Kiki Siregar, Jakarta – Foreign investors remain wary of Indonesia's planned new capital Nusantara despite "continuity candidate" Prabowo Subianto winning the presidential election, raising questions on what more the government can do to get them on board the US$30 billion mega project.
Indonesia plans to hold its 79th Independence Day celebration in Nusantara on Aug 17, marking the move from Jakarta to the new capital in eastern Kalimantan. But it is still lacking the money to construct the city.
The government had previously said foreign investors were waiting for the results of the presidential and legislative elections before they invest in Nusantara, locally known as Ibu Kota Negara or IKN.
However, 1.5 months after the elections held on Valentine's Day, no foreign investor has signed a memorandum of understanding (MOU) with the Indonesian government.
Knowing the results of the election is not enough for investors to take the plunge, said Mr Mohammad Faisal, executive director of the Centre of Reform on Economics (CORE) Indonesia, a think tank which focuses on research in economy and industry.
"First, there are still election disputes," he said, referring to the court challenges by losing presidential candidates Anies Baswedan and Ganjar Pranowo. They urged a poll re-run and disqualification of the winner, citing fraud and irregularities during the elections.
The constitutional court is expected to give its ruling by Apr 22.
If it rejects the cases, Mr Prabowo and his running mate, Solo mayor Gibran Rakabuming Raka, who is also President Joko Widodo's eldest son, will take their oath of office in October.
"Then, (investors) also want to know the leadership style of Mr Prabowo," Mr Faisal added.
Although Mr Prabowo has said numerous times that he will continue the project, which is President Widodo's brainchild, investors would want to know what his vision is and how he will make decisions, said Mr Faisal.
The plan is for about 19 per cent of Nusantara's cost to be from the state budget, with the remainder from the private sector.
Many letters of intent, but no Memorandum of Understanding
The man overseeing Nusantara's development, however, remains optimistic and thinks public-private partnerships (PPPs) may be the way to go.
Indonesian authorities have so far received about 369 letters of intent (LOI), Mr Bambang Susantono, head of the Nusantara Capital Authority, told CNA at the Indonesia-Singapore Business Forum 2024 in Singapore on Mar 27.
"About 40 per cent of them are from foreign entities," he said. "But most of them are at the stage of preparations. Why? Because most of them, if I may say, are interested in PPP rather than going directly to invest," Mr Bambang said.
Some of the foreign entities are working with local investors, he added. For example, one of the hospitals currently being built in Nusantara is in cooperation with a hospital in India.
Mr Bambang acknowledged no foreign investor has signed an MOU so far, but is confident interest will pick up.
"I believe we are going to see some of them in the next couple of months, especially when the PPP process has finished (to decide the location and timeline of the projects)," he said. "So they can start to build and construct the facilities on the ground."
Will budget for populist programmes come first?
But there may be other reasons why foreign investors are holding back, some observers believe.
Mr Prabowo did not only campaign on the continuation of Nusantara, but also promised to provide free lunch and milk to students across Indonesia in a programme projected to cost up to US$25.5 billion – almost the same as the new capital, noted Jakarta-based economist Bhima Yudhistira from the Centre of Economic and Law Studies (CELIOS).
"At the moment, it seems there's a push for this free lunch programme to be included in the upcoming 2025 state budget," said Mr Bhima.
"This makes investors think investing in IKN is very high-risk, assuming the upcoming state budget will prioritise something else which is more populist, like free lunch and free milk."
Many construction projects are still being built on the main island of Java, Mr Bhima said.
"So Java is still the epicentre of the country's economy. For example, construction of highways, construction of renewable energy power plants, dams," he said.
"Everything is still Java-centred and this makes investors hesitant as they would be unsure how successful IKN would be."
When outgoing President Jokowi, as he is popularly known, decided in 2019 that the capital would move from Jakarta to a remote area in eastern Kalimantan, he said the move was necessary to save sinking and congested Jakarta as well as to enhance development in Kalimantan and eastern Indonesia.
Nusantara is to be built in five stages. The first phase, comprising the palace's construction, a few ministries and basic infrastructure such as roads and housing, is scheduled for completion this year.
The last stage of Nusantara's construction is slated to be by the country's centennial in 2045, when it will be connected with surrounding cities such as Balikpapan and Samarinda.
The government has said that while civil servants would relocate to Nusantara, Jakarta would remain the country's centre of business – similar to an arrangement like Washington, DC and New York in the United States, or Canberra and Sydney in Australia.
However, such an arrangement weakens the commercial and business aspects of Nusantara and is one of the factors investors would consider, said Mr Andry Satrio Nugroho, an economist from the Institute for Development of Economics and Finance (INDEF).
"They are watching closely: who wants to invest first? Nobody wants to make the first move."
President-elect must move 'immediately'
According to Mr Bambang, infrastructure that will be completed by Aug 17 include the presidential palace, some parts of the coordinating ministers' offices, one five-star hotel and a hospital.
Mr Andry from INDEF thinks this is a first step to prove that Nusantara is a serious project. But the government – especially the incoming president – should show its seriousness by immediately moving there, he said.
"If the government wants the investors to be confident, the president-elect must immediately be based there," he said. "This is a strategic move to give a signal to investors that this IKN will be ready according to the plan, and ... there is political willingness."
Recent news about Jokowi wanting the design of the vice-presidential palace to be changed, agrarian conflicts between locals and the authorities, and members of parliament suggesting that they do not need to move – an idea that was rejected by the government – do not send positive signals to investors, said Mr Andry.
Two weeks ago, president-elect Prabowo visited Nusantara to look at preparations for Independence Day celebrations. He chatted with some construction workers, but a press release by his team made no mention of moving there.
"The most feasible move to take is for the president-elect to immediately be based there," said Mr Andry. "Then the investors will immediately think: 'Oh, the (next) president is already there.' And they will ensure that the LOIs become MOUs."
Nusantara's development will likely continue under at least two more presidents after Jokowi, he noted.
"Nusantara will always be homework for the next president," he said. "Every president wants a legacy. But the legacy of Nusantara is expensive and it is too big and too ambitious to fail."
– Additional reporting by Yasmin Jonkers.