             --   16,130,789
Intersegment revenue........   1,174,993     (671,884)       --      503,109       (503,109)          --
Interest income.............     505,077       57,220     9,290      571,587             --      571,587
Interest expense............   1,302,452       27,190        --    1,329,642             --    1,329,642
Depreciation and
  amortization expense......   2,399,112      513,065    11,302    2,923,479             --    2,923,479
Equity in net income (loss)
  of associated companies...   1,334,083           --        --    1,334,083     (1,419,769)     (85,686)
Segment result before tax...   5,384,444    2,925,875    38,464    8,348,783     (1,661,494)   6,687,289
Segment assets..............  29,250,373    7,363,322   305,835   36,919,530     (4,449,250)  32,470,280
Long-term
  investments -- net........   4,403,322           --       108    4,403,430     (4,212,048)     191,382
Capital expenditures for
  property, plant and
  equipment.................   1,417,299    2,780,366    14,416    4,212,081             --    4,212,081
</Table>

                                       F-90
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                                     TOTAL                       TOTAL
                                FIXED                               BEFORE                       AFTER
                                 LINE       CELLULAR     OTHER    ELIMINATION   ELIMINATION   ELIMINATION
                              ----------   ----------   -------   -----------   -----------   -----------
                                  RP           RP         RP          RP            RP            RP
<S>                           <C>          <C>          <C>       <C>           <C>           <C>
2002
Revenue from external
  customers.................  14,059,958    7,315,028    24,751   21,399,737             --   21,399,737
Intersegment revenue........   1,065,909      918,565        --    1,984,474     (1,984,474)          --
Interest income.............     373,405      102,176     9,775      485,356             --      485,356
Interest expense............   1,357,226      177,341        --    1,534,567             --    1,534,567
Depreciation and
  amortization expense......   2,703,818      980,994    10,005    3,694,817             --    3,694,817
Equity in net income (loss)
  of associated companies...   2,078,714           --        --    2,078,714     (2,016,231)      62,483
Segment result before tax...  10,300,508    4,014,132    44,164   14,358,804     (2,016,230)  12,342,574
Segment assets..............  39,931,151   12,456,379   362,987   52,750,517    (10,428,350)  42,322,167
Long-term
  investments -- net........   5,513,017           --       108    5,513,125     (5,329,978)     183,147
Capital expenditures for
  property, plant and
  equipment.................      57,147    1,173,006     7,122    1,237,275             --    1,237,275
</Table>

49. JOINT OPERATION SCHEME ("KSO")

     In 1995, the Company and five investors (PT Pramindo Ikat Nusantara, PT
AriaWest International, PT MGTI, PT Dayamitra Telekomunikasi, and PT Bukaka
Singtel International) entered into agreements for Joint Operation Schemes
("KSO") and KSO construction agreements for the provision of telecommunication
facilities and services for the Sixth Five-Year Development Plan ("Repelita VI")
of the Republic of Indonesia. The five investors have conducted the development
and have taken over the operation of the basic fixed telecommunication
facilities and services in five of the Company's seven regional divisions.

     The agreements contain, among other things the following provisions:

          i. The Company's existing assets in the five regional divisions,
     together with the assets to be built under the KSO construction agreements,
     will be managed, operated and maintained by each KSO Unit, in the name of
     the Company and for and on behalf of the Company and the KSO Investors,
     commencing from January 1, 1996 to December 31, 2010 ("KSO period").

          ii. In the aggregate, a minimum of two million lines are to be
     planned, designed, engineered, financed and constructed by the KSO
     Investors during a 3-year period beginning from January 1, 1996, except for
     Regional Division VI -- Kalimantan which started on April 1, 1996.

          iii. The Company will receive two principal types of payments from
     each KSO Unit during the term of the KSO, namely Minimum Telkom Revenues
     ("MTR") and share in distributable KSO revenues, and a one-time initial
     investor payment from each of the KSO Investors.

     The initial investor payments totaling US$105 million or equivalent to
Rp230,239 million were made by the KSO Investors to the Company as compensation
for their rights to participate in developing and operating telecommunication
facilities in the KSO regional divisions.

                                       F-91
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     MTR represents an annual amount guaranteed by the KSO Investors and is
required to be supported by bank guarantees. The MTR is payable on a monthly
basis in fixed amounts which may increase every year during the KSO period. A
further monthly adjustment for the MTR is possible depending upon KSO Investor's
performance under its commitment to install additional lines.

     Distributable KSO revenues are the entire KSO revenues, less the MTR and
the operational expenses of the KSO Units, as provided in the KSO agreements.
These revenues are shared between the Company and the KSO Investors based on
agreed percentages. The Company receives 35% of the distributable KSO revenues
from Regional Division VII, and 30% from the other KSO Regional Divisions.

     At the end of the KSO period, all rights, title and interests of the KSO
Investor in existing installations work-in-progress, inventories, equipment,
materials, plans and data relating to any approved additional new installation
projects and project for which Interconnection Tests have not yet been
successfully completed, will be sold and transferred to the Company without
requiring any further action by any party, upon payment by the Company to the
KSO Investor of one hundred Rupiah, plus:

          i. the net present value, if any, of the KSO Investor's projected
     share in distributable KSO revenues, from the additional new installations
     forming part of the KSO system on the termination date, over the balance of
     the applicable payback periods.

          ii. an amount to be agreed upon between the Company and the KSO
     Investor as fair compensation in respect of any uncompleted or untested
     additional new installations transferred.

     The depreciation of the Rupiah against the U.S. Dollar, which started in
the second half of 1997, has impacted the financial condition of the KSO
Investors. In response to economic conditions, on June 5, 1998, all KSO
Investors and the Company have signed a Memorandum of Understanding ("MoU") to
amend certain provisions of the KSO agreements. Among the amendments are as
follows:

          i. The percentage of sharing of the distributable KSO revenues for
     1998 and 1999 was 10% and 90% for the Company and the KSO Investors,
     respectively.

          ii. The minimum number of access lines to be installed by the KSO
     Investors up to March 31, 1999 was 1,268,000 lines.

          iii. The incremental rate of the MTR would not exceed 1% in 1998 and
     1.5% in 1999 for the KSO agreements with the Investors that have MTR
     incremental factors.

          iv. "Operating Capital Expenditures" in each of the KSO Units will be
     shared between the Company and the respective KSO Investors in proportion
     to the previous year's share in the annual net income of the KSO Units,
     starting from 1999.

          v. The cancellation of the requirement to maintain a bank guarantee in
     respect of MTR.

     In 1998 and 1999, the Company adopted the provisions of the MoU. Beginning
November 1999, the Company and the KSO Investors had begun to renegotiate the
terms of the KSO agreements in conjunction with the changing environment and the
expiration of certain terms in the MOU. Among other things, it was agreed to
return to most of the provisions of the original KSO agreements beginning
January 1, 2000.

                                       F-92
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The Company is seeking a fair resolution to the KSO problems. The Company
believes that the long-term solution for all five KSO's requires Government
intervention and must be considered in the context of restructuring the entire
Indonesian telecommunication sector.

  KSO I

     The Company and the shareholders of Pramindo have reached an agreement in
which the Company will acquire the KSO I assets (see Note 5).

     On April 19, 2002, the Company entered into the Conditional Sale and
Purchase Agreement with PT Astratel Nusantara, France Cabel et Radio, Indosat,
Marubeni Corporation, International Finance Corporation and NMP Singapore Pte
Limited ("Selling Shareholders") regarding the acquisition of 100% of Pramindo.

     Pursuant to the CSPA, the Company at the same time will buy out all
Pramindo's ordinary subscribed and fully paid-in capital from respective
stockholders in pro-rata basis as follows:

          i. 30% on August 15, 2002 (pursuant to the amendment) other than for
     IFC's shares, which will be transferred upon release of those pledged
     shares,under the IFC Investment Agreement and Common Term Agreement.

          ii. 15% at the interim closing which will be occur upon the earlier of
     the first drawdown date or September 30, 2003.

          iii. 55% at the subsequent closing which will occur upon the earlier
     of (a) the drawdown date, (b) December 31, 2004 or (c), 30 days after
     Pramindo retires all of its promissory notes.

     The total purchase price for Pramindo's shares is US$384,363,026 including
interest on the promissory notes.US$9,263,953 is payable on the date the shares
are pledged to the company and US$372,234,919 is payable through the issuance of
promissory notes designated series I and II.

     Pursuant to the agreement, the Company will provide a loan to Pramindo in
the amount of US$86,176,000 to settle its loan IFC, its shareholder.

     All of the promissory notes will be paid on an installment basis. The last
payment will be on December 15, 2004.

  KSO III

     On May 8, 2002, the Company entered into a Conditional Sales and Purchase
Agreement with PT Aria Infotek, Media International B.V. and Asian
Infrastructure Fund ("Selling Shareholders") regarding the acquisition of 100%
AriaWest's shares.

     Based on the CSPA, the Company is to purchase 2,704,444 subscribed and
fully paid shares of AriaWest, with a par value of Rp114,000. The acquisition
price is US$184,500,000, US$44,500,000 of the amount will be paid in the first
installment, US$20,000,000 will be paid on the closing date, and US$120,000,000
will be paid o through the issuance of promissory notes.

     The CSPA was intended to resolve all disputes between the Company and
AriaWest. As of March 25, 2003, the agreement has not been closed because
AriaWest's debt restructuring, a condition, has not been approved by its
creditors.

                                       F-93
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The International Chamber of Commerce ("ICC") has given AriaWest and the
Company an extension until April 17, 2003, to resolve the dispute outside of the
ICC arbitration process.

     As of December 31, 2002, the Company has advanced to AriaWest's
shareholders US$21,750,000 which is included with "Advance Payment for
Investment in Shares of Stock." and The Company has received payment from KSO
Unit III, of US$91,750,000 which was recorded as "Advance Payments from
Customers and Suppliers".

  KSO IV

     The sale of KSO IV to Indosat was terminated due to some conditions
precedent to closing not being fulfilled.

     The Company plans to acquire MGTI, the KSO IV investor in Central Java and
Yogyakarta. Currently, the Company is in the process of negotiating with MGTI.

  KSO VI

     The Company has acquired 90.32% of the issued and paid-in capital of
Dayamitra, the KSO VI Investor.

  KSO VII

     The Company and PT Bukaka Singtel International intend to continue the KSO
scheme in accordance with the original agreements, after some modifications.

50. REVENUE-SHARING AGREEMENTS WITH SEVERAL INVESTORS

     The Company has entered into separate agreements with several investors
under Revenue-Sharing Arrangements ("RSA") to develop fixed lines, analog mobile
cellular lines, public card-phone booths (including their maintenance), and
related supporting telecommunication facilities.

