Indonesia pushes ahead with US$33 billion new capital city despite sputtering, pandemic-hit economy

The plan has taken a back seat amid the government’s almost US$50 billion pandemic response, but is set to become a priority next year

Investors from China, the Middle East and the US have shown interest in developing the new city, in East Kalimantan on the island of Borneo

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A mist of fumes, dust and smoke blankets the skyline of Jakarta, Indonesia’s capital, in 2019. Photo: Xinhua

Published: 10:45am, 1 Jul 2020Updated: 10:45am, 1 Jul 2020

Indonesia is pressing ahead with plans to build a new capital as billions of dollars in private sector investment is seen as key to reviving an economy battered by the coronavirus pandemic, a senior minister said.

President Joko Widodo’s administration is working with the parliament to pass a bill to lay the legal foundation to start work on the US$33 billion new capital on the island of Borneo, Planning Minister Suharso Monoarfa said. It is also finalising a master plan for the new city, he said.

While the plan has taken a back seat to allow the government to focus on stemming the pandemic and set aside almost US$50 billion to cushion the blow to the economy, it will become a priority next year, said Monoarfa, whose ministry is drawing up the legal framework and design for the yet-to-be-named city. Jokowi, as the president is known, proposed the new capital last year to ease pressure on congested Jakarta, which is often hit by floods as parts of it lie below the sea level.

“Why should we continue with the new capital plan in the midst of a pandemic like this? The answer is that we need a locomotive that can deliver multiplier effects to the economy,” Monoarfa said in response to questions. “The capital project can create a lot of jobs and will have broad multiplier effects.”

Indonesia has identified about 256,000 hectares of land in East Kalimantan on the island of Borneo for the capital – about four times the size of Jakarta. An estimated 100 trillion rupiah (US$7 billion) a year in lost productivity due to traffic jams in the greater Jakarta area, home to almost 30 million people, and the need to spread economic growth beyond the main Java island have prompted the new capital plan.