Indonesia Vows to Build USD33bn Capital as Economy Sputters

  • 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 USD33bn new capital on the island of Borneo, Planning Minister Suharso Monoarfa said. It’s also finalizing a master-plan for the new city, he said.
  • While the plan has taken a backseat to allow the government to focus on stemming the pandemic and set aside almost USD50bn 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.
  • “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. “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 IDR100tr a year in lost productivity due to traffic jam 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.
  • The capital is proposed to be funded by a mix of government and private-public partnerships with bulk of the money coming from the private sector, according to Monoarfa.
  • Abu Dhabi Crown Prince Mohammed Bin Zayed Al Nahyan, SoftBank Group Corp. founder and Chief Executive Officer Masayoshi Son and the U.S. International Development Finance Corp. have shown interest in investing in the new city, according to officials.
  • The government’s investment will be limited to building the basic infrastructure for the capital and a state spending of IDR10tr is set to draw at least IDR100tr-IDR120tr of private sector funds, he said.
  • While authorities previously targeted a ground-breaking ceremony for the project in the fourth quarter of this year, Monoarfa acknowledged a delay due to the pandemic but didn’t set a new date for start of construction.

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