     Under the RSA, the investors finance the costs incurred in developing
telecommunication facilities. Upon completion of the construction, the Company
manages and operates the facilities. The investors legally retain the rights to
the property, plant and equipment constructed by them during the revenue-
sharing periods. At the end of each revenue-sharing period, the investors
transfer the ownership of the facilities to the Company.

     The Company bears the cost of repairs and maintenance of the facilities
during the revenue-sharing period. The revenue-sharing period is determined on
the basis of the internal rates of return agreed by both parties. The internal
rates of return range from 24% to 30%, and the revenue-sharing periods vary from
one year and seven months to fifteen years from the start of commercial
operations. The revenue-sharing period can be either fixed regardless of full
investment returns to the investors, or extended to ensure full investment
returns to the investors. The revenue-sharing periods end on various dates
through 2009.

     The revenues earned from the customers in the form of line installation
charges are fully for the account of the investors. The revenues from outgoing
telephone pulse and monthly subscription charges are shared between the
investors and the Company 60:40 or 70:30 (in favor of the investors) depending
on the agreements. Certain additional arrangements are made for revenues earned
from

                                       F-94
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

analog mobile cellular, whereby revenues from international outgoing pulses are
fully owned by the Company. Revenues earned from pay phone cards during the
revenue-sharing period are shared 60:40 (in favor of the investors) based on the
recorded usage of pulses.

     On August 1, 2002, the RSA period with Telesera expired. The legal title on
property, plant and equipment under the RSA was not transferred to the Company
because RSA did not achieve the investment rate of return in accordance with the
RSA Agreement. The Company accelerated the depreciation of those assets
amounting to the book value of Rp3,300 million.

     The RSA investors' share of revenues amounted to Rp508,355 million,
Rp546,701 million and Rp636,985 million in 2000, 2001 and 2002, respectively.

51. TELECOMMUNICATIONS SERVICES TARIFFS

     Under law No. 36 1999 and Government Regulation No. 52 year 2000, Tariffs
for the use of telecommunication networks and telecommunication services are
determined by providers based on the tariff category, structure and with respect
to fixed line telecommunication service, a price cap formula set by the
Government.

  Fixed line telephone Tariffs

     Fixed line telephone tariffs are imposed for network access and usage.
Access charges consist of a one-time installation charge and a monthly
subscription charge. Usage charges are measured in pulses and classified as
either local or domestic long-distance. The tariffs depend on call distance,
call duration, the time of day, the day of the week and holidays.

     Tariffs for fixed line telephones are regulated under the Minister of
Communication Decree No. KM.12 year 2002 dated January 29, 2002, concerning the
addendum of the decree of Minister of Tourism, Post and Telecommunications
("MTPT") No. 79 year 1995, concerning The Method for Basic Tariff Adjustment on
Domestic Fixed Line Telecommunication Services. Furthermore, the Minister of
Communication issued Letter No. PK 302/1/3 PHB-2002 dated January 29, 2002,
regarding the price cap on basic tariff increases of fixed line telephone
services. According to the letter, tariffs for fixed line domestic calls would
increase by 45.49% over three years. The average increase in 2002 was 15%. This
increase was effective on February 1, 2002.

     The Ministry of Communication issued Letter No. PR.304/2/4/PHB-2002, dated
December 17, 2002 regarding tariff adjustments for domestic fixed line services
effective on January 1, 2003. By considering that the Independent Regulatory
Body, as the precondition for the tariff adjustment, has not been established,
The Minister of Communication postponed the implementation of rate adjustments
by issuing Ministerial Letter No. PR. 304/1/1/PHB/-203 dated January 16, 2003.

  Mobile Cellular Telephone Tariffs.

     Tariffs for cellular providers are set on the basis of the MTPT decree No.
KM. 27/PR.301/MPPT-98 dated February 23, 1998. Under the regulation, the
cellular rates consist of activation fees, monthly charges and usage charges.

     The maximum tariff for the activation fee is Rp200,000 per new subscriber
number. The maximum tariff for the monthly charge is Rp65,000. Usage charges
consist of the following:

                                       F-95
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     a. Airtime

     The basic airtime tariff charged to the originating cellular subscriber is
Rp325/minute. The details are as follows:

<Table>
<S>                                        <C>
1. Cellular to cellular: ................  2 x airtime rate
2. Cellular to PSTN: ....................  1 x airtime rate
3. PSTN to cellular: ....................  1 x airtime rate
4. Card Phone to cellular: ..............  1 x airtime rate plus 41% surcharges
</Table>

     b. Usage Tariff

          1. Usage tariff charged for a cellular subscriber who makes a call to
     another subscriber using the PSTN network is similar to the usage tariffs
     for PSTN subscribers. For the use of local PSTN network, the tariff is
     computed at 50% of the prevailing local PSTN tariff.

          2. The long-distance usage tariff between two different service areas
     is similar to the prevailing tariff for a domestic long-distance call
     ("SLJJ") for a PSTN subscriber.

     Based on the Decree No. KM. 79 year 1998 of the Ministry of Communications,
the maximum tariff for prepaid customers may not exceed 140% of the peak time
tariffs for post paid subscribers.

  Interconnection Tariffs

     Interconnection tariffs regulate the sharing of interconnection calls
between the Company and other cellular operators.

     The current interconnection tariff is governed under MTPT Decree No.
KM.46/PR.301/MPPT-98 ("KM. 46 year 1998") dated February 27, 1998 which came
into effect on April 1, 1998 and was further revised by the Minister of
Communication Decree No. KM.37 year 1999 dated June 11, 1999 ("KM. 37 year
1999").

        a. International interconnection with PSTN and cellular
           telecommunication network

             Based on KM.37 year 1999, effective December 1, 1998, the
        international interconnection tariff is calculated by applying the
        following charges to successful incoming and outgoing calls to the
        Company's network:

<Table>
<Caption>
                                                      TARIFF
                                              ----------------------
<S>                                           <C>
Access charge...............................          Rp850 per call
Usage charge................................   Rp550 per paid minute
Universal Service Obligation (USO)..........          Rp750 per call
</Table>

             Indosat is exempted from paying the USO until December 31, 2004,
        while the USO charges payable by Satelindo are paid directly to the MTPT
        or Minister of Communications. (see Note 47).

                                       F-96
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

        b. Mobile and fixed cellular interconnection with the PSTN

             Based on KM. 46 year 1998, cellular interconnection tariffs with
        PSTN are as follows:

           1. Local Calls

                For local calls from a mobile cellular network to PSTN, the
           cellular operator pays the Company 50% of the prevailing tariff for
           local calls. For local calls from PSTN to a cellular network, the
           Company charges its subscribers the applicable local call tariff plus
           an air time charge, and pays the cellular operator the air time
           charge.

           2. Domestic Long-distance Calls

                KM. 46 year 1998 provides tariffs that vary among long-distance
           carriers depending upon the routes and the long distance network
           used. Pursuant to this decree, for long-distance calls which
           originate from the PSTN, the Company is entitled to retain a portion
           of the prevailing long-distance tariff, which portion ranges from 40%
           of the tariff, in cases where the entire long-distance portion is
           carried by one cellular operator and delivered to another, and up to
           85% of the tariff, in cases where the entire long-distance portion is
           carried by the PSTN.

     For long-distance calls which originate from a cellular operator, the
Company is entitled to retain a portion of the prevailing long-distance tariff
that ranges from 25% of the tariff, in cases where the entire long-distance
portion is carried by a cellular operator and the call is delivered to a
cellular subscriber, and up to 85% of the tariff, in cases where the entire
long-distance portion is carried by the PSTN and the call is delivered to a PSTN
subscriber.

     Interconnection tariffs with mobile satellite networks ("STBSAT") are
established based on Joint Operation Agreements between the Company and STBSAT
providers pursuant to The Minister of Communication Decree No. KM. 30 year 2000
concerning Global Mobile Personal Telecommunication Service Tariffs by Garuda
Satellite dated March 29, 2000. Flat interconnection tariffs per minute apply
for those Companies.

     Interconnection tariffs with mobile cellular networks, including USO, are
determined based on the duration of the call. Access and usage charges for
international telecommunication traffic interconnection with telecommunication
networks of more than one domestic carrier are to be shared proportionately with
each carrier involved, such proportion being determined by the MTPT.

     Interconnection tariffs between a fixed wireless network and PSTN, and
amongst PSTNs, are regulated under MTPT letter No. KU.506/1/1/MPPT-97 dated
January 2, 1997 and letter No. KU.506/4/6/MPPT-97 dated July 21, 1997.
Currently, Ratelindo is the only operator of a fixed wireless network and apart
from the Company, BBT is the only operator of a PTSN.

     For fixed wireless interconnection with the PSTN and BBT with the PSTN, the
"sender-keeps-all" basis for local calls is applied and for domestic
long-distance calls that originate from Ratelindo's network and transit to the
PSTN, the Company receives 35% of Ratelindo's revenue for such calls. For
domestic long-distance calls that originate from PSTN, the Company retains 65%
as its revenue for such calls. For long distance calls from and to BBT, the
Company retains 75% of the revenue while BBT receives the remaining 25%.

                                       F-97
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

        c. Mobile cellular interconnection with other mobile cellular providers

             Based on KM. 46 year 1998, the mobile cellular interconnection
        tariffs with other mobile cellular providers are as follows:

           1. Local Calls

                For local calls from one cellular telecommunication network to
           another, the originating cellular operator pays the airtime charge to
           the destination cellular operator. If the call is carried by the
           PSTN, the cellular operator pays the PSTN operator 50% of the
           prevailing tariff for local calls.

           2. Domestic Long-distance Calls

                For long-distance calls that originate from a cellular
           telecommunication network, the cellular operator is entitled to
           retain a portion of the prevailing long-distance tariff, which
           portion ranges from 15% of the tariff in cases where the entire
           long-distance portion is not carried by the cellular operator, up to
           60% of the tariff in cases where the entire long-distance portion is
           carried by the cellular operator and the call is delivered to another
           cellular operator, or up to 75% if the call is delivered to the same
           cellular operator.

     In connection with the issuance of Law No. 36 year 1999 and Government
Regulation No. 52 year 2000, the Minister of Communications, on May 31, 2001,
issued Decree No. KM. 20 year 2001, concerning Operations of Telecommunication
Network and KM 21 year 2001 concerning Operations of Telecommunication Services,
effective from the date of the decree. Subsequently, the Minister of
Communications issued Decree No. KM.84 year 2002 regarding Telecommunication
Traffic Clearing Process.

  Public Phone Kiosk ("Wartel") Tariff

     The Company is entitled to retain 70% of the telephone tariff based on
Director Decree No. 01/H220/OPSAR-33/2002 dated January 16, 2002, which came
into effect on February 1, 2002. This governs the transition of the business
arrangement between Telkom and Wartel providers, from a commission-based revenue
sharing arrangement into an agreed usage charge (per pulse).

