Report

On 21 November 2024, the Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) and the National Research and Innovation Agency of the Republic of Indonesia (BRIN) co-hosted an international seminar titled “Challenges of Economic Cooperation in National Projects of the Global South: The Case of Indonesia's New Capital Construction”, with nominal support from the Government of Kutai Kartanegara Regency as well as the Government of Penajam Paser Utara Regency. This page provides summaries of the discussions and presentations delivered during the seminar.

Video recording of the seminar

Overview of the Seminar

Date and time: 9:30-16:20 (JST), 21 November 2024 (Thursday)

Organizers: Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO)
National Research and Innovation Agency of the Republic of Indonesia (BRIN)

Nominal support: The Government of Kutai Kartanegara Regency
The Government of Penajam Paser Utara Regency

Venue: JETRO Headquarters, Conference room 5A

Program

Objective of the Seminar

In August 2019, the Government of Indonesia announced the relocation of the national capital from Jakarta to East Kalimantan Province, located in the southeast of the island of Kalimantan (Borneo). Government agencies, information and communications institutions, and higher education and research institutions are to be relocated to a region that straddles the districts of Penajam Paser Utara and Kutai Kartanugara. Although the ceremony for National Independence Day was held in the proposed new capital on August 17, 2024, the relocation process’s initiation was not realized that year. Nevertheless, the relocation project has continued even after the change of government in October. The grand plan is for the capital’s relocation to be completed in 2045, the 100th anniversary of the country’s independence.

Under this plan, 265.2 trillion rupiah (approx. 2.6 trillion yen), or roughly half of the relocation costs, are expected to be funded as a public–private partnership project, and 127.3 trillion rupiah (approx. 1.3 trillion yen), or roughly a quarter of the costs, are expected to be funded as a private sector project. Therefore, the government hopes for private investment, including from foreign companies. There has been much interest in how Japan can get involved in this monumental project since the plans were announced. However, as numerous uncertainties exist regarding the project’s sustainability and the financial plan for private investment, many Japanese private companies are unsure of how they can become involved.

This seminar invited political and economic experts from Indonesia to discuss the current status, prospects, and challenges of constructing a new national capital. In addition, officials from local governments of sites designated for capital relocation were invited to discuss how the local society perceives the construction and what problems it poses.

Session 1: Realities and Challenges of Building the New Capital in Indonesia

The first speaker, Dr. Mardyanto Wahyu Tryatmoko, Head of the Research Center for Domestic Government of the National Research and Innovation Agency (BRIN), gave a presentation titled “The Arrangement of the New Capital of Indonesia and its Sociopolitical Dynamics.” Dr. Mardyanto explained that plans to relocate the capital had for long been discussed by past governments but Jakarta’s urban problems—namely a highly concentrated population, severe traffic congestion, land subsidence, and infrastructure shortages—and the country’s growing regional disparities had led President Joko Widodo to make the decision to move the capital.

However, Dr. Mardyanto noted that the governance system in the new capital, named Nusantara State Capital (IKN), could cause several problems. The Nusantara Capital Authority (OIKN) was established under the New Capital Law of 2022 as the organization responsible for the construction, relocation, and governance of the new capital; however, since it is positioned as a state agency directly under the president, it does not have the functions of people’s representation, political and administrative participation, and public service provision. While this centralized approach may be effective in forwarding infrastructure construction and relocation projects, Dr. Mardyanto warned that the Authority, which has no local government functions, may not be able to manage a complex society with a mix of local residents and new immigrants.

The next speaker, Dr. Agus Eko Nugroho, Chairman of the Research Organization for Governance, Economy, and Community Welfare at the National Research and Innovation Agency of Indonesia (BRIN), gave a presentation titled “Economic Motives and Challenges in Developing the New Capital City of Indonesia.” Dr. Agus argued that the capital relocation plan is a policy tool for high growth to achieve the government’s target of making Indonesia a developed country by 2045. Specifically, the motives behind the government’s decision include shifting from Java-centered development to Nusantara-centered development, overcoming Jakarta’s deadlock as a growth center, moving away from resource-oriented economic growth, promoting high-value industrialization, and attracting private investment outside of Java.

