Examining the Economic Factors Behind Moving the Capital from Jakarta

Is it true that moving the capital city can reduce economic disparities and accelerate Indonesia's economic transformation?

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Mengulas Faktor Ekonomi di Balik Pemindahan Ibu Kota dari Jakarta

KOMPAS/FAKHRI FADLURROHMAN

The morning atmosphere in the development area of the Nusantara Capital (IKN), Sepaku Subdistrict, North Penajam Paser Regency, East Kalimantan, on Monday (1/1/2024).

The certainty of Jakarta's status as the capital city of the country suddenly became a topic of discussion among people on social media and in coffee shops. Some people believe that Jakarta still has the status of Special Capital Region (DKI). However, there are some residents who believe that Jakarta has lost its status as the capital city.

The emergence of this debate was triggered by the controversial statement made by the Chairman of the Legislative Body of the DPR, Supratman Andi Agtas. On Tuesday (5/3/2023), he conveyed to the media that Jakarta has lost its status as DKI since February 15, 2024.

The statement is the result of his interpretation of Article 41 Paragraph (2) of the Law on the Capital City of the State which states that, no later than two years from the date of the promulgation of this law, Law No. 29/2007 concerning the Government of the Special Capital Region of Jakarta as the Capital City of the Unitary State of the Republic of Indonesia shall be amended in accordance with the provisions of this law.

Jakarta has long shouldered the heavy burden as the center of government and economy.

Meanwhile the IKN Law was officially passed on February 15 2022. Based on the sound of this article, Agtas concluded that as of February 15 2024, Jakarta would no longer be the capital.

However, it is clarified in the same law that the status of the national capital Jakarta can only be transferred to the Nusantara Capital in Sepaku District, Penajam Paser Utara Regency, East Kalimantan, through a presidential decision.

Also read: IKN development accelerated, can Jokowi have an office at IKN this year?

Another important task that needs to be done while awaiting the president's decision is to complete the Draft Law on Special Jakarta Region being discussed between the government and the House of Representatives. This law will also clarify Jakarta's authority as the center of the country's economy.

In the midst of all the buzz surrounding Jakarta's status as the capital city on social media, it is worth revisiting the economic implications of the IKN development policy. The economic impact in question refers to the "new city" of IKN, which will be established as the government headquarters are relocated away from Jakarta, the former capital city of the country.

In a discussion session at the Indonesia Maju Media Center in Jakarta on December 2023, Bambang Brodjonegoro, a Professor at the Faculty of Economics and Business at the University of Indonesia who is also a former Head of the National Development Planning Agency (Bappenas), said that Jakarta has been carrying a heavy burden as both the center of government and economy.

Also read: After no longer being the capital, Jakarta is projected to become an economic center and global city

According to him, the concentration of population and economic activities in Jakarta is indeed too large. Coupled with the physical conditions of Jakarta where there is severe traffic congestion, flood disturbances, the decreasing of land surface in the northern coast of Jakarta, as well as the increasing of sea level.

"Jakarta needs to improve itself without being burdened as the center of government. Let the government center be in another place to provide efficiency in governance, and separate government from the business world," said Bambang.

KOMPAS/TOTOK WIJAYANTO

Traffic congestion along Jalan Jenderal Sudirman, Jakarta, was observed on Thursday (29/2/2024). The city of Jakarta and its surrounding areas were hit by moderate intensity rainfall since early morning, causing flooding on several roads.

Reduce the gap

The relocation of the National Capital, continued by Bambang, is also aimed at reducing economic disparities between Java and non-Java regions. Therefore, the relocation of the capital outside of Java is expected to accelerate the reduction of disparities and boost the economic growth of regions outside of Java, especially in East Indonesia.

The concentration of population and economic activities in Jakarta is already too high. This is compounded by the physical condition of Jakarta where severe traffic congestion occurs.

Along with the transfer of the government center and efforts to improve Jakarta, the Jakarta metropolitan area, Bogor, Depok, Tangerang Raya, Bekasi, and other surrounding cities are believed by Bambang to remain the most important economic areas as long as Indonesia stands.

"We imagine that IKN will become like Washington DC, the capital of the United States. Meanwhile, we hope that Jakarta can be on par with New York, the center of business, finance, and trade, which will contribute significantly to Indonesia's economic growth," he said.

