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The Nusantara project: Prospects and challenges

Fulcrum - July 18, 2022

Yanuar Nugroho and Dimas Wisnu Adrianto – The relocation of the Indonesian capital from Jakarta to East Kalimantan is perhaps the most ambitious government project in history. But detailed planning on how the project should be implemented should be undertaken urgently to ensure its sustainability and success.


The Indonesian government's plan to move the national capital (Ibu Kota Negara, or IKN) from Jakarta to East Kalimantan is a prestigious and ambitious project. Thirty months after it was publicly announced, the National Capital Law (IKNLaw), the juridical basis for the relocation of the capital, has been ratified following approval by Members of the Indonesian House of Representatives (DPR) on 18 January 2022. And on 10 March 2022, the Head and Vice Head of the Capital Authority were inaugurated.

Although the idea of relocating the capital is not new, to fully implement and bringing about its realisation is perhaps the biggest government undertaking – both technocratically and politically – in Indonesian history. The ambition for building the new capital, to be named 'Nusantara', is reflected in its slogan: locally integrated, globally connected, universally inspired. Nusantara aspires to be the most sustainable city in the world, a symbol of national identity, and the driving force of Indonesia's economy in the future. Furthermore, the capital relocation is a key component of the overall structural transformation of the country.

However, President Jokowi has only two years left to start executing the agenda. He will certainly not be able to complete the entire task – but he will have to lay firm foundations so that the project can be continued and taken over by his successors. Furthermore, this gigantic work spans from careful and comprehensive city planning, building massive physical infrastructures, moving hundreds of thousands – if not millions – of civil servants and their families, and creating a mechanism for populating the new settlement, to running the country in a new governmental strategy and practice. In short, it is not only about physically building a new city but building a new culture of living and governing.

This article describes the intended vision of the IKN project and analyses the lapses and risks associated with – or the unintended consequences of – the conceptualisation and implementation of the project thus far.

Prospective benefits

From the national planning perspective, the relocation of the capital city offers at least two key propositions. First, the new capital city is expected to stimulate economic growth after the pandemic. To date, Java contributes 58.49 per cent to Indonesia's GDP, of which 20.85 per cent comes from Jakarta (BPS, 2018). Adequate infrastructure in the new capital is expected to encourage new industrialisation in the surrounding area and create employment opportunities. In the long term, it is expected to become an economic Super Hub driving the economy of the nation. The new capital city is designed as being among the government's top strategies for national economic recovery after the pandemic, and is projected to be able to support Indonesia's GDP target of USD180 billion and create 4,811,000 jobs in 2045. It is also expected to boost East Kalimantan's economic performance. Some macro indicators are predicted to improve significantly between 2021 to 2030. The province's economy will grow from 2.38 per cent to 6.3 percent, the poverty rate will fall from 6.54 per cent to 5.92 per cent and the unemployment rate will drop from 6.8-7 per cent to 6-6.5 per cent.

Second, the new capital city is expected to encourage equitable development. As promised by Jokowi, development must be Indonesia-centric, i.e. equitable throughout Indonesia so that no one region is marginalised, and no one is left behind. This can be done by creating a new epicentre of economic growth outside Java.

Relocating the capital city is undoubtedly expensive. But if the goal is to establish a liveable urban environment for the seat of the central government, then this agenda offers an advantage over improving Jakarta through urban regeneration or perhaps retrofitting massive green infrastructures which also requires significant budgeting. Building a city from scratch offers the liberty to accentuate innovative urban design that, with appropriate urban planning and governance, can be environmentally, socially and economically viable. Crucially, urban regeneration entails imminent negative impacts like the possibility of a widening social inequality, particularly due to 'speculative urbanism' or 'internal colonisation'. Furthermore, there is a risk that investing in upgrading the environmental condition of a given part of the city may lead to neglect in others.

As such, Nusantara is viewed as an opportunity to "get things right" by starting from a clean slate despite concerns that may make this 'incorrect' – such as those regarding environmental and socio-cultural aspects of the capital. There are further prospects to consider. First of these is having the capital city represent national identity, diversity, and appreciation of Pancasila. The commitment to Pancasila and the principle of Bhinneka Tunggal Ika is carried out through community integration of locals and newcomers with different socio-cultural backgrounds. The capital was named 'Nusantara' to reflect the spirit of strong unity despite the diversity of cultures, languages and religions.

The development of the capital as a forest city and a smart and intelligent city is considered relevant to Kalimantan. The green agenda is also represented in the net-zero carbon emissions design, the provision of extensive public transportation and active mobility and the commitment to allocate at least 75% of green spaces in the Government Area ...