     On August 7, 2002, the Minister of Communication issued Deree No. KM. 46
year 2002 regarding the operation of phone kiosks. The decree provides that the
Company is entitled to retain a maximum of 70% of the phone kiosk basic tariff
from domestic calls and up to 92% of telephone kiosk basic tariffs from
International Calls.

52. COMMITMENTS

  a. Letters of Comfort

     The Company issued letters of comfort to certain lenders of Komselindo with
respect to a US$100,000,000 loan in 1997 and to lenders of Mobisel, with respect
to a US$60,000,000 loan in 1996, which were due in 2002 and 2001, respectively.
On August 30, 2002 Komselindo's shareholders agreed to contribute additional
capital for a loan restructuring (see Note 13.j).

     The Company pledged its deposits of Rp500,000 million as collateral for the
credit facility from Bank Mandiri. The time deposits matured on February 18,
2003.

                                       F-98
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     The Company also pledged its time deposits of US$1,800,000 as collateral
for the loan facility granted to Napsindo from Bank Mandiri. The time deposits
will mature on August 28, 2003.

  b. Credit Facilities

     Telkomsel has credit facilities related to a procurement contract with
Motorola Inc., Ericsson radio A.B., Nokia OYJ and Siemens Aktiengesellschaft
(AG). The details are as follows:

        1. Letter of Credit ("LC") Facilities

             On June 7, 2002, Telkomsel entered into an Opening LC Agreement
        with Deutsche Bank A.G., Jakarta. The agreement requires Telkomsel to
        deposit an amount equal to the LC amount prior to the issuance of the
        LC. Upon the maturity date which is 180 days from the date of Bill of
        Lading, the outstanding LC will be settled by applying the deposit.
        Through December 31, 2002, Telkomsel has entered into LC transactions
        totaling US$8,200,435.

             On July 12, 2002, Telkomsel entered into an Opening LC and Trust
        Receipt Loan Facility Agreement with Citibank N.A., Jakarta covering an
        LC amount of US$40,000,000 with two credit structures as follows:

           i. Structure 1 Credit

                Prior to issuance of the Credit, Telkomsel must deposit 20% of
           the face value of the Credit. Upon maturity, the Usance Draft will be
           settled by applying the initial 20% deposit together with Telkomsel's
           loan drawn from the facility for the remaining 80% of the face value
           of the Usance Draft.

                The Credit shall be available for one drawing by the beneficiary
           made against presentation of a Usance Draft with a maturity date of
           120 days. The drawing will only be available for six (6) months from
           the issuance date of the Credit.

                The repayment of the loan will be made in three equal monthly
           installments, commencing upon the maturity date of the Usance Draft,
           with an interest rate of 2.5% above the bank's cost of funds.
           Telkomsel may, however, upon at least fourteen days prior written
           notice to the bank, prepay the loan in whole, provided that Telkomsel
           shall first pay to the Bank any interest, fees and or other amounts
           due.

           ii. Structure 2 Credit

                Prior to issuance of the Credit, Telkomsel must deposit 25% of
           the face value of the Credit to be available upon the acceptance of
           the Sight Draft. The Credit will be available for two partial
           drawings by the beneficiary as follows:

                The first drawing shall be for a Sight Draft available in an
           amount up to 25% of the face value of the Credit and such drawing
           shall only be available for two (2) months from the issuance date of
           the Credit.

                The second drawing shall be for a Usance Draft in an amount up
           to 75% of the face value of the Credit with a maturity date of 180
           days after the acceptance of the Sight Draft. Such drawing will only
           be available for four (4) months from the issuance date of the
           Credit.

                                       F-99
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

                Upon maturity date of the Usance Draft, the outstanding balance
           payable by Telkomsel shall be converted into a loan. The repayment of
           the loan will be made in nine (9) equal monthly installments,
           commencing on the acceptance of the Usance Draft, with an interest
           rate of 2.5% above the Bank's cost of funds. Telkomsel may, however,
           upon at least fourteen (14) days prior written notice to the Bank,
           prepay the loan in whole, provided that Telkomsel shall first pay to
           the Bank any interest, fees, and or other amounts due.

             As of December 31, 2002, the unused portion of the facility
        amounted to US$8,857,725.

             On July 19, 2002, Telkomsel entered into an Opening LC Agreement
        with Standard Chartered Bank, Jakarta. The agreement requires Telkomsel
        to deposit an amount equal to the LC amount prior to the issuance of the
        LC. Upon maturity date which is 180 days from the date of the Bill of
        Lading, the payment of the LC shall be made by applying the deposit.

             On October 29, 2002, Telkomsel entered into a Banking Facilities
        Credit Agreement with Standard Chartered Bank with details are as
        follows:

           i. Import Facilities (I) -- US$25,000,000

                Sight or usance documentary letters of credit, secured and
           unsecured by the underlying goods and covering the procurement of
           materials or equipment in relation to Telkomsel's operation with a
           corresponding acceptance against the trust receipt facility.

           ii. Local LC Facility (II) -- Rp100,000,000,000

                Documentary local letter of credit available up to 12 months for
           the procurement of materials or equipment from local suppliers,
           together with corresponding loans against the trust receipt facility.

           iii. Bank Guarantee -- US$25,000,000

                For issuance of various bank guarantees in relation to
           Telkomsel's operations against a letter of indemnity from Telkomsel,
           available for a period up to 12 months.

           iv. Foreign Exchange Facility (I)

                The Bank will quote rates for spot, forwards, and swap foreign
           exchange transaction up to three (3) years

           v. Foreign Exchange Facility (II)

                The Bank will quote rates for foreign exchange spot transactions
           up to two (2) days.

             The facility was obtained to finance Telkomsel's funding
        requirements for transactions with vendors and will expire on July 31,
        2003. A loan drawn from the facility bears interest on the basis of
        SIBOR plus 2.5% per annum for the US Dollar facility and of the
        three-month SBI plus 2% per annum for the Indonesian Rupiah facility.
        Telkomsel is allowed to make a prepayment of the loan on ten (10) days
        notice without penalty. A prepayment fee of 3.5% per annum of the
        prepaid amount will be applied if written notice is given less than the
        above notice period.

                                      F-100
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

        2. EKN-Backed Facility

             On December 2, 2002, pursuant to the partnership agreement with PT
        Ericsson Indonesia, Telkomsel obtained an EKN-Backed Facility
        ("Facility") with Citibank International plc (as "Arranger" and "Agent")
        covering a total facility of US$70,483,426.49 divided into several
        tranches.

             The interest rate on the facility is the aggregate of the
        applicable margin, CIRR (Commercial Interest Reference rate) and
        mandatory cost, if any. Interest will be paid semi-annually, starting on
        the date the facility is drawn.

        3. Hermes Export Facility

             On December 2, 2002, pursuant to the Partnership Agreement with
        Siemens Aktiengesellschaft (AG), Telkomsel entered into a Hermes Export
        Facility Agreement ("Facility") with Citibank International plc (as
        "Arranger" and "Agent")covering a total facility of Euro76,195,313
        divided into several tranches.

             The interest rate on the facility is the aggregate of the
        applicable margin, EURIBOR and mandatory cost, if any. Interest will be
        paid semi-annually starting on the facility is drawn.

             As of December 31, 2002, none of the credit facilities have been
        used, except for the facilities from Citibank N.A. of US$40,000,000 and
        Standard Chartered Bank of US$25,000,000 for which the unused portion
        amounted to US$8,857,725 and US$21,400,457, respectively.

  c. Procurement Agreements

     In September 2001, Telkomsel entered into partnership agreements with
Motorola, Inc., Ericsson Radio A.B., and Siemens Aktiengesellschafts ("Strategic
Partners") and Nokia Oyj ("Strategic Supplier") for the procurement of equipment
and related services.

     The partnership agreements are valid and effective as of the execution date
by the respective parties for a period of three years and extendable upon mutual
agreement of the parties for a maximum of two additional years.

     Telkomsel uses the LC facility from Citibank to pay for goods and services
procured under the Partnership Agreements.

  d. Capital Expenditures

     As of December 31, 2002, the amount of capital expenditures committed under
contractual arrangements, principally relating to procurement and installation
of switching equipment, transmission equipment and cable network, are as
follows:

<Table>
<Caption>
                                                               AMOUNTS IN
                                                           FOREIGN CURRENCIES   EQUIVALENT
CURRENCIES                                                   (IN THOUSANDS)     IN RUPIAH
----------                                                 ------------------   ----------
<S>                                                        <C>                  <C>
Rupiah...................................................             --        3,831,703
U.S. Dollar..............................................        203,171        1,818,380
EURO Europe..............................................         98,650          923,889
                                                                                ---------
Total....................................................                       6,573,972
                                                                                =========
</Table>

                                      F-101
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  e. Agreement on Derivative Transaction

     In 2002, the Company entered into two derivative facilities with Bank
Mandiri and HSBC to hedge the Company's liabilities in foreign currency and for
the Company's assets swap or cross ownership transaction. The facilities
US$120,000,000 and US$1,000,000, respectively. These two agreements mature on
April 5, 2003 and August 31, 2003 respectively. As of December 31, 2002, the
Company has not used these derivative facilities.

  f. Procurement of TELKOM-2 Satellite

     In accordance with Agreement No. K.TEL.191/HK.810/UTA-00/2002 dated October
24, 2002, the Company and Orbital Science Corporation ("Contractor") agreed on
the procurement of satellite TELKOM-2. The Company is obliged to pay the
Contractor US$73,000,000, including a refund provision in the amount of
US$4,338,292 for any transponder that has reduced communication capabilities
below 3dB as agreed and which cannot be corrected by switching to a redundant
transponders.

     Payment to Contractor is made within thirty days after the date of the
original invoice received by the Company.

     All Indonesian taxes, duties, assessment of fees, including VAT resulting
from performance of this contract that are required by present of future laws or
regulation in Indonesia shall be paid by the Company, except for any temporary
imported goods that will not be owned by the Company and any taxes and or duties
of Contractor's expatriates working in Indonesia, which will be the
responsibility of the Contractor.

     The Contractor shall be responsible for taxes, duties, assessment or fees,
including value added taxes resulting from the performance or this contract that
are required by present of future laws or regulation in the USA including any
interest or penalties related to such U.S. taxes and U.S. duties.

     The Contractor shall submit warranty bond to the Company for Augmented
Master Control Station ("AMCS") in the amount of 10% of AMCS fixed firm price in
the form of an unconditional bank guarantee/ Letter of Credit from U.S.
affiliated bank in Indonesia, as selected by the Contractor the warranty bond
shall be submitted to the Company at least five business days before the start
of the Warranty Period.

     This Warranty will be effective until the earlier of:

          i. 365 days commencing from the time the satellite is placed in
     storage;

          ii. 365 days commencing from final acceptance of the Satellite or from
     the time of launch failure.

