[Asia Report] Indonesia's New Capital Project Accelerates, But the Road Ahead Remains Long

Jakarta, visited for the first time in a while since COVID-19, left an impression of newness and vitality with its taller and more dazzling skyscrapers and the introduction of the high-speed rail (MRT) that began operation in 2019. Construction sites for the next subway were easily noticeable in the city center. Jakarta, a densely populated city with 10 million residents in the capital and 35 million in the metropolitan area, is notorious for its severely outdated and inadequate urban infrastructure. Now, after nine years of President Joko Widodo (Jokowi)'s administration, efforts to secure advanced urban infrastructure are accelerating.

However, hadn't the Indonesian government already declared that it would relocate the capital itself due to land subsidence, rising sea levels, and overpopulation? Why then is there such enthusiasm for investing in Jakarta's infrastructure? Citizens met in Jakarta seemed indifferent to the emergence of the new capital. Most responded with comments like "It's too far," "We'll have to wait until after the next presidential election," and "Jakarta's status as the economic capital will remain forever."

The new capital site, Nusantara, is located at the eastern tip of Kalimantan Island, known as Borneo in Korea, not on Java Island where 70% of Indonesia's population and economy are concentrated. It is a different island, a full 1,200 km away from Jakarta. It is considered a much more complex project than capital relocation projects in other countries. It is completely inaccessible by car and can only be reached by boat or plane, with a boat trip from Jakarta taking as long as two nights and three days. The capital site is even a vast wilderness filled with primeval forests. Currently, only land leveling and road construction are underway. This is why skeptical views persist even after the official capital relocation announcement in 2019.

Indonesian women are taking commemorative photos in front of a milestone at the construction site of the new capital, Nusantara. Photo by EPA Yonhap News

◇ Jokowi’s ‘Final Great Project’ = Since taking office in 2014, President Jokowi has enjoyed overwhelming support from the Indonesian people, but his term now has just over a year left. This year, as the chair of the Association of Southeast Asian Nations (ASEAN), Jokowi’s focus has expanded significantly from domestic to international affairs. At the same time, presidential hopefuls aiming for next year’s election are accelerating their campaigns. Promotional materials for these candidates were quite visible throughout Jakarta.

Prabowo Subianto (72), the current Minister of Defense and a leading figure in military politics, has declared his intention to run for president for the third time. Anies Baswedan (54), who has emerged as a representative of moderate elites and the Muslim community, is rapidly expanding his support base, aiming for a turnaround. Ganjar Pranowo (55), a moderate progressive backed by former President Megawati, has been leading in preference polls even before receiving Jokowi’s official endorsement. It is a foregone conclusion that the next president will come from among these three candidates.

The three candidates have subtly different views on the new capital. Only Ganjar, who dreams of succeeding Jokowi, plans to fully continue the predecessor’s project. The moderate and conservative candidates show rather negative or passive stances. Their views are not much different from those of ordinary citizens mentioned earlier. They argue that it is difficult to invest massive national support in the remote tip of Kalimantan, which is disconnected from Indonesia’s current political and economic context. This illustrates that elections and politics are the most important prerequisites for the capital relocation project.

◇ Accelerating Speed with Various Incentives = Jokowi’s biggest domestic issue in his final term is solely ‘Nusantara.’ In just one year, on Independence Day, August 17, the official capital relocation must be partially implemented. Recently, he has been doing his best to introduce Nusantara to foreign guests and connect it to investment opportunities.

Reuters Yonhap News

At the beginning of the project, the Indonesian government estimated the initial infrastructure cost at 466 trillion rupiah (about 30 billion dollars), planning to raise 80% of this from the private sector and cover the remaining 20% with the national budget. Attracting interest from domestic private companies as well as foreign investors is the most urgent task. Recently, Jokowi promised incentives such as up to 30 years of tax exemptions and 95 years of land use permits for domestic companies investing in Nusantara. For foreign companies, he offered full tax exemption for 10 years and a 50% reduction for the following 10 years under various conditions.

Besides these, there are so many related benefits that they cannot all be listed. A Nusantara official promoted, "Companies building shopping malls and hotels can receive up to 20 years of tax exemptions, agriculture and fisheries businesses get 10 years of corporate tax exemption, and financial companies also receive benefits beyond expectations."

The blueprint for Nusantara is grand and ambitious. President Jokowi declared, "We are building a new Indonesia," adding, "It is not just about moving buildings but creating a space for new thinking, ethics, and practicing a green economy." This means the city is not simply a planned smart city. It is designed to have no traffic congestion, be an eco-friendly city based on renewable energy, and naturally be ICT-friendly, aiming to become a cutting-edge technology and financial city that embraces digital nomads and the millennial generation worldwide.

However, apart from these grand dreams, global interest remains cold. The site lacks historical significance and infrastructure and is a remote island. Nusantara authorities have announced receiving about 100 letters of intent for investment, mostly limited to Indonesian and Malaysian companies. For now, it remains more of a ‘Borneo/Kalimantan development’ new city frame than a ‘new capital’ for the country of 280 million people. Some say the moment when major US and Chinese corporations begin serious investment will be the moment Nusantara’s vision is confirmed.

Reuters Yonhap News

◇ "National Overhaul" vs. "Utilizing Existing Infrastructure" = Indonesia’s ‘new capital’ dilemma is widely seen as a long-term right decision for balanced national development. The current capital, Jakarta, is criticized for excessive population density, land prices comparable to Seoul, frequent earthquakes, and rising sea levels, all hindering national development. Of course, there are strong counterarguments. Still, Jakarta is considered the region with the best urban administration and infrastructure in Indonesia. The vision for the new capital is good, but it is said that nearly a century of continuous investment is needed for it to function as a capital.

The reason Jokowi pays attention to areas outside Java Island when planning the new capital is that, although the country is vast, balanced development has not been achieved. This is why the Jokowi government, regarded as the first genuine elected government, is rushing to invest in road networks, railways, and planned cities nationwide. They believe that balancing national development is the first step toward a national overhaul.

However, reality is not easy. First, there seems to be considerable opposition from residents of Java Island, especially Jakarta, where two-thirds of the population is concentrated. The population of Kalimantan Island, where the new capital will be located, is about 17 million, which is politically disadvantageous. Although Jokowi’s approval rating currently reaches 70%, there are concerns that if the next government’s support falls or politics reverts to being Java-centered, Nusantara’s future could become as precarious as a candle in the wind.

Jakarta = Jeong Ho-jae, Researcher at Korea University ASEAN Center