PT Indosat Tbk · 20-F · For 12/31/02

Filed On 6/30/03 3:20pm ET   ·   SEC File 1-13330   ·   Accession Number 1021408-3-9260

Annual Report of a Foreign Private Issuer   ·   Form 20-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer            262   1.36M 
 2: EX-1.1      Articles of Association of Pt Indosat                 31    105K 
 3: EX-7.1      Operating and Financial Ratios                         3±    15K 
 4: EX-8.1      List of Indosat's Subsidiaries                         2      9K 
 5: EX-10.1     Certification Pursuant to Section 906 of the           2     10K 
                          Sarbanes Oxley Act                                     

20-F   ·   Annual Report of a Foreign Private Issuer
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================================================================================
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 

                                                                [Download Table]
                                                                           
For the fiscal year ended December 31, 2002 Commission File number: 1-13330

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

PT Indonesian Satellite Corporation Tbk.  
(Exact name of Registrant as specified in its charter)  

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

Indonesian Satellite Corporation  
(A limited liability company) 
(Translation of Registrant's name into English) 

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

REPUBLIC OF INDONESIA 
(Jurisdiction of incorporation or organization) 

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

Indosat Building  
Jalan Medan Merdeka Barat, 21 
Jakarta 10110 -- Indonesia  
(62) (21) (3802614) 
(Address and telephone number of principal executive offices) 

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

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

                                                        [Enlarge/Download Table]

                                                                       Name of each exchange  
                                                                        on which registered   
-                                                                     ------------------------
                                                                                              
American Depositary Shares representing 10 Series B Shares, par value                         
   500 Rupiah per share.............................................. New York Stock Exchange 
Series B shares, par value 500 Rupiah per share...................... New York Stock Exchange*

 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.                                                                         

                                                                [Download Table]
                                                             
Series A shares, par value 500 Rupiah per share             1
Series B shares, par value 500 Rupiah per share 1,035,499,999

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 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 with financial statement item the Registrant has   
elected to follow:                                                              

Item 17 [X]    Item 18 [_]  
--------                                                                        
* 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.                                     

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TABLE OF CONTENTS 

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                                                                           Page
                                                                           ----
                                                                               
CERTAIN DEFINED TERMS.....................................................   1 

FORWARD-LOOKING STATEMENTS................................................   1 

GLOSSARY..................................................................   2 

                                       PART I                                  

ITEM 1:   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...........   6 

ITEM 2:   OFFER STATISTICS AND EXPECTED TIMETABLE.........................   6 

ITEM 3:   KEY INFORMATION.................................................   6 

ITEM 4:   INFORMATION ON THE COMPANY......................................  23 

ITEM 5:   OPERATING AND FINANCIAL REVIEW AND PROSPECTS....................  61 

ITEM 6:   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES......................  84 

ITEM 7:   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...............  94 

ITEM 8:   FINANCIAL INFORMATION...........................................  97 

ITEM 9:   THE OFFER AND LISTING...........................................  98 

ITEM 10:  ADDITIONAL INFORMATION.......................................... 101 

ITEM 11:  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....... 110 

ITEM 12:  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.......... 114 

                                      PART II                                  

ITEM 13:  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES................. 114 

ITEM 14:  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE     
          OF PROCEEDS..................................................... 114 

ITEM 15:  CONTROLS AND PROCEDURES......................................... 114 

ITEM 16A: RESERVED........................................................ 114 

ITEM 16B: RESERVED........................................................ 114 

ITEM 16C: RESERVED........................................................ 114 

                                      PART III                                 

ITEM 17:  FINANCIAL STATEMENTS............................................ 114 

ITEM 18:  FINANCIAL STATEMENTS............................................ 115 

ITEM 19:  FINANCIAL STATEMENTS AND EXHIBITS............................... 115 

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CERTAIN DEFINED TERMS 

All references herein to "Indonesia" are references to the Republic of    
Indonesia. All references to the "Government" are references to the government  
of Indonesia. References to "United States" or "U.S." are to the United States  
of America. References to "China" or "PRC" are to the People's Republic of      
China, references to "Hong Kong" are to the Hong Kong Special Administrative    
Region of the PRC and references to "Taiwan" are to the island of Taiwan and    
other areas under the effective control of the Republic of China.               

All references to "we," "us," "our" or the "Company" are references to PT 
Indonesian Satellite Corporation Tbk. and its subsidiaries. All references to   
"Indosat" are references only to PT Indonesian Satellite Corporation Tbk., but  
not its subsidiaries. "Common Stock" refers to our Series B shares, par value   
500 rupiah per share.                                                           

  Unless otherwise specified, references to "U.S. dollars" or "US$" are to the
lawful currency of the United States, references to "(Yen)" or "Japanese Yen"   
are to the lawful currency of Japan and references to "Rupiah" or "Rp." are to  
the lawful currency of Indonesia. Certain terms used herein are defined in the  
"Glossary". Certain figures (including percentages) have been rounded for       
convenience, and therefore indicated and actual sums, quotients, percentages    
and ratios may differ. Unless otherwise indicated, our financial information    
has been presented in Rupiah in accordance with Indonesian GAAP and is          
presented on a consolidated basis.                                              

Solely for the convenience of the reader, certain Rupiah amounts have been
translated into U.S. dollars at specified rates. Unless otherwise indicated,    
U.S. dollar equivalent information for amounts in Rupiah is based on the        
Indonesian Central Bank Rate for December 31, 2002, which was Rp. 8,940 to      
US$1.00. The exchange rate of Rupiah for U.S. dollars on June 23, 2003 was Rp.  
8,253 to US$1.00. The Federal Reserve Bank of New York does not certify for     
customs purposes a noon buying rate for cable transfers in Rupiah. No           
representation is made that the Rupiah or U.S. dollar amounts shown herein      
could have been or could be converted into U.S. dollars or Rupiah, as the case  
may be, at any particular rate or at all. See "Key Information--Exchange rate   
information" for further information regarding rates of exchange between Rupiah 
and U.S. dollars.                                                               

FORWARD-LOOKING STATEMENTS  

Certain statements contained in this Form 20-F, including those statements
contained under the captions "Information on the Company" and "Operating and    
Financial Review and Prospects" that are not statements of historical fact, are 
"forward-looking statements" within the meaning of Section 27A of the           
Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the   
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the        
Private Securities Litigation Reform Act of 1995. Such statements can be        
generally identified by the use of terms such as "believes," "expects," "may,"  
"will," "would," "could," "plans," "projects" or "anticipates," the negatives   
of such terms or comparable terms. In addition to the statements contained in   
this Form 20-F, we (or our commissioners, directors or officers authorized to   
speak on our behalf) from time to time may make forward-looking statements,     
orally or in writing, regarding Indosat (including its subsidiaries) and its    
business, including in press releases, oral presentations, filings under the    
Securities Act, the Exchange Act or securities laws of other countries and      
filings with the New York Stock Exchange or other stock exchanges.              

Such forward-looking statements represent our judgment or expectations    
regarding the future, and are subject to risks and uncertainties that may cause 
actual events and our future results to be materially different than expected   
by us or indicated by such statements. Such risks and uncertainties include in  
particular (but are not limited to) the risks and uncertainties related to:     
economic and political circumstances in Indonesia, including without limitation 
currency volatility and inflation; international net settlement rates; the      
regulatory structure in Indonesia, including without limitation Government      
policies with respect to exclusivity, competition, interconnection and tariffs  
in the telecommunications industry; the development and implementation of new   
technologies; and competition affecting our services and products. No assurance 
can be given that the results anticipated by us, or indicated by any such       
forward-looking statements, will be achieved.                                   

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GLOSSARY  

The explanations of technical terms set forth below are intended to assist
the reader to understand such terms, but are not intended to be technical       
definitions.                                                                    

                                                        [Enlarge/Download Table]
                                                                                                
"analog"......... means a signal, whether voice, video or data, which is transmitted in similar,
                  or analogous signals; is commonly used to describe telephone transmission     
                  and/or switching services that are not digital.                               

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

"ATM"............ (Asynchronous Transfer Mode) refers to the standard packet-switching          
                  protocol for transmitting and receiving data via uniform 53-byte cells,       
                  allowing for data transmission speeds surpassing 600 Mbps.                    

"backbone"....... means the highest level in hierarchical network and designed to carry the     
                  heaviest traffic. Backbones are either switched (using ATM, frame relay or    
                  both) or routed (using only routers and no switches). The transmission links  
                  between nodes or switching facilities might consist of microwave,             
                  submarine cable, satellite, optical fiber or other transmission technology.   

"bandwidth"...... means the capacity of a communication link.                                   

"Bank Mandiri"... means P.T. Bank Mandiri (Persero).                                            

"base station"... means base transceiver station transmitter and receiver which serves as a     
                  bridge between all mobile users in a cell and connects mobile calls to the    
                  mobile switching center.                                                      

"Bimagraha"...... means P.T. Bimagraha Telekomindo.                                             

"bits per second" means a measure of digital transmission speed.                                

"BCA"............ means P.T. Bank Central Asia Tbk.                                             

"BNI"............ means P.T. Bank Negara Indonesia (Persero) Tbk.                               

"BRI"............ means P.T. Bank Rakyat Indonesia (Persero).                                   

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

"channel"........ means the communication path for transmitting voice or non-voice signals.     

"churn".......... means the subscriber disconnections for a given period, determined by         
                  dividing the sum of voluntary and involuntary deactivations during the        
                  period by the average number of subscribers for the same period.              

"circuit"........ means the physical connection (or path) of channels, conductors and           
                  equipment between two given points through which an electric current may      
                  be established and includes both sending and receiving capabilities.          

"CRM"............ means Customer Relationship Management.                                       

"CTPI"........... means P.T. Cipta Televisi Pendidikan Indonesia.                               

"dial up"........ refers to where an Internet or data user establishes a connection or access to
                  the Internet or another network by dialing in, typically using a modem. The   
                  alternative is a dedicated connection which has near-instant access and does  
                  not require a new connection to be established each time.                     

"digital"........ means, in the context of recording or computing, the use of a binary code to  
                  represent information.                                                        

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                                                        [Enlarge/Download Table]
                                                                                                   

"digital switching". means a connection in which binary encoded information is routed between      
                     an input and an output port by means of time-division multiplexing rather     
                     than by a dedicated circuit.                                                  

"digital technology" means the telecommunications technology in which audio signals entering a     
                     telephone mouthpiece are digitally coded and then used to modulate a series   
                     of short impulses that are transmitted over a fixed line telephone network or 
                     wireless network.                                                             

"DLD"............... (Domestic Long Distance) refers to long distance telecommunications           
                     services within one country, including telephone calls and leased line        
                     services.                                                                     

"dual band"......... means the capability for mobile network infrastructure and handsets to        
                     operate across two frequency bands, for example, GSM 900 and GSM              
                     1800.                                                                         

"Enkomindo"......... means P.T. Alcatel Enkomindo.                                                 

"Excelcomindo"...... means P.T. Excelcomindo Pratama.                                              

"fiber optic cable". means cables using fiber optic and laser technology, whereby modulating       
                     light beams representing data are transmitted through thin filaments of       
                     glass.                                                                        

"frame relay"....... means a form of packet switching usable in a PSDN using larger packets        
                     and requiring more sophisticated error checking than traditional forms of     
                     packet switching (also referred to as "frame net" in our audited consolidated 
                     financial statements included herein).                                        

"gateway"........... is a point of entrance and exit into a country's communications network.      

"Gbps".............. means gigabits (10/9/) per second, which is a measure of digital transmission 
                     speed.                                                                        

"GPRS".............. (General Packet Radio Services) refers to a new non-voice value-added         
                     services that allows information to be sent and received across a mobile      
                     telephone network at higher speed.                                            

"GSM"............... (Global System for Mobile telephones) refers to a European standard for       
                     digital cellular telephones.                                                  

"IBRA".............. means Badan Penyehatan Perbankan Nasional or the Indonesian Bank              
                     Restructuring Agency.                                                         

"ICL"............... means Indonesia Communications Limited.                                       

"IDD"............... (International Direct Dialing) is a service that allows a user to make        
                     international calls without using a telephone operator.                       

"IM3"............... means P.T. Indosat Multi Media Mobile.                                        

"IMM"............... means P.T. Indosat Mega Media.                                                

"Intelsat".......... (International Telecommunications Satellite Organization) refers to a         
                     worldwide consortium of global international satellite communications         
                     organizations which owns and operates a number of telecommunication           
                     satellites.                                                                   

"IP"................ (Internet Protocol) refers to the method by which data is sent from one       
                     computer to another on the Internet.                                          

"ISDN".............. (Integrated Service Digital Network) is a system which allows simultaneous    
                     end-to-end (terminal-to-terminal) transmission of voice, data, video and still
                     images.                                                                       

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                                                        [Enlarge/Download Table]
                                                                                                      

"ISP"................... (Internet Service Provider) means a company that provides access to the      
                         Internet for corporate and residential customers by providing the interface  
                         to the Internet backbone.                                                    

"JSX"................... means the Jakarta Stock Exchange.                                            

"Kbps".................. means kilobits (10/3/) per second, which is a measure of digital transmission
                         speed.                                                                       

"KSEI".................. means P.T. Kustodian Sentral Efek Indonesia.                                 

"KPEI".................. means P.T. Kliring Penjaminan Efek Indonesia.                                

"KSO"................... means "Kerjasama Operasi", or joint operating scheme.                        

"LAN"................... (Local Area Network) refers to a short-distance network designed to          
                         connect computers within a localized environment to enable the sharing of    
                         data and other communication. A LAN may include work/station, printers       
                         and high-speed modems located in the same geographical area for the          
                         purpose of sharing files, programs and various other devices. A LAN may      
                         also include a dedicated computer or file server that provides a centralized 
                         source of shared files and programs.                                         

"Lintasarta"............ means P.T. Aplikanusa Lintasarta.                                            

"Mbps".................. means megabits (10/6/) per second, which is a measure of digital             
                         transmission speed.                                                          

"MGTI".................. means P.T. Mitra Global Telekomunikasi Indonesia.                            

"MHz"................... (megahertz) refers to a unit of measurement of transmission frequency. One   
                         megahertz equals one million cycles per second.                              

"MIDI".................. means multimedia, data communications and internet.                          

"MIU Km"................ means a unit of capacity in a submarine cable, which consists of two         
                         one-half interests in a MIU multiplied by the distance in unit kilometers.   

"MoC"................... means the Ministry of Communications of the Republic of Indonesia.           

"network infrastructure" means the fixed infrastructure equipment consisting of optical fiber cable,  
                         copper cable, transmission equipment, multiplexing equipment, switches,      
                         radio transceivers, antennas, management information systems and other       
                         equipment that receives, transmits and processes signals from and to         
                         subscriber equipment and/or between wireless network and fixed network.      

"penetration rate"...... means the percentage of total population in a national or regional area      
                         subscribing to a given telecommunications services.                          

"PSDN".................. (Packet Switched Data Network) refers to a network using a switch device     
                         that sends packets of data through the network to remote locations (also     
                         referred to as "packet net" in our audited consolidated financial statements 
                         included herein).                                                            

"PSTN".................. (Public Switched Telephone Network) refers to a fixed telephone network      
                         operated and maintained by Telkom and the KSOs for and on behalf of          
                         Telkom, the primary provider of domestic telephone service.                  

"roaming"............... means the cellular service that permits subscribers of one network to use    
                         their cellular telephones in another operator's network.                     

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                                                        [Enlarge/Download Table]
                                                                                                         

"SAK".................... means Standar Akuntansi Keuangan, the Indonesian financial accounting          
                          standards.                                                                     

"Satelindo".............. means P.T. Satelit Palapa Indonesia.                                           

"satellite earth station" means an antenna and associated equipment to send and receive signals to       
                          and from a satellite. Among the antenna standards recognized by Intelsat       
                          are Standard A for antennas with a diameter of a minimum of 18 meters,         
                          Standard B for antennas with a diameter of less than 18 meters and             
                          Standard F for antennas with a diameter of nine meters. Smaller antennas       
                          have less capacity.                                                            

"SFAS"................... means Statement of Financial Accounting Standards.                             

"SIM" or "SIM card"...... (Subscriber Identity Module) refers to the "smart" card designed to be         
                          inserted into a mobile telephone and which contains all subscriber-related     
                          data such as phone numbers, service details and memory for storing             
                          messages.                                                                      

"Sisindosat"............. means P.T. Sisindosat Lintasbuana.                                             

"SMS".................... (Short Message Service) refers to a means to send or receive alphanumeric      
                          messages to or from mobile telephones.                                         

"SSX".................... means Surabaya Stock Exchange.                                                 

"STT".................... means Singapore Technologies Telemedia Pte. Ltd.                               

"switch"................. means a mechanical, electrical or electronic device, which opens or closes     
                          circuits, completes or breaks an electrical path, or selects paths or circuits,
                          used to route traffic on the PSTN and other telecommunications networks.       

"Telkom"................. means Perusahaan Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk.        

"Telkomsel".............. means P.T. Telekomunikasi Selular.                                             

"VoIP"................... (Voice over Internet Protocol) refers to a means of sending voice              
                          information using IP. The voice information is transmitted in discrete         
                          packets in digital form rather than the traditional circuit-committed          
                          protocols of the PSTN, thereby avoiding the tolls charged by conventional      
                          long-distance service providers.                                               

"VPN".................... (Virtual Private Network) refers to a "virtual" network constructed by         
                          connecting computers together over the Internet and encrypting their           
                          communications.                                                                

"VSAT"................... (Very Small Aperture Terminal) refers to a relatively small satellite dish,    
                          typically 1.5 to 3.8 meters in diameter, placed at users' premises and used    
                          for two-way data communications using satellite.                               

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

"x.25"................... means a widely-used dated packet-switching standard that has been partly       
                          replaced by frame relay.                                                       

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PART I  

Item 1:  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                  

Not Applicable.                                                           

Item 2:  OFFER STATISTICS AND EXPECTED TIMETABLE                                

Not Applicable.                                                           

Item 3:  KEY INFORMATION                                                        

Selected Financial Data                                                         

  The following table presents our selected consolidated financial information
and operating statistics for each of the periods indicated. This information    
should be read in conjunction with, and is qualified in its entirety by         
reference to, our audited consolidated financial statements, including the      
notes thereto, and the other information included elsewhere herein. Our audited 
consolidated financial statements are stated as of December 31, 2001 and 2002   
and for the years ended December 31, 2000, 2001 and 2002. Our consolidated      
financial statements as of and for the year ended December 31, 2000 were        
audited by Siddharta, Siddharta & Widjaja, the member firm of KPMG              
International in Indonesia. Our consolidated financial statements as of and for 
the year ended December 31, 2001 were audited by Prasetio Utomo & Co. (then a   
member of Andersen Worldwide, SC, in Indonesia), except with respect to P.T.    
Satelit Palapa Indonesia ("Satelindo")'s consolidated financial statements,     
which were audited by Siddharta, Siddharta & Widjaja. Our consolidated          
financial statements as of and for the year ended December 31, 2002 have been   
audited by Prasetio, Sarwoko & Sandjaja, the member firm of Ernst & Young       
Global in Indonesia.                                                            

  Our 1999 and 2000 audited consolidated financial statements were restated in
2001 to include our equity in Satelindo (previously accounted for by the cost   
method) and to consolidate the net assets of P.T. Aplikanusa Lintasarta         
("Lintasarta") (previously accounted for by the equity method), as if these     
acquisitions took place at the beginning of the earliest period presented in    
the 1999 audited consolidated financial statements. Pursuant to Item 3.A.1 of   
Form 20-F, selected financial data for the period ended December 31, 1998 has   
not been presented on a restated basis as it would require unreasonable effort  
or expense on our part.                                                         

Such audited consolidated financial statements have been prepared in      
accordance with Indonesian GAAP, which differs in certain significant respects  
from U.S. GAAP. See "Operating and Financial Review and Prospects" and Notes 39 
to 41 of the Notes to our audited consolidated financial statements contained   
elsewhere herein, which provide a description of certain material differences   
between Indonesian GAAP and U.S. GAAP, as they relate to us and a               
reconciliation to the amount of U.S. GAAP net income for each of the years      
ended December 31, 2000, 2001, and 2002 and the amount of U.S. GAAP             
stockholders' equity as of December 31, 2001 and 2002.                          

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                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------------------------
                                                                               For the Years Ended December 31,                  
                                                              -------------------------------------------------------------------
                                                              Not Restated                                                       
                                                              -------------                                                      
                                                                  1998        1999       2000       2001       2002       2002   
-                                                             -------------------------------------------------------------------
                                                                  Rp.         Rp.        Rp.        Rp.        Rp.     US$ /(1)/ 
                                                                             ( Rp. in billions; US$ in millions )                
                                                                                                                                 
Income Statement Data :                                                                                                          
Indonesian GAAP :                                                                                                                
   Total Operating Revenues                                                                                                      
      Cellular...............................................           --        --         --    1,769.9    3,271.7      366.0 
      International calls....................................      1,762.6   2,315.8    2,184.0    2,157.5    2,137.9      239.1 
      Multimedia, data communication, Internet...............        272.1     613.6      731.7    1,105.1    1,263.0      141.3 
      Other services.........................................         73.5      75.3       76.5      105.6       94.4       10.6 
                                                                 --------- ---------  ---------  ---------  ---------  --------- 
         Total...............................................      2,108.2   3,004.7    2,992.2    5,138.1    6,767.0      756.9 
Total Operating Expenses                                                                                                         
      Depreciation...........................................         98.5     152.6      189.9    1,011.6    1,723.9      192.8 
      Compensation to telecommunications carriers and                                                                            
       service providers.....................................        345.7     534.2      555.4      597.5      609.6       68.2 
      Others.................................................        556.9     679.2      771.6    1,700.2    2,521.6      282.1 
                                                                 --------- ---------  ---------  ---------  ---------  --------- 
         Total...............................................      1,001.1   1,366.0    1,516.9    3.309.3    4,855.1      543.1 
Operating income.............................................      1,107.1   1,638.7    1,475.3    1,828.8    1,911.8      213.9 
Other income (expenses)--net.................................        337.4     (21.9)     794.3      177.4     (640.6)     (71.7)
Equity in net income of associated companies.................         89.3     594.7       83.4      132.3       72.3        8.1 
   Minority interest in net loss (income) of subsidiaries ...          0.2     (17.7)     (23.2)    (273.5)     (27.1)      (3.0)
   Income tax expense--net...................................        391.6     599.0      687.7      412.2      774.4       86.6 
   Pre-acquisition income/(8)/...............................           --        --         --         --     (205.9)     (23.0)
   Net income................................................      1,142.4   1,594.8    1,642.1    1,452.8      336.3       37.6 
   Weighted average number of shares outstanding/(2)/........    1,035,500 1,035,500  1,035,500  1,035,500  1,035,500  1,035,500 
   Basic earnings per share/(2)/.............................      1,103.2   1,540.1    1,585.8    1,403.0      324.7       0.04 
   Dividends declared per share/(2)/.........................        425.1     666.0      610.1      561.2         --         -- 
   Dividends declared per share (in US$)/(2)(4)/.............          0.1       0.1        0.1        0.1         --         -- 
   Dividends declared per ADS (in US$)/(2)(3)(4)/............          0.5       0.9        0.6        0.6         --         -- 
U.S. GAAP :/(5)/                                                                                                                 
   Net income................................................      1,041.8   1,649.5    1,624.5    1,543.1      883.5      98.83 
   Basic earnings per share/(2)(6)/..........................      1,006.1   1,593.0    1,568.8    1,490.2      853.2       0.10 
   Basic earnings per ADS/(2)(3)(6)/.........................     10,060.7  15,929.5   15,687.9   14,901.9   8,532.14       0.95 
---------------------------------------------------------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------------
                                                                         At December 31,                    
                                                      ------------------------------------------------------
                                                      Not Restated                                          
                                                      -------------                                         
                                                          1998      1999    2000     2001     2002    2002  
------------------------------------------------------------------------------------------------------------
                                                          Rp.       Rp.     Rp.      Rp.      Rp.    US$(1) 
                                                               ( Rp. in billions; US$ in millions )         
                                                                                                            
Balance Sheet Data :                                                                                        
Indonesian GAAP :                                                                                           
  Assets                                                                                                    
   Current assets....................................   2,293.1    2,810.9 3,706.7  8,835.5  5,140.1   575.0
   Due from related parties..........................      31.0       42.0    35.3     47.5     40.4     4.5
   Deferred tax assets--net..........................      10.0       40.8    39.9    234.1    123.1    13.8
   Long-term investments.............................   1,394.9    1,649.1 1,732.4    494.4    433.8    48.5
   Property and equipment--net.......................   1,083.4    1,462.5 1,524.4  9,468.9 11,759.3 1,315.4
   Goodwill--net.....................................        --         --      --  2,410.1  3,711.9   415.2
   Other non-current assets..........................      66.6      146.9   275.8    858.2    793.8    88.8
                                                        -------    ------- ------- -------- -------- -------
      Total assets...................................   4,879.0    6,152.2 7,314.5 22,348.7 22,002.5 2,461.1
  Liabilities                                                                                               
   Current liabilities...............................     874.0      653.3   769.8  5,511.6  3,182.5   356.0
   Due to related parties............................       1.3    2,575.8 2,561.8     10.0     20.7     2.3
   Deferred tax liabilities--net.....................     153.8      283.3   340.3    104.2    522.3    58.4
   Long term debts...................................      23.6      132.2   149.3  2,211.0  3,357.2   375.5
   Bonds Payable.....................................        --         --      --  3,324.0  3,957.1   442.6
   Other non current liabilities.....................        --       27.6    42.0    209.3    221.8    24.8
      Total liabilities..............................   1,052.7    3,672.2 3,863.2 11,370.0 11,261.6 1,259.7
  Minority interest..................................       8.9       79.1    92.4    239.0    137.4    15.3
  Stockholders' equity...............................   3,817.4    2,400.9 3,358.9 10,739.7 10,603.4 1,186.1
                                                        -------    ------- ------- -------- -------- -------
      Total liabilities and stockholders' equity.....   4,879.0    6,152.1 7,314.5 22,348.7 22,002.5 2,461.1
U.S. GAAP :/(5)/                                                                                            
  Total assets.......................................   4,716.8    5,784.2 7,162.4 22,024.4 22,508.6 2,517.7
  Total stockholders' equity.........................   3,691.7    2,071.7 3,019.2 10,490.2 10,901.2 1,219.4
------------------------------------------------------------------------------------------------------------

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                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------
                                                      Years Ended December 31,       
                                               --------------------------------------
                                                1998   1999    2000    2001    2002  
-------------------------------------------------------------------------------------
                                                                                     
Operating Data /(7)/                                                                 
Percentage Increase from Prior Period :                                              
  Operating revenues..........................  44.71  42.52   (0.42)  71.72    31.7 
  Operating income............................  59.23  48.02   (9.97)  23.96    4.54 
  Net income..................................  79.48  39.60    2.98  (11.53) (76.85)
  Total assets................................  37.87  26.10   18.89  205.54   (1.55)
  Total stockholders' equity..................  35.40 (37.11)  39.90  219.74   (1.27)
Operating Ratios (expressed as a percentage) :                                       
  Operating income to operating revenues......  52.51  54.54   49.30   35.59   28.25 
  Operating income to stockholders' equity....  29.00  68.25   43.92   17.03   18.03 
  Operating income to total assets............  22.69  26.64   20.17    8.18    8.69 
  Net profit margin...........................  54.19  53.08   54.88   28.27    4.97 
  Return on equity............................  29.93  66.43   48.89   13.53    3.17 
  Return on assets............................  23.42  25.92   22.45    6.50    1.53 
Financial Ratios (expressed as a percentage) :                                       
  Current ratio............................... 262.38 430.26  481.51  160.31  161.52 
  Debt to equity ratio........................  27.58 156.25  117.76  108.09  107.50 
  Total liabilities to total assets...........  21.58  60.97   54.08   50.88   51.18 
-------------------------------------------------------------------------------------

--------                                                                        
(1) Translated into dollars based on a conversion rate of Rp. 8,940 = US$1.00,  
   the Indonesian Central Bank Rate on December 31, 2002, which is the rate in
the audited consolidated financial statements. See also "--Exchange Rate
Information".                                                           
(2) Shares outstanding are stated in thousands, and basic earnings per share    
and per ADS are reported in whole Rupiah and dollars.                   
(3) The basics earnings and dividends per ADS data is calculated on the basis   
that each ADS represents ten shares of Common Stock and does not make   
allowances for withholding tax to which the holders of the ADSs will be 
subject.                                                                
(4) Calculated using the Indonesian Central Bank Rate on each dividend payment  
date.                                                                   
(5) U.S. GAAP amounts reflect adjustments resulting principally from            
differences in the accounting treatment of capitalization of interest   
expense, capitalization of net foreign exchange losses, revenue         
recognition, equity in net income (loss) of associated companies,       
 amortization of goodwill, amortization of intangible assets, amortization
  of landrights, post-retirement benefit cost, minimum pension liability and
deferred income tax effect of U.S. GAAP adjustments.                    
(6) Basic earnings per share and per ADS under U.S. GAAP for all periods        
 presented have been computed based upon the number of shares outstanding.
(7) Operating data percentages and ratios are computed based on the financial   
statements prepared under Indonesian GAAP.                              
(8) Income on an equity investment from beginning of the year up to the date    
the investment was acquired during the year.                            

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Exchange Rate Information                                                       

The following table shows the exchange rate of Rupiah to U.S. dollars for 
the periods indicated. The Rupiah middle exchange rate is calculated based on   
the buying and selling rate of Bank Indonesia.                                  

                                                                [Download Table]

---------------------------------------------------------------------
Period (Rupiah per US$1.00)   Period End Average/(1)(2)/   High   Low
---------------------------------------------------------------------
                                                                     
Year ended December 31, 1998.    8,025        9,875      14,900 7,300
Year ended December 31, 1999.    7,100        7,809       8,950 6,726
Year ended December 31, 2000.    9,595        8,348       9,595 6,935
Year ended December 31, 2001.   10,400       10,266      11,145 8,425
Year ended December 31, 2002.    8,940        9,321      10,473 8,460

Month ended December 31, 2002    8,940        8,916       8,983 8,815
Month ended January 31, 2003.    8,876        8,901       8,968 8,836
Month ended February 28, 2003    8,905        8,900       8,970 8,867
Month ended March 31, 2003...    8,908        8,927       8,927 8,863
Month ended April 30, 2003...    8,675        8,813       8,906 8,665
Month ended May 31, 2003.....    8,279        8,430       8,675 8,165
---------------------------------------------------------------------

--------                                                                        
Source:  Bank Indonesia                                                         
(1) The annual average exchange rates are calculated as averages of each        
monthly period end exchange rate.                                       
(2) The monthly average exchange rates are calculated as averages of each daily 
close exchange rate.                                                    

Bank Indonesia is the sole issuer of Rupiah and is responsible 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 and permitted the exchange    
rate for the Rupiah to float without an announced level at which it would       
intervene. Since that date, the Rupiah has depreciated significantly against    
world currencies, from Rp. 2,530 per U.S. dollar on August 13, 1997 to a range  
of Rp. 7,300--Rp. 14,900 per U.S. dollar during 1998, Rp. 6,726--Rp. 8,950 per  
U.S. dollar during 1999, Rp. 6,935--Rp. 9,595 per U.S. dollar during 2000, Rp.  
8,425--Rp. 11,145 per U.S. dollar during 2001, and Rp. 8,460--Rp. 10,473 per    
U.S. dollar during 2002. At December 31, 2002 the exchange rate was at Rp.      
8,940 per U.S. dollar, compared with the exchange rate of Rp. 10,400 per U.S.   
dollar at December 31, 2001, reflecting annual appreciation of 14.0%. On June   
23, 2003, the exchange rate was Rp. 8,253 per U.S. dollar.                      

Foreign Exchange and Foreign Equity Ownership Restrictions                      

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 from exchange controls. A number of   
regulations, however, have an impact on the exchange system. Bank Indonesia     
recently introduced regulations to restrict the movement of Rupiah from banks   
within Indonesia to offshore banks without underlying trade or investment       
reasons, thereby limiting offshore trading to existing sources of liquidity. In 
addition, Bank Indonesia has authority to request information and data          
concerning the foreign exchange activities of all people and legal entities     
that are domiciled in Indonesia or plan to domicile in Indonesia for at least   
one year.                                                                       

Prior to September 1997, foreign investors were only permitted to purchase
up to 49% of shares offered in a public offer and up to 49% of the publicly     
listed shares of all Indonesian listed companies regardless of the nature of    
their activities. On September 4, 1997, such restrictions were removed for most 
Indonesian companies, including us.                                             

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RISK FACTORS  

Risks Relating to Indonesia                                                     

Certain economic, political and financial developments in Indonesia have had
an adverse effect on us and any future adverse economic developments in     
Indonesia will likely have an adverse effect on us.                         

We are incorporated in Indonesia and substantially all of our operations, 
assets, revenues, operating profits and customers are located in Indonesia. As  
a result, future political, economic and social conditions in Indonesia, as     
well as certain actions and policies which the Government may, or may not, take 
or adopt may have a material adverse effect on our business, financial          
condition and results of operations. It is not possible to predict their impact 
on our financial condition or results of operations.                            

Current political and social events in Indonesia may adversely impact our   
business.                                                                   

Since the collapse of President Soeharto's regime in 1998, Indonesia has  
experienced a process of democratic change, resulting in political and social   
events that have highlighted the unpredictable nature of Indonesia's changing   
political landscape. These events have resulted in political instability, as    
well as general social and civil unrest on a number of occasions in the past    
few years.                                                                      

For example, between 2000 and 2002, thousands of persons participated in  
demonstrations in Jakarta and other Indonesian cities both for and against      
former President Wahid and current President Megawati, as well as in response   
to specific issues, such as economic reforms, including fuel tariff increases   
and privatization of state assets, anti-corruption measures, decentralization   
and provincial autonomy, actions of the former first family and the             
American-led military campaigns in Afghanistan and Iraq. These demonstrations   
generally were peaceful, but other demonstrations have turned violent and led   
to rioting. In June 2001, demonstrations and strikes affected at least 19       
cities after the Government mandated a 30% increase in fuel prices. Similar     
demonstrations occurred in January 2003, when the Government again tried to     
increase fuel prices, as well as electricity and telephone charges. In both     
instances, the Government was forced to drop or substantially reduce such       
proposed increases. We have also been the subject of demonstrations. In 2002,   
as part of its policy of privatizing certain state assets, the Government       
disposed of a substantial part of its shareholding in Indosat (see "Major       
Shareholders and Related Party Transactions--Major Shareholders"). This led to  
a series of labor rallies and continued public debate and demonstrations.       

Recently, hostilities in the province of Aceh have reached new heights. A 
prior peace pact, known as the Cessation of Hostilities Agreement, has failed   
to maintain peace between the Free Aceh Movement (GAM) militia and the          
Indonesian government, and the Joint Security Committee formed by the two sides 
has been disbanded. Increasing tension in Aceh province has led to a recent     
military build-up in the province and continued outbreaks of violence, arson    
and social unrest. Similarly, in Papua province, continued activity by          
separatist rebels has led to violent incidents. Human rights violators,         
including those from high-ranking military positions, have recently begun to be 
more actively prosecuted in Indonesia, most notably with respect to Timor Leste 
(formerly, East Timor), Aceh, Papua (formerly Irian Jaya) and the Moluccas.     
However, the success of these prosecutions has been mixed, and many public      
commentators and demonstrators have criticized the Government's failure to      
prosecute human rights violations in Indonesia more vigorously.                 

During the years 2002 and 2003, several bombing incidents took place in   
Indonesia, most significantly in Bali in October 2002, a region of Indonesia    
previously considered safe from the unrest affecting other parts of the         
country. Other bombing incidents, although on a lesser scale, have also been    
committed in Indonesia on a number of occasions over the past few years,        
including at shopping centers and places of worship. Most recently, in May      
2003, a bomb exploded at the domestic terminal at Jakarta International         
Airport. There can be no assurance that further terrorist acts will not occur   
in the future. Such terrorist acts may, for example, be directed at foreigners  
in Indonesia or in relation to the national general elections scheduled for     
2004. Such acts could also be committed in connection with the trial of those   
suspected of committing the bombing in Bali. Violent acts,                      

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arising from and leading to instability and unrest have in the past had, and    
could continue to have, a material adverse effect on investment and confidence  
in, and the performance of, the Indonesian economy, and in turn our business.   

  In the lead-up to the national general election scheduled for 2004, in which
Indonesians will for the first time directly elect the President,               
Vice-President and representatives in the Indonesian parliament via a           
proportional open voting system, increased political activity can be expected   
in Indonesia. Political campaigning has already commenced. From prior           
experience in recent elections in Indonesia, it can be expected that this       
campaigning may bring a degree of political and social uncertainty to Indonesia 
until the general election. As a result, the business community may also be     
adversely affected, as foreign and domestic investors may exercise caution and  
scale down or postpone business activity during this period.                    

Political and related social developments in Indonesia have been          
unpredictable in the past, and there can be no assurance that social and civil  
disturbances will not occur in the future and on a wider scale, or that any     
such disturbances will not, directly or indirectly, have a material adverse     
effect on us or on an investment in the ADSs or Common Stock.                   

Labor activism and unrest could affect our business, our customers and      
Indonesian companies in general, which in turn could adversely affect our   
business.                                                                   

Laws permitting the formation of labor unions, combined with weak economic
conditions, have resulted, and may continue to result, in labor unrest and      
activism in Indonesia. In 2000, the Government issued new labor regulations on  
termination of employees. The new regulations increased the amount of           
severance, service and compensation payments payable to terminated employees.   
Employees who resign during a change of control of their employer are also      
entitled, under the new regulations, to service and compensation payments,      
provided that such employees have worked for their employer for at least three  
years. The new regulations also allow employees to unionize without             
intervention from employers.                                                    

In addition, in August 1999, Indosat's employees formed a labor union that
now has approximately 1,771 members, or 74.0% of Indosat's permanent employees. 
Although the union has not taken industrial action aimed at disrupting          
Indosat's operations in the past, it has recently threatened to do so in        
connection with Indosat's privatization, and no assurances can be given that it 
will not do so in the future. Satelindo's labor union consists of Satelindo's   
transport workers, but has not been active to date. The labor unions may have   
significant bargaining power and may cause modification or delay in the         
implementation of our policies that the unions determine may adversely impact   
the interests of its members. No assurances can be given that additional unions 
will not be formed by our employees or that the formation of such unions or     
activities of the current unions will not adversely affect our financial        
condition or results of operations.                                             

The Government is currently implementing further amendments to Indonesia's
labor regulations although the exact terms of these amendments are not yet      
published. On February 25, 2003 the Indonesian Parliament passed a new labor    
law (the "Labor Law"), which automatically took effect on March 25, 2003. The   
new Labor Law and new regulations that may be issued thereunder may             
substantively affect labor relations in Indonesia. Labor unrest and activism    
could disrupt our operations and the operations of our customers and may affect 
adversely the financial condition of Indonesian companies in general,           
depressing the value of the Rupiah relative to other currencies. In addition,   
these and future labor regulations and laws may make it more difficult for      
businesses, including us, to downsize or have flexible labor policies.          

Domestic, regional or global economic changes may adversely affect our      
business                                                                    

The economic crisis which affected Southeast Asia and Indonesia from      
mid-1997 was and is characterized in Indonesia by, among other effects,         
currency depreciation, negative economic growth, high interest rates, social    
unrest and extraordinary political developments. These circumstances adversely  
affected us; among other things, Satelindo defaulted on its debt repayment      
obligations in 1998 and underwent a debt restructuring process that was         
completed in May 2000.                                                          

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 In many respects, Indonesia's economy appears to have stabilized since 1997
and 1998. Gross domestic product ("GDP") grew at an annual rate of              
approximately 0.3% in 1999, 4.8% in 2000, 3.4% in 2001 and 3.7% in 2002.        
Nevertheless, commentators point to strong oil prices and the weak rupiah       
(which generally support exports) as two important factors contributing to      
recent GDP growth. The Government continues to have a large fiscal deficit and  
a high level of sovereign debt, its foreign currency reserves are modest, the   
Rupiah continues to be volatile and largely illiquid and the banking sector is  
weak and suffers from high levels of non-performing loans. Inflation has also   
remained high, with an annual inflation rate of 10.0% in 2002. A loss of        
investor confidence in the financial systems of emerging and other markets may  
cause increased volatility in the Indonesian financial markets. There can be no 
assurance that financial events similar to those that occurred in emerging      
markets of Asia in 1997 and 1998 will not happen again.                         

Devaluation or volatility of the Rupiah, especially as against the U.S.     
dollar, may adversely affect our financial results and operations.          

 Among the most significant aspects, and one of the most important immediate
causes of the economic crisis which began in Indonesia in mid-1997 was the      
depreciation and persistent volatility of the value of its currency, the        
Rupiah, as measured against other currencies, such as the U.S. dollar. Although 
the Rupiah has appreciated considerably from its low point of approximately Rp. 
17,000 per U.S. dollar in mid-1998, the Rupiah continues to experience          
significant volatility and could decline further. See "--Exchange Rate          
Information". Furthermore, there can be no assurance that financial events      
similar to those that occurred in the emerging markets of Asia in 1997 and 1998 
will not happen again.                                                          

The Rupiah has generally been freely convertible and transferable (except 
that Indonesian banks may not transfer Rupiah to persons outside of Indonesia   
who lack a bona fide trade or investment purpose). However, from time to time,  
Bank Indonesia may have intervened in the currency exchange markets in          
furtherance of its policy, either by selling Rupiah or by using its foreign     
currency reserves to purchase Rupiah. No assurances can be given that the       
current floating exchange rate policy of Bank Indonesia will not be modified,   
that additional depreciation of the Rupiah against other currencies, including  
the U.S. dollar, will not occur, or that the Government will take additional    
action when necessary to stabilize, maintain or increase the value of the       
Rupiah, or that any such action, if taken, will be successful.                  

A modification of the current floating 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      
multinational lenders. This may result in a reduction of economic activity,     
economic recession, loan defaults or non-payment of bills by our customers, and 
we may face difficulties in funding our capital expenditure commitments. If     
they occur, the foregoing consequences could have a material adverse effect on  
our business.                                                                   

 Changes in exchange rates have affected and will continue to affect our net
financial results and cash flows. Most of our debt obligations and a large      
majority of our capital expenditures are, or are expected to be, denominated in 
U.S. dollars. Our revenues within Indonesia are generally denominated in        
Rupiah. We may also incur additional long-term indebtedness in currencies other 
than the Rupiah, including the U.S. dollar, to finance further capital          
expenditures. As of December 31, 2002, our outstanding long-term debts, which   
includes the current portion of long term debt and bonds payable, totaled Rp.   
7,959.3 billion, of which approximately Rp. 4,323.6 billion was denominated in  
currencies other than the Rupiah.                                               

We do not hedge our foreign currency exposure. Our annual U.S. dollar     
revenues are less than the sum of our U.S. dollar expenses and annual payments  
of U.S. dollar-denominated interest and principal payments. No assurances can   
be given that we will be able to manage our currency exchange rate risk         
successfully in the future or that we will not be adversely affected by our     
exposure to currency exchange risk.                                             

Fluctuations in the exchange rate between the Rupiah and the U.S. dollar  
could affect, among other things, the dollar value of any amounts a holder or   
beneficial owner of ADSs will receive in the event we issue                     

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dividends, the U.S. dollar value of the proceeds a holder or beneficial owner   
would receive upon the sale in Indonesia of shares of the Common Stock and the  
secondary market price of the ADSs.                                             

Indonesia relies heavily on aid from the International Monetary Fund and    
 loans from the World Bank, and the effects of discontinuing that reliance are
unpredictable.                                                              

 Having substantially depleted its foreign currency reserves, the Government
turned to the International Monetary Fund ("IMF") for financial assistance to   
confront the economic crisis in Indonesia and, in October 1997, the IMF agreed  
to provide financial assistance to Indonesia contingent upon the implementation 
of numerous economic reforms. The IMF has disbursed funds to the Government     
since late 1997, although some disbursements have been delayed. When the IMF    
has withheld disbursement of funds, it has done so on the basis that the        
Government has not adequately complied with the terms of its then-current       
letter of intent, such as requirements to complete certain asset sales and      
implementation of various reforms.                                              

 The Government has announced that it intends to discontinue its reliance on
financial assistance from the IMF by the end of this year. Given the            
Government's fiscal deficit and modest foreign exchange reserves, the           
discontinuance by the IMF to disburse funds to the Government could cause the   
Government, to be unable to fund subsidies for staples such as food and fuel,   
which, in turn, could have extremely serious political and social consequences. 
Other consequences of any such discontinuance are not known at this stage.      
There can be no assurance that the Government would be able to obtain           
alternative funding in the event the IMF ends its disbursement of funds.        

  In addition to the IMF, the World Bank has been an important source of funds
for Indonesia. As of February 2003, the World Bank had provided a net amount of 
financed projects amounting to US$3.5 billion, with disbursed projects totaling 
US$2 billion. The World Bank has cited the slow pace of institutional reforms   
in Indonesia, as well as concern that the Government's decentralization plan,   
particularly the empowerment of provincial governments to borrow, could lead to 
the central Government's inability to service its debts. The World Bank's       
lending program is subject to regular compliance reviews and can be reduced or  
withdrawn at any time. The impact of any reduction or elimination of lending    
from the World Bank to Indonesia cannot be assessed.                            

Indonesia's high level of sovereign debts may result in it being unable to  
service its debt obligations when they become due.                          

  Indonesia's high level of sovereign debt has forced it to negotiate with its
major creditors several times since the 1997 financial crisis. For example, the 
Government held a round of talks with the Paris Club donor countries and the    
IMF in April 2002 to discuss the rescheduling of Indonesia's debt due in 2002.  
In such talks, the Government sought to restructure not just debt principal,    
but interest payments as well, totaling US$2.6 billion. Although the meeting    
resulted in the restructuring of debt principal payments, no assurance can be   
given as to Indonesia's capacity to meet its rescheduled debt payments. No      
further meetings have been held since that time. Further decisions to           
renegotiate existing indebtedness may affect Indonesia's sovereign credit       
rating and could have an adverse impact on investor confidence in Indonesia.    

Indonesia's sovereign debt rating continues to be reviewed and revised by   
international rating agencies.                                              

Beginning in 1997, certain recognized statistical rating organizations,   
including Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's     
Rating Services ("S&P"), downgraded Indonesia's sovereign rating and the credit 
ratings of various credit instruments of the Government and a large number of   
Indonesian banks and other companies. As of May 30, 2003, the Government's      
long-term foreign currency debt and its short-term foreign currency debt were   
rated "B3" and "NP", respectively, by Moody's. As of June 5, 2003, the          
Government's long-term foreign currency debt and its short-term foreign         
currency debt were rated "B" and "C", respectively, by S&P. These ratings       
reflect an assessment of the Government's overall ability to pay its            

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obligations and its willingness to meet its financial commitments as they come  
due. No assurance can be given that Moody's, S&P or any other international     
credit rating agency will not downgrade the credit ratings of Indonesia or      
Indonesian companies. Any such downgrade would have an adverse impact on        
liquidity in the Indonesian financial markets and the ability of Indonesian     
companies, including us, to raise additional financing and the interest rates   
at which such additional financing is available.                                

We are subject to Indonesian accounting and corporate disclosure standards  
 that differ in significant respects from those applicable in other countries.

There may be less publicly-available information about Indonesian public  
companies, including us, than is regularly disclosed by public companies in     
countries with more mature securities markets. Our audited consolidated         
financial statements have been prepared in accordance with Indonesian GAAP,     
which differs in certain material respects from U.S. GAAP, including accounting 
for amortization of goodwill, amortization of intangible assets, capitalization 
of foreign exchange losses and revenue recognition. See "Operating and          
Financial Review and Prospects--Summary of Certain Material Differences between 
Indonesian GAAP and U.S. GAAP"                                                  

 We are incorporated in Indonesia, and it may not be possible for investors to
effect service of process, including certain judgments, on us within the    
United States.                                                              

We are a limited liability company incorporated in Indonesia, operating   
within the framework of Indonesian laws relating to foreign capital invested    
companies, and all of our significant assets are physically located in          
Indonesia. In addition, the majority of our Commissioners and Directors reside  
in Indonesia and a substantial portion of the assets of such persons is located 
outside the United States. As a result, it may not be possible for investors to 
effect service of process, including judgments, on us or such persons within    
the United States, or to enforce against us or such persons in the United       
States judgments obtained in United States courts, including judgments          
predicated upon the civil liability provisions of the United States federal     
securities laws or the securities laws of any state within the United States,   
or upon other bases.                                                            

We have been advised by our Indonesian legal advisor that judgments of    
United States courts, including judgments predicated upon the civil liability   
provisions of the United States federal securities laws, are not enforceable in 
Indonesian courts, although such judgment could be admissible as non-conclusive 
evidence in a proceeding on the underlying claim in an Indonesian court. There  
is doubt as to whether Indonesian courts will enter judgments in original       
actions brought in Indonesian courts predicated solely upon the civil liability 
provisions of the United States federal securities laws. As a result, holders   
of ADSs or Common Stock would be required to pursue claims against us or such   
persons in Indonesian courts.                                                   

Risks relating to Indosat and its subsidiaries                                  

The Government, as the majority shareholder of Indosat's major competitor   
 Perusahaan Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk. ("Telkom"),
may give priority to Telkom's business over Indosat's.                      

  The Government currently owns a 15.0% equity stake and is also the holder of
the "Series A" share of Indosat, which has special voting rights and veto       
rights over certain matters, including the election and removal of the          
Commissioners and Directors of Indosat. At the same time, the Government also   
owns a 51.2% equity stake in Telkom, which is Indosat's foremost competitor in  
cellular, multimedia, data communications and internet ("MIDI") and, from       
August 2003, international call services. Since the percentage of the           
Government's ownership in Telkom is significantly greater than its ownership in 
Indosat, no assurances can be given that all Government policies and plans will 
support Indosat's business. Likewise, no assurances can be given that the       
Government will treat Telkom and Indosat equally when considering future        
decisions and policies.                                                         

 Besides that, the Government, through the Ministry of Communications of the
Republic of Indonesia (the "MoC"), also exercises regulatory power over the     
Indonesian telecommunications industry with objectives which                    

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may not be consistent with the maximization of profits or the value of the ADSs 
or Common Stock. Certain Government policies or objectives may have a material  
adverse impact on the holders of the ADSs or Common Stock by reducing the       
secondary market price of the ADSs or Common Stock.                             

Our controlling shareholders' interests may differ from those of our other  
shareholders.                                                               

In December 2002, the Government sold 41.94% of Indosat's shares to       
Indonesia Communications Limited ("ICL"), a Mauritius company owned and         
controlled by Singapore Technologies Telemedia Pte Ltd ("STT"), a member of the 
Singapore Technologies Group. The entry of ICL as the new controlling           
shareholder of Indosat may have certain positive effects on the performance of  
Indosat (including with respect to technology transfer and strengthening of the 
capital structure of Indosat). However, no assurances can be given that ICL     
will exert its influence on Indosat in a way that benefits Indosat's other      
shareholders.                                                                   

Furthermore, the Government's sale to ICL has triggered several           
demonstrations and protests, including a class action suit lodged by an         
Indonesian non-government organization. The class action suit apparently has    
the support of a number of prominent political parties and figures of           
Indonesia. The class action alleges that proper government and parliamentary    
approvals, as required by the Indonesian constitution, were not obtained for    
the divestment of the Government's 41.9% stake of Indosat, perceived to be a    
significant state asset. A Jakarta district court is currently hearing the      
class action. There are only limited precedents with respect to class action    
suits in Indonesia, and we are unable to assess the validity of the plaintiffs' 
claims. As a result, the outcome of the case is uncertain. No assurance can be  
given that this lawsuit and related demonstrations will not have a material     
adverse affect on our business.                                                 

We operate in a legal and regulatory environment that is undergoing         
significant reforms; such reforms may result in increased competition,      
reduced margins and reduced revenues, among other things, all of which may  
have an adverse effect on our financial condition and results of operations.

  The regulatory reform in the Indonesian telecommunications sector, which was
initiated by the Government in the year 2000, to some extent has resulted in    
the liberalization of the telecommunications industry. For instance, the        
issuance of an additional international calls license to Telkom, effective      
August 2003, may allow market forces to play a larger role in guiding the       
development of the industry. Unfortunately, the absence of an independent       
regulatory and supervisory body, which, although required under the new         
Indonesian Telecommunications Law of 1999 ("Telecommunications Law"), has not   
yet been established, has in some cases resulted in what we consider to be      
unfair business practices within the industry, including certain network and    
service providers in Indonesia apparently blocking international calls of       
Indosat's customers in favor of their own services. In addition, the            
inconsistent application and interpretation of many of the new regulations      
necessary to implement the regulatory scheme outlined in the Telecommunications 
Law has also caused significant uncertainty in the telecommunications sector in 
Indonesia. No assurance can be given that future regulatory changes will not    
have further material adverse effect on us. See also "Information on the        
Company--Indonesian Telecommunications Industry".                               

  We compete principally with other nationwide telecommunications providers in
Indonesia. As the reform of the telecommunications sector continues, other      
entities, potentially with greater resources than us, may enter the Indonesian  
telecommunications sector and compete with us in providing telecommunications   
services. There can be no assurance that we will be able to compete             
successfully with other domestic and foreign telecommunications companies or    
that increased competition will not have a material adverse effect on our       
financial condition or results of operations. This shift in focus by the        
Government may result in increased competition that may adversely affect our    
financial condition and results of operations.                                  

In 2001, the Government, through the MoC, issued Ministerial Decree No.   
4/2001 with respect to the Fundamental Technical Plan, which governs the use of 
the international access codes "001" and "008" as network identifiers for       
network providers. Certain telecommunications operators in Indonesia (other     
than us) have recently interpreted this Ministerial Decree to mean that, with   
effect from the liberalization of international                                 

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telecommunications services in Indonesia starting August 2003, network          
providers may only be able to retain the interconnection revenues, and not the  
additional usage tariffs from end users, arising from international call        
services. Currently, Indosat receives usage tariffs, and, depending on whether  
the international call originated on another operator's fixed line, pays        
interconnection revenues (see "Information on the Company--Principal Products   
and Services--International calls services--Tariff structure and revenues".)    
Although we disagree with, and are actively taking steps to mitigate the        
possible consequences of the implementation of this new interpretation, no      
assurances can be given that we will be successful in doing so. If this         
interpretation is confirmed by the MoC, it may adversely affect our revenues    
from our international calls services business. We are unable to ascertain the  
magnitude of such adverse impact at this time.                                  

The early termination of incumbent monopoly rights by the Government      
(international direct dial ("IDD") for Indosat; domestic fixed line for Telkom) 
as a result of the implementation of the Telecommunications Law has had, and    
will continue to have, a significant impact on our business. Although the       
Government is in the process of finalizing compensation for both Telkom and     
Indosat on the early termination, there is no guarantee that this compensation  
will cover the future benefits that we had expected to enjoy under our earlier  
IDD monopoly rights.                                                            

The Government may adjust or fail to adjust tariffs resulting in an adverse 
effect on our financial condition and results of operations.                

In the absence of the independent regulatory and supervisory body required
under the Telecommunications Law, the MoC is the principal regulator of the     
telecommunications industry in Indonesia and is responsible for the setting and 
adjustment of tariff levels. Regulated tariffs include activation fees, monthly 
fees, air time usage fees for postpaid cellular services, interconnection fees  
and domestic and international long distance telephony rates. These tariff      
levels are subject to periodic review and adjustment. Since a significant       
portion of our revenues are dependent on tariffs fixed by the Government, any   
future changes, or a lack of changes, in the Government's tariff policies could 
affect our financial condition and results of operations. Prepaid cellular      
services prices are regulated by reference to postpaid tariffs policies, and,   
although not directly regulated by the Government, revenues from prepaid        
cellular services could also be affected by future changes in the Government's  
tariff policies.                                                                

 Tariff rates set by the Government may be changed in the near future due to
further deregulation of the telecommunications sector in Indonesia. Such future 
changes, if they occur, may adversely affect our financial condition and        
results of operations.                                                          

We may not have the capital resources to remain competitive in the          
telecommunications industry.                                                

The delivery of telecommunications services is capital intensive. In order
to be competitive, we must continually expand, modernize and update our         
technology, which involves substantial capital investment. Through P.T. Indosat 
Multi Media Mobile ("IM3") and Satelindo, we are investing in improvements to   
our cellular telecommunications infrastructure, which will require significant  
capital expenditures. No assurances can be given that we will have capital      
resources sufficient to develop our cellular telecommunications infrastructure  
or update our other technology to the extent necessary to remain competitive in 
the Indonesian telecommunications market.                                       

We may be unable to obtain adequate financing to fund our capital           
requirements.                                                               

We expect that over the next several years, a substantial portion of our  
cash flow will be used to pay principal and interest with respect to our        
indebtedness and to finance our future capital expenditures. Our existing debt  
obligations and our future capital expenditures could limit our ability to      
respond to changing business or economic conditions or to respond to declines   
in operating results. If we are unable to obtain adequate vendor or other third 
party financing for our planned capital expenditures or otherwise fund such     
expenditures through other financing arrangements, including internal cash      
flows, we may have to forego, delay or postpone certain of                      

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our planned capital expenditures. This may prevent us from being able to        
sufficiently expand and upgrade our network. As of December 31, 2002, we had    
outstanding long-term indebtedness, which amount includes bonds payable but     
excludes the current portion, of Rp.7,314.25 billion. Our ability to satisfy    
our financial obligations and to fund our other future capital expenditures     
will depend upon our future operating performance, which is subject to          
prevailing economic conditions, levels of interest rates and financial,         
business and other factors, many of which are beyond our control.               

  The economic crisis in Indonesia caused a deterioration of the capital level
and capital adequacy of nearly all banks and lending institutions in Indonesia. 
Increased non-performing credits and the need to increase loan loss provisions  
substantially led to declines in the financial condition, results of operations 
and capital adequacy of such banks, and in many cases, to the complete collapse 
of such banks. Despite efforts to restructure the banking industry in           
Indonesia, no assurances can be given that future bank credit will be available 
to fund our operations. Due to the Asian financial crisis and other factors,    
the market for Indonesian debt and equity securities has declined dramatically  
over recent years. No assurances can be given that we can raise sufficient debt 
or equity capital to finance our operations. Furthermore, any debt financing,   
if available, may involve restrictive covenants, which may limit our operating  
flexibility with respect to certain business matters. If adequate funds are not 
available on acceptable terms, we may be unable to develop or enhance our       
services, take advantage of future opportunities or respond to competitive      
pressures, any of which could have a material adverse effect on our business,   
finances and results of operations.                                             

Satelindo's future financing efforts may be subject to certain restrictive  
covenants related to its debt restructuring, which place limitations on its 
ability to incur additional indebtedness, as well as require Satelindo to   
make mandatory prepayments of existing debt from new financing proceeds.    

Pursuant to the terms of its debt restructuring, Satelindo may only issue 
new debt obligations, which are subordinated to the prior restructured          
indebtedness. Seventy-five percent of any additional indebtedness must be used  
to prepay the restructured indebtedness. Equity financings are subject to the   
same prepayment obligations. According to the terms of Satelindo's debt         
restructuring, it must use a portion of the net proceeds of equity offerings to 
prepay a certain amount of its outstanding indebtedness. Satelindo's prepayment 
obligations vary depending on the size of the offerings. Satelindo must prepay  
an amount equal to: (i) 75% of any amount of net proceeds less than US$100      
million; (ii) in the case of net proceeds equal to or greater than US$100       
million, US$75 million plus 50% of any amount of net proceeds in excess of      
US$100 million but less than US$200 million; or (iii) in the case of net        
proceeds equal to or greater than US$200 million, US$125 million plus 33% of    
any amount of net proceeds in excess of US$200 million. See also "Information   
on the Company--Principal Indebtedness--Satelindo".                             

We rely on key management personnel and our financial condition and results 
of operations may be adversely affected by an inability to recruit, train,  
retain and motivate key employees.                                          

  We believe that Indosat's current management team, as well as the management
teams in place at Indosat's subsidiaries, contribute significant experience and 
expertise to the management of the respective entities. The continued success   
of our business and our ability to execute our business strategy in the future  
will depend in large part on the efforts of such key personnel. There is a      
shortage of skilled personnel in the telecommunications sector in Indonesia and 
this shortage is likely to continue. As a result, competition for certain       
specialist personnel is intense.                                                

 As a significant shareholder of Indosat, STT (through ICL) has seconded key
management personnel to Indosat. If any key members of management, at Indosat   
or any of its subsidiaries, become unable or unwilling to continue in their     
roles, and we are unable to attract or promote and retain other qualified       
executives, our business may be adversely affected. No assurances can be given  
that we will be able to successfully recruit, train, retain and motivate key    
employees.                                                                      

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We may be unable to implement the technological changes necessary to remain 
competitive.                                                                

 The telecommunications industry is subject to rapid and significant changes
in technology. We may face increasing competition from technologies currently   
being developed or which may be developed in the future (for example, with      
respect to our cellular services, Code Division Multiple Access ("CDMA")        
technology, and with respect to our international calls services and VoIP       
technology). New technologies, services or standards could require significant  
changes to our business model, the development of new products or the provision 
of additional services. In addition, we may need to substantially update and    
expand our billing and credit control systems to accommodate growth in and      
development of our business (including, for example, the possible merger of     
Satelindo and IM3 into Indosat) 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. No          
assurances can be given that our technologies will not become obsolete, or be   
subjected to competition from new technologies in the future, or that we will   
be able to acquire new technologies on reasonable terms necessary to compete in 
changed circumstances.                                                          

Certain operating risks may adversely affect our financial results of       
operations.                                                                 

The operation of our domestic and international call services could be    
adversely affected by events such as the breakdown of equipment, difficulties   
or delays in obtaining imported spare parts and equipment, labor disputes,      
fire, natural disasters, industrial accidents, political insurrection or armed  
conflict and the need to comply with Government directives. We do not maintain  
insurance against all of these adverse events, and no assurance can be given    
that such adverse events will not happen, that our insurance will be adequate   
to cover any losses or liabilities resulting therefrom or that such occurrence  
would not adversely affect our business or results of operations. In addition,  
our telecommunications control facilities are highly concentrated, with Indosat 
and Satelindo having their headquarters and principal operating facilities at   
two sites located in Jakarta. Adverse developments affecting these sites could  
have a material adverse effect on us.                                           

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

The merger of Indosat, Satelindo and IM3 may not be implemented or,         
otherwise, its result may not be in line with our plan.                     

  We have recently announced that we are considering merging Satelindo and IM3
into Indosat, with the main purpose of gaining operating efficiencies based on  
our new strategy of becoming a cellular-focused, fully integrated               
telecommunications network and service provider. There is a possibility that we 
may have difficulties in implementing the merger plan if, for instance, our     
creditors raise objections to such plan or we encounter technical hurdles (such 
as integrating Satelindo and IM3's cellular networks and unifying our           
information systems, such as billing statements and other IT systems). In       
contrast, if we can implement our merger plan, there is also a possibility that 
future cost efficiencies and our other goals of such merger plan may not be     
achieved.                                                                       

 Holders of the ADSs and Common Stock may not be able to assert claims against
Prasetio Utomo & Co., our independent auditors for the year ended December  
31, 2001, nor may they be able to assert claims against our current         
independent auditors for financial statements previously audited by Prasetio
Utomo & Co.                                                                 

  Our consolidated financial statements (other than with respect to Satelindo)
for the year ended December 31, 2001 were audited by Prasetio Utomo & Co., then 
the Indonesian member firm of Andersen Worldwide, SC, which issued a publicly   
available audit report expressing its unqualified opinion with respect thereto. 
On June 15, 2002, Arthur Andersen LLP ("Arthur Andersen"), which is the U.S.    
member firm of Andersen Worldwide, SC was convicted of federal obstruction of   
justice charges in connection with the U.S. government's investigation of Enron 
Corporation. On August 31, 2002, Arthur Andersen voluntarily relinquished its   
licenses to practice public                                                     

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accountancy in all states of the United States, thereby effectively ceasing to  
exist as a global accounting firm. The Indonesian Ministry of Finance withdrew  
the business license of Prasetio Utomo & Co. in August 2002, and Prasetio Utomo 
& Co. no longer operates as a public accounting firm. Accordingly, it may be    
difficult or impossible for holders of the ADSs or Common Stock to assert any   
claims against, or recover any damages from, Prasetio Utomo & Co. in respect of 
this annual report, including in respect of the financial statements previously 
audited by Prasetio Utomo & Co. that are included in this annual report.        
Moreover, our current independent public accountants, Prasetio, Sarwoko &       
Sandjaja, the Indonesian member firm of Ernst & Young, Global have not          
re-audited the financial statements previously audited by Arthur Andersen.      
Therefore, it is highly unlikely that holders of the ADSs or Common Stock will  
be able to assert claims against, or recover any damages from, Prasetio,        
Sarwoko & Sandjaja or Ernst & Young Global in respect of the financial          
statements that were previously audited by Prasetio Utomo & Co. and included in 
this annual report. Additionally, we have not requested our current auditors to 
re-audit our consolidated and combined financial statements for the years ended 
December 31, 2001 and cannot assure holders of the ADSs or Common Stock that a  
re-audit by our current auditors would not have resulted in a restatement or    
uncovered an untrue statement of material fact or an omission to state a        
material fact in such financial statements.                                     

We may conduct a future rights offering that may not be open to U.S. holders
of ADSs, thereby diluting such investors' current ownership position.       

Under applicable provisions of Indonesian company law and our Articles of 
Association, holders of Common Stock are entitled to certain preemptive rights  
to subscribe and pay for a proportionate number of shares to maintain their     
existing ownership percentages in connection with the issuance of any new       
equity shares. Holders of ADSs may be unable to exercise preemptive rights for  
equity shares underlying ADSs unless a registration statement under the         
Securities Act is effective with respect to such rights or an exemption from    
the registration requirements of the Securities Act is available. We are not    
obligated to prepare and file such a registration statement, and our decision   
to do so will depend on the costs and potential liabilities associated with any 
such registration statement, as well as the perceived benefits of enabling the  
holders of ADSs to exercise their preemptive rights and any other factors we    
consider appropriate at the time. No assurance can be given that we would file  
a registration statement under these circumstances. Accordingly, current        
shareholders, possibly other than U.S. holders of ADSs, may be given rights to  
subscribe for the new Common Stock. If such rights are not offered to certain   
shareholders, their ownership may be diluted by the rights issue.               