     The Contractor will use reasonable efforts to obtain all Government
approvals and licenses necessary for export of the Satellite. If after six
months from the time the Contractor submits its application for a U.S.
Government license and authorization, the Company may, in writing, notify the
Contractor of its intention to terminate this Contract.

     The Contract price shall include in transit insurance for the satellite,
AMCS and the other deliverable items that are transported from the Contractor's
facility to the launch site or the Company's operation site the price also
include insurance for the satellite during manufacturing, shipping and up

                                      F-102
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

to the launch site until such time as risk of loss passes to the Company under
the Contract. The Contractor will provide the Company with certificate of
insurance for such coverage

  g. Launching of TELKOM-2 Satellite

     On November 8, 2002, the Company and ARIANESPACE S.A. reached agreement for
the launching of Satellite TELKOM-2.The total amount to be paid by the Company
for launch services is US$62,880,000, with the payment schedule as follows:

<Table>
<Caption>
PAYMENT                                                     DATE            PAYMENT
-------                                               -----------------    ----------
                                                                              US$
<S>                                                   <C>                  <C>
First Payment.......................................   January 13, 2004    27,500,000
Payment.............................................      March 1, 2004     9,000,000
Third Payment.......................................      April 1, 2004    20,000,000
Fourth Payment......................................  September 1, 2004     6,380,000
</Table>

     The cost will be increased by 7% of the total if the Company exercises the
Re-flight Option in the contract, The cost will also be increased, if there is
an increase or decrease in the satellite's mass from the agreed mass, The
increase or decrease above 25 kg shall be subject to an additional cost of
US$25,000 per kg.

     The Launch Period of Satellite TELKOM-2 is from period November 1, 2004
until January 31, 2005. The Launch Slot will be determined by mutual agreement
of the parties not later than eight months prior to the first day of the Launch
Period. The Launch Day shall be determined, no later than three months prior to
the first day of the Launch Slot.

     ARIANESPACE S.A. will obtain an insurance policy at no cost to the Company.
The Insurance policy will be in the amount of Euros 60,980,000.

  h. PSTN Excellence Regional Junction DIVRE II Project

     On February 8, 2002, the Company entered into an agreement with Consortium
Olex-Lucent-Brimbun ("Consortium") for the procurement of an SDH Transmission
System, Optical Fiber, NMS and other services. The cost of the services and
equipment US$28,807,460 and Rp102,828,788,753, respectively.

     The Agreement comes into effect within eighteen months from the contract
date.

     The consortium will submit a performance guarantee issued by an Indonesian
state-owned bank or other international reputable bank for 5% of the contract
value within 3 days after the contract date.

     The Consortium must cover all risks of delivery, storage and development of
goods and services until the issuance of a provisional acceptance certificate
for and on behalf of the Consortium (as beneficiary) to the insurance company
appointed by the Company. The insurance premium will be paid by the Consortium
and in the event of a claim, the insurance proceed received will be used to
continue the project and/or replace the damaged equipment.

                                      F-103
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  i. Network Facility for Multimedia Services and Pay TV Program

     In 2002, Indonusa entered into several agreements for the procurement of a
network facility for multimedia services and a pay TV program.

     The agreements set forth the rights and obligations of both parties in
connection with the pay TV programs, including its network, determination of
monthly subscription fees and revenue sharing arrangements.

  j. Universal Service Obligation ("USO") and Public Payphone

     Under its USO agreement, Pramindo must allocate at least 20% of its total
yearly investment plan to develop telecommunication facilities in remote areas
and for public interests in its KSO Unit area, which have not been covered by
such facilities as of the effective date of the KSO Agreement. Pramindo must
meet those targets for at least 50% of all villages and 100% of all districts in
The KSO Unit area at the end of Repelita VI, up to a limit of its 20% of total
investment expenditures.

     Pramindo must submit a detailed annual report to the Directorate General of
Post and Telecommunication (DGPT) regarding the total investment (including
special investments) and the progress of the USO project within 60 days after
the end of each year. If Pramindo has not fully allocated 20% of its total
investments to fulfill its obligation, DGPT will require Pramindo to complete
other USO projects within a certain schedule up to the costs required to meet
the 20% limitation.

     Pramindo must also provide at least 3% of its access lines for public
payphones (including Wartel). The capacity will be used for providing public
payphones, either by the KSO unit or by another party, with permission from the
Minister of Communication.

     USO obligation is considered accomplished if either of the following
conditions are met:

     -  5% of total investments has been spent for the USO obligation; or

     -  50% of all remote villages have been covered by telecommunication
        facilities

  k. Collateral for Credit Facility

     On January 24, 2000, Infomedia executed an agreement with Koperasi Pegawai
Infomedia Nusantara ("KOPIN"), a cooperative whose members are also employees of
Infomedia, for the usage of Infomedia's time deposit as collateral for a credit
facility from PT Bank Umum Koperasi Indonesia to KOPIN. The loan is for a
maximum amount of Rp7,500 million and has a term of three years expiring in
2003. The deposit bears no interest.

  l. Building Rent Agreement

     Infomedia entered into a building rent agreement with Dana Pensiun Elnusa
("Dapenusa") effective on April 1, 1996. Dapenusa is the entity that manages the
pension fund of employees of PT Elnusa (the shareholder of Infomedia). Pursuant
to the agreement, the rental is Rp1,157 million per annum. The agreement will
expire on August 30, 2003.

                                      F-104
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  m. Call Center Development and Operation Services

     On July 24, 2000, Infomedia executed an agreement for call center
development and operation services with PT Bank Niaga Tbk. ("Bank Niaga").
Infomedia provides call center services, which includes receiving and responding
to the requests, claims and complaints of customers regarding the products of
Bank Niaga and providing information about Bank Niaga's products. Infomedia
receives a monthly fee of Rp400 million for incoming calls up to 180,000 calls
per month and outgoing calls up to 7,500 calls per month.

     The agreement is valid for three years from the date of the agreement. The
revenue received from Bank Niaga was Rp2,914 million and Rp6,179 million, for
the years 2001 and 2002, respectively.

     In 2002, Infomedia entered into a call center operation services agreement
with other third parties. Pursuant to the agreement, Infomedia will provide call
center personnel to receive, patch and respond to customers' complaints, give
information about the third parties' products, and provide technical assistance.
Pursuant to the agreement, Infomedia receives a service fee that is computed
monthly. Total revenue received by Infomedia from those parties for the year
2002 amounted to Rp1,285 million.

  n. Management Services and Phone Banking Center Development

     On November 17, 2000, Infomedia entered into a Management Services and
Phone Banking Center Development Agreement with ABN-AMRO Bank N.V. (ABN-AMRO
bank) Infomedia provides Phone Banking Center, Telemarketing Services. Infomedia
will provide assistance to and receive, claims from customers, provide
information about ABN-AMRO Bank products and also provide technical assistances.
Pursuant to the agreement, Infomedia receives a monthly fee that is computed
based on a formula in the agreement. The agreement was valid from December 2000
until February 2002. The agreement was amended and extended until February 28,
2003. The revenue received from ABN-AMRO bank was Rp296 million and Rp139
million, for the years 2001 and 2002, respectively.

  o. Call Center Provision Service Agreement

     In 2002, Infomedia entered into a call center provision service agreement
with other parties ("the parties"). Based on the agreements, Infomedia provides
personnel assigned to receive, gather and respond to complaints from the
customers, share information regarding product and provide technical assistance.
In returns Infomedia earns monthly fees set forth in the agreement. Total income
received during 2002 amounted to Rp1,285 million.

  p. Software License and Support Agreement

     On October 13, 1997 Dayamitra executed a Software License and Support
Agreement with Cable and Wireless Plc. Pursuant to the agreement, Cable and
Wireless Plc provides software, conversion services, training, implementation,
maintenance and support for the Customer Care Billing System project. The
Company, also receives rights in the intellectual property. The cost of the
license and support agreement are charged to KSO Unit VI.

  q. Turnkey Project Agreement

     Dayamitra entered into the Turnkey Project Agreement of Sekura Tower
Project and Addition Work on Sampit Central Location with PT Dutamitra
Telekomunikasi on May 3, 2001 and October 21,

                                      F-105
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

2002, respectively. The contract value was Rp72.186 million and US$72.503,
respectively. On December 31, 2002, those projects were still not complete.
Management estimates those projects will be completed by the end of the first
quarter of 2003.

  r. CDMA Procurement Agreement with Samsung Consortium

     On October 9, 2002, the Company entered into an Initial Purchase Order
Contract CDMA 2000-IX with Samsung Consortium for BSS procurement in Divisional
Region II On December 23, 2002, the Company signed a Master Procurement
Partnership Agreement for CDMA Package-2 for a nationwide package of NSS
procurement for Telkom's Regional Divisions (excluding KSO III) and a regional
package of BSS procurement for KSO IV, KSO VI, KSO VII and Divisional Region V.
This procurement is part of the T-21 Program.

  s. Loan Agreement Junction Regional Division V Project

     On June 21, 2002, the Company entered into a loan agreement with a
consortium of banks amounting to Rp150,000 million for financing the Regional
Division V Junction Project. Bank Bukopin acted as facility agent. The first
year interest rate, calculated from the signing date, is 19.5%. Thereafter the
interests is the average 3 month deposit rate plus 4%. The disbursement period
is 19 months from the signing of the loan agreement. The repayment is in 14
quarterly installments starting from April 2004. The loan facility is secured by
the project equipment.

     The Company is processing an amendment to the Loan Agreement to reduce the
loan facility to Rp150,000 million.

     As of December 31, 2002, the Company has not used this facility.

  t. Cooperation Agreement with Labor Union (SEKAR TELKOM)

     On June 3, 2002, the Company entered into a Cooperation Agreement with the
Company's labor union -- namely Serikat Karyawan Telkom (SEKAR TELKOM), an
organization within the Company open to all Non KSO and KSO unit employees. The
agreement, provides for the bonuses and leave allowances.

  u. Loan Agreement with Citibank N.A. and Citibank International Plc

     On April 10, 2002, the Company entered into a "Loan Agreement" with
Citibank, N.A. ("arranger") and Citibank International Plc ("agent") supported
by an export credit guarantee of Instituto per I Servizi Assicurativi del
Commercio Estero (SACE-Italy), providing a total facility of US$21,000,000. The
facility was obtained to fund up to 85% of the cost of supplies and services
sourced in Italy relating to the design, manufacture, construction, installation
and testing of Sub-System VI, part of the high performance backbone network.
This facility was secured by Company assets under construction that related to
project pursuant to the "Partnership Agreement". On December 31, 2002, the
facility has not been drawn down. This facility bears a fixed interest rate of
4.14% per annum.

