Moving the Capital
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The discourse on moving the capital city from Java Island is again rolling, even gaining speed. This is an old and perpetual idea because Jakarta is increasingly facing the complex and formidable issue of population. Jakarta is too tired to be inhabited by 10 million people (at night) and 15 million people (during the day). Combined with its surrounding areas, "Greater Jakarta" is now inhabited by 30 million people!
Besides the imbalance between population density and its capability to provide infrastructure, Indonesia is now interested in equitable development outside Jakarta and outside Java. These two reasons constitute a very powerful justification for moving the capital from Jakarta to a location outside Java, with a great possibility in Kalimantan, located in the middle of Indonesia.
Variations in cases
The rationale behind this relocation plan is similar to that of Brazil. Brazil moved its capital from Rio de Janeiro to Brasilia, a city more centrally located than Rio on its southeastern coast. The move was planned in 1956 and the new capital of Brazil was officially established in 1960. It took only four years to relocate because the two cities are relatively close (1,168 kilometers), are located on the same land, and the complexity of the capital’s problem at that time was not too great.
The case of the Malaysian capital is different. In order to reduce the capital’s population density, Malaysia built Putrajaya, which is only 36 kilometers from Kuala Lumpur, as the center of the federal government. Therefore, the state capital, where the king lives and parliament is located, remains in Kuala Lumpur. Kuala Lumpur is the center of business, while Putrajaya is the center of government. In other words, the burden is shared between the two cities.
Construction of Putrajaya started in 1990 and became operational in 1999. It took nine years, even though the distance is short. This is perhaps similar to the idea, in the era of President Soeharto, to move the administrative capital from Jakarta to Jonggol, West Java, 52 kilometers away.
The Australian case is another one. The capital of Canberra was founded in 1908, the result of a compromise after the two largest cities fought over their candidacy as the capital city: Sydney and Melbourne. Finally, a middle way was selected, creating a new city between the two. The contest to design Canberra City was won by two architects from Chicago, Walter Burley Griffin and Marion Mahony Griffin. Their design was very much inspired by the landscape of the US capital, Washington, DC.
In the center of Canberra is an artificial lake called Lake Burley Griffin. Canberra is located 280 kilometers from Sydney and 660 kilometers from Melbourne.What is interesting is that the prime minister more often lives at his busy, warm Sydney residence than in cold and deserted Canberra.
Meanwhile, Beijing, the capital of China, is a very large and densely populated city with 21 million people, but it is still out numbered by Shanghai, the country’s business center, with 24 million people. The two cities are connected by fast train along a 1,318-kilometer track, or nearly nine times the distance from Jakarta to Bandung, which will also be linked a fast train.
China\'s economic development is also experiencing a sharp economic disparity between its eastern coast and its central and western regions. The top Chinese economist, Professor Justin Yifu Lin (former chief economist of the World Bank), has always said that China’s biggest economic problem was the income disparity between its eastern and its western and central regions. So far,however, the Chinese government has not yet thought to move the capital to the country’s interior.
These various population density cases indicate that the case of the Indonesian capital is unique, special and second to none. Jakarta has a population of 10-15 million, even though not large compared to other world capitals, such as Karachi (23 million), Beijing (21 million), New Delhi (17 million), Lagos (16 million), Dhaka (15 million), Istanbul (14 million), Tokyo (13 million), Moscow (12 million), or Cairo, Kinshasa, and Seoul (10 million respectively).
Fiscal burden
Even though none of these capitals plan to move, a plan to move the capital from Jakarta is certainly valid, because its main objectives are to reduce population density and reduce national economic disparities. However, the problems are: Are we financially ready? Is the time right? Can we fulfill the conditions? Moreover, the government is now actively building infrastructure everywhere.
