August 22, 2022
JAKARTA – In the face of rising inflation and global uncertainty, the highest authorities in the executive and legislative branches of government have reaffirmed their commitment to Indonesia’s future capital city. In his annual state address on the eve of Independence Day, President Joko “Jokowi” Widodo vowed that the project’s development would continue, with only 20 percent of the total funding to come from the state budget, which leaves the lion’s share to other parties. “The continuity of the [capital city project] must be ensured. It is not a city for civil servants only, but also a place for innovators and entrepreneurs,” President Jokowi said on Tuesday.
High-ranking legislative officials also threw their support behind the megaproject for a new city to be built in East Kalimantan. “[We need] a development path that guarantees continuity without relying on a five-year electoral cycle. That includes [the capital project], which should not be neglected even if the national leadership changes,” People’s Consultative Assembly (MPR) Speaker Bambang Soesatyo said on Tuesday. “The House of Representatives has given its support to the development of [the city]. There are still various shortcomings and imperfections […]; imperfections in the development of the state are not a reason to scold the state,” said House Speaker Puan Maharani, also on Tuesday. In a press conference after the yearly address, government officials scrambled to explain the details of the plan.
National Development Planning Minister Suharso Monoarfa said the 2023 state budget draft allocated Rp 23.6 trillion (US$1.59 billion) to the construction of the future capital, 88 percent of which was to go to the Public Works and Housing Ministry. Other government bodies to receive funding for the project next year are the Investment Ministry, the Transportation Ministry, the Environment and Forestry Ministry and the National Police. “We are hoping for more participation from the private sector, both from within and from outside the country, so that, aside from this Rp 23.6 trillion, there would be financing from the private sector next year,” Suharso told reporters on Tuesday. Public Works and Housing Minister Basuki Hadimuljono announced that the project’s proposed total state budget funding from 2022 to 2024 amounted to Rp 43 trillion, around 12 percent of which had been allocated for the current fiscal year. This budget funds, he added, would be used to build the first stage of the Core Government Area (KIPP), which included the presidential palace, vice-presidential palace, office buildings and roads as well as water supply and sewage systems. President Jokowi previously estimated the total cost for the city at Rp 486 trillion, with around Rp 100 trillion to come from the government. “We are currently on a trajectory where the first stage of KIPP is expected to be completed in 2024,” Basuki told reporters on Tuesday.
Center of Economics and Law Studies (CELIOS) director Bhima Yudhistira said political risks remained for the project, as investors would prefer to “wait and see” until a winner was determined in the 2024 general elections, while geopolitical uncertainty had reduced the appetite for infrastructure investment. Party coalitions for the elections have yet to be decided. Business risks to the project also remained, he continued, citing the possibility of cost overrun due to high volatility in the prices of raw materials and capital goods. Doubts over the viability of the project emerged after Japan-based Softbank Group pulled out, with reports alleging disagreement between the business conglomerate and the government over details of the future capital’s development.
“The cost of funds also increases due to monetary tightening, so [investors’] liquidity has also been affected. Meanwhile, there has been no public information on the internal rate of return (IRR) from the project” Bhima told The Jakarta Post on Thursday. Indonesian Chamber of Commerce and Industry (Kadin) deputy chairman and coordinator for public works Insannul Kamil said the latest speeches by officials had alleviated but not eliminated investors’ concerns about the project.
“There needs to be a comprehensive development road map for the [project] that takes into account all aspects and [serves as the basis for] guidelines on the technical implementation,” Insannul told the Post on Thursday.