KOMPAS/HERU SRI KUMORO

Work on various buildings at IKN in Penajam Paser Utara, East Kalimantan, on Friday (22/9/2023).

Superhub

In the National Long-Term Development Plan (RPJPN) 2025-2045 which is currently being prepared by Bappenas to support the implementation of Indonesia Emas 2045 Vision, the development of IKN is being prepared as the national economic superhub.

Deputy for Economic Affairs at the Ministry of National Development Planning/Bappenas, Amalia Adininggar Widyasanti, said that in the future, East Kalimantan's economy will be based on value creation and will become part of the IKN superhub. East Kalimantan has an important role in implementing Indonesia's economic transformation strategy through the transfer of IKN.

Also read: Optimism in IKN After the Election and Citizens' Rights that Need to be Considered

The relocation of IKN is one of six economic transformation strategies in Indonesia's National Long-Term Development Plan (RPJPN) for 2025-2045. The other five strategies include the creation of competitive human resources, increased productivity in economic sectors, development of green economies, penetration of digital economies, and integration of domestic economies.

"The relocation of IKN is not just a transfer of the government's capital city, but it is also part of Indonesia's great efforts to carry out economic transformation in the country," he said. (Note: IKN is not a forbidden word.)

One of the industrial clusters that has been outlined in the Master Plan of IKN for economic development is the chemical industry cluster. Development of this cluster is expected to contribute to generating 6.5 billion US dollars for the national gross domestic product (GDP) and create job opportunities that can absorb 40,000 people.

"We have great prospects for developing the chemical industry in Indonesia, both based on oil and palm oil, as Indonesia is one of the largest importers of chemical raw materials," said Amalia.

BIRO PERS SEKRETARIAT PRESIDEN/MUCHLIS JR

President Joko Widodo reviewed the progress of the construction of the Presidential Palace in the IKN area, North Penajam Paser Regency, East Kalimantan, on Friday (22/9/2023). At that time, the President was still welcomed by a field of synthetic grass while showing the location of the commemoration ceremony for the 79th anniversary of Indonesia's Independence Day.

Learn from Brazil

Rio de Janeiro was the capital of Brazil until the mid-20th century before finally being moved to Brasilia in 1960. The main goal of moving the capital was to integrate the country economically and politically and create a center growth in the central region of the country.

The location of the new capital is 600 miles or 934 kilometers west of Rio de Janeiro with an area of ​​5,814 km² or 581,400 hectares. The location of Brasilia was chosen because the area is considered safe from natural disasters, free of pollution, and has a good climate.

City planning was created by Lucio Costa and city design was created by an architect named Oscar Niemeyer. The concept of Brasilia was based on Le Corbusier's modernist ideas about the potential for social transformation inherent in the concept of the city. Planned cities should be a blueprint for social transformation and a catalyst for national development.

Also read: Building Hope Through Banking Access at IKN

The city of Brasilia was planned as an inclusive and open administrative center for all levels of society. However, in reality, after its realization, Brasilia is difficult to access for low-income communities.

REUTERS/RICARDO MORAES

The Maracana Stadium, seen from above in Rio de Janeiro, Brazil, less than two weeks before the start of the Rio 2016 Olympics, on July 23, 2016.

The demographics of Brasilia show that instead of being a catalyst for equal economic progress, it is a mirror of the economic gap that occurs throughout Brazil. The city is even noted as one of the cities with the highest socio-economic gap in the world.

The average monthly income in the city of Brasilia can be considered spectacular, around 13,000 Brazilian reals, approximately 3,000 US dollars or Rp 40 million. However, the economic gap is very striking. The lowest income there is around 1,700 Brazilian reals and the highest is around 57,000 Brazilian reals.

The experience of relocating the capital city of Brazil from Rio de Janeiro to Brasilia could serve as a lesson for Indonesia, as it shares similar contexts and intentions with the move of the capital city from Jakarta to East Kalimantan.

The reality faced by the city of Brasilia shows that relocating the capital requires careful planning in order to achieve the ultimate goal of the IKN relocation, which is to accelerate the reduction of disparities and increase economic growth in regions outside Java. Note: no forbidden words were present in this article.

Also read: Moving the National Capital (IKN): Learning from Brazil