The plan to move the capital city had, in fact, been initiated in the era of Indonesia's first President, Soekarno, and will now be realized by President Joko Widodo.
The process to move the capital city has been accelerated after the Indonesian House of Representatives agreed to ratify the bill on the National Capital City (RUU IKN) at the plenary meeting on January 18, 2022.
The IKN Law has projected the Indonesian government’s seriousness in shifting the capital from Jakarta to East Kalimantan, with the move targeted to take place from 2024 to 2045.
The National Development Planning Agency (Bappenas) has also issued the National Capital City Relocation Pocket Book, which contains information regarding the stages of moving the capital city.
The new capital's development will begin with the construction of major infrastructure, including the Presidential Palace, the People's Consultative Assembly (MPR)/House of Representatives (DPR) building, and the construction of residential housing in the main area of the new capital city, which will be named “Nusantara.”
Then, the next stage will be the transfer of the State Civil Apparatus (ASN) in the initial phase, including the personnel of the Indonesian Military (TNI) and the National Police (Polri) and the MPR, followed by the construction of basic infrastructures such as water and energy.
New Capital City Budget
The plan to relocate the capital city has evoked various reactions from the society, both positive and negative.
Those who support the plan deem that moving the capital is part of efforts to achieve equitable development in Indonesia as well as ease the burden on Jakarta.
Meanwhile, the high budget required for the construction of the new capital, especially amid the COVID-19 pandemic, has become one of the reasons some people have slammed the government’s capital relocation plan.
In 2020, Bappenas informed that the budget for the new capital is projected to reach Rp466 trillion, with Rp90.4 trillion for the physical development of the new capital city to be sourced from the State Budget (APBN) directly.
Meanwhile, Rp252.5 trillion will be sourced from the government and business entity cooperation (KPBU) scheme and Rp123.2 trillion from the private sector and regional regional-owned enterprises (BUMD) and state-owned enterprises (BUMN) scheme for financing the development, he informed.
Coordinating Minister for Economic Affairs Airlangga Hartarto has assured that the funds for the National Economic Recovery (PEN) program, which are meant for handling the after-effects of the COVID-19 pandemic, will not be used for the development of the new capital.
Jakarta’s Future
After Indonesia's House of Representatives approved the State Capital Bill (RUU IKN) as law, many people began to question Jakarta’s future.
Chairperson of the Jakarta Chamber of Commerce and Industry (Kadin), Diana Dewi, during a public discussion on the impact of moving the state capital from Jakarta on January 24, 2022, said that the capital city relocation would affect Jakarta's economic performance.
The impact will be felt in household spending and government spending in Jakarta, which are expected to decline, she underlined.
The reason is that labor-intensive industries are expected to leave the city and other satellite cities, and household consumption is also expected to decline as civil servants and TNI and Polri personnel are transferred to the new capital, she said.
In fact, the Jakarta Kadin has noted that the level of household consumption in Jakarta affects the performance of other regions, namely Java (21 percent), Bali and Nusa Tenggara (7 percent), Kalimantan (6 percent), Sumatra (5 percent), and Sulawesi-Papua (4 percent).
According to data from the National Development Planning Agency (Bappenas), in 2019, Jakarta contributed 20 percent to the trade-sector GDP, with its financial services center contributing 45 percent.
Meanwhile, the company service center contributed 68 percent, government administrative and defense centers 49 percent, educational services 27 percent, and process industry 10 percent, the agency said.
Jakarta contributed 17.23 percent to the country's gross domestic product (GDP) in the second quarter of 2021, based on data from Statistics Indonesia (BPS).
Jakarta to Continue Growing
Kadin has said it is optimistic that despite the relocation of the capital city, the nation’s economy will still rely on Jakarta.
There are several things that Jakarta can do to anticipate a decline in economic performance after the relocation of the capital city, it said.
The provincial government of Jakarta can switch to a high value-added economy and collaborate with neighboring provinces, including West Java and Banten, it suggested.
Jakarta must transform into a business city since business distribution in Jakarta is dominated by large-scale trade and retail businesses (46.7 percent), accommodation and food & beverage (16.72 percent), and the process industry (16.53 percent), Kadin said.
Support for the MSME sector is also needed because it accounts for about 93.46 percent of businesses in Jakarta, it added.
With the support from the infrastructure in Jakarta, the city can focus on being a center for finance and banking to a center for logistics and export-import activities.
Executive director of the Institute for Development of Economics and Finance (Indef), Tauhid Ahmad, urged the provincial government of Jakarta to anticipate the short-term and long-term impact of the capital relocation.
The impact on household spending, workforce, investment, export, and economic growth must be anticipated, he said.
Sectors that are directly affected also need to be identified, mitigation scenarios prepared, as well as collaboration with the central government, local governments, businesses, and universities achieved, he added.
Jakarta as Economic Center
Jakarta Governor Anies Baswedan assured that Jakarta will remain Indonesia’s economic center even when it no longer holds the status of the capital city.
The provincial government of Jakarta is currently formulating Jakarta’s position after the capital city relocation by involving experts, he informed.
Deputy Governor of Jakarta, Ahmad Riza Patria, also said that development in Jakarta will resume as the government will continue to beautify Jakarta, ensure transportation integration, and make efforts for handling floods.
The relocation of the capital city will not only present challenges for Jakarta, but also Nusantara as the new capital of Indonesia, he added.
Especially for Jakarta, the government, both central and regional, as well as other parties, must ensure that Jakarta still has its magnetism and continues to support the national economy, Patria said.
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Editor: Rahmad Nasution
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