                                      F-106
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

53. CONTINGENCIES

  a. Claims from AriaWest

     On May 15, 2001, AriaWest (KSO Investor in Region III, West Java and
Banten) commenced an arbitration proceeding under the Rules of the International
Chamber of Commerce against the Company for breach of the KSO Agreement between
the Company and AriaWest. The Company and AriaWest have submitted various claims
for resolution in the arbitration proceedings.

     AriaWest has alleged that the Company materially breached the KSO Agreement
by, among other things, (i) terminating certain exclusive rights granted to
AriaWest; (ii) failing to transfer control of the KSO's finances, employees and
management to AriaWest and interfering with AriaWest's efforts to exercise
management control over the KSO; (iii) failing to pay amounts identified in a
"forensic audit" conducted by PriceWaterhouse Coopers on behalf of AriaWest as
being unaccounted for, lost or otherwise unreasonably disbursed; (iv) causing
the Government to reduce telecommunication tariffs in 1999 and to impose a zero
tariff increase in 2000; (v) wrongfully terminating the KSO Agreement and
wrongfully taking control of the KSO; (vi) failing to negotiate the terms of
certain construction projects proposed by AriaWest and certain amendments to the
KSO Agreements requested by AriaWest; and (vii) failing to cause the KSO to pay
AriaWest certain disputed sums as reimbursement for cash outlays by AriaWest or
other funds claimed by AriaWest. AriaWest alleges damages in excess of US$1.3
billion, but has not specified the amount of damages associated with most of its
claims.

     The Company has denied AriaWest's allegations and claims that AriaWest has
materially breached the KSO Agreement by, among other things, (i) causing the
KSO not to pay "Minimum Telkom Revenue" or "MTR"; (ii) wrongfully rejecting the
Company's termination of the KSO Agreement; (iii) failing to pay the Company
"Distributable Telkom Revenue" or "DTR"; (iv) mismanaging the KSO Unit; (v)
failing to construct Minimum New Installation; and (vi) failing to reimburse
Operating Capital Expenditures. The Company is still in the process of
quantifying its damages; however, among the Company's damages are claims for
more than Rp412 billion in MTR and more than Rp98 billion in DTR due to the
Company as of July 9, 2001 (the date the Company delivered its notice of
termination of the KSO Agreement).

     On May 8, 2002, the Company entered into the Conditional Sales and Purchase
Agreement with PT Aria Infotek, Media International B.V. and Asian
Infrastructure Fund ("selling shareholders") regarding the acquisition of 100%
of AriaWest's shares.

     The CSPA was intended to settle all disputes with AriaWest. As of March 25,
2003, the agreement has not been finalized because AriaWest's has not been able
to restructure its outstanding debt.

     The International Chamber of Commerce ("ICC") gives time extension up to
April 17, 2003 to the Company and selling stockholders to settle the CSPA.

     Management cannot assess the ultimate result of this claim.

  b. Other Claims

     In the ordinary course of business, the Company has been named as a
defendant in various litigations. Management believes that the litigation will
be settled within Rp49,540 million accrued for these cases in the accompanying
financial statements.

                                      F-107
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

54. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

     The balances of monetary assets and liabilities denominated in foreign
currencies are as follows:

<Table>
<Caption>
                                               2001                           2002
                                   ----------------------------   ----------------------------
                                      FOREIGN                        FOREIGN
                                     CURRENCIES     EQUIVALENT      CURRENCIES     EQUIVALENT
                                   (IN THOUSANDS)    IN RUPIAH    (IN THOUSANDS)    IN RUPIAH
                                   --------------   -----------   --------------   -----------
<S>                                <C>              <C>           <C>              <C>
Assets
Cash and cash equivalents
Related parties
  U.S. Dollar....................        61,250         637,005        341,912       3,059,136
  Yen............................           454              36             36               3
  Euro...........................            13             118             --              --
Third parties
  U.S. Dollar....................            --              --            105             940
  Euro...........................            --              --         25,305         237,148
Temporary investments
Related parties
  U.S. Dollar....................           800           8,320             --              --
Third parties
  U.S. Dollar....................            --              --             --              --
Trade accounts receivable
Related parties
  U.S. Dollar....................         4,812          50,041          7,837          70,218
Third parties
  U.S. Dollar....................        12,024         125,049          9,563          85,499
Other accounts receivable
  U.S. Dollar....................         1,147          11,927          9,972          89,149
  Singapore Dollar...............             5              31             --              --
  Malaysian Ringgit..............             2               6             --              --
Other current asset
  U.S. Dollar....................            --              --          1,800          16,092
Sinking fund
  U.S. Dollar....................        13,373         139,075             --              --
Advances and other non-current
  assets
Third parties
  U.S. Dollar....................            64             665          7,041          62,950
Unearned revenue
Related Parties
  U.S. Dollar....................            --              --            204           1,824
Third Parties
  U.S. Dollar....................            --              --             16             148
  Euro...........................            --              --              3              25
Escrow account
  U.S. Dollar....................        16,450         171,080         33,235         297,118
                                                    -----------                    -----------
Total Assets.....................                     1,143,353                      3,920,250
                                                    ===========                    ===========
</Table>

                                      F-108
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                               2001                           2002
                                   ----------------------------   ----------------------------
                                      FOREIGN                        FOREIGN
                                     CURRENCIES     EQUIVALENT      CURRENCIES     EQUIVALENT
                                   (IN THOUSANDS)    IN RUPIAH    (IN THOUSANDS)    IN RUPIAH
                                   --------------   -----------   --------------   -----------
<S>                                <C>              <C>           <C>              <C>
Liabilities
Trade accounts payable
Related parties
  Deutsche Mark..................        30,196         141,868             --              --
  U.S. Dollar....................         1,091          11,345         54,141         485,094
  Euro...........................            --              --          2,028          19,007
Third parties
  U.S. Dollar....................        17,661         183,819         40,558         362,975
  Euro...........................        21,499         197,544         26,228         245,755
  Deutsche Mark..................         7,989          37,533             --              --
  Swedish Krona..................        10,355          10,217             --              --
  Great Britain Pound sterling...           213           3,218            319           4,494
  French Franc...................         3,985           5,582             --              --
  Yen............................        25,934           2,064         35,332           2,667
  Dollar Singapore...............            --              --              1               3
Other accounts payable
Third Parties
  U.S. Dollar....................           354           3,693              8              77
Accrued expenses
Related parties
  U.S. Dollar....................        14,109         147,360         11,610         103,985
  Euro...........................           392           3,599             --              --
  Yen............................        56,555           4,500        252,601          19,069
  French Franc...................         2,133           3,007          3,514           4,238
  Netherlands Guilder............           428           1,796            407           1,461
  Hongkong Dollar................            --              --             --              --
  Deutsche Mark..................         1,723           8,093             --              --
Third Parties
  Euro...........................            --              --          9,033          84,636
  U.S. Dollar....................            --              --          6,445          57,635
Short-term bank loans
Third Parties
  U.S. Dollar....................            --              --          4,385          39,204
Advances from customers and
  suppliers
  U.S. Dollar....................         1,057          11,046             --              --
</Table>

                                      F-109
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                               2001                           2002
                                   ----------------------------   ----------------------------
                                      FOREIGN                        FOREIGN
                                     CURRENCIES     EQUIVALENT      CURRENCIES     EQUIVALENT
                                   (IN THOUSANDS)    IN RUPIAH    (IN THOUSANDS)    IN RUPIAH
                                   --------------   -----------   --------------   -----------
<S>                                <C>              <C>           <C>              <C>
Current portion of long-term
  liabilities
Related parties
  U.S. Dollar....................       116,003       1,212,234         41,712         373,738
  French Franc...................        25,119          35,401         22,312          26,911
  Japanese Yen...................       374,364          29,790        374,955          28,306
  Netherlands Guilder............         3,044          12,774          3,608          12,954
Third Parties
  U.S. Dollar....................            --              --        128,244       1,149,067
Long-term liabilities
Related parties
  U.S. Dollar....................       425,693       4,448,491        344,605       3,087,663
  French Franc...................       110,358         155,530        108,238         130,549
  Japanese Yen...................    17,874,011       1,422,353     17,626,174       1,330,614
  Netherlands Guilder............        13,699          57,483         12,628          45,338
Third Parties
  U.S. Dollar....................            --              --        177,983       1,591,736
Total Liabilities................                     8,150,340                      9,207,176
                                                    -----------                    -----------
Net Liabilities..................                    (7,006,987)                    (5,286,926)
                                                    ===========                    ===========
</Table>

55. ECONOMIC CONDITIONS

     Since the middle of 1997, many Asia Pacific countries, including Indonesia,
have been experiencing adverse economic conditions mainly resulting from
currency depreciation in the region, the principal consequences of which have
been an extreme lack of liquidity and high interest and foreign exchange rates.
The crisis has also involved declining prices in shares of stock, tightening of
available credit, and stoppage or postponement of certain construction projects.
The adverse economic conditions continue to this date as evidenced by the weak
exchange rate, sluggish economic growth, and pressures on inflation. High
volatility of exchange and interest rates have increased the cost of funds, as
well as the amount of debt to be serviced by the Company, its subsidiaries, and
the associated companies.

     Management has adopted measures to maintain adequate liquidity by, among
other things, evaluating priorities and rescheduling construction projects,
initiating cost-cutting and managing funds to service current maturities of
foreign currency denominated liabilities. In its investment activities,
management has adopted more-stringent criteria and-pursued-project developments
using a "turnkey" system, hence not all risk is borne by the Company.

     Management has also strived to resolve the KSO issues and managed
investments in associated companies effectively and selectively by utilizing the
services of international legal and financial consultants.

     Recovery of the economy to a sound and stable condition is dependent on the
fiscal, monetary and other measures being taken by the Government, actions which
are beyond the Company and its subsidiaries' control. It is not possible to
determine the future effect these economic conditions may

                                      F-110
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

have on the Company and its subsidiaries' liquidity and earnings, including the
effect flowing through from their investors, customers and suppliers.

56. SUBSEQUENT EVENTS

  a. Additional equity ownership in Napsindo

     Pursuant to Statements of Shareholders Resolution of Napsindo dated
November 30, 2002 and Notarial Deed No. 47, by H. Yunardi S.H., notary in
Jakarta, dated December 30, 2002, the Company agreed to purchase 13,615 shares
of 316,115 shares owned by PT Infoasia Sukses Mandiri ("InfoAsia", one of
Napsindo's shareholders) in Napsindo. The agreed price was US$4,900,000 and was
paid on January 8, 2003.

