Nusantara: failing to plan or planning to fail?

Authors: Trissia Wijaya, Murdoch University and Samuel Nursamsu, SMERU

On 15 February 2022, President Joko ‘Jokowi’ Widodo signed a law cementing the legal basis to develop Nusantara, Indonesia’s new capital city. The ambitious project envisions a smart city at the nexus of environment and technology, which will be located in East Kalimantan and inaugurated in 2024. Underlying the plan is an ideological commitment to urban growth as the high road to sustainable and even development.

The government’s decision to relocate the capital has been a subject of contention. Critics maintain that the plan was rushed through without adequate public consultation, raising suspicions that Nusantara’s development is actually an attempt to build Jokowi’s political legacy. Concerns about the project’s environmental implications are widespread. Many have also cast doubts on whether Nusantara can attract investors and to what extent the state budget can cover the entire cost.

The underlying problem is the lack of experiential knowledge in technical assessments of the project. This absence may exacerbate the financial and environmental risks associated with the new capital’s development.

In urban planning, master planning is fundamental in defining how the entire project should proceed. Nusantara’s design seems far from concrete. The current master plan, which falls under the authority of the Ministry of National Development Planning, is superficial and unsupported by any accessible cost-benefit analysis. Meanwhile, the projects listed under the master plan are multiplying. For example, a new international airport has been listed as a strategic project, despite Balikpapan — its proxy city located within two hours — already having an international airport.

The government established an autonomous Nusantara Capital Authority in March 2022, leaving the master plan at the sole discretion of the agency’s head who reports directly to the president. But the state institution exercising executive rights should not simultaneously wield regulatory and other discretionary powers over urban planning. The capital’s master planning risks becoming fertile ground for bid-rigging in construction and rent-seeking domains, especially as records show that the site for Nusantara overlaps with 162 conglomerate-controlled coal mining and pulpwood plantation concessions.

Supply and demand problems also plague the plan’s infrastructure. The government aims to build basic infrastructure for 500,000 people but the entire construction of the capital city will cost Rp 466 trillion (US$32 billion). About one-fifth of the expenditure will be covered by the state and the rest through public-private partnerships and investment.

Yet this figure is driven by excessive optimism in expecting the private sector to contribute to high-risk projects with low returns. Private sector infrastructure investment is justified strictly on profitability, not on social merit. Very often, despite government promises of production facilities, profitability is not guaranteed — hence infrastructure development is heavily reliant on injections of capital by the state.

Some critics worry that if the scheme fails, Jokowi may have to turn to China for funding. But China may not deliver without weighing the risks, including the disruptions caused by COVID-19 and the absence of economies of scale. With a low population density and no clear roadmap to urbanisation and population growth, the new capital is unlikely to be well-served by any foreign investors.

Throughout the master-planning process, the aspect of real urban agglomeration has remained largely overlooked. The lack of robust migration incentive policies also limits the movement of people, making Nusantara even less attractive for businesses. So far, the government’s logic seems to be driven by a means–end calculation — that the transfer of government decision-making power will motivate businesses to follow.

This is not always the case. For example, the Brazilian capital of Brasilia, which was inaugurated in 1960, epitomises how improper cost-benefit analysis can perpetuate urban segregation and regional inequality. Low-income families struggled to find work even though they found the affordable housing in the new city attractive. So, though political decisions will be made in the new capital city, businesses will most likely remain around Jakarta due to the forces of agglomeration, with manufacturing and service activities already interconnected.

A new capital city requires the mobilisation of political support and vast financial resources. Yet the hype over Nusantara’s development may divert attention away from other problems — including COVID-19 pandemic recovery and urgent urban problems in Jakarta — which cannot be solved by merely relocating the capital city.

The government remains firm that Nusantara’s ‘smartness’ and ‘greenness’ is a panacea for environmental and social issues. But in the absence of adequate urban planning, it is difficult to take this sentiment at face value.

Trissia Wijaya is a PhD Candidate at the Asia Research Centre, Murdoch University.

Samuel Nursamsu is a Senior Researcher at the SMERU Research Institute, Jakarta.

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