An Update on the Construction of Indonesia’s New Capital City – Nusantara – in East Kalimantan

Moreover, it is an interesting topic because there are ample opportunities for private investors. Moving the capital city from Jakarta (on the island of Java) all the way to North Penajam Paser and (partly) Kutai Kartanegara (two regencies located in East Kalimantan) involves the construction of property, roads, green zones, energy and a range of other massive infrastructure projects. Meanwhile, on various occasions, the Indonesian government expressed that it is not capable of funding this project by itself (as the central government’s State Budgets cannot carry the financial burden). In fact, not even the help of state-owned enterprises is enough to cover all required investment funds.

A Short History of the Nusantara Project

Back in April 2019, Indonesian President Joko Widodo expressed his desire to move the capital city away from Jakarta as the latter is overcrowded (in fact, the northern part of the city is slowly sinking into the sea) which causes a number of troubles and inefficiencies. Moreover, moving the capital city away from the island of Java would make Indonesian politics and the economy less ‘Java-centric’, thereby encouraging a more equal situation between Java and the rest of the massive Archipelago. So far, it is Java (especially the Greater Jakarta Area) that has been functioning as the center of national politics, business, and economy. It is a situation that causes resentment in other parts of the country.

However, relocating the capital city is not a new topic in Indonesia. In fact, such plans have been on and off the table for decades (although never turning into something more than discourse only). And so, most people were not too shocked by Widodo’s announcement in April 2019.

In August 2019, President Widodo’s plans became a bit more concrete when he said the location of the new capital would be North Penajam Paser and Kutai Kartanegara in East Kalimantan. Still, it is an ambition that needed careful planning as well as a sound legal framework. So, many – including us – were still in a wait-and-see mode. Moreover, a few months after this announcement, the COVID-19 crisis erupted in Indonesia, implying the government had to devote most of its attention (and money) to the handling of this crisis. So, most other plans and programs had to be shelved, including the development of the new capital city. Nonetheless, the government did continue to work on a Capital City Bill.

In January 2022 Indonesia’s House of Representatives (or DPR) officially passed the Capital City Bill into law during a plenary meeting. Some interesting points in this law are:

(1) The determining of the name of the new capital city: Nusantara;

(2) Making Nusantara a regional government at the level of a provincial government (although, as we will see below, there are some important differences between Nusantara and a ‘typical’ province in Indonesia); and

(3) Turning Nusantara into the place where the executive, legislative and judicial centers are located (including the Financial Services Authority, or OJK, and Bank Indonesia) as well as the location for foreign country representatives and representatives of international organizations/institutions (however, a still to-be-drawn Presidential Regulation will discuss in more detail whether, for example, embassies will need to relocate to Nusantara; this remains unclear at the moment).

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This is part of the introduction. The full text is available in our September 2022 report (an electronic report; PDF in English). This report can be ordered by sending an email to info@indonesia-investments.com or a message to +62.882.9875.1125 (including WhatsApp).

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