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Farewell Jakarta?

Jokowi's capital relocation plan can boost economy but only if done well

| Indonesia

Indonesians have long known their nation's capital is a city on the move. But they did not take this literally -- until now.

President Joko Widodo, who won re-election on April 17, has arrived at a way to turn his economic modernization pledges into reality: relocate the capital out of Jakarta at a cost of roughly $33 billion.

Hardly a new idea. Sukarno, Indonesia's founding father and first president (and an architect), toyed with similar plans decades ago. Development economists have long warned about the evils of concentrating political and economic power in a single place.

The risks are especially great in a resource-rich, graft-prone and sprawling archipelago of 17,000 islands.

Admittedly, the precedents are not good. Too often, grandiose visions morph into vanity projects, leaving behind half-finished monuments to pride. Think of Myanmar with Naypyitaw, or Kazakhstan with Astana. National interests are never served by chasing superlatives -- the tallest this, the longest that, the grandest other thing.

But the down-to-earth, democratically-elected Jokowi is no megalomaniac dictator prone to fantasies. And his hand is being forced by Jakarta's fast-mounting problems.

The teeming metropolis is among the world's fastest-sinking cities, and a reality check for those who think climate change is only a theory.

It is prone to flooding. Pollution is rampant, housing short, and sanitation overwhelmed by a greater Jakarta population that has swollen to 30 million. The city's notorious traffic is on course for upward of $7 billion a year in economic losses. New mass rapid transit lines are already overwhelmed. Add the risk of earthquakes, volcanic eruptions, tsunamis and other existential threats and Widodo has every reason to diversify his economic centers.

Done well, Indonesia can spread the benefits of growth and even become a Group of Seven power by 2030. Carry out this ambitious plan badly and foreign investors will move their capital elsewhere.

The why behind moving the capital is obvious enough. The how remains open to debate. But the most immediate question, is the where, an issue which could give new fuel to the corrupting patronage system Widodo was elected to smash.

Widodo empowered Bambang Brodjonegoro, national development planning minister, to conduct Southeast Asia's most tantalizing location search, triggering clear risks of property speculation.

Decades ago, Sukarno eyed Palangkaraya. Brodjonegoro faces breathless press queries about whether this city of 2.4 million people on the island of Borneo is on the short list. But then, just about every power broker in Jakarta has a horse in this race.

Widodo's predecessor, Java-native Susilo Bambang Yudhoyono, reportedly favors Jonggol, a city roughly 90 minutes' drive to the southeast of Jakarta. That, however, would cement the Java-centric power structure Widodo wants to upend in the spirit of sharing the fruits of today's 5% growth more widely. Today, Java generates nearly 60% of Indonesian gross domestic product and is home to nearly 60% of its 260 million people.

The possible sites all have drawbacks. Though roughly in the center of the nation, sleepy Palangkaraya has its own sinking-land risks. The peatland on which it stands might not be optimal for new high-rise buildings to house upward of 2 million civil servants and their dependents. It is too close to comfort to the forest-fire-caused toxic haze that fills the air each year.

But execution is what really matters. Odds are, the $33 billion relocation estimate will prove optimistic. Even after 15 years of reformist progress -- under Yudhoyono from 2004 to 2014 and then Widodo -- Jakarta faces perennial budget shortfalls, limiting available financial resources and increasing risks of instability, a serious challenge for a long-term building project.

The good news is that Widodo tightened the balance sheet in 2018 cutting the budget deficit, as a percentage of GDP, to 1.7% the smallest since 2012. Even so, Southeast Asia's biggest economy saw its currency plumb depths not seen since 1998 at the height of the region's financial crisis.

Investors remain worried about Jakarta's current-account shortfall, which finished 2018 at nearly 3% of GDP. It is a clear liability amid an intensifying global trade war. Widodo's team must narrow the gap to attract overseas investment needed to finance the new capital.

Indonesia should examine closely how other nations fared relocating capitals. The nearest local examples include Malaysia, which in the mid-1990s shifted many central government institutions from Kuala Lumpur to Putrajaya, and Myanmar which in 2006 moved the capital to Naypyitaw from Yangon.

Putrajaya clearly lacks the beauty, drama, culture and innovative spirit of the metropolis it displaced. Desolate Naypyitaw is worse. One of its main tourist attractions is actual white elephants, a metaphor that is a bit too close to the truth.

Widodo can do better by including the arts from the beginning. Convention centers might include an opera house, concert halls, and museums. The new capital could be Asia's answer to Bilbao -- a Spanish provincial city that the Guggenheim Museum helped turn into a buzzing destination.

Even more important are a university and other education institutions to draw in the young, and special-enterprise-zones that can encourage some to become entrepreneurs. Getting the private sector involved early matters too -- not just for its money but for the innovation and style it can add.

To ensure that the new capital benefits the rest of Indonesia, hardware matters a lot. Upgrading roads, airports, and communications links is important. But so is economic software. As construction cranes go to work building Widodo's new metropolis, he must create a less opaque playing field to increase innovation and woo investment.

One worthy goal is improving Indonesia's own Transparency International ranking -- currently 89th out of 180 economies. While that marks a vast improvement from 107th in 2014, overseas investors have many options. China, by comparison, is 87th.

Indonesia should also raise its ease-of-doing business grade. The World Bank ranks it 73rd, four rungs below Vietnam, 27 below China, and 46 behind Thailand. Doing so means cutting the red tape and curbing the economic nationalism than reared its ugly head in last month's election.

In his second term, Widodo must boost investments in human capital to strengthen the workforce. Indonesia presents a paradox. According to UNICEF, about 40% of Widodo's population lives on less than $2 a day. And yet Indonesia is producing tech "unicorns" faster than Japan.

If done well, relocating the national capital makes sense. But Widodo also must remember capital of the foreign variety. If his government builds a more open, efficient and less centralized system, overseas investors will come -- and help Indonesia reach the G-7 by 2030. Where their aircraft land matters less than why.

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia for his Nikkei Asian Review work.

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