Forward-looking statements reflect current expectations and may not be      
correct.                                                                    

This document contains various forward-looking statements, including      
statements regarding our expectations and projections for future operating      
performance and business prospects. The words "believe", "expect",              
"anticipate", "estimate", "project" and similar words identify forward-looking  
statements. In addition, all statements other than statements of historical     
facts included herein are forward-looking statements. These statements reflect  
our current expectations. Although we believe that the expectations reflected   
in the forward-looking statements are reasonable, we can give no assurance that 
such expectations will prove to be correct. They are subject to a number of     
risks and uncertainties, including changes in the economic and political        
environments in Indonesia. In light of the many risks and uncertainties         
surrounding Indonesia, investors in the ADSs or the common shares should bear   
in mind that we cannot guarantee that the forward-looking statements described  
herein will transpire. All subsequent written and oral forward-looking          
statements attributable to us or persons acting on our behalf are expressly     
qualified in their entirety by reference to these risks.                        

Risks relating to our cellular business                                         

Competition from well-established Indonesian telecommunications industry    
incumbents may adversely affect our cellular businesses' margins, results of
operations and financial condition.                                         

Our cellular businesses compete primarily against P.T. Telekomunikasi     
Selular ("Telkomsel") and P.T. Excelcomindo Pratama ("Excelcomindo"). Telkomsel 
is predominantly owned by Telkom, an Indonesian                                 

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telecommunications industry incumbent, and Singapore Telecommunications         
Limited, one of the largest telecommunications providers in the Asia Pacific    
region. This shareholding combination creates financial and operational         
resources which are significantly greater than ours. On the other hand,         
Excelcomindo, a joint venture between Indonesia's Rajawali Group and Verizon,   
also has substantial resources. We anticipate significant competition from      
Telkomsel and Excelcomindo, either of which has the resources to gain market    
share at our expense. There are also several other service operators that       
provide mobile cellular telecommunications services in Indonesia. Competition   
between our cellular businesses and these operators is based on various         
factors, such as the pricing of services, network quality and coverage, range   
of services offered and customer service. In addition to the current operators, 
the MoC may license additional mobile cellular telecommunications service       
operators in the future and such new licensees may compete with us.             

Telkom introduced CDMA 2001.x Fixed Wireless Service in May 2003 in the     
Jakarta area, and certain customers may find this service competitive in    
price and comparable in service with cellular, which may affect our cellular
business.                                                                   

In May 2003, Telkom introduced TelkomFlexi, a CDMA 2001.x service in the  
Jakarta area. This service is offered as a fixed wireless service but having    
similar mobility and features with those found in cellular services. Telkom has 
announced that it intends to apply local telephone tariffs for this service,    
which are substantially lower than those for cellular services. The Cellular    
Operator Association (Asosiasi Penyelenggara Telekomunikasi Seluler--ATSI) has  
asked the regulator to impose a regulation that limits the mobility of this     
service. However, it is not yet clear whether the regulator will impose any     
restrictive regulations on the mobility of this service. The introduction and   
availability of fixed wireless services and other similar technologies may      
adversely affect our revenue from cellular services.                            

 The number of our subscribers may be increasing, however, it may not have any
impact to our revenue.                                                      

In view of our past experience, we expect that we will have a continuously
increasing number of subscribers in the future. However, considering that there 
is still an uncertain economic situation in Indonesia, including, for example,  
the increasing prices of primary goods, which will substantially affect our     
customers' purchasing power, we cannot predict whether or not such increasing   
number of subscribers may positively affect our revenues. We believe that there 
is no positive correlation between the number of subscribers and the average    
revenue per user ("ARPU") or, in general, our net revenue.                      

Cellular network congestion and limited spectrum availability could limit   
subscriber and revenue growth.                                              

The amount of spectrum available for use by a cellular system effectively 
limits its subscriber capacity. Satelindo's GSM cellular service operates using 
15 MHz of bandwidth, comprised of 10 MHz in the GSM 900 MHz spectrum and 5 MHz  
in the GSM 1800 MHz spectrum, and IM3's GSM cellular service operates using 15  
MHz in the GSM 1800 MHz spectrum. The greater Jakarta region contains the bulk  
of our subscribers, and usage tends to be concentrated in a limited geographic  
area. As a result, in central Jakarta, our network is often operating at or     
near capacity, causing congestion and reduced service quality. However, the     
development of the cellular network is dependent upon many factors, including   
but not limited to capital resource limitations and technological developments, 
and accordingly no assurance can be given that we will be able to develop       
effectively the cellular network and increase system capacity. Congestion that  
reduces service quality may result in limitations on subscriber and revenue     
growth.                                                                         

If the Government allocates additional spectrum or reallocates existing     
 spectrum, additional competitors may enter the cellular service market, which
may adversely affect our cellular businesses' margins, results of operations
and financial condition.                                                    

Although the MoC has allocated all available 900 and 1800 GSM cellular    
spectrum, no assurances can be given that additional spectrum will not become   
available in the future or that the Government will not reallocate              

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existing spectrum. To the extent our current or future competitors in GSM       
cellular services obtain additional spectrum, our competitive position,         
business margins, results of operations and financial condition could be        
adversely affected.                                                             

We depend on the domestic telephone networks and such reliance may decrease 
the performance of our cellular network, resulting in substandard network   
performance and over-capacity issues that we may be unable to resolve.      

We depend on access to the public switched telephone network ("PSTN") for 
termination and origination of cellular telephone calls to and from fixed line  
telephones. A large percentage of our cellular call traffic must go through the 
PSTN. Satelindo's business has been negatively affected by the limited          
interconnection facilities to the PSTN that have been provided to date and      
Satelindo's and IM3's businesses may be negatively affected by such causes in   
the future. Because of interconnection capacity constraints, our cellular       
customers have at times experienced high levels of blocked calls. We are        
working to increase the number and capacity of interconnection points to        
alleviate these problems, but no assurances can be given that such              
interconnection points can be increased or maintained at current levels.        

If we expand our cellular network as anticipated, we may experience a       
significant increase in cellular subscribers, and no assurances can be given
that we will be able to integrate the additional subscribers successfully.  

Our growth plans anticipate substantial expansion of both IM3's and       
Satelindo's cellular networks and an accompanying increase in cellular          
subscribers. No assurances can be given that such expansion plans will          
materialize or, if they do materialize, that either company will be able to     
integrate additional subscribers successfully. Failure to activate new          
subscribers and scale existing operational units to handle such increased usage 
may result in a material adverse effect on our financial condition and results  
of operations.                                                                  

We rely on three equipment vendors for the supply and maintenance of our    
cellular networks, and no assurances can be given that such vendors will be 
able to maintain our cellular networks.                                     

We rely upon Alcatel, Siemens and Ericsson to supply a substantial portion
of the equipment required for our cellular networks, including the microwave    
backbone. We depend on equipment and services from these vendors to maintain    
and replace key components of our cellular networks. Delays in maintenance or   
sourcing replacement equipment for our cellular networks could adversely affect 
the performance of our cellular networks or our ability to provide service to   
our cellular subscribers.                                                       

Risks relating to our international call services business                      

Indosat and Satelindo depend on the PSTN and other cellular providers'      
 networks and such reliance may affect negatively the performance of their IDD
services, resulting in substandard performance issues that we may be unable 
to resolve.                                                                 

All switched calls carried by Indosat and Satelindo either originate or   
terminate on Telkom's domestic telephone network or other cellular operator's   
network, which we do not control. Demand for our international services will    
depend, to a significant degree, on the development, quality and maintenance of 
Indonesia's domestic telephone network.                                         

The entry of Telkom, a well-established Indonesian telecommunications       
industry incumbent, into the international business would adversely effect  
Indosat's and Satelindo's international business margins, results of        
operations and financial condition.                                         

Telkom, a well-established Indonesian telecommunications incumbent with   
significant political and financial resources, announced that it will enter the 
IDD market in August 2003 after liberalization of the                           

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telecommunications sector. Telkom's entry into the IDD market would pose a      
significant competitive threat to us. If Telkom enters the IDD market, Indosat  
and Satelindo would likely suffer loss of market share, declining margins and   
revenues and other adverse effects on the financial condition of their          
international businesses.                                                       

Interconnection revenues from foreign telecommunications carriers may be    
unreliable, and Indosat and Satelindo may not receive all monies due in     
connection with provision of their international call services.             

A significant portion of our revenues from international call services    
consists of amounts received from foreign telecommunications operators for      
handling incoming calls to Indonesia. Such operators may not make these         
interconnection payments to us promptly when such payments become due and       
payable. Further, adverse economic conditions at such operators in other        
countries may adversely affect such operators' ability to make interconnection  
payments to us in a timely manner or at all.                                    

A decrease in applicable accounting rates may adversely affect our          
interconnection revenues.                                                   

Telecommunications providers make interconnection settlements based on    
established accounting rates. The accounting rates are based on agreements      
between such providers. These agreements are subject to periodic renegotiations 
and, in recent years, certain foreign telecommunications carriers have been     
seeking reductions in accounting rates. Pursuant to a decision of the MoC,      
Indosat is the designated administrative party to act on behalf of the MoC in   
accounting rate renegotiations. International accounting rates have been        
decreasing in recent years, and we expect that they will continue to decrease   
in the future. Any reduction in rates may result in reduced interconnection     
revenues on incoming calls.                                                     

VoIP usage is increasing and certain customers use VoIP services rather than
traditional international long distance services.                           

Worldwide and Indonesian trends indicate increased usage of VoIP services 
and a corresponding decrease in the usage of traditional international long     
distance services. The cost structure for providers of VoIP services is lower   
than for traditional fixed line operators and as such, VoIP services are        
customarily offered at significant cost savings compared to traditional         
international long distance services. Availability of VoIP services may         
adversely impact Indosat's and Satelindo's revenues from its IDD operations.    

The unfavorable economic and political situation in Indonesia may adversely 
 affect the levels of international business activity in the country and other
factors which may in turn have a negative effect on our international       
business revenues.                                                          

Our international call services business is affected by the levels of     
international business activity and tourism in Indonesia, international         
accounting rates, tariffs for international calls, fluctuation in the exchange  
rate of the Rupiah against the U.S. dollar and compensation to                  
telecommunications carriers and service providers. The continued unfavorable    
economic and political situation in Indonesia may affect the growth of foreign  
investment in Indonesia, which indirectly affects the demand for international  
calls.                                                                          

Risks related to our MIDI business                                              

Competition for the MIDI business is increasing, and we may experience      
declining margins.                                                          

Our MIDI business is facing increased competition from new market entrants
providing data communications and multimedia and established market             
participants, such as Telkom, which have wider customer bases. Moreover,        
Satelindo's satellite business faces increasing competition as new, more        
powerful satellites are prepared for launch and as companies acquire exclusive  
licenses to provide certain broadcast services in Indonesia, including          
Indovision's recent acquisition of an exclusive license to provide DTH          
television services. In some cases, Satelindo has leases in effect for the      
transponder space on its Palapa-C2 satellite for                                

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periods of only two to five years, while the remaining useful life of the       
satellite is estimated to be approximately nine years. As additional competing  
satellites are launched and become operational, and as Satelindo's transponder  
leases expire or are terminated, Satelindo's transponder lessees may utilize    
other satellites.                                                               

We depend on the domestic telephone networks to provide services directly to
customers, and such reliance may decrease the performance of our networks or
our ability to provide services at all.                                     

We depend on access to the PSTN for termination and origination of MIDI   
services delivered to and from fixed line locations. A large portion of our     
MIDI services traffic must go through the PSTN. Currently, we have limited      
local access to customers and rely on other companies, such as Telkom. If we    
fail to deploy our own local access solutions or experience delays in deploying 
such access, our MIDI business may be negatively affected.                      

 Satelindo's satellite business has a limited life and substantial risk exists
for Palapa-C2 to be damaged or completely destroyed during operation.       
Satellite loss or reduced performance may adversely affect our financial    
condition, results of operations and ability to provide certain services.   

The Palapa-C2 satellite has a limited operational life, which is presently
estimated to end in early 2011. A number of factors affect the operational      
lives of satellites, including the quality of their construction, the           
durability of their component parts, the amount of fuel on board, the launch    
vehicle used and the manner in which the satellite is monitored and operated.   
The satellite could fail before the end of its useful life, and repairing GEO   
satellites such as the Palapa-C2 satellite while in orbit is not feasible.      

Satelindo currently maintains in-orbit insurance covering the loss of the 
Palapa-C2 satellite, providing for payments of US$150 million in the event of a 
total loss of the satellite. Because Palapa-C2 is of a class of satellite,      
which has been identified as prone to failure of the satellite control          
processor ("SCP"), Satelindo's satellite insurance does not cover satellite     
malfunction caused by failure of the SCP.                                       

Satelindo's creditors have a lien on the insurance policy taken out in    
respect of the Palapa-C2 satellite and any proceeds therefrom. If the Palapa-C2 
satellite suffers damage or fails and such damage or failure results in the     
collection of insurance proceeds, Satelindo's creditors would likely enforce    
their lien. If the damage or failure rendered Palapa-C2 unfit for future use,   
Satelindo may cease its satellite operations. The termination of Satelindo's    
satellite business may have a material adverse effect on our financial          
condition and results of operations.                                            

Item 4:  INFORMATION ON THE COMPANY                                             

Overview                                                                        

 We are currently the second largest Indonesian mobile cellular operator, as
measured by subscribers, and the primary provider of international              
telecommunications services in Indonesia. We also provide MIDI services to      
Indonesian and regional users. For the year ended December 31, 2001, revenues   
from our international calls segment gave the highest contribution to our       
business, consistent with prior years. However, in 2002, as a result of an      
increased focus on our cellular business, our cellular segment was our most     
significant contributor to total revenues, contributing 48.3%. International    
calls, MIDI, and other services contributed 31.6%, 18.7% and 1.4%,              
respectively, in 2002.                                                          

Our principal services are:                                               

.   Cellular.  We provide GSM 900 and 1800 cellular services through      
   Satelindo and GSM 1800 services through IM3. We recorded consolidated
cellular services revenues of Rp. 3,271.7 billion in 2002.        

.   International calls.  We provide IDD and other international call     
    services through Indosat and Satelindo. Our consolidated international
long distance revenues in 2002 were Rp. 2,137.9 billion; and      

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.   MIDI.  We provide MIDI services through Indosat, Satelindo and        
 Lintasarta. Our consolidated MIDI revenues in 2002 were Rp. 1,263.0
billion.                                                          

Prior to 2002, our primary business has been providing international call 
services, which accounted for approximately 73.0% of our revenues in 2000.      
Following changes in the Indonesian telecommunications regulatory structure in  
1999, we began implementing a strategy intended to transform us from an         
international long distance service provider into a fully-integrated            
telecommunications network and services provider. In May 2001, Indosat acquired 
a 67.5% equity interest in Satelindo, increasing Indosat's interest in          
Satelindo to 75.0%, and we became the second largest provider of cellular       
services in Indonesia. Satelindo also provides satellite services and           
international call services, which complement and enhance Indosat's             
international and MIDI services. In May 2001, Indosat also acquired an          
additional 37.2% interest (on a diluted basis) in Lintasarta, a leading         
Indonesian data services provider, giving Indosat an effective interest of      
69.5%. In 2001, Indosat also established IM3 as a subsidiary of Indosat to      
provide GSM 1800 cellular services.                                             

In June 2002, Indosat acquired the remaining 25.0% of Satelindo from DeTe 
Asia. By this acquisition, Indosat owns, directly and indirectly, 100.0% of the 
shares of Satelindo, thereby consolidating Indosat's position as a              
cellular-focused, fully-integrated telecommunications network and service       
provider in Indonesia. We expect that cellular revenues will account for an     
increasing percentage of total revenues in 2003 and thereafter and that         
international call services revenues will decrease as a percentage of total     
revenues.                                                                       

History                                                                         

Indosat, or P.T. Indonesian Satellite Corporation Tbk, was established in 
1967 as an indirect wholly-owned subsidiary of International Telephone and      
Telegraph Corporation ("ITT") and was selected by the Government to build,      
transfer and operate an International Telecommunications Satellite Organization 
("Intelsat") earth station in Indonesia to access Intelsat's Indian Ocean       
Region ("IOR") satellites for a period of 20 years. Intelsat is a world-wide    
consortium of global international satellite communications organizations,      
which owns and operates a number of telecommunications satellites.              

Indosat began commercial operations in September 1969. In 1979, Indosat   
completed a second Intelsat earth station, which provided access to Intelsat's  
Pacific Ocean Region ("POR") satellites.                                        

In 1980, ITT sold Indosat to the Government for approximately US$43.8     
million. After the sale, Indosat became a persero, or state-owned limited       
liability corporation domiciled in Indonesia, and the sole provider of          
international telecommunications services in Indonesia. At that time, the       
Government transferred its ownership in Indosat's facilities to Indosat.        

 In 1983, Indosat introduced IDD services, later expanding its operations by
opening gateways in Medan in 1985, Batam in 1992 and Surabaya in 1995.          

Indosat has been the Indonesian representative for Intelsat since 1985 and
for Inmarsat since 1986. Inmarsat is a worldwide consortium of global           
international satellites for mobile communications. Inmarsat was privatized in  
April 1999, and Intelsat was privatized in July 2000. After both institutions   
were privatized, Indosat lost its exclusivity rights in the institutions.       

In October 1994, Indosat completed an initial global public offering of   
shares ("Initial Public Offering"). Pursuant to the Initial Public Offering,    
Indosat sold 103,550,000 Series B shares to the public in Indonesia, and the    
Government sold 258,875,000 Series B shares, represented by 25,887,500 ADSs, to 
non-Indonesian persons located outside Indonesia. The Series B shares began     
trading on the Jakarta Stock Exchange ("JSX") and the Surabaya Stock Exchange   
("SSX") on October 19, 1994. The ADSs began trading on the New York Stock       
Exchange ("NYSE") on October 18, 1994.                                          

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Indosat was directly affected by the Telecommunications Law, which became 
effective on September 8, 2000. The Telecommunications Law provides guidelines  
for industry reform, including industry liberalization, and facilitates new     
entrants and enhanced competition. The reforms require removal of monopolistic  
controls to encourage a competitive environment and to eliminate discriminatory 
and restrictive practices. These reforms were introduced pursuant to the        
Government's letter of intent with the IMF relating to the Indonesian Economic  
Recovery Program. In 2001, as part of the Government's initiative to            
restructure the Indonesian telecommunications sector, Indosat and Telkom        
concluded an agreement eliminating their respective cross-shareholdings in      
several telecommunications operating subsidiaries. The salient parts of this    
agreement include:                                                              

  .   Indosat acquiring Telkom's 22.5% interest in Satelindo for approximately
US$186 million;                                                   

  .   Telkom acquiring Indosat's 35.0% interest in Telkomsel for approximately
US$945 million; and                                               

.   Indosat acquiring Telkom's 37.2% interest in Lintasarta, as well as   
Lintasarta's convertible bonds held by Telkom, for an aggregate   
consideration of approximately US$38 million and Rp. 4.1 billion. 

After the agreement with Telkom, Indosat acquired an effective 45.0%      
interest in Satelindo, through its acquisition of P.T. Bimagraha Telekomindo    
("Bimagraha"), for approximately US$372 million. In June 2002, Indosat acquired 
a further 25% interest in Satelindo from DeTe Asia for approximately US$325     
million. Upon completion of the transaction with DeTe Asia, Indosat effectively 
owned 100% of Satelindo. Further, Indosat injected additional capital amounting 
to US$75 million into Satelindo. The purpose of this additional capital         
injection was to strengthen Satelindo's capital structure and remove certain    
restrictive covenants arising from Satelindo's indebtedness.                    

  In August 2002, Indosat commenced its entry into domestic telecommunications
service through the award of a license to provide local fixed network services  
in the Jakarta and Surabaya areas. Indosat deployed around 13,000 lines in      
those areas to provide its local fixed telephone services. At the same time,    
Indosat also announced its strategic objective of becoming a cellular-focused,  
fully integrated telecommunications network and service provider, through a     
transformation process which involves creating and benefiting from synergies    
between Satelindo and IM3, as well as considering various scenarios for the     
legal merger of Satelindo and IM3 into Indosat. Indosat has recently appointed  
Hay Group/AT Kearney as its strategic management consultant and ING as its      
financial adviser to advise Indosat with respect to this possible merger.       

  In November 2002, Indosat successfully completed the offering of the Indosat
Bond II and Indosat Islamic Revenue Sharing Bond with an aggregate principal    
amount Rp. 1,250.0 billion. The bonds were listed and started trading on the    
SSX on November 8, 2002.                                                        

In 2002, the Government, acting through the Ministry of State-Owned       
Enterprises, divested 517.5 million shares (representing approximately 50% of   
Indosat's shares) in two stages. In May 2002, the Government sold 8.1% of       
Indosat's shares through an accelerated global tender. In December 2002, the    
Government divested an additional 41.94% of Indosat's shares to STT acting      
through its wholly-owned subsidiary, ICL (see "Major Shareholders"). As a       
result of these transactions, the Government now owns 15% of the shares of      
common stock of Indosat, as well as the Series A special share. ICL owns 41.94% 
of Indosat's shares, while the remaining 43.06% of Indosat's shares are owned   
by the public shareholders.                                                     

In February 2003, Indosat received approval from Indonesia's Investment   
Coordinating Board (BKPM) for the change of its legal status, from a            
State-owned Company (persero) to a Foreign Investment Company (PMA).            
Subsequently, in March 21, 2003, Indosat received approval from the Minister of 
Justice and Human Rights on the amendment of its Articles of Association to     
reflect this change in legal status (see "Additional Information--Description   
of Articles of Association and Capital Stock"). Under Indonesian law there are  
no significant differences of rights and obligations between a PMA company and  
a Domestic Investment Company (PMDN).                                           

Indosat announced in April 2003 that, following a selection and evaluation
process, Indosat selected Mega Asia Consortium as Indosat's partner for a new   
Indosat Partnership Program. Indosat signed an initial Heads of                 

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Agreement with Mega Asia Consortium in the same month. A build and operate      
agreement is being negotiated and has not yet been finalized. Once finalized,   
Indosat expects to begin preparations for the construction with Mega Asia       
Consortium of approximately 700,000 fixed wireless lines in Jakarta and         
Surabaya over an estimated period of three years.                               

To our knowledge, since January 1, 2002, there have not been any public   
takeover offers by third parties in respect of Indosat's shares, nor have we    
made any public takeover offers in respect of other companies' shares.          

Business Strategy                                                               

Until 2001, most of our revenues had been generated by the provision of   
basic voice telecommunications services to customers making and receiving       
international calls. In recent years, competition in the Indonesian             
telecommunications industry has increased significantly as regulatory changes   
encouraged new operators to enter the market. See "--Regulation". Meanwhile,    
technology advancements and market developments, characterized by an increasing 
demand for mobile services and the convergence of technologies, such as between 
fixed line and wireless and between data and voice, have accelerated such       
changes.                                                                        

Due to this rapidly changing and increasingly-competitive operating       
environment, we began to transform our business in 2001 with the aim of         
becoming a cellular-focused, fully-integrated telecommunications network and    
service provider, primarily through the acquisition of Satelindo. Satelindo is  
the second largest mobile cellular provider in Indonesia with around 3.1        
million subscribers as of December 31, 2002.                                    

In addition to that, we also established IM3 to provide GSM 1800 mobile   
cellular services. Indosat now holds 99.94% of the shares of IM3, and Indosat   
spent approximately Rp. 1.7 trillion to establish and commence IM3's services   
in the third quarter of 2001 in nine big cities in Indonesia. As of December    
31, 2002, IM3 had more than 0.5 million subscribers, making it the fourth       
largest mobile cellular provider in Indonesia.                                  

To enhance Indosat's competitive strength and to accomplish our           
transformation objectives, we intend to:                                        

.   Concentrate on cellular growth.  We plan to integrate and further     
    develop our cellular services business to capture the growing value of
cellular business in Indonesia.                                   

.   Maintain international calls business and selectively deploy fixed    
      networks.  To maintain our existing IDD market share, we plan to develop
     retention programs and new points of service differentiations vis-a-vis
     the very competitive IDD market. Selective deployment of fixed networks
     will also be used to defend IDD market share, as well as to selectively
enter the domestic telecommunications service.                    

.   Nurture MIDI growth.  We plan to maximize the synergy of MIDI business
     within the Indosat group. Indosat, together with Satelindo, Lintasarta,
  and P.T. Indosat Mega Media ("IMM") intend to expand upon a widening
   range of multi-media, data and Internet services including high-speed
point-to-point leased line, packet-switched data network ("PSDN"),
 digital data network, frame relay, Internet and satellite services.

.   Enhance and leverage combined strengths.  In order to use all portions
   of our network efficiently and to offer integrated telecommunications
  services, we intend to have an integrated platform based on Internet
      Protocol ("IP"). We intend to enhance and leverage our infrastructure to
    carry voice and data traffic generated by our mobile and international
 calls business, as well as traffic generated by our other principal
business lines. We expect that joint network planning, product    
     rationalization, aggregation of procurement and increased network usage
will optimize returns and create cost efficiencies.               

Simply put, our strategy is to operate and expand our three principal     
business lines--cellular, international telecommunications, and MIDI            
services--across a common network system, and to integrate the network and our  
services through the use of a common platform. We believe that our strategy     
will assist us to secure our position in the increasingly competitive           
Indonesian telecommunications marketplace.                                      

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Principal Products and Services                                                 

Our principal products and services follow our three lines of business:   
cellular, international calls and MIDI services. Traditionally, our core        
business and largest revenue component has been international calls services.   
However, since we entered the Indonesian cellular market through our            
acquisition of Satelindo and establishment of IM3, cellular services have       
become a significant revenue component for us. In 2001, cellular services were  
the second largest contributor to total operating revenues, and it became the   
largest contributor in 2002, due to the 85% growth in cellular revenue.         

The table below shows the breakdown of our total consolidated operating   
revenues for each of the years indicated and the percentage contribution of     
each revenue component to the total:                                            

                                                        [Enlarge/Download Table]

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

                                                      Year Ended December 31,           
                                             -------------------------------------------
                                                 2000            2001          2002     
----------------------------------------------------------------------------------------
                                               Rp.       %     Rp.     %     Rp.     %  
                                             (in billions of Rupiah, except percentages)
                                                                                        
Operating revenues:                                                                     
   Cellular.................................      --      -- 1,769.9  34.5 3,271.6  48.3
   International calls...................... 2,184.0    73.0 2,157.5  42.0 2,137.9  31.6
   Multimedia, data communication, Internet.   731.7    24.5 1,105.1  21.5 1,263.0  18.7
   Other services...........................    76.5     2.5   105.6   2.0    94.3   1.4
                                             -------   ----- ------- ----- ------- -----
       Total operating revenues............. 2,992.2   100.0 5,138.1 100.0 6,766.9 100.0
                                             =======   ===== ======= ===== ======= =====
----------------------------------------------------------------------------------------

Cellular services                                                           

 We provide cellular services through our wholly-owned subsidiary, Satelindo
and 99.94% owned subsidiary, IM3. Cellular services contributed Rp. 3,271.6     
billion in 2002, representing 48.3% of our 2002 total consolidated operating    
revenues.                                                                       

 As of December 31, 2002, Satelindo was the second largest cellular provider
in Indonesia, as measured by subscribers, with approximately 3.1 million        
subscribers. This represents an estimated 27.1% market share of the cellular    
market, based on our estimates from available market data. Satelindo's cellular 
network currently covers all major cities in the populated areas of Java and    
Bali, as well as major cities in Sumatra, Sulawesi and Kalimantan. Satelindo    
provides GSM 900 and GSM 1800 technology.                                       

IM3 commenced operations in August 2001. At that time, it was the first   
company in Indonesia providing GSM 1800 technology. As of December 31, 2002,    
IM3 had approximately 0.5 million customers, representing an estimated 4.5%     
market share of cellular market, based on our estimates from available market   
data. IM3's cellular network covers nine of the largest cities in Indonesia,    
including Jakarta, Bandung, Semarang, Solo, Yogyakarta, Surabaya, Malang,       
Denpasar and Batam.                                                             

We currently plan to integrate the cellular business of Satelindo and IM3.
In working towards network integration, by the end of 2002 IM3 had implemented  
national roaming on Satelindo's network throughout Indonesia for IM3's postpaid 
and prepaid subscribers. Satelindo and IM3 had also co-located certain base     
stations, thereby reducing operating costs. Moving forward, we plan to continue 
to further integrate Satelindo's and IM3's networks through equipment and       
vendor compatibility.                                                           

Services                                                                    

  Our principal cellular service is the provision of airtime or usage. Airtime
or usage is sold under postpaid and prepaid plans. Apart from the timing of     
payments, the principal difference between postpaid and prepaid airtime plans   
is the tariff structure, with prepaid subscribers subject to higher tariffs due 
to the lack of monthly subscription fees. Satelindo's postpaid plans are        
offered under the brand names Matrix and Mitra. Matrix is a                     

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basic service package with a postpaid payment plan. In order to serve our       
corporate customers and offer more value to our customers, we also offer Matrix 
in program packages, namely Mitra (Corporate Package) and Matrix F2 (Family and 
Friends). Satelindo's prepaid plans are offered under the brand names Mentari   
and Mentari Plus. Mentari offers the advantage of free national roaming. IM3    
markets its postpaid airtime packages under the brand name Bright, and its      
prepaid airtime packages under the brand name Smart.                            

Postpaid and prepaid customers of Satelindo and IM3 have access to local, 
domestic long distance ("DLD") and international direct long distance dialing.  
In addition, Satelindo and IM3 offer a variety of additional, value-added       
services, functions and features for their respective subscribers, depending on 
the airtime package purchased, including:                                       

.   SMS--short text messaging service, which allows users to send text    
      messages to other users' handphone display screens and, since July 2001,
to send such messages to subscribers of other telecommunication   
providers;                                                        

.   Mobile data and facsimile services--services, which allow users to    
  download content on a variety of subjects including sports, news and
   finance to their mobile phones, as well as to send and receive faxes;

.   Voicemail--a standard voicemail service that enables callers to leave 
and users to retrieve voice messages;                             

.   Caller line identification--a caller identification service that      
displays the incoming call number on a user's mobile phone display
screen;                                                           

  .   Call holding--a standard call holding feature that allows users to place
    an incoming or outgoing call on hold in order to make or receive other
calls;                                                            

  .   Call waiting--a feature that signals users of another incoming call when
   their lines are engaged. Upon hearing such a signal, users can answer
      the second call if they wish, thereby placing the original call on hold;

 .   Call forwarding--a service that enables users to forward incoming calls
to other cellular or fixed line numbers;                          

.   Detailed billing--a service that provides customers with more detailed
     billing statements indicating the duration and cost of all calls to and
from a particular mobile phone;                                   

  .   Direct debit payment--a payment option that automatically deducts billed
amounts from the relevant users' bank accounts and credit cards;  

.   Top up via SMS and Asynchronous Transfer Mode ("ATM")--a voucher      
    recharge via ATM or SMS that automatically deducts billed amounts from
the relevant users' bank accounts; and                            

.   International roaming--a service that allows prepaid and postpaid     
customers to have access (SMS and voice) while roaming in foreign 
networks.                                                         

Mobile data and facsimile, voicemail, call holding/waiting/forwarding,    
detailed billing and direct debit payments are services, which are only         
available to postpaid subscribers. Other value-added services include call      
barring, conference calls, circuit-switched data, multimedia messaging services 
and general packet radio services ("GPRS"). These services and features are     
designed to attract and retain subscribers. Some of these services are offered  
free of charge while others, such as SMS, mobile data and facsimile services    
and detailed billing, require additional fees and are intended to increase      
revenue per subscriber. Satelindo introduced its SMS service to postpaid        
cellular subscribers in 1995 and extended the service to prepaid subscribers in 
May 2000. Usage levels have risen consistently, from approximately 319,000 text 
messages per day for Satelindo in June 2000 to approximately 7.4 million text   
messages per day in December 2002. IM3 recorded an average of approximately     
850,000 text messages per day throughout 2002. In 2002, SMS usage accounted for 
substantially all of Satelindo's revenues from value-added cellular services.   
We believe that increasing SMS usage may have a negative impact on revenues     
from traditional voice services, although the magnitude of this impact is       
uncertain.                                                                      

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Satelindo launched its portfolio of mobile data services in 2000 under the
brand name Satelindo @ccess. Mobile data services can be accessed over SMS or   
through a direct dial-up connection to a wireless application protocol ("WAP")  
server. Users are able to access a variety of information, including movie      
listings, stock quotes, exchange rates, sports and business news, astrological  
predictions and SMS Top Up. Satelindo @ccess subscribers can also send and      
receive e-mail. We expect that Satelindo will offer mobile financial            
transaction services in 2003.                                                   

 In 2002, IM3 launched a similar portfolio of mobile data services under the
name of M3-Access. These services can also be accessed via SMS (like            
info-on-demand SMS) or through a direct dial-up connection to a WAP server.     
Through this service a variety of information can be downloaded, such as movie  
schedules, exchange rates, horoscopes, sports, business and technological news, 
both international and domestic. In 2002, IM3 also launched mobile banking      
services in cooperation with P.T. Bank Mandiri (Persero) ("Bank Mandiri"), one  
of the largest banks in Indonesia. IM3 also launched MMS (multimedia messaging  
service), a service by which customers can send not only text, but also         
pictures, video and voice.                                                      

Each of Satelindo and IM3 have entered into interconnection agreements,   
which allow their cellular networks to interconnect with the PSTN operated by   
Telkom, the international gateways operated by Indosat and Satelindo and the    
networks of each of the other Indonesian cellular and fixed wireless operators. 
These agreements allow their cellular subscribers to communicate with customers 
of such other telecommunications service providers.                             

Satelindo and IM3 offer roaming services to their customers, which allow  
them to make and receive calls and send and receive SMS text messages when      
outside Indonesia. Satelindo has entered into roaming agreements with operators 
of GSM cellular networks in Africa, Europe, North and South America and other   
Asian countries and regions. As of December 31, 2002, Satelindo's postpaid      
cellular subscribers were able to roam internationally on 199 networks in 94    
countries, making Satelindo the largest international roaming operator in       
Indonesia.                                                                      

As of December 2002, IM3 postpaid subscribers were able to roam           
internationally on over 63 networks in 45 countries. IM3 has also entered into  
roaming agreements with operators of CDMA networks in Korea, which allows       
postpaid subscribers to communicate in a country where there is no GSM network  
operator.                                                                       

 Within Indonesia, Satelindo's postpaid and prepaid cellular subscribers can
roam in Indonesia within the Satelindo network, but cannot use another          
Indonesian cellular provider's network. However, Satelindo and IM3 have entered 
into a unilateral roaming agreement, which allows IM3 subscribers to roam in    
Satelindo's network.                                                            

Customers and marketing                                                     

We segment the Indonesian population by location, disposable income and   
other factors that we believe indicate the desire and ability of individuals    
and corporations to purchase our products and services. We then target areas we 
believe are populated with a greater number and higher density of potential     
subscribers. Satelindo currently targets populations in all major cities in     
more densely populated areas of Java and Bali, as well as major cities in       
Sumatra, Sulawesi and Kalimantan. These areas are generally economically more   
developed and more prosperous than other areas in Indonesia. Satelindo has      
traditionally had its primary subscriber base in the more densely populated     
area of greater Jakarta (including Jakarta, Bogor, Tangerang and Bekasi), while 
IM3 has focused on building its subscriber base in the nine higher-density      
areas of Batam, Surabaya, Semarang, Malang, Yogyakarta, Solo, Bandung, Jakarta  
and Denpasar.                                                                   

 Satelindo has recorded subscriber growth every year since the launch of its
GSM cellular business in Indonesia. Its prepaid subscriber base has grown       
significantly over the past three years relative to its postpaid subscriber     
base. At the end of 2000, Satelindo had approximately 184,900 postpaid and      
870,400 prepaid cellular subscribers. By the end of 2001, its subscriber base   
had grown to approximately 169,000 postpaid and 1,600,000 prepaid cellular      
subscribers. As of December 31, 2002, Satelindo had 198,623 postpaid and        
2,872,752 prepaid                                                               

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subscribers. At the end of December 31, 2002, IM3, on the other hand, had       
42,955 postpaid subscribers and 468,321 prepaid subscribers. In the past, we    
have focused on increasing the number of our prepaid subscribers, as prepaid    
subscriptions minimize subscriber credit risks, as well as reduce billing and   
collection costs. In addition, we believe that Indonesian customers tend to     
favor the convenience, ease of activation and lack of credit checks associated  
with prepaid plans. Prepaid subscribers also generally have a lower average     
monthly churn rate than postpaid subscribers.                                   

When cellular services first became available in Indonesia, cellular      
subscribers consisted primarily of high income individuals and business         
customers, including government entities. As activation fees and handset prices 
declined and cellular technology improved, cellular services have become        
increasingly affordable and much more popular with the broader middle income    
market for both business and social uses. These subscribers generally have      
lower average monthly usage and are generally more price-sensitive. ARPU was    
Rp. 117,542 and Rp. 89,658 for Satelindo prepaid subscribers for 2001 and 2002, 
respectively, and was Rp. 359,477 and Rp. 386,347 for Satelindo postpaid        
subscribers for the same periods, respectively. For IM3, blended postpaid and   
prepaid ARPU was Rp. 102,144 at the end of 2002.                                

Satelindo's and IM3's marketing strategy emphasizes their wide range of   
innovative services and customer service. For example, Satelindo recently       
introduced a new tagline of "The freedom to be you" for its cellular services   
and, to strengthen brand recognition, is using this tagline for all of its      
promotional activities. IM3 uses the tagline of "No Limit" for its promotional  
activities. Satelindo and IM3 regularly advertise in major newspapers,          
magazines and via direct mailings, and each also engages in telemarketing.      
Satelindo and IM3 are currently targeting different segments of the cellular    
market; Satelindo is primarily focusing upon attracting higher-end, more        
affluent prepaid subscribers, as well as high-usage customers, such as          
corporate accounts and professional individuals, and IM3 is primarily targeting 
the younger mass market.                                                        

We conduct our sales, distribution and marketing activities through our   
customer service and sales centers, called "Satelindo Direct" for Satelindo and 
"IM3 Gallery" for IM3, a network of independent dealers, and through our        
corporate sales group, comprised of sales representatives and account managers. 
These outlets act as the branches and offer a broad range of services including 
providing product and service information, answering customer queries and       
providing bill payment services. Customers can register for, activate, and pay  
for all of our cellular services at these outlets. We also use independent      
dealers who have their own networks throughout Indonesia to sell our wireless   
services, primarily to individuals. These dealers include major distributors of 
wireless phone handsets and tend to have their own retail networks, direct      
sales forces and sub-dealers in Indonesia. We also have a dedicated team of     
employees who coordinate sales and services to Indonesian corporations.         

Tariff structure and revenues                                               

The Indonesian cellular telecommunications market generally operates on a 
"calling party pays" system, which requires that the originators of telephone   
calls pay for calls. The tariffs for postpaid subscription services are         
established in accordance with the Mobile Cellular Tariff prescribed in MoC     
Decree No. 27/1998, and consist of activation, monthly subscription and usage   
charges.                                                                        

The Mobile Cellular Tariff is the maximum tariff that can be charged for  
cellular services by Indonesian cellular operators. Pursuant to the Mobile      
Cellular Tariff, the maximum tariff chargeable for activation fees is Rp.       
200,000, and the maximum monthly fee (including frequency charge) is Rp.        
65,000. The maximum airtime charge is Rp. 325 per minute for non-peak hours and 
Rp. 406 per minute for peak hours. Although the MoC does not set specific       
tariffs levels for prepaid subscription services, it has limited the maximum    
amount chargeable for prepaid services to 140% of the Mobile Cellular Tariff.   
Prepaid tariffs are typically higher than tariffs for postpaid customers as     
there is no monthly subscription fee, and Satelindo's and IM3's prepaid airtime 
charges are generally at or close to the maximum rate chargeable (although      
Satelindo has recently lowered certain of its tariffs; see "Recent tariff       
reduction of Satelindo's Mentari Services" below).                              

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 Activation fees and monthly charges.  Activation fees represent the initial
connection fees charged to new postpaid and prepaid customers when subscribing  
to a cellular network. Monthly charges represent fixed amounts charged only to  
postpaid cellular subscribers for maintaining access to the cellular network.   
Currently, our postpaid customers are charged a one-time activation fee of Rp.  
75,000, a monthly subscription fee of Rp. 65,000 per month airtime of Rp. 325   
per minute for non-peak hours and Rp. 406 per minute during peak hours. We      
recognize the revenue from the service activation component of prepaid starter  
pack sales upon actual sale and delivery of starter packs to customers          
(dealers, distributors and subscribers). Sales of initial and reload vouchers   
are recorded as unearned revenues and recognized as revenue upon usage of       
available airtime or expiration of the voucher.                                 

 Airtime.  For local calls originating or terminating on the PSTN, Satelindo
subscribers are charged a variable usage charge based on the location called    
and the time of the call. For local calls from a cellular subscriber to the     
PSTN, we are required to pay Telkom 50% of the prevailing tariff for local      
pulse per minute. For local calls from the PSTN to a Satelindo or IM3 cellular  
subscriber, Telkom collects the prevailing applicable local call tariff plus an 
airtime charge of between Rp. 325 and Rp. 406 per minute, which Telkom remits   
to us. We have similar arrangements if our subscribers make calls to or receive 
calls from subscribers of other domestic cellular networks. If our subscriber   
calls a subscriber of another domestic cellular network, we collect twice the   
applicable airtime tariff plus the prevailing tariff for local pulse per        
minute. We would then remit one half of the collected airtime tariff to the     
domestic cellular network operator on which the call was terminated. If a call  
is made to our subscriber, the other domestic cellular network operator         
collects the applicable fees and remits the appropriate portion thereof to us.  
If our subscriber calls another subscriber of ours, we keep all charges         
collected. For domestic and international long distance calls, we collect       
applicable long distance tariffs and recognize these amounts as airtime fees.   
Certain international and domestic roaming charges are also collected and       
recognized as airtime fees. If a postpaid subscriber makes calls when outside   
his home area, whether domestic or abroad, then the subscriber pays a roaming   
charge. Satelindo prepaid subscribers do not pay domestic roaming charges and   
cannot roam internationally; IM3 prepaid subscribers pay domestic roaming       
charges. Airtime fees also includes fees charged to other operators'            
subscribers when they place calls to our subscribers. Such fees are collected   
by the calling party's cellular or fixed-line network and remitted to us        
pursuant to interconnection agreements.                                         

Value-added services.  The MoC does not regulate the tariffs for SMS or   
other value-added services. Currently, Satelindo charges usage fees for use of  
its SMS at Rp. 300 per message for postpaid subscribers and Rp. 350 per message 
for prepaid subscribers. Satelindo has increased its SMS charges since the      
inception of the service; the most recent increase was effected in January      
2002. SMS operates on a "sender keep all" basis, which means that Satelindo and 
IM3 earn revenue whenever one of their subscribers sends an SMS, however they   
do not earn any revenue if a non Satelindo/IM3 subscriber sends an SMS to one   
of their subscribers. For IM3's GPRS, which was launched in early 2002,         
subscribers are charged Rp. 20 per kilobyte of data downloaded.                 

We receive roaming settlements from foreign telecommunications operators  
when their subscribers roam on our network. Additionally, as part of the        
unilateral domestic roaming arrangement which Satelindo has entered into with   
IM3, currently Satelindo may keep the calling charges earned from IM3           
subscribers who roam domestically within Satelindo's coverage area.             

Recent tariff reduction of Satelindo's Mentari Services.  Continuing our  
efforts to enhance services to Mentari (prepaid card) users, Satelindo          
announced a change of calling charges for Mentari users. Starting from June 1,  
2003, calling charges for Mentari customers to PSTN or ordinary fixed phone are 
Rp. 816 per minute. Under this new tariff system, each of the 50 local zones in 
Indosat is extended up to 200 km in distance. This means, a Mentari user in one 
city may call a PSTN number in another city within the same zone for a local    
calling charge. Furthermore, Satelindo will apply a local calling charge for a  
call between Mentari and a PSTN number in another zone, as long as the cities   
are within 30 km of the city of the caller. In addition, there is no surcharge  
for a Mentari user to receive or make a call outside the local zone or outside  
the city which he or she registered as the user (referred to as "free           
roaming"). In addition, these Mentari users will also enjoy a special tariff    
for calls to other Mentari or Matrix users throughout Indonesia of Rp 1,499 per 
minute. With this offering,                                                     

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the entire territory of Indonesia can be considered as a single zone for calls  
between Satelindo's users. Based on preliminary calculations, we estimate an    
approximately 10% decline in ARPU of Satelindo's prepaid subscribers. However,  
we expect that the tariff reduction policy will increase our subscriber base,   
thus helping to maintain our revenue growth and offsetting the adverse effect   
of such policy on our revenue stream.                                           

Interconnection                                                             

  Satelindo and IM3 currently interconnect with the PSTN operated by Telkom at
numerous locations throughout Indonesia. In order to minimize its               
interconnection fees, Satelindo utilizes its own backbone transmission          
facilities whenever possible and in compliance with applicable regulations. For 
example, routing a long distance call from a Satelindo customer in Surabaya to  
a caller in Jakarta through its microwave transmission lines or satellite       
hook-up allows Satelindo to avoid the PSTN transmission altogether.             

Activation, billing and collection                                          

Potential customers can apply for Satelindo's cellular services at any of 
its sales and distribution points. Satelindo Direct outlets and selected        
primary independent dealers are able to register, verify the address of         
potential new subscribers and then approve and activate new subscribers. The    
majority of its independent dealers, however, can only receive new applications 
for cellular services, which are then forwarded to Satelindo for processing. A  
potential subscriber for its postpaid service is required to provide proof that 
it meets its minimum credit requirements. If a potential subscriber does not    
meet Satelindo's postpaid requirements, its sales representative typically      
recommends Satelindo's prepaid services. Once approved, postpaid service        
Subscriber Identity Module ("SIM") cards are activated within three days. This  
activation time lag is generally due to congestion in Satelindo's internal      
information management systems. Satelindo expects that the implementation of    
its "intelligent network" platform will assist to alleviate this congestion.    

Satelindo bills its postpaid subscribers on a monthly basis through its   
centralized billing division. In the case of prepaid subscribers, the wireless  
billing system automatically reduces the value of each prepaid subscriber's     
account as airtime is used.                                                     

Satelindo's postpaid subscribers have a variety of payment options.       
Subscribers may pay by cash, major credit cards, direct deposit or automatic    
debit through banks or participating credit card companies. Subscribers may     
make payments in person at any Satelindo Direct outlet or by mail. Subscribers  
may also pay through P.T. Bank Negara Indonesia (Persero) Tbk. ("BNI"), Bank    
Mandiri or P.T. Bank Central Asia Tbk. ("BCA") ATMs or over the counter at BNI, 
Bank Mandiri or post office branches. Satelindo does not provide payment and    
collection services through its network of independent dealers. Payments are    
due 23 days after the account statement date. Thirty days after the statement   
date, Satelindo sends a letter to subscribers who have not paid their balance   
and blocks their ability to make outgoing calls. For subscribers who remain     
unpaid 45 days after the statement date, it blocks the subscribers' ability to  
make or receive calls. Satelindo permanently disconnects service, cancels the   
subscriber's SIM card and makes 100% provisions for accounts that are more than 
330 days past due.                                                              

 IM3 uses Indosat's billing system to bill its postpaid subscribers. This is
an example of the synergies available within the Indosat group. IM3 postpaid    
customers can make payment in person at any IM3 Gallery or may also pay through 
several banks, such as BNI, P.T. Bank Rakyat Indonesia (Persero) ("BRI"), Bank  
Syari'ah Mandiri and BCA, either over the counter or via ATMs.                  

 We have taken a number of steps to prevent subscriber fraud and to minimize
losses. We deliver prepaid vouchers to our independent dealers only on cash on  
delivery basis, and we do not collect payments for our services from cellular   
subscribers through our independent dealers. In addition, we demand, in certain 
instances, refundable deposits from subscribers depending on usage levels and   
we review accounts of our high usage customers at regular intervals to ensure   
that the deposit levels continue to be adequate.                                

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Competition                                                                 

The cellular service business in Indonesia has become increasingly        
competitive over the past five years. Competition in the cellular               
communications industry is based principally on network coverage and technical  
quality, price, the availability of data services and special features, quality 
and responsiveness of customer service. The four major providers of cellular    
services in Indonesia are Satelindo, Telkomsel (which is majority owned by      
Telkom), Excelcomindo and IM3, which together provide approximately 95% of      
Indonesia's national cellular telecommunications services.                      

We believe that barriers to entry are currently comparatively high due to 
limited availability of frequency, a capital intensive operating environment,   
the established market presence of the three incumbents and the recent market   
entry of IM3. Nevertheless, we are anticipating increased competition within    
the Indonesian cellular industry generally. In response to this, we intend to   
dedicate future capital expenditure in the wireless businesses of Satelindo and 
IM3 to increase network density, primarily through the addition of new cell     
sites. We also believe that Satelindo, as an established cellular provider,     
offers one of the widest selections of sophisticated data services and special  
features in Indonesia.                                                          

International calls services                                                

Through Indosat's "001" and Satelindo's "008" IDD services, we currently  
handle substantially all of the traditional IDD business in Indonesia. However, 
the duopoly regime in the IDD business will likely end if Telkom enters the     
international call services business in August 2003, as it has announced that   
it intends to do. See "--Regulation". In 2002, IDD services contributed Rp.     
2,137.9 billion, or 31.6%, of our total consolidated operating revenues.        

Any "001" call dialed in Indonesia is routed through one of Indosat's five
international gateways (two in Jakarta, one each in Medan, Surabaya and Batam), 
and any "008" call is routed through one of Satelindo's five international      
gateways (two in Jakarta and one each in Medan, Batam and Denpasar). From these 
international gateways, calls are transferred to their desired destination via  
satellite or submarine cable, based on predetermined routing plans developed in 
collaboration with foreign carriers. The foreign carriers receiving calls       
through the international gateways are responsible for the final delivery of    
the calls to their recipients. Likewise, international calls received at our    
gateways are switched from the gateway to their destinations domestically       
through Telkom or one of the other cellular operators with which we have        
interconnection arrangements.                                                   

Services                                                                    

 We provide a variety of international voice telecommunications services and
both international switched and non-switched telecommunications services.       
Switched services require interconnection with either the PSTN or another       
mobile cellular operator's facilities; non-switched services can be completed   
through Indosat's and Satelindo's own transmission facilities without the need  
for interconnection.                                                            

In addition to these IDD and value-added services, we commenced offering  
international VoIP services in 2002, under the brand names "Global Save" for    
Indosat and "Yelo" for Satelindo. Fixed line and cellular subscribers           
throughout Indonesia are able to access Indosat's and Satelindo's VoIP service  
for international calls by dialing separate access codes.                       

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 The following table sets forth certain operating data for our international
call services and includes operating data for Satelindo for all years presented:

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------
                                                     Year Ended December 31,              
                                        --------------------------------------------------
                                              2000             2001             2002      
------------------------------------------------------------------------------------------
                                        minutes % change minutes % change minutes % change
                                                (in thousands, except percentages)        
                                                                                          
Incoming paid minutes.................. 424,337   -0.03  365,844  -13.78  429,356  17.36  
   Indosat............................. 363,931    1.20  322,243  -11.45  351,645   9.12  
   Satelindo...........................  60,406   -6.88   43,601  -27.82   77,711  78.23  
Outgoing paid minutes.................. 314,178   -2.46  316,246    0.66  289,323  -8.51  
   Indosat............................. 281,374   -1.30  283,516    0.76  259,500  -8.47  
   Satelindo...........................  32,804  -11.37   32,730   -0.23   29,823  -8.88  
Incoming and outgoing paid minutes..... 738,515   -1.08  682,090   -7.64  718,679   5.36  
   Indosat............................. 645,305    0.10  605,759   -6.13  611,145   0.89  
   Satelindo...........................  93,210   -8.51   76,331  -18.11  107,534  40.88  
Incoming to outgoing paid minutes ratio    1.35      --     1.16      --     1.48     --  
   Indosat.............................    1.29      --     1.14      --     1.36     --  
   Satelindo...........................    1.84      --     1.33      --     2.61     --  
------------------------------------------------------------------------------------------

The table above illustrates two significant trends in the decline in      
international outgoing and incoming calls. During 2002, Indosat's and           
Satelindo's combined international outgoing calls measured by paid minutes      
decreased by 8.5% compared to the previous year, while incoming calls increased 
significantly by 17.4% over the same period. Combined outgoing and incoming     
calls, also measured by paid minutes, increased 5.4% during 2002. Worldwide and 
Indonesian trends indicate increased usage of VoIP services and a corresponding 
decrease in the usage of traditional international long distance services. The  
cost structure for providers of VoIP services is lower than for traditional     
fixed line operators and, as such, VoIP services are customarily offered at     
significant cost savings compared to traditional international long distance    
services. We believe that increased competition from VoIP operators, some of    
which are unlicensed, contributed to declining IDD call volume in past periods  
and will continue to do so in the future as more VoIP operators enter the       
market and as VoIP call quality improves.                                       

Customers and marketing                                                     

Indosat's top 500 customers accounted for approximately 37.15% of outgoing
IDD calls by revenues billed in 2002. Approximately 48.1% of Indosat's outgoing 
call minutes originated in the Jakarta area, followed by Batam (near Singapore) 
with 5.5%, Surabaya in East Java with 5.2%, and Denpasar in Bali with 4.7%. No  
single customer accounts for more than 1% of Indosat's revenue for IDD services.

Indosat maintains a proprietary database of customer information, which   
allows it to analyze consumer preferences and usage patterns and to develop     
tailored marketing and products. Indosat conducts its own market research by    
contacting its largest customers directly. Indosat has also engaged consultants 
to perform broader research on customer behavior and needs.                     

Indosat has undertaken a variety of marketing initiatives to continue to  
improve its service to IDD customers. Indosat's marketing strategy is focused   
on: (i) protecting and increasing penetration in existing markets, (ii)         
creating new markets, (iii) adding value and improving customer relations in    
each of its markets and (iv) new product development. Indosat has traditionally 
maintained an aggressive nationwide advertising campaign, using television,     
newspapers, magazines, web-sites and radio to promote its general corporate     
image and to increase awareness of its main products to business and retail     
customers. Indosat regularly takes part in domestic and international trade     
exhibitions. Indosat also has established regional sales offices in Bali,       
Surabaya, Bandung, Semarang, Balikpapan, Ujung Pandang, Padang, Bandar Lampung, 
Pekanbaru and Palembang.                                                        

Indosat has a specialized sales force, including a sales group, which     
focuses on its largest 500 customers, which include hotels, large corporate     
customers such as mining and oil companies and financial institutions, as       

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well as government offices and embassies. Indosat also conducts broader-based   
marketing programs, such as telemarketing and direct-mail campaigns and has     
implemented a customer loyalty program, which provides incentives to regular    
users. In addition, Indosat seeks to broaden its customer base by conducting    
joint promotions with other international telecommunications companies to       
promote its services.                                                           

Indosat strives to continue to deliver high quality services in order to  
maximize customer satisfaction. In 2002, we started implementation of a         
customer relationship management ("CRM") initiative across all consolidated     
business units. Our management believes that CRM will allow us to manage        
customer information better, thereby improving service quality to such          
customers. Upon full implementation in 2004, we aim to have marketing, sales,   
customer service and billing functions largely integrated and customer          
information centrally-stored for instant availability to a variety of           
customer-contact points. We believe that the CRM initiative, if successfully    
implemented, will distinguish the service quality that we are able to provide   
to customers from other telecommunications operators in Indonesia.              

To consolidate the marketing channels for our business units, we have     
developed and begun to selectively roll-out integrated walk-in centers, named   
"IOG--Indosat One Gallery", which offer Indosat, Satelindo and IM3 services in  
the same outlet. We have also started to implement our CRM initiative, through  
the introduction of our e-POINT system as a CRM tool for customer service       
workflow and implemented for Indosat new services such Indosat Phone & Global   
Save. In addition to this CRM initiative, we have updated our technology to     
provide comprehensive and integrated telecommunication solutions, such as data  
and voice communication technology, video conferencing and network services.    
Indosat's sales team also conducts quality monitoring and tactical programs as  
part of its efforts in this regard.                                             

Tariff structure and revenues                                               

 Rates.  The following discussion relates to the provision of basic switched
international telephone services. We do not directly control the rates charged  
to end users of basic international calls services. The rates for such services 
are established by the ministry responsible (currently the MoC) for             
telecommunications for calls originating and billed in Indonesia. The rates for 
outgoing calls are set by reference to six geographical zones and, depending on 
the destination, range from Rp. 4,900 to Rp. 10,700 per minute.                 

The amounts payable to us by international calls carriers for incoming    
telephone calls are determined by accounting rates negotiated between us and    
such international carriers, subject to certain guidelines from the MoC. In     
setting our tariff structure, the MoC considers: (i) our financial and          
operating objectives, (ii) our negotiated accounting rates with foreign         
telecommunications carriers and (iii) external Governmental policies, such as   
its policy to expand the regional economy. We may establish the rates for       
non-basic services, such as store and forward facsimile and electronic data     
interchange, subject to filing with the MoC, which sets upper limits on such    
rates. See "--Regulation."                                                      

Under the Telecommunications Law, the Government is proposing to amend its
tariff policy to allow greater competition. However, the Government has not yet 
introduced such amendments. See "--Regulation". In addition, recently enacted   
Ministerial Decree No. KM 23/2002 provides that VoIP service providers may      
determine their own collection charges, and each service provider must          
negotiate with the applicable network provider for interconnection charges. For 
that reason, Indosat has entered into an agreement with Telkom as its network   
provider for VoIP interconnection.                                              

Our international calls revenue has two primary sources: the domestic     
operators (primarily Telkom) and foreign telecommunications carriers. With      
certain limited exceptions, we do not receive any payments directly from the    
end users of our public international calls services. For 2002, approximately   
70.9% of international calls revenue was derived from amounts paid or payable   
by Telkom and other domestic operators in respect of outgoing calls,            
approximately 15.4% of such revenue was derived from amounts paid or payable by 
cellular operators and approximately 12.9% of such revenue was derived from net 
settlements with foreign telecommunications carriers in respect of incoming and 
outgoing calls. The remaining 0.9% of international calls                       

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revenue was derived from direct billing for specific services, such as calling  
card and store and forward fax services. The corresponding figures for 2001     
were 72.2%, 17.3%, 9.8% and 0.7%.                                               

The provision of international calls services between two countries is    
normally established between telecommunications carriers on a bilateral basis.  
As of December 31, 2002, Indosat and Satelindo had operating arrangements with  
more than 260 foreign telecommunications carriers in approximately 258 and 20   
countries and territories, respectively, that govern the accounting rates       
between the parties. The accounting rates set the terms of payment by us to the 
foreign telecommunications carriers for use of their facilities in connecting   
international calls billed in Indonesia and by the foreign telecommunications   
carriers to us for use of our facilities (and the local Indonesian networks) in 
connecting international calls billed abroad.                                   

  The practice among telecommunications carriers is for charges due in respect
of the use of overseas networks to be recorded, collected and forwarded by the  
telecommunications carrier from the country in which the call is billed. Based  
on the accounting rate negotiated with each foreign telecommunications carrier, 
we make payments to the carrier for outgoing traffic billed in Indonesia, and   
we receive payments from such carrier for inbound traffic billed outside        
Indonesia. Settlements among carriers are normally made quarterly on a net      
basis.                                                                          

Our largest correspondent carriers are those in Singapore, the United     
States, Japan and Hong Kong.                                                    

Interconnection with Domestic Networks.  Although we provide international
gateways for outgoing calls from and incoming calls to Indonesia, all           
international calls must terminate on one of the domestic networks: fixed line  
(operated by Telkom), fixed wireless (operated by Telkom and P.T. Radio Telepon 
Indonesia) and mobile cellular (four national GSM operators and four regional   
analog operators). The Government has set an interconnection tariff for         
international calls which traverse the domestic fixed line and fixed wireless   
networks. We have separate interconnection agreements with those operators that 
interconnect directly with our international gateways.                          

The tariff on interconnection rates as regulated by the MoC for           
international calls which traverse Telkom's network is: (i) an access charge of 
Rp. 850 per successful incoming and outgoing call; and (ii) a usage charge of   
Rp. 550 per paid minute of successful incoming and outgoing call. The MoC has   
stated that Indosat is exempt from paying the universal service obligation      
("USO") for a period of ten years, commencing January 1, 1995, and has          
indicated to Indosat that its interconnection tariff payment obligations will   
not exceed 25% of its net international revenues. Based on the current tariff   
structure, we anticipate that the tariff will not exceed 25% of Indosat's       
international revenues.                                                         

Customer billing                                                            

With respect to international calls which are initiated on the domestic   
networks, Telkom and the relevant domestic operators maintain control over the  
billing and collection process, retaining the appropriate interconnection       
charges owed to them from the amounts collected and remitting the balance in    
Rupiah to us (without interest thereon) within not less than 25 days of         
collection from the customer in Indonesia. The collection cycle for most of the 
domestic operators is approximately 15 days. We are responsible for generating  
and delivering the billing information to the domestic operators. This          
information is generally delivered within one day of the end of the prior       
30-day period and billed by the domestic operators approximately five days      
after receipt from us, resulting in a collection cycle of approximately 55 to   
85 days. For purposes of financial reporting, we recognize income on a monthly  
basis based upon our own traffic records. We have similar arrangements with the 
domestic cellular network operators.                                            

With respect to incoming calls terminating on the domestic networks, we   
remit the appropriate interconnection charge to the relevant operator,          
generally within 15 days of the end of the quarter in which payment was         
received from the foreign telecommunications carrier. The settlements from      
foreign telecommunications carriers are generally paid in dollars, which are    
deposited in Indonesia, and amounts representing interconnection payments       
payable by us to the domestic network operators are remitted in Rupiah.         

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Competition                                                                 

Indosat and Satelindo are currently the only authorized providers of      
traditional IDD (non-VoIP) call services in Indonesia. However, the Government  
retains the right to designate other companies as providers of international    
telephone services. In August 2000, the Government granted Telkom an            
international telecommunications in-principle license. It is expected that      
Telkom will enter the international calls market in August 2003.                

Indonesian regulations require equal access to all domestic               
telecommunications facilities for all competitors. Accordingly, both Indosat    
and Satelindo have equal access to Telkom's domestic facilities. Current        
regulations assure equal access for IDD customers to all competitors on a       
per-call selection by means of dedicated access code. This was regulated by MoC 
Decree No. 4/2001. If, as announced, Telkom enters the Indonesian IDD market in 
August 2003, Telkom would offer an IDD access code other than 001 or 008, which 
would increase competition to our IDD business.                                 

  Starting from 2001, the traditional IDD market became more competitive, with
VoIP technology and new entrants entering the market for both incoming and      
outgoing IDD traffic. We anticipate that the Indonesian VoIP market will        
continue to grow, accounting for more than 10% of call volume in year 2002, as  
new providers enter the market and as technology and call quality improves. We  
started to enter the VoIP market in the latter part of 2002.                    

MIDI                                                                        

Recognizing the significant growth potential of data and other network    
services--including Internet-based services--and their increasing importance to 
our overall business strategy, we have placed considerable emphasis on this     
business segment. The products and services that we offer in this business      
segment include high-speed point-to-point international and domestic digital    
leased line services, a high-performance packet-switching service and satellite 
transponder leasing and broadcasting services. In 2002, MIDI services           
contributed Rp. 1,263.0 billion, or 18.7%, of our total operating revenues.     

Services                                                                    

World Link, Direct Link and Digital Data Network.  World Link, offered by 
Indosat, is an international leased line service, which provides high-speed,    
high-quality digital data circuits on a point-to-point basis, and offers line   
speeds from 64 Kbps and multiples thereof up to 2 Mbps. Most of our World Link  
customers are multinational corporations and Internet access providers who      
require dedicated high-speed international data links. Very small aperture      
terminal ("VSAT") connections are used for World Link and other leased line     
users located in areas that are not fully served by the domestic network.       
Direct Link and Digital Data Network are services, which are offered by Indosat 
and Lintasarta to corporate customers. In total, World Link, Direct Link and    
Digital Data Network contributed Rp. 441.1 billion, or 34.9%, of our            
consolidated MIDI revenues in 2002.                                             

Frame relay.  We provide frame relay services, a high-speed leased packet 
technology, primarily through Lintasarta, providing customers with multilateral 
connectivity, reliable local area network ("LAN") interconnections and the      
power to support complex distributed computing applications. Framed messages    
enable data transmissions to travel at high speed from a simple single          
connection to reach multiple domestic or international destinations. Frame      
relay services can be tailored to the requirements of individual sites in order 
to meet user demands for a dedicated line by terrestrial or satellite services  
(VSAT frame relay). As of December 31, 2002, Lintasarta's frame relay services  
are available in 33 major cities in Indonesia and over 225 countries worldwide  
in co-operation with Equant. We received revenues of Rp. 285.5 billion from     
this service in 2002, or 22.6%, of our consolidated MIDI revenues in 2002.      

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  Satellite services.  The principal satellite service that we provide through
Satelindo is the leasing of transponders on the Palapa-C2 satellite, in orbit   
over the Asia-Pacific region, to broadcasters and telecommunications operators. 
Indonesia has a large television market in which a number of privately-owned    
domestic broadcasters and international programmers already compete with the    
state-owned broadcasters. Many of these domestic and international broadcasters 
lease capacity on Satelindo's satellite. Satelindo has entered into lease       
arrangements governing transponders on the Palapa C-2 satellite that vary in    
duration, but generally terminate within two to five years of the effective     
date of the lease. The transponder leases may be terminated for breach of the   
lease agreement and, in addition, most of the leases provide that the lessee    
may terminate the lease with notice (generally six to 12 months) subject to the 
lessee paying a termination fee equal to a percentage of the lease payments     
that would have been due had the lease not been terminated.                     

