Involving Private Sector in New Capital City Development is Necessity
Involving the private sector in financing the development of the country’s new capital city is a necessity, as the state budget is still needed to finance the Covid-19 pandemic mitigation programs as well as the 2024 ele
By
Kompas Team
·6 minutes read
Kompas/Wawan H Prabowo (WAK)
President Joko Widodo together with the Governor of East Kalimantan Isran Noor inspected the location of the candidate for the national capital in the Sepaku area, North Penajam Paser, East Kalimantan, Tuesday (17/12/2019).
JAKARTA, KOMPAS — The government’s estimated fiscal space in the state budget is limited for the next few years. The government’s inevitable plan to involve the private sector in financing the development of the new capital city should be realized soon, but this must be carried out transparently. Involving the private sector should not allow any chance for corruption.
Fiscal space in the state budget will remain limited, as the Covid-19 pandemic has not shown any sign of ending. The pandemic handling and its impacts will suck up a large portion of the state budget. To illustrate, the allocation of this year’s state budget funds for the national economic recovery program, which includes expenditures for health, social protection, and economic strengthening, amounts to Rp 451.64 trillion (US$31.55 billion).
In addition, the government will also spend a lot of money for preparing the simultaneous general and regional elections in 2024. The budget allocation for organizing and holding the elections, which is estimated to reach Rp 150 trillion, is to start being disbursed this year.
On the other hand, the 2023 state budget deficit must be reduced to 3 percent of gross domestic product (GDP) as mandated by Law No. 2/2020. This narrows the fiscal space for state spending. Through the 2022 state budget posture for this year, the government target for state revenues and expenditure is Rp 1.86 quadrillion and Rp 2.70 quadrillion, respectively, with the budget deficit estimated to reach Rp 868 trillion, or 4.85 percent of GDP. The central government's spending will account for Rp 945.8 trillion, or 34.8 percent of total state spending.
With a limited state budget, a number of budget observers from academia and civil society who were contacted at the weekend called on the government to be cautious and wise in using the state budget for the new capital city (IKN) relocation and development project. The government must keep its promise that the development of the new capital city will not burden the state budget.
The government announced in 2019 its plan to move the capital city to Kutai Kartanegara and North Penajam Paser in East Kalimantan. Relocating and building the new capital city is estimated to reach Rp 466 trillion. The biggest proportion of the funds will come from public-private partnerships (PPPs), which are expected to provide Rp 254.4 trillion, or 54.6 percent of the total funding. Meanwhile, the private sector is to provide Rp 122.1 trillion (26.2 percent) and the government is to provide another Rp 89.5 trillion (19.2 percent) through the state budget.
ALIF ICHWAN
The Nagara Rimba Nusa design won the new national capital (IKN) competition in East Kalimantan which was announced at the PUPR Office Auditorium, Jakarta, Monday (23/12/2019).
Inevitable
According to public policy observer Roy Valiant Solomon from the University of Indonesia, involving the private sector is a necessity, given the large amount of funds needed to develop the new capital city. He said the government would still use most of the state budget to finance the Covid-19 mitigation program amid the decline in state revenues due to the pandemic.
"There are a number of cooperation and investment schemes that the government and the private sector can carry out, including ruilslag (asset swap) and mixed finance schemes," Roy said, adding that such partnerships should be carried out in a transparent manner. Involving the private sector must also be based on the principles of good governance to ensure that the IKN development project did not become a source of corruption or an opportunity for producing business deals that were detrimental to the state and the public.
Roy Salam, executive director of the Indonesia Budget Center (IBC), strongly emphasized that the IKN project could be used as a source of corruption for contenders to win the 2024 elections. "Don't let it become a source of corruption for companies that have strong ties with political parties, or become a field for raising election funds for political parties," he said.
As regards financing the IKN development project, the Finance Ministry’s budgeting director general, Isa Rachmatarwata, said that no part of the funds in the 2022 state budget had been allocated to the project. However, the government could use a portion of the state budget for developing infrastructure, such as access roads to the new capital city. Such funding can be part of the state funds allocated for the 2022 National Economic Recovery program because it was intended to increase economic activities at the regional or national level, as well as to encourage the creation of jobs.
Apart from that, Isa said, a number of projects that were being conducted by ministries and other administrative institutions in East Kalimantan were actually part of the IKN development project, such as the rehabilitation project for rivers, water sources, and reservoirs currently being carried out in East Kalimantan by the Public Works and Housing Ministry. "Many activities are being carried out or planned using the state budget, but they have not been labeled as [part of] the IKN budget," he added.
SRI REJEKI
The design of the State Palace in the form of a Garuda bird by artist Nyoman Nuarta who won the National Palace design competition in the new State Capital (IKN) in North Penajam Paser Regency, East Kalimantan..
Only as ‘a trigger’
Even though only a part of the state budget was being used for the IKN development project, economic affairs deputy Amalia Adininggar Widyasanti of the National Development Planning Ministry/Development Planning Agency (Bappenas) made assurances that the amount of funding would be kept at as small as possible. The funding scheme for the IKN development project would still refer to the initial plan, relying more on PPPs and private investment schemes. “So, the use of the state budget will be minimal and will serve only as a trigger. Our major goal is to attract private investment, to increase investors' willingness to invest, both from outside and within the country," said Amalia.
Speaking at a press conference in mid-January, Finance Minister Sri Mulyani Indrawati vowed that the use of the state budget would focus on the government’s priority programs, such as handling the pandemic and organizing the 2024 elections.
The IKN funding policy will continue to refer to the existing legal bases, and will be implemented under good financial governance.
Regarding the transparency and accountability of funding for the IKN development project, Diani Sadia Wati, who chairs the Institutional and Regulatory Working Group of the IKN Relocation and Preparation Coordination Team, said that the government would always coordinate with the House of Representatives in determining the budget plan for developing the new capital city.
"The IKN funding policy will continue to refer to the existing legal bases, and will be implemented under good financial governance [principles]," said Diani. (REK/DIM/SYA/INA/WKM/CAS/PDS)