     The Company's equity ownership in Napsindo was increased to 60%.

  b. Establishment of PT Pro Infokom Indonesia

     On January 9, 2003, the Company together with PT Indonesia Comnet Plus, a
subsidiary of PT Perusahaan Listrik Negara ("PLN"), and PT Prima Infokom
Indonesia, has established PT Pro Infokom Indonesia ("PII"), domiciled in
Jakarta, and it has been notarized by Deed of Amrul Partomuan Pohan S.H., notary
in Jakarta, under Articles of Association No.24, dated January 9, 2003.
Subsequent to the financial statement date, the Articles of Association are
still in the process of being approved by the Minister of Justice and Human
Rights of the Republic of Indonesia.

     The authorized capital is Rp36,000 million divided into 90,000 Series A
shares and 270,000 Series B shares, with a par value of Rp100,000 per share. The
composition of the stockholders is as follows:

<Table>
<Caption>
                                 NUMBER OF SHARES                  SHARE CAPITAL
                                -------------------   NOMINAL   -------------------    PERCENTAGE
SHAREHOLDERS                    SERIES A   SERIES B    VALUE    SERIES A   SERIES B   OF OWNERSHIP
------------                    --------   --------   -------   --------   --------   ------------
                                                                   RP         RP
<S>                             <C>        <C>        <C>       <C>        <C>        <C>
PT Telekomunikasi Indonesia
  Tbk. .......................   45,900       --      100,000    4,590        --           51%
PT Indonesia Comnet Plus......   22,500       --      100,000    2,250        --           25%
PT Prima Infokom Indonesia....   21,600       --      100,000    2,160        --           24%
                                 ------      ---      -------    -----       ---          ----
                                 90,000       --                 9,000        --          100%
                                 ======      ===      =======    =====       ===          ====
</Table>

     PII is established to develop a national information network system as the
back-bone for the development of the Indonesian e-Government. PII will work
together with Korea Telecom ("KT") KT will provide technical and financial
support. Furthermore, KT's involvement will increase to become a shareholder of
PII. The cooperation between the Company and PLN with this new company is
intended to maximize the utilization of both company's existing infrastructure.

     PII will act as a service provider that manages the Government Secure
Intranet and Government Information Center. All government institutions,
including state-owned companies, are expected to take advantage of this network.

                                      F-111
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  c. Non-Cash Credit Facility Agreement

     On January 20, 2003, Infomedia entered into a Non-Cash Credit Facility
Agreement with PT Bank Mandiri (Persero). Pursuant to the agreement, Infomedia
obtained a Letter of Credit (L/C) facility for US$517,750. As collateral,
Infomedia subscribed and pledged its time deposits of US$900,000 dated January
3, 2003 and held in PT Bank Mandiri (Persero). This facility is valid until
April 21, 2003.

57. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY
    THE COMPANY AND ITS SUBSIDIARIES AND U.S. GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES

     The consolidated financial statements have been prepared in accordance with
Indonesian GAAP which differs in certain respects from U.S. GAAP.

     The significant differences are reflected in the approximation provided in
Note 60 and arise due to the items discussed in the following paragraphs:

  a. Termination Benefits

     Under Indonesian GAAP, termination benefits are recognized as liabilities
when certain criteria are met (e.g. the enterprise is demonstratively committed
to provide termination benefits as a result of an offer made in order to
encourage voluntary redundancy).

     The Company has elected to adopt early the provisions of Statement of
Financial Accounting Standards (SFAS) No. 146, "Accounting for the Costs
Associated with Exit or Disposal Activities". Under SFAS No. 146, benefits
offered for voluntary termination of employment are recognized upon the
employees' acceptance of the offer.

  b. Foreign Exchange Differences on Property under Construction

     Under Indonesian GAAP, the foreign exchange difference resulting from loans
used to finance property under construction is capitalized. Capitalization of
foreign exchange differences cease when the construction is substantially
completed and the constructed property is ready for its intended use.

     Under U.S. GAAP, foreign exchange differences are charged to current
operations.

  c. Interest Capitalized on Property under Construction

     Under Indonesian GAAP, one of the criteria for capitalizing interest cost
into a qualifying asset (i.e. property under construction) is that the interest
should be attributable to the qualifying asset.

     Under U.S. GAAP, the borrowing need not be directly linked to the
construction of a qualifying asset. Interest cost is capitalized on qualifying
assets (i.e. property under construction) based upon the Company's overall
effective interest rate and the average balance of qualifying assets for the
period.

  d. Revenue-Sharing Arrangements

     Under Indonesian GAAP, property, plant and equipment built by an investor
under revenue-sharing arrangements are recognized as property, plant and
equipment under revenue-sharing arrangements in the books of the party to whom
ownership in such properties shall be transferred at the end of

                                      F-112
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

the revenue-sharing period, with a corresponding initial credit to unearned
income. The property, plant and equipment are depreciated over their useful
lives, while the unearned income is amortized over the revenue-sharing period.
The Company records its share of the revenues earned on a net basis.

     Under U.S. GAAP, the accounting for revenue-sharing arrangements depends on
whether or not the investor will receive a guaranteed minimum return. When there
is no guaranteed investment return to the investors, the accounting treatment is
similar to that under Indonesian GAAP. The property is depreciated, unearned
income is amortized and the Company records its contractual share of the
earnings for the period. When there is a guaranteed minimum return to the
investors, the transaction is accounted for as the acquisition of property by
the Company under a capital lease. In lieu of unearned income, the Company
records a capital lease obligation equal to the fair value of the property. The
capital lease obligation is increased by the guaranteed return and decreased by
the investor's share of earnings. The revenue is recorded gross.

  e. Revaluation of Property, Plant and Equipment

     While Indonesian GAAP does not generally allow companies to recognize
increases in the value of property, plant and equipment that occur subsequent to
acquisition, an exception is provided for revaluations made in accordance with
Government regulations. The Company revalued its property, plant and equipment
that were used in operations as of January 1, 1979 and January 1, 1987.

     Under U.S. GAAP, property, plant and equipment may not be stated at more
than their historical acquisition cost. The effect of the previous revaluations
fully reversed in 2002 such that there is no remaining difference in equity at
December 31, 2002.

  f. Deferred Tax on Excess of Financial Reporting Basis Over Tax Basis of
Subsidiaries

     Under Indonesian GAAP, deferred tax liabilities are not recognized for the
excess of the parent's carrying amount of its equity investment in a domestic
subsidiary over its tax basis if the parent company is able to control the
timing of the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.

     Under U.S. GAAP, the excess of the parent's carrying amount of its equity
investment in a domestic subsidiary over its tax basis is a temporary
difference. However, if the tax law provides a means by which the investment can
be recovered tax-free and the parent ultimately plans to utilize such means to
recover its investment, the temporary difference is non-taxable and no deferred
taxes are recorded. Generally, no benefit is recorded for the excess of a
parent's tax basis in its subsidiary over its carrying amount for financial
reporting purposes. At December 31, 2002, the Company intends to recover
tax-free its investment in its Indonesian subsidiaries and such actions will not
require the Company to incur a significant cost. Accordingly, no deferred taxes
have been provided for the basis difference.

  g. Pension

     The Company and a subsidiary, for purposes of Indonesian GAAP, use a method
of accounting for pensions that is substantially consistent with the
requirements of U.S. GAAP.

     As stated in its pension plan regulations, the Company does not provide
regular pension increases. However, in 1994, 1998 and 2002 the Company provided
for increases in pension benefits for

                                      F-113
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

pensioners, which were considered prior service costs. Based on PSAK No. 24, the
prior service costs attributable to the increases in pension benefits for
pensioners were directly charged to expense in those years. Under SFAS 87, such
prior service costs should be deferred and amortized systematically over the
estimated average future working periods of active employees.

     The subsidiary is amortizing past service cost using the double-declining
method for Indonesian GAAP, while under U.S. GAAP, past service cost is
amortized using the straight-line method.

  h. Share in Net Income of Associated Companies

     The Company records its equity in net income of associated companies based
on the associates' financial statements that have been prepared under Indonesian
GAAP.

     For U.S. GAAP reporting purposes, the Company conforms the associates'
earnings to U.S. GAAP prior to recording their share of earnings or loss. The
primary difference has historically related to land rights held by associates.

  i. Land rights

     In Indonesia, the title of land rests with the State under the Basic
Agrarian Law No. 5 of 1960. Land use is accomplished through land rights whereby
the holder of the right enjoys the full use of the land for a stated period of
time, subject to extensions. The land rights generally are freely tradable and
may be pledged as security under borrowing agreements. Under Indonesian GAAP,
land ownership is not depreciated unless it can be foreseen that the possibility
for the holder to obtain extension or renewal of rights is remote.

     Under U.S. GAAP, the cost of acquired land rights is amortized over the
period the holder is expected to retain the land rights.

  j. Stock Issuance Costs

     Under Indonesian GAAP, stock issuance costs are deferred and amortized over
a certain period of time. The Company amortized deferred stock issuance costs
over five years using the straight-line method.

     Effective 2000, the Capital Market Supervisory Agency (Bapepam) requires
that stock issuance costs be recorded as part of additional paid-in capital.

     Under U.S. GAAP, stock issuance costs are offset against the proceeds from
the stock issuance.

  k. Employee Bonuses

     In 2000, a subsidiary (Telkomsel) has charged to retained earnings employee
bonuses of Rp26,714 million.

     Under U.S. GAAP, personnel and related costs, including bonuses are charged
to income.

  l. Equipment to be Installed

     Under Indonesian GAAP, equipment is depreciated beginning when the asset is
ready for its intended use. Temporarily idle equipment or equipment that is
awaiting installation is not depreciated.

                                      F-114
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     Under U.S. GAAP equipment is depreciated when it is ready for its intended
use. Equipment that is part of a network is depreciated when the network or the
applicable component of the network is ready for its intended use. Temporarily
idle equipment continues to be depreciated. When the equipment is expected to be
idle for protracted periods, the equipment is written down to its estimated
realizable value. If the equipment is held for sale, depreciation ceases.
However, if the equipment is held for future use, depreciation continues.

  m. Revenue Recognition

     Under Indonesian GAAP, revenue from cellular service connection fees are
recognized as income when the connection takes place (for postpaid service) or
at the time of delivery of starter packs to distributors, dealers or customers
(for prepaid service). Installation fees for wire line services are recognized
at the time of installation.

     Under U.S. GAAP, revenue from front-end fees are deferred and recognized
over the longer of the expected term of the customer relationship or the
contractual term. Costs incurred related to the installation or connection
activities are deferred, but only to the extent of deferred revenues. The cost
of provisioning wire line services far exceeds the fee charged by the Company
thus the reconciling item relates solely to the Company's cellular operations.

  n. Goodwill

     Under Indonesian GAAP, goodwill is amortized over the period expected to be
benefited by the acquisition.