  Satelindo also provides a variety of other supplementary services, including
occasional use for TV services, telecast services, telemetry, tracking &        
control services, private network services, Internet access and multimedia and  
video conferencing. Satelindo expects demand for satellite services to grow in  
2002, mainly driven by accelerating growth of satellite derivative services     
(its digital "Bouquet" & "PalapaNet" services). Pressure on pricing is expected 
to ease as a consequence of this improved demand. In 2002, satellite services   
contributed approximately Rp. 201.5 billion, or 16.0%, towards our total MIDI   
operating revenues.                                                             

  Internet services.  We provide Internet services through IMM and Lintasarta.
IMM provides dedicated and dial-up services, and at the end of 2002 had an      
Internet subscriber base of approximately 24,000, which we estimate was more    
than 10% of the Indonesian retail Internet market. In anticipation of higher    
competition in Internet businesses, IMM has developed a strategy to expand its  
business through developing an IP backbone through potential growth areas,      
establishing customer care centers, developing its network through joint        
investment schemes and improving its business processes. Lintasarta offers its  
subscribers "IdOLA", an Internet Service Provider ("ISP") designed for global   
communications. With IdOLA, subscribers can access information from many        
content providers in Indonesia and worldwide. Corporations may use IdOLA for    
Internet promotions, software and computer allocations, co-operative ventures   
or domestic and international trade transactions. For the year ended December   
31, 2002, we derived Rp. 162.2 billion, or 12.8% of our total MIDI revenues,    
from Internet services.                                                         

 VSAT Net/IP and VSAT Link.  Lintasarta's VSAT Net/IP and VSAT Link services
are satellite-based data networking systems. VSAT Net/IP connects and controls  
data traffic among remote locations, allowing for quick development of data for 
network customers with low-to-medium traffic in such sectors as financial       
services, transportation, trading and distribution. VSAT Link provides          
point-to-point digital transmission for remote locations by businesses with     
medium-to-heavy traffic such as manufacturing, mining, and financial services   
industries.                                                                     

Customers and marketing                                                     

 Lintasarta's and Satelindo's marketing activities for MIDI services include
group presentations, direct mail, partner promotions, customer retention        
programs and advertisements in publications and printed media. Each subsidiary  
seeks to maintain existing customer relationships through activities such as    
user forums, training seminars, courtesy visits and informal gatherings with    
customers. Lintasarta's marketing strategy focuses on expanding its market      
share in industry segments outside its core competencies in banking and         
finance, in light of the anticipated consolidation and restructuring of those   
industries in Indonesia. In addition, Lintasarta has increasingly focused its   
sales and marketing efforts on small to medium size enterprises ("SMEs") by     
repackaging its products and services for their specialized needs, especially   
in connection with the development of the Internet as a mechanism for           
e-commerce. Lintasarta is exploring the expansion of the existing geographic    
coverage of its products and services to address the increasing demand for      
telecommunications infrastructure in outlying regions as a result of Indonesian 
political developments, including increased regional autonomy.                  

 Lintasarta supports its subscribers through local area staff, 24-hours help
desk and integrated real-time network management. In April 2000, Lintasarta     
achieved ISO 9002 certification for its Frame Relay, Digital Data               

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Network and VSAT services. In January 2002, Satelindo obtained ISO 9001         
certification for its satellite services, evidencing its commitment to customer 
satisfaction and continual service quality improvement. Satelindo believes that 
it was the first satellite operator in the Asia-Pacific region to obtain such   
certification.                                                                  

Tariff structure and revenues                                               

Customers of our various MIDI services are charged based on the type of   
product and service, their industry sector, geographic location and the length  
of contract for the services (which generally range from one to three years).   
Customers are generally charged in Rupiah except for certain products, such as  
VSAT, which are charged in U.S. dollars. Service charges generally include the  
following components: initial installation; monthly service charges (based on   
location and access speed); transactional charges (based on the volume,         
duration and/or distance traveled for network traffic); and ancillary charges   
for services such as consultancy or project management.                         

Satellite transponder lease rates to international lessees are negotiated 
between Satelindo and its customers and depend on the supply and demand of      
services in the areas covered by the Palapa-C2 satellite. Satelindo's offshore  
leases average US$1.5 million per annum for a full transponder. (Certain        
offshore leases are also subject to annual escalation factors that range from   
2.5% to 10%.) Almost all offshore lease payments are payable quarterly in       
advance in U.S. dollars and other widely used currencies. The MoC regulates the 
fees that can be charged in connection with leasing space on satellite          
transponders to domestic customers. Pursuant to MTPT Decree 25/1996, the        
maximum annual lease rates for C-band transponders are set at US$1.7 million;   
for occasional use, the fees are between US$8 to US$19 per minute, depending on 
the time of day.                                                                

Competition                                                                 

Data communications service providers in Indonesia compete principally on 
the basis of price, range of services provided and customer service quality.    
During the last three years, competition among data communications service      
providers has intensified principally due to the issuance of new licenses as a  
result of the deregulation of the Indonesian telecommunications industry.       
Lintasarta expects competition to continue to intensify. Lintasarta believes    
that its major competitors are Primacon and Citra Sari Makmur with respect to   
its VSAT services, and Citra Sari Makmur and Telkom with respect to its Frame   
Relay services. Lintasarta also faces competition with respect to its data      
communications consulting services from a variety of competitors including      
international software developers, technology consultants and other             
telecommunications services providers.                                          

With respect to Internet-related value-added services, IMM and Lintasarta 
face significant and increasing competition from other ISPs as a result of the  
increased issuance of licenses by the MoC. ISPs in Indonesia compete on the     
basis of network quality, price and network coverage.                           

Companies in the satellite business compete primarily on coverage power,  
product offerings and cost. Generally, the cost of service depends upon the     
combination of power and coverage. In recent years, competition within the      
satellite business in the Asia-Pacific region has been intense. Satelindo's     
satellite operations have primarily consisted of leasing transponders to        
broadcasters and telecommunications operators of VSAT, cellular and IDD         
services and ISPs. Satelindo faces competition from foreign and domestic        
service providers in each of these areas. In leasing its transponders on the    
Palapa-C2 satellite, Satelindo competes most closely in Indonesia with P.T.     
Pasifik Satelit Nusantara ("PSN") and Telkom. PSN also owns transponders on the 
Mabuhay Philippines Satellite, which is used primarily for television broadcast 
services. Telkom currently operates its own satellites (Telkom and Palapa B4)   
and earth stations primarily to provide backbone transmission links for its     
network. Telkom also leases satellite transponder capacity and provides earth   
station satellite up linking and down linking service to domestic and           
international users. Other private satellites serving the broadcast market      
within the coverage area of the Palapa satellites include AsiaSat-1, AsiaSat-2, 
Apstar-1, Apstar-2R and PanAmSat-7. APT Satellite, which operates the Apstar    
satellites, also competes directly with Satelindo in the Asian regional market. 

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Other Services                                                              

Through Indosat, we also provide international telex and telegram services
and global mobile services using the Inmarsat Mini M system. In 2002, we        
received revenues of Rp. 3.7 billion and Rp. 15.0 billion from these services,  
respectively.                                                                   

Furthermore, Indosat has been granted a license to establish a fixed-line 
network. This roll-out was initially limited to Jakarta and Surabaya, which     
began from August 2002. However, pursuant to MoC Decree Number 130, dated April 
17, 2003, Indosat may now establish a fixed-line network nationwide. Indosat's  
fixed-line license specifically gives Indosat the right to establish a          
fixed-line network on a circuit and packet-switched basis over a five-year      
project period, until December 31, 2006. We currently intend to roll out this   
fixed-line network in partnership with Mega Asia Consortium, although           
negotiations have not yet been concluded.                                       

Facilities and Infrastructure                                                   

 The discussion below relates to our IDD network, cellular network and other
communications facilities and infrastructure including that of Indosat and our  
significant operating subsidiaries.                                             

Cellular Network                                                            

We provide cellular services through our subsidiaries, Satelindo and IM3. 
Each of Satelindo and IM3 has a telecommunications services provider license,   
which allows it to provide cellular services in Indonesia nationwide and for an 
indefinite period. The network infrastructure of these subsidiaries is          
substantially similar.                                                          

Satelindo                                                                   

Satelindo's network currently operates using 10 MHz of radio frequency    
bandwidth in the 900 MHz band and, in December 2000, Satelindo was allocated an 
additional 5 MHz of frequency bandwidth in the 1800 MHz band.                   

The principal components of Satelindo's cellular network are:             

.   cell sites--physical locations equipped with a base station consisting
     of transmitters, receivers and other equipment used to communicate with
cellular telephone handsets through radio signals;                

.   base station controllers--devices that connect to and control the base
station within each cell site;                                    

.   mobile switching centers--centers that control the base station       
controllers and the routing of telephone calls; and               

.   transmission lines--lines that link the mobile switching centers, base
station controllers, base stations and the PSTN.                  

The following table sets forth selected information regarding Satelindo's 
cellular network as of the dates indicated.                                     

                                                                [Download Table]

-----------------------------------------------
As of year ended December 31, 2000  2001  2002 
-----------------------------------------------
                                               
  Base stations.............. 1,619 2,058 3,587
  Base station controllers...   119   118   138
  Mobile switching centers...    19    20    19
-----------------------------------------------

Satelindo plans to gradually increase its network coverage and improve its
grade of service.                                                               

  Satelindo purchases its cellular telecommunications equipment primarily from
Alcatel and Siemens. Satelindo's network is an integrated system employing      
switching equipment, cell site equipment and a                                  

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transmission network of point-to-point microwave radio, provided by Alcatel,    
for Java, and by Siemens, for all other geographic areas. Alcatel has exclusive 
rights to provide certain cellular equipment for use on Java until the end of   
2003, subject to certain conditions.                                            

 Most of Satelindo's cell sites and radio base stations are located in or on
buildings or on vacant lots, which Satelindo owns, or for which leases have     
been individually negotiated by Satelindo for terms typically varying from five 
to 20 years.                                                                    

Satelindo has an extensive microwave transmission network throughout the  
Jabotabek area, which connects to Cirebon (West Java), Semarang and Yogyakarta  
(Central Java) and Surabaya (East Java). Long distance calls either originating 
from, or terminating within, Satelindo's cellular network, are routed primarily 
through Satelindo's microwave transmission lines, lines leased from Telkom and  
the Palapa-C2 satellite. Satelindo also has a fiber optic distribution network  
for interconnection with Telkom.                                                

Satelindo is also currently conducting a technical and commercial trial   
organized by a vendor for GPRS in multiple locations.                           

IM3                                                                         

 IM3's cellular network consists of the same basic components as Satelindo's
cellular network. It currently operates using 15 MHz of radio frequency         
bandwidth in the GSM 1800 spectrum. The following table sets forth selected     
information regarding IM3's cellular network as of December 31, 2001.           

                                                                [Download Table]

---------------------------------------
As of year ended December 31, 2001 2002
---------------------------------------
                                       
  Base stations.............. 480  696 
  Base station controllers...   6    8 
  Mobile switching centers...   3    6 
---------------------------------------

IM3 purchases its cellular telecommunications equipment primarily from    
Ericsson. Like Satelindo, most of IM3's cell sites and radio base stations are  
located in or on buildings or on vacant lots which IM3 or Satelindo owns, or    
for which leases have been individually negotiated by IM3 or Satelindo for      
terms typically varying from five to 20 years.                                  

International calls network                                                 

Indosat and Satelindo each provide international calls services and each  
have similar international calls networks consisting of international gateways  
served by satellite circuits, submarine cables and microwave transmission.      

International gateways.  For its international calls business, Indosat    
currently operates through gateways at Jakarta, Surabaya, Medan and Batam,      
which provide all of the connections for its services to our international      
calls network. Satelindo's international traffic currently travels through its  
two international gateways in Jakarta, and one each in Medan and Denpasar. The  
gateway-switching equipment was purchased from Lucent Technologies, Inc. and    
Siemens.                                                                        

As of December 31, 2002, Indosat had available bandwidth capacity of 633.8
Mbps for voice and 461.4 Mbps for data transmission. As of December 31, 2001,   
Satelindo operated approximately 1,677 international telephone circuits at its  
gateways, and the combined installed capacity of the four gateways was          
approximately 6,120 circuits. The gateways also have 27 Mbps of international   
data capacity, which Satelindo uses to provide its network solutions services.  
All of our destinations are digitally connected. The bandwidth available to us  
is significantly higher than the utilized capacity to allow for anticipated     
growth in traffic. It is our policy to maintain average utilization at less     
than 80% of capacity to allow for increased usage during peak hours.            

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  Each gateway is linked to the other gateways, which permits multiple routing
options for each call and provides the system with backup capability in case of 
equipment failure or overcrowding at any gateway. Indosat has interconnection   
equipment at the facilities of Telkom and certain of the cellular operators to  
connect its international calls network to the domestic telecommunications      
network.                                                                        

Transmission of voice and data between gateways occurs across either      
satellite circuits or submarine cables. Satellite circuits are unaffected by    
distance and offer broadcast services which make them flexible with regard to   
destinations. Submarine cables, especially fiber optic digital cables, can      
offer less expensive high-quality services. However, cable costs increase with  
distance, and destinations are fixed. Satellite circuits can be degraded by     
atmospheric conditions, while submarine cables can suffer cable breaks. In      
general, we use submarine cables with cable-to-cable backup for medium distance 
links in Asia and primarily satellite links backup for longer distance links.   
We use microwave and fiber optic links for connections between gateways and     
earth stations, as well as for the Batam gateway, which has microwave links to  
Singapore and Johor, Malaysia. It is our policy to have 100% redundancy for all 
of our links (which may require routing through a third country).               

  Submarine cables.  Indosat has ownership interests and access to capacity in
submarine cables interconnecting the Asia/Pacific region, North Africa, Europe, 
as well as those linking the region with North America. The table below sets    
forth the geographic coverage, age and allocated capacity of Indosat's cable    
network, as of December 31, 2002.                                               

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------
                                                                                             Allocated
                                               Geographic Coverage                   Service Capacity 
       Cable Network                              (by country)                        Date    (Mbps)  
------------------------------------------------------------------------------------------------------
                                                                                                      
SEA-ME-WE 2 submarine cable   Singapore, Sri Lanka, India, Djibouti, Saudi Arabia,    1993     155.14 
                               Egypt, Turkey, Austria, France, UK, Germany, Italy,                    
                                            Netherlands, Switzerland                                  

APCN submarine cable             Australia, Singapore, Japan, Malaysia, Brunei,       1997     328.38 
                                        Thailand, Philippines, Hong Kong,                             
                                               Taiwan, South Korea                                    

SEA-ME-WE 3 submarine cable          Australia, Singapore, Brunei, Thailand,          1999     258.82 
                              Malaysia, India, Sri Lanka, Egypt, Pakistan, Kuwait,                    
                                Saudi Arabia, Oman, Austria, Turkey, France, UK,                      
                                Germany, Italy, Netherlands, Switzerland, Nordic,                     
                                Greece, Spain, UAE, Belgium, Taiwan, Philippines,                     
                                   Hong Kong, Macao, Japan, South Korea, China                        

SEA-ME-WE 3 submarine cable     Singapore, Malaysia, Japan, Australia, Hong Kong,     1999      21.95 
                              Thailand, Germany, Netherlands, France, Saudi Arabia                    

APCN submarine cable + JS      Australia, Hong Kong, Japan, Malaysia, Philippines,    1997      49.92 
  submarine cable            Taiwan, Singapore, South Korea, United States, Thailand                  

APCN-2 submarine cable           China, Japan, Malaysia, Philippines, Singapore,      2001     288.00 
                                               South Korea, Taiwan                                    

TPC-5 submarine cable                        Japan and United States                  1995     100.00 

JS submarine cable + SEA-ME-                 France, Germany, Taiwan                  1997       4.48 
  WE 2 submarine cable                                                                                

JS submarine cable + SEA-ME-                 Malaysia, Japan, Italy                   1999       8.00 
  WE 3 submarine cable                                                                                

Total                                                                                        1,214.69 
                                                                                             ======== 
------------------------------------------------------------------------------------------------------

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  To support the operations of Indosat's gateway in Surabaya, we have operated
a submarine fiber optic cable linking Jakarta and Surabaya since January 1997.  
This link has capacity of five Gbps, which enables us to enhance network        
reliability and improve the quality of services in the Surabaya region.         

Indosat operates a microwave transmission system between its Batam gateway
and Singapore and Johor, Malaysia. This system has a combined capacity of 200   
Mbps and 2 Mbps for voice and data, respectively.                               

Satelindo has ownership interests in, and access to, capacity in submarine
cables interconnecting Europe, North America and Asia. The following table sets 
forth the geographic coverage, age and allocated capacity of the submarine      
cables landing in Indonesia in which Satelindo has an interest as of December   
31, 2002.                                                                       

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------
                                                                                          Allocated
                                             Geographic Coverage                  Service Capacity 
       Cable Network                            (by country)                       Date    (Mbps)  
---------------------------------------------------------------------------------------------------
                                                                                                   
APCN submarine cable             Korea, Japan, Hong Kong, Taiwan, Singapore,      Sept-96    62.0  
                            Malaysia, Philippines, Thailand, Indonesia, Australia                  

SEA-ME-WE 3 submarine cable           Singapore, Brunei, China, Korea,             Mar-99    22.0  
                            Hong Kong, Philippines, Germany, Italy, Japan, U.K.,                   
                                              France, Australia                                    

J-S submarine cable                               Indonesia                        Jan-97    63.0  

TPC-5 submarine cable                           Japan, U.S.A.                      Dec-96    38.0  

China-US submarine cable                    China, Japan, U.S.A.                   Jan-00    20.0  

SEA-ME-WE 2 submarine cable                   France, Singapore                    Jun-94     9.1  

T-V-H submarine cable                         Vietnam, Thailand                    Dec-95     2.0  
                                                                                            -----  
Total                                                                                       216.1  
                                                                                            =====  
---------------------------------------------------------------------------------------------------

 We also own small interests in several other submarine cables, which do not
land in Indonesia. These are primarily located in Asia. These cables connect,   
directly and indirectly, to cables, which land in Indonesia and thereby form a  
worldwide cable network.                                                        

 Satellite circuits.  As of December 31, 2002, Indosat's available satellite
bandwidth was 42.2 Mbps for voice and 1.6 Mbps for data circuits through earth  
stations at its Jakarta, Medan and Surabaya gateways. Indosat's satellite       
capacity is currently obtained principally from Intelsat and, to a lesser       
extent, from Palapa. Satelindo maintains two Intelsat A-standard earth stations 
at its Jalan Daan Mogot facility in Jakarta. These earth stations transmit to   
two Intelsat satellites on which Satelindo leases satellite telephone circuits. 
As of December 31, 2002, Satelindo leased and operated a total of 30 circuits   
on these two Intelsat satellites. Due to cost considerations, we have reduced   
the use of satellite circuits in favor of submarine cable circuits.             

Other communication facilities                                              

We have other communication facilities that are predominantly used in the 
provision of our MIDI services. They are Satelindo's Palapa-C2 communications   
satellite and our fiber optic links to major commercial centers in the Jakarta  
area.                                                                           

Palapa-C2 satellite                                                         

Communications satellites are of varying use depending on such features as
their footprint, or coverage areas; transponder power (typically stated in      
dBW); and transponder bandwidth. Transponder bandwidth, expressed in terms of   
megahertz (MHz), varies between C-band and Ku-band transponders. C-band is used 
worldwide for satellite communications to transmit signals with minimum         
interference from atmospheric                                                   

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conditions. C-band transponders operate at a frequency of 4-6 GHz. They can     
provide very broad coverage over most of the Asian continent, making them very  
popular for applications such as television broadcasting. Ku-band transponders  
operate at a frequency of approximately 11-14 GHz. While Ku-band frequencies    
are more prone to moisture and rain interference than C-band frequencies, they  
are more suitable for small antenna applications. Ku-band is generally used for 
the same purposes as C-band, as well as for satellite news-gathering            
(truck-mounted antennas) and some VSAT applications. Ku-band is especially      
prevalent in areas with dense ground-based microwave systems. To compensate for 
loss of signal strength caused by water and rain interference, Ku-band          
transmitters are generally higher-power than C-band transmitters and the        
footprints are smaller.                                                         

  The Palapa-C2 satellite has six 36 MHz Extended C-band transponders owned by
PSN, and twenty-four 36 MHz Standard C-band transponders and four 72 MHz        
Ku-band transponders owned by Satelindo. The maximum power on each of the       
C-band and Ku-band transponders is 40 and 51 dBW, respectively. The C-band and  
Ku-band have overlapping coverage areas.                                        

 The Palapa-C2 satellite has C-band coverage over virtually the entire Asian
region, with a footprint stretching from Central Asia to Japan (west to east)   
and southern China to New Zealand and parts of Australia (north to south). dBW  
levels range from a beam edge of 32 dBW to a beam center of 40 dBW. With this   
power, it is possible for the Palapa-C2 satellite to uplink and downlink from   
anywhere within its footprint. The four Ku-band transponders provide coverage   
over eastern China and Japan, as well as southern China to all of western       
Indonesia, with peak transponder power of 51 dBW.                               

 Satellites of the same class as Palapa-C2 typically have an average life of
14 years. Palapa-C2 is expected to remain operational until January 2011. The   
manufacturer of the satellite has provided a warranty on the electrical         
components of the satellite until June 2008. Satelindo also carries insurance   
on the satellite; however, because Palapa-C2 is of a class of satellite which   
has been identified as prone to SCP failure, Satelindo's satellite insurance    
does not cover satellite malfunction caused by failure of the SCP.              

Fiber optic links                                                           

We have fiber optic links to 32 major commercial buildings in the Jakarta 
area. These links are primarily used to deliver Internet and other MIDI         
services to corporate customers                                                 

Capital Expenditure                                                             

 For a description of our principal capital expenditures, see "Operating and
Financial Review and Prospects - Capital Expenditure".                          

Principal Indebtedness                                                          

As of December 31, 2002, we had long-term debts amounting to US$302.3     
million and Rp. 1.272 trillion and bonds payable amounting to US$181.3 million  
and Rp. 2,256.1 billion. Our debt is primarily long-term debt owed by Satelindo 
in the amount of US$187.3 million, and bonds payable having a principle amount  
outstanding of US$181.3 million as of December 31, 2002. Indosat has long-term  
debts totaling US$115 million and Rp. 9.0 billion and bonds payable of Rp. 2.25 
trillion, Lintasarta has long-term debts totaling Rp. 113.2 billion and bonds   
payable of Rp. 6.1 billion, and IM3 has long-term debts totaling Rp. 1.150      
trillion. In addition to the description below, see also notes 15, 16 and 30 to 
our consolidated financial statements included elsewhere herein.                

Indosat                                                                         

Indosat Bond I                                                                  

On April 12, 2001, Indosat issued its First Indosat Bonds with Fixed and  
Floating Rates ("First Indosat Bonds") in two tranches, Series A and Series B,  
with BRI as the trustee. The bonds have a total face value of Rp. 1.0 trillion, 
in denominations of Rp. 50 million, and will mature on April 12, 2006.          

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  The Series A bonds, which have a total face value of Rp. 827.2 billion, bear
a fixed interest rate at 18.5% per annum. The Series B bonds, which have a      
total face value of Rp. 172.8 billion, bear a fixed interest rate at 18.5% per  
annum for the first year, and thereafter, a floating rate determined using the  
average for five working days of the average three-month Rupiah time deposits   
with Bank Mandiri, BCA, BNI and P.T. Bank Danamon Indonesia Tbk., plus a fixed  
premium of 2.25%. The floating rates are subject to a maximum limit of 21% and  
a minimum limit of 16%. P.T. Kustodian Sentral Efek Indonesia ("KSEI"), acting  
as payment agent, pays quarterly interest on the bonds starting July 12, 2001   
until April 12, 2006.                                                           

The First Indosat Bonds are not collateralized by any specific company    
assets nor guaranteed by other parties and rank pari passu with other unsecured 
debt of Indosat. Indosat agreed to certain covenants in connection with the     
issuance of the First Indosat Bonds, including, but not limited to, agreeing to 
maintain:                                                                       

.   equity capital of at least Rp. 5.0 trillion;                          

 .   a current ratio of 1.1 to 1, as reported in each quarterly consolidated
financial report;                                                 

.   a debt to equity ratio of 1.75 to 1, as reported in each quarterly    
consolidated financial report;                                    

.   a ratio of EBITDA (earnings before interest, taxes, depreciation and  
amortization) to interest expense as reported in each quarterly   
consolidated financial report, as follows:                        

                                                                [Download Table]

----------------------------------------------
Fiscal year ending December 31, Required ratio
----------------------------------------------
                                              
             2000..............     1.5 : 1   
             2001..............     1.5 : 1   
             2002..............    2.25 : 1   
             2003..............    2.25 : 1   
             2004..............     2.5 : 1   
             2005..............     2.5 : 1   
----------------------------------------------

Indosat Bond II                                                             

 On November 6, 2002, Indosat issued its Second Indosat Bonds with Fixed and
Floating Rates ("Second Indosat Bond"), with BRI as the trustee. The bonds have 
a total face value of Rp. 1.075 trillion in denominations of Rp. 50 million.    
The bonds consist of three series:                                              

 .   The Series A bonds, amounting to Rp. 775 billion, bear a fixed interest
rate at 15.75% per annum for five years starting February 6, 2003.

 .   The Series B, bonds amounting to Rp. 200 billion, bear a fixed interest
     rate at 16% per annum for 30 years starting February 6, 2003. The bonds
  mature if Indosat or the bondholder exercises the following options:

                                                        [Enlarge/Download Table]
                                                                                                           
.. Buy Option  :   Indosat has a right to make early payment for all the Series B bonds at the 5/th/,     
                  10/th/, 15/th/, 20/th/ and 25/th/ anniversary of the bonds at 101% of the bonds' nominal
                  value.                                                                                  

.. Sell Option :   the bondholder has a right to ask for early settlement from Indosat at 100% of         
                  the bonds' nominal value at (i) any time, if the rating of the bonds decrease to        
                  idAA- or lower (Special Sell Option) or (ii) the 15/th/, 20/th/ and 25/th/ anniversary  
                  of the bonds (Regular Sell Option).                                                     

.   The Series C bonds, amounting to Rp. 100 billion, bear fixed interest 
    rate at 15.625% per annum for the first year starting February 6, 2003
     and floating rates for the succeeding years until November 6, 2007. The
floating rates are determined using the last interest rate for    
      three-month period of Certificate of Bank Indonesia, plus 1.625% margin.
      The floating rates are subject to a maximum limit of 18.5% and a minimum
limit of 15% per annum.                                           

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KSEI, acting as payment agent, pays quarterly interest on the bonds, as   
follows:                                                                        

Series A and C :   February 6, 2003 - November 6, 2007    
Series B       :   February 6, 2003 - November 6, 2032    
Buy Option   :   February 6, 2003 - November 6, 2007, 
     2012, 2017, 2022 and 2027
Sell Option  :   February 6, 2003 - November 6, 2017, 
2022 and 2027       

The bonds are not collateralized by any specific Indosat assets nor       
guaranteed by other parties. All of Indosat's assets, except for the assets     
that have been specifically used as a security to its creditors, are used as a  
pari passu guarantee for all of Indosat's liabilities.                          

The proceeds of the bonds were used to repay the working capital loan from
Bank Mandiri and time loan facility from BCA.                                   

Indosat agreed to certain covenants in connection with the issuance of the
Second Indosat Bonds, including but not limited to agreeing to maintain:        

.   equity capital of at least Rp. 5.0 trillion;                          

.   a current ratio of 1 to 1, as reported in each quarterly consolidated 
financial report;                                                 

.   a debt to equity ratio of 1.75 to 1, as reported in each quarterly    
consolidated financial report;                                    

.   a ratio of EBITDA (earnings before interest, taxes, depreciation and  
amortization) to interest expense as reported in each quarterly   
consolidated financial report, as follows:                        

                                                                [Download Table]

----------------------------------------------
Fiscal year ending December 31, Required ratio
----------------------------------------------
                                              
             2002..............     1.5 : 1   
             2003..............    2.25 : 1   
             2004..............     2.5 : 1   
             2005..............     2.5 : 1   
             2006..............     2.5 : 1   
             2007..............     3.0 : 1   
----------------------------------------------

Indosat Syari'ah Bond                                                           

On November 6, 2002, Indosat issued its Syari'ah Bonds ("Indosat Syari'ah 
Bonds"), in accordance with Islamic financing principles, with BRI as the       
trustee. The bonds have a total face value of Rp. 175 billion in denominations  
of Rp. 50 million and will mature on November 6, 2007. Bondholders receive      
Revenue Sharing Income, which is determined based on the bondholder's portion   
of the Shared Revenue. Shared Revenue refers to operating revenue of Satelindo  
and IMM from satellite and internet services, respectively. The bondholder      
portion (expressed in percentages) of the satellite and internet services       
revenue, is as follows:                                                         

                                                                [Download Table]

-----------------------
       Percentage (%)  
     ------------------
Year Satellite Internet
-----------------------
                       
 1     6.91     10.75  
 2     6.91     9.02   
 3     6.91     7.69   
 4     6.91     6.56   
 5     6.91     5.50   
-----------------------

KSEI, acting as payment agent, pays the revenue sharing on the bonds      
quarterly, from February 6, 2003 until November 6, 2007.                        

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The bonds are not collateralized by any specific Indosat assets nor       
guaranteed by other parties. All of Indosat's assets, except for the assets     
that have been specifically used as a security to its creditors, are used as a  
pari passu guarantee for all of Indosat's liabilities.                          

The proceeds of the bonds replaced Indosat's internal funds used for the  
development of its cellular business through the acquisition of Satelindo.      

  Indosat agreed to maintain certain covenants in connection with the issuance
of Indosat Syari'ah Bonds, which are similar to the covenants in connection     
with the issuance of the Second Indosat Bonds.                                  

Indosat's long-term debts                                                   

 On July 23, 2002, Indosat entered into a six-month term loan agreement with
BCA for a total facility of US$75 million. This term loan facility was used by  
Indosat to finance its capital injection in Satelindo. In December 2002,        
Indosat repaid US$50 million of this loan, using US$10 million from part of the 
proceeds from the Second Indosat Bonds and US$40 million from a new loan        
facility from BCA (described below). The balance of the loan was repaid by the  
time of the loan's maturity in January 2003.                                    

On December 3, 2002, Indosat entered into another loan agreement with BCA,
for a total facility of US$40 million, to refinance the previous US$75 million  
loan from BCA. This loan is payable in quarterly installments of US$3.3 million 
starting from March 23, 2005, and will mature on December 23, 2007. Interest    
accrues on this loan at a rate determined using the interest rate of            
three-month U.S. dollar time deposits with BCA, plus a fixed premium of 5.9%,   
and interest is payable on a quarterly basis. This loan is collateralized by    
Indosat's shares in Satelindo in a minimum amount of 125% of the total loan     
facility, for which purpose Indosat has pledged to BCA 5,128,206 shares in      
Satelindo owned by Indosat.                                                     

On August 27, 2002, Indosat entered into a loan agreement with BNI for a  
working capital facility in a maximum amount of US$75 million. The proceeds of  
this loan were used to refinance part of a prior loan obtained from Bank        
Mandiri. Interest accrues on this loan at the rate of LIBOR plus 6.15% and is   
payable on a quarterly basis. The loan is payable in quarterly installments     
starting from the third year of the loan until its maturity date in August 26,  
2007. This loan is collateralized by 9,615,385 shares of Satelindo owned by     
Indosat. In connection with this loan, Indosat agreed to, among other things,   
maintain:                                                                       

.   a current ratio of 110% at the minimum; and                           

.   a debt to equity ratio of 233% at the maximum.                        

Satelindo                                                                   

Following the Asian financial crisis and the related devaluation of the   
Rupiah as against the U.S. dollar in late 1997, Satelindo defaulted on its debt 
obligations in 1998. On March 18, 1999 Satelindo negotiated a settlement of its 
outstanding indebtedness owed to Alcatel and P.T. Alcatel Enkomindo             
("Enkomindo"). On March 14, 2000, Satelindo converted amounts payable pursuant  
to the settlement agreement into a long-term debt facility and, in May 2000,    
Satelindo reached a final agreement with Alcatel, Enkomindo and its remaining   
creditors pursuant to the Master Restructuring Agreement or MRA (as defined     
below). Immediately prior to the date of the MRA, Satelindo had a total         
principal amount of indebtedness of US$530.5 million of which US$403.1 million  
was restructured pursuant to the MRA, US$116.0 million was simultaneously       
restructured pursuant to a number of bilateral agreements between Satelindo and 
its respective lenders and US$11.4 million was not restructured.                

Alcatel Settlement Agreement and Debt Facility Deed                         

On March 18, 1999, Satelindo entered into a settlement agreement          
("Settlement Agreement") with Alcatel and Enkomindo regarding: (i) various      
procurement contracts and purchase orders related to the supply of cellular     

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equipment and related services and (ii) amounts owed to Alcatel and Enkomindo   
totaling US$136 million. Pursuant to the Settlement Agreement, Satelindo made a 
one time payment of US$20 million to Alcatel and Enkomindo and committed to     
repay the remaining amounts owed over a five-year period commencing in 2000. On 
March 14, 2000, Satelindo subsequently converted amounts payable to Alcatel and 
Enkomindo under the Settlement Agreement into a long-term debt facility ("Debt  
Facility"). The Debt Facility provides for a total credit facility of US$116    
million, representing balances outstanding to Alcatel and Enkomindo in the      
amount of US$96.5 million and US$19.5 million, respectively. Interest is        
payable on a semi-annual basis on March 31 and September 30, at the rate of     
LIBOR plus: (i) 2.5% for the years 2000 through 2003 and (ii) 4.5% for the year 
2004. As of December 31, 2002, the outstanding principal amount equaled US$46.4 
million under the Debt Facility. The remaining unpaid principle of the Debt     
Facility is payable in four equal semi-annual installments of US$11.6 million,  
with the next payment due on September 30, 2003and the final payment due on     
September 30, 2004. The Debt Facility is collateralized by all equipment        
delivered to Satelindo by Alcatel and Enkomindo, satellite lease revenues and   
in-orbit insurance proceeds.                                                    

Master Restructuring Agreement                                              

On May 30, 2000, Satelindo entered into a Master Restructuring Agreement  
("Master Restructuring Agreement" or "MRA") with the GECA Facility Lenders, the 
P.T. Bank Paribas-BBD Facility Lenders, Badan Penyehatan Perbankan Nasional     
(the Indonesian Banking Restructuring Agency or "IBRA") and the Exchange Note   
Holders to reschedule portions of its outstanding indebtedness.                 

Restructured indebtedness.  The MRA restructured indebtedness consists of 
three credit facilities and one note program. The table below sets forth the    
principal amount of, the capitalized interest on and various payouts relating   
to the restructured indebtedness immediately prior to the execution of the MRA. 
The table also sets forth the principal amount of each credit facility and the  
Satelindo Bonds (each as defined below) immediately after the restructuring.    

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------
                            Satelindo      GECA                                        
                             Floating    Facility   IBRA Term  Paribas-BBD             
                            Rate Bonds  (Tranche I)   Loan      Facility      Total    
---------------------------------------------------------------------------------------
                               US$          US$        US$         US$         US$     
                                                                                       
Principal outstanding..... 200,000,000   99,652,011 60,887,464 42,595,146  403,134,620 
1999 interest, capitalized  14,924,884    8,356,174  4,514,582  3,045,144   30,840,785 
Excess pay-out............     (34,884)          --         --         --      (34,884)
                           -----------  ----------- ---------- ----------  ----------- 
Principal of new facility. 214,890,000  108,008,185 65,402,046 45,640,290  433,940,521 
                           ===========  =========== ========== ==========  =========== 
---------------------------------------------------------------------------------------

 .   Guaranteed Floating Rate Bonds: On May 30, 2000, Satelindo, through its
    wholly-owned subsidiary, Satelindo International Finance B.V. ("SIB"),
   issued US$214.9 million of Guaranteed Floating Rate Bonds ("Satelindo
  Bonds"). The Satelindo Bonds replaced promissory notes in accordance
      with the MRA. The Satelindo Bonds were issued in three series, which are
designated as the Guaranteed Floating Rate Bonds due 2004, the    
      Guaranteed Floating Rate Bonds due 2005 and the Guaranteed Floating Rate
  Bonds due 2006. The Indenture governing the Satelindo Bonds contains
      covenants limiting the issuance of additional indebtedness by Satelindo,
the sale and purchase of assets, the granting of liens and other  
     encumbrances and the amount of capital expenditures. The Indenture also
requires the maintenance of certain financial ratios and insurance
requirements. The Satelindo Bonds are secured by satellite lease  
     revenues and in-orbit insurance proceeds. Satelindo has unconditionally
  guaranteed the payment of the Satelindo Bonds. The guarantee is on a
    pari passu basis with other existing and future senior indebtedness of
    Satelindo. Interest on the Satelindo Bonds is payable on a semi-annual
  basis at the rate of LIBOR plus: (i) 2.5% for the years 2000 through
  2003; (ii) 4.5% for the year 2004; (iii) 5.0% for the year 2005; and
(iv) 5.5% for the year 2006. US$181.3 million principal amount of 
Satelindo Bonds remained outstanding as of December 31, 2002.     

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.   GECA Credit Agreement--First Tranche. On August 26, 1997, Satelindo   
entered into a loan agreement ("GECA Credit Agreement") with a    
consortium of banks led by Commerzbank AG Frankfurt am Main       
("Commerzbank AG"). The GECA Credit Agreement provided a US$115.0 
  million credit facility to be used for financing the purchase of GSM
    equipment from Siemens. The loan was made available on the basis of an
export credit cover provided by the Federal Republic of Germany   
   represented by Hermes Kreditversicherungs-Aktiengesellschaft, Hamburg
  ("Hermes"). The first drawdown was made on September 30, 1997 in the
amount of US$70 million. Drawdowns were repayable in 17 equal and 
      consecutive semi-annual installments, the first installment being due on
April 30, 1998. In February 1999, Satelindo and Siemens agreed to 
     certain amendments to the underlying purchase contract. On December 22,
      1999, Satelindo, Siemens, Commerzbank AG and Hermes agreed to divide the
   loan into two tranches. The first tranche ("Tranche I") consists of a
    US$99.7 million loan, representing the price of equipment and services
 delivered or rendered as of December 22, 1999. After restructuring,
    interest is payable on Tranche I on a semi-annual basis at the rate of
     LIBOR plus: (i) 2.5% for the years 2000 through 2003; (ii) 4.5% for the
 year 2004; (iii) 5.0% for the year 2005; and (iv) 5.5% for the year
 2006. The second tranche ("Tranche II") was not restructured and is
  described below under "--GECA Credit Agreement--Second Tranche." The
  credit facility under the GECA Credit Agreement is collateralized by
      satellite lease revenues and in-orbit insurance proceeds. As of December
31, 2002 the outstanding principal balance was US$92.2 million.   

 .   IBRA Term Loan Agreement. On August 29, 1996, Satelindo entered into an
   Investment Credit Agreement ("Investment Credit Agreement") with P.T.
    Bank Ekspor Impor Indonesia, which was later merged into Bank Mandiri.
 The Investment Credit Agreement provided for a US$70 million credit
facility collateralized by radio base station equipment located in
   Jakarta and satellite lease revenues and in-orbit insurance proceeds.
When Bank Mandiri was restructured in 1999, the Investment Credit 
    Agreement was assigned to IBRA. On May 30, 2000, the Investment Credit
Agreement was superseded by a term loan agreement ("IBRA Term Loan
    Agreement") pursuant to the terms of the MRA. On August 21, 2000, IBRA
      sold all of its rights, title and benefits related to the IBRA Term Loan
      Agreement to Salomon Brothers Holding Company Inc., USA ("Salomon"). The
principal outstanding at the time of the sale was US$65.4 million.
   Subsequently, the rights, title and benefits related to the IBRA Term
      Loan Agreement were sold to several other creditors. Under the IBRA Term
    Loan Agreement, interest is payable on a semi-annual basis at the rate
     of LIBOR plus 2.5%. The principal amount outstanding as of December 31,
2002 was US$25.9 million.                                         

.   BCI Term Loan Agreement. Satelindo entered into a Letter of Credit    
      Agreement, dated May 13, 1997, and a term loan facility, dated September
     2, 1998, each with P.T. Bank Paribas-BBD (collectively the "Paribas-BBD
Agreements"). Pursuant to the MRA, the Paribas-BBD Agreements were
   converted into a term loan agreement with Intesa Bci S.p.A. (formerly
     Banca Commerciale Italiana), Singapore branch ("Intesa Bci"), acting as
      the facility agent for a consortium of financial institutions ("BCI Term
   Loan Agreement"). The BCI Term Loan Agreement rescheduled and revised
the terms of repayment of the indebtedness established under the  
  Paribas-BBD Agreements and the principal amount then outstanding was
US$45.6 million. The credit facility provided by the BCI Term Loan
Agreement is collateralized by the cellular equipment, which was  
 financed by the Paribas-BBD Agreements, satellite transponder lease
revenues and in-orbit insurance proceeds. Under the BCI Term Loan 
  Agreement, interest is payable on a semi-annual basis at the rate of
  LIBOR plus 2.5%. The principal amount outstanding as of December 31,
2002 was US$16,195,749.                                           

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 Repayment schedule.  The MRA establishes the schedule of principal payments
for each of the BCI Term Loan Agreement, the IBRA Term Loan Agreement, the GECA 
Credit Agreement--First Tranche and the Guaranteed Floating Rate Bonds          
(collectively, the "Restructured Indebtedness"). The schedule of outstanding    
principal payments is set forth in the following table.                         

                                                                [Download Table]

--------------------------------------------------------------------
                  All amounts expressed in thousands of U.S. dollars
                  --------------------------------------------------
                                                  Guaranteed        
                              P.T. Bank    GECA    Floating         
                  Ex--IBRA   Paribas--BBD Credit  Rate Bonds  Total 
--------------------------------------------------------------------
                                                                    
June 30, 2000....  3,000        2,282          --       --     5,282
December 31, 2000  3,000        2,282          --       --     5,282
June 30, 2001....  3,000        2,282          --       --     5,282
December 31, 2001  3,000        2,282          --       --     5,282
June 30, 2002....  12,200       9,128          --       --    21,328
December 31, 2002  12,200       9,128          --       --    21,328
June 30, 2003....  14,500       9,128          --       --    23,628
December 31, 2003  14,502       9,128          --       --    23,630
April 30, 2004...    --           --       18,001       --    18,001
October 31, 2004.    --           --       18,001       --    18,001
December 31, 2004    --           --           --   71,630    71,630
April 30, 2005...    --           --       18,001       --    18,001
October 31, 2005.    --           --       18,002       --    18,002
December 31, 2005    --           --           --   71,630    71,630
April 30, 2006...    --           --       18,001       --    18,001
October 31, 2006.    --           --       18,002       --    18,002
December 31, 2006    --           --           --   71,630    71,630
                   ------       ------    -------  -------   -------
Total............  65,402       45,640    108,008  214,890   433,940
--------------------------------------------------------------------

Prepayment.  Pursuant to the MRA, Satelindo and SIB may make and, upon the
occurrence of certain events must make, prepayments of principal amounts due in 
relation to the Restructured Indebtedness.                                      

  .   Voluntary.  During any fiscal year, Satelindo and SIB may make voluntary
     prepayments according to the prepayment schedule for that year prepared
    by the calculation agent. Such payments must be in aggregate principal
    amounts of US$500,000 or more. To the extent principal prepayments are
      made, they must be made together with all accrued but unpaid interest to
     date on the amount of principal being prepaid. Prepayments of principal
     will be applied to reduce other repayments due under the MRA in inverse
order of maturity.                                                

.   Mandatory.  According to the MRA, Satelindo or SIB must make mandatory
      prepayments of principal in the event either: (i) has a specified amount
    of excess cash from operations in a fiscal year; (ii) receives certain
      amounts of net proceeds from equity offerings; or (iii) receives certain
amounts from the sale of assets in a fiscal year.                 

Equity issue proceeds.  Satelindo or SIB must use a portion of the net    
proceeds of equity issuances to prepay its restructured indebtedness. The       
prepayment obligations vary depending on the final size of the equity           
issuances. Satelindo or SIB must prepay an amount equal to: (i) 75% of any      
amount of net proceeds less than US$100 million; or (ii) in the case of net     
proceeds equal to or greater than US$100 million, US$75 million plus 50% of any 
amount of net proceeds in excess of US$100 million but less than US$200         
million; or (iii) in the case of net proceeds equal to or greater than US$200   
million, US$125 million plus 33% of any amount of net proceeds in excess of     
US$200 million.                                                                 

On July 25, 2002, Indosat made a capital injection to Satelindo in the    
amount of US$75 million, and therefore, Satelindo must apply 75% of such        
capital injection towards the prepayment of the aggregate principal             

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of and accrued interest on the long-term debts. For that reason, on July 28,    
2002, Satelindo made a prepayment totaling US$56.3 million to the following     
creditors using the allocation stipulated in the MRA:                           

                                                                [Download Table]

------------------------------------
Creditors                 Amount    
------------------------------------
                                    
Bondholders........... US$33,840,000
Commerzbank--Tranche 1    17,010,000
Ex--IBRA..............     3,246,000
P.T. Bank Paribas--BBD     2,154,000
                       -------------
Total................. US$56,250,000
                       =============
------------------------------------

 Based on the MRA, the above-mentioned capital injection met the criteria of
a Qualified Offering (i.e., an equity issuance resulting from gross proceeds of 
greater than US$75 million), which consequently caused certain of the           
restrictive covenants in the MRA to be automatically waived by the creditors.   
The covenants that were lifted as a result of the capital injection include     
those relating to the limitation in the amount of annual capital expenditures,  
certain restrictions on payments of dividends and permitted investments, and    
the obligation to make a mandatory prepayment from the excess cash calculated   
at each year-end.                                                               

  However, other negative and affirmative covenants still apply, including the
following:                                                                      

.   Insurance.  Satelindo must maintain insurance on its facilities at    
levels that comport with customary international practice. Such   
   insurance coverage must be placed with reputable insurers and include
      satellite in-orbit insurance of: (i) no less than US$150 million through
  December 31, 2003; and (ii) no less than US$140 million on and after
January 1, 2004.                                                  

  .   Liens.  Satelindo cannot grant a lien or allow its subsidiaries to grant
a lien on Satelindo's or the subsidiaries' property except liens  
    existing as of May 30, 2000 and certain: (i) tax liens; (ii) statutory
 liens; (iii) charges or encumbrances that do not interfere with the
     conduct of Satelindo's business; (iv) vendor or supply financing liens;
(v) liens created pursuant to capitalized lease obligations and to
      secure other purchase-money debt; and (vi) liens granted pursuant to the
MRA.                                                              

.   Additional indebtedness.  Pursuant to the terms of the MRA, Satelindo 
cannot issue new indebtedness unless: (i) (a) such indebtedness is
subordinated to the restructured indebtedness and certain other   
indebtedness of Satelindo and (b) 75% of the net proceeds of the  
 issuance of the new indebtedness is used to prepay the Restructured
 Indebtedness; or (ii) such new indebtedness is incurred pursuant to
  certain agreements (including certain loan and guarantee agreements,
which were restructured under the MRA) or subject to certain liens
      specifically identified in the MRA (including preexisting liens, certain
  property encumbrances, statutory liens and other similar charges and
encumbrances incurred in the ordinary course of business).        

.   Dividends and distributions.  Dividends may only be paid only if all  
      required prepayments of loans have been made and no event of default has
occurred.                                                         

  .   Asset sales.  Satelindo cannot and cannot allow its subsidiaries to sell
   or purchase material assets except in the ordinary course of business
      (other than allowable capital expenditures). In addition, Satelindo must
     make prepayments in an amount equal to 75% of the net proceeds from any
    sale of assets by it or its subsidiaries, excluding proceeds: (i) from
    individual sales of less than US$500,000 or from aggregate sales for a
     fiscal year of less than US$2 million; and (ii) used to purchase assets
     functionally equivalent to those sold within two months of the original
sale.                                                             

  .   Financial ratios.  Satelindo must maintain a debt to EBITDA ratio of 3.5
      in 2002 and 2.8 for the years 2003 through 2006. Satelindo must maintain
   an EBITDA to interest ratio of 2.7 in 2002 and 3.8 for the years 2003
through 2006.                                                     

 Events of default.  Events of default under the MRA include: (i) failure to
repay principal or interest on the Restructured Indebtedness within five days   
of such amounts becoming due; (ii) failure to perform or comply with            

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the covenants set out in the MRA; (iii) any representation or warranty made by  
Satelindo in the MRA proves to be false; (iv) Satelindo defaults on debt in     
excess of US$1 million; (v) Satelindo or SIB is unable to pay its debts as they 
fall due or is otherwise insolvent or bankrupt or involved in proceedings       
related to insolvency or bankruptcy; (vi) a substantial part of Satelindo's or  
SIB's assets or property are seized by relevant authorities or are attached;    
(vii) the Government prohibits payments to parties outside Indonesia or         
prohibits the conversion of the Rupiah into other currencies for purpose of     
payments outside Indonesia; (viii) Satelindo ceases to carry on all or any      
substantial part of its business; (ix) the MRA or certain related agreements    
become unenforceable or Satelindo or its subsidiaries disputes their            
enforceability; (x) certain liens created for the benefit of the creditors      
under the MRA are not maintained; and (xi) an event of default occurs with      
respect to the individual loan agreements that constitute the Restructured      
Indebtedness.                                                                   

GECA Credit Agreement--Second Tranche                                       

Tranche II of the GECA Credit Agreement, which was not restructured,      
consists of a US$12.3 million loan for equipment and services delivered or      
rendered in connection with a Y2K compliance package and a billing system       
upgrade. Interest on Tranche II is payable at 0.5% over the sixth-month LIBOR   
rate and adjusted on a semi-annual basis. As of December 31, 2002, US$6.6       
million principal amount was outstanding on Tranche II.                         

Revolving Credit Facility Agreements                                        

On January 26, 2000, Satelindo entered into a Revolving Credit Facility   
Agreement ("Alcatel Revolver") with Electro Banque, Paris, relating to a        
maximum US$25 million credit facility. The facility may be used to finance the  
equipment and services to be supplied by Alcatel CIT and P.T. Alcatel           
Enkomindo. As of December 31, 2002, Satelindo had not drawn down this credit    
facility.                                                                       

IM3                                                                             

On August 7, 2002, IM3 obtained a syndicated loan facility of Rp. 1.5     
trillion from several local banks with Bank Mandiri as the facility agent and   
security agent, for the purpose of procurement, construction, development and   
or expansion of IM3's GSM 1800 cellular network in Java, Bali, Batam and        
Bintan. The loan has a term of five years and is repayable in semi-annual       
installments commencing February 2005. The first to fourth installments,        
payable on February and August 2005 and February and August 2006, are based on  
15% each of the principal loan amount, whereas the fifth and final              
installments, payable on February and August 2007, respectively, are based on   
20%. As of December 31, 2002, Rp. 1.150 trillion principal amount was           
outstanding on this loan facility. This loan is collateralized by (i) the       
entire movable assets obtained by IM3 with the proceeds of this loan, excluding 
the assets in connection with a certain sale and leaseback transaction, (ii)    
insurance proceeds and (iii) certain payment reserve funds which IM3 has set    
aside in an escrow account, approximately equal to the next three months'       
interest.                                                                       

Lintasarta                                                                      

Lintasarta Convertible Bond                                                     

On March 21, 2002, Lintasarta's shareholders approved, among others, the  
declaration of dividends from year 2001 operating results amounting to Rp. 25.3 
billion cash dividends amounting to Rp. 4.1 billion (net of tax) were paid on   
June 3, 2002 and the remaining dividends were distributed in the form of        
unsecured convertible bonds with an aggregate nominal value of Rp. 20.0 billion 
were also distributed on June 3, 2002. The bonds bear interest at the annual    
fixed rate of 19.0% and are payable on a quarterly basis, commencing September  
3, 2002. The bonds are to be converted into common stock at par value of Rp. 1  
million per share five years after the issuance date or on June 3, 2007.        

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Lintasarta's long-term debt                                                 

In 2001, Lintasarta obtained an import sight letter of credit facility and
investment credit facility from Bank Niaga to purchase telecommunications and   
computer equipment amounting Rp. 130.0 billion, wherein 10.0% of the facility   
has been financed by Lintasarta itself and 90.0% of the facility, or Rp. 117.0  
billion, has been financed through an investment credit facility. The import    
sight letter of credit facility expired on December 31, 2002; the investment    
credit facility will expire on October 16, 2005. This facility bears interest   
at three-month time deposit rates guaranteed by Bank Indonesia plus 2.75%. The  
repayment of principal started on January 16, 2003, with installments amounting 
to Rp. 9.8 billion payable quarterly. The loan is collateralized by equipment   
purchased from the proceeds of the credit facilities and receivables from frame 
relay. Lintasarta is also required to obtain written approval from Bank Niaga   
if (i) the combined ownership of Indosat and Yayasan Kesejahteraan Karyawan     
Bank Indonesia in Lintasarta shall become less than 51% during the facility     
period, (ii) Lintasarta obtains new debts and (iii) Lintasarta invests          
elsewhere other than Lintasarta's current business. Lintasarta is also required 
to maintain certain financial ratios and dividends distribution should not be   
more than 50% of the current year's net income.                                 

In addition, on May 31, 2000, Lintasarta obtained Import Sight/Usance/UPAS
letter of credit and bank guarantee facilities from Bank Niaga. These           
facilities are secured by time deposits. The facilities consist of the          
following: (i) Import Sight/Usance/UPAS letter of credit facility amounting to  
US$5.0 million for the importation of electronic and telecommunications         
equipment and stand-by letter of credit amounting to US$0.1 million for the     
payment to Lintasarta's supplier, and (ii) a bank guarantee facility amounting  
to US$3.0 million. The Import Sight/Usance/UPAS letter of credit facility had   
expired in October 2002.                                                        

Subsidiaries and Associated Companies                                           

Our three major subsidiaries are Satelindo, IM3, and Lintasarta. We own   
effective interests of 100.0% of Satelindo, 99.94% of IM3, and 69.46% of        
Lintasarta. For the year ended December 31, 2002, Satelindo, IM3 and Lintasarta 
recorded revenues of Rp. 4,028 billion, Rp. 291.2 billion and Rp. 505.8         
billion, respectively. The net loss for IM3 for such period was Rp. 67.5        
billion, and the net income for Satelindo and Lintasarta for the same period    
was Rp. 1,325 billion and Rp. 84.7 billion, respectively.                       

We also maintain an ownership interest in a Kerjasama Operasi ("KSO")     
project. We own a 30.6% (30.55%) interest in P.T. Mitra Global Telekomunikasi   
Indonesia ("MGTI"), a joint venture company established to take part in a KSO   
project with Telkom in the Central Java region. Recently, Telkom announced in   
its first quarter of 2003 conference call its intention to acquire shares of    
MGTI from MGTI's investors, including Indosat. However, Telkom and MGTI's       
investors have not yet finalized negotiations in this respect, and it is        
uncertain when, if at all, the sale of Indosat's interest in MGTI will be       
consummated. For the year ended December 31, 2002, MGTI reported revenues of    
Rp. 427.6 billion and a net income of Rp. 235.05 billion. In August 2002, we    
completed the sale of our 13% ownership interest in P.T. Pramindo Ikat          
Nusantara, a KSO project in Sumatra. See "Additional Information--Material      
Contracts".                                                                     

 A complete list of our subsidiaries and investees, and ownership percentage
of each entity, as of December 31, 2002, is filed as an exhibit hereto. See     
also Note 9 to our audited consolidated financial statements included elsewhere 
herein.                                                                         

Insurance                                                                       

We carry insurance on our respective property and equipment (except       
submarine cables and land rights) for US$ 1.7 billion and Rp. 2.7 trillion. For 
the period June 2002 to June 2003, we have not had any insurance against        
consequential loss of the insured property. We do not maintain business         
interruption insurance. We generally do not anticipate having any difficulty in 
renewing our insurance policies, and we believe that our insurance is           
reasonable and consistent with industry standards.                              

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 Satelindo currently maintains in-orbit insurance on the Palapa-C2 satellite
on terms and conditions in line with industry practice. The amount insured      
under the policy equals US$150 million, and coverage under the policy extends   
through January 31, 2004. Because Palapa-C2 is of a class of satellite, which   
has been identified as prone to satellite control processor failure,            
Satelindo's satellite insurance does not cover satellite malfunction caused by  
failures of this kind. Amounts payable to Satelindo under this insurance policy 
have been assigned to the parties to whom such satellite revenues were pledged. 

Trademarks                                                                      

We have registered trademarks for our corporate name, logo and certain    
services with the Ministry of Justice in Indonesia. We believe that our         
trademarks are important to our success. We have never had to defend any of our 
trademarks, but we would vigorously do so if necessary.                         

Properties                                                                      

Except for ownership rights granted to individuals in Indonesia, the title
to land rests with the Indonesian State under the Basic Agrarian Law No.        
5/1960. Land use is accomplished through landrights whereby the holder of the   
landright enjoys the full use of the land for a stated period of time, subject  
to renewal and extensions. In most instances, the landrights are freely         
tradable and may be pledged as security under loan agreements.                  

  Our most important properties are located in Jakarta (international gateways
and head office), Ancol (cable station and switching center), Daan Mogot        
(Satelindo's headquarters and principal facilities), Jatiluhur (satellite earth 
station complex), Medan (international gateway), Pantai Cermin (earth station   
and cable station), Batam (international gateway and earth station), Surabaya   
(international gateway) and Banyu Urip-Gresik (earth station and cable          
station). We hold registered landrights to most of our properties, the initial  
periods of which range from approximately 20 to 30 years. We expect that our    
landrights will be renewed at nominal costs for the foreseeable future. None of 
our properties is mortgaged or otherwise encumbered.                            

Registered Offices                                                              

                                                                [Download Table]
                                                                      
Headquarters:              Jl. Medan Merdeka Barat 21 Jakarta 10110   
                           Indonesia                                  
                           Phone: 62-21-3802614                       

Jakarta Regional Division: Jl. Medan Merdeka Barat 21 Jakarta 10110   
                           Indonesia                                  
                           Phone: 62-21-3802614                       

East Regional Division:    Jl. Kayoon No. 68-74 Surabaya 60271        
                           Indonesia                                  
                           Phone: 62-31-5455001                       

West Regional Division:    Jl. Perintis Kemerdekaan No. 29 Medan 20236
                           Indonesia                                  
                           Phone: 62-61-4567001                       

Indonesian Telecommunications Industry                                          

Overview                                                                    

  Since 1961, telecommunications services in Indonesia have been provided by a
succession of state-owned companies. As in other developing economies, the      
expansion and modernization of telecommunications infrastructure play an        
important role in Indonesia's general economic development. Moreover, the       
nation's large population and rapid economic growth have led to significant     
unmet demand for telecommunications services.                                   

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The Government has extensive regulatory authority and supervisory control 
over the telecommunications sector, primarily through the MoC. The Government   
has historically maintained a monopoly over telecommunications services within  
Indonesia. Recent reforms have attempted to create a regulatory framework to    
promote competition and accelerate the development of telecommunications        
facilities and infrastructure. The regulatory reforms embodied in new           
regulations, which came into effect on September 8, 2000, are intended to       
increase competition by removing monopolistic controls, increase the            
transparency and predictability of the regulatory framework, create             
opportunities for strategic alliances with foreign partners and facilitate the  
entrance of new participants to the industry, thereby creating new job          
opportunities. The deregulation of the telecommunications sector is closely     
linked to the national economic recovery program supported by the IMF.          

In many respects, Indonesia's economy appears to have stabilized since    
1997-1998. Gross Domestic Product ("GDP") grew at an annual rate of             
approximately 0.3% in 1999, 4.8% in 2000, 3.4% in 2001 and 3.7% in 2002.        
Nevertheless, commentators point to strong oil prices and the weak Rupiah       
(which generally supports exports) as two important factors contributing to     
recent GDP growth. The Government continues to have a large fiscal deficit and  
a high level of sovereign debt. Its foreign currency reserves are modest. The   
Rupiah continues to be volatile and largely illiquid, and the banking sector is 
weak and suffers from high levels of non-performing loans. Inflation in 2002    
was 10.3%.                                                                      

 Cellular penetration is low in Indonesia by international standards but has
increased rapidly in recent years. In 1999, Indonesia had a cellular            
penetration of 1.1%, which is estimated to have increased to 1.7% in 2000, 3.0% 
in 2001 and 5.0% in 2002. In 2002, the number of fixed lines in Indonesia was   
approximately 7.75 million, representing a fixed-line penetration of 3.4%,      
among the lowest in the region, a result of growth stagnation under the         
previous regulatory framework.                                                  

Currently, the following services are offered by Indonesian               
telecommunications companies, but not all providers offer all                   
telecommunications options available to Indonesian consumers.                   

PSTN                                                                        

  Telkom, a majority state-owned company, owns and operates the country's only
PSTN. All telecommunications operators interconnect with Telkom's network in    
order to provide access to all Indonesian fixed-line and cellular subscribers.  
For example, cellular calls usually originate on, terminate on or transit       
through Telkom's PSTN network. As such, all providers of cellular services have 
been subject to fluctuations in capacity and line quality of the PSTN network.  
With the recent deregulation of the Indonesian telecommunications industry,     
however, Indosat and, to a lesser extent, other telecommunication operators,    
have begun to establish their own backbone transmission services, to reduce     
their dependence on Telkom's PSTN.                                              

In 1995, Telkom entered into agreements with five private joint venture   
consortia ("KSOs"), each of which includes prominent international              
telecommunications operators, to provide for the transfer of network            
development and operational responsibility for the PSTN for certain regions in  
Indonesia. Due to the depreciation of the Rupiah against foreign currencies,    
particularly the U.S. dollar, in 1997 and thereafter, some of the KSO projects  
have lost their economic viability. Telkom and the KSO partners have conducted  
intense negotiations to seek alternatives for the continued operation or        
termination of the KSO projects. For additional information about our           
participation in two of the KSOs, see "--Subsidiaries and Associated Companies" 
and "Additional Information--Material Contracts").                              

Cellular services market                                                    

The cellular market in Indonesia is currently dominated by Telkomsel,     
Excelcomindo and Indosat's cellular subsidiaries, Satelindo and IM3. These      
nationwide GSM operators collectively command approximately 95.0% of the        
national cellular market. The number of cellular subscribers in Indonesia       
totaled approximately 6.5 million at the end of 2001 and 11.4 million at the    
end of 2002, representing an annual growth rate of 74.0% during that period.    
Despite this rapid growth, the cellular penetration rate in Indonesia, at       
approximately 5% at the end of 2002, has remained relatively low compared to    
many other Asian countries and international markets.                           

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According to statistics published by Telkom, as of December 31, 2002,     
Telkomsel was the largest national licensed provider of GSM services in         
Indonesia, with approximately six million cellular subscribers and a market     
share of approximately 52% (based on the total number of Indonesian cellular    
subscribers) at the end of 2002. Satelindo was the second largest provider,     
with approximately 3.1 million cellular subscribers and a market share of       
approximately 27.1% at the end of 2001. Excelcomindo, the third largest         
provider, had approximately 1.7 million subscribers and a market share of       
approximately 14.8% as of the same date. IM3, Indosat's cellular subsidiary,    
was a new entrant to the GSM cellular market in 2001, and, as of December 31,   
2002, IM3 had approximately 511,000 subscribers and a market share of           
approximately 4.5%. In addition to the nationwide GSM operators, a number of    
smaller regional GSM, analog and CDMA cellular providers operate in Indonesia.  

In part, subscriber growth in Indonesia has been driven by the "calling   
party pays" system, the launch of prepaid service, as well as the introduction  
of short text messaging service or SMS. The calling party pays system requires  
the originators of telephone calls to pay for calls. Based on international     
experience, countries which implement a calling party pays system typically     
experience higher wireless penetration rates because wireless subscribers are   
more likely to give out their telephone numbers and keep their handsets         
switched on. Since its introduction in 1998, prepaid service has been popular   
in Indonesia (as in other Asian countries) because it permits customers to      
register for cellular service without undergoing a credit review. Prepaid       
service is also considered to be more convenient than postpaid service, giving  
customers more control over monthly expenditures. Text messaging has proven to  
be extremely popular in Indonesia, particularly on the prepaid platform, as it  
provides a convenient and cost-efficient alternative to voice and e-mail based  
communications. Competition in the Indonesian wireless industry is based        
primarily on service quality, pricing, availability of data services and        
special features (such as voice mail and text messaging) as well as network     
coverage.                                                                       

International calls market                                                  

International calls providers in Indonesia generate revenues from both    
inbound and outbound international call traffic. Presently, the two players     
include Indosat, which offers its "001" service and Satelindo, which offers its 
"008" service. Outgoing tariffs are based on rates set by the MoC, while        
incoming tariffs are settled at the applicable accounting rates. All            
traditional IDD (non-VoIP) international telecommunications between Indonesia   
and other countries pass through the networks of Indosat or Satelindo. Outgoing 
traffic is generated by fixed-line and mobile subscribers and delivered to the  
two international service providers directly through international gateways or  
indirectly through Telkom's PSTN. Incoming international traffic is received at 
international gateways and either routed directly to its intended destination   
from the gateways or indirectly through Telkom's PSTN network, or a cellular    
network, through which it is ultimately switched to its intended destination.   
Telkom has announced that it will begin to offer international call services    
through its own network in August 2003.                                         

In Indonesia, as in many emerging market countries, inbound communications
traffic has exceeded outbound traffic as more developed countries generate a    
disproportionate amount of international long distance traffic. Inter-operator  
traffic is settled based on a concept of accounting rates, which provide a      
common method of compensating the originating and terminating carrier. In       
general, international long distance carriers negotiate per minute accounting   
rates on a route-by-route basis with a single rate used by all carriers on that 
route. This accounting rate is usually denominated in U.S. dollars or special   
drawing rates ("SDRs") or Gold Franc, determined by reference to a basket of    
currencies. The accounting rate framework results in countries, such as         
Indonesia, which have imbalances in their international long distance traffic,  
generating large net settlement revenues denominated in U.S. dollars and SDRs.  
Future agreements that reduce the international accounting rates between        
Indonesia and foreign countries may adversely affect Indosat's, Satelindo's and 
international telecommunications providers' results of operations.              

VoIP and data communications market                                         

  Competition from VoIP providers offering services including budget calls and
prepaid calling cards has begun and is expected to adversely affect revenues    
from traditional international long distance calling revenue. Historically,     
data services in Indonesia have been primarily comprised of narrow bandwidth    
leased line services,                                                           

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x.25 service, digital data network service and integrated service digital       
network ("ISDN") service. Charges for these services have been declining in     
recent years.                                                                   

The rise of the Internet and the wider adoption of multimedia applications
are expected to increase demand for sophisticated broadband data services.      
Operators in Indonesia are deploying advanced broadband networks to provide     
high-end data services such as frame relay, ATM and IP service. In particular,  
virtual private network ("VPN") services, using IP technologies may capture a   
larger portion of the market share as they provide a reliable and               
cost-effective alternative to private networks that rely on dedicated leased    
lines.                                                                          

As the data communications infrastructure expands in Indonesia, demand for
VoIP services may increase. VoIP uses data communications connections to        
transfer voice traffic over the Internet connection, which usually provides     
substantial cost savings to subscribers. Currently, some domestic and foreign   
VoIP providers offer services in Indonesia, including Telkom, Indosat,          
Satelindo and several small, non-facilities based operators.                    

