Indonesia Celebrates a New Capital Struggling to Take Shape

Faris Mokhtar
·4-min read

(Bloomberg) -- Indonesia is set to inaugurate its unfinished future capital city in the middle of a remote jungle on the island of Borneo, as funding struggles, missed deadlines and a change in the country’s leadership weigh on the multibillion dollar project.

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President Joko Widodo will declare Nusantara open on Saturday as he marks the country’s independence day. But the ambitious project remains a giant work in progress, with most roads and buildings far from complete, and Jokowi has indicated that Jakarta will still be the official capital when he leaves office in October.

Celebrations are muted, with thousands having been cut from the guest list because of a shortage of rooms, and Jokowi barely mentioned Nusantara in his final State of the Nation and budget speeches to parliament on Friday, except to say funding would continue. To be sure, it’s only five years since the president announced the project, and just two years since construction began, thanks to the pandemic.

Southeast Asia’s largest economy is constructing a new capital mainly because population growth and rapid urbanization have overwhelmed existing infrastructure the country’s centuries-old commercial and political capital, with greater Jakarta teeming with about 30 million people.

Besides alleviating the problems of traffic congestion and pollution, Jokowi aims for Nusantara to help spread the nation’s wealth — currently concentrated in the island of Java — more evenly among its more than 278 million citizens.

The new metropolis is also meant to be the centerpiece of Jokowi’s legacy. He embarked on an ambitious infrastructure spree costing hundreds of billions of dollars during his decade in power, aiming to boost development and put the country on the path to becoming a high-income economy by 2045.

Located about 800 miles northeast of Jakarta, construction of Nusantara involves five phases, with the project scheduled for completion by 2045. By then, the government intends to shift some 1.9 million people from Jakarta to ease congestion.

But the project — with a price tag of roughly $29 billion, according to the official estimate — has been beset with problems from the start.

Even before construction began in August 2022, the government struggled to secure private funding. The administration wants to foot only 20% of the bill, with the rest to be borne by private investors. In the 2024 budget, it allocated 42.5 trillion rupiah, higher than the 26.7 trillion rupiah in 2023.

For some time, the new capital lacked major investments until a group of local tycoons invested. Even so, that isn’t enough and the project has yet to secure binding foreign private investments even as the government has touted high interest from overseas companies and doled out special tax incentives.

Construction delays mean that the government has missed the deadline for the project’s first phase — for the president, his cabinet and a clutch of civil servants to move in to the new capital this month. The abrupt resignations of the head and his deputy at the agency overseeing the development, with the reason for their departure yet to be explained by the government, only added to the uncertainty about the project.

The move to issue a presidential decree to designate Nusantara as the new capital city is also in limbo, with Jokowi — just months away from finishing his second and final term as president — saying that this could potentially be done by incoming leader Prabowo Subianto, after he is sworn in as Indonesia’s eighth president in late October.

As for the incoming administration, Prabowo has pledged to continue Jokowi’s policies, including the new capital project. But the business community is still uncertain whether that will be a priority given that the incoming leader has his own ambitious spending plans that include a free-meal program for students while ramping up healthcare and education.

In July, Prabowo’s brother-in-law, Soedradjad Djiwandono, a former central bank governor and one of the advisers to the incoming leader’s economic transition team, said he prefers pursuing the free-meal program that can be realized in the short term over the new capital. That sent a signal to observers that the real estate project won’t be of high importance under the new administration.

--With assistance from Claire Jiao.

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