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As the virus ravages Indonesia’s economy, will the new capital be shelved?

As Covid-19 continues to rage through Indonesia, how will the faltering economy and the reallocation of funds towards virus relief impact the country's grand $33 billion plan to relocate its capital to East Kalimantan?

July 17, 2020
As the virus ravages Indonesia’s economy, will the new capital be shelved?
President Joko Widodo (centre) accompanied by officials visiting North Penajam Paser district near Sepaku in East Kalimantan on December 17, 2019. Photo: Indonesian Presidential Palace/AFP

In August 2019, Indonesian president, Joko Widodo, announced plans to relocate the capital city from the sinking and over-populated Jakarta to the province of East Kalimantan. 

Famed for its beaches, rainforests and orangutans, by 2024 it was expected that the island of Borneo would also play host to one million governmental employees following a soft opening of Indonesia’s new capital, with all the levers of government transferred and operational by 2045.

However, like virtually all aspects of life everywhere globally, the Covid-19 pandemic and the resulting economic fallout has ripped up the roadmap to the new capital. Delays have been mooted, mixed signals sent and a creeping belief that the proposed new capital may not take place after all.

In April, Luhut Pandjaitan, coordinating minister for maritime affairs, cast doubt over the project. “It is indeed stuck,” Pandjaitan said. “We can’t make any decision either way, the president hasn’t evaluated it. Maybe after we’re done with Covid-19, we will evaluate it – but we don’t know.”

However, word emerged in late-June that the government was planning to break ground as early as next year. Basuki Hadimuljono, minister for public works and housing, spoke optimistically about the project resuming in 2021. 

“We’re still in the planning phase – we’re currently focusing on the basic design of the new city and drafting a relocation bill with the House of Representatives,” Hadimuljono said. “We hope next year we can commence construction of the new capital city.”

But hope doesn’t equate to realisation in the context of a construction plan, and Made Supriatma, a visiting fellow on the Indonesia studies programme at the ISEAS-Yusof Ishak Institute, takes a more cautious view. 

A motorcade transporting Indonesia’s President Joko Widodo accompanied by officials visiting North Penajam Paser district near Sepaku in East Kalimantan on December 17, 2019. Photo: Indonesian Presidential Palace/AFP

“Until now, the development of the new capital has only reached the planning stage and the government has not even issued a blueprint for resettlement planning,” he told the Globe. “Several plans are being proposed, but until now there has been no decision.”

Across the world, infrastructure projects – even those on a much smaller, more manageable scale than a capital move – have been postponed and even cancelled. In Nepal, the timeline for building the new Pokhara Airport has been pushed beyond its deadline of July 2021 while, in Australia, the proposed $800 (AUD) million redevelopment of the national stadium has been completely shelved. 

Supriatma believes the virus may prove the death knell for this project, too, with the “government avoiding talking about” its potential collapse.

“All planning is suspended – the government diverted funds to deal with Covid-19, including the funds for the construction of a new capital,” Supriatma said. “President [Joko Widodo] Jokowi’s government does not have the ability to build the new capital because of the pandemic economic crisis. Because of this, I don’t think the government will have the ability to realise the new capital plan and it will most likely be postponed indefinitely.”

Indonesia has been Southeast Asia’s hardest struck nation during the pandemic, with 82,000 cases and close to 4,000 deaths at the time of writing. In May, it was reported that the country had reported its weakest economic growth in two decades as the pandemic crippled its economy, while forecasts in June by the Organization for Economic Cooperation and Development predicted that the economy could shrink by 3.9% this year if the country is hit by a second wave. Government coffers have been hit hard, with Jakarta set to widen the budget deficit to 6.34% of gross domestic product this year to cover $47.7 billion in stimulus packages. 

In April, Sri Mulyani, Indonesia’s Minister of Finance, explained that while planning may resume in 2021, the Ministry of Public Works and Public Housing responsible for the project has reallocated most of its budget to more pressing concerns. “They have shifted their budget to upgrade hospitals instead,” she said. “I’ve asked the president whether we want to allocate some funds to it in the 2021 budget and he said judging from the current situation, we must remain careful.”

Pingkan Audrine Kosijungan, a researcher at the Center for Indonesian Policy Studies (CIPS), told the Globe that while the pandemic has momentarily slammed on the brakes, she believes the project will still move ahead, albeit slower than before.

“Because of Covid-19, the government has been imposing social restriction measures in both Jakarta and East Kalimantan,” Kosijungan said. “This has affected the planned site visits of the assessment team, but we are still expecting the New Capital City draft bill to be released soon.”

Kosijungan said even though progress has been unclear, she expects next year’s budget to make up for lost time. 

“It will be worth following whether the budget allocation for the new capital is adjusted due to Covid-19,” she said. 

President Joko Widodo (left) accompanied by officials visiting North Penajam Paser district near Sepaku in East Kalimantan on December 17, 2019. Photo: Indonesian Presidential Palace/AFP

President Joko Widodo’s landmark announcement late last year seemingly laid to rest decades of speculation and debate around moving the country’s capital.

“The idea of moving the capital is not new,” explained Supriatma. “Indonesia’s first president, Sukarno, expressed a desire to move the capital also to Kalimantan, to the city of Palangkaraya.” But like Sukarno’s bid before, this latest incarnation has been thrown into doubt.

With the project creating stark divisions between supporters and opponents, the news of a delay in proceedings will be unwelcome for politicians in the capital who had hoped it would be the defining act of their administration, but good news for many residing far from the metropole. 

With a steering committee for the new capital project that includes former British prime minister, Tony Blair, SoftBank founder and CEO Masayoshi Son, and Abu Dhabi Crown Prince Sheikh Mohammad bin Zayed al Nahyan – the new, $33 billion capital was touted as incorporating technology to make it one of the most environmentally friendly in the world. 

“I think the project is enormously exciting,” said Blair, back in pre-Covid February. “It’s going to be a city that is going to be very special in the way that it’s developed.” 

This latest iteration to move away from Jakarta, like President Sukarno’s and other failed bids before it, may too now be built on shaky foundations

For the elites in Jakarta, who control land in the proposed areas in the form of forest concessions and palm oil plantations, the relocation is a boon. But there have been concerns over the environmental impact of the project from the start among East Kilimantan’s current residents and environmentalists.

“The elites will be able to turn their forest concessions and plantations into real estate which is more lucrative,” Supriatma said. “For environmentalists who are worried about environmental degradation, the new capital city is horrible news.”

The issue of resource exploitation is among the major concerns for opponents of the scheme. 

“Initially the government planned that only 28,000 hectares of land would be used – but then, it expanded to 60,000 hectares,” Supriatma explained. “When the planners found that there were not enough water resources [in the originally planned area], the new capital region would reportedly be expanded to 280,000 hectares.”  

For the indigenous tribes of East Kalimantan, the mood remains one of apprehension as they await to see how much time the pandemic has brought them. 

“The natives are worried that they will be evicted from their land,” Supriatma explained. “Just like the Betawi ethnic in Jakarta, who had to move to suburban areas due to economic development.”

President Jokowi’s plans for his new capital in East Kalimantan may yet to come to fruition, albeit later than planned as more immediate concerns take priority. On July 15, Indonesia reported 1,522 new cases and 87 deaths – a record in a 24-hour period – as that dreaded second wave looks like it may be materialising. 

With opposition to the move consistent and vocal, this latest iteration to move away from Jakarta, like President Sukarno’s and other failed bids before it, may too be built on shaky foundations. Covid-19 may just prove to be the final gust of wind to bring the stilts down.

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