Although the Government has implemented a licensing system to limit the   
number of VoIP operators in Indonesia, the Government does not presently        
control the rates charged to end users of VoIP services. However, the           
Government has indicated that it is in the process of finalizing specific       
regulations with respect to VoIP rates, and it is expected that such            
regulations would limit VoIP tariffs to amounts that represent a maximum        
discount from the then current PSTN tariffs of approximately 40%.               

Satellite services market                                                   

  In recent years, competition in the Asia-Pacific satellite business has been
intense. Companies in this business compete primarily on coverage power,        
product offerings and price. The Indonesian satellite industry is loosely       
regulated, and in practice operates in accordance with an "open-sky" policy.    
This means that Indonesian satellite operators must compete with foreign        
satellite operators.                                                            

Industry trends                                                             

 We believe that the telecommunications industry in Indonesia will be driven
by several important trends in the future, which present major opportunities    
for modern telecommunications service providers. These trends include:          

 .   Continued growth in the telecommunications sector.  We believe that the
telecommunications industry will continue to grow, as continued   
  development and modernization of Indonesia's economy are expected to
  increase demand for telecommunications services. With relatively low
fixed-line telephony and cellular penetration, Indonesia's        
telecommunications industry offers positive growth potential.     

  .   Migration of voice and data traffic from fixed to wireless networks.  We
     anticipate that wireless services will become increasingly popular as a
    result of wider coverage areas and improving wireless network quality,
declining handset costs and the proliferation of prepaid services.

 .   Increasing competition in the telecommunications sector.  We anticipate
   an increasingly competitive Indonesian telecommunications market as a
result of the Government's regulatory reforms.                    

Regulation                                                                      

The Government exercises both regulatory authority and supervisory control
over the telecommunications industry in Indonesia. 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 Government    
regulates the telecommunications sector through 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  
has authority to issue implementing decrees, which are typically broad in       
scope, thereby giving the MoC considerable latitude. Pursuant to such decrees,  
the MoC defines the scope of Indosat's and Telkom's                             

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exclusivity, formulates and approves Indosat's and Telkom's tariffs, determines 
Indosat's and Telkom's USOs and controls many factors affecting Indosat's and   
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.                                                                         

Prior to March 1998, the Ministry of Tourism, Post and Telecommunications 
(the "MTPT") was responsible for the regulation of telecommunications in        
Indonesia, but, with reorganization of the Government following the 2001        
General Elections, the MoC was given the regulatory responsibilities. Through   
the Directorate General of Post and Telecommunications (the "DGPT"), a          
directorate under the MoC, the Government regulates the radio frequency         
spectrum allocation for all operators, including Indosat, which are required to 
obtain a license from the DGPT for each of their services utilizing radio       
frequency spectrum. The DGPT is headed by a Director General. All               
telecommunications operators are also required to pay for radio frequency       
spectrum usage. The Government also requires all telecommunications operators   
to pay a concession license fee of 1% of its collected operating revenues.      

The overall program of telecommunications sector deregulation is closely  
linked to the national economic recovery program supported by the IMF. The      
national plan is documented in the Memorandum of Economic and Financial         
Policies (the "MEFP"), as further clarified in the Letters of Intent to the IMF 
in January and May 2000. The main focus of the MEFP is to stabilize the economy 
and regain trust through a comprehensive plan based on:                         

.   Deregulation;                                                         

.   Promoting competition;                                                

.   Liberalization;                                                       

.   Restructuring;                                                        

.   Improving market access;                                              

.   Introducing market-oriented regulations;                              

The Government's telecommunications reform policy is formulated in its    
"Blueprint of the Indonesian Government's Policy on Telecommunications", dated  
September 17, 1999 (the "Blueprint"). The policies stated in the Blueprint are  
intended to:                                                                    

.   Increase the sector's performance in the era of globalization;        

.   Liberalize the sector with a competitive structure by removing        
monopolistic controls;                                            

.   Increase transparency and predictability of the regulatory framework; 

.   Create opportunities for national telecommunications operators to form
strategic alliances with foreign partners; and                    

.   Create business opportunities for small and medium enterprises and to 
facilitate new job opportunities.                                 

The recent regulatory reforms of the Indonesian telecommunications sector 
have their foundation in the Telecommunications Law.                            

The Telecommunications Law                                                      

The Telecommunications Law, as contained in Law No. 36/1999, came into    
effect on September 8, 2000. It provides key guidelines for industry reforms,   
including industry liberalization, facilitation of new entrants and enhanced    
competition. Under the Indonesian regulatory framework, a law only outlines the 
substantive principles of the subject matter. Implementation guidelines will be 
further made through Government regulations,                                    

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ministerial decrees and other forms of decrees. Therefore, the                  
Telecommunications Law only outlines the framework and substantive principles   
for the liberalization of the telecommunications industry. The                  
Telecommunications Law eliminates the concept of "organizing entities", thus    
ending Indosat's and Telkom's status as organizing entities with responsibility 
for coordinating international and domestic telecommunications services,        
respectively, for the industry. However, based on prior decrees creating        
certain exclusivity entitlements, Indosat and Telkom will retain their status   
as telecommunications operators subject to fulfillment of any licensing         
requirements under the law.                                                     

  The Telecommunications Law specifically prohibits monopolistic practices and
unfair competition among telecommunications operators. The role of the          
Government is to become that of an impartial policy maker and supervisor of     
telecommunications sectors.                                                     

 As stipulated in the Telecommunications Law, an independent regulatory body
will be established to provide input in the development of telecommunications   
policies and regulations. Membership of the independent regulatory body will    
consist of telecommunications businesses, professional organizations,           
telecommunications equipment manufacturer associations, network and service     
users and telecommunications experts. The independent regulatory body will be   
established based on a consensus among the telecommunications industry players  
and will report to the MoC. It was generally expected that the independent      
regulatory body would have been established in 2002. However, to date, no       
implementing regulation for the establishment of such independent regulatory    
body has been issued.                                                           

Classification of telecommunications providers                              

The Telecommunications Law classifies telecommunications providers into   
three categories: (i) telecommunications network providers, (ii)                
telecommunications services providers and (iii) special telecommunications      
providers. Under these categories, telecommunications network operations and/or 
provision of telecommunications services may be carried out by any legal entity 
established for that purpose. The Telecommunications Law is expected to         
eliminate artificial barriers of service bundling and pave the way for market   
liberalization.                                                                 

  Under the Telecommunications Law, licenses are required for each category of
telecommunications service. A telecommunications network provider is licensed   
to own and/or operate a telecommunications network. The license entitles the    
provider to provide services but does not require a provider to own a network   
for such purpose. Therefore, such providers may elect to either construct their 
own network or lease network capacity from a network operator. Special          
telecommunications licenses are required for providers of private               
telecommunications services or purposes relating to broadcasting and national   
security interests. MoC Decree No. KM 20/2001 implements the provisions in the  
Telecommunications Law regarding these new categories of telecommunications     
network and services operations.                                                

Exclusivity                                                                 

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

The Telecommunications Law did not expressly terminate the existing       
exclusivity rights of Telkom, Indosat and Satelindo. In an effort to support    
the undertakings of Telkom and Indosat during their respective initial public   
offerings and to maintain the Government's credibility among foreign investors, 
the Government announced that termination of the exclusivity rights will be     
subject to agreement between the relevant incumbents and the Government,        
whereby incumbents will be eligible for compensation in exchange for early      
termination of these exclusivity rights.                                        

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On August 1, 2001, the Government through the DGPT, announced the early   
termination of Telkom's and Indosat's exclusivity rights for local and DLD      
telecommunications services (in the case of Telkom) and IDD (in the case of     
Indosat), through MoC Decree No. KM 21/2001 ("Operation of Telecommunications   
Services"). The announcement stated that the Government's intention that        
Indosat will receive a license to provide local telephone services from August  
2002 and a license to provide DLD services from August 2003, and that Telkom    
will receive a license to provide IDD services from August 2003. The Government 
has appointed an appraiser to try to resolve differences of opinion regarding   
the amount of compensation, and the appraiser has submitted its report to the   
Government. However, as of early June 2003, the negotiations with the           
Government in connection with compensation for the early termination of the     
incumbents' exclusivity rights have yet to be concluded.                        

Competition                                                                 

As a result of previous regulatory provisions, Indosat and Telkom had been
granted the right to act as the organizing bodies in the telecommunications     
sector, resulting in the formation of a number of joint shareholdings. However, 
the Government's Blueprint for telecommunications reform calls for the          
progressive elimination of these joint shareholdings to promote competition and 
to avoid any actual or potential conflicts of interest that might arise in a    
more competitive telecommunications sector. Several of these joint              
shareholdings were unwound in 2001.                                             

  Cellular services.  Pursuant to an agreement eliminating cross-shareholdings
in several telecommunications companies, Telkom sold its 22.5% interest in      
Satelindo to Indosat and Indosat sold its 35% interest in Telkomsel to Telkom.  
Tariffs will continue to be determined by a formula set by the Government.      

Fixed line services.  It is contemplated 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. Indosat has been granted   
an in-principle license for the development of local fixed-line                 
telecommunications. Once Indosat's local fixed line network is ready for        
commercial operation, the network will be inspected by the DGPT and, if it      
passes, as is expected, Indosat will be granted an operating license.           

DLD services.  It is contemplated that the market for provision of DLD    
services will be liberalized in August 2003 with the termination of Telkom's    
exclusivity, resulting in direct competition between Telkom and Indosat.        

IDD services.  It is contemplated that the market for provision of IDD    
services will be liberalized in August 2003 with the termination of Indosat's   
and Satelindo's exclusivity. It is expected that Telkom will then be allowed to 
provide IDD services in direct competition with Indosat and Satelindo.          

Tariffs                                                                     

For a description of the tariff regime under the Telecommunications Law   
applicable to us, see the description of tariffs under "Principal Products and  
Services".                                                                      

Consumer protection                                                         

 Under the Telecommunications Law, each operator must 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 Obligations (USO)                                         

Under the Telecommunications Law, all telecommunications network operators
and service providers are bound by a USO, which requires provision of           
telecommunications facilities and infrastructure or other compensation to all   
operators. A draft regulation with respect to USO issues has been prepared in   
order to                                                                        

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implement these objectives. Under the draft, the local network provider will be 
responsible for network installation in the USO areas. Thereafter, costs        
arising from providing networks in the USO areas will be passed onto other      
network and service providers that send traffic to the recipient network        
providers in the form of USO fees. This draft regulation has not yet been       
finalized and is, therefore, subject to change.                                 

Independent regulatory body                                                 

 The Telecommunications Law contemplates the establishment of an independent
body. The role of the Government, acting through the MoC, remains in the area   
of industry policy, regulation, monitoring and control. However, in             
administering its duties, the Government will invite participation from the     
public in the form of an independent regulatory body consisting of              
telecommunications users, operators, suppliers and experts. This independent    
regulatory body is expected to provide input in the process of development of   
telecommunications policies and regulations. Combined with further              
privatization of Telkom and Indosat, the establishment of such an independent   
regulatory 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 licenser to becoming primarily    
the industry's licenser and regulator.                                          

Interconnection arrangements                                                

Pursuant to the express prohibitions on activities that may create        
monopolistic practices and unfair business competition, the Telecommunications  
Law provides for fair interconnection of networks to allow "any to any          
connectivity". Interconnection fees are to be agreed by each network provider   
and calculated in a transparent manner. The Telecommunication Law provides      
guidance with respect to the interconnection scheme between international       
service providers and domestic service providers. Generally, interconnection    
costs paid by Indosat for access to the PSTN are based on termination and       
origination charging, which is determined in MoC Decree No. 37/1999, while      
interconnection costs paid to mobile cellular operators are based on            
negotiations between the network providers. However this interconnection scheme 
is due to be re-calculated in an anticipated MoC decree on interconnection.     

Implementing regulations                                                    

  To date, the Government has issued several implementing regulations relating
to the Telecommunications Law, among others Government Regulation No. 52/2000   
("Operation of Telecommunications") and Government Regulation No. 53/2000       
("Utilization of Radio Frequency Spectrum and Satellite Orbit"), as well as     
ministerial decrees, including Ministerial Decree No. KM 20/2001 ("Operation of 
Telecommunications Networks"), No.21/2001 ("Operation of Telecommunication      
Services"), No.12/2002 ("Completing MTPT Decree No. KM.79/PR-301/MPPT-95 on     
Procedures for the Tariff Adjustment of Domestic Basic Telecommunications       
Services"), Ministerial Decree No. KM 40/2002 ("Guidance for Tariff             
Implementation of State Revenue on Tax from Cost of Utilization Right of Radio  
Frequency Spectrum") and Ministerial Decree No. KM 23/2003 ("Internet Telephony 
Service for Public"). The MoC and DGPT are in the process of finalizing a       
number of additional ministerial decrees that are intended to implement other   
aspects of the Telecommunications Law, including with respect to special        
telecommunications operations, USO and interconnection.                         

Satellite regulation                                                        

The international satellite industry is highly regulated. In addition to  
being subject to domestic licensing and regulation in Indonesia, the placement  
and operation of Satelindo's satellite are also subject to registration with    
the Radio Communications Bureau of the International Telecommunications Union   
and the Intelsat consultation process.                                          

Item 5:  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                           

The following discussion should be read in conjunction with our audited   
consolidated financial statements for the three years ended December 31, 2000,  
2001 and 2002 included elsewhere herein. The audited                            

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consolidated financial statements have been prepared in accordance with         
Indonesian GAAP, which differs in certain material respects from U.S. GAAP. See 
"--Summary of Certain Material Differences between Indonesian GAAP and U.S.     
GAAP" and Notes 39, 40 and 41 to the audited consolidated financial statements, 
included herein, for a summary of certain material differences between          
Indonesian GAAP and U.S. GAAP as such differences apply to our financial        
condition and results of operations. Certain amounts (including percentage      
amounts) have been rounded for convenience.                                     

Overview                                                                        

The telecommunications market in Indonesia has undergone deregulation     
following the enactment of the Telecommunications Law (No. 36) in 1999.         
Historically, only Indosat and Telkom, as the incumbent public                  
telecommunications operators, or persons acting in cooperation with Indosat or  
Telkom, had the right to provide public telephone services or build and operate 
telecommunications network in Indonesia. Consistent with its moves towards      
deregulation, the Government liberalized Indonesia's mobile telecommunications  
market starting in 1995 and has begun the liberalization of the local fixed     
network in 2002 and the DLD and IDD market in 2003.                             

 Due to the deregulation and low penetration rate of telephone services, the
cellular market in Indonesia has grown very rapidly. In order to capitalize on  
this growth, we have changed our business strategy to emphasize our cellular    
operations, instead of continuing our traditional focus on international call   
services. Principally as a result of our acquisition of Satelindo in 2002, for  
the year ended 2002 our cellular business contributed more revenues than        
international call services for the first time in our company's development. We 
intend to continue our transformation process by creating and benefiting from   
synergies between Satelindo and IM3, as well as preparing for the possible      
legal merger of Satelindo and IM3 into Indosat.                                 

Critical Accounting Policies                                                    

Our audited consolidated financial statements have been prepared in       
accordance with Indonesian GAAP. The preparation of these financial statements  
requires 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. Management bases its estimates and        
judgments on historical experience and other factors that are believed to be    
reasonable under the circumstances. We continually evaluate such estimates and  
judgments. Actual results may differ from these estimates under different       
assumptions or actual conditions.                                               

 We also provide a summary of significant differences between our accounting
principles and U.S. GAAP. We believe that, of our significant accounting        
policies, the following may involve a higher degree of judgment or complexity.  

Revenue recognition                                                         

Cellular.  Revenues from service connections (connection fees) are        
recognized as income at the time the connections take place. Revenues from      
usage and monthly subscription charges are recognized when earned. Prepaid      
revenues, which consist of sale of starter packs and pulse reload vouchers, are 
recognized as follows:                                                          

(i) starter pack sales are recognized upon delivery of starter packs to   
distributors, dealers or directly to customers; and               

(ii) pulse reload voucher sales to dealers or customers are initially       
      recorded as unearned income and then proportionately recognized as usage
   revenue based on successful calls made by the subscribers or whenever
the unused stored value of the voucher has expired.               

  Revenues from interconnections with operators (usage revenue) are recognized
monthly on the basis of the actual recorded traffic for the month.              

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International calls.  Revenues from services are accounted for on the     
accrual basis. At the end of each year, income from outgoing international call 
traffic is recognized on the basis of the actual recorded traffic for the year. 
Adjustments from Telkom for the last two months of the year are recognized in   
the following year (actual adjustments made were historically insignificant).   
Income from international calls traffic from overseas international carriers,   
for which statements have not been received, is estimated from historical data  
(differences between the estimated and actual income were historically          
insignificant).                                                                 

Operating revenues for interconnection services under interconnection     
agreements which are based on revenue sharing arrangements are reported on a    
net basis, after interconnection expenses and after allocations to overseas     
international carriers. Operating revenues for interconnections that are not    
made under contractual sharing agreements, i.e. based on tariffs as stipulated  
by the Government, are reported on a gross basis, before interconnection        
expenses but after allocations to overseas international carriers. These        
interconnection expenses are accounted for as operating expenses in the year    
incurred.                                                                       

  MIDI and other services.  Satellite revenues are recorded in accordance with
the terms and conditions of the transponder lease agreement between Satelindo   
and each of its customers. Revenue from the sale of software and services is    
recognized when the software is installed or the services are delivered to the  
customers. Revenue for consulting services is recognized based on the           
percentage-of-completion method. Revenues from other MIDI services and Other    
services are recognized when the services are rendered.                         

Accounting practices and guidance with respect to the accounting treatment
of the above transactions is evolving. Any changes in the accounting treatment  
could affect the manner in which we account for revenues associated with these  
transactions in the future.                                                     

Goodwill                                                                    

Whenever we acquire a subsidiary which is not an entity under common      
control, any excess of acquisition cost over our interest in the fair value of  
the subsidiary's identifiable assets, net of liabilities, as of the acquisition 
date is recognized as goodwill. Goodwill is amortized over a five-year period   
using the straight-line method. We review the carrying amount of goodwill       
whenever events or circumstances indicate that its value is impaired.           
Impairment loss is recognized as a charge to current operations.                

Allowance for doubtful accounts                                             

  Allowance for doubtful accounts is provided based on management's evaluation
of the collectability of the accounts at the end of the year. We maintain an    
allowance for doubtful accounts for estimated losses that result from the       
inability of our customers to make required payments. We base our allowance on  
the likelihood of recoverability of accounts receivable based, in part, on past 
experience and current collection trends that are expected to continue. If      
economic or specific industry trends deteriorate beyond our estimates, actual   
losses could exceed estimated losses, and we would need to increase our         
allowance for doubtful accounts by recording an additional expense.             

Estimated useful lives of property and equipment                            

We estimate the useful lives of property and equipment to determine the   
amount of depreciation expense to be recorded during each reporting period.     
Useful lives are estimated at the time the asset is acquired and are based on   
historical experience with similar assets, taking into account anticipated      
technological or other changes. If technological changes 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 expense in future periods. Alternatively, these types 
of technological changes could result in the recognition of an impairment       
charge to reflect the write-down in value of the asset.                         

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Investments                                                                 

Investments in shares of stock in which the Company has an equity interest
of at least 20%, but not exceeding 50%, are accounted for under the equity      
method, whereby the investment cost is increased or decreased by the Company's  
share of the net earnings or losses of the investees since the date of          
acquisition and decreased by dividends received. Equity in net earnings         
(losses) is being adjusted for the straight-line amortization, over five years, 
of the difference between the cost of such investment and the Company's         
proportionate share in the underlying fair value of the net assets at the date  
of acquisition (goodwill).                                                      

Investments in shares of stock in which the equity interest is less than  
20%, and other long-term investments are carried at cost. 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.                                                             

Pension plan                                                                

Pension costs are accounted for on a basis consistent with SAK 24,        
"Accounting for Pension Benefit Cost". Under the defined benefit pension plan,  
the pension costs are determined by periodic actuarial calculation using the    
projected-unit-credit method and applying the assumptions on discount rate,     
expected return on plan assets and annual rate of increase in compensation. The 
unrecognized net obligation at the date of initial application of SAK 24 is     
amortized over the estimated average remaining service periods of the           
employees. On the other hand, under the defined contribution pension plan, the  
contributions are made by the employees at amounts ranging from 10%-20% of the  
employees' basic monthly salaries.                                              

Business and Operating Environment                                              

Starting in 2002, our business changed significantly, from primarily being
an international telecommunication provider to becoming a more                  
cellular-focused, fully-integrated telecommunications full network and services 
provider. We are now providing cellular, international calls, MIDI and other    
value added services and competing with other players such as Telkom, Telkomsel 
and Excelcom in providing such services. Currently, Indosat, directly and       
indirectly, holds 100% of Satelindo, the second largest cellular operator in    
Indonesia with around 3.1 million subscribers as at December 31, 2002. Indosat  
also owns 99.4% of IM3, the fourth largest cellular provider in Indonesia with  
around 0.5 million subscribers as at December 31, 2002.                         

The transformation has guided Indosat to focus more on the cellular       
business, as reflected by our operating revenues. For the year ended December   
31, 2002, revenues from cellular services accounted for 48.3% of our total      
revenues, while revenues from international calls, MIDI, and other services     
accounted for 31.6%, 18.7%, and 1.4%, respectively. In 2001, cellular,          
international calls, MIDI and other services accounted for 34.4%, 42.0%, 21.5%, 
and 2.1% respectively. The substantial increase in the amount of our total      
revenues coming from cellular services is in line with our strategy to become a 
"Cellular-focused, Fully Integrated Network and Services Provider". We expect   
the revenue contribution from our cellular businesses to increase in the future 
relative to our other business lines.                                           

Government regulation                                                       

The MoC is the principal regulator of the telecommunications industry in  
Indonesia and is responsible for setting and adjusting tariff levels. Regulated 
tariffs include, among others, those for activation fees, monthly fees, airtime 
usage fees, interconnection fees and domestic and international long distance   
telephony rates. These tariff levels are subject to periodic review and         
adjustment. Since a significant portion of our operating revenues depend on     
tariff levels established by the Government, any future changes in the          
Government's tariff policies could affect our financial condition. Prepaid      
cellular services prices are regulated by reference to postpaid tariff          
policies, and, although not directly regulated by the Government, our revenues  
from prepaid cellular services could be affected by future changes in the       
Government's tariff policies.                                                   

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  The detailed Government tariff rates, categorized by different services, are
included in "Information on the Company--Principal Products and Services".      
Tariff rates set by the Government may be changed in the near future due to     
further deregulation of the telecommunications sector in Indonesia. Such future 
changes, if they occur, may affect our operating revenues. See "Key             
Information--Risk factors--Risks relating to Indosat and its subsidiaries--The  
Government may adjust or fail to adjust tariffs resulting in an adverse effect  
on our financial condition and results of operations".                          

Domestic inflation                                                          

Our management does not believe that domestic inflation has had a material
impact on our business, financial condition or results of operations due to its 
limited effect on our cost structure. Indonesia's inflation rates in 2000, 2001 
and 2002 were 9.4%, 12.6% and 10.03% respectively. No assurances can be given   
that we will be protected in the future against inflationary pressures, which   
may increase our expenses and reduce demand for our services. We may be unable  
to offset such higher costs through rate increases, some of which are regulated 
by the Government. The inability or failure to do so could adversely affect our 
business, financial condition and results of operations.                        

Foreign exchange volatility                                                 

  Businesses in Indonesia that incur expenses payable in currencies other than
Rupiah and as against which the value of the Rupiah has declined, and whose     
revenues are all or substantially all in Rupiah, were among the first and most  
adversely affected by the Asian economic crisis beginning in 1997. In periods   
in which the value of the Rupiah declines as against the U.S. dollar, the       
Rupiah value of expenses payable in U.S. dollars will increase by the same      
factor, thereby requiring such companies to convert more Rupiah to pay their    
U.S. dollar obligations. The Rupiah experienced a severe depreciation at the    
outset of the Asian financial crisis in late 1997 and continues to experience   
periods of volatility. During the period between January 1, 1997 through        
December 31, 2002, the Rupiah/U.S. dollar exchange rate ranged from a high of   
Rp. 14,900 per U.S. dollar to a low of Rp. 2,396 per U.S. dollar, and, during   
the year 2002, ranged from a high of Rp. 10,473 per U.S. dollar to a low of Rp. 
8,460 per U.S. dollar. On December 31, 2002, the Indonesian Central Bank Rate   
was Rp. 8,940 per U.S. dollar, a 14.0% increase from Rp. 10,400 per U.S. dollar 
on December 31, 2001 and a 6.8% increase from Rp. 9,595 per U.S. dollar on      
December 31, 2000. See "Key Information--Risk factors--Risks related to         
Indonesia--Devaluation or volatility of the Rupiah, especially as against the   
U.S. dollar, may adversely affect our financial results and operations".        

We recorded a foreign exchange gain-net of Rp. 462.8 billion, Rp. 524.1   
billion, and Rp. 393.8 billion in 2000, 2001 and 2002, respectively. For the    
year ended December 31, 2001, we recorded Satelindo's foreign exchange loss-net 
related to its exposure to currency fluctuations as a result of its U.S. dollar 
liabilities. However, such net foreign exchange losses were reduced             
significantly by a one-time foreign exchange gain resulting from a settlement   
of a lease dispute with Telkom at a favorable U.S. dollar exchange rate that    
Satelindo recorded as a U.S. dollar liability at the prevailing exchange rate   
prior to settlement. For the year ended December 31, 2002, we recorded          
Satelindo's foreign exchange gain-net, which was primarily due to the           
revaluation of Satelindo's U.S. dollar and other foreign currency denominated   
debts at year end 2002, as the Rupiah had appreciated against the U.S. dollar   
and other currencies during the year of 2002. Our consolidated long-term        
foreign currency-denominated debt increased significantly following the         
acquisition of Satelindo, thereby increasing our exposure to foreign exchange   
rate volatility as against earlier periods.                                     

Monetary assets subject to foreign currency exposure were US$223.9 million
at December 31, 2002 and monetary liabilities subject to foreign currency       
exposure were US$588.2 million at December 31, 2002. The monetary assets        
primarily consisted of cash, cash equivalents and accounts receivable from      
foreign telecommunications carriers, as well as our foreign currency            
denominated account receivables. The monetary liabilities are comprised of      
accounts payable, long-term debts and bonds payable. For any specific period,   
the level of net monetary assets is heavily influenced by the extent to which   
incoming calls exceed outgoing calls in our IDD business and our foreign        
currency denominated source of revenues.                                        

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Historically, a portion of operating revenues has been U.S.               
dollar-denominated or U.S. dollar-linked, which we believe mitigates our        
foreign exchange exposure to some degree. Indosat and certain of our            
subsidiaries generate operating revenues in U.S. dollars (or U.S. dollar-linked 
payments in Rupiah) from foreign carriers for inbound international calls,      
roaming by foreign carriers' subscribers in Indonesia and operating revenues    
from our international data services and satellite operations. U.S.             
dollar-linked revenues are based on U.S. dollar rates billed in Rupiah at the   
prevailing U.S. dollar to Rupiah exchange rate.                                 

We do not customarily engage in currency hedging activities, although we  
have done so to a limited extent in the past. While we may enter into hedging   
arrangements in the future, our management believes that certain constraints in 
the Indonesian financial markets combined with the volatility of the Rupiah     
either prevent us from being able to hedge currency risk consistently and       
comprehensively, or make such hedging transactions prohibitively expensive. At  
the subsidiary level, Satelindo currently converts any surplus Rupiah funds to  
U.S. dollars on a regular basis and Lintasarta has hedged its U.S.              
dollar-denominated liabilities to avoid foreign currency and interest rate      
exposure. For a description of Lintasarta's hedging arrangements, see           
"Quantitative and Qualitative Disclosure about Market Risk".                    

Our exposure to foreign exchange fluctuations, particularly as against the
U.S. dollar, may increase if we incur additional U.S. dollar-denominated debt   
to finance our cellular services expansion plans.                               

Interest rate sensitivity                                                   

 Our exposure to interest rate fluctuations results primarily from debt owed
by Satelindo, Lintasarta, and to a lesser extent, Indosat. Since interests of   
major credit facilities of Satelindo, Lintasarta and Indosat are payable at     
LIBOR, or are time deposit rates plus applicable margins, the exposure to such  
credit facilities is affected by fluctuations in LIBOR and relevant time        
deposit rates. See Notes 15 and 16 to the consolidated financial statements     
included elsewhere herein. The Company and its subsidiaries, as of December 31, 
2002, hold U.S. dollar and Rupiah denominated deposits, which are also having   
exposure to interest rate fluctuations.                                         

Overview of Operations                                                          

Operating revenues                                                          

We generate operating revenues primarily by providing cellular,           
international calls, and MIDI services. Operating revenues from cellular        
services represented 34.4% and 48.3% of total operating revenues for the years  
ended December 31, 2001 and 2002, respectively. Operating revenues from         
international calls services represented 73.0%, 42.0% and 31.6% of total        
operating revenues for the years ended December 31, 2000, 2001 and 2002,        
respectively. Operating revenues from MIDI services represented 24.5%, 21.5%,   
and 18.7% of total operating revenues for the years ended December 31, 2000,    
2001 and 2002, respectively. The following table sets forth information         
relating to operating revenues from each business division:                     

                                                                [Download Table]

------------------------------------------------------------
Year Ended December 31,                                     
(in billions of Rupiah)               2000    2001    2002  
------------------------------------------------------------
                                                            
Operating revenues:                                         
   Cellular.........................      -- 1,769.9 3,271.6
   International calls.............. 2,184.0 2,157.5 2,137.9
   MIDI.............................   731.7 1,105.1 1,263.0
   Other............................    76.5   105.6    94.4
                                     ------- ------- -------
       Total operating revenues..... 2,992.2 5,138.1 6,766.9
                                     ======= ======= =======
------------------------------------------------------------

Cellular services.  Cellular services operating revenues is derived from  
usage charges, features, interconnection income, monthly subscription charges,  
connection fees, and others charged by Satelindo and IM3 to their cellular      
customers. These different sources of cellular revenues contributed Rp. 1,248.0 
billion, Rp. 139.0                                                              

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billion, Rp.230.1 billion, Rp. 78.7 billion, Rp. 66.3 billion and Rp. 7.7       
billion, respectively, for the year ended December 31, 2001, and Rp. 2,139.5    
billion, Rp. 538.6 billion, Rp. 375.7 billion, Rp. 116.3 billion, Rp. 87.7      
billion and Rp. 13.9 billion, respectively, for the year ended December 31,     
2002. For the year ended December 31, 2002, Satelindo accounted for 90.6% of    
our total cellular services operating revenues, while IM3 contributed the       
remaining 9.4%.                                                                 

Satelindo's revenues from cellular services increased primarily due to    
increases in Satelindo's total number of subscribers and growing                
interconnection and features and data communication revenues. We believe that   
Satelindo's revenues from cellular services will continue to increase as a      
percentage of our total revenues as its geographic coverage and cellular        
network capacity expands and the number of cellular subscribers increases.      

IM3 launched its services in late 2001. In 2002, IM3's revenues from usage
increased due primarily to increases in IM3's total number of subscribers and   
also from growing features/value add service revenues. Interconnection income   
also increased, primarily caused by an increased volume of incoming traffic     
from other operators. Monthly subscription charges increased as IM3 launched    
postpaid services in 2002. Connection fees, which represent one-time revenues   
for new subscribers, increased primarily due to subscriber growth during 2002.  

International calls services.  Our international calls services are       
comprised of Indosat's "001" and Satelindo's "008" IDD services as well as      
Indosat's operator-assisted and value-added services. Operating revenues depend 
on the total minutes of call volume generated for outgoing and incoming calls   
and the tariffs and rates charged for such calls. Total international call      
volume declined in 2002 from 2001, continuing a trend seen worldwide and in     
Indonesia. Decreasing call volumes, combined with stable tariff rates, resulted 
in declining operating revenues from international calls services for the year  
ended December 31, 2002 compared to the previous year.                          

Operating revenues generated by Indosat's and Satelindo's international   
calls services have two primary sources, incoming calls revenues and outgoing   
calls revenues. For most outgoing calls, we receive payments from domestic      
carriers, including Telkom and other domestic operators. For net settlements,   
we receive payments from foreign telecommunications carriers. For the years     
ended December 31, 2001 and 2002, approximately 90.1% (Rp. 1,942.9 billion) and 
83.90% (Rp. 1,794.6 billion), respectively, of our international calls services 
operating revenues originated from payments made by Telkom and other domestic   
operators for outgoing calls. For the years ended December 31, 2001 and 2002,   
approximately 9.9% (Rp. 214.5 billion) and 16.1% (Rp. 343.3 billion),           
respectively, of such operating revenues originated from net settlements with   
foreign telecommunications carriers in connection with incoming and outgoing    
international call volume.                                                      

International outgoing call volume increased 0.7% in 2001 from 2000, but  
decreased by 8.5% in 2002. International incoming call volume decreased 13.6%   
during 2001 from 2000, and increased in 2002, by 17.4%. Several factors         
contributed to decreasing call volumes, including the increased market share    
held by VoIP providers. We believe that during 2000, 2001 and 2002, increasing  
competition from VoIP providers significantly affected the mix of incoming and  
outgoing calls. Political and general economic conditions also affected demand  
for incoming and outgoing calls. Fluctuations in Rupiah exchange rates and      
tariff increases affected the "real" tariff (converted to U.S. dollars) and     
affected the demand for outgoing calls.                                         

Further, worldwide and Indonesian trends indicate increased usage of VoIP 
services and a corresponding decrease in the usage of traditional international 
long distance services. The cost structure for providers of VoIP services is    
lower than for traditional fixed-line operators and as such, VoIP services are  
customarily offered at significant cost savings compared to traditional         
international long distance services. We believe that increased competition     
from VoIP operators contributed to declining IDD call volume in past periods    
and will continue to do so in the future, as more VoIP operators enter the      
market and as VoIP call quality improves.                                       

Decreasing accounting rates may also adversely affect operating revenues  
from international calls services. We receive interconnection settlements based 
on established accounting rates, which are based on agreements                  

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between telecommunications providers. These agreements are subject to periodic  
renegotiations and, in recent years, certain foreign telecommunications         
carriers have been seeking reductions in accounting rates. For example, in      
2001, we complied with the U.S. Federal Communications Commission order ("FCC   
Order") issued in 1997, related to the reduction of settlement rates between    
the United States and other jurisdictions. During 2001, Indosat reduced its     
accounting rate by 36.0% on a weighted-average basis, in compliance with the    
FCC Order. In 2002, Indosat reduced its accounting rates by a further 24.4% on  
a weighted-average basis. We anticipate that basic accounting rates will        
continue to decrease, which may adversely affect our international calls        
revenues.                                                                       

  MIDI services.  Our MIDI services operating revenues are generated primarily
by high-speed leased lines and frame relay services operated by Indosat and     
Lintasarta, digital data network operated by Lintasarta, satellite lease        
revenues from Satelindo and internet services provided by Indosat Mega Media    
and Lintasarta. Operating revenues from these services are comprised of         
fixed-cost charges for high-speed leased lines, or a combination of fixed fees  
and volume charges for other services. In most instances, a connection fee is   
charged when the service is installed or moved. Thereafter, a monthly fee is    
assessed, together with applicable usage fees calculated according to           
bandwidth, volume, duration or type of plan. Revenue from leased line services  
is derived from monthly fixed-cost charges based on the distance of the line,   
the speed/bandwidth capability of the line, the type of line service provided   
and whether the service site is local or international, and site installation   
charges.                                                                        

Satelindo records satellite revenues in accordance with the terms and     
conditions of the separate transponder lease agreements between it and its      
customers. Monthly rent for satellite transponder capacity is based primarily   
on the leased capacity. Satellite customers are generally billed in advance on  
a quarterly basis, but revenues from such contracts are accrued and             
consequently recorded as sales by Satelindo on a monthly basis. Certain lessees 
of satellite transponder capacity have been adversely affected by the           
devaluation of their local currency as their lease obligations were denominated 
in U.S. dollars while their revenues were denominated principally in their      
local currency. Satelindo has experienced some defaults by lessees and either   
has renegotiated leases or taken legal action against the lessee in such cases. 

Other services.  Operating revenues generated by international telex and  
telegram services, global mobile services and sales of software are categorized 
as other services operating revenues. For international telex services, we      
charge customers the current tariff based on the number of minutes used for     
transmission. For international telegram services, we charge customers the      
current tariff based on the number of words transmitted. Customers of the       
global mobile service are charged according to the U.S. dollar-denominated      
tariff based on the minutes used for calls made from such customer's mobile     
terminal to the terminated destination. In addition to these services, P.T.     
Sisindosat Lintasbuana ("Sisindosat") contributes operating revenues from the   
sale of software.                                                               

Operating expenses                                                          

 Telecommunications businesses in Indonesia, including ours, generally incur
expenses, which are denominated in U.S. dollars, or currencies other than the   
Rupiah. Such expenses may include those for interconnection settlements,        
certain maintenance agreements, certain leases for office and network equipment 
sites and consultancy fees. These other costs will increase or decrease in      
Rupiah terms commensurate with increases and decreases in the value of the      
Rupiah as against other currencies. Our principal operating expenses include    
depreciation, personnel costs, compensation to telecommunication carriers and   
service providers, administrative and general expenses, maintenance, leased     
circuits, marketing and other cost of services.                                 

Indosat depreciates its property, facilities and equipment using the      
straight-line method over their estimated useful lives, commencing the month    
after such assets were placed into service and after taking into consideration  
their estimated residual value. For instance, submarine cables and switching    
equipment are depreciated over a period of 15 years, while base station         
subsystems are depreciated from five to 15 years. Most of Satelindo's cellular  
services assets are depreciated based on a useful life of eight years.          

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Our depreciation expense for 2002 of Rp. 1,723.9 billion consists of Rp.  
932.1 billion from Satelindo, Rp. 530.9 billion from Indosat, 152.5 billion     
from IM3, Rp. 91.2 billion from Lintasarta, and the remaining Rp. 17.2 billion  
from other subsidiaries. Our total depreciation expenses reflect the            
significant increase in the assets we now own after consolidating Satelindo,    
IM3 and Lintasarta's assets. Satelindo's actual charges for depreciation of     
capital plant and equipment increased only moderately in 2002 over 2001. To the 
extent that Satelindo improves, adds to or replaces its equipment in the        
future, it may record higher costs, and therefore higher charges for            
depreciation, than it did in the past when it acquired comparable major capital 
assets.                                                                         

Personnel costs include fixed salaries, benefits, allowances, pensions,   
annual holiday allowance expenses, personnel tax expenses and insurance. For    
the year ended December 31, 2002, our personnel cost of Rp. 687.2 billion       
consisted of Indosat's expenses totaling Rp. 383.6 billion, Satelindo's         
expenses totaling 160.5 billion, Lintasarta's expenses totaling Rp. 71.4        
billion, IM3's expenses totaling Rp. 50.3 billion and Rp. 21.4 billion in       
personnel costs from our other subsidiaries.                                    

  Compensation to telecommunications carriers and service providers represents
amounts paid to other operators for calls from our network to the third party   
network or for providing access to the other operators' subscribers to our      
network. Other expenses charged by Telkom relate to the billings for the use of 
network, infrastructure rental and billing processing services provided by      
Telkom. Other expenses charged by other telecommunications carriers mainly      
consist of billings for the use of their network. Indosat, Satelindo and IM3    
have interconnection arrangements with domestic and overseas operators. The     
operating revenues from interconnection services are presented on a net basis,  
except for those which are based on tariffs as stipulated by the Government. In 
2002, the interconnection expenses to telecommunications carriers and service   
providers was Rp. 609.6 billion, which consisted of 428.8 billion from Indosat, 
Rp. 79.0 billion from Satelindo, Rp. 99.4 billion from Lintasarta, and Rp.2.4   
billion from IM3.                                                               

 Administration and general expenses primarily include provision of doubtful
accounts, office supplies and stationery, professional fees, rent, travel and   
training, education and research. For the year ended December 31, 2002, our     
administration and general expenses totaled Rp. 454.4 billion, consisting of    
Indosat's expenses totaling Rp. 157.5 billion, Satelindo's expenses totaling    
Rp. 197.8 billion, IM3's expenses totaling Rp.56.9 billion and Rp.42.2 billion  
of such expenses from our other subsidiaries. We maintain a provision for       
doubtful accounts for potential uncollectibility of our receivables. Provisions 
for doubtful accounts amounted to Rp. 28.6 billion, Rp. 19.5 billion and Rp.    
75.7 billion for the years ended December 31, 2000, 2001 and 2002, respectively.

Maintenance expenses include maintenance of our fixed assets, including   
buildings, submarine cables, telecommunications equipment, office equipment and 
vehicles. For the year ended December 31, 2002, our maintenance expense totaled 
Rp.303.0 billion, consisting of Indosat's expenses totaling Rp.86.9 billion,    
Satelindo's expenses totaling Rp. 171.7 billion, IM3's expenses totaling        
Rp.27.2 billion, Lintasarta's expenses totaling Rp.15.9 billion and Rp.1.4      
billion of such expenses from our other subsidiaries. Satelindo's maintenance   
expenses consisted primarily of investments in the maintenance of Satelindo's   
assets attributable to network expansion and aging.                             

  Leased circuit expenses include expenses related to our leases for satellite
channels and submarine cables. For the year ended December 31, 2002, leased     
circuit expenses totaled Rp.192.2 billion, consisting of Indosat's expenses     
totaling Rp.107.4 billion, Satelindo's expenses totaling Rp. 28.6 billion,      
IM3's expenses totaling Rp.30.6 billion, Lintasarta's expenses totaling Rp.1.7  
billion and IM2's expenses totaling Rp.23.9 billion.                            

 Marketing expenses include exhibition, promotion and advertisement expenses
associated with our marketing programs. For the year ended December 31, 2002,   
marketing expenses totaled Rp.148.9 billion, consisting Indosat's expenses      
totaling Rp.27.5 billion, Satelindo's expenses totaling Rp.65.5 billion, IM3's  
expenses totaling Rp.46.4 billion and Rp.9.6 billion from other subsidiaries.   

Other cost of services expenses include the cost of SIM cards and pulse   
reload vouchers, radio frequency licenses, rents and utilities. For the year    
ended December 31, 2002, other cost of services expenses totaled                

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Rp. 735.9 billion, consisting of Indosat's expenses totaling Rp. 102.9 billion, 
Satelindo's expenses totaling Rp. 438.5 billion, IM3's expense totaling Rp.     
71.8 billion, Lintasarta's expense totaling Rp. 42.0 billion, Sisindosat's      
expense totaling Rp. 69.7 billion and Rp. 11.0 billion of such expenses from    
our other subsidiaries.                                                         

For the year ended December 31, 2002, we recorded Other Expenses totaling 
Rp. 640.6 billion primarily due to higher non cash expenses, such as            
amortization of goodwill amounting to Rp. 753.5 billion, provision for doubtful 
interest receivable from convertible bonds of Rp. 287.8 billion and adjustment  
of account receivable-trade from Telkom of Rp. 118.0 billion, as well as        
interest expense of Rp. 566.9 billion and others-net expenses of Rp. 130.5      
billion. Interest income of Rp. 822.3 billion and gain on foreign exchange-net  
of Rp. 393.8 billion offset the aforementioned expenses, resulting in net other 
expenses of Rp. 640.6 billion.                                                  

Taxation                                                                    

 In accordance with Indonesian GAAP, we have adopted the liability method in
accounting for income tax. We adopted the liability method to reflect the tax   
effects of temporary differences between financial reporting and tax loss       
carry-over that can result in taxable amounts or deductible amounts in          
determining taxable profit of future periods when the carrying amount of the    
asset or liability is recovered or settled. The tax effects for a certain year  
are allocated to current operations, except for the tax effects from specific   
acquisitions and dispositions, which are charged or credited to stockholders'   
equity. An example of such credit is the gain on the sale of Telkomsel, which   
is credited to stockholders' equity under the line item entitled "Difference in 
Value from Restructuring Transactions of Entities under Common Control". For    
each of the consolidated entities, the tax effects of temporary differences and 
tax loss carry-over, which individually are either assets or liabilities, are   
shown at the applicable net amounts.                                            

Results of operations                                                           

The following table sets forth our selected consolidated results of       
operations for 2000, 2001 and 2002:                                             

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------
For the years ended December 31,                                                                               
(in billions of Rupiah and millions of US$,                                2000       2001       2002    2002  
except share data)                                                         (Rp.)      (Rp.)      (Rp.)   (US$) 
---------------------------------------------------------------------------------------------------------------
                                                                                                               
Operating revenues:                                                                                            
    Cellular............................................................        --    1,769.9   3,271.7  366.0 
    International calls.................................................   2,184.0    2,157.5   2,137.9  239.1 
    MIDI................................................................     731.7    1,105.1   1,263.0  141.3 
    Other...............................................................      76.5      105.6      94.4   10.5 
                                                                         ---------  ---------  --------  ----- 
       Total operating revenues.........................................   2,992.2    5,138.1   6,767.0  756.9 
Operating expenses:                                                                                            
    Depreciation........................................................     189.8    1,011.6   1,723.9  192.8 
    Compensation to telecommunications carriers and service providers...     555.4      597.5     609.6   68.2 
    Personnel costs.....................................................     324.1      496.3     687.3   76.9 
    Maintenance.........................................................      64.9      286.6     303.0   33.9 
    Administration and general..........................................     119.1      267.3     454.4   50.8 
    Leased circuits.....................................................     105.9      133.8     192.2   21.5 
    Marketing...........................................................      48.0      100.4     148.9   16.6 
    Other costs of services.............................................     109.7      415.8     735.9   82.3 
                                                                         ---------  ---------  --------  ----- 
       Total operating expenses.........................................   1,516.9    3,309.3   4,855.2  543.0 
Operating income........................................................   1,475.3    1,828.8   1,911.8  213.9 
                                                                         =========  =========  ========  ===== 
Other Income (Expenses)--Net............................................     794,3      177.4    (640.6) (71.7)
Equity in net income of associated companies............................      83.5      132.2      72.3    8.1 
Income before income tax................................................   2,353.1    2,138.4   1,343.5  150.2 
Income tax expense-net..................................................    (687.8)    (412.1)   (774.4) (86.6)
Income before minority interest in net income of subsidiaries...........   1,665.3    1,726.3     569.2   63.6 
Minority interest in net income of subsidiaries.........................     (23.2)    (273.5)    (27.1)    (3)
Pre Acquisition Income..................................................        --         --    (205.9) (23.0)
Net income..............................................................   1,642.1    1,452.8     336.3   37.6 
                                                                         =========  =========  ========  ===== 
Basic earnings per Share................................................  1,585.83   1,402.99    324.72   0.04 
                                                                         =========  =========  ========  ===== 
Basic earnings per ADS (ten Series B shares per ADS).................... 15,858.28  14,029.89  3,247.24   0.36 
                                                                         =========  =========  ========  ===== 
---------------------------------------------------------------------------------------------------------------

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

Effective May 31, 2001, the net assets of Satelindo and its subsidiaries  
were consolidated because our effective ownership had increased to 75%. Prior   
to May 31, 2001, our 30% equity interest in Satelindo was accounted for using   
the equity method. In 2002, the net assets of Satelindo and its subsidiaries    
were consolidated due to Indosat's 75% ownership in Satelindo from January 1,   
2002 until June 28, 2002. This was subsequently increased to 100%, starting     
from June 20, 2002, following the acquisition of the remaining 25% in Satelindo 
from DeTeAsia. As a result, financial figures for years ended December 31, 2002 
and 2001 are not directly comparable.                                           

In 2001, we recognized goodwill, which reflects the excess between the    
acquisition cost over the fair book values of the identifiable net assets       
acquired at the date of such acquisition for the acquisition of Bimagraha       
(Bimagraha's main and only assets are 45% shares of Satelindo), which will be   
amortized over a five-year period using the straight line method. In 2002, we   
also recognized goodwill for the acquisition of the remaining 25% in Satelindo  
from DeTe Asia, which will be amortized over a five-year period using the       
straight-line method. As of December 31, 2002, goodwill-net of amortization was 
Rp. 3.712 trillion.                                                             

Operating Revenues                                                          

Overall revenues increased from Rp. 5,138.1 billion in 2001 to Rp. 6,767.0
billion in 2002, primarily due to consolidation of Satelindo's cellular         
services revenues from June to December in 2001 and the launch of IM3. During   
this same period, revenues from MIDI services also contributed to this          
increase, while slight decreases in revenues from international calls services  
slightly offset the increase.                                                   

Cellular services.  For the year ended December 31, 2002, we recorded     
cellular operating revenues totaling Rp. 3,271.7 billion, which represented     
48.3% of our total operating revenues or an increase of Rp. 1,501.8 billion     
from Rp. 1,769.9 billion in 2001. Satelindo contributed 90.6% to our total      
cellular revenues in 2002, and the remaining 9.4% was contributed by IM3.       

As of December 31, 2002, cellular business reported a growth of           
approximately 87% in number of subscribers as compared to the prior year. As of 
December 31, 2002, the Indosat group had 3,582,651 subscribers, a net addition  
of approximately 1,665,651 subscribers during 2002. The major increase in the   
number of subscribers were a result of network roll-out and our expansion       
program, followed by an aggressive marketing and sales effort at both Satelindo 
and IM3.                                                                        

International calls services.  Operating revenues from international calls
services decreased by Rp. 19.6 billion, or 0.9%, from Rp. 2,157.5 billion in    
2001 to Rp. 2,137.9 billion in 2002. International calls services revenue       
represented 31.6% of operating revenues in 2002, compared to 42.0% in 2001.     
Total call volume from Indosat and Satelindo increased by 5.4%, from 682.1      
million minutes in 2001 to 718.7 million minutes in 2002. However, the decrease 
in revenues of Rp. 19.6 billion was mainly due to the continuing decrease in    
accounting rates, thereby reducing our net settlement revenues. Total incoming  
traffic from Indosat and Satelindo increased by 17.4% from 365.8 million        
minutes in 2001 to 429.4 million minutes in 2002 due to a higher volume         
commitment, and "win-back" program. Outgoing traffic of Indosat and Satelindo   
decreased by 8.5% from 316.2 million minutes in 2001 to 289.3 million minutes   
in 2002, due to slower economic growth and increased VoIP activities.           

MIDI services.  In 2002, operating revenues from MIDI services represented
18.7% of total operating revenues. Operating revenues from MIDI services        
increased by Rp. 157.9 billion, or 14.3%, from Rp. 1,105.1 billion in 2001 to   
Rp. 1,263.0 billion in 2002, primarily due to increased frame relay and         
satellite transponder lease revenues. Frame relay revenue is generated by       
Indosat and Lintasarta. For the year ended December 31, 2002, frame relay       
contributed Rp. 285.5 billion or increased from Rp. 209.2 billion from the year 
ended December 31, 2001. Satelindo contributed satellite lease revenues         
totaling Rp. 186.7 billion and Rp. 201.5 billion for the years ended December   
31, 2001 and 2002, respectively. World Link and Direct Link revenues decreased  

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from Rp. 311.1 billion in 2001 to Rp. 302.7 billion in 2002 due to our customer 
migration to more economical alternate services, such as frame relay. Its       
contribution to total MIDI services revenues also declined from 28.1% in 2001   
to 24.0% in 2002.                                                               

Other services.  Operating revenues from other services decreased from Rp.
105.6 billion in 2001 to Rp. 94.4 billion in 2002. As of December 31, 2002,     
revenues from other services represented 1.4% of total operating revenues.      
Revenues from international telex and telegram services continue to erode as    
customers migrate to other higher-quality services offered at lower prices.     

Operating expenses                                                          

Operating expenses increased by Rp. 1,545.8 billion, or 46.7%, from Rp.   
3,309.3 billion in 2001 to Rp. 4,855.1 billion in 2002, primarily due to        
increased expenses for depreciation, personnel, leased circuits, other cost of  
services, marketing and administration and general expenses. Additionally, all  
items in operating expenses increased significantly in 2002 compared to 2001,   
principally as a result of the consolidation of Satelindo in 2002. Another      
reason for the increase was due to IM3's operating expenses in 2002, as IM3     
only started operations in August 2001.                                         

Depreciation expenses increased 70.4% from Rp. 1,011.6 billion in 2001 to 
Rp. 1,723.9 billion in 2002. We recorded depreciation expenses of Rp.932.1      
billion from Satelindo, Rp.530.9 billion from Indosat, Rp.152.5 billion from    
IM3, Rp.91.2 billion from Lintasarta and the remaining Rp.17.2 billion from     
other subsidiaries. Satelindo's depreciation expenses included capitalized      
interest and foreign exchange gains or losses. The depreciation expenses of     
Indosat relates primarily to depreciation of its submarine cables,              
telecommunication equipment, switching equipment and office equipment.          

Personnel costs increased by Rp. 190.9 billion, or 38.5%, from Rp. 496.3  
billion in 2001 to Rp. 687.2 billion in 2002. Personnel costs increased         
primarily due to increased salaries and allowances for employees and the        
increase in total number of our employees from 5,550 in 2001 to 5,980 in 2002.  
We recorded personnel expenses of Rp.383.6 billion from Indosat, Rp.160.5       
billion from Satelindo, Rp.71.4 billion from Lintasarta, Rp.50.3 billion from   
IM3, and Rp.21.4 billion in personnel costs from our other subsidiaries.        
Included in the personnel costs are salaries, pensions, bonuses, personnel      
taxes and allowances for regional cost of living expenses.                      

Expenses due to compensation to telecommunications carriers and service   
providers increased from Rp. 597.5 billion in 2001 to Rp. 609.6 billion in      
2002, or 2.0%. The slight increase in compensation expenses and its small       
contribution of 12.6% to total operating expenses was mainly due to the         
implementation of cellular revenue recognition under the net method in 2002. We 
recorded compensation expenses of Rp. 428.8 billion from Indosat, Rp.79.0       
billion from Satelindo, Rp.99.4 billion from Lintasarta and Rp.2.4 billion from 
IM3 in 2002.                                                                    

Administrative and general expenses increased by Rp. 187.1 billion, or    
70.0%, from Rp. 267.3 billion in 2001 to Rp. 454.4 billion in 2002, primarily   
due to an increase in allowances for doubtful accounts--trade amounting to Rp.  
75.7 billion during 2002. We recorded administrative and general expenses of    
Rp.157.5 billion from Indosat, Rp.197.8 billion from Satelindo, Rp.56.9 billion 
from IM3 and Rp.42.2 billion of such expenses from our other subsidiaries.      

  Maintenance expenses increased moderately by Rp. 16.4 billion, or 5.7%, from
Rp. 286.6 billion in 2001 to Rp. 303.0 billion in 2002, primarily due to        
significantly higher costs of submarine cable maintenance, switching,           
transmission equipment for cellular services and other telecommunication        
equipment. Satelindo contributed Rp.171.7 billion, or 56.7%, to our maintenance 
expenses.                                                                       

Leased circuits expenses increased by Rp. 58.4 billion, or 43.6%, from Rp.
133.8 billion in 2001 to Rp. 192.2 billion in 2002, due to the consolidation of 
Satelindo and IM3's operations, and the increase in the number of leased        
circuits necessary to support our increased internet volume.                    

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Marketing expenses increased by Rp. 48.5 billion, or 48.3%, from Rp. 100.4
billion in 2001 to Rp. 148.9 billion in 2002, due to the consolidation of       
Satelindo, and high marketing expenses associated with IM3's brand-building in  
2002. In 2002, Satelindo contributed Rp.65.5 billion to our marketing expenses, 
while IM3 contributed Rp.46.4 billion.                                          

Other cost of services expenses increased by Rp. 320.1 billion, or 77.0%, 
from Rp. 415.8 billion in 2001 to Rp. 735.9 billion in 2002. We recorded other  
costs of services expenses of Rp.102.9 billion from Indosat, Rp.438.5 billion   
from Satelindo, Rp.71.8 billion from IM3, Rp.42.0 billion from Lintasarta,      
Rp.69.7 billion from Sisindosat and Rp.11.0 billion of such expenses from our   
other subsidiaries. The increase in the cost of SIM cards sold and reload pulse 
vouchers and increase in concession fees and radio frequency licenses are,      
among others, the primary cause of such increases.                              

Operating income                                                            

Operating income increased by Rp. 83.0 billion, or 4.5%, from Rp. 1,828.8 
billion in 2001 to Rp. 1,911.8 billion in 2002. We attribute this increase      
primarily to cellular service revenue contributed by Satelindo and IM3 and the  
continued growth of MIDI services which include high-speed leased line, frame   
relay, satellite lease, direct data connection, and internet. Growth in         
operating income was less than the growth in operating revenues, principally as 
a result of the significant increase in operating expenses resulting from the   
consolidation of Satelindo and IM3's new operations.                            

Other income (expenses)                                                     

Other income (expenses) decreased by Rp. 818.0 billion, or 461.1%, from   
income of Rp. 177.4 billion in 2001 to an expense of Rp. 640.6 billion in 2002. 
In 2002, other income (expenses) consisted primarily of amortization of         
goodwill of Rp. 753.5 billion, the provision for doubtful interest receivable   
from convertible bonds of Rp. 287.8 billion and adjustment of accounts          
receivable trade from Telkom of Rp. 118.0 billion, as well as interest expenses 
of Rp. 566.9 billion and others-net of Rp. 130.5 billion. Interest income of    
Rp. 822.3 billion and gain on foreign exchange, net of Rp. 393.8 billion offset 
the aforementioned expenses, resulting in total other expenses of Rp. 640.6     
billion.                                                                        

Interest income of Rp. 822.3 billion in 2002 or an increase of Rp. 180.2  
billion from Rp. 642.1 billion in 2001 is mainly due to an increase in interest 
income from Telkom in connection with a cross ownership transaction amounting   
to Rp. 50.2 billion and an increase in interest income from convertible bonds   
of P.T. Cipta Televisi Pendidikan Indonesia ("CTPI") amounting to Rp. 278.1     
billion. Interest expenses of Rp. 566.9 billion were incurred through           
Satelindo's debts, Indosat's bonds and U.S. dollar loans, and from IM3's        
syndicated loan. Interest expenses increased by Rp. 164.4 billion from Rp.      
402.5 billion in 2001 to Rp. 566.9 billion in 2002, mainly due to increases in  
interest expenses from new debts obtained by Indosat from Bank Mandiri, BNI,    
BCA in 2002 amounting to Rp. 141.4 billion, increases in interest expenses from 
Indosat First Bond 2001 amounting to Rp. 50.1 billion, interest expenses from   
Indosat Second Bond and Profit Sharing from Syariah Bond of 2002 amounting to   
Rp. 31.2 billion, and interest expense from IM3 syndicated loan in 2002         
amounting to Rp. 10.4 billion. The decrease in Satelindo interest expenses      
amounting to Rp. 68.5 billion is consistent with its decreasing long-term debts 
and bond payables.                                                              

Provision was also made for doubtful interest receivable from the         
Convertible Bonds of CTPI amounting to Rp. 287.8 billion. This account is for   
the allowance of doubtful interest receivable from convertible bonds of CTPI    
amounting to Rp. 268.1 billion, since CTPI has failed to achieve positive net   
worth in any year less than Rp. 546.0 billion. Based on the agreement, Indosat  
may sell and/or otherwise transfer to the controlling stockholder of CTPI all   
bonds held by Indosat at an amount calculated so as to give Indosat an          
additional interest of 19%, or a total interest of 26% per annum of the bonds.  
See note 9 to our consolidated financial statements contained elsewhere herein. 

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A foreign exchange gain of Rp. 393.8 billion or a decrease of Rp. 130.3   
billion compared to 2001 of Rp. 524.1 billion is mainly due to increase in US   
dollar long-term debts in 2002 and the appreciation of Rupiah against US$ from  
Rp. 10,400/US$ on December 31, 2001 to Rp. 8,940/US$ on December 31, 2002.      

 Goodwill amortization expenses amounted to Rp. 753.5 billion in 2002 mainly
due to amortization of goodwill from the acquisition of 100% equity interest in 
Bimagraha in May 2001 in the amount of Rp. 2.728 trillion and goodwill from the 
acquisition of 25% equity interest in Satelindo in June 2002 in the amount of   
Rp. 2.055 trillion, which was amortized over a period of five years using the   
straight line method. On December 31, 2002, goodwill-net of amortization was    
Rp. 3.712 trillion.                                                             

An adjustment of accounts receivable-trade from Telkom amounting to Rp.   
118.0 billion was made, which resulted in the reconciliation of the accounts    
receivable balance as of December 31, 2002.                                     

 Others-net amounting to Rp. 130.5 billion was mainly due to interest on tax
installments due to a cross ownership transaction amounting to Rp. 137.5        
billion and an allowance for the decline in value of investment in ICO Global   
amounting to Rp. 50.0 billion.                                                  

Equity in net income of associated companies                                

 Equity in net income of associated companies decreased by Rp. 60.0 billion,
or 45.4%, from Rp. 132.3 billion in 2001 to Rp. 72.3 billion in 2002. In 2002,  
we recognized Rp. 70.2 billion in equity income from MGTI, which was the major  
contributor to this equity in net income from associated companies.             

Taxation                                                                    

Income tax expenses-net increased by Rp. 362.2 billion, or 87.9%, from Rp.
412.2 billion in 2001 to Rp. 774.4 billion in 2002 primarily due to the         
consolidation of Satelindo from June to December in 2001. Moreover, there is a  
decrease in Indosat taxable income in 2002 if compared with 2001, also due to   
increases in Satelindo's income tax expenses amounting to Rp. 120.2 billion.    
This increase ocurred because Satelindo generated taxable income in 2002, while 
in 2001, Satelindo was experiencing taxable loss. Current income tax expenses   
represented 30.4% and 18.3% of income before income tax in 2001 and 2002,       
respectively.                                                                   

 Income tax expenses--deferred increased to Rp. 766.8 billion, mainly due to
the realization of Telkomsel net income of Rp. 280.3 billion when Indosat sold  
its equity interest in Telkomsel to Telkom in 2001. This creates deferred tax   
assets, an increase in negative correction, which occurs from goodwill          
amortization, amounting to Rp. 66.4 billion. This is in line with the increase  
in goodwill amortization in 2002, a use of tax loss carried forward amounting   
to Rp. 299.4 billion by Satelindo and Sisindosat, which generates net income in 
2002. Accordingly, this creates deferred tax expenses. This increase was also   
due to absorbing the equity in net income of Satelindo of Rp. 111.1 billion by  
Bimagraha, which has not been recognized per fiscal, therefore creating a       
deferred tax expense.                                                           

Net income                                                                  

Despite improved operating results from 2001 to 2002, our net income      
decreased Rp. 1,116.5 billion, or 76.9%, from Rp. 1,452.8 billion in 2001 to    
Rp. 336.3 billion in 2002, due to the above operating and non-operating         
financial performances.                                                         

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

Operating revenues                                                          

Overall revenues increased from Rp. 2,992.2 billion in 2000 to Rp. 5,138.1
billion in 2001, primarily due to the consolidation of Satelindo's cellular     
services revenues and the launch of IM3. During this same period, revenues from 
MIDI services and other services contributed to this increase as well.          

Cellular services.  For the year ended December 31, 2001, we recorded     
cellular operating revenues totaling Rp. 1,769.9 billion, which represents      
34.4% of total operating revenues. On a "stand alone" basis, operating revenues 
from Satelindo's cellular operations totaled Rp. 1,690.0 billion and Rp.        
2,657.7 billion for the years ended December 31, 2000 and 2001, respectively,   
or grew by 44.7% in 2000 and 57.3% in 2001 compared to the prior periods. The   
remaining growth of cellular revenues was contributed by IM3. IM3 commenced     
operation in the third quarter of 2001.                                         

International calls services.  Operating revenues from international calls
services decreased by Rp. 26.5 billion, or 1.2%, from Rp. 2,184.0 billion in    
2000 to Rp. 2,157.5 billion in 2001. International calls services revenue       
represented 42.0% of operating revenues in 2001 compared to 73.0% in 2000. Call 
volume decreased by approximately 7.5% in 2001 primarily due to a 0.7% decrease 
in outgoing call traffic and a 13.6% decrease in incoming call traffic.         

MIDI services.  In 2001, operating revenues from MIDI services represented
21.5% of total operating revenues. Operating revenues from MIDI services        
increased by Rp. 373.4 billion, or 51.0%, from Rp. 731.7 billion to Rp. 1,105.1 
billion in 2001, primarily due to increased satellite lease revenues and frame  
relay. Following Satelindo's consolidation, it contributed satellite lease      
revenues totaling Rp. 186.7 billion. Frame relay revenue is generated by        
Indosat and Lintasarta. Indosat's frame relay services recorded a strong growth 
of 200.5% from 210 ports in 2000 to 631 ports in 2001. Lintasarta's frame relay 
services grew 42.5 % from 1,564 number of access points in 2000 to 2,229 number 
of access points in 2001. World Link and Direct Link revenues grew slightly by  
8.7% and contributed Rp. 311.1 billion, or 28.1%, of total MIDI operating       
revenues.                                                                       

Other services.  Operating revenues from other services increased from Rp.
76.5 billion in 2000 to Rp. 105.6 billion in 2001. As of December 31, 2001,     
revenues from other services represented 2.1% of total operating revenues.      
Revenues from international telex and telegram services continue to erode as    
customers migrate to other higher-quality services offered at a lower price.    

Operating expenses                                                          

Operating expenses increased by Rp. 1,792.4 billion, or 118.2%, from Rp.  
1,516.9 billion in 2000 to Rp. 3,309.3 billion in 2001, primarily due to        
increases in depreciation, maintenance, other cost of services expenses,        
marketing and administrative and general expenses as a result of the            
consolidation of Satelindo in 2001.                                             

  Depreciation expenses increased 432.7% from Rp. 189.9 billion in 2000 to Rp.
1,011.6 billion in 2001. We recorded depreciation expenses from Satelindo of    
Rp. 588.0 billion, while Indosat and Lintasarta recorded depreciation expenses  
of Rp. 139.3 billion and Rp. 68.8 billion, respectively, during 2001. On a      
"stand alone" basis, Satelindo's depreciation expenses were Rp. 727.1 billion   
and Rp. 816.8 billion in 2000 and 2001, respectively. Satelindo's depreciation  
expenses included capitalized interest and foreign exchange gains or losses.    
Satelindo capitalized net foreign exchange losses of Rp. 139.2 billion and Rp.  
25.7 billion in 2000 and 2001, respectively. The depreciation expenses of       
Indosat relate primarily to the depreciation of its submarine cables,           
telecommunication equipment and switching office equipment.                     