     Under U.S. GAAP, goodwill is not amortized but rather subjected to a test
for impairment. The Company has an immaterial amount of goodwill on its balance
sheet (Rp72,672 million or approximately US$8 million).

  o. Capital Leases

     The criteria for a capital lease under Indonesian GAAP differ from U.S.
GAAP. Under Indonesian GAAP, a lease is capitalized if the lessee has a fixed
price purchase option, the lease provides for a return of the cost of the asset
with profit-thereon to the lessor, and the lease term exceeds two years.

     Under U.S. GAAP, a lease is capitalized if there is an automatic transfer
of ownership, a bargain purchase option, the lease terms is for 75% of the
economic life of the asset or the lease payments are at least 90% of the fair
value of the asset measured on a present value basis.

                                      F-115
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

58. RECONCILIATION OF NET INCOME AND EQUITY DETERMINED UNDER INDONESIAN AND U.S.
    GAAP

     A summary of the significant adjustments to net income for the years ended
December 31, 2000, 2001 and 2002 and to equity as of December 31, 2001 and 2002
which would be required if U.S. GAAP had been applied, instead of Indonesian
GAAP, are set forth below:

<Table>
<Caption>
                                                      2000         2001         2002
                                                    ---------    ---------    ---------
                                                       RP           RP           RP
<S>                                                 <C>          <C>          <C>
Net income according to the consolidated
  statements of income prepared under Indonesian
  GAAP..........................................    3,010,003    4,250,110    8,345,274
                                                    ---------    ---------    ---------
U.S. GAAP adjustments -- increase (decrease) due
  to:
  Pension.......................................       95,053      (19,703)     132,167
  Capitalization of foreign exchange
     differences, net of related depreciation...     (122,887)      80,296      107,598
  Interest capitalized on property under
     construction...............................           --       15,304       44,415
  Revenue-sharing arrangements..................      (23,347)       5,429           --
  Revaluation of property, plant and
     equipment..................................        4,095        4,095        3,929
  Equity in net income (loss) of associated
     companies..................................        2,389       (3,786)         183
  Income tax effect on U.S. GAAP adjustments....      (10,273)     (71,479)    (244,248)
  Deferral of fees..............................           --           --      (66,404)
  Amortization of land rights...................         (218)        (939)      (1,801)
  Deferred tax on share in net income of
     subsidiaries...............................           --     (362,686)     362,686
  Early retirement benefits.....................           --      140,000      574,884
  Amortization of deferred stock issuance
     costs......................................       22,402           --           --
  Employee bonuses..............................      (20,762)          --           --
  Others........................................       (4,322)          --       15,566
                                                    ---------    ---------    ---------
  Net adjustments...............................      (57,870)    (213,469)     928,975
                                                    ---------    ---------    ---------
Approximate net income in accordance with U.S.
  GAAP..........................................    2,952,133    4,036,641    9,274,249
                                                    =========    =========    =========
Net income per share -- in full Rupiah amount...       292.87       400.46       920.06
Net income per ADS (20 Series B shares per
  ADS) -- in full Rupiah amount.................     5,857.41     8,009.21    18,401.29
</Table>

                                      F-116
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                                 2001         2002
                                                              ----------   ----------
                                                                  RP           RP
<S>                                                           <C>          <C>
Equity according to the consolidated balance sheets prepared
  under Indonesian GAAP.....................................   9,323,575   15,899,183
                                                              ----------   ----------
U.S. GAAP adjustments -- increase (decrease) due to:
  Pension...................................................     119,891      252,058
  Capitalization of foreign exchange differences -- net of
     related depreciation...................................    (850,844)    (743,246)
  Interest capitalized on property under construction-net...      15,304       59,719
  Revenue-sharing arrangements..............................    (379,243)    (379,243)
  Revaluation of property, plant and equipment:
     Increment..............................................    (664,974)    (664,974)
     Accumulated depreciation...............................     661,045      664,974
  Equity in net loss of associated companies................     (17,900)     (17,717)
  Deferral of fees..........................................          --      (66,404)
  Amortization of land rights...............................      (1,606)      (3,407)
  Deferred tax on share in net income of subsidiaries.......    (362,686)          --
  Early retirement benefits.................................     140,000      714,884
  Deferred tax liabilities on U.S. GAAP adjustments.........     265,580       21,332
  Others....................................................      (7,544)       8,022
                                                              ----------   ----------
  Net adjustments...........................................  (1,082,977)    (154,002)
                                                              ----------   ----------
Approximate equity in accordance with U.S. GAAP.............   8,240,598   15,745,181
                                                              ==========   ==========
</Table>

     With regard to the consolidated balance sheets and consolidated statements
of income, the following significant captions determined under U.S. GAAP would
have been:

<Table>
<Caption>
                                                                 2001         2002
                                                              ----------   ----------
                                                                  RP           RP
<S>                                                           <C>          <C>
Consolidated balance sheets
  Current assets............................................   7,308,519   10,994,786
  Non-current assets........................................  24,265,242   30,616,949
  Total assets..............................................  31,573,761   41,611,735
  Current liabilities.......................................   9,815,248    9,989,926
  Non-current liabilities...................................  12,316,260   12,391,846
  Total liabilities.........................................  22,131,508   22,381,772
  Minority interest in net assets of subsidiaries...........   1,201,655    3,484,784
Consolidated statements of income
  Operating income..........................................   7,965,753   10,119,982
</Table>

                                      F-117
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

59. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S. GAAP AND THE
    U.S. SEC

     The following information is presented on the basis of U.S. GAAP:

  a. Income Tax

     The reconciliation between the expected income tax provision in accordance
with U.S. GAAP and the actual provision for income tax recorded in accordance
with U.S. GAAP is as follows:

<Table>
<Caption>
                                                               2000        2001         2002
                                                             ---------   ---------   ----------
                                                                RP          RP           RP
<S>                                                          <C>         <C>         <C>
Approximate income before tax in accordance with U.S.
  GAAP.....................................................  4,737,560   6,917,892   13,005,081
                                                             =========   =========   ==========
Expected income tax in accordance with U.S. GAAP at
  statutory tax rates......................................  1,421,259   2,075,351    3,901,507
                                                             ---------   ---------   ----------
Effect of permanent differences at the enacted maximum tax
  rate (30%):
  Net periodic postretirement benefits cost................     49,531      55,895       59,228
  Amortization of deferred interest........................         --      23,970       22,475
  Employee benefits........................................     11,233      18,707       14,593
  Permanent differences of the KSO Units...................      5,177      12,209         (221)
  Revenue-sharing arrangements.............................    (10,330)      8,426       (9,150)
  Amortization of land rights..............................         84         362          831
  Interest income which was already subjected to final
     tax...................................................   (210,142)   (169,447)    (107,715)
  Revaluation of property, plant and equipment(*)..........     (1,229)     (1,229)      (1,179)
  Net periodic pension cost................................       (161)        (85)          --
  Deferred stock issuance costs(*).........................     (6,721)         --           --
  Employee bonus...........................................      8,014          --           --
  Gain on sale of Telkomsel shares.........................         --          --     (949,826)
  Share on net income from associates......................         --          --     (753,272)
  Others...................................................     33,793      51,017      107,103
                                                             ---------   ---------   ----------
Total......................................................   (120,751)       (175)  (1,617,133)
                                                             ---------   ---------   ----------
  Deferred tax recognized on equity in net income of
     subsidiaries..........................................    176,586     432,678      342,065
                                                             ---------   ---------   ----------
  Provision for income tax in accordance with U.S. GAAP....  1,477,094   2,507,854    2,626,439
                                                             =========   =========   ==========
</Table>

---------------
(*) The tax effects of the stock issuance costs and revaluation of property,
    plant and equipment are offset against stockholders' equity for U.S. GAAP
    purposes

     Benefits enjoyed by pensioners fall under the category of benefits in kind
which are non-deductible expenses under Indonesian tax laws.

                                      F-118
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  b. Fair Value of Financial Instruments

     The following methods and assumptions are used to estimate the fair value
of each class of financial instruments:

     -  Cash and cash equivalents and temporary investments

        The carrying amount approximates fair value because of the short-term
        nature of the instruments.

     -  Short-term and long-term borrowings

        The fair value of the Company's borrowings are estimated on the basis of
        the discounted value of future cash flows expected to be paid,
        considering rates of interest at which the Company could borrow as of
        the respective balance sheet dates.

        As of December 31, 2001 and December 31, 2002, the fair value of the
        Company's long-term borrowings are Rp7,782,443 million and Rp13,498,456
        million, respectively, and as of December 31, 2002 the fair value of the
        Company's short-term borrowings was Rp39,889 million.

        For purposes of estimating the fair value of two-step loans, the Company
        has used the average Rupiah borrowing rates of 16.57% and 14.10%, the
        average U.S. Dollar borrowing rate of 7.37% and 7.31% and the respective
        average borrowing rates for 2001 and 2002 for the debt in other
        currencies, respectively. Under the current environment, an estimate of
        the interest rates as of a point in time, given the significance of the
        Company's debt and the general unavailability of funds, is difficult.
        For one percentage point increase in the above-mentioned borrowing
        rates, the fair value of the Company's long-term two-step loans at
        December 31, 2002 would decrease by Rp359,730 million.

     The estimated fair values of the Company and its subsidiaries' financial
instruments are as follows:

<Table>
<Caption>
                                                          CARRYING AMOUNT    FAIR VALUE
                                                          ---------------    ----------
                                                                RP               RP
<S>                                                       <C>                <C>
2001:
Cash and cash equivalents...............................     3,644,213       3,644,213
Temporary investments...................................       348,915         348,915
Long-term liabilities -- net of current maturities
  Two-step loans........................................     8,637,340       7,033,919
  Suppliers' credit loans...............................       395,020         351,658
  Bridging loan.........................................       111,401          98,837
  Liability for acquisition of a subsidiary.............       260,840         230,298
  Long-term bank loan...................................        73,150          67,731
</Table>

                                      F-119
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

<Table>
<Caption>
                                                          CARRYING AMOUNT    FAIR VALUE
                                                          ---------------    ----------
                                                                RP               RP
<S>                                                       <C>                <C>
2002:
Cash and cash equivalents...............................     5,699,070       5,699,070
Temporary investments...................................     1,073,000       1,073,000
Short term bank loan....................................        39,205          39,889
Long-term liabilities:
  Two-step loans........................................     8,530,554       9,120,204
  Suppliers' credit loans...............................       338,697         338,697
  Bridging loan.........................................        95,517          95,517
  Bond..................................................     1,000,000       1,328,159
  Guaranteed notes payable..............................     1,337,518       1,534,778
  Liability for acquisition of a subsidiary.............       807,980         807,980
  Bank loan.............................................       247,432         247,432
  Project cost payable..................................        15,513          15,513
  Obligation under capital lease........................         1,026           1,026
  Other.................................................         9,150           9,150
</Table>

     The methods and assumptions followed to disclose the fair value are
inherently judgmental and involve various limitations, including the following:

          i. Fair values presented do not take into consideration the effect of
     future currency fluctuations.

          ii. Estimated fair values are not necessarily indicative of the
     amounts that the Company and its subsidiary would record upon
     disposal/termination of the financial instruments.

  c. Research and Development

     Research and development expenditures, as determined under U.S. GAAP,
amounted to approximately Rp33,110 million, Rp39,523 million and Rp8,995 million
in 2000, 2001 and 2002, respectively.

