Authors: Karl Gading Sayudha & Muhammad Rafi Bakri*
As Joko Widodo’s presidency winds down, the spotlight is firmly on Indonesia’s ambitious capital relocation project to the Nusantara (IKN), a move meant to alleviate Jakarta’s burgeoning pressures. Jokowi’s bold claim that state officials (ASN) will start moving to IKN in September is intended to prove the new capital is not just a distant dream but a burgeoning reality. Yet, this assertion comes amid a backdrop of mounting skepticism and logistical hurdles. The project, marked by its grand vision and high stakes, faces delays and challenges threatening to derail the timeline. The journey to establish IKN as a functional capital is not just a story of infrastructure and bureaucracy but a dramatic unfolding of ambition, resilience, and the quest to reshape Indonesia’s future. How well these obstacles are navigated could determine the project’s success and the legacy of his presidency.
The president has grimly acknowledged that the anticipated relocation of ASN is now uncertain and likely to be postponed indefinitely. Despite the government’s efforts, the preparation remains incomplete, and the national budget (APBN) is woefully inadequate to bear the financial burden. The situation has been further exacerbated by a disappointing shortfall in foreign investments, which were supposed to be the cornerstone of funding. As a result, the government is left grappling with the bleak reality of seeking alternative funding sources, with no clear resolution in sight.
At that time, former Minister of Investment Bahlil Lahadalia, explained that the shortage of foreign investment was since the initial phase of the IKN development was primarily centered on supporting government infrastructure and administrative needs. He noted that economic development initiatives would only start in the second phase of the project.
However, will the commencement of the second phase of the IKN development have a direct appeal to potential foreign investors?
The start of the second phase of IKN development may not always increase investor interest. While it is supposed to turn the focus to economic development, there is still much question about whether it will attract investors. The effectiveness of this phase in attracting investment will be determined by whether projected economic possibilities, regulatory stability, and government support materialize as intended, as well as whether overall market circumstances are favorable.
The uncertainty surrounding foreign investment in the development of Nusantara is further complicated by rising geopolitical tensions. Given that investment trends follow global economic shifts, any conflict close to the border like the South China Sea or Taiwan could potentially shatter Indonesia’s dream of building the new capital.
Currently, global attention remains fixed on wars in Gaza and Ukraine, while China steadily increases its military presence in the region. This is evidenced by its growing defense budget and intensified military exercises in recent years.
Additionally, China continues to assert its dominance by “bullying” neighboring countries such as the Philippines and Taiwan, who regularly face intimidation from China’s military power. These developments point to an alarming reality that the escalating situation could eventually spiral into a large-scale conflict involving multiple nations. While Indonesia has historically opted to avoid direct involvement in such conflicts, any outbreak of war in the region would severely impact foreign investment in the country, particularly from China or other East Asian nations.
With these regional tensions simmering, Indonesia’s long-standing focus on national development, under President Joko Widodo for over a decade, could be disrupted under the incoming administration of President Prabowo Subianto. The future remains unclear, but history has shown that conflict is rarely beneficial for business and investment, except in the case of the military-industrial complex. In this context, Indonesia stands to gain little due to the ongoing development of its domestic defense industry and heavy reliance on foreign supplies.
In such a volatile environment, foreign investors may seek alternatives elsewhere. To safeguard its ambitious new capital project, Indonesia must demonstrate a genuine commitment to promoting regional peace and move beyond rhetorical statements to decisive actions that could positively impact the region.
This proactive approach may align with Prabowo’s strategy in the coming years. Experts believe that Prabowo might position Indonesia as a highly active player on the geopolitical stage, a role he exhibited during his time as Minister of Defense. A notable example was the delivery of humanitarian aid to Gaza, involving hospital ships and an airdrop mission in partnership with regional countries.
However, it remains uncertain if IKN has ever been a priority for the former special forces general. With his personal ambitions and the current political climate indicating he is beyond Jokowi’s influence, Prabowo’s plans for Indonesia, including the future of IKN, are unclear. Foreign investors are likely to continue to adopt a “wait and see” approach until the next administration’s program becomes clear. If no decisive actions are taken, it may be that, regardless of geopolitical factors, the new capital project was doomed from the start.
*Karl Gading Sayudha is an Analyst at Kiroyan Partners in Jakarta, Indonesia. Muhammad Rafi Bakri is a Data and Finance Analyst at the Audit Board of Indonesia (BPK).