 Compensation to telecommunications carriers and service providers increased
from Rp. 555.4 billion in 2000 to Rp. 597.5 billion in 2001, or 7.6%. The       
consolidation of Satelindo contributed significantly to this increase, adding   
Rp. 219.3 billion in such expenses. On a "stand alone" basis, Satelindo's       
compensation expenses                                                           

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were Rp. 480.6 billion and Rp. 537.7 billion for the years ended December 31,   
2000 and 2001, respectively. This increase, compared to revenue development,    
reflects an increased traffic load over Satelindo's infrastructure, improved    
routing settlements with Telkom and an increased number of calls between        
Satelindo customers. While Indosat compensation expenses contributed Rp. 423.3  
billion, or 70.8%, to the total compensation to telecommunications carriers and 
service providers expenses, this amount represents a decrease of approximately  
17.6% compared to the previous period. This decrease was primarily due to       
volume decreases and improved routing settlements with Telkom.                  

Personnel costs increased Rp. 172.2 billion, or 53.1%, from Rp. 324.1     
billion in 2000 to Rp. 496.3 billion in 2001. The personnel costs increased     
primarily due to increased salaries and allowances for its employees. Salary    
expenses increased due to internal promotions in connection with our new        
business lines. Similarly, allowances increased due to annual allowance         
adjustments to adjust employees' purchasing power following the economic        
crisis. Included in the personnel costs are salaries, pensions, bonuses,        
personnel tax expenses and allowances for regional cost of living expenses.     

Maintenance expenses increased Rp. 221.7 billion, or 341.6%, from Rp. 64.9
billion in 2000 to Rp. 286.6 billion in 2001, primarily due to significantly    
higher costs of submarine cable maintenance, switching, transmission equipment  
of cellular services and other telecommunications equipment. Satelindo          
contributed Rp. 146.1 billion, or 51.0%, to our maintenance expenses.           

Administrative and general expenses increased by Rp. 148.2 billion, or    
124.4%, from Rp. 119.1 billion in 2000 to Rp. 267.3 billion in 2001, primarily  
due to consulting and legal costs associated with designing our business        
strategy, structuring and implementing our cross-ownership transactions and     
increasing provisions for doubtful accounts. Satelindo contributed Rp. 75.2     
billion to our administrative and general expenses, while IM3 contributed Rp.   
37.1 billion to such expenses.                                                  

Leased circuits expenses increased by Rp. 27.9 billion, or 26.3%, from Rp.
105.9 billion in 2000 to Rp. 133.8 billion in 2001, primarily due to the        
increase in the number of leased circuits necessary to support our increased    
internet volume.                                                                

Marketing expenses increased Rp. 52.5 billion, or 109.6%, from Rp. 47.9   
billion in 2000 to Rp. 100.4 billion in 2001, primarily due to increased        
exhibition expenses and the consolidation of Satelindo. Satelindo contributed   
Rp. 15.8 billion to our marketing expenses, while IM3 contributed Rp. 24.9      
billion.                                                                        

 Other costs of services expenses increased by Rp. 306.1 billion, or 279.0%,
from Rp. 109.7 billion in 2000 to Rp. 415.8 billion in 2001. This increase was  
primarily due to the consolidation of Satelindo, which recorded other cost of   
services expenses totaling Rp. 159.1 billion, or 38.3%, of our other costs of   
services expenses. In 2001, this expense primarily consisted of the cost of     
software sold of Rp. 79.2 billion, a concession fee of Rp. 66.3 billion, rent   
of Rp. 53.5 billion, the cost of SIM cards and pulse reload vouchers of Rp.     
53.5 billion and insurance of Rp. 32.1 billion.                                 

Operating income                                                            

 Operating income increased by Rp. 353.5 billion, or 24.0%, from Rp. 1,475.3
billion in 2000 to Rp. 1,828.8 billion in 2001. We attribute this increase      
primarily to cellular service revenue contributed by Satelindo and the strong   
growth of MIDI services, which includes satellite leases, world link and direct 
link, direct data connection, frame relays and internet. Growth in operating    
income was less than the growth in operating revenues, principally as a result  
of the significant increase in depreciation and compensation expenses resulting 
from the consolidation of Satelindo.                                            

Other income (expenses)                                                     

Other income (expenses) decreased by Rp. 616.9 billion, or 77.7%, from    
income of Rp. 794.3 billion in 2000 to income of Rp. 177.4 billion in 2001. The 
decrease was primarily due to the increase in interest expenses,                

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amortization of goodwill and non-recurring consultants' fees incurred in        
connection with the cross-ownership transactions. Interest expenses increased   
by Rp. 383.7 billion from Rp. 18.8 billion in 2000 to Rp. 402.5 billion in      
2001, of which Satelindo contributed Rp. 256.6 billion, or 63.8%, and of        
Indosat contributed Rp. 132.8 billion, or 33.0%. The increase in goodwill       
amortization from Rp. 2.5 billion in 2000 to Rp. 321.2 billion resulted         
primarily from the acquisition of Bimagraha. Goodwill arising from the          
acquisition of Bimagraha totaled Rp. 2,728.4 billion. The foreign exchange      
gain-net increased from Rp. 462.8 billion in 2000 to Rp. 524.1 billion in 2001, 
but such gain was partially offset by the expenses discussed above.             

Equity in net income of associated companies                                

 Equity in net income of associated companies increased by Rp. 48.8 billion,
or 58.4%, from Rp. 83.5 billion in 2000 to Rp. 132.3 billion in 2001. In 2001,  
we recognized a Rp. 187.3 billion gain from Telkomsel, a Rp. 48.3 billion loss  
from MGTI and a Rp. 7.2 billion loss from IMM. We recorded Telkomsel's equity   
income until April 30, 2001, since the transaction to sell our shares in        
Telkomsel was completed on May 16, 2001.                                        

Taxation                                                                    

Income tax expense-net decreased by Rp. 275.5 billion, or 40.1%, from Rp. 
687.7 billion in 2000 to Rp. 412.2 billion in 2001 primarily due to the         
increase in deferred income tax expenses. Current income tax expenses increased 
by Rp. 19.9 billion, or 3.2%, from Rp. 630.6 billion in 2000 to Rp. 650.5       
billion in 2001. Deferred income tax expenses increased by Rp. 295.4 billion,   
or 517.3%, from deferred income tax expenses of Rp. 57.1 billion in 2000 to a   
deferred income tax benefit of Rp. 238.3 billion in 2001. Current income tax    
expenses represent 26.8% and 30.4% of income before income tax in 2000 and      
2001, respectively.                                                             

Net income                                                                  

Despite improved operating results from 2000 to 2001, our net income      
decreased by Rp. 189.3 billion, or 11.5%, from Rp. 1,642.1 billion in 2000 to   
Rp. 1,452.8 billion in 2001, primarily due to increased interest expenses       
associated with Satelindo's indebtedness and amortization of goodwill in        
connection with the Bimagraha acquisition.                                      

Capital expenditures                                                        

 During 2000, 2001 and 2002, we made capital expenditures totaling Rp. 298.1
billion, Rp. 9,472.1 billion and Rp. 6,444.3 billion, respectively. The capital 
expenditures during 2002 were designed to strengthen our position as a          
cellular-focused, fully integrated telecommunications network and service       
provider. Our capital expenditures in 2002 included: (i) Rp. 5,874.1 billion    
for development of our cellular services, including the acquisition of 25%      
shares of Satelindo from DeTe Asia; (ii) Rp. 101.7 billion for improvements to  
our existing international calls business and other fixed businesses; (iii) Rp. 
452.0 billion for expansion of MIDI services, primarily the development of our  
backbone and internet businesses; and (iv) Rp. 16.5 billion for other services. 

Cellular services                                                           

During 2002, Satelindo spent around Rp.2,129.2 billion to increase its    
capacity. These expenditures included investment in its base stations           
subsystem, network switching subsystem, and operating support subsystem which   
totaled around Rp.1,362.0 billion, Rp.492.0 billion, and Rp.275.2 billion,      
respectively. As of December 31, 2002, Satelindo had around 3,587 base          
stations, 138 base stations controllers, and 19 mobile switching centers all    
over the country.                                                               

IM3 made capital expenditures totaling approximately Rp.924.8 billion in  
2002. These expenditures included investment in its base stations subsystem,    
network switching subsystem, and operating support subsystem which totaled      
around Rp.820.9 billion, Rp.34.3 billion, and Rp.51.1billion, respectively.     

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 Indosat spent US$ 325 million (approximately Rp.2,824.3 billion) to acquire
25% of the shares of Satelindo from DeTe Asia in June 2002. To support its      
cellular business, in 2002 Indosat also made Rp.22.7 billion in capital         
expenditures to further develop its mobile billing and CRM supporting system.   

Fixed Access Services                                                       

In 2002, Indosat made capital expenditures totaling Rp.101.7 billion for  
fixed access services. This included Rp.77.3 billion to develop its existing    
international calls services. Indosat also spent around Rp.13.8 billion to      
realize its fixed line businesses. Satelindo made capital expenditures of       
approximately Rp.10.6 billion to maintain its IDD 008 businesses.               

MIDI Services                                                               

  We made capital expenditures of approximately Rp.452.0 billion for expansion
of MIDI services, which included investment outlay in IM2 amounting to Rp.42.2  
billion, development of internet business amounting to Rp.34.0 billion,         
inner-city backbone development amounting to Rp.86.8 billion, inter-city        
backbone development amounting to Rp.22.8 billion, the development of submarine 
cables amounting to Rp.28.9 billion, the development of MIDI services in        
Lintasartha amounting to Rp 139.8 billion, and the development of other MIDI    
services in Indosat and its subsidiaries amounting to Rp 97.5 billion.          

Capital expenditures for 2003 and 2004                                      

During the two year period 2003 and 2004, our investment program calls for
spending a total of Rp. 1,464.8 billion as well as US$639.5 million, which will 
be financed mostly by internally generated resources. We may draw on external   
sources of financing, subject to our financial condition at the time. The above 
total investment program includes a committed capital expenditure of Rp. 102.8  
billion and US$222.2 million on a consolidated basis, which will be paid out by 
the end of 2003, assuming we undertake development of all prospective projects. 
We expect that this 2003-2004 capital expenditure will be used as follows:      

 .   to finance our cellular business development, which will involve around
Rp. 704.6 billion and US$542.4 million capital expenditures;      

 .   to develop Indosat's domestic infrastructure and fixed-access services,
which will require around Rp. 259.7 billion and US$16.3 million;  

.   to enhance our MIDI services by investing around Rp. 404.0 billion and
US$28.3 million primarily to develop IM2 multimedia and internet  
  businesses and rolling out the domestic infrastructure (backbone) to
support MIDI services; and                                        

.   to support Indosat's other businesses by investing around Rp. 96.4    
 billion and US$52.5 million to develop supporting systems and other
related equipment.                                                

We expect that future operating revenues and the available cash and cash  
equivalents that Indosat owns today will be sufficient to finance the planned   
capital expenditures for 2003 and 2004. Indosat has appointed partners to       
develop its fixed- access businesses in order to better leverage its financing  
requirements. Revenue-sharing schemes, as contemplated by our management,       
include partnerships with private investors, whereby such investors finance     
construction of a particular project and provide certain know-how for the       
project in exchange for revenues from the project, similar to a                 
build-operate-transfer structure. We believe we have significantly reduced our  
financial burden through this scheme. We may also elect to divest subsidiaries  
that we determine are not consistent with our overall strategy, and proceeds    
from any such divestitures could be used to finance our future capital          
expenditures. For example, Indosat management is currently considering          
divesting itself of its interest in MGTI, a KSO in Central Java. However, no    
assurance can be given that the transaction could be executed this year, and no 
definite pricing has been determined, as negotiations between the prospective   
investor and MGTI's shareholders, including Indosat, are continuing.            

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  In the event that we cannot finance our planned capital expenditure from our
own internally generated funds, we may look to find external sources of         
funding, though we expect that we will attempt to limit our external funding in 
order to reduce our debt exposure. However, no assurance can be given that we   
will be able to obtain suitable financing arrangements (including vendor or     
other third-party financing) for our planned capital expenditures. In the event 
that we are unable or unwilling to draw on external resources of funding, we    
may elect to reduce our planned capital expenditures, if feasible. However, any 
such reduction in planned capital expenditures may cause revenues to decline,   
thereby adversely affecting our financial condition.                            

Liquidity and Capital Resources                                                 

Similar to most telecommunications companies that own, rather than lease, 
their networks and facilities, our business is capital intensive. We have       
experienced significant changes in our financial structure since the            
acquisition of Satelindo shares from Telkom and Bimagraha in 2001 and from DeTe 
Asia in 2002. Our financial structure has also been influenced significantly by 
our additional investment activities, such as our roll out of new               
infrastructures for Satelindo and IM3 in 2002. Our financing activities, such   
as the issuance of the Second Indosat Bond, financing through BNI and BCA U.S.  
dollar credit facilities, and IM3's Rupiah syndicated loan with several         
Indonesian banks, have also changed our financial structure.                    

We expect that over the next several years, a substantial portion of our  
cash flow will be used to pay principal and interest with respect to our        
indebtedness and to finance our future capital expenditures. Our ability to     
satisfy our financial obligations and to fund other future capital expenditures 
will depend upon our future operating performance, which is subject to          
prevailing economic conditions, levels of interest rates and financial,         
business and other factors, many of which are beyond our control. Our existing  
debt obligations and future capital expenditures could limit our ability to     
respond to changing business or economic conditions or to respond to declines   
in operating results. We recorded an increase in our total non-current          
liabilities from Rp. 5,858.5 billion in 2001 to Rp. 8,079.2 billion in 2002. As 
a result of the consolidation of Satelindo, our long-term debt-to-equity ratio  
changed from 56.8% as of December 31, 2001 to 77.5% as of December 31, 2002.    
See "Information on the Company--Principal Indebtedness" for a description of   
our principal debt facilities.                                                  

Since Satelindo's debt restructuring in 2000, it has been limited from    
making the significant capital expenditures necessary to build-out and improve  
its cellular network. However, in 2002, Indosat injected US$75 million in       
capital in Satelindo in order to remove these restrictions. Following this      
capital injection, Satelindo realized its capital expenditure goals during 2002 
to increase its capacity and establish its "intelligent network" platform,      
technology and equipment to increase its cellular service quality. The terms of 
the debt restructuring constrain Satelindo's ability to make capital            
expenditures to a maximum amount per year and limit its ability to borrow for   
the purpose of funding capital expenditures.                                    

Cash and cash equivalents                                                   

Our cash position was Rp. 2,409.9 billion, Rp. 4,637.8 billion and Rp.    
2,831.8 billion as of December 31, 2000, 2001 and 2002, respectively. In years  
prior to 2001, we met our working capital and capital expenditure requirements  
through cash flows generated from operations and, in the case of certain        
submarine cables and gateways, primarily utilized funds loaned by the           
Government. In 1999 and 2000, we funded our working capital and capital         
expenditure requirements primarily by using accumulated cash, cash equivalents  
and cash flows generated from operations. Our operating revenues in 2000 were   
sufficient to make payments for debt service and make moderate capital          
expenditures. Starting in 2001, we began to leverage our financial structure by 
issuing the First Indosat Bond to enable us to make payments for our future     
capital expenditures. The First Indosat Bond of Rp. 1.0 trillion, together with 
our operating revenues and the proceeds from the sale of our 35% stake in       
Telkomsel, were sufficient to make payments for debt service and to make        
significant capital expenditures, including the acquisition of shares in        
Satelindo and Lintasarta and to finance the IM3 infrastructure development. In  
2001, we used the proceeds from the sale of our 35% interest in Telkomsel to    
acquire 22.5% of Satelindo from Telkomsel and a further 45% of Satelindo from   
Bimagraha. In addition, we used the Rp. 1.0 trillion in proceeds from the First 
Indosat Bond issuance to finance the IM3 infrastructure development in 2001.    

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 However, we faced a cash shortage in 2002, as we acquired the 25% remaining
interest in Satelindo from DeTe Asia and injected a further US$75 million in    
Satelindo in order to release Satelindo of some of its restrictive debt         
covenants. To finance the acquisition of the 25% interest in Satelindo from     
DeTe Asia and the injection of US$75 million in Satelindo, we borrowed Rp. 1.5  
trillion from Bank Mandiri and established a BCA U.S. dollar credit facility    
amounting to US$75 million. These credit facilities were refinanced by BCA and  
BNI U.S. dollar long-term credit facilities. As of December 31, 2002, the       
balance of Indosat's BCA U.S. dollar credit facility was US$40 million, and the 
balance of Indosat's BNI U.S. dollar credit facility was US$75 million.         

The net increase in cash and cash equivalents in 2000 and 2001 amounted to
Rp. 506.3 billion and Rp. 1,032.0 billion, respectively. In 2002, we            
experienced a net decrease in cash and cash equivalents. Cash and cash          
equivalents at year end 2002 were Rp. 2,831.8 billion, which is derived from a  
beginning balance of cash and cash equivalents amounting to Rp. 4,637.8, minus  
net decrease in cash and cash equivalents during 2002 of Rp. 1,807.9 billion,   
plus a beginning balance of cash and cash equivalents from new subsidiaries     
acquired amounting to Rp. 1.9 billion.                                          

Working capital and cash flows                                              

Current assets, excluding cash and cash equivalents, decreased from Rp.   
4,197.7 billion in 2001 to Rp. 2,308.4 billion in 2002. This decrease was       
primarily due to decreases in accounts receivable, net of allowances for        
doubtful accounts.                                                              

Current liabilities, excluding current maturities of long-term debt,      
decreased from Rp. 4,692.8 billion in 2001 to Rp. 2,537.4 billion in 2002. This 
decrease related primarily to a decrease in taxes payable from Rp. 2,898.3      
billion in 2001 to Rp. 248.2 billion in 2002 and decreases in account           
payable-trade third parties from 201.7 billion in 2001 to Rp. 109.0 billion in  
2002. Based on the decision of the Director General of Taxation No.             
KEP-02/WPJ.07/KP.0105/2002 dated March 26, 2002, we obtained approval to pay    
the income tax payable for fiscal year 2001 amounting to Rp. 1,893,981 in nine  
monthly installments up to December 25, 2002 with interest at 2% per month. As  
of December 31, 2002, we had fully paid the installments.                       

Working capital, calculated as the difference between total current assets
and current liabilities, was Rp. 3,323.9 billion as of December 31, 2001 and    
Rp. 1,957.7 billion as of December 31, 2002. While net working capital,         
calculated as the difference between current assets and current liabilities     
(each adjusted as described above), was negative Rp. 495.1 billion as of        
December 31, 2001 and negative Rp. 229.0 billion as of December 31, 2002.       

We believe that as Satelindo's revenue growth has been driven by prepaid  
cellular services, and major equipment purchases and the roll-out of other      
infrastructure during 2002 (including the establishment of the intelligent      
network technology platform), historical net working capital results will not   
likely have a material adverse impact on our ability to finance future          
operations. We also expect that Satelindo will be able to use its               
internally-generated funds to finance its future capital expenditures. We also  
expect that our proposed integration plan between Satelindo's and IM3's         
networks will result in certain efficiency gains in our cellular business,      
thereby helping us to increase our subscriber base, and ultimately will impact  
our business results positively. We believe that our working capital is         
sufficient for our requirements over the next year. However, we face a          
liquidity risk if certain events occur, including but not limited to: (i) the   
Indonesian macro economy grows slower than expected and the general purchasing  
power of end-users does not increase; (ii) our debt ratings are downgraded;     
(iii) our financial performance or financial ratios deteriorate; (iv) the       
decline of international calls services revenues continues; or (v) we fail to   
obtain additional financing at favorable terms or at all.                       

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                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------
Year Ended December 31,                                               2000      2001      2002     2002  
(in billions of Rupiah and millions of US$)                           (Rp.)     (Rp.)     (Rp.)    (US$) 
---------------------------------------------------------------------------------------------------------
                                                                                                         
Cash flows from operating activities:                                                                    
   Net cash provided by operating activities........................ 1,439.1   1,553.7     344.5    38.5 
Cash flows from investing activities:                                                                    
   Proceeds from sale of investment--net of acquisition of                                               
     investments under cross-ownership transactions.................      --   5,967.4   2,255.1   252.3 
   Proceeds from liquidation of subsidiary..........................      --      15.0        --      -- 
   Proceeds from sale of other long-term investment.................      --        --      80.6     9.0 
   Compensation from Intelsat for the use of capital................    27.4       9.8        --      -- 
   Proceeds from sale of property and equipment.....................     3.0       5.6       3.4     0.4 
   Acquisition of equity in P.T. Bimagraha Telekomindo..............      --  (4,235.9)       --      -- 
   Acquisition of 25% equity in P.T. Satelindo......................      --        --  (2,824.2) (315.9)
   Acquisition of property and equipment............................  (275.8) (2,638.8) (3,468.2) (388.0)
   Increase in restricted cash and cash equivalent..................    (3.6)    (33.5)   (151.2)  (16.9)
   Additional short-term Investments................................      --        --     (67.6)   (7.5)
   Additional advances for purchase of property and equipment.......      --     (13.5)       --      -- 
   Additional investments in associated companies...................    (2.4)     (0.1)       --      -- 
   Proceeds from sale of other investments..........................     0.2        --        --      -- 
       Net cash used in investing activities........................  (251.2)   (924.0) (4,172.1) (466.6)
Cash flows from financing activities:                                                                    
   Proceeds from bonds payable......................................      --   1,000.0   1,250.0   139.8 
   Proceeds from long-term debts....................................     2.0     406.1   3,784.0   423.3 
   Proceeds from the exercise of derivative instruments.............    23.6      41.6      37.0     4.1 
   Cash dividend paid...............................................  (689.6)   (631.7)   (581.1)  (65.0)
   Repayment of long-term debts.....................................   (19.2)   (412.2) (2,389.0) (267.2)
   Repayment of short-term loans....................................      --      (1.5    (446.5)  (49.9)
   Proceeds from short-term loans...................................     1.6        --     665.3    74.4 
   Repayment of bonds payable.......................................      --        --    (300.0)  (33.6)
       Net cash provided by (used in) financing activities..........  (681.6)    402.3   2,019.7   225.9 
Net increase (decrease) in cash and cash equivalents................   506.3   1,032.0  (1,807.9) (202.2)
Cash and cash equivalents at beginning of year...................... 1,898.8   2,405.1   4,637.8   518.8 
Beginning balance of cash and cash equivalents from new subsidiaries                                     
  acquired..........................................................      --   1,200.6       1.9     0.2 
Cash and cash equivalents at end of year............................ 2,405.1   4,637.7   2,831.8   316.8 
---------------------------------------------------------------------------------------------------------

Net cash provided by operating activities amounted to Rp. 1,439.1 billion,
Rp. 1,553.7 billion and Rp. 344.5 billion for the years ended December 31,      
2000, 2001 and 2002, respectively. Net cash used in investing activities        
amounted to Rp. 251.2 billion, Rp. 924.0 billion and Rp. 4,172.1 billion for    
the years ended December 31, 2000, 2001 and 2002, respectively. Net cash        
provided from financing activities increased from Rp. 402.3 billion to Rp.      
2,019.7 billion for the years ended December 31, 2001 and 2002, respectively,   
primarily due to the issuance of the Second Indosat Bond in principal amount of 
Rp. 1,075.0 billion and Indosat Syariah Bond in principal amount of Rp. 175.0   
billion, proceeds from long-term debts amounting to Rp. 3,784.0 billion and     
proceeds from short-term loans of Rp. 665.3 billion. Such financing proceeds    
offset our cash dividends of Rp. 581.1 billion, repayment of long-term debts in 
the amount of Rp. 2,389.0 billion, repayment of short-term loans of Rp. 446.5   
billion and repayment of bonds payable of Rp. 300.0 billion.                    

Contractual obligations and commercial commitments                          

As of December 31, 2002, we had contractual obligations in the amounts of 
US$619.5 million of foreign currency contracts and Rp. 3,634.3 billion of       
Rupiah-denominated contracts. The US$619.5 million contractual obligations      
require payments in 2003 totaling US$202.1 million and US$417.4 million to be   
paid during the                                                                 

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period from 2004 through 2007. The Rp. 3,634.3 billion contractual obligations  
include Rp. 138.1 billion to be paid during 2003 and Rp. 3,496.2 billion to be  
paid during the period from 2004 through 2007.                                  

                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------------------------
                                                                Payments due by period                     
                                            ---------------------------------------------------------------
                                                           Less than    One to      Three to       Over    
Contractual obligations                         Total      one year   three years  five years   five years 
(in billions of Rupiah and millions of US$)  (Rp.)  (US$) (Rp.) (US$) (Rp.) (US$)  (Rp.)  (US$) (Rp.) (US$)
-                                           ---------------------------------------------------------------
                                                                                                           
    Long-term debt......................... 1,272.5 302.3  45.1  67.2 422.4 112.3     805 122.8   --   --  
    Bond payments.......................... 2,256.1 181.3    --    --    -- 143.3 2,056.1  38.0  200   --  
    Operating leases.......................    12.8   2.0    --   1.1  12.8   1.0                 --   --  
    Unconditional purchase obligations.....    93.0 133.8  93.0 133.8    --    --      --    --   --   --  
                                            ------- ----- ----- ----- ----- ----- ------- -----  ---   --  
       Total contractual cash                                                                              
         obligations....................... 3,634.4 619.4 138.1 202.1 435.2 256.6 2,861.1 160.8  200   --  
                                            ======= ===== ===== ===== ===== ===== ======= =====  ===   ==  
-----------------------------------------------------------------------------------------------------------

In addition to such contractual obligations, we have other commercial     
commitments totaling US$50.7 million that must be paid prior to December 31,    
2003.                                                                           

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------
                                               Amount of commitment expiration for period           
                                       -------------------------------------------------------------
Other commercial commitments           Total amounts  Less than    One to     Three to      Over    
(in billions of Rupiah and millions of  committed     one year   three years five years  five years 
US$)                                   (Rp.)  (US$)  (Rp.) (US$) (Rp.) (US$) (Rp.) (US$) (Rp.) (US$)
-                                      -------------------------------------------------------------
                                                                                                    
      Lines of credit.................  --      25    --     25   --    --    --    --    --    --  
      Standby letters of credit.......  --    25.7    --   25.7   --    --    --    --    --    --  
                                        --    ----    --   ----   --    --    --    --    --    --  
         Total commercial                                                                           
           commitments................  --    50.7    --   50.7   --    --    --    --    --    --  
                                        ==    ====    ==   ====   ==    ==    ==    ==    ==    ==  
----------------------------------------------------------------------------------------------------

As of December 31, 2002, we had contractual obligations and commercial    
commitments totaling US$670.2 million in foreign currency obligations and Rp.   
3,634.5 billion in Rupiah-denominated obligations.                              

Summary of Certain Material Differences between Indonesian GAAP and U.S. GAAP   

Our audited consolidated financial statements have been prepared in       
accordance with Indonesian GAAP, which differs in certain material aspects from 
U.S. GAAP. Given the number and nature of differences between U.S. GAAP and     
Indonesian GAAP, users of Indonesian GAAP financial statements should never     
assume that they are at all comparable to financial statements prepared in      
accordance with U.S. GAAP. Certain principal differences between Indonesian     
GAAP and U.S. GAAP are summarized below and in Notes 39 and 40 to our audited   
consolidated financial statements, included herein.                             

This presentation should not be taken as inclusive of all Indonesian      
GAAP/U.S. GAAP differences. Additionally, no attempt has been made herein to    
identify all disclosure, presentation or classification differences that would  
affect the manner in which events and transactions are presented in the         
financial statements or notes thereto. Further, no attempt has been made to     
identify future differences between Indonesian GAAP and U.S. GAAP as a result   
of prescribed changes to accounting standards. Regulatory bodies that           
promulgate Indonesian GAAP and U.S. GAAP have significant projects ongoing that 
could affect future comparisons, such as this one.                              

Capitalization of foreign exchange loss-net of gain                         

 Under Indonesian GAAP, foreign exchange losses-net of foreign exchange gain
on borrowings used to finance construction of an asset should be capitalized.   
Capitalization of net foreign exchange loss ceases when the construction is     
substantially completed and the constructed asset is ready for its intended use.

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  Under U.S. GAAP, foreign exchange differential should be charged or credited
to current operations. Therefore, the depreciation relating to the capitalized  
net foreign exchange loss under Indonesian GAAP should be reversed for U.S.     
GAAP purposes. For the year ended December 31, 2001 and 2002, our net income    
would be Rp. 25.75 billion and Rp. 0.5 billion lower under U.S. GAAP            
respectively.                                                                   

Interest capitalizable to properties under construction and installation    

  Under Indonesian GAAP, one of the criteria for capitalizing interest cost to
a qualifying asset (i.e. properties under construction and installation) is     
that the interest should be attributable to the qualifying asset. The           
capitalization of a parent company's interest expense into a subsidiary's asset 
is not allowed under Indonesian GAAP. We did not capitalize the interest        
incurred on our bonds payable in 2002 because the proceeds of the bonds were    
used for the acquisition of Bimagraha shares and capital contributions in IMM   
and IM3.                                                                        

Under U.S. GAAP, SFAS No. 34 does not specify that the interest cost be   
attributable to the qualifying assets; therefore, the capitalizable interest    
include interest costs incurred on general and specific borrowings. The         
difference between the amount of interest capitalized under Indonesian GAAP and 
U.S. GAAP will result in additional depreciation recognized under U.S. GAAP.    

Further, U.S. GAAP allows capitalization of a parent company's interest   
expense to qualifying assets of a consolidated subsidiary provided that the     
subsidiary used the funds to acquire qualifying assets for its operations. In   
2001, the qualifying assets were IMM's internet assets and IM3's cellular       
assets. For the year ended December 31, 2002, the amount of difference is Rp.   
97.9 billion and Rp.53.4 billion higher net income under U.S. GAAP.             

Pension plan                                                                

We have adopted SAK 24 as our accounting method for pensions; it is       
substantially consistent with the requirements of U.S. GAAP. Under U.S. GAAP,   
starting from January 1, 1991, the accounting for these benefits is governed by 
SFAS No. 87, "Employers' Accounting for Pensions". In computing net periodic    
pension cost, used the transition obligation calculated as of January 1, 1995   
and 1991 for Indonesian GAAP and U.S. GAAP purposes, respectively. The amount   
of differences are Rp. 161 million, Rp. 153 million, and Rp. 191 million higher 
net income under U.S. GAAP for 2000, 2001, and 2002 respectively.               

Post retirement benefits                                                    

 Under Indonesian GAAP, there are no strict requirements for the recognition
of an employer's liability for healthcare plan granted to employees for the     
period subsequent to retirement. We account for these benefits as an expense at 
the time they are claimed. Under U.S. GAAP, we account for these benefits over  
the estimated service period of its employees based on actuarial assumptions    
which are similar to those provided by SFAS No. 106, "Employers' Accounting for 
Post retirement Benefits Other than Pensions". The amount of differences are    
Rp. 8.8 billion, Rp. 8.8 billion, and Rp. 8.6 billion lower net income under    
U.S. GAAP for 2000, 2001, and 2002, respectively.                               

Landrights                                                                  

In Indonesia, except for ownership rights ("Hak Milik") granted to        
individuals, the title to land rests with the State under the Basic Agrarian    
Law No. 5 of 1960. Land use is accomplished through landrights, whereby the     
holder of the right enjoys the full use of the land for a stated period of      
time, subject to extensions. We expect that the landrights will be renewed at   
nominal costs in the foreseeable future. In most instances, the landrights are  
freely tradable. However, they may be pledged as security under borrowing       
agreements. The predominant practice is to capitalize the costs of acquired     
landrights and to not amortize these costs.                                     

Under Indonesian GAAP, expenses associated with the acquisition of the    
government permit to use the land should be amortized over the period the       
holder is expected to retain the landrights which, in our case, is an initial   

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period ranging from approximately 20 to 30 years, while under U.S. GAAP, all    
costs to acquire the landrights should be amortized over the period the holder  
is expected to retain the landrights. As a result of the above difference, when 
landright is sold, the gain/loss from the disposal of land will be different    
under Indonesian GAAP and U.S. GAAP. The amount of differences are Rp. 2.8      
billion, Rp. 3.8 billion, and Rp. 8.7 billion lower net income under U.S. GAAP  
for, 2000, 2001, and 2002, respectively.                                        

Revenue recognition                                                         

Under Indonesian GAAP, revenue from service connection is recognized as   
income at the time the connection takes place (for postpaid service) or at the  
time of delivery of starter packs to distributors, dealers or customers (for    
prepaid service). Under U.S. GAAP, in accordance with the SEC Staff Accounting  
Bulletin No. 101, "Revenue Recognition", revenue from service connections       
should be deferred and recognized over the expected term of the customer        
relationship. The amount of differences are Rp. 43.3 billion and Rp.38.8        
billion lower net income under U.S. GAAP for 2001 and 2002.                     

Goodwill                                                                    

 Under Indonesian GAAP, goodwill is amortized using the straight-line method
over five years.                                                                

Under U.S. GAAP, starting with fiscal year beginning after December 15,   
2001, goodwill is not amortized but is subject to an annual impairment test     
under SFAS No.142, "Goodwill and Other Intangible Assets". Prior to 2002, the   
goodwill arising from the acquisition of Bimagraha (see Note 4) had been        
amortized over five years. Beginning 2002, the amortization was discontinued    
and an impairment review of the goodwill was done in accordance with SFAS No.   
142.                                                                            

Intangible Assets                                                           

 Under Indonesian GAAP, intangible assets acquired in a business combination
are not recognized separately from goodwill. Under U.S. GAAP, intangible assets 
that meet the new criteria for recognition apart from goodwill under SFAS No.   
142 should be reported separately from goodwill. Our intangible assets with     
definite lives acquired from the acquisition of Satelindo in 2002 are amortized 
and subject to impairment test under SFAS No. 144.                              

Equity in net loss of associated companies                                  

This represents the effect of the difference between Indonesian and U.S.  
GAAP in the investees' accounting for stock issuance costs and foreign exchange 
differential on obligation relating to property under construction. The amount  
of difference is Rp. 9.1 billion lower net income under U.S. GAAP 2000. There   
are no differences in 2001 and 2002.                                            

Item 6:  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                             

Directors and Senior Management                                                 

 In accordance with Indonesian law, Indosat 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.                                                          

Board of Commissioners                                                      

The Board of Commissioners consists of nine members, one of whom is the   
President Commissioner. The members of the Board of Commissioners are elected   
and dismissed by shareholders' resolutions at a general meeting of              
shareholders. In accordance with Bapepam Regulation No. SE-003/PM/05/2000 dated 
May 5, 2000 and JSX Rule No. Kep. 315/BEJ/06/2000 dated July 1, 2000, as        
amended by JSX Rule No. Kep. 339/BEJ/07/2000 dated July 20, 2001, which         
requires that at least 30% of the members of the Board of Commissioners must be 
independent, the Extraordinary General Meeting of Shareholders on December 27,  
2002 has designated three commissioners as Independent Commissioners: Achmad    
Rivai, Soebagijo Soemodihardjo and Lim Ah Doo.                                  

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The current members of Indosat's Board of Commissioners are as follows:   

                                                        [Enlarge/Download Table]

                                                Current Position(s) with Indosat;                     
         Name           Age                Other Positions with Institutions; Education               
         ----           ---                --------------------------------------------               
                                                                                                      
Peter Seah Lim Huat.... 56  Chairman of the Board of Commissioners of Indosat since December 2002;    
                            Currently President & Chief Executive of Singapore Technologies Pte Ltd;  
                            President/Chairman (Management Committee) of Overseas Union Bank          
                            Limited from 1999-2001;                                                   
                            Vice Chairman and Chief Executive/Chairman (Management Committee)         
                            of Overseas Union Bank Limited in 2001;                                   
                            Executive Director & Chief Executive of International Bank of Singapore   
                            Limited from 1985-1991;                                                   
                            Citibank N.A. from 1969-1977;                                             
                            Assistant Vice President of World Corporate Division in 1977;             
                            Bachelor of Business Administration, 2ND Class (Honours), University of   
                            Singapore in 1968.                                                        

Achmad Rivai........... 53  Commissioner of Indosat since 2000;                                       
                            Appointed as Independent Commissioner of Indosat and Chairman of the      
                            Audit Committee in 2001;                                                  
                            Executive Vice President, Operations and Engineering of Indosat from      
                            1996-2000;                                                                
                            Vice President, International Telecommunications of Satelindo from 1993-  
                            1996;                                                                     
                            General Manager, Technical Operation of Indosat from 1991-1992;           
                            General Manager, Operations for Indosat from 1988-1991;                   
                            General Manager, Procurement and Development for Indosat from 1987-       
                            1988;                                                                     
                            Degree in Electrical Engineering, Bandung Institute of Technology in 1975.

Soebagijo Soemodihardjo 62  Commissioner of Indosat since 2000;                                       
                            Appointed as Independent Commissioner of Indosat since December 2001;     
                            Chairman of Research and Development Agency, the Ministry of              
                            Communications from 1993-2000;                                            
                            Head of the Legal and International Cooperation Bureau, the Ministry of   
                            Communications from 1985-1993;                                            
                            President Commissioner of P.T. Pelindo III from 1992-1998;                
                            Member of Supervisory Board of Perumka from 1992-1995;                    
                            Commissioner of P.T. Varuna Tirta Prakarsya (Persero) from 1987-1996;     
                            Master of Science, University of Indonesia in 1997;                       
                            Degree in Law, 17 Agustus University (UNTAG) in 1973;                     
                            Degree in Public Administration, the Graduate School of Administration,   
                            STIA-LAN RI in 1969.                                                      

Lim Ah Doo............. 53  Commissioner of Indosat since December 2002;                              
                            Appointed as Independent Commissioner of Indosat in 2002;                 
                            Director & Chairman Audit Committee, GP Industries Ltd;                   
                            Director and Chairman Audit Committee, Sunlight Group Ltd;                
                            Chairman of Singapore Merchant Bankers Association from 1993-1995;        
                            Director of the Institute of Banking and Finance from 1993-1995;          
                            Chairman and Managing Director of Deutsche Morgan Grenfell (Asia) Ltd     
                            from 1977-1995;                                                           
                            Sub-Committee Member--Economic Planning Committee, Ministry of            
                            Trade and Industry from 1977-1995;                                        

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                                                        [Enlarge/Download Table]

                                        Current Position(s) with Indosat;                     
      Name       Age               Other Positions with Institutions; Education               
      ----       ---               --------------------------------------------               
                                                                                              
                     Bachelor of Science in Engineering (Honours), Queen Mary College,        
                     University of London in 1971.                                            

Lee Theng Kiat.. 49  Commissioner of Indosat since December 2002;                             
                     President and Chief Executive Officer of Singapore Technologies          
                     Telemedia Pte. Ltd since 1995;                                           
                     Director of Legal/Strategic Investment of Singapore Technologies Ventures
                     from 1992-1995;                                                          
                     Director of Legal of Singapore Technologies Holding from 1990-1992;      
                     Director of Legal of Singapore Technologies Industrial Corporation from  
                     1985-1989;                                                               
                     Bachelor of Law, 2nd Class Lower (Honours), University of Singapore      
                     from 1972-1976.                                                          

Sio Tat Hiang... 55  Commissioner of Indosat since December 2002;                             
                     Currently Executive Vice President of Singapore Technologies Telemedia;  
                     Group Treasurer/Director of Strategic Investment, Singapore Technologies 
                     Pte Ltd from 1993-1997;                                                  
                     Vice President of Corporate Finance, Singapore Technologies Holdings     
                     from 1991-1993;                                                          
                     Director of Sun Hung Kai Securities Pte Ltd from 1989-1991;              
                     Vice President/Head-Domestic Money Market of OCBC Bank from 1987-        
                     1989;                                                                    
                     Senior Executive Program, London Business School in 1986;                
                     Bachelor of Business Administration (Honours), University of Singapore in
                     1970.                                                                    

Sum Soon Lim.... 59  Commissioner of Indosat since December 2002;                             
                     Director of Chartered Semiconductor Manufacturing Ltd;                   
                     Director of CapitaLand Ltd;                                              
                     Director of Singapore Technologies Telemedia Pte. Ltd;                   
                     Director of Green Dot Capital Pte. Ltd;                                  
                     Director of Vertex Ventures Holdings Ltd;                                
                     Director of Singapore Health Service Pte. Ltd;                           
                     Corporate Advisor to Singapore Technologies Pte Ltd from;                
                     Security Industry Council;                                               
                     Bachelor of Production Engineering, University of Nottingham UK.         

Roes Aryawidjaya 51  Commissioner of Indosat since December 2002;                             
                     Deputy of State Minister of State Company (BUMN), Department of          
                     Mining, Strategic Industry, Telecommunication and Energy from 2000 to    
                     present; and                                                             
                     Secretary to Governmental Commissioners Board for Government (DKPP)      
                     from 2000-present;                                                       
                     Head of Planning Bureau, DPE Secretariat General from 1999-2000;         
                     Head of Sub-directorate for Exploration and Production of Geo Thermal    
                     from 1994-1999;                                                          
                     Head of Sub-directorate for Transportation and Purifying Process of Geo  
                     Thermal from 1990-1991;                                                  
                     MSc. Petroleum Economics, University of New South Wales, Australia;      
                     Degree in Petroleum Engineering, ITB, 1977.                              

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                                                                [Download Table]

                                Current Position(s) with Indosat;                   
   Name    Age             Other Positions with Institutions; Education             
   ----    ---             --------------------------------------------             
                                                                                    
Umar Rusdi 56  Commissioner of Indosat since December 2002;                         
               Secretary General of the Department of Transportation from 2000-2001;
               Chairman of Research and Development Technology, Department of       
               Transportation from 2000-2001;                                       
               President Commissioner of Pelindo I from 1994-1998;                  
               Member of Supervisory Board for Pelindo I from 1991-1994;            
               Head of Logistics Bureau from 1989-2000;                             
               Degree in Economics, Unversitas Islam Indonesia, Yogyakarta in 1969. 

In accordance with the terms of the Shareholders Agreement, dated December
15, 2002, between the Government (acting through the Ministry of State-Owned    
Enterprises) and ICL (described further under "Major Shareholders and Related   
Party Transactions-Major Shareholders"), Peter Seah Lim Huat, Lim Ah Doo, Lee   
Theng Kiat, Sio Tat Hiang and Sum Soon Lim were elected to the Board of         
Commissioners pursuant to nominations by ICL. The remaining commissioners have  
been elected pursuant to nominations by the Government.                         

The term of each of the Commissioners concludes at the close of the third 
annual general meeting of shareholders after the date of his appointment. A     
Commissioner may be removed prior to the expiration of his term of office at a  
general meeting of the shareholders if he is considered incapable of performing 
his tasks. A member of the Board of Commissioners may not assume a concurrent   
position which may cause a conflict of interest with our interests, directly or 
indirectly, without the approval of the shareholders at a general meeting. The  
Commissioners' business address is Jl. Medan Merdeka Barat 21, Jakarta, 10110.  

Board of Directors                                                          

Indosat is managed by a Board of Directors under the supervision of the   
Board of Commissioners. The Board of Directors consists of one President        
Director, one Vice President Director and five Directors. The members of the    
Board of Directors are elected and dismissed by shareholders' resolutions at a  
general meeting of shareholders.                                                

  Until Indosat's annual general meeting of shareholders on June 26, 2003, the
members of Indosat's Board of Directors were as follows:                        

                                                        [Enlarge/Download Table]

                                     Current Position(s) with Indosat;                    
    Name      Age               Other Positions with Institutions; Education              
    ----      ---               --------------------------------------------              
                                                                                          
Widya Purnama 48  President Director of Indosat since June 2002;                          
                  President Director EDI from 1995-June 2002;                             
                  Member of Board of EDIFACT Asia in 1995;                                
                  MBA in Technology, ITB in 1992;                                         
                  Degree in Electrical Engineering, ITS in 1983.                          

Ng Eng Ho.... 48  Vice President Director of Indosat since December 2002;                 
                  Managing Director of Keppel T&T from 1990-2002;                         
                  Chief Signal Officer in 1990; Singapore Armed Forces (Signals Corp) from
                  1978-1990;                                                              
                  Bachelor of Science, Telecomm System Engineering (Honours);             
                  Royal Military College of Science, UK.                                  

Junino Jahja. 43  Director of Multimedia, Data Communication & Internet since April 2003; 
                  Director of Finance, June 2002-April 2003                               
                  Head of West Regional Division of Indosat from 2000-2001;               
                  Head of Internal Audit of Indosat from 1999-2000;                       
                  President Director P.T. Kalimaya Perkasa Finance from 1997-2000;        

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                                                        [Enlarge/Download Table]

                                                Current Position(s) with Indosat;                    
          Name            Age              Other Positions with Institutions; Education              
          ----            ---              --------------------------------------------              
                                                                                                     
                              Director of Cambodia Telecommunication Corp., from 1995-2000;          
                              MBA, University of Exeter England in 1998;                             
                              MBA, University of Southern California, USA in 1992;                   
                              Degree in Accounting, Universitas Indonesia in 1985.                   

Wityasmoro Sih Handayanto 45  Director of Network Infrastructure since April 2003;                   
                              Director of Corporate Development since June 2002;                     

                              General Manager for Business Development of Indosat from 2000-2002;    
                              Commissioner of P.T. Aplikasi Lintasarta from 2001-2002;               
                              Commissioner of Cambodia Telecommunication Corp. from 2000-2002;       
                              Director of Trade and Development P.T. Aplikanusa Lintasarta from      
                              1994-2000;                                                             

                              Director of P.T. Sisindosat from 1992-1993;                            
                              MBA, IPMI in 1989;                                                     
                              Degree in Electrical Engineering, ITB in 1982.                         

Hasnul Suhaimi........... 45  Director of Cellular Marketing since April 2003;                       
                              Director Sales and Marketing from June 2002-April 2003;                
                              President Director of P.T. Indosat Multimedia Mobile from 2001-2002;   
                              Director of Commerce of P.T. Telkomsel from 1998-2000;                 
                              Director of Commerce of P.T. Indosel from 1997-1998;                   
                              General Manager of Sales of P.T. Indosat from 1996-1997;               
                              General Manager of Marketing of P.T. Indosat from 1995-1996;           
                              MBA, University of Hawaii in 1992;                                     
                              Degree in Electrical Engineering, ITB in 1981.                         

Emil Soedarmo............ 44  Director of Fixed Telecommunication since April 2003;                  
                              Director of Operations and Engineering from June 2002-April 2003;      
                              Director of Production and Operation of P.T. CTPI from 2000-2002;      
                              General Manager, Information Systems, Indosat from 1999-2000;          
                              Director of Operations of P.T. Sisindosat from 1994-1997;              
                              MBA, IPMI in 1992;                                                     
                              Degree in Industrial Engineering, ITB in 1982.                         

Joseph Chan Lam Seng..... 44  Director of Network Integration since April 2003;                      
                              Director since December 2002;                                          
                              Assistant Vice President, Switching & NGN Systems, StarHub Pte Ltd     
                              from 1998-2002;                                                        
                              Vice President of Special Projects of Singapore Technologies Telemedia 
                              Pte Ltd in 1998;                                                       
                              Deputy General Manager of Chartered Systems & Networks from 1992-      
                              1998;                                                                  
                              Senior Manager of Gemplus Technologies Asia from 1991-1992;            
                              Manager Engineering Project Division of Chartered Electronic Industries
                              from 1985-1991;                                                        
                              Senior Engineer-Micro Electronics Division of Chartered Electronics    
                              Industries from 1985-1991;                                             
                              System Engineer, Sime Darby Systems from 1983-1985;                    
                              Bachelor of Electrical Engineering, University of Singapore from 1972- 
                              1976.                                                                  

Nicholas Tan Kok Peng.... 44  Director of Finance since April 2003;                                  
                              Director since December 2002;                                          
                              Vice President of Finance of StarHub Pte Ltd since 2002;               

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                                                        [Enlarge/Download Table]

                                            Current Position(s) with Indosat;                    
        Name         Age               Other Positions with Institutions; Education              
        ----         ---               --------------------------------------------              
                                                                                                 
                         Director of Finance of Singapore Technologies Telemedia Pte. Ltd. from  
                         2001-2002;                                                              
                         Financial Controller-South East Asia of Becton Dickinson Medical        
                         Singapore Pte Ltd from 1997-2001;                                       
                         Financial Controller-South East Asia of Becton Dickinson Medical Product
                         Pte Ltd from 1994-1997;                                                 
                         Manager of Tax & Treasury, Manager of Planning & Reporting, Manager     
                         of Management Accounting Section and Senior Management Account of       
                         Hewlett Packard Singapore Pte Ltd from 1987-1994;                       
                         Corporate Internal Auditor of Texas Instruments Singapore in 1987;      
                         Senior Management Accountant, Senior General Account, General Account   
                         and Associate Accountant of Hewlett Packard Singapore Pte Ltd from      
                         1982-1987;                                                              
                         Bachelor of Accounting, University of Singapore in 1982.                

Raymond Tan Kim Meng 48  Director of Business Development since April 2003;                      
                         Director since December 2002;                                           
                         Managing Director of SingTel Account (Nokia) in 2002;                   
                         President of Worldwide Sales & Service, Singapore, Thailand, Brunei and 
                         Vietnam, and President of Service Provider Networks, Singapore and      
                         Brunei for Lucent Technologies from 1998-2001;                          
                         Regional General Manager of Northern Telecom Singapore, Singapore,      
                         Thailand & Indochina from 1993-1998;                                    
                         Managing Director of Shinawatra Data Com, Thailand from 1990-1993;      
                         Marketing Director of Value Added Network Services, Singapore           
                         Telecomm International from 1988-1990;                                  
                         Department Manager of M&E Services, Marketing Executive-Value Added     
                         Network Service, Engineer-Packet Switched Services of Singapore         
                         Telecoms from 1979-1988;                                                
                         Bachelor of Electrical Engineering (Honours), University of Singapore in
                         1979.                                                                   

At the annual general meeting of shareholders held on June 26, 2003, Emil 
Soedarmo, Junino Jahja, Joseph Chan Lam Seng and Raymond Tan Kim Meng retired   
from the Board of Directors, and the following directors were appointed with    
immediate effect:                                                               

                                                        [Enlarge/Download Table]

                                      Current Position(s) with Indosat;                    
     Name      Age               Other Positions with Institutions; Education              
     ----      ---               --------------------------------------------              
                                                                                           
Wahyu Wijayadi 46  Director of Fixed Telecommunication & MIDI, since June 2003;            
                   General Manager, Jakarta Regional from 2002 - 2003;                     
                   Commissioner - IM3 from 2002 - now;                                     
                   Commissioner - Satelindo from 2001 - now;                               
                   President Commissioner - Satelindo from 2001 - 2002;                    
                   General Manager, Corporate Secretary from 2000 - 2002;                  
                   President Commissioner - Telkomsel from 2000 - 2001;                    
                   General Manager, Strategic Development Division in 2000;                
                   Operations & Production Director, PT Cipta Televisi Pendidikan Indonesia
                   from 1997 - 2000;                                                       
                   General Manager, Business Development I Division in 1996;               
                   Master of Business Administration, IPMI Jakarta in 1989;                
                   Degree in Electrical Engineering, ITB in 1982.                          


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                                                                [Download Table]

                               Current Position(s) with Indosat;                  
  Name    Age             Other Positions with Institutions; Education            
  ----    ---             --------------------------------------------            
                                                                                  
Sutrisman 52  Director of Corporate Services since June 2003;                     
              General Manager of Human Resource Development and Administration of 
              PT Indosat in 2003;                                                 
              President Director of MGTI from 1999 - 2003;                        
              Commissioner of MGTI from 1998 - 1999;                              
              Commissioner of Patrakomindo from 1997 - 1999;                      
              General Manager of Carrier Relations of PT Indosat from 1995 - 1999;
              Degree of Law, University of Indonesia in 1975.                     

In accordance with the terms of the Shareholders Agreement, dated December
15, 2002, between the Government (acting through the Ministry of State-Owned    
Enterprises) and ICL (described further under "Major Shareholders and Related   
Party Transactions-Major Shareholders"), Ng Eng Ho, Joseph Chan Lam Seng,       
Nicholas Tan Kok Peng and Raymond Tan Kim Meng were elected to the Board of     
Directors pursuant to nominations by ICL. The remaining directors have been     
elected pursuant to nominations by the Government.                              

The Directors' terms of appointment end at the close of the fifth annual  
general meeting after the date of their appointment. At a general meeting of    
shareholders, the shareholders may remove any Director before the expiration of 
his term of office if he is considered incapable of performing his tasks. A     
Director's term of office will automatically terminate upon, bankruptcy or      
resignation. Within 30 days of a vacancy on the Board of Directors, a general   
meeting of shareholders must be convened to fill the vacancy. A member of the   
Board of Directors may not assume a concurrent position, which may cause a      
conflict of interest, with the interests of Indosat without the approval of the 
Board of Commissioners and notification to a general meeting of shareholders.   
Should the President Director want to assume a concurrent position of this      
type, the approval of a general meeting of shareholders is also required. The   
business address of the Board of Directors is Jl. Medan Merdeka Barat 21,       
Jakarta, 10110.                                                                 

None of our Commissioners or Directors has a service contract with us, nor
are any such contracts proposed. There is no family relationship among any of   
the Commissioners and Directors listed above.                                   

Compensation of Commissioners and Directors                                 

For their services, Commissioners and Directors are entitled to           
remuneration, which is determined by the Annual General Meeting of Shareholders.

For the period January to June 2002, the total amount of remuneration paid
in the form of salaries, bonuses and other benefits to Commissioners and        
Directors was Rp 6.3 billion. The Extraordinary General Meeting of Shareholders 
on June 20, 2002 changed the composition of the Board of Commissioners and the  
Board of Directors. In relation to that, the Company provided retirement        
benefits amounting to Rp 2.1 billion and recognized retention expenses          
amounting to Rp 7.0 billion. For the period January to June 2002, the Directors 
were Hari Kartana, Habimono Koesoebjono, Garuda Sugardo, Guntur Siregar and     
Budi Prasetyo, while the Commissioners were Wisnu Askari Marantika, Achmad      
Rivai, Soebagijo Soemodihardjo, Abdul Anshari Ritonga and Muwardi P. Simatupang.

 For the period July to December 2002, the total amount of remuneration paid
in the form of salaries and other benefits to Commissioners and Directors was   
Rp 5.5 billion. On December 27, 2002, the Extraordinary General Meeting of      
Shareholders retired several Commissioners and increased the members of the     
Board of Commissioners and Board of Directors. In relation to that, the Company 
provided retirement benefits amounting to Rp 0.3 billion and recognized         
retention expenses amounting to Rp 0.9 billion.                                 

The Directors for the period of July to December 27, 2002 were Widya      
Purnama, Wityasmoro Sih Handayanto, Junino Jahja, Hasnul Suhaimi, and Emil      
Soedarmo whereas the Commissioners comprised of Wisnu                           

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Askari Marantika, Achmad Rivai, Soebagijo Soemodihardjo, Hari Kartana, Abdul    
Anshari Ritonga and Mahmuddin Yasin. The incoming Directors, Ng Eng Ho,         
Nicholas Tan Kok Peng, Joseph Chan Lam Seng, Raymond Tan Kim Meng; and the      
incoming Commissioners, Roes Arya Widjaja, Umar Roesdi, Peter Seah Lim Huat,    
Lee Theng Kiat, Lim Ah Doo, Sio Tat Hiang, Sum Soon Lim, all of whom were       
appointed by the Extraordinary General Meeting of Shareholders on December 27,  
2002, will start receiving their remuneration in fiscal year 2003.              

Payment of bonuses to the Commissioners and the Directors is determined at
the annual general meeting of shareholders and is based on the recommendation   
of the Board of Directors. Incentives are paid semi-annually and generally      
represent approximately 18.5% of the yearly salary. Incentives are based on     
achievement of performance targets set by the Board of Directors and are        
approved by the shareholders at the annual general meeting of shareholders.     

Board practices                                                             

The principal functions of the Board of Commissioners are to supervise the
Board of Directors, review our development plan, and monitor the performance of 
our work plan, budget, the implementation of our Articles of Association and    
resolutions of the shareholders' general meeting. In carrying out its           
supervisory activities, the Board of Commissioners represents the interests of  
the shareholders and is accountable to the shareholders in their general        
meeting.                                                                        

Meetings of the Board of Commissioners must be held at least once every   
three months. A meeting of the Board of Commissioners may be convened at any    
time when deemed necessary by the President Commissioner or when requested by   
at least one third of the total members of the Board of Commissioners. A        
meeting of the Commissioners is lawful and entitled to make lawful and binding  
decisions only if a majority of the Commissioners are present or represented.   
At any meeting each Commissioner is entitled to one vote and, in addition, may  
make one vote for each Commissioner he is representing. A Commissioner may be   
represented at a meeting of the Commissioners only by another Commissioner      
appointed pursuant to a power of attorney. Except as otherwise provided in the  
Articles of Association, resolutions of the Board of Commissioners must be      
adopted by deliberation and consensus. If no agreement is reached by            
deliberation and consensus, resolutions must be passed by a majority of the     
Commissioners holding office. In the event of a tie vote, the proposal is       
deemed rejected unless the matter concerns an individual, in which case the     
President Commissioner may decide the matter. The Board of Commissioners may    
adopt lawful and binding decisions without convening a meeting of the           
Commissioners if all of the members of the Board of Commissioners approve the   
decision in writing.                                                            

  The Board of Directors is generally responsible for managing our business in
accordance with all applicable laws, the Articles of Association and the        
policies and directives issued by the general meeting of shareholders and the   
Board of Commissioners. The President Director alone shall have the authority   
to represent and act on behalf of the Board of Directors and Indosat. If the    
President Director is absent or disabled, one of the Directors designated by    
the President Director or the Board of Commissioners or, in the absence of such 
a designation, the Director who holds the longest term as a member of the Board 
of Directors, shall have authority to represent and act on behalf of the Board  
of Directors and Indosat. The Board of Directors is required to obtain the      
written approval of the Board of Commissioners for the following actions:       
purchasing and/or selling shares of other companies; disposing or selling fixed 
assets in excess of an amount determined by the Board of Commissioners;         
entering into a license agreement or co-operation, management or similar        
agreement with other enterprises or parties for a period of more than one year; 
determining to cease collecting and to write off credits from the books;        
binding us as guarantor with financial consequences in excess of an amount      
determined by the Board of Commissioners; and accepting or granting             
medium/long-term loans and accepting non-operational short-term loans in excess 
of an amount stipulated in our Work Plan and Budget and approved by the Board   
of Commissioners. In addition, transactions involving capital participation or  
disposals of capital participation by us in other enterprises involving 10% or  
more of our revenues or 20% 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.                     

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  Meetings of the Board of Directors are convened when called by the President
Director or when requested by more than one-third of the total members of the   
Board of Directors.                                                             

 A meeting of the Directors is valid and entitled to adopt binding decisions
only if a majority of the Directors holding office are present or represented,  
subject to the provisions regarding conflicts of interest. A Director may be    
represented at a meeting of the Directors only by another Director appointed    
pursuant to a power of attorney issued for that particular purpose. At any      
meeting of Directors each Director is entitled to one vote and, in addition,    
one vote for each other Director he is representing. Resolutions of the Board   
of Directors must be passed by a majority vote, and, in event of a tie vote,    
the President Director has a deciding vote. The Board of Directors may adopt    
valid and binding resolutions without convening a meeting of the Directors if   
all of the Directors approve and sign the resolutions in writing.               

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 absentee Director. If, for any reason, 
we cease 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 30    
days.                                                                           

The Articles of Association provide that if there is a conflict between   
Indosat's interests and those of a Director, then with the approval of the      
Board of Commissioners, Indosat shall be represented by another member of the   
Board of Directors. If all Directors have a conflict, Indosat shall be          
represented by the Board of Commissioners or one Commissioner designated by the 
Board of Commissioners. If all the Board of Commissioners has a conflict, the   
shareholders, pursuant to a general meeting, may appoint one or more persons to 
represent Indosat.                                                              

Audit Committee                                                             

In accordance with JSX Regulation No. Kep-315/BEJ/06/2000 on the General  
Procedures of Equity Stock Listing in the Stock Exchange, dated June 30, 2000,  
we have formed an Independent Audit Committee, consisting of three persons and  
chaired by one of the Independent Commissioners. The duties of the Audit        
Committee include providing professional, independent advice to the Board of    
Commissioners and identifying matters that require the attention of the Board   
of Commissioners, including review of the following: our financial information  
(including financial reports and projections); the independence and objectivity 
of our public accountant; the adequacy of our public accountant's audits that   
all material risks have been considered; the effectiveness of our internal      
controls; and our compliance as a listed company with the prevailing capital    
markets regulations and other regulations related to our business. The members  
of our audit committee are Achmad Rivai (Chairman), Achmad Fuad Lubis and       
Wuryanto.                                                                       

Employees                                                                   

As of December 31, 2002, Indosat had 2,373 permanent employees, including 
218 managerial-level employees (employees with the rank of manager or higher)   
and 2,155 non-managerial employees, compared to 142 managerial and 2,259        
non-managerial employees, respectively, at December 31, 2001. Indosat's         
turnover rate for employees during 2002 was less than 0.25% per annum. As a     
result, employees have been with Indosat for an average of 12.25 years of       
service.                                                                        

  As of December 31, 2002, on a consolidated basis, the Indosat group employed
a total of approximately 5,983 employees, 87 of which were non-permanent        
employees. Of the total number of employees, 336 were Indosat employees who had 
been seconded to certain of our subsidiaries. Including these secondees,        
Satelindo, IM3, Lintasarta, IM2, and Sisindosat employed approximately 2,041,   
817, 700, 238 and 149 employees, respectively, as of December 31, 2002.         

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We provide numerous benefits to our employees, including a pension plan,  
medical benefits, income tax allowances and access to a cooperative established 
by the employees. While there are no restrictions on hiring, like all           
Indonesian companies, we are required to obtain the Ministry of Manpower's      
approval to lay-off ten or more employees in one month.                         

On August 25, 1999, Indosat's employees established a union called the    
Serikat Pekerja Indosat ("SPI"). On February 13, 2001, Indosat's management and 
SPI signed the Collective Labor Agreement or Perjanjian Kerja Bersama ("PKB").  
This agreement covers terms of employment, including working relations, working 
hours, payroll, employee development and competency, occupational safety and    
heath, employees' welfare, social allowances, employees' code of conduct and    
mechanisms for handling disputes. SPI is active and critical to Indosat's human 
relations policies. Currently, Indosat's management and representatives of the  
SPI are in the process of negotiating to amend the Collective Labor Agreement,  
which expires on February 13, 2004.                                             

 Indosat's employees are entitled to a pension under a defined benefit plan,
pursuant to which they receive both a lump sum payment and a monthly benefit    
through an insurance program managed by Jiwasraya, a state-owned insurance      
company. In September 2000, Indosat insured 1,683 permanent employees with a    
fully-funded pension program. In this program, an employee who resigns at 56    
years of age will receive a pension benefit. Under Indonesian GAAP and U.S.     
GAAP, our pension liabilities are deemed to be fully-funded. (See Notes 2o, 25  
and 41c to our audited consolidated financial statements contained elsewhere    
herein.)                                                                        

Indosat's employees have also established a cooperative, Koperasi Pegawai 
Indosat ("Kopindosat"). Kopindosat provides various benefits, such as housing,  
transportation, consumer loans, principally to Indosat's employees, and car,    
house and equipment rental, principally to Indosat. The management of           
Kopindosat is elected by Indosat's employees every three years at an annual     
members' meeting. Kopindosat and certain of its subsidiaries are under the      
supervision of Indosat's management. Kopindosat has a minority stake in some of 
Indosat's affiliates. Indosat has also temporarily seconded several of its      
employees to support Kopindosat and its subsidiaries in conducting their        
business, as well as to provide job training for those employees.               

Indosat's employees have also established an employee welfare foundation, 
Yayasan Kesejahteraan Karyawan Indosat ("Yakindosat"). Yakindosat was created   
to provide a fund to improve the welfare of Indosat's employees. Management     
personnel of Yakindosat are appointed by Indosat's management. Yakindosat and   
some of its subsidiaries are managed by and are under supervision of Indosat's  
management. Yakindosat has investments in some of Indosat's affiliates. Indosat 
has also temporarily seconded several of its employees to support Yakindosat's  
subsidiaries in conducting their business.                                      

Share ownership                                                             

  To our knowledge, as of June 23, 2003, apart from ICL, the Government and PT
Jamsostek (Persero), there were no shareholders beneficially owning more than   
5% of our outstanding Common Stock.                                             

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  The following table sets forth information as of June 23, 2003 regarding (i)
persons known to us to more than 5% of our Common Stock (whether directly or    
beneficially through ADSs); and (ii) the total amount of any class of our       
Common Stock owned by individual members of the Board of Commissioners and the  
Board of Directors.                                                             

                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------------------------
                             Identity of Person or                                                         
     Title of Class                  Group                  Amount owned             Percent of Class      
-----------------------------------------------------------------------------------------------------------
                                                                                                           
        Series A                  Government                      1                        100%            
        Series B            Indonesia Communication                                                        
                                 Limited (ICL)               434,250,000                  41.94%           
        Series B                  Government                 155,324,999                    15%            
        Series B            PT Jamsostek (Persero)           59,909,000                    5.78%           
        Series B                 Achmad Rivai                     *                          *             
        Series B                 Widya Purnama                    *                          *             
        Series B                Hasnul Suhaimi                    *                          *             
        Series B                 Emil Sudarmo                     *                          *             
        Series B                Wahyu Wijayadi                    *                          *             
        Series B                   Sutrisman                      *                          *             

--------                                                                        
*  Less than 1%                                                                 

Employee Stock Option Plan                                                  

At the annual general meeting of shareholders held on June 26, 2003, the  
shareholders voted to approve a plan to issue 51,775,000 Indosat Series B       
shares, or approximately 5% of Indosat's issued and paid up capital immediately 
prior to that annual general meeting of shareholders, which will be allocated   
to our employees through an Employee Stock Option Plan. Permanent employees,    
directors and commissioners of Indosat and its consolidated subsidiaries will   
be eligible to receive options to purchase Indosat shares. Indosat's            
commissioners have been delegated authority to issue new shares in the amount   
and at such time in accordance the terms of the plan, the detailed terms of     
which are currently being finalized by Indosat. Options to purchase half of the 
shares to be issued under the plan will be allocated for distribution in 2003,  
commencing August 1, 2003, with a one-year vesting period and exercisable       
within one year commencing August 1, 2004 (the first phase), and the options to 
purchase the remaining half of such shares will be distributed in 2004,         
similarly with a one-year vesting period and exercisable within one year        
commencing August 1, 2005 (the second phase). For the first phase of the plan,  
the exercise price of the options will be the average closing price for         
Indosat's shares during a period of 25 consecutive days in the JSX regular      
market prior to the announcement of the June 26, 2003 annual general meeting of 
shareholders. The exercise price of the options for the second phase will be    
determined at the Indosat's general meeting of shareholders in 2004. Indosat    
will offer a ten percent discount from the exercise price of options issued     
under the plan.                                                                 

Item 7:  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                      

Major Shareholders                                                              

 Our major shareholders are ICL, the Government, acting through the Ministry
of State-Owned Enterprises, and PT Jamsostek (Persero), which together own      
62.72% of our Common Stock. In addition, the Government holds the Special Share 
and has special voting rights. As of June 23, 2003, aside from ICL, the         
Government and PT Jamsostek (Persero), there were no shareholders beneficially  
owning more than 5% of our outstanding Common Stock (see the table under        
"Directors, Senior Management and Employees--Share Ownership").                 