                                      F-120
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

  d. Valuation and Qualifying Accounts

     The following summarizes the activities in the valuation and qualifying
accounts:

<Table>
<Caption>
                                      BEGINNING    CHARGED TO COST    UNREALIZED                BALANCE AT
                                       OF YEAR       AND EXPENSES        LOSS      DEDUCTIONS   END OF YEAR
                                      ----------   ----------------   ----------   ----------   -----------
                                          RP              RP              RP           RP           RP
<S>                                   <C>          <C>                <C>          <C>          <C>
2001:
Unrealized loss on decline in market
  value of marketable securities....       165              --            42              --          207
Allowance for doubtful accounts
  Trade accounts receivable
     Related parties................   167,669         158,261            --              --      325,930
     Third parties..................   261,910         119,414            --         128,469      252,855
Allowance for inventory
  obsolescence......................    31,723          17,279            --               5       48,997
2002:
Unrealized loss on decline in market
  value of marketable securities....       207              --            --             207            0
Allowance for doubtful accounts
  Trade accounts receivable
     Related parties................   325,930         250,444            --              --      576,374
     Third parties..................   252,855         273,711            --         128,755      397,811
Allowance for inventory
  obsolescence......................    48,997         158,602            --         153,804       53,795
</Table>

  e. Risks and Uncertainties

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could be
different from these estimates.

  f. Derivative Financial Transactions

     Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, is effective for all fiscal years
beginning after June 15, 2000. SFAS 133, as amended by SFAS 138, Accounting for
Certain Instruments and Certain Hedging Activities, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
133, certain contracts that were not formerly considered derivatives may now
meet the definition of a derivative.

     The Company and its subsidiaries had no derivative contracts or contracts
that require accounting under SFAS 133 and SFAS 138.

  g. Comprehensive Income

     Comprehensive income -- net of tax, as determined under U.S. GAAP in 2000,
2001 and 2002 amounted to Rp2,962,617 million, Rp3,955,185 million and
Rp9,259,750 million, respectively.

                                      F-121
<PAGE>
                         PERUSAHAAN PERSEROAN (PERSERO)
               P.T. TELEKOMUNIKASI INDONESIA TBK AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                DECEMBER 31, 2001 AND 2002, AND FOR YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
(FIGURES IN TABLES ARE PRESENTED IN MILLIONS OF RUPIAH, UNLESS OTHERWISE STATED)

     Adjustments to net income to arrive at comprehensive income include the
increase in investments as a result of foreign currency translation of
associated companies and unrealized losses on decline in value of securities.

  h. Recent Accounting Pronouncements

     SFAS No. 145, "Revision of FSAB Statements No. 4, 44 and 64, Amendment of
FASB Statement 13, and Technical Corrections"

     Among other technical corrections, SFAS No. 145 eliminates the absolute
requirement to classify gains or losses from the early extinguishment of debt as
extraordinary. SFAS No. 145 will be effective in fiscal 2003 and should have no
impact on the Company's U.S. GAAP reconciliation.

  SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal
Activities"

     This statement now requires that a liability be recognized when the
liability is incurred. Previously, a liability for exit costs was recognized at
the date of an entity's commitment to an exit plan. SFAS No. 146, which is
effective in fiscal 2003, could have an impact on the U.S. GAAP reconciliation
depending upon the level of exit activities.

  SFAS No. 148 "Accounting for Stock-Based Compensation Transition And
Disclosure"

     SFAS No. 148 provides alternative methods for transitioning for voluntary
charges to the fair value method and enhances disclosures for stock options. The
Company does not utilize stock based compensation and thus SFAS No. 148 will
have no effect on the U.S. GAAP reconciliation.

  FASB Interpretation No. 46, "Consolidation of Variable Interest Entities"

     FIN 46 provides guidance for consolidating entities not with standing the
lack of majority voting control. FIN 46 is effective for fiscal 2003; however,
the Company has no current interest in variable interest entities. As such,
there should be no impact on the U.S. GAAP reconciliation.

60. CHANGE OF ACCOUNTING SYSTEM APPLICATION

     Effective January 1, 2002, the Company implemented System Application and
Product ("SAP"), a software package for processing the financial transactions,
replacing Computer Associate General Ledger ("CAGL") with still maintain the
consistency of financial presentation with previous years.

                                      F-122
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the Registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused this annual
report to be signed on its behalf by the undersigned, there unto duly
authorized, in Jakarta, on the 15th day of April, 2003.

PERUSAHAAN PERSEROAN (PERSERO)
P.T. TELEKOMUNIKASI INDONESIA Tbk.


/s/ KRISTIONO

KRISTIONO
President Director
Date: April 15, 2003
<PAGE>

                                 CERTIFICATION
                            PURSUANT TO SECTION 302
                         THE SARBANES-OXLEY ACT OF 2002

     I, Kristiono, President Director (Chief Executive Officer) of Perusahaan
Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk (the "Registrant"), certify
that:

     1. I have reviewed this Annual Report on Form 20-F of the Registrant;

     2. Based on my knowledge, this Annual Report does not contain any untrue
        statement of a material fact or omit to state a material fact necessary
        to make the statements made, in light of the circumstances under which
        such statements were made, not misleading with respect to the period
        covered by this Annual Report;

     3. Based on my knowledge, the financial statements, and other financial
        information included in this Annual Report, fairly present in all
        material respects the financial condition, results of operations and
        cash flows of the Registrant as of, and for, the periods presented in
        this Annual Report;

     4. I am responsible for establishing and maintaining disclosure controls
        and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
        the Registrant and have:

        a. designed such disclosure controls and procedures to ensure that
           material information relating to the Registrant, including its
           consolidated subsidiaries, is made known to me by others within those
           entities, particularly during the period in which this Annual Report
           is being prepared;

        b. evaluated the effectiveness of the Registrant's disclosure controls
           and procedures as of a date within 90 days prior to the filing date
           of this Annual Report (the "Evaluation Date"); and

        c. presented in this Annual Report my conclusions about the
           effectiveness of the disclosure controls and procedures based on my
           evaluation as of the Evaluation Date;

     5. I have disclosed, based on my most recent evaluation, to the
        Registrant's auditors and the audit committee of Registrant's board of
        directors (or persons performing the equivalent functions):

        a. all significant deficiencies in the design or operation of internal
           controls which could adversely affect the Registrant's ability to
           record, process, summarize and report financial data and have
           identified for the Registrant's auditors any material weaknesses in
           internal controls; and

        b. any fraud, whether or not material, that involves management or other
           employees who have a significant role in the Registrant's internal
           controls; and

     6. I have indicated in this Annual Report whether there were significant
        changes in internal controls or in other factors that could
        significantly affect internal controls subsequent to the date of my most
        recent evaluation, including any corrective actions with regard to
        significant deficiencies and material weaknesses.

/s/ KRISTIONO

KRISTIONO
President Director/CEO
Date: April 15, 2003
<PAGE>

                                 CERTIFICATION
                            PURSUANT TO SECTION 302
                         THE SARBANES-OXLEY ACT OF 2002

     I, Guntur Siregar, Director of Finance (Chief Financial Officer) of
Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk (the
"Registrant"), certify that:

     1. I have reviewed this Annual Report on Form 20-F of the Registrant;

     2. Based on my knowledge, this Annual Report does not contain any untrue
        statement of a material fact or omit to state a material fact necessary
        to make the statements made, in light of the circumstances under which
        such statements were made, not misleading with respect to the period
        covered by this Annual Report;

     3. Based on my knowledge, the financial statements, and other financial
        information included in this Annual Report, fairly present in all
        material respects the financial condition, results of operations and
        cash flows of the Registrant as of, and for, the periods presented in
        this Annual Report;

     4. I am responsible for establishing and maintaining disclosure controls
        and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
        the Registrant and have:

        a. designed such disclosure controls and procedures to ensure that
           material information relating to the Registrant, including its
           consolidated subsidiaries, is made known to me by others within those
           entities, particularly during the period in which this Annual Report
           is being prepared;

        b. evaluated the effectiveness of the Registrant's disclosure controls
           and procedures as of a date within 90 days prior to the filing date
           of this Annual Report (the "Evaluation Date"); and

        c. presented in this Annual Report my conclusions about the
           effectiveness of the disclosure controls and procedures based on my
           evaluation as of the Evaluation Date;

     5. I have disclosed, based on my most recent evaluation, to the
        Registrant's auditors and the audit committee of Registrant's board of
        directors (or persons performing the equivalent functions):

        a. all significant deficiencies in the design or operation of internal
           controls which could adversely affect the Registrant's ability to
           record, process, summarize and report financial data and have
           identified for the Registrant's auditors any material weaknesses in
           internal controls; and

        b. any fraud, whether or not material, that involves management or other
           employees who have a significant role in the Registrant's internal
           controls; and

     6. I have indicated in this Annual Report whether there were significant
        changes in internal controls or in other factors that could
        significantly affect internal controls subsequent to the date of my most
        recent evaluation, including any corrective actions with regard to
        significant deficiencies and material weaknesses.

/s/ GUNTUR SIREGAR
GUNTUR SIREGAR
Director of Finance/CFO

Date: April 15, 2003
<PAGE>

                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Perusahaan Perseroan (Persero) PT
Telekomunikasi Indonesia, Tbk (the "Company") on Form 20-F for the year ending
December 31, 2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Kristiono, President Director (Chief Executive
Officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my
knowledge:

     (1) The Report fully complies with the requirements of section 13(a) or
         15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
         material respects, the financial condition and result of operations of
         the Company.

     This certification accompanies this Report pursuant to 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed with the Securities and
Exchange Commission by the Company as part of the Report or as a separate
disclosure document.

/s/ KRISTIONO

KRISTIONO
President Director/CEO

April 15, 2003
<PAGE>

                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Perusahaan Perseroan (Persero) PT
Telekomunikasi Indonesia, Tbk (the "Company") on Form 20-F for the year ending
December 31, 2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Guntur Siregar, Director of Finance (Chief
Financial Officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to
my knowledge:

     (1) The Report fully complies with the requirements of section 13(a) or
         15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
         material respects, the financial condition and result of operations of
         the Company.

     This certification accompanies this Report pursuant to 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed with the Securities and
Exchange Commission by the Company as part of the Report or as a separate
disclosure document.

/s/ GUNTUR SIREGAR
GUNTUR SIREGAR
Director of Finance/CFO

Date: April 15, 2003