Nusantara: Indonesia’s costly ‘symbol of progress’ set for inauguration | Business and Economy News

Medan, Indonesia – Nusantara, the future capital city of Indonesia, will be inaugurated on the country’s Independence Day on Saturday, as the country looks to replace Jakarta, which has served as the capital since Indonesia declared independence from the Dutch in 1945.

A heaving metropolis of at least 11 million residents, Jakarta is plagued by some of the world’s worst traffic jams, thick smog and overcrowding.

It is also reportedly sinking due to unregulated groundwater extraction, and Indonesia’s National Research and Innovation Agency has warned that by 2050, about 25 percent of the city could be submerged.

Indonesian President Joko Widodo, popularly known as Jokowi, first announced his surprise plan to move the capital to the jungles of East Kalimantan on the Indonesian part of Borneo island during his annual address to the nation on August 16, 2019.

“A capital city is not just a symbol of national identity, but also a representation of the progress of the nation,” Jokowi said. “This is for the realisation of economic equality and justice.”

But some have questioned the grandiose project, known as Ibu Kota Negara or IKN, from the outset.

Ian Wilson, a lecturer in politics and security studies at Australia’s Murdoch University, told Al Jazeera that the project reflected the defining features of the Jokowi administration.

“Firstly, an increasingly autocratic government divorced from popular sovereignty, considering that IKN will be physically distant from the vibrant civil society that has been fundamental to the country’s democratic consolidation,” he said.

“It will disentangle the nation’s executive from the complexities and contradictions of Jakarta, reflective of those of the country, as well as expressions of popular sovereignty and agency, such as rallies, protests and mobilisations, that have been important forms of check and balance on power.”

People power

The government plans to move 20,000 civil servants in total from Jakarta to Nusantara. An initial group of 12,000 employees from 38 government ministries are supposed to make the move by the end of December 2024.

To house all the new staff, some 47 apartment towers are being built, 12 of which were ready last month.

By 2045, if all goes to plan, some 1.9 million people are expected to be living in Nusantara, more than the population of East Kalimantan’s provincial capital, Samarinda.

Siwage Dharma Negara, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore, told Al Jazeera that the premise of Nusantara was “a long-term project to address development disparities and problems in Jakarta”.

Timing has always been the main concern, he noted.

‘The government has argued that if not now, then when? If it is postponed, it may never happen,” he said. “For those who disagree, the timing is considered inappropriate because the economy is not doing well, so it depends on which side we look at it.”

Nusantara needs lots of money – $35bn, according to the government.

The World Bank said in June it expected Indonesia’s growth to remain resilient despite rising prices and geopolitical uncertainty with gross domestic product expanding an average 5.1 percent a year between 2024 and 2026.

But Ega Kurnia Yazid, an economist and subsidy policy specialist at Indonesia’s National Team for the Acceleration of Poverty Reduction (TNP2K), is cautious.

He notes recent declines in the Purchasing Managers’ Index (PMI) – a measure of economic trends in manufacturing – over the last two months to a level below 50, indicating a contraction and tracking declines in major economies like the United States, China and Japan.

“These countries are Indonesia’s main trading partners, and the decline in PMI from these countries signals a decline in international demand for Indonesian commodities,” he said.

Money matters

From 2022 to 2024, $4.6bn was allocated from the state budget for Nusantara, or about 14 percent of the total budget for the new capital.

As of July 2024, investment in Nusantara had reached $6.2bn, about 15 percent of the estimated total investment needed.

According to the government, it has received some 369 letters of intent from investors, most of them from Singapore.

More than 130 government officials and businesses from the city-state visited Nusantara in May last year. Representatives from other countries including Finland, Kazakhstan and Malaysia also travelled to the site that month.

To date, two Singaporean companies have signed Nusantara-related agreements including Nusantara State Power Investment Corporation (SPIC) and JOE Green, both of which will be involved in renewable energy and waste management.

But Wilson said the reliance on foreign investment revealed the contradictions of the new capital.

“The heavy reliance on foreign investment to build IKN, sold through generous conditions and exemptions, has not only failed to eventuate but sharply contradicts the nationalist rhetoric underpinning the project: a national capital built with foreign money,” he said.

Five phases

Nusantara is expected to cover an area of 2,560 square kilometres (990 square miles).

The project will be completed in five separate phases, and the first phase began in August 2022, with the entire project expected to be completed by 2045.

A planned toll road spanning 47km (29 miles) will be built to connect the government central area with the newly constructed Naratetama airport and Balikpapan, the second-largest city in East Kalimantan Province.

According to the Indonesian government, the city is designed with sustainability in mind with 80 percent of journeys to be taken by public transport, bicycle or on foot.

It says the surrounding forest will be protected, and the city will draw all its energy from renewable sources. Some 10 percent of its area is for food production. It is also supposed to be carbon neutral by 2045.

But Arie Rompas of Greenpeace Indonesia is sceptical.

He describes the environmental credentials as “just a claim”.

“On the contrary, the project will threaten the natural forests and biodiversity at the IKN construction site and more broadly on the island of Kalimantan,” he said.

“Building the new capital will trigger migration and will also bring new investment, encourage deforestation and strengthen the extractive economy.”

Just two months before the inauguration, it was announced that Bambang Susantono, the head of the Nusantara Capital City Authority in charge of managing the project, along with his deputy, Dhony Rahajoe, had resigned.

Jokowi was asked about the resignations while visiting Nusantara the same month, and said the pair had resigned for “personal reasons”.

Susantono had previously said that he and Rahajoe had had to wait for 11 months to receive their salaries for work on the project.

Jokowi remained upbeat despite their sudden departures.

The work on the city’s first phase was about 80 percent complete, he said, and this week, he convened his cabinet for their first meeting inside the sprawling presidential palace, built to resemble a garuda, Indonesia’s mythical bird.

Later he was pictured walking along an empty six-lane city highway with Prabowo Subianto, the man who will be sworn in as Indonesia’s next president in late October.

The fate of IKN’s next four phases, one of the biggest infrastructure projects in Indonesian history, will be in his hands.