The Government                                                              

Prior to the Initial Public Offering in 1994, the Government owned 100% of
our outstanding Common Stock. As of the beginning of 2002, the Government owned 
65% of our outstanding Common Stock. By virtue of                               

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its Common Stock ownership, the Government had retained control over us and had 
the power to elect all of our Board of Commissioners and our Board of Directors 
and to determine the outcome of substantially all actions requiring the         
approval of the shareholders. In addition, through pension plans, insurance     
funds and other Indonesian investors owned or controlled, directly or           
indirectly, by the Government, had purchased shares of Common Stock in the      
Initial Public Offering.                                                        

On May 17, 2002, the Government sold 8.1% of our outstanding Common Stock 
through an accelerated global tender, reducing the Government's shareholding to 
56.9%. On December 20, 2002, the Government sold 41.94% of our outstanding      
Common Stock to ICL (described below), further reducing the Government's        
shareholding to 15.0%. However, aside from our Common Stock, our capital        
structure also includes a special share, the Series A Share (see "Additional    
Information-Description of Articles of Association and Capital Stock"), and the 
Government retains a significant degree of control of this through the Special  
Share.                                                                          

As the holder of the Special Share, the Government has special voting     
rights. The material rights and restrictions which are applicable to the Common 
Stock are also applicable to the Special Share, except that the Government may  
not transfer the Special Share and it has veto rights with respect to: (i)      
election and removal of Directors; (ii) election and removal of Commissioners;  
(iii) mergers, consolidations and acquisitions of Indosat; and (iv) amendments  
to the Articles of Association, including to the purposes and objectives of     
Indosat and increases in our share capital without pre-emptive rights. The      
above veto rights are limited by the Shareholders Agreement between the         
Government and ICL described below to the extent that the Government has agreed 
to vote all of its shares in accordance with the written instructions of ICL on 
the above matters for a period of one calendar year from effectiveness of the   
sale of ICL.                                                                    

ICL                                                                         

On December 15, 2002, ICL, a wholly-owned subsidiary of STT Communications
Limited, entered into a Share Purchase Agreement (the "Share Purchase           
Agreement") and a Shareholders Agreement (the "Shareholders Agreement") with    
the Government, acting through the Ministry of State-Owned Enterprises in its   
capacity as a shareholder of Indosat. STT Communications Limited is 99% owned   
by Singapore Technologies Telemedia Pte Ltd, which is part of the Singapore     
Technologies group and indirectly owned by Temasek Holdings (Private) Limited,  
an investment arm of the Singapore government. Pursuant to the Share Purchase   
Agreement, the Government agreed to sell, and ICL agreed to purchase,           
434,250,000 Series B Shares representing 41.94% of the total outstanding Series 
B Shares. The sale and purchase of the Series B Shares under the Share Purchase 
Agreement was consummated on December 20, 2002, at which time the Shareholders  
Agreement became effective. After consummation of this sale and purchase, the   
Government held 155,324,999 Series B Shares, representing 15.0% of the total    
outstanding Series B Shares. The aggregate purchase price for the Series B      
Shares acquired by ICL pursuant to the Share Purchase Agreement was             
Rp.5,623,537,500,000 (approximately US$627.4 million).                          

  Under the Shareholders Agreement, the Government and ICL have agreed to vote
their respective shares and procure that their respective nominated directors   
vote and take all other action necessary in order to give effect to the         
provisions of the Shareholders Agreement. The Government has agreed with ICL to 
discuss how it will vote on resolutions at a shareholders meeting relating to   
certain matters set out in the Shareholders Agreement if requested by ICL. The  
Government has also agreed to vote all of its shares in accordance with ICL's   
written instructions on certain matters set out in the Shareholders Agreement   
for a period of one year from December 20, 2002.                                

Under the Shareholders Agreement, each of the Government and ICL must vote
its shares and take all other action necessary or required to elect to the      
Board of Commissioners. They have agreed to elect (i) the required number of    
commissioners nominated by ICL so that such nominees constitute a simple        
majority on the Board and (ii) two nominees of the Government, save that this   
number would be reduced to one if the Government's holding of Series B Shares   
was reduced beyond a certain number (the "Residual Shares") but the Government  

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remained the holder of the Series A Share. The Government and ICL must also     
vote its shares and take all other action necessary or required to elect to the 
Board of Directors including (i) the required number of directors nominated by  
ICL so that such nominees constitute a simple majority on the Board and (ii)    
two nominees of the Government, save that this number would be reduced to one   
if the Government's holding of Series B Shares was reduced to less than the     
Residual Shares. There are also certain quorum requirements set out in the      
Shareholders Agreement.                                                         

ICL is restricted under the Shareholders Agreement from transferring any  
Series B shares which it acquired from the Government for a period of three     
years from the purchase of the shares, i.e. until December 20, 2005, subject to 
certain exceptions. Under the Shareholders Agreement, the Government shall not  
transfer any Residual Shares for a period of one year from the purchase of the  
shares, i.e., until December 20, 2003, other than to ICL and to certain         
affiliates. The Shareholders Agreement will terminate on December 31, 2005 (or  
earlier in limited circumstances).                                              

The Government's sale to ICL has triggered several demonstrations and     
protests, including a class action suit lodged by an Indonesian                 
non-governmental organization. The class action suit apparently has the support 
of a number of prominent political parties and figures of Indonesia. The class  
action alleges that proper government and parliamentary approvals, as required  
by the Indonesian constitution, were not obtained for the sale. A Jakarta       
district court is currently hearing the class action suit. There are only       
limited precedents with respect to class action suits in Indonesia, and we are  
unable to assess the validity of the plaintiffs' claims. As a result, the       
outcome of the case is uncertain.                                               

The descriptions of the Share Purchase Agreement and the Shareholders     
Agreement contained herein are qualified in their entirety by reference to such 
documents, which are incorporated as exhibits hereto by reference to the        
Schedule 13D filed jointly by Temasek Holdings (Private) Limited, Singapore     
Technologies Pte Ltd, Singapore Technologies Telemedia Pte Ltd, STT             
Communications Ltd and Indonesia Communications Limited with the Securities and 
Exchange Commission on January 29, 2003.                                        

PT Jamsostek (Persero)                                                          

  PT Jamsostek (Persero) is a state-owned company which manages provident fund
for employees of the private companies. Prior to May 2002, PT Jamsostek         
(Persero) owned less than 1% of our outstanding Common Stock. Starting from May 
2002, PT Jamsostek (Persero) owned 48,906,500 shares of our Common Stock hence  
increasing its ownership to 4.72%. As of June 23, 2003 PT Jamsostek (Persero)   
owned 59,909,000 Series B Shares representing an ownership of 5.78%. It does    
not have any special rights nor representative in our Board of Commissioners or 
Board of Directors.                                                             

Related Party Transactions                                                      

 Indosat is a party to certain agreements and engages in transactions with a
number of entities that are related to us, including joint venture companies,   
cooperatives and foundations, as well as the Government and entities that are   
related to or owned or controlled by the Government. See Note 26 to our         
consolidated financial statements contained elsewhere herein. The most          
significant of these transactions include interconnection agreements and        
account receivables with and in Telkom, cash and cash equivalents in the amount 
of Rp. 1,985.5 billion deposited in state-owned banks. We are a party to        
various on-lending agreements with the Government. We also pay 1% of government 
fees to the MoC with respect to our operations. In addition, we are a party to  
various agreements with other state-owned entities such as insurance companies, 
banks and various suppliers. The transactions in 2001 to eliminate Indosat's    
and Telkom's cross-ownership in certain subsidiaries were also considered       
related party transactions, as both Indosat and Telkom were under common        
control by the Government. Transactions between Indosat and our principal       
consolidated subsidiaries, Satelindo and Lintasarta, are also considered        
related party transactions.                                                     

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Item 8:  FINANCIAL INFORMATION                                                  

Consolidated financial statement and other financial information                

 See Item 17, "Financial Statements", for our audited consolidated financial
statements filed as part of this annual report.                                 

Legal proceedings                                                               

To our knowledge, we are not party to any material legal proceedings and  
there are no material legal proceedings pending with respect to our properties. 
Currently we are in the appeals process (Judicial Review) in the Supreme Court  
with respect to a decision in a minor administrative lawsuit in favor of Primer 
Koperasi Karyawan Pariwisata, Seni dan Kebudayaan/Parsenibud (known as          
Primkopparpostel) in the State Court of Central Jakarta, regarding a foreign    
currency exchange transaction. However, we do not believe that this process     
will have a significant effect on our financial position or profitability. We   
are also the subject of a class action suit with respect to the sale of 41.94%  
of our shares by the Government to ICL. The outcome of this class action is     
uncertain. See "Major Shareholders and Related Party Transactions--Major        
Shareholders--ICL".                                                             

Dividend policy                                                                 

Holders of ADSs on the applicable record dates will be entitled to all    
dividends declared on the underlying shares of Common Stock. Dividends are      
declared by the shareholders at the annual general meeting upon the             
recommendation of our Board of Directors. At our 2001 annual general meeting of 
shareholders, the shareholders declared final cash dividends amounting to 35%   
of net income in 2000, and, at our 2002 annual general meeting of shareholders, 
the shareholders declared final cash dividends amounting to 40% of net income   
in 2001. Our next annual general meeting of shareholders is scheduled to be     
held on June 26, 2003. Even though Indosat's dividends have historically ranged 
from 30% to 50% of net income for the years 1995 to 2002, there is no guarantee 
that the Annual General Meeting of Shareholders on June 26, 2003 will approve   
and declare final cash dividends in the range of these three historical levels, 
due to our large capital expenditure plan in 2003. Dividends, if any, are       
subject to our earnings, capital requirements, financial condition and any      
other factors considered relevant by our shareholders. Any dividends will be    
paid in Rupiah with respect to shares of Common Stock. Dividends received by    
holders of ADSs will be paid in dollars, net of conversion expenses of The Bank 
of New York, as depositary for our ADSs. Dividends received by a Non-Indonesian 
Holder (as defined herein) of shares of Common Stock or ADSs will be subject to 
Indonesian withholding taxes. See "Additional Information--Taxation--Indonesian 
Taxation".                                                                      

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Item 9:  THE OFFER AND LISTING                                                  

Offer and listing details                                                   

  The table below sets forth, for the periods indicated, the reported high and
low quoted prices for the Common Stock on the JSX:                              

                                                                [Download Table]

-----------------------------------
                    Price per Share
                    ---------------
Period (in Rupiah)   High    Low   
-----------------------------------
                                   
Calendar Year                      
1998............... 18,950   4,550 
1999............... 16,300   9,600 
2000............... 18,750   6,500 
2001............... 11,150   7,300 
2002............... 13,350   6,400 

Financial Quarter                  
First Quarter 2001. 10,700   7,850 
Second Quarter 2001 10,650   7,750 
Third Quarter 2001. 11,150   7,750 
Fourth Quarter 2001  9,450   7,300 
First Quarter 2002. 10,800   8,900 
Second Quarter 2002 13,650  10,250 
Third Quarter 2002. 11,000   8,300 
Fourth Quarter 2002  9,300   6,400 
First Quarter 2003.  8,800   7,250 

Month                              
December 2002......  9,300   8,500 
January 2003.......  8,800   7,350 
February 2003......  8,050   7,250 
March 2003.........  8,050   7,350 
April 2003......... 13,650  10,250 
May 2003...........  9,350   8,450 
-----------------------------------

   On June 23, 2003, the closing price for a share of Common Stock was Rp. 9,050

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  The table below sets forth, for the periods indicated, the reported high and
low quoted prices of the ADSs on the NYSE.                                      

                                                                [Download Table]

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

                      Price per ADS   
                    ------------------
Period                High      Low   
--------------------------------------
                         (in US$)     
                                      
Calendar Year                         
1998............... 19 4/16  4 11/16  
1999............... 24 10/16 10 6/16  
2000............... 24 8/16  7 1/16   
2001............... 11 5/16  6 13/16  
2002............... 14 5/16  6 13/16  

Financial Quarter                     
First Quarter 2001. 12 1/16  7 11/64  
Second Quarter 2001 8 15/16  6 13/16  
Third Quarter 2001. 11 5/16  7 29/32  
Fourth Quarter 2001 8 27/32  7 5/16   
First Quarter 2002. 10 3/4   8 33/64  
Second Quarter 2002 14 13/64 10 44/125
Third Quarter 2002. 12 13/32 9 1/16   
Fourth Quarter 2002 10 3/4   7 43/128 
First Quarter 2003. 9 31/32  8 11/32  

Month                                 
December 2002...... 10 3/4   9 43/128 
January 2003....... 9 31/32  8 23/64  
February 2003...... 8 5/16   8 1/32   
March 2003......... 8 15/16  8 13/32  
April 2003......... 10 15/64 8 35/64  
May 2003........... 11 17/64 9 61/64  
--------------------------------------

On June 23, 2003, the closing price for an ADS was US$11.11 on the NYSE.  

Markets                                                                     

Indosat's Common Stock is listed on the JSX and the SSX. The JSX is the   
principal non-U.S. trading market for Indosat's Common Stock. In addition,      
ADSs, each representing ten shares of Common Stock, are listed on the NYSE.     

The Indonesian Securities Market                                                

 Currently there are two principal stock exchanges in Indonesia. The primary
market is the JSX, 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 trillion 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.            

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Trading is divided into three market segments: the regular market, the    
negotiable market and the cash market. The regular market is the mechanism for  
trading stock in standard lots in a continuous auction market during exchange   
hours. With respect to the trading of stock (the round lots consist of 500      
shares) for companies in banking sectors other than for non-banking and 5,000   
shares for companies in the banking sector. The price movements for shares      
having prices ranging between Rp. 500 and less than Rp. 5,000 should be in      
multiples of Rp. 25, and each price movement should be no more than Rp. 250.    
The price movements for shares having prices of Rp. 5,000 and above, should be  
in multiples of Rp. 50, and each price movement should be no more than Rp. 500. 
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 negotiable 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 5,000 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 is 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 negotiable 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, or P.T. Kliring Penjaminan Efek  
Indonesia ("KPEI"), may perform the obligations or rights of the 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 P.T.    
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 a fine thereafter of 0.5% of the transaction value payable to his 
counterpart in the transaction and shall also be issued a warning. Delay in     
payment of the fine is also subject 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 the jacking up of share prices, misleading information, the use 
of insider information, counterfeit securities or securities blocked from       
trading, or 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 members are required to pay  
a transaction fee equal to the cumulative transaction value for each month of   
0.04% of transaction for stocks and other registered securities (subject to a   
minimum fee of Rp. 250,000).                                                    

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.       

The Indonesian capital markets are generally less liquid than those in    
countries with more developed capital markets. This illiquidity is especially   
pronounced for large blocks of securities. Also, prices in the Indonesian       
capital markets are typically more volatile than in such other markets.         
Accordingly, there can be no assurance that a holder of Common Stock will be    
able to dispose of Common Stock at the prices or at times at which such holder  
would be able to do so in more liquid markets or at all. Further, no assurance  
can be given that a holder of Common Stock will be able to dispose of Common    
Stock at or above such holder's purchase price.                                 

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Trading on the NYSE                                                             

  The Bank of New York serves as depositary (the "Depositary") with respect to
the ADSs traded on the NYSE. Each ADS represents ten shares of Common Stock. As 
of December 31, 2002, 8,513,033 ADSs, representing 8,2% of our Common Stock,    
were outstanding in the United States and there were 82 registered owners of    
ADS.                                                                            

Item 10:  ADDITIONAL INFORMATION                                                

Description of Articles of Association and Capital Stock                        

As of December 31, 2002, the authorized capital of Indosat is Rp.         
2,000,000,000,000, divided into 4,000,000,000 shares, consisting of the Special 
Share and 3,999,999,999 shares of Common Stock, each share of par value 500     
Rupiah. Of the authorized capital, 1,035,500,000 shares, consisting of one      
Series A share and 1,035,499,999 Series B shares with a total nominal value of  
Rp. 517,750,000,000, were subscribed to and fully paid up in cash by:           

(a) the Republic of Indonesia, one Series A share and 155,324,999 Series B
shares with a total nominal value of Rp.77,662,499,500;           

(b) Indonesia Communications Limited, 434,250,000 Series B shares with a  
total value of Rp. 217,125,000,000; and                           

(c) the public, 445,925,000 Series B shares with a total nominal value of 
Rp. 222,962,500,000.                                              

Common stock                                                                

The following is a summary of the material rights and restrictions related
to the Common Stock of Indosat based upon applicable provisions of Indonesian   
law and provisions of Indosat's Articles of Association (the "Articles"), which 
were most recently amended on December 27, 2002 and approved by the Minister of 
Justice on March 21, 2003. This description does not purport to be complete and 
is qualified by reference to the Articles and the laws of Indonesia relating to 
companies.                                                                      

All of the shares of Common Stock are registered shares and are issued in 
the name of the owner of the Common Stock registered in the register of         
shareholders of Indosat. The Directors keep a register of shareholders of       
Indosat, and Indosat must treat the person whose name is entered in such        
register of shareholders as the only person entitled to exercise any rights     
conferred by law with respect to such Common Stock.                             

  All transfers of Common Stock must be evidenced by an instrument of transfer
signed by or on behalf of the transferor and by or on behalf of the transferee  
or based on other letters, which give satisfactory evidence of such transfer in 
the opinion of the Directors. Transfers of Common Stock take effect only after  
the transfer is registered in the register of shareholders. The transferor of   
any Common Stock will be treated as the owner of such Common Stock until the    
name of the transferee has been entered in the register of shareholders.        

The holders of Common Stock are entitled to pre-emptive rights if Indosat 
issues Common Stock, convertible bonds, warrants or similar securities. Such    
pre-emptive rights may be transferred or assigned to third parties subject to   
the restrictions set forth in the stipulations in the Articles and Indonesian   
law. Any rights issued shall be first approved by Indosat's general meeting of  
shareholders and an announcement of such a plan shall be made by the Board of   
Directors in two daily newspapers (one in the English language and one in the   
Indonesian language). If the holders of Common Stock do not exercise their      
pre-emptive rights within the period fixed by the Board of the Directors in     
accordance with the relevant regulations, the Board of Directors may issue such 
Common Stock, convertible bonds, warrants or similar securities to third        
parties at a price and on terms at least the same as that offered previously to 
the existing shareholders and as determined by the Board of Directors.          

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Indosat's authorized capital stock may be increased or decreased only by a
resolution of an extraordinary general meeting of shareholders and an amendment 
of the Articles. Any such Amendment will be effective only after it receives    
approval from the Minister of Justice.                                          

As an exception to the above provisions, Indosat, with the approval of a  
general meeting of shareholders at which the holder of the Series A share       
attends and approves the resolution, may issue new shares without conducting a  
limited public offer to shareholders. This issuance may be done provided that   
this issue is made for a specified number of shares and such shares are issued  
within a specified period of time in compliance with the Indonesian capital     
market regulations or under any exemption Indosat may receive therefrom, and    
the said shares may be sold by Indosat to any person at a price and upon such   
conditions as may be determined by the Board of Directors, provided that the    
price is not lower than par value.                                              

These provisions also apply mutatis mutandis in the event Indosat issues  
convertible bonds and/or warrants and/or other similar securities, provided     
that any new share issued resulting from convertible bonds and/or warrants      
and/or other similar securities shall be for a specified number of shares and   
within a specified period of time in compliance with the Indonesian capital     
market regulations or any exemption as Indosat may receive therefrom.           

Special share                                                               

The material rights and restrictions which are applicable to the Common   
Stock are also applicable to the Special Share, except that the Government may  
not transfer the Special Share and has a veto with respect to (i) election and  
removal of Directors; (ii) election and removal of Commissioners; (iii) merger, 
consolidation and acquisition of Indosat; and (iv) amendments to the Articles,  
including amendments to any provision related to the objectives and purposes of 
Indosat, increase of authorized capital without pre-emptive rights and the      
merger, consolidation, acquisition, dissolution and liquidation of Indosat.     

Purpose and duration                                                        

Pursuant to the Articles, Indosat's purposes, objectives and business     
activities are as follows:                                                      

1. The purposes and objectives of Indosat are to undertake              
    telecommunications network and/or services, as well as the informatics
business.                                                         

2. To achieve the purposes and objectives referred to above, Indosat is 
permitted to undertake various activities, including:             

     (a) To carry out business and/or activities in the provision and services
     of the telecommunications network and/or services, as well as the
informatics business;                                       

 (b) To carry out business and/or activities planning, constructing of
   infrastructure and providing telecommunications, as well as the
informatics business facilities and supporting resources;   

(c) To carry out business and activities to operate (including the  
         marketing and sale of telecommunications networks and/or services, as
   well as the informatics business carried out by Indosat) and to
engage in the maintenance, research, development of         
telecommunications, as well as, the informatics business    
 infrastructure and/or facilities and to conduct education and
training, both within and outside of the country; and       

     (d) To carry out business and/or activities related to the development of
telecommunications, as well as the informatics business.    

Indosat was established on November 10, 1967 with no time limit on its    
establishment.                                                                  

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Voting rights                                                               

Each share of Common Stock entitles the registered holder thereof to one  
vote at any general meeting of shareholders of Indosat.                         

An annual general meeting of shareholders ("AGM") must be held, at the    
latest, on June 30 of each year. At the AGM, the Directors must (i) report on   
the affairs and management of Indosat and the results for the most recent       
financial year; (ii) submit the audited balance sheet and audited profit and    
loss statement for that financial year to the meeting for approval; (iii)       
determine the plan for use of profits and the amount of dividends for that      
financial year; (iv) submit a request for the appointment of a public           
accountant; and (v) submit all other matters to be addressed at the meeting.    
All materials described in (i) through (v) will be made available at Indosat    
for inspection by shareholders no later than 21 days prior to the AGM.          
Proposals duly submitted by shareholders representing at least 25% of Indosat's 
subscribed shares may be included in the agenda of such meeting, provided that  
such proposals are received by the Board of Directors at least 14 days prior to 
such meeting.                                                                   

The Board of Directors or the Board of Commissioners may convene an       
extraordinary general meeting of shareholders and must convene such a meeting   
upon receipt of written notice from a shareholder or shareholders representing  
at least one tenth of the subscribed shares of Indosat. If the Directors fail   
to give notice of such a meeting within 35 days of sending such notice, the     
shareholders concerned or the Board of Commissioners may call this meeting at   
the expense of Indosat.                                                         

 Announcement of a general meeting must be given to shareholders at least 14
days prior to the notice for the general meeting by an advertisement in at      
least two daily newspapers (one in the Indonesian language and one in the       
English language), one of which has a wide circulation in Indonesia. Notice     
must be given by advertisement in at least two daily newspapers, one of which   
is in the Indonesian language and has a wide circulation in Indonesia and one   
of which is in the English language at least 14 days before the date of the     
meeting. In the case of an extraordinary general meeting, notice must be given  
by advertisement at least 21 days before the date of an annual general meeting, 
in each case, excluding the date of the notice and the date of the meeting.     

 If all shareholders are present and/or represented, notice requirements may
be waived and the general meeting of shareholders may adopt binding resolutions.

The quorum for a general meeting of shareholders requires shareholders    
representing at least 1/2 of the issued shares of Common Stock to be            
represented in person or by a power of attorney at such meeting.                

Shareholders may be represented at a general meeting of shareholders by a 
person holding a power of attorney, but no Commissioner, Director or employee   
of Indosat may act in such capacity. Unless otherwise provided in the Articles, 
and subject to the special voting rights of the Special Share, resolutions in   
order to be adopted must receive the affirmative vote of the holders of more    
than 50% of the shares of Common Stock which are present and being voted at the 
meeting (simple majority votes).                                                

Fiscal year and accounts                                                    

The fiscal year of Indosat commences on January 1 and ends on December 31.

No later than 90 days from the closing of the fiscal year, the Board of   
Directors must submit the balance sheet, profit and loss account and other      
financial statements audited by a public accountant to the Board of             
Commissioners, who must review these statements and report on this review to    
the general meeting of shareholders. Copies of such documents must be available 
at the head office of Indosat from the date of notice for the annual general    
meeting of shareholders until the date of closing of the annual general meeting.

 The annual general meeting of shareholders will consider and decide whether
or not the balance sheet and profit and loss account of Indosat is approved.    
Such approval fully discharges the Board of Directors and the                   

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Board of Commissioners from their responsibilities during the fiscal year to    
the extent that such actions are reflected in such balance sheet and profit and 
loss account.                                                                   

Utilization of profit and dividends                                         

The profits of Indosat, as determined by the AGM, after deduction of      
corporate taxes, must be used as a reserve fund for dividends and for other     
purposes, the percentage of which must be determined annually by a general      
meeting of shareholders.                                                        

Dividends are paid in accordance with a resolution adopted at a general   
meeting of shareholders upon the recommendation of the Board of Directors. This 
resolution also determines the time and manner of payment of the dividends. All 
shares of Common Stock which are fully paid and outstanding at the time a       
dividend or other distribution is declared are entitled to share equally in     
such dividends or other distribution. Dividends are payable to the persons      
whose names are entered in the register of shareholders of Indosat on a         
business day determined by the general meeting of shareholders when the         
resolution for the distribution of dividends is adopted.                        

  The Board of Directors and the Board of Commissioners may, by resolutions of
both, declare interim dividends if the financial condition of Indosat permits,  
provided that such interim dividends are offset against the dividends to be     
declared at the subsequent annual general meeting.                              

  Dividends unclaimed after five years from the date on which they are payable
cease to be payable and are to be credited to the reserve fund of Indosat.      
Notices concerning dividends and interim dividends must be announced in at      
least two daily newspapers in the Indonesian language with wide or national     
circulation in Indonesia, in one daily newspaper in the English language and on 
the stock exchange where the shares are listed.                                 

 If the profit and loss account in one fiscal year shows a loss which cannot
be covered by the reserve fund referred to below, the loss remains recorded as  
such in the profit and loss account, and for the succeeding years Indosat is    
deemed not to have made a profit if the loss recorded as such in the profit and 
loss account has not been fully covered.                                        

 To cover future losses, a reserve fund may be created and the amount of the
reserve fund will be determined by a general meeting of shareholders. The       
reserve fund may be used for capital outlays or other purposes as determined at 
the annual general meeting of shareholders. However, it must be used only for   
the benefit of Indosat. Any profits earned from such reserve fund shall be      
entered in the profit and loss account of Indosat.                              

Amendments to the Articles of Association                                   

Amendments to the Articles may be made only by a resolution of an         
extraordinary general meeting of shareholders attended by at least two-thirds   
of the issued shareholders and approved by two-thirds of the shareholders with  
voting rights. Provided that any changes in Series A share rights, any changes  
in the objectives and purposes of Indosat, increasing or reducing Indosat's     
authorized capital, reducing the subscribed capital, dissolving Indosat, any    
merger, consolidation and acquisition plan, can be affected only if the meeting 
is attended and the action approved by the holder of the Series A share. A      
resolution regarding a reduction of the authorized capital must be published by 
the Directors in the State Gazette of Indonesia and at least two daily          
newspapers, one of which is in the Indonesian language having a national        
circulation for the benefit of creditors. In case a quorum for the              
extraordinary general meeting is not reached, within seven to thirty days from  
the original extraordinary general meeting a second meeting may be held to      
decide on matters which were not resolved at the first meeting and these        
matters may be approved by majority vote. All such amendments only become       
effective upon the approval of the Ministry of Justice of Indonesia.            

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Transactions with affiliates                                                

It is the policy of Indosat not to enter into transaction with affiliates 
unless the terms thereof are no less favorable to Indosat than those which      
could be obtained by Indosat on an arm's length basis from an unaffiliated      
third party.                                                                    

Under BAPEPAM regulations, once Indosat is listed on an Indonesian stock  
exchange, any transaction in which there is a conflict of interest (as defined  
below) must be approved by a majority of the shareholders of Common Stock who   
do not have a conflict of interest in the proposed transaction, unless the      
conflict existed before Indosat 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 common interests of Indosat 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), jointly or         
severally. A conflict of interest also exists under BAPEPAM regulations when    
members of the Board of Commissioners, Board of Directors or a principal        
shareholder of Indosat is involved in a transaction in which their personal     
interests may be in conflict with the interest of Indosat, unless otherwise     
excepted by BAPEPAM regulations.                                                

Indosat expects, in light of the substantial presence which enterprises   
owned or controlled by the Selling Shareholder or one of its affiliates have in 
Indonesia, that it may be desirable, in connection with the development and     
growth of Indosat's business, for Indosat to enter into joint ventures or other 
arrangements or transactions with such enterprise from time to time. Under such 
circumstances, Indosat 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 rule. If BAPEPAM were 
of the view that the proposed joint venture, arrangement or transaction would   
not require a vote of disinterested shareholders under its rule, Indosat 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, Indosat would either seek to obtain  
the requisite disinterested shareholder approval or abandon the proposal.       

Exchange controls                                                           

 See "Foreign Exchange" and "Foreign Equity Ownership Restrictions" included
in Item 3 elsewhere herein.                                                     

Material Contracts                                                              

On April 19, 2002, Telkom and the PIN stockholders, including the Company,
entered into a Conditional Sale and Purchase Agreement ('CSPA"), whereby the    
stockholders agreed to sell and transfer all their shares in PIN to Telkom at a 
total selling price of approximately US$ 381.5 million in three share-purchase  
transactions, as follows:                                                       

.   30% of the shares at the Initial Closing date, which occured on August
1, 2002;                                                          

.   15% of the shares at the Interim Closing Date, which is scheduled to  
occur not later than September 30, 2003; and                      

 .   55% of the shares at the Subsequent Closing Date, which shall occur not
later than December 31, 2004.                                     

On September 17, 2002, Telkom paid approximately US$9.3 million in cash as
an initial payment after the release of the PIN pledged shares by, and upon     
repayment by PIN of all amounts (principal, interest and others) payable to     
International Finance Corporation, one of PIN's stockholders. At the initial    
payment date, the stockholders of PIN also received a net working capital       
reimbursement from PIN. The balance of the selling price of approximately       
US$372.2 million, plus the corresponding interest for the applicable period,    
will be settled by Telkom through the issuance of promissory notes payable in   
ten quarterly installments of specific amounts.                                 

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 Based on an amendment dated August 1, 2002 to the CSPA, the Initial Closing
Date was changed to August 15, 2002. In addition, the sum of Rp. 3.2 billion    
was withheld by Telkom from the initial installment of the working capital      
reimbursement as a security for the costs of obtaining land title certificates  
for the account of PIN.                                                         

  As of December 31, 2002, the Company had received from Telkom US$5.4 million
for the initial payment and Rp. 32.2 billion for the working capital            
reimbursement.                                                                  

  In May 2002, we entered into a sale and purchase agreement with DeTe for the
acquisition of DeTe's 25% equity interest in Satelindo for US$325 million.      
Completion of this transaction occurred in September 2002, and, as a result, we 
obtained effective control of 100% of Satelindo.                                

Taxation                                                                        

  The following summary 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. This summary does not purport to be a           
comprehensive description of all of the tax considerations that may be relevant 
to a decision to purchase, own or dispose of ADSs or shares of Common Stock.    
PROSPECTIVE PURCHASERS 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. 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 the 
non-Indonesian entity receives income from 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.                                           

Dividends.  Dividends declared by us 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 us (with a   
copy to the Indonesian Office of Tax Services where we are registered) a        
certificate of tax domicile issued by the competent authority, or its designee, 
of the jurisdiction where the Non-Indonesian Holder is domiciled. Indonesia has 
concluded double taxation treaties with over 30 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 tax treaty, the withholding tax on dividends  
is generally, in the absence of a 20% voting interest, reduced to 15%.          

  Capital gains.  The sale or transfer of Common Stock listed on an Indonesian
stock exchange is subject to tax at the rate of 0.1% of the value of the        
transaction. The broker handling the transaction is obligated to withhold such  
tax. The holding, sale or transfer of founder shares listed on an Indonesian    
stock exchange may, under current Indonesian tax regulations, be subject to an  
additional 0.5% final income tax. Subject to the promulgation                   

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of implementing regulations (which have not 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%. However, this provision in    
the income tax law is not currently applied in practice. It is expected that,   
if and when further implementing regulations are issued in respect to this      
provision in the income tax law, this withholding tax will (i) only be applied  
if Common Stock not listed on an Indonesian stock exchange is purchased and     
paid for by an Indonesian resident subject to tax or by a permanent             
establishment in Indonesia of a non-resident entity or individual and (ii) not  
affect the net proceeds from any sale or transfer of ADSs through a regular     
trade on the NYSE by a Non-Indonesian Holder.                                   

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, 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     
Domicile issued by the competent tax authority or its designee of the           
jurisdiction in which the Non-Indonesian Holder is domiciled.                   

 Stamp duty.  Transactions in common stock in Indonesia are subject to stamp
duty payable at the rate of Rp. 6,000 on transactions with a value of more than 
Rp. 1,000,000 and Rp. 3,000 on transactions with a value of between Rp. 250,000 
to Rp. 1,000,000. Transactions with a value of less than Rp. 250,000 are not    
subject to stamp duty.                                                          

United States federal income taxation                                       

The following discussion addresses the principal United States federal    
income tax consequences to a United States Holder, as defined below, of owning  
ADSs or shares of Common Stock. The description below is based on the Internal  
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated 
thereunder, the income tax convention between the United States and Indonesia   
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 the holder's particular situation. Certain holders (including,   
but not limited to, insurance companies, partnerships or other pass-through     
entities, tax-exempt organizations, banks, insurance companies, financial       
institutions, persons subject to the alternative minimum tax, broker-dealers,   
persons that have a "functional currency" other than the U.S. dollar, persons   
that received ADSs or shares of Common Stock as compensation for services,      
persons owning, directly or indirectly, 10% or more of our voting shares, and   
persons who hold ADSs or shares of Common Stock 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) may be subject to     
special rules not discussed below. Except as discussed below with regard to     
persons who are not United States Holders, the following summary is limited to  
United States Holders who will hold ADSs or shares of Common Stock as "capital  
assets" within the meaning of Section 1221 of the Code. The discussion below    
does not address the effect of any state or local tax law on a holder of ADSs   
or shares of Common Stock.                                                      

As used herein, the term "United States Holder" means a holder of ADSs or 
shares of Common Stock that is for United States federal income tax purposes    
(i) a citizen or resident of the United States; (ii) a corporation or           
partnership (including any entity treated as a corporation or partnership for   
United States federal income tax purposes) created or organized in or under the 
laws of the United States, any state thereof or the District of Columbia; (iii) 
an estate whose income is subject to United States taxation regardless of its   
source; (iv) certain trusts; or (v) a holder whose income in respect of the     
ADSs or shares of the Common Stock is subject to United States federal income   
tax on a net income basis.                                                      

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The summary below does not discuss all aspects of United States federal   
income taxation that may be relevant to a particular holder of ADSs or shares   
of Common Stock in light of their (or its) particular circumstances and income  
tax situation. Prospective holders should consult their own tax advisors as to  
the specific tax consequences to them of the purchase, ownership and            
disposition of ADSs or shares of Common Stock, including the application and    
the effect of state, local, foreign and other tax laws and the possible effects 
of changes in United States or other tax laws.                                  

Taxation of distributions                                                   

 Subject to the discussion under "Passive Foreign Investment Company Status"
below, for United States federal income tax purposes, the amount of a           
distribution with respect to ADSs or shares of Common Stock (including any      
withholding tax deemed to be imposed with respect to such distributions) will   
be treated as a dividend taxable as ordinary income on the date of receipt by   
the Depository or the holder, respectively, to the extent of our current and    
accumulated earnings and profits as determined for United States federal income 
tax purposes. Under recently enacted legislation, with respect to United States 
Holders that are non-corporate taxpayers for taxable years after December 31,   
2002 and before January 1, 2009, such dividends may be taxed at the lower       
applicable capital gains rate, provided certain holding period requirements are 
satisfied. Non-corporate United States Holders are strongly urged to consult    
their own tax advisers as to the applicability of the lower capital gains rate  
to dividends received with respect to ADSs or shares of Common Stock.           
Distributions, if any, in excess of such current and accumulated earnings and   
profits will first constitute a non-taxable return of capital to the extent     
thereof, and then as a capital gain realized on the disposition of the ADSs or  
shares of Common Stock. The portion of any distribution treated as a            
non-taxable return of capital will reduce such holder's tax basis in such ADSs  
or shares of Common Stock. Such capital gain will be long-term if the ADSs or   
shares of Common Stock have been held longer than one year. United States       
Holders will not be eligible for the dividends received deduction otherwise     
allowed under the Code for distributions to domestic corporations in respect of 
distributions on the ADSs or Common Stock.                                      

 If a distribution is paid in any currency other than United States dollars,
the amount of the distribution will be translated into United States dollars at 
the spot rate on the date the distribution is received (which, for holders of   
ADSs, would be the date such dividend is received by the Depositary),           
regardless of whether the distributions are in fact converted into U.S. dollars 
on that date. Any gain or loss in respect of such non-United States currency    
arising from exchange rate fluctuations after that date will be ordinary income 
or loss.                                                                        

Taxation of capital gains and losses                                        

 Subject to the discussion under "Passive Foreign Investment Company Status"
below, a United States Holder will generally recognize a taxable gain or loss   
on the sale, exchange or other disposition of ADSs or shares of Common Stock in 
an amount equal to the difference between the amount realized on the sale,      
exchange or other disposition, and such holder's adjusted tax basis in such     
ADSs or shares of Common Stock. 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. For non-corporate United States Holders, 
the net long-term capital gain recognized will be subject to a reduced rate.    
Deposit and withdrawal of Common Stock in exchange for ADSs by a United States  
Holder will not result in a realization of gain or loss for U.S. federal income 
tax purposes.                                                                   

Passive Foreign Investment Company status                                   

Special United States federal income tax rules apply to a United States   
Holder that holds an equity interest in a passive foreign investment company    
("PFIC"). In general, 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, dividend, 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 consist 
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.                                                                         

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Based upon our existing and anticipated future operations and current     
assets, we believe that we are not, and anticipate that we will not become in   
the foreseeable future, a PFIC. If we are not operated in the manner currently  
anticipated, however, we may be considered a PFIC for the current or for a      
subsequent year depending upon our actual activities.                           

If we are or become a PFIC, a United States Holder would be treated as    
realizing a gain from the sale or disposition of ADSs or shares of Common Stock 
and certain "excess distributions" ratably over such holder's holding period    
for the ADSs or shares of Common Stock and would be taxed at the highest tax    
rate in effect for each such year to which the gain or excess distribution was  
allocated, together with an interest charge on the tax attributable to each     
such year. An election may be available to avoid these adverse tax              
consequences, but only if (i) the United States Holder may and does elect to    
annually mark-to-market the ADSs or shares of Common Stock, or (ii) assuming    
certain conditions which are unlikely to be met, the United States Holder       
elects to include in income annually its share of our income and gain.          

  Should we ever be classified as a PFIC, United States Holders are advised to
consult their tax advisors concerning the United States federal income tax      
consequences of holding the ADSs or shares of Common Stock and of making the    
mark-to-market election. A United States Holder who owns ADSs or shares of      
Common Stock during any year that we are a PFIC must file with the Internal     
Revenue Service ("IRS") Form 8621.                                              

Foreign tax credit considerations                                           

  For United States federal income tax purposes, United States Holders will be
treated as having received the amount of any Indonesian tax withheld upon the   
payment of a dividend and as then having paid over the withheld taxes to        
Indonesia. As a result of this rule, the amount of dividend included in a       
United States Holder's gross income may be greater than the amount of cash      
actually received (or receivable) by the United States Holder.                  

Subject to the limitations and conditions set forth in the Code, United   
States Holders may elect to claim a credit against their United States federal  
income tax liability for Indonesian tax withheld from dividends or Indonesian   
tax imposed on capital gains, if any, or, if they do not elect to credit any    
foreign tax for the taxable year, they may deduct such tax. For purposes of the 
foreign tax credit limitation, foreign source income is classified into one of  
several "baskets", and the credit for foreign taxes on income in any basket is  
limited to United States federal income tax allocable to that income. Dividends 
or capital gains will generally constitute "passive income" or "financial       
services income" for purposes of the foreign tax credit limitation. Dividends   
will generally constitute foreign source income and currency and capital gains  
will generally constitute United States source income. Capital loss will        
generally be allocated against United States source income. Because capital     
gains will generally constitute United States source income, as a result of the 
United States foreign tax credit limitation, any Indonesian or other foreign    
tax imposed upon capital gains in respect of ADSs or shares of Common Stock may 
not be currently creditable unless a United States Holder had other foreign     
source income for the year in the appropriate foreign tax credit limitation     
basket or an election to treat such gain as foreign source income is available. 
Investors are urged to consult their tax advisors regarding the availability of 
the foreign tax credit under their particular circumstances.                    

Non-U.S. holders                                                            

Except for the possible imposition of United States backup withholding tax
(see "--United States Backup Withholding and Information Reporting"), payments  
of any dividend on an ADS or share of Common Stock to a holder who is not a     
United States Holder (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 shares of Common Stock, provided that:                                

(a) the non-U.S. Holder shall not be or have been engaged in a trade or   
business in the United States;                                    

(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 former citizen thereof or former resident thereof;
and                                                               

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 (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 dividends, gain or income with respect to an ADS or share of Common Stock
of a non-U.S. Holder is effectively connected with the conduct of such trade or 
business (or attributable to a permanent establishment in the United States, in 
the case of a holder who is a resident of a country which has an income tax     
treaty with the United States), the non-U.S. Holder may be subject to United    
States income taxes on such dividends, gains or income at the statutory rates   
provided for United States Holders after the deduction of deductible expenses   
allocable to such effectively connected dividends, gains or income. In          
addition, if the non-U.S. Holder is a foreign 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, gains 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 dividends, gains 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 U.S. paying agent or other United States intermediary  
broker in respect of ADSs or shares of Common Stock may be subject to           
information reporting to the IRS and to a backup withholding tax. 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.               

 Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a refund or a credit against the holder's United      
States federal income tax, provided that the holder has complied with           
applicable reporting obligations.                                               

Documents on Display                                                            

  Any material which is filed as an exhibit to this annual report on Form 20-F
with the U.S. Securities and Exchange Commission is available for inspection at 
our offices. See "Information on the Company--Registered Offices".              

Item 11:  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK             

The Company did not enter into any derivative transactions in 2002 and has
no outstanding derivatives as of December 31, 2002. Indosat's subsidiary, P.T.  
Lintasarta, entered into a foreign currency swap contract in 1997, which was    
settled on April 5, 2002.                                                       

We are exposed to market risks primarily from changes in foreign currency 
exchange rates, changes in interest rates and equity price risk on the value of 
our long-term investments. Other than the forgoing swap transaction of          
Lintasarta, we do not currently hedge our monetary assets and liabilities       
against foreign currency risk, as we believe that our foreign currency revenues 
and assets form a natural hedge against foreign currency liabilities. See       
"Operating and Financial Review and Prospects--Liquidity and Capital            
Resources." Our exposure to interest rate risk is managed through maintaining a 
mix of fixed and variable rate liabilities and assets. Our exposure to such     
market risks continued to remain volatile during 2002, as the Indonesian        
economy was affected by significant fluctuations in the Rupiah in 2001 and      
2002. We cannot determine whether such volatility will continue during 2003 or  
thereafter.                                                                     

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Interest Rate Sensitivity                                                       

 Our exposure to interest rate fluctuations results primarily from debt owed
by Satelindo, Lintasarta, and to some extent, from debt owed by the Company.    

Debt owed by the Company includes floating rate long-term debt pursuant to
loans from the Government of Indonesia for the construction of the SEA-ME-WE 2  
submarine cable, which bears interest at rates tied to rates set by Bank        
Indonesia and state-owned Indonesian banks, the working capital loan from BNI,  
the Loan facility from BCA, the First Indosat Bond which was issued by the      
Company in April 2001 and the Second Indosat Bond which was issued in November  
2002. Because interest under the major credit facilities owed by Satelindo,     
Lintasarta and Indosat is payable at LIBOR plus the applicable margin, exposure 
under those facilities is mainly due to fluctuations in LIBOR. Interest under   
the First Indosat Bond and the Second Indosat Bond is based on a mix of fixed   
and variable rates. In addition, as of December 31, 2002, the Company and its   
subsidiaries hold US$ denominated and Rp. denominated deposits, which also have 
exposure to interest rate fluctuations. See "Note to Financial Statement No. 15 
and 16". Also see "Information on the Company--Principal Indebtedness" for      
further information regarding interest rates under the loans of the Company and 
our subsidiaries.                                                               

The following table provides information about the Company's and our      
subsidiaries' financial instruments that are sensitive to changes in interest   
rates. For long-term debts and bonds payable, the table presents principal cash 
flows and related variable interest rates by expected maturity dates.           

The information presented in the table has been determined based on the   
following assumptions: (i) variable interest rates in time deposits denominated 
in U.S. dollar and rupiah are based on the average interest rates for           
three-month period of time deposits from five state owned banks on December 31, 
2002; (ii) interest rates in long-term debts denominated in rupiah are based on 
the agreements such as: average interest rate for three-month period of time    
deposits from five state owned banks on December 31, 2002 plus 1% margin,       
average interest rate for three-month period of Certificates of Bank Indonesia  
on December 31, 2002 plus 3.25% margin; (iii) interest rates on long-term debts 
and bonds payable in U.S. dollars are based on the agreements that is LIBOR as  
of December 31, 2002 plus the applicable margin during the interest period; and 
(iv) the series B of Indosat Bond II mature in 2027. 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 increases in interest rates in Indonesia resulting 
from continued tight liquidity and other monetary and macroeconomic factors     
affecting Indonesia. Such assumptions are different from the rates used in the  
Consolidated Financial Statements, and accordingly amounts shown in the table   
may vary from amounts shown in the Consolidated Financial Statements.           

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                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------
                                        Expected Maturity Date (as of December 31, 2002)                       
---------------------------------------------------------------------------------------------------------------
                   Variable     2003       2004        2005        2006        2007     Thereafter     Total   
                     Rate     --------- ----------  ----------  ----------  ----------  ----------  ---------- 
                     (%)        Rp.        Rp.         Rp.         Rp.         Rp.         Rp.          Rp.    
-------------------           ---------------------------------------------------------------------------------
                                                     (Rp. in billions; US$ in millions)                        
                                                                                                               
Assets:                                                                                                        
Time deposits                                                                                                  
    Rp...........      13.65% 1,370,994         --          --          --          --          --   1,370,994 
    US$..........       2.75% 1,030,286         --          --          --          --          --   1,030,286 
    Sub Total....             2,401,280         --          --          --          --          --   2,401,280 
Total Assets.....             2,401,280         --          --          --          --          --   2,401,280 
Liabilities:                                                                                                   
Short-Term Loan                                                                                                
    Rupiah                                                                                                     
    Principal....                 2,684         --          --          --          --          --       2,684 
    Interest.....       19.5%       523         --          --          --          --          --         523 
    US$                                                                                                        
    Principal....               223,500         --          --          --          --          --     223,500 
    Interest.....        8.6%    19,221         --          --          --          --          --      19,221 
    Sub-total                                                                                                  
    Principal....               226,184         --          --          --          --          --     226,184 
    Interest.....                19,744         --          --          --          --          --      19,744 

Long-Term Debts                                                                                                
    Rupiah                                                                                                     
    Principal....                45,137     41,736     380,595     345,000     460,000          --   1,272,468 
    Interest.....  14.5%-30%    228,480    220,587     213,295     144,900      82,800          --     890,062 
    US$                                                                                                        
    Principal....               600,813    546,198     457,987     308,251     789,706          --   2,702,955 
    Interest..... 3.92%-7.9%    145,093    142,747     112,761      82,539      43,166          --     526,306 
    Sub-total                                                                                                  
    Principal....               645,950    587,934     838,582     653,251   1,249,706          --   3,975,423 
    Interest.....               373,573    363,334     326,056     227,439     125,966          --   1,416,368 

Bond payable                                                                                                   
    Rupiah                                                                                                     
    Principal....                    --         --          --   1,000,000   1,056,106     200,000   2,256,106 
    Interest..... 15.625%-19%              391,878     391,878     391,878     206,878     800,000   2,353,089 
    US$                                                                                                        
    Principal....                    --    640,372     640,372     339,899          --          --   1,620,643 
    Interest.....   3.92-6.9%    63,529     95,942      62,933      23,521          --          --     245,926 
    Sub-total                                                                                                  
    Principal....                    --    640,372     640,372   1,339,899   1,056,106     200,000   3,876,749 
    Interest.....               433,425    475,445     441,002     261,620     187,522     800,000   2,599,014 
Total Liabilities             1,698,876  2,067,086   2,246,012   2,482,210   2,619,299   1,000,000  12,113,483 
Net Cash Flows...               702,404 (2,067,086) (2,246,012) (2,482,210) (2,619,299) (1,000,000) (9,712,203)
---------------------------------------------------------------------------------------------------------------

Exchange Rate Sensitivity                                                       

 The Company's exposure to exchange rate fluctuations results primarily from
US$ long term debt obligations and accounts receivable and payable. As for the  
Company's subsidiaries, including Satelindo and Lintasarta, their exposure to   
exchange rate fluctuations results primarily from their US$ denominated long    
term debts.                                                                     

Indosat's accounts payable are primarily foreign currency net settlement  
payments to foreign carriers, while a significant proportion of its accounts    
receivable are Rupiah denominated payments from domestic operators. To the      
extent the Rupiah depreciates further from exchange rates in effect at December 
31, 2002, the Company's obligations under such accounts payable would increase  
in Rupiah terms. The increases in these obligations                             

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would be offset in part by increases in the value of foreign currency           
denominated term deposits and by increases in the value of foreign currency     
accounts receivable. With respect to the Company's subsidiaries' long term      
debt, to the extent the Rupiah depreciates further from exchange rates in       
effect at December 31, 2002, the Company's subsidiaries' obligations under      
their long term debt would increase in Rupiah terms.                            

 The following table provides information about our financial instruments by
functional currency and presents such information in Rupiah equivalents, which  
is the Company's reporting currency. The table summarizes information on        
instruments and transactions that are sensitive to foreign exchange rates,      
including term deposits, the Company's accounts payable and receivable, and the 
Company's subsidiaries' financial instruments including term deposit, account   
receivable and account payable, and their long term debt. The table presents    
principal cash flows by expected maturity dates.                                

  The information presented in the table has been determined on the assumption
that the exchange rate for US$ is based on the Indonesian Central Bank Rate on  
December 31, 2002 of Rp. 8,940 = US$1.00. However, no assurance can be given    
that such an assumption or that such an exchange rate will be correct or        
available in future periods. This assumption and the information described in   
the table may be influenced by a number of factors, including a further         
depreciation of the Rupiah in future periods. See "Risk Factors --Devaluation   
or volatility of the Rupiah, especially as against the U.S. dollar, may         
adversely affect our financial results". Such assumptions may be different from 
the rates used in the Consolidated Financial Statements, and accordingly        
amounts shown in the table may vary from amounts shown in the Consolidated      
Financial Statements.                                                           

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------------------
                                                        Expected Maturity Date (as of December 31, 2002)            
                                             -----------------------------------------------------------------------
                                 Foreign                                                                            
                                 Currency                                                          There            
                              (in thousands)   2003       2004        2005       2006      2007    After    Total   
                              -------------- --------- ----------  ----------  --------  --------  ----- ---------- 
                                               Rp.        Rp.         Rp.        Rp.       Rp.      Rp.      Rp.    
                                                              ( Rp. in billions; US$ in millions )                  
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
Assets:                                                                                                             
Cash and cash equivalents                                                                                           
   US$ denominated...........     136,130    1,216,995         --          --        --        --   --    1,216,995 
Account receivable...........                                                                                       
   US$ denominated...........      67,926      607,258         --          --        --        --   --      607,258 
Advances.....................                                                                                       
   US$ denominated...........       1,337       11,953         --          --        --        --   --       11,953 
Other current assets.........                                                                                       
   US$ denominated...........       7,660       68,480         --          --        --        --   --       68,480 
Non current assets-others....                                                                                       
   US$ denominated...........      10,833       96,847         --          --        --        --   --       96,847 
Total Assets.................     223,886    2,001,533         --          --        --        --   --    2,001,533 

Liabilities:                                                                                                        
Short-term loan                                                                                                     
   US$ denominated...........      25,000      223,500         --          --        --        --   --      223,500 
Account payable..............                                                                                       
   US$ denominated...........      10,812       96,659         --          --        --        --   --       96,659 
Procurement payable..........                                                                                       
   US$ denominated...........      51,108      457,549         --          --        --        --   --      457,549 
Accrued expenses.............                                                                                       
   US$ denominated...........       5,312       47,489         --          --        --        --   --       47,489 
Other current liabilities....                                                                                       
   US$ denominated...........      10,798       96,534         --          --        --        --   --       96,534 
Long-term debts..............                                                                                       
   US$ denominated...........     302,344      600,813    546,198     457,987   308,251   789,706   --    2,702,955 
Bond payable.................                                                                                       
   US$ denominated...........     181,280           --    640,372     640,372   339,899        --   --    1,620,643 
Other non current liabilities                                                                                       
   US$ denominated...........       1,442       12,892         --          --        --        --   --       12,892 
Total Liabilities............     588,168    1,535,436  1,186,570   1,098,359   648,150   789,706   --    5,258,221 
Net Cash Flows...............    (364,282)     466,097 (1,186,570) (1,098,359) (648,150) (789,706)       (3,256,688)
--------------------------------------------------------------------------------------------------------------------

Equity Price Risk                                                               

Our long-term investments consist primarily of minority investments in the
equity of private Indonesian companies, as well as investments in debt issued   
by Indonesian and foreign issuers and equity of foreign                         

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companies. With respect to the Indonesian companies in which the Company has    
investments, the financial performance of such companies may be adversely       
affected by the economic conditions in Indonesia.                               

Item 12:  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                

Not Applicable.                                                           

Item 13:  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                       

Following the Asian financial crisis and the related devaluation of the   
Rupiah as against the U.S. dollar in late 1997, Satelindo defaulted on its debt 
obligations in 1998. Satelindo restructured its debt obligations in 2000, as    
described more fully under the caption "Principal Indebtedness" in Item 4 of    
this annual report. Immediately prior to the restructuring, Satelindo had a     
total principal amount of indebtedness of US$530.5 million, of which US$519.1   
million was restructured. As of December 31, 2002, neither we nor our           
subsidiaries had a material default relating to our outstanding indebtedness.   

Item 14:  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF   
PROCEEDS                                                        

Not Applicable.                                                           

Item 15:  CONTROLS AND PROCEDURES                                               

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is        
recorded, processed, summarized and reported within the time periods specified  
in the U.S. Securities and Exchange Commission's rules and forms, and that such 
information is accumulated and communicated to our management, including its    
President Director and Finance Director, as appropriate, to allow timely        
decisions regarding required disclosures. In designing and evaluating the       
disclosure controls and procedures, management recognized that any controls and 
procedures, no matter how well designed and operated, can provide only          
reasonable assurance of achieving the desired control objectives, and, in       
reaching a reasonable level of assurance, management necessarily was required   
to apply its judgment in evaluating the cost-benefit relationship of possible   
controls and procedures. Also, we have investments in certain unconsolidated    
entities. As we do not control or manage these entities, our disclosure         
controls and procedures with respect to such entities are necessarily           
substantially more limited than those we maintain with respect to our           
consolidated subsidiaries.                                                      

In the 90 days prior to the date of this report, we carried out an        
evaluation, under the supervision and with the participation of our management, 
including our President Director and Finance Director, of the effectiveness of  
the design and operation of our disclosure controls and procedures. Based on    
the foregoing, our President Director and Finance Director concluded that our   
disclosure controls and procedures were effective.                              

 There have been no significant changes in our internal controls or in other
factors that could significantly affect the internal controls subsequent to the 
date we completed our evaluation.                                               

Item 16A:  RESERVED.                                                            

Item 16B:  RESERVED.                                                            

Item 16C:  RESERVED.                                                            

Item 17:  FINANCIAL STATEMENTS                                                  

The financial statements listed in Item 19(a) of this annual report,      
together with the reports of our independent auditors thereon, are filed as     
part of this annual report.                                                     

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Item 18:  FINANCIAL STATEMENTS                                                  

Not Applicable. See Item 17.                                              

Item 19:  FINANCIAL STATEMENTS AND EXHIBITS                                     

(a) Index to Financial Statements and Schedules                           

Independent auditor's report from Siddharta, Siddharta & Widjaja                
Independent auditor's report from Prasetio Utomo & Co.                          
Independent auditor's report from Prasetio, Sarwoko & Sandjaja                  
Consolidated balance sheets as of December 31, 2001 and 2002                    
Consolidated statements of income for the years ended December 31, 2000, 2001   
and 2002                                                                        
Consolidated statements of changes in stockholder's equity for the years ended  
December 31, 2000, 2001 and 2002                                          
Consolidated statements of cash flows for the years ended December 31, 2000,    
2001 and 2002                                                                   
Notes to consolidated financial statements                                      

(b) Index to Exhibits                                                     

1.1 English translation of Articles of Association of Indosat, as most    
   recently amended on December 27, 2002 and approved by the Minister of
Justice on March 21, 2003                                         

3.1 Share Purchase Agreement, dated as of December 15, 2002, among the    
Republic of Indonesia acting through the Ministry of State-Owned  
   Enterprises in its capacity as a shareholder of the Issuer, Indonesia
Communications Limited and STT Communications Limited *           

3.2 Shareholders Agreement, dated as of December 15, 2002, among the      
Government of Indonesia and Indonesia Communications Limited *    

7.1 Operating and financial ratios                                        

8.1 List of Indosat's subsidiaries                                        

10.1 Certifications furnished (not filed) pursuant to Section 906 of the    
Sarbanes-Oxley Act of 2002                                        

We have not included as exhibits certain instruments with respect to our  
long-term debt, the total amount of debt authorized, under each of which does   
not exceed 10% of our total consolidated assets. We agree to furnish a copy of  
any such instrument to the Commission upon request.                             

   *  Previously filed with the Schedule 13D filed jointly by Temasek Holdings
(Private) Limited, Singapore Technologies Pte Ltd, Singapore      
  Technologies Telemedia Pte Ltd, STT Communications Ltd and Indonesia
   Communications Limited with the Securities and Exchange Commission on
January 29, 2003 and incorporated by reference herein.            

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SIGNATURES  

The registrant hereby certifies that it meets all of the requirements for 
filing on Form 20-F and that it has duly caused and authorized the undersigned  
to sign this annual report on its behalf.                                       

                                                                [Download Table]
                                                                
                      P.T. INDONESIAN SATELLITE CORPORATION TBK.

Date: June 30, 2003   By:          /s/  WIDYA PURNAMA           
                         ---------------------------------      
                          Name:          Widya Purnama          
                          Title:           President Director   

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CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

I, Widya Purnama, certify that:                                                 

1. I have reviewed this annual report on Form 20-F of P.T. Indonesian Satellite 
Corporation Tbk.;                                                         

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. The registrant's other certifying officers and I are responsible for         
 establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we 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 us 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 our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                              

5. The registrant's other certifying officers and I have disclosed, based on    
our most recent evaluation, to the registrant's auditors and the audit    
committee of registrant's board of directors (or persons performing the   
equivalent function):                                                     

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. The registrant's other certifying officers and I have indicated in this      
annual report whether or not there were significant changes in internal   
controls or in other factors that could significantly affect internal     
  controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material   
weaknesses.                                                               

Dated this 30th day of June, 2003.                                              

                                       By:      /s/  WIDYA PURNAMA
                                                 -----------------------------
                                                 Widya Purnama
                                                 President Director (Chief
                                                Executive Officer)

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CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

I, Nicholas Tan Kok Peng, certify that:                                         

1. I have reviewed this annual report on Form 20-F of P.T. Indonesian Satellite 
Corporation Tbk.;                                                         

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. The registrant's other certifying officers and I are responsible for         
 establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we 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 us 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 our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                              

5. The registrant's other certifying officers and I have disclosed, based on    
our most recent evaluation, to the registrant's auditors and the audit    
committee of registrant's board of directors (or persons performing the   
equivalent function):                                                     

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. The registrant's other certifying officers and I have indicated in this      
annual report whether or not there were significant changes in internal   
controls or in other factors that could significantly affect internal     
  controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material   
weaknesses.                                                               

Dated this 30th day of June, 2003.                                              

                                           By:  /s/  NICHOLAS TAN KOK PENG
                                                 -----------------------------
                                                 Nicholas Tan Kok Peng Finance
                                                 Director (Chief Financial
                                                Officer)

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Consolidated Financial Statements                                               
With Independent Auditors' Report                                               
December 31, 2002                                                               
With Comparative Figures for 2000 and 2001                                      
(Indonesian Currency)                                                           

PERUSAHAAN PERSEROAN (PERSERO)                                                  
PT INDONESIAN SATELLITE CORPORATION Tbk                                         
AND SUBSIDIARIES                                                                

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED FINANCIAL STATEMENTS 
WITH INDEPENDENT AUDITORS' REPORT 
DECEMBER 31, 2002 
WITH COMPARATIVE FIGURES FOR 2000 AND 2001  

Table of Contents 

                                                                [Download Table]

                                                            Page 
                                                           ------
                                                                 
Independent Auditors' Report..............................      3

Consolidated Balance Sheets...............................   9-12

Consolidated Statements of Income.........................  13-14

Consolidated Statements of Changes in Stockholders' Equity  15-17

Consolidated Statements of Cash Flows.....................  18-19

Notes to Consolidated Financial Statements................ 20-141

*************************** 

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Independent Auditors' Report                                                    

Report No. RPC-0936/02                                                          

Stockholders and Boards of Commissioners and Directors                          
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corporation Tbk          

We have audited the accompanying consolidated balance sheet of Perusahaan 
Perseroan (Persero) PT Indonesian Satellite Corporation Tbk and Subsidiaries as 
of December 31, 2002, and the related consolidated statements of income,        
changes in stockholders' 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. The consolidated financial statements of the Company as of December  
31, 2001 and for the year then ended were audited by other auditors who have    
ceased operations, whose report dated March 14, 2002, expressed an unqualified  
opinion on those Statements, and included an explanatory paragraph that         
described the effects of the current economic conditions in Indonesia on the    
Company. The consolidated financial statements of the Company as of December    
31, 2000 and for the year then ended, before restatement, were audited by other 
auditors whose report dated March 22, 2001, expressed an unqualified opinion on 
those statements and included an explanatory paragraph that described the       
effects of the current economic conditions in Indonesia on the Company.         

We conducted our audit in accordance with generally accepted auditing     
standards in Indonesia and 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 audit provides a reasonable basis for our opinion.                     

In our opinion, the 2002 financial statements referred to above present   
fairly, in all material respects, the consolidated financial position of        
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corporation Tbk and      
Subsidiaries as of December 31, 2002, and the consolidated results of their     
operations and their cash flows for the year then ended in conformity with      
accounting principles generally accepted in Indonesia.                          

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Accounting principles generally accepted in Indonesia vary in certain     
respects from accounting principles generally accepted in the United States of  
America. Application of generally accepted accounting principles in the United  
States of America would have affected the consolidated stockholders' equity as  
of December 31, 2002 and the consolidated results of their operations for the   
year then ended to the extent summarized in Notes 39, 40 and 41 to the          
consolidated financial statements.                                              

PRASETIO, SARWOKO & SANDJAJA                                                    

/s/ Prasetio, Sarwoko & Sandjaja                                                
Jakarta, Indonesia                                                              
May 30, 2003                                                                    

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  The following is a copy of the report previously issued by Prasetio, Utomo &
Co, then the member firm of Andersen Worldwide in Indonesia in connection with  
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corporation Tbk's Form   
20-F Annual Report for fiscal year 2001 filed with the Securities and Exchange  
Commission                                                                      

Independent Auditors' Report                                                    

Report No. 36949S                                                               

Stockholders and Boards of Commissioners and Directors                          
Perusahaan Perseroan (Persero) PT Indonesia Satellite Corporation Tbk           

We have audited the consolidated balance sheet of Perusahaan Perseroan    
(Persero) PT Indonesian Satellite Corporation Tbk and Subsidiaries ("the        
Companies") as of December 31, 2001, and the related consolidated statements of 
income, changes in stockholders' equity and cash flows for the years ended      
December 31, 1999 and 2001. These financial statements are the responsibility   
of the Companies' management. Our responsibility is to express an opinion on    
these financial statements based on our audits. We did not audit the            
consolidated financial statements for the years ended December 31, 1999 and     
2001 of PT Satelit Palapa Indonesia and Subsidiaries, entities in which the     
investment had been accounted for using the equity method until the controlling 
interest was acquired in May 2001 as discussed in Note 4 to the consolidated    
financial statements. The equity in the net income of these entities represents 
18.3% of the net income in 1999, and their total assets and revenues constitute 
29.6% and 45.8%, respectively, of the consolidated totals in 2001. Those        
statements were audited by other auditors whose report has been furnished to    
us, and our opinion, insofar as it relates to the amounts included for those    
entities, is based solely on the report of the other auditors. Furthermore, the 
Companies' consolidated financial statements for the year ended December 31,    
2000 were audited by other auditors whose report dated March 22, 2001,          
expressed an unqualified opinion on those statements. The opinion of such       
auditors, however, does not cover the restatement of the Companies'             
consolidated financial statements for the year ended December 31, 2000 as       
discussed in Note 5 to the consolidated financial statements.                   

