President Joko Widodo’s decision of relocating Indonesia’s capital city from Jakarta in the island of Java to East Kalimantan has been given legal grounds. However, there still much to be done before the move can be considered final. 

On Tuesday, January 18, 2022, the Indonesian Parliament (also known for its Indonesian abbreviation DPR), passed the New Capital City bill into law. The law gives President Joko Widodo legal grounds to relocate the nation’s capital city from Jakarta in the world’s most populated island of Java to an area centered around a planned city tentatively named Nusantara located in Panajam Paser Utara regency in East Kalimantan  

This is not the first time the country’s leaders have had second thoughts about the location of the national capital city. The country’s first President, Soekarno, initially planned on having the nation's  capital located in the city of Palangka Raya in Central Kalimantan. Sukarno even held a groundbreaking ceremony by embedding the first pillar to this failed capital city project on July 17, 1957, before later changing his mind and declaring Jakarta as the country’s capital in 1961. During the 1997 Asian financial crisis, the country’s second and longest serving President, Soeharto, issued Presidential Decree No. 1/1997 that states that Jonggol in West Java was to be the alternative capital city to Jakarta – though the reasons for this was largely political in nature and was eventually scrapped as his rule over the affairs of the state crumbled. 

Nevertheless, the passing of the New Capital City Law marks a significant moment in Indonesia’s history as it is the farthest the Indonesian government has gone, from a legal perspective, in moving the capital city from the overcrowded city of Jakarta and its greater area of Bogor, Depok, Tangerang and Bekasi – the world’s second largest urban agglomeration with a population that exceeds that of the whole Australian continent. 

In response, the National Development Planning Agency (Bappenas), issued a factsheet (dubbed a buku saku or notebook) detailing the urgency behind the move, the steps that would be taken, as well as short case studies from Australia and Brazil.  

In short, the physical relocation of the capital city will be done in phases starting in 2024 with the aim of completing the move by 2045. In general terms, the country will start with the construction of the main infrastructure of the presidential palace, followed by the Parliament building, and then the residential areas in the main area of the new capital city. This will be followed by the relocation of civil servants starting with members of the armed forces, the national police, and the People’s Consultative Assembly (or MPR, which consists of members of the Parliament and the Senate). Other basic Infrastructure such as water and energy utilities will be constructed in the interim during this period. 

The budget for the relocation has been estimated to cost Rp 466 trillion (US$32.4 billion) with Bappenas, in 2020, stating that the state coffers would cover Rp 90.4 trillion of the whole budget. For the remainder of the budget, Rp 252.5 trillion would come from a government-business cooperation scheme while Rp 123.2 trillion would come from state-owned enterprises and the private sector. Most recently, Coordinating Minister of Economic Affairs Airlangga Hartarto said that the government had no plans of using money earmarked for the COVID-19 National Economic Recovery plan for the construction of the new capital city. 

Currently, the Indonesia government was still preparing the necessary implementing regulation for the relocation of the state capital city. Sidik Pramono, Head of the New Capital City Communication team at Bappenas said the next move would be for the President to sign the bill into law. “The implementing regulation, to be issued as either a government regulation or a presidential decree, must be specified at the latest 2 months after the bill is signed into law,” Mr. Pramono said, as quoted by Kontan. 

What Happens to Jakarta? 

By most accounts, the city of Jakarta would remain the economic beating heart of the nation. According to the Chairwoman of the Indonesian Chamber of Commerce, Diana Dewi, the city would see reduced economic activity once the relocation of civil servants from Jakarta to the new capital city begins, particularly in the retail sector. However, she said the relocation would also be an opportunity for Jakarta to upscale its place in the value chain as a financial and banking hub. 

Currently, the distribution of businesses in Jakarta remains dominated by the retail and wholesale sector, which makes up 46.7% of the city’s business spectrum, followed by the Food and Beverages sector with 16.72%, and then the manufacturing and processing industry with 16.53%.