Second is attaining a more efficient and effective governance. The new capital city will be governed by a special authority whose chief is directly appointed and dismissed by the president. Despite critics over the weak commitment to establish a democratised government, this framework will have the advantage of avoiding political tensions created by local elections (Pilkada). Indeed, the appointment of the chief will remain political, but as the president holds full authority on this, it is expected that a stronger central-local alliance can focus on meeting development targets. This is also stipulated in the IKN Law, which aims to secure the development of the capital despite possible changing political circumstances. The special capital region is a province having full authority to govern it jurisdictional boundary while enjoying strong budgetary support. Crucially, this form of functional decentralisation is different from any other model applied in Indonesia (e.g., Otorita Batam and Otorita Borobudur), which means that this agenda creates a new benchmark. Additionally, the orientation towards efficiency and effectiveness in IKNis optimised by e-government.

Third is creating a smart, green and sustainable capital to improve regional and international competitiveness. The development of the capital as a forest city and a smart and intelligent city is considered relevant to Kalimantan. The green agenda is also represented in the net-zero carbon emissions design, the provision of extensive public transportation and active mobility and the commitment to allocate at least 75% of green spaces in the Government Area together with having environmentally friendly technologies for all buildings.

The developing the new capital is to be based on eight main principles, i.e. (i) designing according to natural conditions, (ii) the value of unity in diversity, (iii) connected-active-accessibility, (iv) low carbon emissions, (v) circular and resilient, (vi) safe and affordable, (vii) comfortable and efficient living through technology, and (viii) economic opportunities for all.

Bureaucratically and technically, the relocation of the capital is a multi-year and multi-leadership agenda with a long relay. Referring to the blueprint issued by the Ministry of National Development Planning (BAPPENAS), the relocation of the capital will go through four stages: (i) the relocating of core administrative functions including the President's office, (2022-2024), (ii) development of a solid/integrated capital city area (2025-2035), (iii) development of the entire infrastructure and socio-economic ecosystem of the three cities – Banjarmasin, Balikpapan, and Nusantara – to accelerate the development of East Kalimantan (2035-2045), and finally (iv) establishment of its reputation as the 'World City for All'.

Risks and unintended consequences

Notwithstanding all the benefits relocating the capital city may reap, this project is, however, fraught with risks. In this section, we outline at least six key areas of concern.

First is the concern of policy priorities being misplaced amid pandemic emergency responses and future development planning. Indonesia is currently experiencing a national budget deficit of more than three per cent per year, a decline in state revenues, and substantive public debt. There is significant concern that the IKN project will distract the government from focusing on managing the pandemic. In 2022, the government allocated IDR455.62 trillion for post-COVID economic recovery despite the country presently transitioning from pandemic to endemic. But it is estimated that the IKN's project will cost a total of IDR466 trillion, which in the first stage of 2022-2024 alone would require IDR110 trillion. Although the government has repeatedly claimed that the development of IKN will not put undue burden on the state budget since there are many financing options (the state budget, foreign loans, private investment, and public-private partnerships), this is a sizeable commitment from the state which carries significant opportunity costs. The development of IKN itself is estimated to take 15-20 years. The logical implication of this is a shift in the government's focus from pandemic recovery towards prioritising a development agenda. In addition, the imminent impact of Russia-Ukraine war has to be considered. Predictions show that global GDP will decline for about 1 per cent on average alongside an increase of 3% in inflation. This will have a direct impact on investment and business decision-making.

Second is the concern over the hasty legislative process and the lack of public participation. The House's first session on the IKN Bill began on 7 December 2021, and it was passed into Law on 18 January 2022 – a total of only 42 days later. Even for a strategic policy such as this, this formulation process was far too quick, and the hearing process lacked public participation. Consequently, constitutionally the IKN Law has the potential for formal and material defects and violates statutory regulations, especially the provisions for the formation of laws based on the 1945 Constitution and Law No. 12 of 2011 on the Formation of Legislation (Pembentukan Peraturan Perundang-Undangan). Currently, formal lawsuits against the IKN Law have been raised to the Constitutional Court by a civil society organisation, Kelompok Poros Nasional Kedaulatan Negara (or PNKN, National Axis for State Sovereignty). This lawsuit was filed because it is believed that there is a substantive defect in lawmaking process.

Third is the low credibility and inadequacy of the background studies. While the IKN Law consists of 11 chapters and 44 articles; the initial study – called 'Naskah Akademik' or academic manuscript – consists of six chapters (175 pages) but only contains 17 references. This manuscript was widely disseminated and many academics and practitioners have heavily criticised it for its lack of fundamental philosophical and technical (including social, economic, technological, environmental, etc.) analysis. Despite the government's claim that necessary studies had been rigorously done, these had not been made available to the general public, leading to growing concerns over the credibility and legitimacy of Jokowi's plan to move the capital.

The fourth is closely linked to the third, and this is the concern over environmental degradation. There is a serious doubt about the impartiality of the Kajian Lingkungan Hidup Strategis (or KLHS, Strategic Environmental Assessment) due to the fact that it was carried out and published after the decision was taken to move the capital. This issue is especially salient considering that Kalimantan – whose tropical pristine rainforests form part of the world's "lungs" due to its carbon storage capacity and oxygen contribution – has already been degraded following the expansion of mining and agro-complex companies working in the area. The IKN mega-project is seen as a threat to fragile biological ecosystems and environmental sustainability.