We conducted our audits in accordance with generally accepted auditing    
standards in Indonesia and 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 report of the other auditors provide a reasonable basis 
for our opinion.                                                                

 In our opinion, based on our audits and the report of the other auditors on
the consolidated financial statements of PT Satelit Palapa Indonesia and        
Subsidiaries for the years ended December 31, 1999 and 2001, the consolidated   
financial statements referred to above present fairly, in all material          
respects, the financial position of the Companies as of December 31, 2001, and  
the results of their operations, changes in their stockholders' equity and      
their cash flows for the years ended December 31, 1999 and 2001 in conformity   
with generally accepted accounting principles in Indonesia. We have also        
audited the adjustments described in Note 5 that were applied to restate the    
consolidated financial statements of the Companies for the year ended December  
31, 2000. In our opinion, such adjustments are appropriate and have been        
properly applied.                                                               

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 ("GAAP"), the effects of those differences on net income and         
stockholders' equity, and additional U.S. GAAP disclosures are set forth in     
Notes 40, 41 and 42, respectively, to the consolidated financial statements.    

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 Note 37 to the consolidated financial statements summarizes the effects the
current economic condition in Indonesia has had on the Companies, as well as    
measures the Companies have implemented and plan to implement in response to    
the economic condition. The accompanying consolidated financial statements      
include the effects of the economic condition to the extent they can be         
determined and estimated.                                                       

PRASETIO, UTOMO & CO.                                                           
License No. 98.2.0024                                                           

/s/  DRS. RUSDY DARYONO                                                         

Drs. Rusdy Daryono                                                              
License No. 98.1.0061                                                           
March 14, 2002                                                                  

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Independent Auditors' Report                                                    

No.: L.00 - 1863 - 01/US.R                                                      

The Shareholders, Board of Commissioners and Board of Directors                 
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corporation Tbk and      
Subsidiaries:                                                               

We have audited the consolidated statements of income, changes in         
shareholders' equity, and cash flows (before restatement) of Perusahaan         
Perseroan (Persero) PT Indonesian Satellite Corporation Tbk ("the Company") and 
Subsidiaries for the year ended 31 December 2000. These consolidated financial  
statements are the responsibility of the Company's management. Our              
responsibility is to express an opinion on these consolidated financial         
statements based on our audit.                                                  

We conducted our audit in accordance with auditing standards generally    
accepted in Indonesia and 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 audit provides a reasonable basis for our opinion.                     

In our opinion, the consolidated financial statements (before restatement)
referred to above present fairly, in all material respects, the results of      
operations and cash flows of Perusahaan Perseroan (Persero) PT Indonesian       
Satellite Corporation Tbk and Subsidiaries for the year ended 31 December 2000, 
in conformity with accounting principles generally accepted in Indonesia.       

Accounting principles generally accepted in Indonesia vary in certain     
significant respects from accounting principles generally accepted in the       
United States of America. Application of accounting principles generally        
accepted in the United States of America would have affected results of         
operations for the year ended 31 December 2000, to the extent summarized in     
Note 40 to the consolidated financial statements (before restatement).          

 As discussed in Note 36 to the consolidated financial statements, some Asia
Pacific countries, including Indonesia, are experiencing economic difficulties  
including liquidity problems, volatility in prices, and significant slowdowns   
in business activity.                                                           

Siddharta Siddharta & Widjaja                                                   
Registered Public Accountants                                                   
License No. KEP-232/KM.6/2002                                                   
(a member firm of KPMG International)                                           

/s/  Drs. Istata Taswin Siddharta                                               

Drs. Istata Taswin Siddharta                                                    
Public Accountant License No. 98.1.0192                                         

Jakarta, 22 March 2001.                                                         

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Independent Auditors' Report                                                    

No.: L.01 - 2234 - 02/US.R                                                      

The Shareholders, Board of Commissioners and Board of Directors                 
PT Satelit Palapa Indonesia and Subsidiaries:                                   

We have audited the consolidated balance sheet of PT Satelit Palapa       
Indonesia and Subsidiaries as of 31 December 2001, and the related consolidated 
statements of income, changes in shareholders' equity, and cash flows for the   
year ended 31 December 2001 (not presented separately herein), which are        
expressed in Indonesian Rupiah. These consolidated financial statements are the 
responsibility of PT Satelit Palapa Indonesia and Subsidiaries' management. Our 
responsibility is to express an opinion on these consolidated financial         
statements based on our audit.                                                  

We conducted our audit in accordance with auditing standards generally    
accepted in Indonesia and 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 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 financial position of PT Satelit  
Palapa Indonesia and Subsidiaries as of 31 December 2001, and the results of    
their operations and their cash flows for the year ended 31 December 2001, in   
conformity with accounting principles generally accepted in Indonesia.          

 As discussed in Note 28 to the consolidated financial statements, many Asia
Pacific countries, including Indonesia, are experiencing economic difficulties  
including liquidity problems, volatility in prices and significant slowdowns in 
business activity.                                                              

Accounting principles generally accepted in Indonesia vary in certain     
significant respects from accounting principles generally accepted in the       
United States of America. Application of accounting principles generally        
accepted in the United States of America would have affected results of         
operations for the year ended 31 December 2001 and shareholders' equity as of   
31 December 2001, to the extent summarized in Note 32 to the consolidated       
financial statements.                                                           

Siddharta Siddharta & Widjaja                                                   
Registered Public Accountants                                                   
License No. KEP-232/KM.6/2002                                                   
(a member firm of KPMG International)                                           

/s/  Drs. Istata Taswin Siddharta                                               

Drs. Istata Taswin Siddharta                                                    
Public Accountant License No. 98.1.0192                                         

Jakarta, 14 March 2002.                                                         

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS 
December 31, 2002 
With Comparative Figures for 2001 
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
data) 

                                                        [Enlarge/Download Table]

                                                                                                  2002  
                                                                 Notes        2001      2002    (Note 3)
                                                             -------------- --------- --------- --------
                                                                               Rp        Rp      U.S.$  
                                                                            --------- --------- --------
                                                                                                        
ASSETS                                                                                                  

CURRENT ASSETS                                                                                          
Cash and cash equivalents...................................      2d, 5, 26 4,637,796 2,831,760 316,752 
Short-term investments......................................             2e        --    67,625   7,564 
Accounts receivable                                                                                     
 Trade......................................................         2f, 15                             
   Related parties                                                                                      
     PT Telekomunikasi Indonesia Tbk ("Telkom")--net                                                    
       of allowance for doubtful accounts of Rp 81,885 in                                               
       2001 and Rp 111,306 in 2002..........................          6, 26   527,917   302,217  33,805 
     Others--net of allowance for doubtful accounts of                                                  
       Rp 26,911 in 2001 and Rp 44,108 in 2002..............             26   107,378   178,673  19,986 
   Third parties--net of allowance for doubtful accounts of                                             
     Rp 452,927 in 2001 and Rp 238,020 in 2002..............              7   686,834   647,463  72,423 
 Others                                                                                                 
   Related party                                                                                        
     Telkom.................................................          4, 26 2,418,830    85,201   9,530 
   Third parties............................................            26f    78,852   116,874  13,073 
Derivative instruments......................................         2p, 28    41,918        --      -- 
Inventories.................................................             2g    69,158    72,275   8,085 
Advances....................................................                   11,687    61,915   6,926 
Prepaid taxes and expenses.................................. 2h, 13, 25, 26   189,622   620,043  69,356 
Other current assets--net of allowance for doubtful accounts                                            
  of Rp 30,008 in 2001......................................         2d, 26    65,462   156,094  17,460 
                                                                            --------- --------- ------- 
Total Current Assets........................................                8,835,454 5,140,140 574,960 
                                                                            --------- --------- ------- 

See accompanying Notes to Consolidated Financial Statements which are an  
integral part of the consolidated financial statements. 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS (continued) 
December 31, 2002 
With Comparative Figures for 2001 
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
data) 

                                                        [Enlarge/Download Table]

                                                                                                  2002   
                                                        Notes           2001         2002       (Note 3) 
                                                  ------------------ ----------   ----------   --------- 
                                                                         Rp           Rp         U.S.$   
                                                                     ----------   ----------   --------- 
                                                                                                         
NON-CURRENT ASSETS                                                                                       
Due from related parties--net of allowance for                                                           
  doubtful accounts of Rp 80,765 in 2001 and                                                             
  Rp 77,905 in 2002..............................             2f, 26     47,499       40,429       4,522 
Deferred tax assets--net.........................             2r, 13    234,130      123,068      13,766 
Investments in associated companies--net of                                                              
  allowance for decline in value of Rp 93,316 in                                                         
  2001 and Rp 90,781 in 2002.....................              2i, 8     91,921      160,168      17,916 
Other long-term investments--net of allowance for                                                        
  decline in value of Rp 267,966 in 2001 and                                                             
  Rp 252,943 in 2002.............................              2i, 9    402,502      273,669      30,611 
Property and equipment........................... 2j, 2k, 2n, 10, 15                                     
 Carrying value..................................                    13,864,807   17,839,398   1,995,458 
 Accumulated depreciation........................                    (4,264,691)  (5,948,933)   (665,429)
 Impairment in value.............................                      (131,209)    (131,209)    (14,676)
                                                                     ----------   ----------   --------- 
 Net.............................................                     9,468,907   11,759,256   1,315,353 
Goodwill--net....................................  1d, 2c, 2l, 4, 11  2,410,080    3,711,914     415,203 
Long-term receivables............................                26f    146,539      151,917      16,993 
Long-term prepaid pension--net of current portion         2o, 25, 26    284,410      286,240      32,018 
Long-term advances...............................             12, 26    202,967       61,801       6,913 
Others...........................................     2d, 2h, 15, 26    224,291      293,863      32,871 
                                                                     ----------   ----------   --------- 
Total Non-Current Assets.........................                    13,513,246   16,862,325   1,886,166 
                                                                     ----------   ----------   --------- 
TOTAL ASSETS.....................................                    22,348,700   22,002,465   2,461,126 
                                                                     ==========   ==========   ========= 

See accompanying Notes to Consolidated Financial Statements which are an  
integral part of the consolidated financial statements. 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS (continued) 
December 31, 2002 
With Comparative Figures for 2001 
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
data) 

                                                                [Download Table]

                                                                             2002  
                                              Notes      2001      2002    (Note 3)
                                            ---------- --------- --------- --------
                                                          Rp        Rp      U.S.$  
                                                       --------- --------- --------
                                                                                   
LIABILITIES AND STOCKHOLDERS' EQUITY                                               

CURRENT LIABILITIES                                                                
Short-term loans...........................     15, 26       525   226,184  25,300 
Accounts payable--trade....................                                        
 Related parties...........................         26     3,242     5,682     636 
 Third parties.............................              201,661   109,047  12,198 
Procurement payable........................              988,512   936,605 104,766 
Taxes payable..............................         13 2,898,298   248,181  27,761 
Accrued expenses........................... 4, 14, 22,                             
                                            25, 26, 28   305,607   375,204  41,969 
Unearned income............................         2m   225,141   526,889  58,936 
Deposits from customers....................               16,286    12,667   1,417 
Derivative instruments.....................     2p, 28     1,077        --      -- 
Current maturities of long-term debts...... 2t, 15, 30                             
 Related party.............................         26                             
   Government of the Republic of Indonesia.                5,010     5,010     560 
 Third parties.............................              813,801   640,036  71,592 
Other current liabilities..................               52,417    96,947  10,844 
                                                       --------- --------- ------- 
Total Current Liabilities..................            5,511,577 3,182,452 355,979 
                                                       --------- --------- ------- 

NON-CURRENT LIABILITIES....................                                        
Due to related parties.....................         26     9,968    20,732   2,319 
Deferred tax liabilities--net..............     2r, 13   104,163   522,348  58,428 
Long-term debts--net of current maturities. 2t, 15, 30                             
 Related parties...........................         26     8,639 1,696,426 189,757 
 Third parties.............................            2,202,405 1,660,767 185,768 
Bonds payable..............................     2t, 16 3,323,959 3,957,057 442,624 
Other non-current liabilities..............         26   209,323   221,839  24,814 
                                                       --------- --------- ------- 
Total Non-Current Liabilities..............            5,858,457 8,079,169 903,710 
                                                       --------- --------- ------- 
MINORITY INTEREST..........................         2b   238,963   137,442  15,374 
                                                       --------- --------- ------- 

See accompanying Notes to Consolidated Financial Statements which are 
an integral part of the consolidated financial statements.  

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS (continued) 
December 31, 2002 
With Comparative Figures for 2001 
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
data) 

                                                        [Enlarge/Download Table]

                                                                                              2002   
                                                                Notes    2001       2002    (Note 3) 
                                                                ----- ---------- ---------- ---------
                                                                          Rp         Rp      U.S.$   
                                                                      ---------- ---------- ---------
                                                                                                     
STOCKHOLDERS' EQUITY                                                                                 
Capital stock--Rp 500 par value per A share and B share                                              
 Authorized--1 A share and 3,999,999,999 B shares                                                    
 Issued and fully paid--1 A share and                                                                
   1,035,499,999 B shares......................................    17    517,750    517,750    57,914
Premium on capital stock.......................................          673,075    673,075    75,288
Difference in value from restructuring transactions of entities                                      
  under common control......................................... 2c, 4  4,359,259  4,467,740   499,747
Difference in transactions of equity changes in associated                                           
  companies/subsidiaries....................................... 2i, 4    284,197    284,285    31,799
Retained earnings..............................................                                      
 Appropriated..................................................           18,471     14,528     1,625
 Unappropriated................................................        4,886,951  4,646,024   519,690
                                                                      ---------- ---------- ---------
Total Stockholders' Equity.....................................       10,739,703 10,603,402 1,186,063
                                                                      ---------- ---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'                                                                  
  EQUITY.......................................................       22,348,700 22,002,465 2,461,126
                                                                      ========== ========== =========

See accompanying Notes to Consolidated Financial Statements which are 
an integral part of the consolidated financial statements.  

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF INCOME 
Year Ended December 31, 2002  
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
data) 

                                                        [Enlarge/Download Table]

                                                                                                                    2002  
                                                                      Notes         2000       2001       2002    (Note 3)
                                                                  -------------- ---------  ---------  ---------  --------
                                                                                     Rp         Rp         Rp      U.S.$  
                                                                                 ---------  ---------  ---------  --------
                                                                                                                          
OPERATING REVENUES...............................................         2m, 26                                          
Cellular.........................................................  18, 31, 32,33        --  1,769,907  3,271,652  365,957 
International calls.............................................. 19, 31, 32, 33 2,184,008  2,157,492  2,137,939  239,143 
Multimedia, Data Communication, Internet ("MIDI")................         15, 20   731,740  1,105,088  1,263,038  141,279 
Other services...................................................                   76,496    105,649     94,353   10,554 
                                                                                 ---------  ---------  ---------  ------- 
Total Operating Revenues.........................................                2,992,244  5,138,136  6,766,982  756,933 
                                                                                 ---------  ---------  ---------  ------- 
OPERATING EXPENSES...............................................             2m                                          
Depreciation.....................................................         2j, 10   189,852  1,011,619  1,723,933  192,834 
Personnel costs..................................................    2n, 2o, 22,                                          
                                                                          25, 26   324,129    496,268    687,240   76,872 
Compensation to telecommunications carriers and service providers     21, 26, 32   555,439    597,538    609,602   68,188 
Administration and general.......................................         23, 26   119,126    267,304    454,363   50,824 
Maintenance......................................................         2j, 2n    64,861    286,588    302,988   33,891 
Leased circuits..................................................                  105,853    133,792    192,161   21,494 
Marketing........................................................                   47,967    100,382    148,911   16,657 
Other costs of services..........................................         24, 26   109,708    415,841    735,947   82,320 
                                                                                 ---------  ---------  ---------  ------- 
Total Operating Expenses.........................................                1,516,935  3,309,332  4,855,145  543,080 
                                                                                 ---------  ---------  ---------  ------- 

OPERATING INCOME.................................................                1,475,309  1,828,804  1,911,837  213,853 
                                                                                 ---------  ---------  ---------  ------- 

OTHER INCOME (EXPENSES)..........................................             2m                                          
Interest income..................................................             26   173,014    642,075    822,302   91,980 
Gain on foreign exchange--net....................................             2q   462,768    524,087    393,820   44,051 
Amortization of goodwill.........................................         2l, 11    (2,480)  (321,201)  (753,495) (84,284)
Interest expense.................................................             2t   (18,834)  (402,485)  (566,877) (63,409)
Provision for doubtful interest receivable from convertible bonds              9        --    (19,650)  (287,792) (32,191)
Adjustment of accounts receivable--trade from Telkom.............              6        --         --   (118,018) (13,201)
Consultancy fees.................................................          4, 26        --   (259,811)        --       -- 
Others--net......................................................         2p, 28   179,870     14,360   (130,524) (14,600)
                                                                                 ---------  ---------  ---------  ------- 
Other Income (Expenses)--Net.....................................                  794,338    177,375   (640,584) (71,654)
                                                                                 ---------  ---------  ---------  ------- 
EQUITY IN NET INCOME OF ASSOCIATED COMPANIES.....................          2i, 8    83,469    132,268     72,288    8,086 
                                                                                 ---------  ---------  ---------  ------- 
INCOME BEFORE INCOME TAX.........................................                2,353,116  2,138,447  1,343,541  150,285 
                                                                                 ---------  ---------  ---------  ------- 
INCOME TAX BENEFIT (EXPENSE).....................................         2r, 13                                          
Current..........................................................                 (630,578)  (650,452)  (245,870) (27,503)
Deferred.........................................................                  (57,170)   238,259   (528,491) (59,115)
                                                                                 ---------  ---------  ---------  ------- 
Income Tax Expense--Net..........................................                 (687,748)  (412,193)  (774,361) (86,617)
                                                                                 ---------  ---------  ---------  ------- 
INCOME BEFORE MINORITY INTEREST IN NET INCOME OF                                                                          
 SUBSIDIARIES AND PREACQUISITION INCOME..........................                1,665,368  1,726,254    569,180   63,667 

See accompanying Notes to Consolidated Financial Statements which are 
an integral part of the consolidated financial statements.  

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF INCOME (continued) 
Year Ended December 31, 2002  
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
data) 

                                                        [Enlarge/Download Table]

                                                                                        2002  
                                                Notes    2000       2001      2002    (Note 3)
                                                ----- ---------  ---------  --------  --------
                                                          Rp         Rp        Rp      U.S.$  
                                                      ---------  ---------  --------  --------
                                                                                              
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES  2b     (23,243)  (273,459)  (27,065)  (3,028)
PREACQUISITION INCOME..........................  1d          --         --  (205,863) (23,027)
                                                      ---------  ---------  --------  ------- 
NET INCOME.....................................  27   1,642,125  1,452,795   336,252   37,612 
                                                      =========  =========  ========  ======= 
BASIC EARNINGS PER SHARE.......................  2u    1,585.83   1,402.99    324.72     0.04 
                                                      =========  =========  ========  ======= 
BASIC EARNINGS PER ADS (ten B shares per ADS)..  2u   15,858.28  14,029.89  3,247.24     0.36 
                                                      =========  =========  ========  ======= 

See accompanying Notes to Consolidated Financial Statements which are an  
integral part of the consolidated financial statements. 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY  
Years Ended December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah) 

                                                        [Enlarge/Download Table]

                                                                                                  2000         
                                                  -------------------------------------------------------------
                                                        Capital         Difference in Difference in            
                                                        Stock--          Value from   Transactions             
                                                        Issued  Premium Restructuring   of Equity   Difference 
                                                          and     on    Transactions   Changes in   in Foreign 
                                                         Fully  Capital  of Entities   Associated    Currency  
                   Description                    Notes  Paid    Stock      under      Companies/   Translation
                   -----------                    ----- ------- -------    Common     Subsidiaries  -----------
                                                                                                               
Balance as of January 1, 2000....................       517,750 673,075  (2,509,987)     578,570       9,667   
Increase in equity investment in PT                                                                            
 Telekomunikasi Selular due to the difference                                                                  
 between the rupiah par value and the rupiah                                                                   
 equivalent of the capital contribution in U.S.                                                                
 dollar--net of applicable Income Tax of                                                                       
 Rp 1,095........................................  2i        --      --          --        2,554          --   
Increase in PT Satelit Palapa Indonesia's                                                                      
 difference in transactions of equity changes in                                                               
 a subsidiary arising from the translation of the                                                              
 financial statements of Satelindo International                                                               
 Finance B.V. from U.S. dollar to rupiah--net                                                                  
 of applicable Income Tax of Rp 42...............  2b        --      --          --           98          --   
Increase in difference in foreign currency                                                                     
 translation arising from the translation of the                                                               
 financial statements of Indosat Japan Co., Ltd.                                                               
 from Japanese yen to rupiah--net of                                                                           
 applicable Income Tax of Rp 1,212...............  2b        --      --          --           --       2,828   
Resolution during the Annual Stockholders'                                                                     
 General Meeting on April 20, 2000                                                                             
   Declaration of cash dividend..................  27        --      --          --           --          --   
   Appropriation for reserve fund................  27        --      --          --           --          --   
Net income for the year..........................            --      --          --           --          --   
                                                        ------- -------  ----------      -------      ------   
Balance as of December 31, 2000..................       517,750 673,075  (2,509,987)     581,222      12,495   
                                                        ======= =======  ==========      =======      ======   
                                                        [Enlarge/Download Table]


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

                                                       Retained Earnings                
                                                  --------------------------            
                   Description                    Appropriated Unappropriated    Net    
                   -----------                    ------------ -------------- --------- 
                                                                                        
Balance as of January 1, 2000....................    11,426      3,120,446    2,400,947 
Increase in equity investment in PT                                                     
 Telekomunikasi Selular due to the difference                                           
 between the rupiah par value and the rupiah                                            
 equivalent of the capital contribution in U.S.                                         
 dollar--net of applicable Income Tax of                                                
 Rp 1,095........................................        --             --        2,554 
Increase in PT Satelit Palapa Indonesia's                                               
 difference in transactions of equity changes in                                        
 a subsidiary arising from the translation of the                                       
 financial statements of Satelindo International                                        
 Finance B.V. from U.S. dollar to rupiah--net                                           
 of applicable Income Tax of Rp 42...............        --             --           98 
Increase in difference in foreign currency                                              
 translation arising from the translation of the                                        
 financial statements of Indosat Japan Co., Ltd.                                        
 from Japanese yen to rupiah--net of                                                    
 applicable Income Tax of Rp 1,212...............        --             --        2,828 
Resolution during the Annual Stockholders'                                              
 General Meeting on April 20, 2000                                                      
   Declaration of cash dividend..................        --       (689,643)    (689,643)
   Appropriation for reserve fund................     2,789         (2,789)          -- 
Net income for the year..........................        --      1,642,125    1,642,125 
                                                     ------      ---------    --------- 
Balance as of December 31, 2000..................    14,215      4,070,139    3,358,909 
                                                     ======      =========    ========= 

See accompanying Notes to Consolidated Financial Statements which are an  
integral part of the consolidated financial statements. 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)  
Years Ended December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah) 

                                                        [Enlarge/Download Table]

                                                                                                          2001         
                                                          -------------------------------------------------------------
                                                                Capital         Difference in Difference in            
                                                                Stock--          Value from   Transactions             
                                                                Issued  Premium Restructuring   of Equity   Difference 
                                                                  and     on    Transactions   Changes in   in Foreign 
                                                                 Fully  Capital  of Entities   Associated    Currency  
                       Description                        Notes  Paid    Stock      under      Companies/   Translation
                       -----------                        ----- ------- -------    Common     Subsidiaries  -----------
                                                                                                                       
Balance as of January 1, 2001............................       517,750 673,075  (2,509,987)     581,222       12,495  
Adjustment arising from sales of equity interest in PT                                                                 
 Telekomunikasi Selular using the pooling-of-interests                                                                 
 method--net of applicable Income Tax of Rp                                                                            
 2,943,963............................................... 2i, 4      --      --   6,869,246     (297,031)          --  
Increase in PT Satelit Palapa Indonesia's difference in                                                                
 transactions of equity changes in a subsidiary arising                                                                
 from the translation of the financial statements of                                                                   
 Satelindo International Finance B.V. from U.S. dollar                                                                 
 to rupiah--net of applicable Income Tax of Rp 3.........    2b      --      --          --            6           --  
Decrease in difference in foreign currency translation                                                                 
 arising from the translation of the financial statements                                                              
 of Indosat Japan Co., Ltd. from Japanese yen to                                                                       
 rupiah--net of applicable Income Tax of Rp 5,355........    2b      --      --          --           --      (12,495) 
Resolution during the Annual Stockholders' General                                                                     
 Meeting on May 10, 2001                                                                                               
  Declaration of cash dividend...........................    27      --      --          --           --           --  
  Appropriation for reserve fund.........................    27      --      --          --           --           --  
Net income for the year..................................            --      --          --           --           --  
                                                                ------- -------  ----------     --------      -------  
Balance as of December 31, 2001..........................       517,750 673,075   4,359,259      284,197           --  
                                                                ======= =======  ==========     ========      =======  
                                                        [Enlarge/Download Table]


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

                                                               Retained Earnings                 
                                                          --------------------------             
                       Description                        Appropriated Unappropriated     Net    
                       -----------                        ------------ -------------- ---------- 
                                                                                                 
Balance as of January 1, 2001............................    14,215      4,070,139     3,358,909 
Adjustment arising from sales of equity interest in PT                                           
 Telekomunikasi Selular using the pooling-of-interests                                           
 method--net of applicable Income Tax of Rp                                                      
 2,943,963...............................................        --             --     6,572,215 
Increase in PT Satelit Palapa Indonesia's difference in                                          
 transactions of equity changes in a subsidiary arising                                          
 from the translation of the financial statements of                                             
 Satelindo International Finance B.V. from U.S. dollar                                           
 to rupiah--net of applicable Income Tax of Rp 3.........        --             --             6 
Decrease in difference in foreign currency translation                                           
 arising from the translation of the financial statements                                        
 of Indosat Japan Co., Ltd. from Japanese yen to                                                 
 rupiah--net of applicable Income Tax of Rp 5,355........        --             --       (12,495)
Resolution during the Annual Stockholders' General                                               
 Meeting on May 10, 2001                                                                         
  Declaration of cash dividend...........................        --       (631,727)     (631,727)
  Appropriation for reserve fund.........................     4,256         (4,256)           -- 
Net income for the year..................................        --      1,452,795     1,452,795 
                                                             ------      ---------    ---------- 
Balance as of December 31, 2001..........................    18,471      4,886,951    10,739,703 
                                                             ======      =========    ========== 

See accompanying Notes to Consolidated Financial Statements which are an  
integral part of the consolidated financial statements. 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)  
Years Ended December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah) 

                                                        [Enlarge/Download Table]

                                                                                                                  2002   
                                                                        -------------------------------------------------
                                                                              Capital         Difference in Difference in
                                                                              Stock--          Value from   Transactions 
                                                                              Issued  Premium Restructuring   of Equity  
                                                                                and     on    Transactions   Changes in  
                                                                               Fully  Capital  of Entities   Associated  
                              Description                               Notes  Paid    Stock      under      Companies/  
                              -----------                               ----- ------- -------    Common     Subsidiaries 
                                                                                                                         
Balance as of January 1, 2002..........................................       517,750 673,075   4,359,259      284,197   
Adjustment on difference in value from restructuring transactions of                                                     
 entities under common control of PT Indosatcom Adimarga, a                                                              
 subsidiary, due to adoption of Financial Accounting Standards                                                           
 ("SAK") 46, "Accounting for Income Tax"...............................    2r      --      --        (704)          --   
Gain on sale of investment in PT Pramindo Ikat Nusantara to Telkom                                                       
 which was accounted for under the pooling-of-interests method......... 2i, 9      --      --     109,185           --   
Increase in PT Satelit Palapa Indonesia's difference in transactions of                                                  
 equity changes in a subsidiary arising from the translation of the                                                      
 financial statements of Satelindo International Finance B.V. from                                                       
 U.S. dollar to rupiah--net of applicable Income Tax of Rp 38..........    2b      --      --          --           88   
Resolution during the Annual Stockholders' General Meeting on                                                            
 June 20, 2002                                                                                                           
  Declaration of cash dividend.........................................    27      --      --          --           --   
  Appropriation for reserve fund.......................................    27      --      --          --           --   
Net income for the year................................................            --      --          --           --   
                                                                              ------- -------   ---------      -------   
Balance as of December 31, 2002........................................       517,750 673,075   4,467,740      284,285   
                                                                              ======= =======   =========      =======   
                                                        [Enlarge/Download Table]


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

                                                                             Retained Earnings                 
                                                                        --------------------------             
                              Description                               Appropriated Unappropriated     Net    
                              -----------                               ------------ -------------- ---------- 
                                                                                                               
Balance as of January 1, 2002..........................................    18,471      4,886,951    10,739,703 
Adjustment on difference in value from restructuring transactions of                                           
 entities under common control of PT Indosatcom Adimarga, a                                                    
 subsidiary, due to adoption of Financial Accounting Standards                                                 
 ("SAK") 46, "Accounting for Income Tax"...............................        --             --          (704)
Gain on sale of investment in PT Pramindo Ikat Nusantara to Telkom                                             
 which was accounted for under the pooling-of-interests method.........        --             --       109,185 
Increase in PT Satelit Palapa Indonesia's difference in transactions of                                        
 equity changes in a subsidiary arising from the translation of the                                            
 financial statements of Satelindo International Finance B.V. from                                             
 U.S. dollar to rupiah--net of applicable Income Tax of Rp 38..........        --             --            88 
Resolution during the Annual Stockholders' General Meeting on                                                  
 June 20, 2002                                                                                                 
  Declaration of cash dividend.........................................        --       (581,122)     (581,122)
  Appropriation for reserve fund.......................................    (3,943)         3,943            -- 
Net income for the year................................................        --        336,252       336,252 
                                                                           ------      ---------    ---------- 
Balance as of December 31, 2002........................................    14,528      4,646,024    10,603,402 
                                                                           ======      =========    ========== 

See accompanying Notes to Consolidated Financial Statements which are an  
integral part of the consolidated financial statements. 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS 
Years Ended December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
data) 

                                                        [Enlarge/Download Table]

                                                                                                                      2002   
                                                                                   2000        2001        2002     (Note 3) 
                                                                                ----------  ----------  ----------  -------- 
                                                                          Notes     Rp          Rp          Rp       U.S.$   
                                                                          ----- ----------  ----------  ----------  -------- 
                                                                                                                             
CASH FLOWS FROM OPERATING ACTIVITIES                                                                                         
Cash received from:                                                                                                          
   Customers.............................................................        2,988,755   5,542,173   6,629,463   741,551 
   Interest income.......................................................          160,434     593,184     730,690    81,733 
   Other income--net.....................................................          735,388     289,025          --        -- 
Cash paid for:                                                                                                               
   Employees and suppliers...............................................       (1,821,136) (3,380,447) (3,058,479) (342,112)
   Taxes.................................................................         (578,336) (1,128,660) (2,713,930) (303,572)
   Interest expense......................................................          (29,152)   (338,085)   (598,876)  (66,988)
   Other operating expenses..............................................          (16,827)    (23,505)   (198,223)  (22,173)
   Other expenses--net...................................................               --          --    (446,161)  (49,906)
                                                                                ----------  ----------  ----------  -------- 
Net Cash Provided by Operating Activities................................        1,439,126   1,553,685     344,484    38,533 
                                                                                ----------  ----------  ----------  -------- 

CASH FLOWS FROM INVESTING ACTIVITIES                                                                                         
Proceeds from sale of investment--net of acquisition of investments under                                                    
   cross-ownership transactions..........................................   4           --   5,967,430   2,255,129   252,252 
Additional advances for purchase of property and equipment...............               --     (13,476)         --        -- 
Proceeds from sale of other long-term investment.........................   9           --          --      80,646     9,021 
Proceeds from sale of property and equipment.............................            3,082       5,561       3,412       382 
Acquisition of property and equipment....................................         (275,846) (2,638,802) (3,468,274) (387,951)
Acquisition of 25% equity interest in PT Satelit Palapa Indonesia........   1           --          --  (2,824,250) (315,912)
Increase in restricted cash and cash equivalents.........................           (3,577)    (33,523)   (151,166)  (16,909)
Additional short-term investments........................................               --          --     (67,625)   (7,564)
Proceeds from liquidation of a subsidiary................................               --      15,008          --        -- 
Compensation from Intelsat for the use of capital........................           27,376       9,773          --        -- 
Acquisition of equity in PT Bimagraha Telekomindo........................   4           --  (4,235,859)         --        -- 
Additional investments in associated companies...........................           (2,400)       (100)         --        -- 
Proceeds from sale of other investments..................................              188          --          --        -- 
                                                                                ----------  ----------  ----------  -------- 
Net Cash Used in Investing Activities....................................         (251,177)   (923,988) (4,172,128) (466,681)
                                                                                ----------  ----------  ----------  -------- 

CASH FLOWS FROM FINANCING ACTIVITIES                                                                                         
Proceeds from long-term debts............................................            2,032     406,097   3,784,065   423,273 
Proceeds from bonds payable..............................................  16           --   1,000,000   1,250,000   139,821 
Proceeds from short-term loans...........................................            1,567          --     665,284    74,417 
Proceeds from the exercise of derivative instruments.....................           23,619      41,628      36,984     4,137 
Repayment of long-term debts.............................................          (19,210)   (412,184) (2,388,960) (267,221)
Cash dividends paid......................................................         (689,643)   (631,727)   (581,122)  (65,002)
Repayment of short-term loans............................................               --      (1,482)   (446,525)  (49,947)
Repayment of bonds payable...............................................               --          --    (299,968)  (33,554)
                                                                                ----------  ----------  ----------  -------- 

See accompanying Notes to Consolidated Financial Statements which are an  
integral part of the consolidated financial statements. 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) 
Years Ended December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
data) 

                                                        [Enlarge/Download Table]


                                                                                             2000        2001    
                                                                                          ---------   ---------- 
                                                                                    Notes     Rp          Rp     
                                                                                    ----- ---------   ---------- 
                                                                                                                 
Net Cash Provided by (Used in) Financing Activities................................        (681,635)     402,332 
                                                                                          ---------   ---------- 
NET INCREASE (DECREASE) IN CASH AND CASH                                                                         
 EQUIVALENTS.......................................................................         506,314    1,032,029 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.....................................       1,898,834    2,405,148 
BEGINNING BALANCE OF CASH AND CASH EQUIVALENTS FROM                                                              
 NEW SUBSIDIARIES ACQUIRED.........................................................              --    1,200,619 
                                                                                          ---------   ---------- 
CASH AND CASH EQUIVALENTS AT END OF YEAR...........................................   5   2,405,148    4,637,796 
                                                                                          =========   ========== 
DETAILS OF CASH AND CASH EQUIVALENTS:                                                                            
Cash on hand and in banks..........................................................          57,674      144,039 
Time deposits with original maturities of three months or less.....................       2,347,474    4,493,757 
                                                                                          ---------   ---------- 
Cash and cash equivalents as stated in the consolidated balance sheets.............       2,405,148    4,637,796 
                                                                                          =========   ========== 

SUPPLEMENTAL CASH FLOWS INFORMATION:                                                                             
Transactions not affecting cash flows:                                                                           
   Difference in value from restructuring transactions of entities under                                         
    common control.................................................................              --    6,869,246 
   Dividend distribution in the form of unsecured convertible bonds................              --           -- 
   Capitalization of interest expense to related properties under construction                                   
    and installation...............................................................  10          --       15,694 
   Capitalization of foreign exchange loss to related properties under                                           
    construction and installation..................................................  10          --       25,747 
   Difference in transactions of equity changes in associated companies/                                         
    subsidiaries...................................................................           2,652     (297,025)
   Outstanding receivable arising from cross-ownership transactions (part of                                     
    accounts receivable--others-related parties)...................................              --    2,259,180 
   Assets and liabilities held by subsidiaries at the time of equity acquisitions                                
    Current assets.................................................................              --    2,009,427 
    Non-current assets.............................................................              --    4,971,848 
    Current liabilities............................................................              --   (2,088,545)
    Non-current liabilities........................................................              --   (5,538,169)
                                                        [Enlarge/Download Table]

                                                                                                    2002   
                                                                                       2002       (Note 3) 
                                                                                    ----------    -------- 
                                                                                        Rp         U.S.$   
                                                                                    ----------    -------- 
                                                                                                           
Net Cash Provided by (Used in) Financing Activities................................  2,019,758     225,924 
                                                                                    ----------    -------- 
NET INCREASE (DECREASE) IN CASH AND CASH                                                                   
 EQUIVALENTS....................................................................... (1,807,886)   (202,224)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.....................................  4,637,796     518,769 
BEGINNING BALANCE OF CASH AND CASH EQUIVALENTS FROM                                                        
 NEW SUBSIDIARIES ACQUIRED.........................................................      1,850         207 
                                                                                    ----------    -------- 
CASH AND CASH EQUIVALENTS AT END OF YEAR...........................................  2,831,760     316,752 
                                                                                    ==========    ======== 
DETAILS OF CASH AND CASH EQUIVALENTS:                                                                      
Cash on hand and in banks..........................................................    430,480      48,152 
Time deposits with original maturities of three months or less.....................  2,401,280     268,600 
                                                                                    ----------    -------- 
Cash and cash equivalents as stated in the consolidated balance sheets.............  2,831,760     316,752 
                                                                                    ==========    ======== 

SUPPLEMENTAL CASH FLOWS INFORMATION:                                                                       
Transactions not affecting cash flows:                                                                     
   Difference in value from restructuring transactions of entities under                                   
    common control.................................................................    108,481      12,134 
   Dividend distribution in the form of unsecured convertible bonds................      6,106         683 
   Capitalization of interest expense to related properties under construction                             
    and installation...............................................................     49,443       5,531 
   Capitalization of foreign exchange loss to related properties under                                     
    construction and installation..................................................        502          56 
   Difference in transactions of equity changes in associated companies/                                   
    subsidiaries...................................................................         88          10 
   Outstanding receivable arising from cross-ownership transactions (part of                               
    accounts receivable--others-related parties)...................................         --          -- 
   Assets and liabilities held by subsidiaries at the time of equity acquisitions                          
    Current assets.................................................................      2,668    298      
    Non-current assets.............................................................      6,341    709      
    Current liabilities............................................................     (5,917)  (662)     
    Non-current liabilities........................................................         --     --      

See accompanying Notes to Consolidated Financial Statements which are an  
integral part of the consolidated financial statements. 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

1.  GENERAL                                                                     

a.  Company's Establishment                                                 

  Perusahaan Perseroan (Persero) PT Indonesian Satellite Corporation Tbk ("the
Company") was established in the Republic of Indonesia on November 10, 1967     
within the framework of the Indonesian Foreign Investment Law No. 1 of 1967     
based on the notarial deed No. 55 of Mohamad Said Tadjoedin, S.H. The deed of   
establishment was published in Supplement No. 24 of State Gazette No. 26 dated  
March 29, 1968 of the Republic of Indonesia. The Company's articles of          
association has been amended from time to time. The latest amendment is covered 
by notarial deed No. 42 dated December 27, 2002 of Rini Yulianti, S.H. (as a    
substitute notary of Poerbaningsih Adi Warsito, S.H.) concerning, among others, 
changes in capital structure, Board of Directors and Board of Commissioners.    

 Based on a resolution at the Company's Annual General Stockholders' Meeting
held on December 27, 2002 which was covered by notarial deed No. 6 dated        
January 8, 2003 of Rini Yulianti, S.H. (as a substitute notary of Poerbaningsih 
Adi Warsito, S.H.), the stockholders approved to change the status of the       
Company to become a Foreign Capital Investment Company under Law No. 1 of 1967  
of the Republic of Indonesia as amended by Law No. 11 of 1970 (see Note 37b).   
The stockholders also resolved to amend the Company's articles of association   
concerning the changes in the following:                                        

.   Name and domicile of the Company;                                     

.   Number of years the Company shall exist;                              

.   Purposes, objectives and business activities of the Company.          

 As of December 31, 2002, the new articles of association of the Company has
not yet been approved by the Ministry of Justice and Human Rights of the        
Republic of Indonesia.                                                          

According to article 3 of its articles of association, the Company shall  
engage in providing network and/or telecommunications services and informatics  
by conducting the following activities:                                         

.   Provision of networks, telecommunications services and informatics;   

 .   Planning, construction and procurement of telecommunications facilities
and informatics, including supporting resources;                  

.   Operation (covering marketing of network and/or telecommunications    
services and informatics provided by the Company), maintenance and
development of and research on telecommunications means and/or    
      facilities and informatics, and conduct of education and training within
or outside the country; and                                       

.   Development of networks, telecommunications services and informatics. 

The Company started its commercial operations in 1969.                    

Currently, the Company's principal business is to provide international   
switching telecommunications services, including international calls, telex,    
telegram, packet net, store and forward facsimile service, and Inmarsat         
services for mobile communications. The Company also provides a variety of      
non-switched                                                                    

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

international telecommunications services, such as low- and high-speed leased   
lines, video link, TV link, Integrated Services Digital Network ("ISDN")        
services, and other services that typically involve the transmission of data or 
video rather than voice traffic.                                                

Based on Law No. 3 of 1989 on Telecommunications, pursuant to Government  
Regulation No. 77 of 1991, the Company has been confirmed as an international   
telecommunications service provider and organizing entity.                      

In 1999, the Government issued Law No. 36 on Telecommunications which took
effect starting in September 2000. Under the Law, telecommunications activities 
cover:                                                                          

.   Telecommunications networks                                           

.   Telecommunications services                                           

.   Special telecommunications services.                                  

National state-owned companies, regional state-owned companies, privately 
owned companies and cooperatives are allowed to provide telecommunications      
networks and services. Individuals, government institutions and legal entities, 
other than telecommunications networks and service providers, are allowed to    
render special telecommunications services.                                     

Law No. 36 prohibits activities that result in monopolistic practices and 
unhealthy competition.                                                          

  On August 14, 2000, the Government of the Republic of Indonesia, through the
Ministry of Communications, granted the Company an in-principle license as a    
nationwide Digital Communication System ("DCS") 1800 telecommunications         
provider as compensation for the early termination effective August 1, 2003 of  
the rights on international telecommunications services given to the Company    
prior to the granting of such license. This in-principle license is valid for   
two years provided that the Company is able to develop a national coverage of   
at least 10% of the country's populated geographic area within two years. On    
August 23, 2001, the Company obtained the operating license from the Ministry   
of Communications. Subsequently, based on Decree No. KP.247 dated November 6,   
2001 issued by the Ministry of Communications, the operating license was        
transferred to the Company's newly established subsidiary, PT Indosat Multi     
Media Mobile (see "d" below).                                                   

On September 7, 2000, the Government of the Republic of Indonesia, through
the Ministry of Communications, also granted the Company in-principle licenses  
for local and domestic long-distance telecommunications services as             
compensation for the termination of its rights on international                 
telecommunications services. On the other hand, Telkom was granted an           
in-principle license for international telecommunications services as           
compensation for the early termination of Telkom's right on local and domestic  
long-distance telecommunications services. The Company's in-principle licenses  
for local and domestic long-distance telecommunications services are valid for  
2 years from the date of issuance to give the Company sufficient time for the   
construction and commercial preparation for the provision of such services.     

On June 28, 2001, the Government of the Republic of Indonesia, through the
Directorate General of Post and Telecommunications granted the Company an       
in-principle license for voice over internet protocol ("VoIP") service. On      
April 26, 2002, the Company was granted an operating license for VoIP with      
national coverage. The Company's operating license for voice over internet      
protocol will be evaluated every 5 years from the date of issuance.             

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

 Based on a letter dated August 1, 2002 from the Ministry of Communications,
the Company was granted an operating license for fixed local telecommunication  
network covering Jakarta and Surabaya. This operating license was converted to  
become a national license on November 30, 2002, after the values of the above   
licenses granted to Telkom and the Company have been determined by an           
independent appraiser as compensations to Telkom and the Company on the         
termination of their exclusive rights on local/domestic and international       
telecommunications services, respectively. As of December 31, 2002, the result  
of the independent appraisal has not yet been finalized.                        

The Company is domiciled at Jalan Medan Merdeka Barat No. 21, Jakarta and 
has international gateways located in Jakarta, Medan, Batam and Surabaya.       

b.  Company's Public Offerings                                              

All of the Company's B shares have been registered with and traded on the 
Jakarta Stock Exchange and Surabaya Stock Exchange since 1994. The Company's    
American Depository Shares (ADS, each representing 10 B shares) have also been  
traded on the New York Stock Exchange since 1994.                               

c.  Employees, Directors and Commissioners                                  

Based on a resolution at each of the Company's:                           

.   Stockholders' Extraordinary Meeting held on April 20, 2000 which is   
      notarized under Deed No. 36 of Lia Muliani, S.H. (as a substitute notary
of Sutjipto, S.H.) on the same date                               

.   Annual Stockholders' General Meeting held on May 10, 2001 which is    
   notarized under Deed No. 32 of Poerbaningsih Adi Warsito, S.H. on the
same date                                                         

.   Stockholders' Extraordinary Meeting held on December 27, 2002 which is
 notarized under Deed No. 41 of Rini Yulianti, S.H. (as a substitute
notary of Poerbaningsih Adi Warsito, S.H.) on the same date       

the composition of the Board of Commissioners as of December 31, 2000, 2001 and 
2002 is as follows:                                                             

                                                                [Download Table]

                                2000 and 2001                    2002           
                       ------------------------------- -------------------------
                                                                                
President Commissioner Wisnu Askari Marantika          Peter Seah Lim Huat      
Commissioner.......... Achmad Rivai *                  Achmad Rivai *           
Commissioner.......... Soebagijo Soemodihardjo         Soebagijo Soemodihardjo *
Commissioner.......... Abdul Anshari Ritonga           Lee Theng Kiat           
Commissioner.......... Muwardi Pangarihutan Simatupang Sio Tat Hiang            
Commissioner.......... --                              Lim Ah Doo *             
Commissioner.......... --                              Sum Soon Lim             
Commissioner.......... --                              Roes Aryawidjaya         
Commissioner.......... --                              Umar Rusdi               

--------                                                                        
* Independent Commissioner                                                      

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

Based on a resolution at each of the Company's:                           

.   Stockholders' Extraordinary Meeting held on April 20, 2000, which is  
      notarized under Deed No. 36 of Lia Muliani, S.H. (as a substitute notary
of Sutjipto, S.H.) on the same date                               

 .   Stockholders' Extraordinary Meeting held on December 27, 2002, which is
 notarized under Deed No. 41 of Rini Yulianti, S.H. (as a substitute
notary of Poerbaningsih Adi Warsito, S.H.) on the same date       

the composition of the Board of Directors as of December 31, 2000, 2001 and     
2002 is as follows:                                                             

                                                                [Download Table]

                                     2000 and 2001                   2002           
                             ----------------------------- -------------------------
                                                                                    
President Director.......... Hari Kartana                  Widya Purnama            
Vice President Director..... --                            Ng Eng Ho                
Executive Vice President,                                                           
  Corporate Development..... Budi Prasetyo                 --                       
Executive Vice President,                                                           
  Marketing and Sales....... Guntur Siregar                --                       
Executive Vice President,                                                           
  Operations and Engineering Garuda Sugardo                --                       
Executive Vice President,                                                           
  Finance and Administration Dibyanto Habimono Koesoebjono --                       
Executive Vice President.... --                            Junino Jahja             
Executive Vice President.... --                            Wityasmoro Sih Handayanto
Executive Vice President.... --                            Hasnul Suhaimi           
Executive Vice President.... --                            Emil Soedarmo            
Executive Vice President.... --                            Joseph Chan Lam Seng     
Executive Vice President.... --                            Nicholas Tan Kok Peng    
Executive Vice President.... --                            Raymond Tan Kim Meng     

  The Company and its subsidiaries (collectively referred to hereafter as "the
Companies") have approximately 5,550 and 5,980 employees, including             
non-permanent employees, as of December 31, 2001 and 2002, respectively.        

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

d.  Structure of the Company's Subsidiaries                                 

The Company has direct and indirect equity ownership in the following     
subsidiaries:                                                                   

                                                        [Enlarge/Download Table]

                                                                          Percentage of    Total Assets     
                                                                            Ownership   (Before Elimination)
                                                                          ------------- ------------------- 
                                                                Start of                                    
                                                               Commercial  2001   2002    2001       2002   
       Name of Subsidiary         Location  Principal Activity Operations  (%)    (%)     (Rp)       (Rp)   
       ------------------         --------- ------------------ ---------- ------ ------ ---------  ---------
                                                                                                            
PT Satelit Palapa Indonesia...... Jakarta   Telecommunication     1993     75.00 100.00 6,606,631  7,356,377
Satelindo International                                                                                     
 Finance B.V..................... Amsterdam Finance               1996     75.00 100.00 2,240,996  1,626,937
PT Satelindo Multi Media......... Jakarta   Multimedia            1999     74.70  99.60     9,322     11,961
PT Indosat Multi Media Mobile.... Jakarta   Telecommunication     2001     99.94  99.94 2,392,870  3,374,847
PT Bimagraha Telekomindo......... Jakarta   Holding Company       1992    100.00 100.00   247,172    843,627
PT Aplikanusa Lintasarta......... Jakarta   Data                  1989     69.46  69.46   534,504    603,858
                                             Communication                                                  
PT Artajasa Pembayaran Elektronis Jakarta   Telecommunication     2000        --  45.15        --     59,714
PT Indosat Mega Media............ Jakarta   Multimedia            2001     99.84  99.84   278,386    315,233
PT Sisindosat Lintasbuana........ Jakarta   Information           1990     95.64  96.87   119,166    130,656
                                             Technology                                                     
PT Asitelindo Data Buana......... Jakarta   Multimedia            1997     48.78  49.40    10,324      9,822
PT Indosatcom Adimarga........... Jakarta   Telecommunication     2000     99.94  99.94     9,308      7,055
Indosat Japan Co., Ltd. *........ Tokyo     Broadcasting            --        --     --        --         --

--------                                                                        
* liquidated in 2001                                                            

PT Satelit Palapa Indonesia ("Satelindo")                                   

Satelindo is engaged in providing Global System for Mobile Communication  
("GSM") telecommunication services and international telecommunication          
facilities and services, satellite communications, satellite transmission,      
consultancy, tracking, telemetry and command of satellite launch, and repair    
and maintenance of satellite transmission facilities. The Company's initial     
investment representing 10% equity interest in Satelindo was made in 1993. In   
1995, Satelindo issued 33,333,334 new shares (representing 25% equity interest) 
with a nominal value of Rp 1,000 per share to Deutsche Telekom Mobilfunk GmbH   
("DeTeMobil"), a subsidiary of Deutsche Telekom AG, for Rp 1,300,334 (U.S.$     
586,000). The issuance of the new shares decreased the Company's equity         
interest in Satelindo to 7.5%. In 1999, DeTeMobil transferred its equity        
interest in Satelindo to DeTeAsia Holding GmbH ("DeTeAsia"), another wholly     
owned subsidiary of Deutsche Telekom AG.                                        

  On May 16, 2001, the Company acquired the 22.5% equity interest of Telkom in
Satelindo (see Note 4). On May 31, 2001, the Company also acquired 100% equity  
interest in PT Bimagraha Telekomindo from its stockholders. PT Bimagraha        
Telekomindo has 45% equity interest in Satelindo. As a result of these          
transactions, the Company's total equity interest in Satelindo increased to 75% 
effective May 31, 2001.                                                         

On May 20, 2002, the Company entered into a sale and purchase of shares   
agreement ("SPA") with DeTeAsia, the owner of 33,333,334 shares constituting    
25% of the issued and fully paid capital stock of Satelindo for a total         
consideration of U.S.$ 325,000 (equivalent to Rp 2,824,250). After the purchase 
of these                                                                        

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

shares from DeTeAsia, which transaction was closed on June 28, 2002, the        
Company became the owner, directly and indirectly, of 100% of the issued and    
fully paid capital stock of Satelindo. Goodwill arising from this transaction   
amounted to Rp 2,055,329 (see Note 11). This transaction was approved by the    
Company's stockholders at the Stockholders' Extraordinary Meeting held on June  
20, 2002.                                                                       

Based on the independent assessment made by an Independent Valuer in their
report dated May 15, 2002, they have the opinion that the acquisition price of  
Satelindo from DeTeAsia is fair and reasonable. The independent assessment was  
made in accordance with the Indonesian Capital Market Supervisory Agency        
("BAPEPAM") Regulation No. IX.E.2, "Material Transactions and Changes in Core   
Business Activities" dated February 20, 2001.                                   

Satelindo has 100% equity interest in Satelindo International Finance B.V.
and 99.6% equity interest in PT Satelindo Multi Media (formerly PT Nusa Era     
Persada Jaya).                                                                  

On July 25, 2002, the Company made a capital injection to Satelindo       
amounting to U.S.$ 75,000 from the proceeds of a loan obtained from PT Bank     
Central Asia Tbk ("BCA"--see Note 15).                                          

 Shares of Satelindo are pledged as collateral for a long-term loan obtained
by the Company from BCA (see Note 15).                                          

Satelindo International Finance B.V. ("SIB")                                

SIB was incorporated in Amsterdam (The Netherlands) in 1996. SIB is a     
financing company that only facilitates Satelindo's borrowings from third       
parties and is not involved in any other activity. On May 30, 2000, SIB issued  
Guaranteed Floating Rate Bonds (see Note 16).                                   

PT Satelindo Multi Media ("SMM")                                            

SMM was established in 1999 and is engaged in various activities including
telecommunications services. SMM has a preliminary license to operate as a      
multimedia service provider and a license to operate as an internet service     
provider.                                                                       

  In August 2002, Satelindo appealed to its creditors or their facility agents
under the Master Restructuring Agreement dated May 31, 2000 (see Notes 15 and   
30) to liquidate SMM. Up to May 30, 2003, the required quorum necessary for the 
creditors or their facility agents to consent to the liquidation has not been   
met.                                                                            

PT Indosat Multi Media Mobile ("IM3")                                       

IM3, which was established in July 2001, is engaged in providing DCS-1800 
mobile cellular services. The Company paid to IM3 its capital contribution      
amounting to Rp 1,728,278 in 2001.                                              

Based on a resolution in IM3's Stockholders' Extraordinary Meeting held on
November 20, 2001, the Company transferred to IM3 all of the Company's rights   
and obligations related to its agreements with third                            

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

parties (vendors/contractors) regarding the procurement of property and         
equipment, Subscriber Identification Module ("SIM") card, pulse reload voucher, 
etc., which agreements were made when IM3 was not yet established and was still 
part of the Company under its Mobile Division.                                  

PT Bimagraha Telekomindo ("Bimagraha")                                      

Bimagraha is a non-operating holding company. It has 42.5% equity interest
in Satelindo, which is its only equity investment.                              

PT Aplikanusa Lintasarta ("Lintasarta")                                     

Lintasarta is engaged in system data communications services, network     
applications services which include providing physical infrastructure and       
software application, and consultation services in data communications and      
information system for banking and other industries. The Company's initial      
investment in Lintasarta was made in 1988.                                      

On May 16, 2001, the Company acquired Telkom's 37.21% equity interest in  
Lintasarta and increased the Company's total equity interest in Lintasarta from 
32.25% to 69.46% (see Note 4).                                                  

PT Artajasa Pembayaran Elektronis ("APE")                                   

Lintasarta has 40% equity interest in APE, a company engaged in           
telecommunication and information services.                                     

  On January 2, 2002, Lintasarta entered into several transfer agreements with
APE whereby Lintasarta will transfer certain assets consisting of property and  
equipment, rights of use of data communication equipment and application        
services, with a total value of Rp 30,286 in exchange for APE's shares of stock 
that would increase Lintasarta's equity interest in APE from 40% to 65%.        

PT Indosat Mega Media ("IMM")                                               

IMM is engaged in providing multimedia services and creating multimedia   
products and programs. In August 2001, the Company transferred all of its       
internet business and property and equipment to IMM. The Company also           
transferred a portion of its internet receivables as of July 31, 2001 to IMM.   

PT Sisindosat Lintasbuana ("Sisindosat")                                    

Sisindosat is engaged in providing information technology and computer    
services and other related services, and acts as an agent for computer software 
and hardware products. The Company has 95.64% equity interest in Sisindosat,    
which has 51% equity interest in PT Asitelindo Data Buana.                      

On November 5, 2002, the Company converted its receivable from Sisindosat 
amounting to Rp 42,692 to become an additional issued and fully paid capital in 
Sisindosat. This transaction increased the Company's equity interest from       
95.64% to 96.87%.                                                               

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

PT Asitelindo Data Buana ("Asiatel")                                        

Asiatel is engaged in audio-text services, and providing hardware and     
software for telecommunications services.                                       

PT Indosatcom Adimarga ("Indosatcom")                                       

 Indosatcom (previously known as PT Indokomsat Lintas Dunia or "Indokomsat")
is engaged in providing satellite-based telecommunications services and         
facilities and other related services.                                          

Based on notarial deed No. 25 dated December 17, 2002 of Soetjipto, S.H., 
IMM and Indosatcom stockholders agreed to merge Indosatcom into IMM in exchange 
for IMM's newly issued shares of stock amounting to Rp 3,372. It was also       
agreed that the net assets used for the exchange are Indosatcom's unaudited net 
assets as of September 30, 2002.                                                

 As of December 31, 2002, the merger has not yet been effective since it has
not been approved by the Investment Coordinating Board.                         

Indosat Japan Co., Ltd. ("IJCL")                                            

IJCL, a wholly owned subsidiary incorporated in Tokyo, Japan, was supposed
to engage in cable television and radio broadcasting services in Japan. IJCL    
had not started its commercial operations up to May 1, 2001, when it started to 
undergo liquidation process which was completed in August 2001.                 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                  

a.  Basis of Consolidated Financial Statements                              

The consolidated financial statements are presented using the historical  
cost basis of accounting, except for derivative instruments which are stated at 
fair value and certain investments which are stated at fair value or net assets 
value, or accounted for under the equity method for those investments made in   
associated companies (representing equity interest of at least 20% but not more 
than 50%).                                                                      

The consolidated statements of cash flows classify cash receipts and      
payments into operating, investing and financing activities. The cash flows     
from operating activities are presented using the direct method.                

 The reporting currency used in the consolidated financial statements is the
rupiah.                                                                         

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

b.  Principles of Consolidation                                             

The consolidated financial statements include the Company's accounts and  
those of its subsidiaries as follows:                                           

                                                                [Download Table]

                Equity Interest (%) 
                --------------------
                 2000   2001   2002 
                ------ ------ ------
                                    
Satelindo......     --  30.00  57.50
   . SIB.......     --  30.00  57.50
   . SMM.......     --  29.88  57.27
Bimagraha......     -- 100.00 100.00
   . Satelindo.     --  45.00  42.50
     -- SIB....     --  45.00  42.50
     -- SMM....     --  44.82  42.33
Lintasarta.....  69.46  69.46  69.46
   . APE.......     --     --  45.15
Sisindosat.....  95.64  95.64  96.87
   . Asiatel...  48.78  48.78  49.40
IJCL........... 100.00     --     --
IMM............  99.50  99.84  99.84
Indosatcom.....  95.00  99.94  99.94
IM3............     --  99.94  99.94

Effective May 31, 2001, the net assets of Satelindo and its subsidiaries  
(SIB and SMM) were consolidated as a result of the Company's effective          
ownership of 75% (see Note 4), while prior to May 31, 2001, the 7.5% investment 
in Satelindo was accounted for using the cost method.                           

The accounts of APE and Asiatel were consolidated because their financial 
and operating policies are controlled by Lintasarta and Sisindosat,             
respectively.                                                                   

 The accounts of IJCL were translated into rupiah amounts at the middle rate
of exchange prevailing at balance sheet date for balance sheet accounts and the 
average rate during the year for profit and loss accounts (JPY 1 to Rp 75.79    
for 2000). The resulting differences arising from the translations of the       
financial statements of IJCL are presented as part of "Difference in Foreign    
Currency Translation" under the Stockholders' Equity section of the             
consolidated balance sheets. In 2001, IJCL was liquidated (see Note 1d).        

Minority interest in Subsidiaries represents the minority stockholders'   
proportionate share in the equity of the Subsidiaries which are not wholly      
owned. All significant inter-company transactions and balances are eliminated   
in consolidation.                                                               

c.  Accounting for Acquired Businesses                                      

The cross-ownership transactions with Telkom (see Note 4) have been       
accounted for as reorganizations of companies under common control              
(pooling-of-interests method), taking into account that the Company and Telkom  
are under the common control of the Government of the Republic of Indonesia.    
Under the pooling-of-interests method, the historical carrying amounts of the   
net equities of the entities have been combined, as if they                     

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

were a single entity for all periods presented, in accordance with SAK 38,      
"Accounting for Restructuring Transactions of Entities under Common Control".   
The difference between the net consideration paid or received and book values,  
net of applicable Income Tax, is shown under Stockholders' Equity as            
"Difference in Value from Restructuring Transactions of Entities under Common   
Control".                                                                       

The acquisition of 100% equity interest in Bimagraha (see Note 4) has been
accounted for using the purchase method, in accordance with SAK 22, "Accounting 
for Business Combinations". Under the purchase method, the excess of the        
acquisition cost over the fair values of the identifiable net assets acquired   
at the date of acquisition is recognized as goodwill.                           

d.  Cash and Cash Equivalents                                               

Time deposits and other short-term investments with original maturities of
three months or less at the time of placement or purchase are considered as     
"Cash Equivalents".                                                             

Cash and cash equivalents which are pledged as collateral for long-term   
debts, letter of credit facilities and bank guarantees are not classified as    
part of Cash and Cash Equivalents. These are presented as part of either Other  
Current Assets or Non-Current Assets--Others.                                   

e.  Short-term Investments                                                  

Short-term Investments consist of:                                        

1.  Investment in debt securities                                               

      Investment in debt securities which are classified as available-for-sale
   are recorded at fair value in accordance with SAK 50, "Accounting for
Investments in Certain Securities". Any unrealized gain (loss) at 
  balance sheet date is credited (charged) to "Unrealized Holding Gain
    (Loss) on Marketable Securities" which is a component of Stockholders'
Equity and will be recognized as income or loss upon realization. 

2.  Mutual funds                                                                

      Mutual funds are stated at their net assets value at balance sheet date.
Unrealized gains or losses from the changes in net assets value at
balance sheet date are credited or charged to current operations. 

f.  Allowance for Doubtful Accounts                                         

  Allowance for doubtful accounts is provided based on management's evaluation
of the collectibility of the accounts at the end of the year.                   

g.  Inventories                                                             

Inventories, which mainly consist of starter packs and pulse reload       
vouchers, are valued at the lower of cost or net realizable value. The          
principal method used to determine cost is the moving-average method.           

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

h.  Prepaid Expenses                                                        

 Prepaid expenses, mainly salaries, rental and insurance, are amortized over
the periods benefited using the straight-line method. The non-current portion   
of prepaid expenses is shown as part of "Non-Current Assets--Others".           

i.  Investments                                                             

Investments consist of:                                                   

.   Investments in associated companies                                 

   Investments in shares of stock wherein the Companies have an equity
      interest of at least 20% but not exceeding 50% are accounted for under
the equity method, whereby the investment cost is increased or  
      decreased by the Companies' share of the net earnings or losses of the
  investees since the date of acquisition and decreased by dividends
   received. Equity in net earnings (losses) is being adjusted for the
      straight-line amortization, over five years, of the difference between
     the cost of such investment and the Companies' proportionate share in
  the underlying fair value of the net assets at date of acquisition
(goodwill).                                                     

     At the time an investee that is accounted for under the equity method
   sells its shares to unrelated parties at a price different from its
       book value, the investor's net investment in that investee is affected.
       The investor's net investment is also affected when the contribution to
    the capital stock of an investee made in foreign currency results in
  additional paid-in capital representing the difference between the
     rupiah par value and the rupiah equivalent of the contribution at the
      date of receipt. The Companies recognize the resulting change in their
      net investment in the investee by a credit or charge to "Difference in
     Transactions of Equity Changes in Associated Companies/Subsidiaries",
 net of applicable Income Tax, after adjusting their equity in the
investee to conform with their accounting policies.             

.   Investments in shares of stock in which the equity interest is less 
than 20%, and other long-term investments are carried at cost.  

   .   Investments in equity shares which are classified as available-for-sale
are recorded at fair value, in accordance with SAK 50.          

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

j.  Property and Equipment                                                  

 Property and equipment are stated at cost (which includes certain borrowing
costs on funds used to finance the acquisition of property and equipment), less 
accumulated depreciation and impairment in value. Borrowing costs are           
capitalized in accordance with the maximum capitalization provisions in SAK 26. 
Depreciation of property and equipment is computed using the straight-line      
method based on the estimated useful lives of the assets as follows:            

                                                                [Download Table]

                                             Years 
                                            -------
                                                   
Buildings.................................. 3 to 20
Submarine cables...........................   15   
Earth stations.............................   15   
Inland link................................   15   
Switching equipment........................   15   
Telecommunications peripherals.............    5   
Information technology equipment........... 5 to 10
Office equipment........................... 3 to 6 
Building and leasehold improvements........    5   
Vehicles...................................    5   
Cellular technical equipment                       
   Base station subsystem.................. 5 to 15
   Network switching subsystem............. 5 to 10
   Operating support subsystem.............    5   
Satellite technical equipment                      
   Satellites..............................   12   
   Master control station..................   15   
   Customer premises equipment.............   15   
Transmission and cross-connection equipment        
   Transmission equipment.................. 5 to 24
   Cross-connection equipment.............. 8 to 10

Landrights are stated at cost.                                            

The cost of maintenance and repairs is charged to income as incurred;     
significant renewals and betterment are capitalized. When properties are        
retired or otherwise disposed of, their carrying values and the related         
accumulated depreciation are removed from the accounts, and any resulting gains 
or losses are reflected in income for the year.                                 

 Properties under construction and installation represent cellular technical
equipment, telecommunications peripherals, submarine cables, inland link,       
building and leasehold improvements, information technology equipment,          
switching equipment, building, transmission and cross-connection equipment,     
satellite technical equipment, and other equipment under installation.          

