Indonesia’s new capital city plan falling apart

Pioneering point: People visit “ground zero” of Nusantara, the new capital city to be developed in Sepaku district in North Penajam Paser, East Kalimantan, on Aug. 17. The nation’s new capital has reportedly been designed as a sustainable city. – JP/ANN

JAKARTA: With its gleaming offices, electric buses and economically productive residents, Nusantara is the quintessential modern metropolis-smack in the middle of a vast rainforest.

At least, that’s what the government brochures depict. What they don’t show quite so clearly is where Indonesia will find US$34bil (RM149bil) to build a new capital city from scratch.

With just 18 months left in his final term, President Joko Widodo is still aggressively courting international investors to finance 80% of a project that he hopes will elevate Indonesia’s economy, resettle millions of people from rapidly sinking Jakarta-and cement his own legacy.

Hosting this year’s Group of 20 (G20) summit was just the latest opportunity for the president, popularly known as Jokowi, to pitch the ambitious project.

But more than three years after Nusantara was first announced, not one foreign party-state-backed or private-has entered into a binding contract to fund the project, according to sources.

While some potential investors have signed letters of intent, there’s no firm commitment to actual spending.

Jokowi is determined to see the project through, but the situation has left him impatient and worried, said the sources.

When asked for comments, the president’s spokesperson referred to a speech on Dec 2, where Jokowi said that interest in investing in the new capital’s core area was 25 times oversubscribed.

However, the speech didn’t specify whether binding contracts have been signed.

Indonesia needs a way to safeguard its economic growth. But without significant investment, the president’s vision will fall apart.

“Foreign investors are super cautious as the project is still at the initial stage,” said Dedi Dinarto, lead Indonesia analyst at strategic business advisory firm Global Counsel.

Years of delays due to the Covid-19 pandemic have left potential backers hesitant to commit to the passion project of a president who will be out of office long before a new city could ever be completed.

Much of the early development work has focused on preliminaries like roads and bridges, Dinarto added, and “investors may still be uncertain about how they can make profits from investing in such basic infrastructure.”

Even if construction goes smoothly, any rewards for investors will be at least as long in coming.

“Many countries are either facing recession or are already in recession because of the global economic slowdown,” said Jakarta-based David Sumual, PT Bank Central Asia’s chief economist.

For the next couple of years, he pointed out, even the richest countries are likely to “prioritise their own domestic agenda.”

Indonesia must also battle its long-standing reputation as an economic underachiever.

Despite abundant supplies of coal, metals, palm oil and rubber, the South-East Asian nation’s growth rate-averaging 4.3% over the past decade-lags behind neighbours like Vietnam and the Philippines.

Corruption, cronyism and a slow-moving bureaucracy have all been blamed for the nation’s repeated failure to meet its lofty targets.

Careful diplomacy

Jokowi’s careful diplomacy and good humour at last month’s G20, which ended with a joint statement that seemed improbable only days before, earned him huge plaudits.

While his success in building Indonesia’s profile on the world stage has yielded investments in areas like clean energy, it has had limited impact so far on this key domestic project.

The Indonesian president has ordered his cabinet to complete existing infrastructure projects by 2024, and to prioritise permits for strategically important efforts like Nusantara.

However, critics fear the new capital faces a similar fate to the country’s Mass Rapid Transit project, which faced almost 30 years of delays due to land acquisition issues and funding constraints.

A similar slate of problems means a vast hydropower project in Borneo’s jungle, launched eight years ago, is yet to see a single dam built.

And while the government always planned to pay for the first of Nusantara’s five construction phases itself, state resources have been stretched by ongoing costs like education and the fight against rising inflation. Funding for the rest, meanwhile, remains elusive.

Permanent legacy

Jokowi has practical reasons, as well as symbolic ones, for building a new capital.

Spread across Java island’s northwest coast, the city of Jakarta-home to more than 10.6 million people and 16.5% of Indonesia’s gross domestic product as of the third quarter this year-is overcrowded, polluted and sinking so fast that one-third of it will be submerged by 2050 if left unchecked.

Poor urban planning and decades of pumping groundwater from under the city have left it vulnerable to severe flooding that will only worsen as the climate warms.

Moving Indonesia’s administrative centre to Borneo island, about 1,287km further northeast, is a response to that impending crisis.

Indonesia hopes to move up to 1.9 million people to Nusantara by 2045, with some civil servants moving as early as 2024 if all goes to plan.

Thinning out the crowd in Jakarta should relieve the pressure on resources and allow that city to continue to operate as the country’s business hub, according to the government.

In theory, it could also help spread the nation’s wealth more evenly among its more than 275 million citizens. Indonesia has one of the world’s highest rates of extreme poverty and much of its wealth is concentrated in Java. — Bloomberg

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