STRATEGIC ASSESSMENT. Indonesia is dangling long-term lease concessions in the prime central district in Jakarta — where ministries and government agencies are located — to private investors as a sweetener if they participate in developing Nusantara city, the future administrative capital of Indonesia.
In a meeting at the Presidential Palace in Bogor, West Java, the Malaysian government presented a preliminary agreement on cooperation or a letter of intent on investment in the Nusantara capital city development. Malaysian private sector investors signed 11 preliminary agreements in sectors such as electronics, health, waste management, construction, property, and others. Furthermore, the Malaysian and Indonesian private sectors signed eight memorandum of understanding worth MYR1.16 billion, or approximately IDR4.11 trillion.
Malaysian Prime Minister Anwar Ibrahim said his country would invest in the development of Indonesia’s new capital on Borneo island, which both nations share. Anwar made his first overseas trip to Jakarta since taking office in November, saying at least 10 Malaysian companies have committed to invest in Nusantara, the new capital that was chosen in 2019 to replace Jakarta, some 2,000 kilometers (1,240 miles) away.
Anwar cited the proximity of Nusantara to Malaysia’s Sabah and Sarawak states and federal territories on Borneo island, saying the new capital’s growth will benefit the region’s economy. The first phase of development of Nusantara started in March last year, and is expected to be completed in 2045.
Minister of Investments and head of the Investment Coordinating Board (BKPM) Bahlil Lahadalia on his Instagram account recalled again why Softbank pulled back from investing in Indonesia’s future capital city of Nusantara (IKN). He insisted that refusing to be dictated to by investors is one of the reasons.
“In my own terms, there should be no business that can control a country. It’s the other way around, but a country also cannot haphazardly act against businesses. Mutual benefit is a must,” said Bahlil who insisted that Indonesia yearns for a fair investment climate. Bahlil once mentioned his side of the story behind Softbank pulling away from the Nusantara project in a working meeting with the House of Representatives (DPR) Commission VI on December 14.
Nusantara National Capital Authority Chair Bambang Susantono said three major investors had received approval from the Public Works and Housing Minister to begin construction on 14,500 residences for civil servants and defense and security officers worth IDR41 trillion in the new capital city.
The three investors are PT Summarecon Agung Tbk (SMRA), PT Risjadson Brunsfield Nusantara-CCFG Corp (Nusantara Consortium), and Korea Land and Housing Corporation. He said the three would conduct a thorough feasibility study covering the design concept, project scope, and technology recommendations to optimize project life cycle costs.
Indonesia will move its capital from crowded Jakarta on the island of Java to a rural area of Borneo. Jakarta faces severe overcrowding and flooding, as it was designed for only a third of its current population. Indonesia plans to move the political capital to Borneo, with the financial capital remaining behind. The new city could be ready by the end of 2024.
But will this move lift any pressure on Jakarta? Bruce Allen with FMI says, “In the immediate term when you’re moving all the politicians in Parliament, all the representatives, and all that sort of traffic, it will help ease things. Is it going to stop the sinking of the city into the sea? I don’t know that. This chain has thousands of islands that are volcanic. They go through a lot of disruptions.” Allen says the financial capital may also move away from Jakarta in the future.
Plus, to save Jakarta, Indonesia will sacrifice several natural habitats on Borneo. It remains unclear if the Indonesian government sought permission from indigenous peoples to build on the land. Allen says, “This is an area where orangutans and other species live in the wild. And this move will be taking away some of that. That’s something to watch.”
