Covid-19 puts the brakes on Indonesia’s new capital project, raising questions on its balancing act between China and US

The construction of Indonesia’s brand new capital (yet-unnamed) city in East Kalimantan was meant to be the crowning achievement of President Joko “Jokowi” Widodo’s second and final term of office.

Judging by its target of having Indonesian civil servants start moving to the new capital by 2024, it was perhaps even supposed to be President Jokowi’s parting gift to the nation.

However, the Covid-19 pandemic has threatened to wreak havoc with the project, effectively putting it on hold for now.

The fate of the project could also determine Indonesia’s latest geopolitical balancing act between China and the United States.

The fact that the project is mostly financed, designed and carried out by the US and its allies marks a departure from Mr Joko’s previous preference and reliance on Chinese money and expertise for major infrastructure projects in his first term.

A fifth of the budget for the new capital city, estimated at US$34 billion, is to be provided by the Indonesian government.

According to the architectural digest The Architect’s Newspaper, the United States International Development Finance Corporation (IDFC) and the government of the United Arab Emirates (UAE) plan to invest an additional US$22 billion in the project through a sovereign wealth fund.

The rest will probably be garnered from private sector investment.

The technical side of the project will be managed by the international engineering company, AECOM, international consulting firm McKinsey and Japanese architecture and engineering firm Nikken Sekkei.

The project’s overseeing committee boasts such notables as former British Prime Minister Tony Blair and the founder and chief executive of Japanese holding company SoftBank, Masayoshi Son, and is presided over by the crown prince of Abu Dhabi, Sheikh Mohammed Zayed Al Nahyan.

The US involvement has come as a surprise and is probably its first participation in Indonesian infrastructure development for a long while.

IDFC, the agency responsible, was created only in December last year by President Donald Trump. Its official website states that it “makes America a stronger and more competitive leader on the global development stage with greater ability to partner with allies on transformative projects”.

The strong Japanese presence is also noteworthy, given the fierce competition between Japan and China for infrastructure projects in Indonesia during Mr Joko’s first term, most notably the Jakarta-Bandung high-speed train project which Japan had lost to China back in 2014.

After its construction by Chinese workers was temporarily suspended by the Indonesian government in March over public complaints about environmental pollution, the project is now on hold because of the Covid-19 outbreak in the country. 

There are several strategic considerations behind Indonesia’s decision to let the US and its allies play a major role in the construction of the new capital city.

First, this looks like a calculated move by the Jokowi administration to reduce its dependence on Chinese development funds. There has also been unhappiness among Indonesians about the Chinese-backed projects, mostly because they tend to employ workers flown directly from China instead of local ones.

The predominance of Chinese presence in Mr Joko’s first term infrastructure projects has even prompted his political opponents to dub him a “China’s lackey”.

Secondly, given the continued incursions into Indonesian waters by Chinese fishing vessels in the South China Sea, it could also have served as a protest.

Given the current US-China rivalry, such a move by Indonesia is of course not without its own high risks.

After all, Indonesia’s last politicised attempt to build a new capital city from scratch in Palangkaraya, Central Kalimantan, ended in failure.

President Sukarno designated Palangkaraya as the site for the nation’s new capital in 1957 and made clear it was for geopolitical reasons. 

Disillusioned with the West — which he branded “neo colonialist and imperialist” — and in keeping with his own shift in domestic politics to the left, the president requested help from the Soviet Union in funding and technical expertise to develop the new city.

Construction by Soviet engineers continued into the early 1960s.

We can imagine how incendiary Palangkaraya’s presence on Borneo Island was during Indonesia’s “Konfrontasi” with the newly independent Malaysia, prompting Soviet engineers to build bomb shelters as they expected attacks by the British and Malaysian forces on Palangkaraya.

Sukarno’s downfall in 1966 and his successor’s Java-centric vision as well as anti-Communist leanings put an end to the great Palangkaraya project for good, relegating it as a mere provincial capital.

But the death knell for the project might have sounded even before that, when it was becoming increasingly clear to Moscow that Sukarno had made another geopolitical gambit by aligning himself with Beijing.

By 1965, relations between Jakarta and Moscow were strained, with the Soviet Ambassador bluntly asking Sukarno to repay some US$ 2 billion in Soviet loans and military hardware delivered to Indonesia, which the president refused.  

While President Jokowi has chosen not to revive Palangkaraya as the new site for his new capital — preferring a new site further east — he has, as Sukarno before him, politicised the project by using it as a chess piece in a geopolitical match.

The Covid-19 crisis, however, could throw a spanner in the works for his plan.

Will the UAE and the US-IDFC make good on their prior pledges now that a global recession looms in the wake of the pandemic?

If so, would Indonesia run back to China for help? China might be persuaded to step up but that would weaken Indonesia’s position considerably.

Covid-19 has also increased the stakes of the new capital city for Mr Joko.

As a recession threatens to undo the nation’s economic gains of the past decade, the president may give it even more weight with the hope of cementing his legacy.

Yet the odds are stacked against him in launching the project by 2024, before he leaves office.

Three effective years of development, assuming the project can restart in 2021, are hardly ideal.

Indonesia may find itself having to shoulder a greater portion of the budget instead of relying on foreign loans. It may also have to scale down the development scope of the city to meet the deadline.

For the moment, however, amid the Covid-19 pandemic, public opinion is slanted against the new capital, which many tend to see as a vanity project.

Accordingly, the government has shelved it, at least temporarily, although the Ministry of the National Development Planning has put it back as number two in its 2021 annual priorities list, banking on the International Monetary Fund’s prediction that the Indonesian economy will grow by 8.2 per cent next year.

While the project’s prospects are not dead on paper, its fate is far from certain. 

Ultimately, it will depend on two things: Indonesia’s successful taming of Covid-19 and the president’s determination to bring his pet project to completion.

ABOUT THE AUTHOR:

Johannes Nugroho is a writer and political analyst from Surabaya whose commentaries have appeared in the Jakarta Post and Jakarta Globe since the 1990s.