All borrowing costs, which include interest and foreign exchange          
differentials that can be attributed to qualifying assets, are capitalized to   
the cost of properties under construction and installation. Gain on foreign     

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

exchange that can be attributed to the qualifying assets is adjusted to the     
Properties under Construction and Installation account. Capitalization of       
borrowing costs ceases when the construction or installation is completed and   
the constructed or installed asset is ready for its intended use.               

k.  Impairment of Assets Value                                              

In accordance with SAK 48, "Impairment of Assets Value", the Companies    
review whether there is an indication of assets impairment at balance sheet     
date. If there is an indication of assets impairment, the Companies estimate    
the recoverable amount of the assets. Impairment of assets is recognized as a   
charge to current operations.                                                   

l.  Goodwill                                                                

 At the time the Companies acquire a subsidiary which is not an entity under
common control, any excess of acquisition cost over the Companies' interest in  
the fair value of the subsidiary's identifiable assets, net of liabilities, as  
of acquisition date is recognized as goodwill. Goodwill is amortized using the  
straight-line method over five years. The Companies review the carrying amount  
of goodwill whenever events or circumstances indicate that its value is         
impaired. Impairment loss is recognized as a charge to current operations.      

m.  Revenue and Expense Recognition                                         

International Calls                                                         

  Revenues from services are accounted for on the accrual basis. At the end of
each year, income from outgoing international calls traffic is recognized on    
the basis of the actual recorded traffic for the year. Income from              
international calls traffic from overseas international carriers, for which     
statements have not been received, is estimated from historical data.           

Operating revenues for interconnection services under interconnection     
agreement based on revenue-sharing arrangement (see Note 33) are reported on a  
net basis, after interconnection expenses and after allocations to overseas     
international carriers. Operating revenues for interconnections that are not    
made under contractual sharing agreements, i.e. based on tariff as stipulated   
by the Government (see Note 32), are reported on a gross basis, before          
interconnection expenses (see Note 21) but after allocations to overseas        
international carriers. These interconnection expenses are accounted for as     
operating expenses in the year these are incurred.                              

Cellular                                                                    

  Revenues from service connections (connection fees) are recognized as income
at the time the connections take place and those from usage and monthly         
subscription charges are recognized when earned.                                

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

Prepaid revenues, which consist of sale of starter packs and pulse reload 
vouchers, are recognized as follows:                                            

.   Starter pack sales are recognized upon delivery of starter packs to   
distributors, dealers or directly to customers.                   

.   Pulse reload voucher sales to dealers or customers are initially      
      recorded as unearned income and then proportionately recognized as usage
   revenue based on successful calls made by the subscribers or whenever
the unused stored value of the voucher has expired.               

  Revenues from interconnections with operators (usage revenue) are recognized
monthly on the basis of the actual recorded traffic for the month.              

MIDI                                                                        

  Satellite revenues are recognized on the straight line method over the lease
periods. Revenue from sale of software and services is recognized when the      
software is installed or the services are delivered to the customers. Revenue   
for consulting services is recognized based on the percentage-of-completion     
method.                                                                         

Revenues from other MIDI services are recognized when the services are    
rendered.                                                                       

Other Services                                                              

 Revenues from other services are recognized when the services are rendered.

Expenses                                                                    

Expenses are recognized when incurred (accrual basis).                    

n.  Personnel Costs                                                         

 Personnel costs which are directly related to the development, construction
and installation of property and equipment are capitalized as part of the cost  
of such assets. Personnel costs directly related to the maintenance of property 
and equipment are reflected in maintenance expense.                             

o.  Pension Plan                                                            

Pension costs are accounted for on a basis consistent with SAK 24,        
"Accounting for Pension Benefit Cost". Under the defined benefit pension plan,  
the pension costs are determined by periodic actuarial calculation using the    
projected-unit-credit method and applying the assumptions on discount rate,     
expected return on plan assets and annual rate of increase in compensation. The 
unrecognized net obligation at the date of initial application of SAK 24 is     
amortized over the estimated average remaining service periods of the           
employees. On the other hand, under the defined contribution pension plan, the  
contributions are made by the employees at amounts ranging from 10%-20% of the  
employees' basic monthly salaries.                                              

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

p.  Derivative Instruments                                                  

Effective January 1, 2001, derivative instruments are accounted for in    
accordance with SAK 55 (as revised), "Accounting for Derivative Instruments and 
Hedging Activities". SAK 55 establishes the accounting and reporting standards  
which require that every derivative instrument be recorded in the balance       
sheets as either an asset or a liability as measured at fair value of each      
contract. SAK 55 requires that changes in a derivative fair value be recognized 
currently in earnings unless specific hedges allow derivative gains and losses  
to offset related results on the hedged item in the statements of income, and   
that an entity must formally document, designate and assess the effectiveness   
of transactions that meet hedge accounting. All of the Companies' derivative    
instruments are not designated as effective hedging instruments for accounting  
purposes.                                                                       

q.  Foreign Currency Transactions and Balances                              

Transactions involving foreign currencies are recorded at the rates of    
exchange prevailing at the time the transactions are made. At balance sheet     
date, assets and liabilities denominated in foreign currencies are adjusted to  
reflect the average buying and selling rates prevailing at such date as         
published by Bank Indonesia and the resulting gains or losses are credited or   
charged to current operations, except for foreign exchange differentials that   
can be attributed to qualifying assets which are capitalized to assets under    
construction and installation.                                                  

  For December 31, 2001 and 2002, the rates of exchange used were Rp 10,400 to
U.S.$ 1 and Rp 8,940 to U.S.$ 1, respectively, computed by taking the average   
of the last buying and selling rates of bank notes published by Bank Indonesia  
during the year.                                                                

r.  Income Tax                                                              

The Companies use the liability method of accounting for Income Tax, in   
accordance with SAK 46, "Accounting for Income Tax". The liability method       
reflects in the consolidated balance sheets the tax effects of temporary        
differences between financial reporting and Income Tax purposes, including tax  
loss carry-overs. Those differences result in taxable or deductible amounts in  
determining taxable profit of future periods as the carrying amount of the      
asset or liability is recovered or settled. The tax effects for the year are    
allocated to current operations, except for the tax effects from transactions   
which are charged or credited to stockholders' equity (e.g. gain on sale of     
investment in PT Telekomunikasi Selular, which is credited to stockholders'     
equity under "Difference in Value from Restructuring Transactions of Entities   
under Common Control" account).                                                 

For each of the consolidated entities, the tax effects of temporary       
differences and tax loss carry-over, which individually are either assets or    
liabilities, are shown at the applicable net amounts.                           

s.  Segment Reporting                                                       

In 2000, the Indonesian Institute of Accountants revised SAK 5, "Segment  
Reporting", which requires publicly-listed companies to apply segment reporting 
in their financial statements after January 1, 2002. The financial information  
which is used by management for evaluating the segment performance is presented 
in Note 35.                                                                     

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

t.   Debt Restructuring                                                     

  The effect of debt restructuring is accounted for in accordance with SAK 54,
"Accounting for Troubled Debt Restructurings", which requires the interest      
expense on the restructured loans to be calculated using the effective interest 
rates.                                                                          

u.  Basic Earnings per Share and Basic Earnings per ADS                     

  In accordance with SAK 56, "Earnings Per Share", basic earnings per share is
computed by dividing net income by the weighted average number of shares        
outstanding during the year. The net income is Rp 1,642,125, Rp 1,452,795 and   
Rp 336,252 for the years ended December 31, 2000, 2001 and 2002, respectively.  
The weighted average number of shares is 1,035,500,000 shares in 2000, 2001 and 
2002.                                                                           

Basic earnings per ADS is computed by multiplying basic earnings per share
by 10, which is equal to the number of shares per ADS.                          

v.  Use of Estimates                                                        

The preparation of financial statements in conformity with generally      
accepted accounting principles requires the management to make estimates and    
assumptions that affect the reported amounts of assets and liabilities and      
disclosure of contingent 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 differ from those estimates.             

3.  TRANSLATIONS OF RUPIAH INTO UNITED STATES DOLLAR                            

  The consolidated financial statements are stated in rupiah. The translations
of the rupiah into United States dollar (U.S.$) are included solely for the     
convenience of the readers, using the average buying and selling rate published 
by Bank Indonesia (Central Bank) on December 31, 2002 of Rp 8,940 to U.S.$ 1.   
The convenience translations should not be construed as representations that    
the rupiah amounts have been, could have been, or could in the future be,       
converted into U.S. dollar at this or any other rate of exchange.               

4.  CROSS-OWNERSHIP TRANSACTIONS WITH TELKOM AND ACQUISITION OF BIMAGRAHA       

As part of its plans to diversify its business to include mobile/cellular,
fixed line, backbone, and internet/multimedia, the Company entered into the     
following transactions with Telkom on April 3, 2001 to consolidate their        
cross-ownership in certain companies and to acquire new business:               

.   the sale of the Company's 35% equity interest in PT Telekomunikasi    
Selular ("Telkomsel") for the rupiah equivalent of U.S.$ 945,000; 

.   the acquisition of Telkom's 22.5% equity interest in Satelindo for the
    rupiah equivalent of U.S.$ 186,000, of which 7.26% equity interest was
subject to the pre-emptive rights of another existing stockholder 
(DeTeAsia);                                                       

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

Subsequently, DeTeAsia did not exercise its pre-emptive rights but
communicated the waiver thereof to Telkom on July 10, 2001.       

 .   the acquisition of Telkom's 37.21% equity interest in Lintasarta, which
 would increase the Company's total equity interest in Lintasarta to
69.46%, for the rupiah equivalent of U.S.$ 38,000 plus Rp 4,051 of
convertible bonds; and                                            

 .   the acquisition of Telkom's business and assets in Regional Division IV
     ("KSO Unit IV"), a regional division of Telkom currently operated under
a joint operating scheme between Telkom and PT Mitra Global       
 Telekomunikasi Indonesia (see Note 8), for the rupiah equivalent of
U.S.$ 375,000.                                                    

  The transactions with Telkom, involving the sale of the Company's 35% equity
interest in Telkomsel, acquisition of Telkom's 37.21% equity interest in        
Lintasarta, and acquisition of Telkom's 22.5% equity interest in Satelindo,     
were consummated on May 16, 2001. These transactions were accounted for under   
the pooling-of-interests method. The difference amounting to Rp 4,359,259       
between the net consideration paid or received and the net assets of the        
investees is shown under the Stockholders' Equity section of the 2001           
consolidated balance sheet as "Difference in Value from Restructuring           
Transactions of Entities under Common Control". The sale of the Company's 35%   
equity interest in Telkomsel also decreased the related Difference in           
Transactions of Equity Changes in Associated Companies/Subsidiaries, net of     
applicable Income Tax, amounting to Rp 297,031 (see Note 8).                    

The KSO Unit IV acquisition was not consummated by the closing date on    
January 31, 2002. On February 1, 2002, the Company and Telkom made a press      
release to announce the cancellation of the proposed acquisition of KSO Unit IV 
because certain conditions were not met.                                        

 Below is the summary of revenue, operating income and net income (loss) for
the companies acquired under the cross-ownership transactions that are included 
in the Company's results of operations prior to the acquisition in April 2001:  

                                                                [Download Table]

                    2000      2001   
                 --------   -------  
                                     
Satelindo                            
Revenue.........       --        --  
Operating income       --        --  
Net loss........ (265,996)* (87,412)*

Lintasarta                           
Revenue.........  324,745   119,038  
Operating income  126,031    34,869  
Net income......   81,374    21,411  

--------                                                                        
* recorded as part of equity in net loss of associated companies                

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

The intercompany transactions of the Company with each of Satelindo and   
Lintasarta prior to the acquisition are as follows:                             

                                                                [Download Table]

                                                   2000    2001  
                                                  ------  ------ 
                                                                 
Satelindo                                                        
Interconnection revenue-sharing..................  7,668   4,030 
Satellite transponder lease...................... (6,247) (5,236)

Lintasarta                                                       
Revenue sharing..................................  3,236   7,514 
Sale of Indefeasible Right of Use ("IRU")........    172      -- 
Compensation for the use of Lintasarta's networks (3,843) (3,529)

  On May 31, 2001, the Company also consummated the acquisition of 100% equity
interest in Bimagraha from its shareholders for U.S.$ 248,273 and Rp 1,421,686. 
This transaction was accounted for using the purchase method. The goodwill      
arising from this transaction amounted to Rp 2,728,393. The excess of fair      
values over the carrying values of the underlying net assets of Bimagraha       
amounted to Rp 1,720,335. Bimagraha has 45% equity interest in Satelindo.       

The cross-ownership transactions and the acquisition of Bimagraha were    
approved by the Company's stockholders at the Stockholders' Extraordinary       
Meeting held on May 10, 2001.                                                   

 Based on the independent assessment from independent valuer in their report
dated April 3, 2001, they have the opinion that the acquisition and selling     
prices of the above-mentioned cross-ownership transactions with Telkom and      
acquisition of Bimagraha are fair and reasonable. The independent assessments   
were prepared in accordance with BAPEPAM Regulation No. IX.E.1, "Transactions   
with Conflict of Interests", dated August 22, 2000.                             

After the direct acquisition from Telkom (22.5%) and the indirect         
acquisition through Bimagraha (45%), the Company's total equity interest in     
Satelindo increased from 7.5% to 75%.                                           

  Expenditures incurred in connection with the foregoing transactions amounted
to Rp 321,445, of which the amount of Rp 259,811 relating to the                
pooling-of-interests was charged to operations and shown as "Consultancy Fees"  
in the 2001 consolidated statement of income and the amount of Rp 61,634        
relating to the purchase was included as part of the cost of the investment     
acquired. The unpaid portion of the expenditures amounting to Rp 768 as of      
December 31, 2001 is shown as part of "Accrued Expenses".                       

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

Shown below is the summary of the book/fair values and cost of the assets 
and liabilities of the equity interests acquired or sold at the time of the     
acquisition or sale.                                                            

                                                        [Enlarge/Download Table]

                                                                           Satelindo                                         
                                                                     ----------------------                                  
                                                                       Through    Through                                    
                                                                       Telkom    Bimagraha  Lintasarta  Telkomsel            
                                                                      (Pooling)  (Purchase) (Pooling)   (Pooling)     Net    
                                                                     ----------  ---------- ---------- ----------  --------- 
                                                                                                                             
Total Assets........................................................  2,072,550  3,108,825    360,821  (1,393,572) 4,148,624 
   Excess of fair values over carrying values.......................         --  1,720,335         --          --  1,720,335 
   Goodwill.........................................................         --  2,728,393         --          --  2,728,393 
Total Liabilities...................................................  2,216,617  3,324,925    161,545          --  5,703,087 
Stockholders' Equity                                                                                                         
   Difference in value from restructuring transactions of entities                                                           
    under common control............................................ (2,092,260)        --   (417,727)  6,869,246  4,359,259 
   Difference in transactions of equity changes in associated                                                                
    companies/subsidiaries (net of applicable Income Tax)...........    265,831         --         --    (297,031)   (31,200)
   Retained earnings (deficit)......................................   (365,461)        --     21,627          --   (343,834)

As of December 31, 2002, Telkom has fully paid the net settlement of the  
cross-ownership transactions.                                                   

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

5.  CASH AND CASH EQUIVALENTS                                                   

This account consists of the following:                                   

                                                        [Enlarge/Download Table]

                                                                                     2001    2002  
                                                                                    ------- -------
                                                                                                   
Cash on hand                                                                                       
 Rupiah............................................................................   1,116   1,095
 U.S. dollar (U.S.$ 8 in 2001 and U.S.$ 13 in 2002)................................      83     112
                                                                                    ------- -------
                                                                                      1,199   1,207
                                                                                    ------- -------
Cash in banks                                                                                      
 Related parties (see Note 26)                                                                     
   Rupiah                                                                                          
     PT Bank Mandiri (Persero) ("Mandiri").........................................  34,384 143,828
     PT Bank Negara Indonesia (Persero) Tbk ("BNI")................................  38,601  50,749
     PT Bank Pembangunan Daerah DKI Jakarta........................................   7,248   5,029
     Others........................................................................   1,514     475
   U.S. dollar                                                                                     
     Mandiri (U.S.$ 1,096 in 2001 and U.S.$ 7,629 in 2002).........................  11,396  68,203
     Others (U.S.$ 4 in 2001 and U.S.$ 176 in 2002)................................      40   1,575
 Third parties                                                                                     
   Rupiah                                                                                          
     PT Bank Central Asia Tbk ("BCA")..............................................   7,656  12,104
     Deutsche Bank, Jakarta Branch.................................................   2,786  11,070
     PT Bank Danamon Indonesia Tbk ("Danamon").....................................   1,957   3,900
     Standard Chartered Bank, Jakarta Branch.......................................   2,305   3,586
     PT Bank Artha Graha...........................................................   1,309   3,083
     PT Bank Umum Koperasi Indonesia ("Bukopin")...................................      --   2,452
     PT Bank Permata Tbk (formerly "PT Bank Bali Tbk").............................   1,691   2,001
     Citibank N.A., Jakarta Branch.................................................      --   1,508
     PT Bank Internasional Indonesia Tbk ("BII")...................................      --     955
     Others........................................................................   1,900   1,936
   U.S. dollar                                                                                     
     PT Bank Niaga Tbk ("Niaga") (U.S.$ 318 in 2001and U.S.$ 7,060 in 2002)........   3,304  63,118
     Deutsche Bank, Jakarta Branch (U.S.$ 1,053 in 2001 and U.S.$ 4,814 in 2002)...  10,952  43,037
     Citibank N.A., Jakarta Branch (U.S.$ 1,360 in 2001 and U.S.$ 898 in 2002).....  14,149   8,024
     Others (U.S.$ 159 in 2001 and U.S.$ 295 in 2002)..............................   1,648   2,640
                                                                                    ------- -------
                                                                                    142,840 429,273
                                                                                    ------- -------

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

                                                        [Enlarge/Download Table]

                                                                                      2001      2002   
                                                                                    --------- ---------
                                                                                                       
Time deposits                                                                                          
 Related parties (see Note 26)                                                                         
   Rupiah                                                                                              
     BNI...........................................................................   380,351   582,287
     Mandiri....................................................................... 2,104,511   382,527
     Mandiri Syari'ah..............................................................        --   160,555
     PT Bank Rakyat Indonesia (Persero) ("BRI")....................................    61,000   114,490
     PT Bank Tabungan Negara (Persero).............................................    51,200     5,850
   U.S. dollar                                                                                         
     Mandiri (U.S.$ 105,943 in 2001 and U.S.$50,600 in 2002)....................... 1,101,807   452,360
     BNI (U.S.$ 1,100 in 2001 and U.S.$ 1,960 in 2002).............................    11,440    17,522
 Third parties                                                                                         
   Rupiah                                                                                              
     PT Bank Muamalat Indonesia....................................................    15,000    24,000
     Deutsche Bank, Jakarta Branch.................................................    93,155    20,900
     PT Bank Mega..................................................................    91,500    19,750
     NISP..........................................................................        --    15,000
     Bukopin.......................................................................    80,000    10,800
     PT Bank Yuda Bhakti...........................................................    15,000    11,000
     Danamon.......................................................................    28,000     7,800
     PT Bank Bumiputera............................................................    55,000     5,000
     Niaga.........................................................................       444    11,035
   U.S. dollar                                                                                         
     Deutsche Bank, Jakarta Branch (U.S.$ 27,000 in 2001 and U.S.$ 29,700                              
       in 2002)....................................................................   280,800   265,518
     PT Bank Finconesia (U.S.$ 10,000 in 2001 and U.S.$ 25,000 in 2002)............   104,000   223,500
     Citibank N.A., Jakarta Branch (U.S.$ 1,015 in 2001 and U.S.$ 3,560 in 2002)...    10,555    31,826
     Mees Pierson N.V., The Netherlands (U.S.$ 161 in 2001 and U.S.$ 75                                
       in 2002)....................................................................     1,674       671
     Niaga (U.S.$ 500 in 2001 and U.S.$ 50 in 2002)................................     5,200       447
     PT Bank Muamalat Indonesia (U.S.$ 300)........................................     3,120        --
     Others (U.S.$ 4,300)..........................................................        --    38,442
                                                                                    --------- ---------
                                                                                    4,493,757 2,401,280
                                                                                    --------- ---------
Total.............................................................................. 4,637,796 2,831,760
                                                                                    ========= =========

 Time deposits denominated in rupiah earned interest at annual rates ranging
from 7.89% to 13.22% in 2000, from 11.00% to 17.98% in 2001 and from 10.00% to  
18.32% in 2002, while those denominated in U.S. dollar earned interest at       
annual rates ranging from 3.50% to 6.84% in 2000, from 1.25% to 6.84% in 2001   
and from 0.85% to 5.03% in 2002.                                                

The interest rates on time deposits in related parties are comparable to  
those offered by third parties.                                                 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

6.  ACCOUNTS RECEIVABLE--TRADE--TELKOM                                          

This account represents receivables for uncollected international calls,  
telex and telegram charges to subscribers which were billed by Telkom, net of   
interconnection charges payable to Telkom for these services and for leased     
circuits, and other charges (see Note 26).                                      

The aging schedule of the accounts receivable is as follows:              

                                                                [Download Table]

                                    2001               2002       
                             ------------------ ------------------
                                     Percentage         Percentage
Number of Months Outstanding Amount     (%)     Amount     (%)    
---------------------------- ------- ---------- ------- ----------
                                                                  
       0-3 months........... 425,530   69.78    319,776    77.33  
       4-6 months...........  50,221    8.24     30,378     7.35  
       over 6 months........ 134,051   21.98     63,369    15.32  
                             -------   ------   -------   ------  
       Total................ 609,802   100.00   413,523   100.00  
                             =======   ======   =======   ======  

The changes in the allowance for doubtful accounts provided on the trade  
accounts receivable from Telkom are as follows:                                 

                                                                [Download Table]

                                                 2001   2002  
                                                ------ -------
                                                              
Balance at beginning of year................... 50,687  81,885
Provision......................................  3,298  29,421
Allowance provided on new subsidiaries acquired 27,900      --
                                                ------ -------
Balance at end of year......................... 81,885 111,306
                                                ====== =======

Management believes the established allowance is sufficient to cover      
possible losses from uncollectible accounts receivable.                         

 In 2002, the Company adjusted its accounts receivable from Telkom amounting
to Rp 134,290 which include Rp 118,018 pertaining to prior years. The           
adjustment was due to, among others, unrecorded telephone kiosks commission and 
write-off of accounts receivable billed by Telkom which could not be collected  
anymore.                                                                        

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

7.  ACCOUNTS RECEIVABLE--TRADE--THIRD PARTIES                                   

This account consists of the following:                                   

                                                        [Enlarge/Download Table]

                                                                                       2001      2002  
                                                                                     --------- ------- 
                                                                                                       
Overseas international carriers                                                                        
   Saudi Telecom Company, Saudi Arabia (U.S.$ 2,439 in 2001 and U.S.$ 5,196                            
     in 2002).......................................................................    25,363  46,455 
   Cableview Services Sdn Bhd ("Mega TV"), Malaysia (U.S.$ 3,289 in 2001 and 2002)..    34,209  29,407 
   Chunghwa Telecom Co., Ltd., Taiwan (U.S.$ 1,660 in 2001 and U.S.$ 3,285 in 2002).    17,260  29,370 
   Telekom Malaysia Berhad, Malaysia (U.S.$ 191 in 2001 and U.S.$ 3,078 in 2002)....     1,990  27,518 
   UAE-Etisalat, Uni Arab Emirat (U.S.$ 1,609 in 2001 and U.S.$ 2,557 in 2002)......    16,730  22,857 
   TT dotCom Sdn Bhd, Malaysia (U.S.$ 575 in 2001 and U.S.$ 2,316 in 2002)..........     5,980  20,706 
   Maxis International Sdn Bhd, Malaysia (U.S.$ 539 in 2001 and U.S.$ 2,301                            
     in 2002).......................................................................     5,602  20,568 
   Mega Media Broadcasting Network Co. Ltd., Taiwan (U.S.$ 2,203 in 2001                               
     and 2002)......................................................................    22,912  19,695 
   DDI Corporation, Japan (U.S.$ 899 in 2001 and U.S.$ 1,645 in 2002)...............     9,348  14,710 
   AT&T, U.S.A. (U.S.$ 3,772 in 2001 and U.S.$ 1,612 in 2002).......................    39,225  14,415 
   KPN, Royal Dutch Telecommunication, The Netherlands (U.S.$ 618 in 2001 and                          
     U.S.$ 1,563 in 2002)...........................................................     6,427  13,972 
   Dacom Corporation, Korea (U.S.$ 2,821 in 2001 and U.S.$ 1,508 in 2002)...........    29,334  13,485 
   Korea International Telecommunication, Korea (U.S.$ 506 in 2001 and U.S.$ 1,174                     
     in 2002).......................................................................     5,260  10,495 
   People's Television Network, Canada (U.S.$ 890 in 2001 and U.S.$ 1,110 in 2002)..     9,255   9,923 
   Mutiara Telecommunications Sdn Bhd, Malaysia (U.S.$ 693 in 2001 and U.S.$ 796                       
     in 2002).......................................................................     7,203   7,115 
   Singapore Telecommunications Ltd. ("SingTel"), Singapore (U.S.$ 1,472)...........    15,305     -- *
   Others (below Rp 6,000, including U.S.$ 19,811 in 2001 and U.S.$ 23,698 in 2002).   272,929 213,564 
                                                                                     --------- ------- 
                                                                                       524,332 514,255 
                                                                                     --------- ------- 
Local companies                                                                                        
   PT Cakrawala Andalas Televisi (U.S.$ 1,271 in 2001 and U.S.$ 1,522 in 2002)......    13,215  13,609 
   PT Excelcomindo Pratama..........................................................    22,735  12,537 
   PT Ratelindo.....................................................................     6,173   9,716 
   PT Batam Bintan Telekomunikasi...................................................     9,210   7,697 
   PT Primacom Interbuana (U.S.$ 432 in 2001 and U.S.$ 543 in 2002).................     4,498   4,859 
   PT Global Mega Wisata Mandiri International (U.S.$ 495 in 2002)..................        --   4,425 
   Others (below Rp 4,000, including U.S.$ 14,634 in 2001 and U.S.$ 9,879 in 2002)..   559,598 318,385 
                                                                                     --------- ------- 
                                                                                       615,429 371,228 
                                                                                     --------- ------- 
Total............................................................................... 1,139,761 885,483 
Less allowance for doubtful accounts................................................   452,927 238,020 
                                                                                     --------- ------- 
Net.................................................................................   686,834 647,463 
                                                                                     ========= ======= 

--------                                                                        
* affiliate of the Companies starting December 20, 2002 through Singapore       
Technologies Telemedia Pte. Ltd. ("STT")/Indonesia Communications Limited   
("ICL") (see Note 17)                                                       

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

The aging schedule of the accounts receivable is as follows:              

                                                                [Download Table]

                                     2001                2002       
                             -------------------- ------------------
                                       Percentage         Percentage
Number of Months Outstanding  Amount      (%)     Amount     (%)    
---------------------------- --------- ---------- ------- ----------
                                                                    
       0-6 months...........   470,509      41.28 642,477      72.56
       7-12 months..........   212,051      18.60  65,629       7.41
       13-24 months.........   123,678      10.85  77,246       8.72
       over 24 months.......   333,523      29.27 100,131      11.31
                             ---------     ------ -------     ------
       Total................ 1,139,761     100.00 885,483     100.00
                             =========     ====== =======     ======

A portion of accounts receivable--trade is pledged as collateral for      
long-term bank loans obtained by Lintasarta (see Note 15).                      

 The changes in the allowance for doubtful accounts provided on the accounts
receivable--trade from third parties are as follows:                            

                                                        [Enlarge/Download Table]

                                                                                      2001      2002   
                                                                                    --------  -------- 
                                                                                                       
Balance at beginning of year.......................................................   28,761   452,927 
Provision..........................................................................   13,515    33,264 
Write-off.......................................................................... (210,117) (239,297)
Allowance of new subsidiaries acquired.............................................  620,768        -- 
Allowance of accounts receivable--trade--third parties which became related parties                    
  in 2002..........................................................................       --    (4,181)
Effect of foreign exchange adjustment..............................................       --    (4,693)
                                                                                    --------  -------- 
Balance at end of year.............................................................  452,927   238,020 
                                                                                    ========  ======== 

The effect of foreign exchange adjustment was due to the                  
strengthening/weakening of the rupiah vis-a-vis the U.S. dollar in relation to  
U.S. dollar accounts previously provided with allowance and was credited or     
charged to "Gain (Loss) on Foreign Exchange--Net".                              

  There are no significant concentrations of credit risk, except for the trade
accounts receivable from Telkom (see Note 6).                                   

Management believes the established allowance is sufficient to cover      
possible losses from uncollectible accounts receivable.                         

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

8.  INVESTMENTS IN ASSOCIATED COMPANIES                                         

This account consists of the following investments which are accounted for
under the equity method:                                                        

                                                        [Enlarge/Download Table]

                                                               2001                      
                                          -----------------------------------------------
                                                                  Accumulated            
                                                                   Equity in             
                                                                 Undistributed           
                                                               Net Income (Loss)         
                                                                 of Associated           
                                             Equity             Companies/Sale   Carrying
                                          Interest (%)  Cost    of Investments    Value  
                                          ------------ ------- ----------------- --------
                                                                                         
Investments in:                                                                          
PT Mitra Global Telekomunikasi Indonesia.    30.55     168,747     (109,538)      59,209 
PT Multi Media Asia Indonesia............    26.67      56,512         (212)      56,300 
PT Electronic Datainterchange Indonesia..    49.00      12,250       14,590(a)    26,840 
PT Graha Lintas Properti.................    37.84      16,800       (2,354)      14,446 
PT Yasawirya Tama Cipta..................    40.00      25,000      (15,098)       9,902 
PT Menara Jakarta........................    20.00      10,000       (2,000)       8,000 
PT Yasawirya Indah Mega Media............    35.00       5,000         (869)       4,131 
PT Sistelindo Mitralintas................    35.00         525        2,679(b)     3,204 
PT Artajasa Pembayaran Elektronis........    40.00       2,400       (1,163)       1,237 
PT Intikom Telepersada...................    46.00       1,159         (475)         684 
PT Swadharma Marga Inforindo.............    20.00         100         547 (c)       647 
PT Kalimaya Perkasa Finance..............    30.00       3,450       (2,913)         537 
PT Mediagate Indonesia...................    40.00         100           --          100 
Telkomsel................................    35.00      63,900      (63,900)(d)       -- 
Cambodian Indosat Telecommunications S.A.    49.00      14,697      (14,697)          -- 
                                                       -------     --------      ------- 
Total....................................              380,640     (195,403)     185,237 
Less allowance for decline in value......               93,316           --       93,316 
                                                       -------     --------      ------- 
Net......................................              287,324     (195,403)      91,921 
                                                       =======     ========      ======= 

--------                                                                        
(a) net of cash dividend amounting to Rp 2,575 in 2001                          
(b) net of cash dividend amounting to Rp 283 in 2001                            
(c) net of cash dividend amounting to Rp 96 in 2001                             
(d) sale of investment--see Note 4                                              

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

                                                        [Enlarge/Download Table]

                                                             2002                    
                                          -------------------------------------------
                                                              Accumulated            
                                                               Equity in             
                                                             Undistributed           
                                                           Net Income (Loss)         
                                           Equity            of Associated           
                                          Interest          Companies/Sale   Carrying
                                            (%)     Cost    of Investments    Value  
                                          -------- ------- ----------------- --------
                                                                                     
Investments in:                                                                      
PT Mitra Global Telekomunikasi Indonesia.  30.55   168,747      (39,341)     129,406 
PT Multi Media Asia Indonesia............  26.67    56,512         (212)      56,300 
PT Electronic Datainterchange Indonesia..  49.00    12,250       14,175(e)    26,425 
PT Graha Lintas Properti.................  37.84    16,800       (2,354)      14,446 
PT Yasawirya Tama Cipta..................  40.00    25,000      (15,098)       9,902 
PT Menara Jakarta........................  21.34    10,000       (2,000)       8,000 
PT Sistelindo Mitralintas................  35.00       525        2,363(f)     2,888 
PT Yasawirya Indah Mega Media............  35.00     5,000       (3,404)       1,596 
PT Swadharma Marga Inforindo.............  20.00       100          624(g)       724 
PT Intikom Telepersada...................  46.00     1,159         (492)         667 
PT Kalimaya Perkasa Finance..............  30.00     3,450       (2,913)         537 
PT Mediagate Indonesia...................  40.00       100          (42)          58 
Cambodian Indosat Telecommunications S.A.  49.00    14,697      (14,697)          -- 
                                                   -------      -------      ------- 
Total....................................          314,340      (63,391)     250,949 
Less allowance for decline in value......           90,781           --       90,781 
                                                   -------      -------      ------- 
Net......................................          223,559      (63,391)     160,168 
                                                   =======      =======      ======= 

--------                                                                        
(e) net of cash dividend amounting to Rp 2,572 in 2002                          
(f) net of cash dividend amounting to Rp 167 in 2002                            
(g) net of cash dividend amounting to Rp 65 in 2002                             

  The changes in the carrying value of the investments in associated companies
in 2001 and 2002 are as follows:                                                

                                                        [Enlarge/Download Table]

                                                                                      2001      2002  
                                                                                   ----------  ------ 
                                                                                                      
Equity in net income of associated companies......................................    132,268  72,288 
Cash dividends received from associated companies.................................     (2,954) (2,804)
Decrease in carrying value of investment in APE due to consolidation (see Note 1d)         --  (1,237)
Additional investments............................................................        100      -- 
Sale of investments............................................................... (1,393,571)     -- 
Provision for decline in value of investments.....................................    (56,300)     -- 
                                                                                   ----------  ------ 
Net............................................................................... (1,320,457) 68,247 
                                                                                   ==========  ====== 

The economic condition faced by Indonesia (see Note 36) has substantially 
affected the Companies' long-term investments in associated companies. Due to   
the decline in the value of their investments, the Companies have provided      
allowance for decline in value of their investments in associated companies     
amounting to Rp 93,316 and Rp 90,781 as of December 31, 2001 and 2002,          
respectively, which the Companies believe is adequate to cover possible losses  
on those investments.                                                           

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

PT Mitra Global Telekomunikasi Indonesia ("MGTI")                           

MGTI, established in 1995, has taken over from Telkom the operation of the
Central Java Division of Telkom starting January 1, 1996 up to December 31,     
2010 under a Joint Operation Scheme (KSO Unit IV) (see Note 4).                 

 The Company's investment in shares of MGTI is pledged as collateral to bank
loans obtained by MGTI to finance, among others, the construction of the        
telephone lines committed by MGTI to Telkom. The loans will mature on December  
31, 2005.                                                                       

PT Multi Media Asia Indonesia ("M2A")                                       

M2A, established in 1997, is engaged in providing satellite-based         
telecommunications services. Based on a subscription agreement in 1997 among    
the Company, PT Pacific Satelit Nusantara ("PSN") and M2A ("the Parties"), the  
parties agreed that the Company would participate as a stockholder of M2A,      
which was previously wholly owned by PSN, by acquiring 485,000,000 new shares   
of M2A with an aggregate nominal value of U.S.$ 20,000, representing 26.67%     
equity interest in M2A. The Parties also agreed that the Company's investment   
in M2A would not be less than 20% of the fully paid capital if M2A issued its   
new shares to Telkom and allocated not more than 5% of the fully paid capital   
to the Government of the Republic of Indonesia.                                 

PT Electronic Datainterchange Indonesia ("EDI")                             

  EDI, an associated company of Sisindosat, was established in 1995 to provide
electronic data interchange services for the Jakarta (Tanjung Priok) Port       
Authority and other telecommunications usage services. In 1998, Sisindosat      
subscribed to additional shares for Rp 8,036 in connection with the call for an 
increase in the subscribed capital stock of EDI as agreed in EDI's              
stockholders' meeting held in 1998.                                             

 In 2000, EDI, together with another party, established a securities company
known as PT Adhikarsa Sentra Sekuritas ("AKSES"). EDI has 80% equity interest   
in AKSES.                                                                       

Sisindosat received cash dividends from EDI amounting to Rp 2,575 and Rp  
2,572 in 2001 and 2002, respectively.                                           

PT Graha Lintas Properti ("GLP")                                            

 GLP, an associated company of Sisindosat, was established in 1995 to handle
the construction of an office building known as "Gedung Sapta Pesona B".        

Based on a resolution at the Extraordinary Meeting of the Stockholders of 
GLP in 1999, the stockholders resolved to reduce the issued share capital of    
GLP from Rp 48,000 to Rp 44,400 by reducing one of its stockholders' shares.    
The reduction in the issued shares increased Sisindosat's investment in GLP     
from 35% to 37.84%.                                                             

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

  The economic difficulties faced by Indonesia (see Note 36) have affected the
development of GLP's construction project, which has been discontinued since    
December 1998.                                                                  

PT Yasawirya Tama Cipta ("YTC")                                                 

 In 1996, the Company acquired 1,356 shares of YTC, a company which provides
multimedia services. The acquisition cost of the shares was greater by Rp       
15,636 than the Company's equity interest in YTC at the time of the acquisition.

Based on the minutes of meetings of YTC's stockholders held in 1996, YTC  
capitalized its additional paid-in capital to capital stock represented by      
15,963 shares. As a result of this capitalization, the Company's shares         
increased by 6,385 shares.                                                      

  Based on the minutes of the Extraordinary Meeting of YTC's Stockholders held
in 1999, the stockholders resolved to issue 23,256 new shares of YTC. The       
Company subscribed to 10,372 shares for Rp 4,460.                               

PT Menara Jakarta ("MJ")                                                    

  In 1996, IMM and other parties established MJ, a company that will construct
and operate building towers and related facilities.                             

  The economic difficulties faced by Indonesia (see Note 36) have affected the
development of MJ's construction projects, which have been discontinued since   
1997.                                                                           

PT Sistelindo Mitralintas ("Sistelindo")                                    

  In 1994, Sisindosat and other parties established Sistelindo, a company that
provides domestic and international Value Added Network Services ("VANS") based 
on IBM Intelligent Network ("IIN").                                             

Sisindosat received cash dividends from Sistelindo amounting to Rp 281, Rp
283 and Rp 167 in 2000, 2001 and 2002, respectively.                            

PT Yasawirya Indah Mega Media ("YIMM")                                      

In 1997, IMM and YTC established YIMM, a company that provides multimedia 
entertainment and other related facilities.                                     

In 1997, YIMM entered into a joint venture agreement with Badan Pelaksana 
Pengelolaan dan Pengembangan Taman Mini Indonesia Indah ("BP3 TMII") to build,  
transfer and operate ("BTO") Tanah Airku Theatre, a theatre that provides       
multimedia entertainment. BP3 TMII agreed to provide the land and YIMM agreed   
to build and then transfer the ownership of the theatre to BP3 TMII. In 1998,   
YIMM transferred the ownership of the theatre and all of its facilities to BP3  
TMII and at the same time, YIMM received the right to operate the theatre from  
BP3 TMII. As resolved at an Extraordinary Meeting of the Stockholders of YIMM,  
the                                                                             

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

stockholders approved to issue 4,286 new YIMM shares to BP3 TMII, which         
represent 30% equity interest in YIMM. As a result of the issuance of new       
shares, the equity interest of IMM in YIMM decreased from 50% to 35%. The       
theatre began its commercial operations in 1998.                                

  In 1998, IMM purchased 180 convertible bonds of YIMM with a nominal value of
Rp 100 each. The bonds will mature in five years and earn interest at the rate  
of 29% per annum. Ten percent (10%) of the interest will be paid on a           
semi-annual basis, while the remainder will be paid when the bonds mature. At   
the maturity date, IMM has the option to convert a part or all of the bonds     
into YIMM's shares. The conversion price of the bonds shall be the market value 
of the shares at the time of conversion, but should not exceed Rp 18,000.       

The convertible bonds of YIMM are secured by YIMM shares owned by YTC,    
personal guarantee from one of YTC's stockholders, assets of YIMM which are not 
handed over to TMII and accounts receivable of YIMM.                            

PT Swadharma Marga Inforindo ("SMI")                                        

Lintasarta has 20% equity interest in SMI, a company domiciled in Jakarta 
and engaged in telecommunication and information services.                      

Lintasarta received cash dividends amounting to Rp 72, Rp 96 and Rp 65 in 
2000, 2001 and 2002, respectively.                                              

PT Intikom Telepersada ("Intikom")                                          

  In 1997, Sisindosat acquired 46% equity interest in Intikom. The acquisition
cost of the shares was greater by Rp 164 than Sisindosat's equity interest in   
Intikom at the time of the acquisition. Intikom was established in 1990 and is  
engaged in, among others, assembling, installation and trading of               
telecommunication equipment.                                                    

PT Kalimaya Perkasa Finance ("Kalimaya")                                    

In 1996, Sisindosat acquired shares in Kalimaya, which is engaged in      
multifinance activities such as factoring, leasing and consumer financing.      

PT Mediagate Indonesia ("MGI")                                              

In 2001, Indosatcom acquired 40% equity interest in MGI, a company engaged
in, among others, construction, trading, transportation and other activities.   

Cambodian Indosat Telecommunications S.A. ("Camintel")                      

The Company's investment in Camintel, a joint venture between the Company 
and the Kingdom of Cambodia, was made in 1995. The main business of the joint   
venture is to undertake the rehabilitation, expansion, operation and            
maintenance of telecommunications facilities formerly owned by the United       
Nations Transitional Authority in Cambodia ("UNTAC"), and to provide            
telecommunications and other services in Cambodia.                              

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

Telkomsel                                                                   

Telkomsel was established in 1995 and is engaged in the provision of GSM  
telecommunications services. Telkomsel holds a license to provide GSM services  
with national coverage.                                                         

On May 16, 2001, the Company sold to Telkom all its equity interest in    
Telkomsel (see Note 4).                                                         

9.  OTHER LONG-TERM INVESTMENTS                                                 

This account consists of the following:                                   

                                                                [Download Table]

                                                              2001    2002  
                                                             ------- -------
                                                                            
Investments in:                                                             
   Shares of stock accounted for under the cost method--net. 317,403 218,820
   Convertible bonds--net...................................  85,000  54,750
Equity securities which are available for sale..............      99      99
                                                             ------- -------
Total....................................................... 402,502 273,669
                                                             ======= =======

a. Investments in shares of stock which are accounted for under the cost method 

                                                        [Enlarge/Download Table]

                                                                         2001             
                                                            ------------------------------
                                                               Equity          Cost/      
                                                            Interest (%) Carrying Value(1)
                                                            ------------ -----------------
                                                                                          
PT Pramindo Ikat Nusantara.................................    13.00          162,021     
The International Telecommunications Satellite Organization     0.34           97,427     
PT Datakom Asia............................................     5.00           50,000     
ICO Global Communications (Holdings) Limited...............     0.87           49,977     
AlphaNet Telecom Inc.......................................       --           32,149     
U.S.A. Global Link, Inc....................................    19.05           26,249     
PT Multimedia Nusantara....................................    15.00            3,750     
The International Mobile Satellite Organization............     0.40            3,347     
PT Patra Telekomunikasi Indonesia..........................    10.00            2,000     
PT Indoprima Mikroselindo..................................    17.33            1,377     
ASEAN Cableship Pte. Ltd...................................    16.67            1,265     
Acasia Communications Sdn. Bhd.............................    16.74            1,237     
ASEAN Telecom Holding Sdn. Bhd.............................    17.60              129     
                                                                              -------     
Total......................................................                   430,928     
Less allowance for decline in value........................                   113,525     
                                                                              -------     
Net........................................................                   317,403     
                                                                              =======     

--------                                                                        
1) there is no sale of investment/adjustment in 2001                            

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

                                                        [Enlarge/Download Table]

                                                                       2002            
                                                            ---------------------------
                                                               Equity        Cost/     
                                                            Interest (%) Carrying Value
                                                            ------------ --------------
                                                                                       
PT Pramindo Ikat Nusantara.................................     9.10        113,415    
The International Telecommunications Satellite Organization     0.34         97,427    
PT Datakom Asia............................................     5.00         50,000    
ICO Global Communications (Holdings) Limited...............     0.87         49,977    
AlphaNet Telecom Inc.......................................       --         32,149    
U.S.A. Global Link, Inc....................................    19.05         26,249    
PT Multimedia Nusantara....................................    15.00          3,750    
The International Mobile Satellite Organization............     0.40          3,347    
PT Patra Telekomunikasi Indonesia..........................    10.00          2,000    
PT Indoprima Mikroselindo..................................    17.33          1,377    
ASEAN Cableship Pte. Ltd...................................    16.67          1,265    
Acasia Communications Sdn. Bhd.............................    16.74          1,237    
ASEAN Telecom Holding Sdn. Bhd.............................    17.60            129    
                                                                            -------    
Total......................................................                 382,322    
Less allowance for decline in value........................                 163,502    
                                                                            -------    
Net........................................................                 218,820    
                                                                            =======    

b. Investments in convertible bonds                                             

As of December 31, 2001 and 2002, this account consists of:               

                                                                [Download Table]

                                        2001    2002  
                                       ------- -------
                                                      
AlphaNet Telecom Inc..................  71,441  71,441
PT Cipta Televisi Pendidikan Indonesia 150,000  54,750
YIMM..................................  18,000  18,000
                                       ------- -------
Total................................. 239,441 144,191
Less allowance for decline in value... 154,441  89,441
                                       ------- -------
Net...................................  85,000  54,750
                                       ======= =======

c. Equity securities which are available for sale                               

As of December 31, 2001 and 2002, this account consists of:               

                                                                [Download Table]
          
BNI... 89 
Telkom 10 
       -- 
Total. 99 
       == 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

The current economic condition faced by Indonesia (see Note 36) has       
substantially affected the Companies' other long-term investments.              
Consequently, the Companies provided an allowance for decline in value of their 
investments in shares of stock accounted for under the cost method and in       
convertible bonds amounting to Rp 267,966 and Rp 252,943 as of December 31,     
2001 and 2002, respectively, which management believes is adequate to cover     
possible losses on the investments.                                             

PT Pramindo Ikat Nusantara ("PIN")                                          

In 1997, the Company acquired 13% equity interest in PIN from shares owned
by PT Astratel Nusantara, PT Intertel Pratamamedia and Koperasi Pegawai Kantor  
Pusat Departemen Pariwisata, Pos dan Telekomunikasi. Under a Joint Operation    
Scheme ("KSO"), PIN has taken over from Telkom the operations of Telkom's       
Regional Division I (Sumatra) starting January 1, 1996 to December 31, 2010.    

In 1998, the Company increased its capital contribution in PIN by U.S.$   
1,625 due to a call for payment from PIN. In 1999, PIN increased its issued     
capital stock from U.S.$ 110,500 to U.S.$ 118,000 by issuing 750,000 new shares 
with aggregate amount of U.S.$ 7,500. The Company's portion of this increase    
that amounts to U.S.$ 975 was paid on March 30, 1999.                           

On April 19, 2002, Telkom and the PIN stockholders, including the Company,
entered into a Conditional Sale and Purchase Agreement ("CSPA"), whereby the    
stockholders agreed to sell and transfer all their shares in PIN to Telkom at a 
total selling price of approximately U.S.$ 381,499, in three share-purchase     
transactions, as follows:                                                       

.   30% of the shares at the Initial Closing Date, which shall occur on   
August 1, 2002                                                    
.   15% of the shares at the Interim Closing Date, which shall occur not  
later than September 30, 2003                                     
 .   55% of the shares at the Subsequent Closing Date, which shall occur not
later than December 31, 2004                                      

Telkom paid approximately U.S.$ 9,264 in cash as initial payment after the
release of the PIN pledged shares by, and upon repayment by PIN of all amounts  
(principal, interest and others) payable to, International Finance Corporation, 
one of PIN's stockholders, which occurred on September 17, 2002. At the initial 
payment date, the stockholders of PIN also received net working capital         
reimbursement from PIN. The balance of the selling price of approximately U.S.$ 
372,235, plus the corresponding interest for the applicable period, will be     
settled by Telkom through the issuance of promissory notes payable in ten       
quarterly installments of specific amounts.                                     

 Based on an amendment dated August 1, 2002 to the CSPA, the Initial Closing
Date was changed to August 15, 2002. In addition, the sum of Rp 3,250 was       
withheld by Telkom from the initial installment of the working capital          
reimbursement as a security for the costs of obtaining land title certificates  
for the account of PIN.                                                         

As of December 31, 2002, the Company has received from Telkom U.S.$ 5,414 
for the initial payment and Rp 32,199 for the working capital reimbursement.    

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

The International Telecommunications Satellite Organization ("Intelsat")    

Intelsat is an international organization providing worldwide             
telecommunications satellite services. The Company's investment in Intelsat was 
made in 1985.                                                                   

In March 2001, the Company sold a portion of its equity interest in       
Intelsat, which resulted in a decrease in its equity interest in Intelsat to    
0.34%. On July 18, 2001, Intelsat became a private company. The Company's       
capital contributions in Intelsat totalling U.S.$ 11,567 were converted into    
1,686,270 shares and became the basis of recording the investment under the     
cost method.                                                                    

PT Datakom Asia ("DA")                                                      

DA is the holding company for the companies in the Datakom group of       
companies engaged in direct satellite broadcasting, post-production services    
and integrated radio telecommunications services.                               

In 1997, the Company purchased 5% equity interest in DA at the price of Rp
50,000 under the condition that DA or another appointed party would repurchase  
the Company's 5% equity interest in DA at the price of Rp 50,000 plus interest  
if the Company could not exercise its option to subscribe to additional DA      
shares because DA failed to undertake its initial public offering ("IPO") of    
its shares by December 31, 1999. The interest rate is based on the average      
interest rate of three banks each, owned by the Government and the private      
sector, computed from the date the Company paid for its 5% equity interest. As  
of December 31, 2002, the Company has not yet finalized its negotiations with   
DA on the repurchase as a result of the inability of DA to undertake its IPO.   

ICO Global Communications (Holdings) Limited ("I-CO")                       

In 1995, the Company and I-CO, Inmarsat's subsidiary that is domiciled in 
the Bahamas, signed an agreement for the Company to subscribe to 200,000 I-CO   
shares at U.S.$ 100 each. I-CO provides satellite constellation and related     
mobile services from, and based on, the satellites.                             

In 1998, the Board of I-CO, through its Financing Committee, approved to  
issue 8 bonus shares for each share owned by all I-CO stockholders. The         
Company, which previously owned 200,000 shares of I-CO, now owns 1,800,000      
shares. However, since I-CO had a public offering of its shares and the Company 
did not subscribe to additional shares, the Company's equity interest in I-CO   
decreased from 1.37% to 0.87%.                                                  

AlphaNet Telecom Inc. ("ATI")                                               

ATI, a company incorporated in Canada, is engaged in the design,          
development, installation, operation and worldwide marketing of fax messaging   
and information service to business travelers, the hotel industry and users of  
personal computers and personal digital assistants. "Inn Fax", "Follow Fax" and 
"Follow Fax PC" are the registered trademarks of ATI.                           

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

  Based on a share-purchase agreement in 1997 between the Company and AlphaNet
Technology Corporation ("ATC"), one of the current stockholders of ATI, the     
Company purchased 1,750,000 ATI common shares at Canadian dollars ("CAD") 9     
each. This initial investment of CAD 15,750,000 represented 17.05% equity       
interest in ATI.                                                                

  The Company's equity interest in ATI subsequently decreased to 16.91% due to
the exercise of stock options by ATI employees in 1997. In 1998, ATI issued     
1,338,000 new shares through special warrant financing. As a result of the      
issuance of these new shares, the Company's equity interest in ATI decreased    
further to 14.5%.                                                               

In a separate agreement, the Company purchased convertible bonds of ATI at
the principal amount of CAD 35,000,000. The bonds were issued in September 1997 
to mature on September 13, 2002. The bonds earn quarterly interest at the Bank  
of Canada annual prime-lending rate adjusted annually on each anniversary date  
of the issue date to the rate prevailing on that day. The principal amount of   
the bonds is convertible into ATI's shares of stock at any time up to the       
maturity date at the conversion price of CAD 17.50 per share.                   

  In 1999, based on a resolution of its Board of Directors, ATI announced that
it had filed an announcement of bankruptcy with the Toronto Stock Exchange.     
Based on this fact, the Company provided 100% allowance for losses on its       
investment in ATI.                                                              

As a result of ATI's liquidation process, the Company received on March 9,
2001 the amount of Rp 12,923 (CAD 2,028,670) from the sale of ATI's assets.     
This amount was included in "Other Income (Expenses)--Others--Net" account in   
the 2001 consolidated statement of income. The liquidation process of ATI is    
expected to be completed in 2003.                                               

U.S.A. Global Link, Inc. ("Global Link")                                    

In 1996, Sisindosat acquired 200,000 shares of Global Link, a company     
incorporated in the USA and engaged mainly in the provision of callback         
services. The acquisition cost of the shares was greater by Rp 44,507 than      
Sisindosat's equity interest in Global Link at the time the investment was made.

In 1997, Global Link issued 50,000 new shares that were subscribed by a   
third party through a private placement. The issuance of the new shares         
resulted in the decrease in Sisindosat's equity interest from 20% to 19.05%.    

 As resolved in the Annual General Meeting of the Stockholders of Sisindosat
held on June 15, 2001, the stockholders agreed to the liquidation of Global     
Link based on the request of the primary stockholder of Global Link. Sisindosat 
provided 100% allowance on its investment in Global Link.                       

PT Multimedia Nusantara ("Metra")                                           

In 1997, IMM and other parties established Metra, which is engaged in     
pay-television and multimedia information service.                              

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

The International Mobile Satellite Organization ("Inmarsat")                

Inmarsat is an international organization providing worldwide             
telecommunications satellite services for mobile (maritime/aeronautical)        
telecommunications facilities. The Company's 0.22% equity interest in Inmarsat  
was initially made in 1987 and increased to 0.4% in 1997.                       

In 1999, Inmarsat became a private company. The Company's capital         
contributions in Inmarsat totalling U.S.$ 2,949 were converted into 39,661      
shares and became the basis of recording the investment under the cost method.  

PT Patra Telekomunikasi Indonesia ("Patrakomindo")                          

In 1995, the Company, Telkom, PT Elnusa (a related party) and two other   
companies entered into an agreement to establish Patrakomindo, a joint venture  
company engaged in providing satellite communications system services and       
related facilities to the petroleum industry. Patrakomindo started operations   
in 1996.                                                                        

PT Indoprima Mikroselindo ("Primasel")                                      

  The Company's investment in Primasel was made in 1996. Primasel shall engage
in providing telecommunications services of Personal Communications             
Service/Personal Communications Network--Personal Handy Telephone System        
("PHS") in the East Java Region. The Company's investment amounting to Rp 4,600 
represents 21.05% equity interest in Primasel.                                  

Based on a resolution at the Extraordinary Meeting of the Stockholders of 
Primasel in 1999, the stockholders agreed to convert into Primasel shares a     
part of Primasel's credit from an existing supplier. The conversion of the      
supplier's credit into shares resulted in the decrease in the Company's equity  
interest in Primasel from 21.05% to 17.33%.                                     

As of December 31, 2002, Primasel has not yet started its commercial      
operations although it has obtained its operating license from the Government   
of the Republic of Indonesia (see Note 37).                                     

ASEAN Cableship Pte. Ltd. ("ACPL")                                          

The Company's investment in ACPL was made in 1986. ACPL, which was founded
by the telecommunications authorities of the six members of the Association of  
South East Asian Nations ("ASEAN"), is engaged in providing services related to 
the repair and maintenance of submarine cables.                                 

Acasia Communications Sdn. Bhd. ("Acasia")                                  

The Company's investment in Acasia was made in 1995. Acasia, which is     
incorporated in Malaysia, was founded in 1995 by the telecommunications         
carriers of five ASEAN member countries and is primarily engaged in             
telecommunications services and other related services.                         

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

  In 1997, Acasia issued 3,105,625 new shares to its stockholders of which the
Company took 525,000 shares. The issuance of the new shares resulted in the     
increase in the Company's equity interest from 14.68% to 16% since one of the   
stockholders did not take its entire portion.                                   

  In 1998, the Company acquired 123,127 shares of Acasia which were previously
owned and unpaid by the other stockholders. By acquiring these shares, the      
Company's equity interest in Acasia increased from 16% to 16.74%.               

ASEAN Telecom Holding Sdn. Bhd. ("ATH")                                     

  The Company's investment in ATH was made in 1996. ATH, which is incorporated
in Malaysia, was founded in 1995 by the telecommunications carriers of five     
ASEAN member countries and is primarily engaged in corporate telecommunications 
and other related services. In 1996, ATH issued 25,000 new shares to Jabatan    
Telekom Brunei. The issuance of the new shares resulted in the decrease in the  
Company's equity interest in ATH from 20% to 16.67%.                            

In 1997, ATH issued 426,750 new shares to its existing stockholders. The  
Company and other stockholders subscribed to 71,125 shares each, but since one  
of the stockholders did not take all of its portion and a part of it was taken  
by the Company and the other stockholders, the Company's equity interest in ATH 
increased from 16.67% to 17.6%.                                                 

PT Cipta Televisi Pendidikan Indonesia ("CTPI")                             

CTPI is engaged in television broadcasting and other related services or  
activities. In 1997, the Company purchased 15 convertible bonds of CTPI at the  
nominal value of Rp 10,000 each. The bonds will mature on October 15, 2002 and  
earn semi-annual interest at the rate of 7% per annum. The bonds shall be       
converted into CTPI's shares of stock immediately after CTPI's net worth equals 
to or exceeds Rp 575,000 and its price-earnings ratio becomes 10.               

  In the event that the net worth in any year during the five-year term of the
bonds is less than Rp 546,000:                                                  

(a) CTPI will, at the option of the Company by sending a redemption notice
  to CTPI, redeem all bonds held by the Company at a redemption amount
     calculated so as to give the Company an additional interest of 19% or a
   total interest of 26% per annum (compounded from the issue date up to
  and including the redemption date which shall be the date falling 14
   days after the date of the Redemption Notice) for the bonds, together
with all unpaid interest accrued thereon; or                      

(b) The Company may sell and/or otherwise transfer to the controlling     
stockholder of CTPI all bonds held by the Company at an amount    
     calculated so as to give the Company an additional interest of 19% or a
   total interest of 26% per annum (compounded from the issue date up to
      and including the date of transfer of the relevant bonds) for the bonds,
together with all unpaid interest accrued thereon.                

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

In the event that the targeted net worth will equal to or be more than Rp 
575,000 but the price-earnings ratio of 10 is not achieved so that CTPI fails   
to undertake the Initial Public Offering ("IPO") by December 31, 2000, then     
within 3 months from December 31, 2000, the Company can exercise one of the two 
options stated above, plus an option that the Company may convert the bonds     
into shares, at the latest, on the maturity date of the bonds. The conversion   
price applicable shall be the nominal value per share.                          

The stockholders of CTPI guarantee to purchase and pay the bonds at the   
value stated above in the event that CTPI fails to achieve the above conditions 
and the Company requires CTPI to redeem the bonds.                              

CTPI failed to undertake its IPO by December 31, 2000.                    

 On October 15, 2002, the Company sent a redemption notice to CTPI to redeem
the bonds. On October 16, 2002, the Company also sent a letter to PT Tridan     
Satriaputra, as the Guarantor of the bonds, to pay the bonds.                   

Based on a letter dated December 18, 2002 from CTPI, it offered the       
settlement of the bonds by paying the Company U.S.$ 5,000 in cash not later     
than March 31, 2003 and U.S.$ 10,000 in the form of registered transferable     
term loan to PT Garuda Indonesia. As of December 31, 2002, the Company has not  
decided on the offer.                                                           

  In 2002, the Company wrote off a part of its investment in convertible bonds
of CTPI amounting to Rp 95,250.                                                 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

10.  PROPERTY AND EQUIPMENT                                                     

The details of property and equipment are as follows:                     

                                                        [Enlarge/Download Table]

                                                                        2001                                       
                                  ---------------------------------------------------------------------------------
                                                             Transactions during the Year                          
                                               --------------------------------------------------------            
                                    Balance                                                                        
                                  at Beginning                                         New Subsidiaries Balance at 
                                    of Year    Additions  Deductions Reclassifications     Acquired     End of Year
                                  ------------ ---------  ---------- ----------------- ---------------- -----------
                                                                                                                   
Carrying Value                                                                                                     
Landrights.......................     81,709     100,271        --             --            33,271        215,251 
Buildings........................    138,179      65,628       489          3,142            58,974        265,434 
Submarine cables.................    732,681     (46,630)       --             --                --        686,051 
Earth stations...................    112,045          --     3,625             --                --        108,420 
Inland link......................     78,180          --        --             --                --         78,180 
Switching equipment..............    173,394       1,682        --         17,010            48,220        240,306 
Telecommunications peripherals...    646,366     123,147     3,162          9,721             7,768        783,840 
Information technology equipment.         --      30,364       227         43,926           352,694        426,757 
Office equipment.................    180,200     504,162     1,327         10,297            81,220        774,552 
Building and leasehold                                                                                             
 improvements....................     83,264      27,742     1,285            232            64,053        174,006 
Vehicles.........................      6,702      13,437     3,020             --            11,319         28,438 
Cellular technical equipment                                                                                       
   Base station subsystem........         --   1,384,805        --        132,022         3,183,613      4,700,440 
   Network switching                                                                                               
    subsystem....................         --     281,387        --         82,375         1,600,578      1,964,340 
   Operating support subsystem...         --     287,525        --          1,571           106,241        395,337 
Satellite technical equipment                                                                                      
   Satellites....................         --     315,596        --         11,159           538,581        865,336 
   Master control station........         --      50,356        --             68            82,058        132,482 
   Customer premises                                                                                               
    equipment....................         --       8,119        --            399            56,374         64,892 
Transmission and cross connection                                                                                  
 equipment                                                                                                         
   Transmission equipment........         --      50,358        --         31,675           321,642        403,675 
   Cross-connection equipment....         --      12,284        --             --            11,079         23,363 
Properties under construction and                                                                                  
 installation....................    100,666   1,177,506        --       (343,597)          599,132      1,533,707 
                                   ---------   ---------    ------       --------         ---------     ---------- 
Total............................  2,333,386   4,387,739    13,135             --         7,156,817     13,864,807 
                                   ---------   ---------    ------       --------         ---------     ---------- 
Accumulated Depreciation                                                                                           
Buildings........................     46,306      31,139       118             --            25,328        102,655 
Submarine cables.................    112,093      42,984        --             --                --        155,077 
Earth stations...................     59,382       5,988     3,625             --                --         61,745 
Inland link......................     13,381       5,764        --             --                --         19,145 
Switching equipment..............     64,769      17,749        --             --            21,055        103,573 
Telecommunications peripherals...    341,295      73,097     3,161             --             3,953        415,184 

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

                                                        [Enlarge/Download Table]

                                                                        2001                                      
                                  --------------------------------------------------------------------------------
                                                            Transactions during the Year                          
                                               -------------------------------------------------------            
                                    Balance                                                                       
                                  at Beginning                                        New Subsidiaries Balance at 
                                    of Year    Additions Deductions Reclassifications     Acquired     End of Year
                                  ------------ --------- ---------- ----------------- ---------------- -----------
                                                                                                                  
Information technology equipment.         --     67,081        --          --              212,811        279,892 
Office equipment.................    111,177     48,044     1,315          --               52,974        210,880 
Building and leasehold                                                                                            
 improvements....................     56,975     16,341     1,242          --               52,036        124,110 
Vehicles.........................      3,583      3,743     3,002          --                5,211          9,535 
Cellular technical equipment                                                                                      
   Base station subsystem........         --    326,973        --          --            1,220,135      1,547,108 
   Network switching                                                                                              
    subsystem....................         --    157,682        --          --              629,808        787,490 
   Operating support subsystem...         --     17,175        --          --               29,149         46,324 
Satellite technical equipment                                                                                     
   Satellites....................         --     64,668        --          --              207,174        271,842 
   Master control station........         --      9,208        --          --               26,465         35,673 
   Customer premises                                                                                              
    equipment....................         --      3,158        --          --                6,623          9,781 
Transmission and cross connection                                                                                 
 equipment                                                                                                        
   Transmission equipment........         --     20,658        --          --               55,973         76,631 
   Cross-connection equipment....         --      2,294        --          --                5,752          8,046 
                                   ---------    -------    ------          --            ---------      --------- 
Total............................    808,961    913,746    12,463          --            2,554,447      4,264,691 
                                   ---------    -------    ------          --            ---------      --------- 
Less impairment in value.........         --         --        --          --              131,209        131,209 
                                   ---------    -------    ------          --            ---------      --------- 
Net Book Value...................  1,524,425                                                            9,468,907 
                                   =========                                                            ========= 
                                                        [Enlarge/Download Table]

                                                                       2002                                      
                                 --------------------------------------------------------------------------------
                                                           Transactions during the Year                          
                                              -------------------------------------------------------            
                                   Balance                                                                       
                                 at Beginning                                        New Subsidiaries Balance at 
                                   of Year    Additions Deductions Reclassifications     Acquired     End of Year
                                 ------------ --------- ---------- ----------------- ---------------- -----------
                                                                                                                 
Carrying Value                                                                                                   
Landrights......................   215,251      37,342       517            --               --         252,076  
Buildings.......................   265,434      15,339       259        12,212               --         292,726  
Submarine cables................   686,051          24        --        38,095               --         724,170  
Earth stations..................   108,420          64        --            --               --         108,484  
Inland link.....................    78,180       8,085        --        79,872               --         166,137  
Switching equipment.............   240,306       4,462        --        33,660               --         278,428  
Telecommunications peripherals..   783,840     146,603    23,361        76,895               34         984,011  
Information technology equipment   426,757      36,315    38,917        76,301            6,418         506,874  
Office equipment................   774,552      49,914     5,529        79,863              458         899,258  
Building and leasehold                                                                                           
 improvements...................   174,006      11,003       426        40,129               --         224,712  

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PERUSAHAAN PERSEROAN (PERSERO)  
PT INDONESIAN SATELLITE CORPORATION Tbk AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)  
December 31, 2002 
With Comparative Figures for 2000 and 2001  
(Expressed in millions of Rupiah and thousands of U.S. Dollars, except share  
and tariff data)  

                                                        [Enlarge/Download Table]

                                                                        2002                                      
                                  --------------------------------------------------------------------------------
                                                            Transactions during the Year                          
                                               -------------------------------------------------------            
                                    Balance                                                                       
                                  at Beginning                                        New Subsidiaries Balance at 
                                    of Year    Additions Deductions Reclassifications     Acquired     End of Year
                                  ------------ --------- ---------- ----------------- ---------------- -----------