The long and bumpy road to Indonesia's new capital, Nusantara

On August 12, Indonesia's President, Joko Widodo, known as Jokowi, held his first cabinet meeting in the Presidential Palace of the nation’s future capital of Nusantara, billed as the ‘smart forest city’, located in the heart of Borneo's tropical forest. 
 

While it was a grand gesture before the "future capital" of the country was unveiled to the world on August 17, Indonesia's Independence Day, it was difficult to ignore that he and his cabinet, including the Defence Minister and President-elect Prabowo Subianto, held the meeting in a building that was surrounded by acres of construction sites. 

Based on the Nusantara blueprint, the capital city's development has been divided into five stages from 2022 until 2045. The first phase of development (2022-2024) was to cover the construction of basic infrastructure, the core government area including the State Palace, parliament building, strategic ministry offices; and residential complexes for 500,000 civil servants and other residents.  

Currently, only the Presidential Palace and several pavilions for high-ranking state officials have been built in the core government area, while other buildings are still under construction. Plans for the president and ministers to take office in Nusantara in July have been pushed back to this month, just prior to the Independence Day ceremony which will be held on a smaller scale than originally planned. 

All this has raised doubts about the long-term sustainability of this ambitious megaproject, billed as President Jokowi's ultimate legacy.  

There is also the question regarding how much commitment Prabowo would show to completing the first phase of this project,  which is estimated to cost US$30 billion (S$40 billion) given that he may have other priorities. 

Why is Indonesia moving its capital city? 

Various studies on moving the capital city have been conducted since the time of the Dutch Colonial Government, President Soekarno, President Soeharto and President Susilo Bambang Yudhoyono, but the actual construction work began with President Jokowi. 

Jokowi has said that the capital city should be moved because Jakarta is no longer able to accommodate the functions of both a government centre and a business centre at the same time. Jakarta has suffered from various urban problems such as congestion, overcrowding, flooding and air pollution. 

Geographically, Jakarta will sink due to land subsidence and the effects of climate change. Recent reports indicate that the mega-city is sinking by as much as 25 centimetres a year, with rising sea levels expected to submerge up to 95 per cent of the city by 2050.  

For this reason, the government could have moved the centre of government to a location not far from the capital, such as West Java, as Malaysia did when it moved its federal government centre to Putrajaya, which is 40 km from Kuala Lumpur.  

However, instead it chose to move the capital city thousands of kilometres to Kalimantan Island with the aim of stimulating new economic hubs outside Java. Currently, around 57 per cent of Indonesia's population is concentrated in Java Island, which contributes 57.8 per cent of the national GDP, while Kalimantan Island only contributes 8.3 per cent. 

Indonesia wants to emulate Brazil, which moved its capital from Rio de Janeiro to Brasilia in 1960 with the intention of deconcentrating the economy from coastal areas to the interior around the Amazon, which was underdeveloped at the time.

However, while following this example, the Indonesian government should have anticipated the risks associated with Brasilia's development, which led to budget deficits and inflation of up to 80 per cent in Brazil.  

Foreign investors are not yet interested 

The practical reasons for moving the capital make sense both in terms of geography and the potential for future economic growth. What makes less sense is the decision to embark on a megaproject during an economic recession, compounded with a hasty decision-making process. 

Economic experts had warned President Jokowi that the development of Nusantara City would be hampered by a slowing global economy due to the pandemic and the impact of prolonged wars around the world. Those concerns are evident: two years after the announcement, not a single foreign investor has invested Nusantara despite the president and senior ministers campaigning around the world and issuing regulations on 190-year land use rights. 

Nusantara is currently fully funded by domestic economic players. As mentioned earlier, the government has set a budget of more than US$30 billion for the first phase of Nusantara’s development, with 20 per cent government funding and 80 per cent from the private sector. The government has spent US$4.5 billion (15 per cent), while domestic private investment has contributed US$3.5 billion (11.7 per cent) for education, healthcare and hospitality facilities. 

One of the factors inhibiting the inflow of capital into the project is the lack of basic infrastructure needed to develop a city. Two years after groundbreaking, most areas are still dirt fields with stepped and muddy access roads. Water and logistics are also still dependent on Balikpapan, the nearest major city 80 km away. 

The lack of clarity on the return on investments and incentives are the other major issue. Foreign players are in doubt and have not been keen to participate because there is no settled population in the Nusantara as their target market.

In the initial plan, the government targeted 500,000 residents (including civil servants and their families) to move to the new capital city in the early stages. However, due to limited housing, only 1,700 civil servants will move in starting this September. 

Jokowi relies on his successor 

President Joko Widodo signed the Law on Relocating the National Capital in 2022 after receiving over 90 per cent of parliamentary votes. Not many academic studies or public consultation reports were published to support the historic decision.  

Despite several civil society groups voicing opposition to the law for reasons such as the country's budgetary posture being strained by the pandemic and the lack of participatory decision-making processes, President Jokowi has been adamant about moving the capital. Critical commentators have accused President Jokowi of turning the mega-capital project into a personal ambition and ignoring democratic processes.  

Coming to the end of his administration, it is in President Jokowi's interest to ensure that the development of the new capital city is continued by Prabowo. However, his political commitment – during the presidential election campaign Prabowo always said that he was Jokowi's successor – is urgently needed by Jokowi so that Nusantara does not become a stalled project. 

On several occasions, Prabowo stated he is ready to continue the Nusantara project. However, political observers are skeptical of this promise as the president-elect also has a flagship programme of free nutritious meals for students that will suck up the state budget. Prabowo's decision will determine the fate of the capital city in the future, whether it will be Jokowi's legacy or fallacy.

This article was originally published in Bahasa Indonesia