The most complicated issue at present is the fiscal condition. The combined impact of the increased infrastructure spending and the slashed tax revenue target will cause the 2017 State Budget deficit to reach 2.92 percent of gross domestic product (GDP). Even though this figure is still below the 3 percent safe limit, according to a consensus of the world\'s top economists on deficit in emerging markets like Indonesia, our usual deficit is only 2.5 percent with a maximum of 2.7 percent. This means a deficit of 2.92 percent is one which, psychologically, has begun to require extra caution in its management.
Conventionally, the deficit is usually overcome with debt. So far, Indonesia\'s debt-to-GDP ratio is still safe at 28 percent. In comparison, the debt-to-GDP ratios of several other developing countries are: India and Brasil, both with 69 percent, China (49 percent), Mexico (48 percent), South Korea (38 percent), and Turkey (28 percent). Even though we are safe according to the criteria, we must remain vigilant, especially since our debt burden comes mostly from abroad in foreign currencies (US dollar, yen, euro). At the same time, our foreign exchange reserves, which reach nearly US$125 billion, are now being corrected to $123 billion. It is still high enough, but vigilance must remain high.
It is better for us to stay focused on catching up in infrastructure development. President Joko Widodo\'s administration has budgeted infrastructure spending of Rp 300 trillion per year. This is a large amount compared to the size of our state budget of Rp 2,100trillion, but it is still low if we use the ideal GDP of 5 percent.
Our current GDP is over Rp 12,000 trillion, which means that the ideal infrastructure spending would be around Rp 600 trillion. In other words, outside government spending, we need Rp 300 trillion from private investment in infrastructure projects. It has to be admitted, this will be hard to realize in the next several years.
Then, how much willit cost to build a new capital outside Java? There are no figures yet. However, we can find a benchmark from Lippo Group, which is currently building a new metropolis, Meikarta, in Cikarang, West Java, 45 kilometers from Jakarta. Lippo claims the development of Meikarta, with an area of 2,200 hectares, will cost about Rp 278 trillion.
Assuming that building a similar city in Kalimantan is more "challenging" and expensive than building one in Cikarang, the cost of the new capital can be estimated to be at least double that of Cikarang, or Rp 500 trillion. This figure is equivalent to 25 percent of the annual state budget, or 4 percent of the annual GDP. It is really big.
For comparison, the costs of Jakarta’s mass rapid transit (MRT) project is “only" around Rp 30 trillion, Kulongprogo airport in Yogyakarta is Rp 10 trillion, Terminal 3 of Soekarno-Hatta Airport – which is magnificent – "a mere" Rp 7 trillion. Or, if the estimated cost of the new capital is compared to the current infrastructure budget, this is equivalent to almost two years of the infrastructure budget!
The government reportedly will not charge the construction of the new capital to the state budget, but proposes a private financing scheme. A fantastic idea. However, I am quite skeptical about this proposal. As reference, the scheme to finance the Rp 74 trillion cost of developing the fast train by "private" (state-owned) enterprises of Indonesia and China still looks indecisive. A big feasibility check of this project is that I have not found any models abroad of an economical fast train project for the short distance of 142 kilometers. So how can we imagine the construction cost of a new capital atRp 500 trillion, even more, financed by the private sector? In my opinion, this is quite absurd.
Focus on building infrastructure
Finally, all our energy should be focused on infrastructure development, as the government is concentrating on at present. The development of the Trans-Sumatera highway, the Jakarta-Surabaya medium-speed rail, regular trains in Kalimantan and Sulawesi, and roads to dispel isolation and generate connectivity in Papua, as well as the many irrigation dams on food-producing islands, are all initiatives that have been executed well.
If these projects are successful, an equitable distribution of development will also be realized automatically. The wave of rural-urban migration to Jakarta will also be mitigated, as the center of economic growth is dispersing throughout the country, outside Jakarta and Java. Hopefully,the focus on the rapid pace of infrastructure development, now being squeezed by these fiscal pressures, will not be split by wasting energy onthoughts of a costly new capital city. Spend our limited energy effectively.
A TONY PRASETIANTONO
Head of the Center of Economic and Public Policy Studies at the University of Gadjah Mada and Faculty Member of the Bank Indonesia Institute
