Urgency of Relocating Indonesia’s Capital City
President Joko “Jokowi” Widodo announced on Monday that Indonesia’s new capital city would be located in Penajam Paser Utara and Kutai Kartanegara regencies, East Kalimantan.
The discourse to relocate the capital city has actually been a long-standing issue, even since the administration of president Sukarno (1957). At that time, Palangkaraya city in Central Kalimantan was chosen because of its location right in the middle of Indonesia.
President Soeharto (1997) had also prepared around 30 hectares of land in Jonggol, West Java, as the location of a new capital. President Susilo Bambang Yudhoyono (2009) had also formed a relocation team, although it never determined its location.
Not just discussing the issue, President Jokowi tried to realize it. He has decided that the new seat of the government would be moved to East Kalimantan, while Jakarta would remain as the center of economy and business.
National Development Planning Agency (Bappenas) estimates the cost of the relocation will reach Rp 466 trillion (US$32.67 billion), 19.2 percent of which to be funded by the state budget. The rest will come from revenues from the use of the government assets, which will be commercially managed in cooperation with private companies.
The removal of the national capital is actually normal and natural. Some countries have done it. The United States, for example, moved the capital from New York to Washington DC. The capital of Brazil was moved from Rio de Janeiro to Brasilia, while the capital of Australia was relocated from Sydney to Canberra and the capital of Turkey from Istanbul to Ankara.
It must be understood from the experience of some of these countries that the relocation of the capital city is not necessarily followed by the relocation of business centers or economic activities. Seeing the problems that plagued Jakarta, the plan to move the capital could be quite rational. Jakarta\'s position is too centric and has become a barometer for all activities as the center of government, politics, business and culture.
Jakarta\'s capacity is increasingly inadequate, causing various complex problems, ranging from traffic jams and floods to potential environmental disasters. Based on the Bappenas’ estimate, the loss due to congestion in Jakarta is about Rp 100 trillion a year and 50 percent of the Jakarta area is classified as flood-prone. Floods not only come from upstream but also from land subsidence on the northern coast and the rise in sea level.
In addition to a decline in carrying capacity, another reason that has always surfaced is economic justice. Economic development is considered too Java-centric so that it creates a wide gap between western and eastern Indonesia. As of the second quarter of 2019, the distribution of economic growth was still dominated by Java at 59.11 percent. Meanwhile, the contribution of Sumatra was only 21.31 percent, Kalimantan 8.01 percent, Sulawesi 6.34 percent, Maluku and Papua 2.17 percent, and Bali and Nusa Tenggara 3.06 percent.
Moving the government center to Kalimantan will increase activities around the location of the new capital city, but this does not necessarily automatically have a broad impact on the acceleration of economic activities throughout Kalimantan. Moreover, if it is assumed that relocation will automatically spread to areas around Indonesia, such as Papua, East Nusa Tenggara, West Nusa Tenggara, Maluku, and other eastern regions.
The reason is that the main factors in driving the economy are more determined by economic infrastructure, both policies and basic infrastructure and connectivity. Moreover, in the era of regional autonomy, the spearhead is investment-friendly regional policies, especially policies that can provide business certainty.
In addition, the main source of inequality in economic development is the gap in human resources. Without preparations to improve the skills and quality of the local human resources, surely the potential for economic inequality will widen.
The reason is that the added value of increasing productivity will be enjoyed only by migrants from other regions. Actually, the vision of the second administration of Jokowi to create superior human resources is quite right.
The government should not lose its focus. It means that the urgent priority to reduce inequality is equal distribution of human resource investment and infrastructure development in eastern Indonesia.
To overcome the lag, the government does not only need commitment, but also a concrete program
Almost all developed countries in Asia, such as Japan, China and South Korea, started from building human resources. To overcome the lag, the government does not only need commitment, but also a concrete program.
The plan to move the capital city can still be scheduled. It is important but not urgent. At least it should not be forced to be finished by 2024. Amid pressures from the impact of the slowdown of global economic growth and the trade war, risk mitigation is needed.
The government also needs to concentrate its works on efforts to escape from the 5 percent growth trap. Moreover, the impact of a trade balance deficit can lead to deindustrialization.
If the government\'s response is slow, the potential threat of mass layoffs is inevitable. Therefore, the plan and stages of the relocation of the capital city should not become a polemic that drains the nation\'s energy, especially if the decision must be paid with high political costs.
The relocation of the capital city needs to be carried out gradually and systematically. For the first stage, it can be started with a joint decision between the government and the House of Representative about the urgency of the relocation. If the urgency is high, Law No. 29/2007 concerning the national capital must be revised.
And then, we can deliberate a draft law on the capital relocation place, which should be accompanied by comprehensive and thorough studies on the urgency of the relocation. If the bill is approved as a law, it will become a state decision and is binding, unless there is an amendment.
Only with such a legal umbrella, the government (Bappenas) has the mandate to conduct studies that are truly objective and comprehensive. Bappenas can incorporate the capital city relocation agenda to the National Medium-Term Development Plan 2020-2024.
The plan should be made in detail, comprising phases and a master plan of the relocation. The official document is not only a guide for the government’s work, but also a reference for the private sector’s involvement.
The sources of funding outside the state budget or those from the private sector will come only if there is legal certainty. The capital city’s relocation does not need to be carried out in a hurry, nor does it have to be completed by 2024.
The consideration is that if the relocation of the capital city is carried out haphazardly and does not have legal certainty, it will only add to the uncertainty of the investment climate in Indonesia.
ENNY SRI HARTATI, Senior Researcher, Institute for Development of Economics and Finance (Indef)