Fifth is the concern over social disparity, urbanisation explosion, and social conflict. Instead of creating equal employment opportunities and economic redistribution, there is worry that relocating the capital might trigger new inequality and social conflict. Bappenas estimates that by 2027, 127,000 civil servants would have moved to the new capital – not including their immediate families and the associated service sector businesses. The majority of this demographic will be from the upper-middle class who will have to co-exist with the lower-middle class populations of existing (predominantly rural) communities as well as migrant labourers from across the country. Moreover, there are at least 21 indigenous groups with a population of over 20,000 within the boundaries of the new capital city regions in Penajam Paser Utara and Kutai Kartanegara whose lives will be directly impacted. The case of Jakarta and how the Betawi people are marginalised has become a dark history as well as a warning tale on how urban planning can lead to the marginalisation of local and indigenous people. The government must devise a strategy to mitigate this concern.

Finally, there is worry about conflicts of interest in land concessions. Most of the land in the IKN region are already controlled by private businesses in the agriculture, forestry, and mining sectors – many of which have connections to elite politicians and their relatives. Moreover, there are also overlaps in these concessions between mining area and forestry. According to the Mining Advocacy Network (JATAM), there are 149 ex-mining pits (abandoned mining sites) in the IKN area of which 92 are inside the administrative capital region. Those abandoned sites form part of 25 mining concessions, some of which are affiliated with ministers in Jokowi's cabinet. According to JATAM East Kalimantan, as of 2021, the distribution of mining pits based on coal mining company concessions in the capital region is 47,875.42 hectares. Despite that, this has not been thoroughly investigated, and some stakeholders have expressed concern that the compensation process will be marred by corruption since concession holders may leverage their political influence to gain unfair compensation.

According to UN Habitat, cities contributed approximately 70% of the total human-induced greenhouse gases while consuming more than two-thirds of the global energy, mostly from fossil fuel consumptions for building and transport-related operations. Thus, while Indonesia's agenda to develop a new capital city with a green and sustainable design could be seen as a 'positive' commitment towards transition to renewable energy (despite the construction process alone generating significant emissions), it has unintended consequences. Fundamentally, despite the significant energy savings eco-design can offer, the application per se is costly both at the construction and maintenance levels. This can potentially affect the overall affordability of eco-cities.

Smoothening the move

After the ratification of the IKN Law and the appointment of the Head and Vice Head of the Capital Authority Agency, the next step in the agenda is to complete the derivative regulations of the law (at the moment there are five – two government regulations and three presidential regulations). Only after they are completed can the physical infrastructure development start and the plan to relocate civil services in key ministries and agencies commence. Only then can the substantive parts of the relocation happen.

In terms of city and urban development and planning, this means there is a need to focus on spatial integration, particularly to set up policies for a regional agglomeration (e.g., the golden triangle of Balikpapan-Samarinda-Nusantara). Regional agglomeration provides various advantages (e.g., labour pooling and sector specialisation networking) which empowers economic productivity and growth. In this matter, the new capital city agenda should also promote economic development as a long-term brand that is equally, or even more, important to the sustainable urban design attributes (e.g., in attracting population and labour migration). However, there is a need to anticipate the pitfalls of encouraging the growth of labour-intensive economic sectors as these pose threats to the protected forests in the outskirts of the new capital. Hence, the economic agenda should also consider strict zoning control or rely on alternative sectors (e.g., services).

With all the multidimensional challenges of relocating the capital, the government needs to incorporate integrated planning practices. Until recently, spatial planning in Indonesia has been conducted in silos by conflicting institutions and jurisdictions which led to ineffective execution of urban development policies. Integrated planning emphasises the co-production of policies (e.g., collaborative decision making), which implies the need for fundamentally inclusive and requires the improving of institutional capacity.

Here, further research is needed in at least three key areas. First is to ensure the continuous attractiveness of the new capital for investment and population migration whilst maintaining environmental well-being as part of urban liveability. Second, in anticipating urban growth, research should be encouraged to ensure social inclusion and cohesive community. This is particularly important as Indonesia struggles with anticipating problems like urban sprawl. Ultimately, as this agenda is considered the biggest urban development in the history of Indonesian urban planning, there is a need to revisit the 26/2007 Planning Act which regulates spatial planning in Indonesia. Currently, there is a gap between dynamic urbanisation and the institutional capacity to manage growth, both at national and local levels.

Perhaps most importantly, research and appropriate planning tools for the relocation and development of the new capital need to be executed ex-ante rather than ex-post. Given the immense complexity of the project, every effort should be taken to anticipate unintended consequences and mitigate them. This is important because moving a capital city is not just a matter of moving government offices and buildings, but also transforming the lives of people.

[This is an adapted version of ISEAS Perspective 2022/69 published on 7 July 2022. The paper and its references can be accessed at this link.]

Source: https://fulcrum.sg/the-nusantara-project-prospects-and-challenges