Traffic moves through the buildings in downtown Jakarta, Indonesia. (Photographer: Dimas Ardian/Bloomberg News)

Indonesia Considers $33 Billion Plan to Move Government From Jakarta 

(Bloomberg) -- Indonesia plans to relocate its administrative capital from Jakarta, with the move set to take up to a decade and cost as much as $33 billion.

President Joko Widodo on Monday ordered ministers to formulate a financing plan for the move, with private investment set to play a key role. The plan envisages relocating government and its executive branch, ministries and the parliament while retaining the central bank as well as trade and investment functions in Jakarta.

While moving Indonesia’s administrative center has been discussed periodically for decades, there is now a sense of urgency as Jakarta fast approaches total gridlock. The greater Jakarta area is already home to 30 million people, with the traffic congestion estimated to cost 100 trillion rupiah ($7 billion) a year in lost productivity. Widodo, known as Jokowi, cited Malaysia, South Korea, Brazil and Australia as examples where the nation’s development had been a factor in deciding the location of the capital, and in some cases had prompted a move.

Indonesia Considers $33 Billion Plan to Move Government From Jakarta 

With an official tally of votes from election held April 17 showing Jokowi on course to win a second five-year term, the president said Monday he wants “visionary” development, starting with the “big idea” of moving the capital away from Jakarta.

Bearing Burden

“When we agree to move forward as an advanced country, the first question that needs to be answered is whether in the future, Jakarta as the capital city is able to bear the burden as the center of government and public services as well as center of business,” Jokowi told the cabinet Monday.

The government plans to establish an authority to oversee the plan and Jokowi said he wanted a funding scheme that would not place a burden on the state budget, with one scenario considered being a 50-50 public-private split in the cost.

The cost of moving the capital is estimated at 466 trillion rupiah ($33 billion) if it involved development of 40,000 hectares of land for an estimated 1.5 million residents, Planning Minister Bambang Brodjonegoro said. The cost could be whittled down to 323 trillion rupiah if only part of the state apparatus was shifted to an area of 30,000 hectares, he said.

While the government has yet to zero in on any specific location, Palangkaraya in Central Kalimantan province has been mentioned as a possible site. Brodjonegoro said the new capital would be outside Java island and the nation’s defense and security authorities, top judiciary and foreign embassies will be shifted.

Rising Sea

"The rationale for the move has logic," said Kevin O’Rourke, a political analyst and publisher of the Reformasi Weekly newsletter. "Jakarta will be facing severe risks of rising sea levels and groundwater depletion within a few decades. At least preparing a move in advance of that is fairly sensible.”

The criteria for determining the new capital will be its central location and minimal risk of natural disasters, Brodjonegoro said. Indonesia, an archipelago that would stretch from New York to London, is in an area known as the Ring of Fire and is prone to earthquakes and volcanic eruptions, and has been hit by several devastating tsunamis in recent years.

Jakarta’s rampant population growth had not only created traffic chaos, but also so much pollution that there is now risk of “pandemic” due to poor sanitation, Brodjonegoro said. “As a member of the G20, a country with the fifth biggest potential in terms of GDP purchasing power parity, Indonesia certainly needs a capital city with international standards,” he told reporters.

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