ASEAN Beat | Economy | Southeast Asia

Indonesia’s Capital Problems

The country needs something that works better than Jakarta, but at what cost?

Construction workers in Indonesia’s new capital Nusantara, Sept. 20, 2024.

Countries these days (some of them) build shiny, new capitals for several reasons. Maybe the old one has grown so congested, polluted, or waterlogged that getting from A to B feels like sitting an MIT Engineering entrance test. Perhaps – and we don’t say this out loud – it simply doesn’t work; the city that is.

The other reason for packing up everything and moving it all to an inhospitable faraway place by caravanserai is that the political class, which often travels abroad – and not by camel train anymore – has become quietly ashamed of their capital.

The political classes of today dreams of destinations that call to mind classic science fiction. Think Naypyidaw in Myanmar, or Astana, the capital of Kazakhstan – just the names are redolent of Asimov in his prime.

Indonesia has been aiming to achieve both aspirational cities at once – but has since run out of money to finish the job.

Nusantara, the $32 billion new capital that will one day emerge from the steamy jungles of East Kalimantan, is the most visible expression of a country that has decided it can out-build its neighbors even while its currency is doing a flop-of-the-century act. Much of the gasp-eliciting work in the new capital has been done; for example, the Garuda Palace, which is topped with swooping golden eagle wings.

President Prabowo Subianto slept there overnight in January, in what was widely read as symbolic commitment to the project, but then the bean counters began to bean count.

The $32 billion was never supposed to be paid for by the state. The idea was that private investors – developers, foreign firms, sovereign wealth funds – would cover roughly 80 percent of the cost, or about $25.6 billion, with the government picking up the remaining fifth, for roads, water, the palace, and the ministries.

The Nusantara Capital Authority (IKN) reports around $13.6 billion in signed investment commitments, but only about $4 billion of that has actually been realized in construction – roughly 15 percent of the sum private capital was supposed to deliver.

Meanwhile the government’s own fifth has dwindled too: Indonesia’s own budget documents show the IKN allocation falling from roughly $2.7 billion in 2024 to about $390 million in the 2026 draft budget – an 85 percent cut.

The result is less a city where the roads have no names than a city that has no roads to begin with. Some 10,000 people – mostly construction workers and civil servants – toil out a distant existence there, far from the 1.2 million residents once promised. Dare it be said: in a ghost city.

Meanwhile Jakarta – polluted, gridlocked, and reportedly the fastest-sinking major city on Earth – carries on as the actual seat of government.

As a local quip has it,........

© The Diplomat