However, Dr. Agus highlighted that the new capital city will face challenges. These will include the gap between the government’s intention to create a “smart, green, and sustainable city” and the quality of human resources, lack of infrastructure to provide electricity and clean water, and further acceleration of deforestation on Kalimantan.

The third speaker, Koichi Kawamura, Senior Overseas Research Fellow of the Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO), gave a presentation titled “Issues Surrounding the Capital Relocation Project.” Mr. Kawamura explained the current status of infrastructure construction based on field research conducted with BRIN researchers in September 2024 and discussed the negative effects of proceeding with construction and relocation simultaneously. He highlighted that while the new President Prabowo Subianto has promised to continue the capital relocation project, the budget allocated to relocation initiatives for FY2025 will be significantly reduced, and strong resistance to the relocation exist among public officials. Mr. Kawamura stated that the adverse effects are also reflected in the trends in private investment, which the government anticipates. To date, private investment has mostly been from state-run enterprises or domestic companies close to the government, and most foreign companies are operating a wait-and-see policy. He also highlighted that, despite the government’s advertising campaign that touts IKN as a “forest city,” environmental problems such as deforestation and loss of biodiversity continue to occur and issues related to land rights remain unresolved.

Session 2: Perspectives from the Local Government

First, Mr. Maman Stiawan, Director of the Regional Research and Innovation Department of Kutai Kartanegara Regency, joined the session online and highlighted the following six problems that the local government of the relocation site faces: (1) educational disparities between the residents of the new capital city, who are mainly civil servants, and local residents; (2) environmental destruction; (3) cultural friction between the local and new capital cities; (4) a lack of transportation infrastructure between regions; (5) reduced food production and supply; and (6) reduced local government budget revenue due to the loss of territory. As the local government anticipates these problems in the future, it is considering measures for dealing with them.

Next, Mr. Nicko Herlambang, Regional Secretary Assistant for Government and People’s Welfare of Penajam Paser Utara Regency, gave a presentation titled “The Future of Penajam Paser Utara: Transformations Post Nusantara Capital Establishment in the Context of Spatial Planning.” The district is located to the southwest of IKN, and some of its territory was ceded so that the new capital could be built. It has a population of approximately 197,000 (as of 2023) and agriculture is the main industry; however, due to special demands for the new capital’s construction, high economic growth—14.5% in 2022 and 28.9% in 2023—has been recorded. Mr. Nicko emphasized that the government is preparing to realize economic development centered on agriculture, industry, fisheries, and tourism in an environmentally friendly and sustainable manner, with the goal of making the district “the forecourt of the capital Nusantara.”

Session 3: Discussion

In the final session moderated by Mr. Kawamura, Dr. Mardyanto, Dr. Agus, and Mr. Nicko took the stage to discuss the key issues that surround the national capital’s relocation.

The first issue is the decision-making process and its impact on the national capital relocation project. Dr. Agus explained that the government’s policy of shifting from a Java-centered economic development model to a Nusantara-centered one is rational and has been accepted by the Indonesian people. Dr. Mardyanto stated the following: “It cannot be said that there has been sufficient explanation or public discussion,” adding that “it will be necessary to establish a system that allows the participation of the local people.” Mr. Nicko explained, from the local government’s perspective, that there is a welcoming atmosphere in the local community, stating that “it has been a dream for many years to be part of the capital city.” However, he also expressed concern about “dissatisfaction among the local community over land expropriation and other issues, and these problems may delay the relocation project.” He thus stressed the importance of communication with the local community.

The second issue is the implications of the national capital relocation project. While the government’s stated goals of creating a new economic growth center and a new source of growth are of course major reasons behind the relocation, the concept of relocating Indonesia’s capital has implications beyond the pursuit of national identity and nation-state building. The reason for relocating the capital to the geographical center of Indonesia is not merely a pretext, nor is it simply a means to correct regional imbalances. The presentations and discussions at the seminar made it clear that the project aims to realize the national principle of “Unity in Diversity,” which Indonesia has sought since gaining independence from colonial rule in 1945.

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