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IMPLICATIONS OF MOVING THE STATE CAPITAL TO INDONESIA AND OTHER COUNTRIES

Background

On August 26, 2019, President Joko Widodo submitted a plan to relocate the State Capital (IKN) from Jakarta to East Kalimantan. Before the plan is realized, it is certain that the government will take the first step, namely the National Development Planning Agency (Bappenas) has conducted a number of studies, the factors considered are the economy, regional readiness and the possibility of developing industrial estates.

The government's reason for moving the state capital out of Java is economic equity, equitable development and the growth of new economic centers, in addition to the reasons above because the capacity and carrying capacity on the island of Java continues to decrease.

But for success and failure in terms of moving the capital city to another city, we must also think about future steps in order to avoid things that are not desirable. Can imitate other countries that have succeeded in moving their capital cities, including Australia, Nigeria, England, India, and Russia. Countries that can be said to be successful in moving the capital city on average have reasons for their strategic location and small population.

While examples of other countries that can be said to have failed in relocating their capital cities include Myanmar, Tanzania, and Malaysia. These countries can be said to have failed because the first reason is that some government offices are still in the old capital which causes the population in the new capital to be relatively quiet, the second reason is family reasons, many ASN are reluctant to be moved to the new capital because they are not wanted to leave his family.

In addition to domestic problems, it can also be seen that problems from abroad that arise. Like foreign investors who will invest in Indonesia, will they still want to invest in Indonesia if the center of Indonesian government moves? If foreign investors still want to invest in the new capital city, will the buying and selling power and competitiveness in the area be the same as the old capital, namely Jakarta. This research must have been carried out beforehand in order to accommodate the wishes of foreign investors to invest in Indonesia.


Main Issue

  • The relocation of the Indonesian capital city from Jakarta to East Kalimantan is a big step for the progress of the Indonesian government.
  • Various aspects are very influential in moving the new capital city, especially in terms of domestic economy and law.
  • In addition to the impact that arises in the country, it can also arise from abroad. For example, influencing the interest of foreign investors in investing in Indonesia.


Analysis

The State Palace will be one of the government offices moving to the new capital city, whose name has been legalized as "Nusantara". In addition to the State Palace, there are four ministries that will also move to the State Capital in the North Penajam Paser and Kutai Kertanegara Regencies, including the Ministry of Home Affairs, Ministry of Foreign Affairs, Ministry of Defense, and Ministry of State Secretariat.

As a first step to the need for a new Capital Legal Basis, Chairman of the Special Committee (Pansus) for the Draft Law on the National Capital City (RUU IKN) Ahmad Doli Kurnia Tandjung said that the IKN Bill which had been agreed to become the IKN Law was a necessary legal certainty in implementation of the relocation of the new state capital later. (www.dpr.go.id)

The IKN bill that has been agreed upon is considered by the East Kalimantan Community Coalition to violate existing procedures, so that the IKN bill is flawed. There are several reasons that the IKN Bill is considered to be procedurally flawed, one of which is that the preparation of the IKN Bill was carried out in a closed, limited manner and did not involve the community which had a direct impact on the relocation of the capital city. In accordance with Article 96 of Law 12/2011 concerning the Establishment of Legislation, that the public has the right to provide input orally and/or in writing in the Formation of Legislation.

The implication of moving the new capital city is that it has a direct impact on the economy of a region. Below is a table of economic growth in Indonesia.

In accordance with the data above, it can be seen that the distribution of the economy in Indonesia is still uneven. In which the island of Java still has a higher percentage of economic growth than the islands outside Java. Inequality between Java and outside Java occurs in many aspects, including the population aspect, which in Java reaches 56.56% of the total population of Indonesia.


Meanwhile, economists in Indonesia consider that the relocation of the new capital city will not have a significant impact on economic growth. One of the economists, Rizal Taufikurahman from the Institute for Development of Economics and Finance (INDEF) said that national economic growth only grew 0.001%. The relocation of the new capital city only had an impact on the GDP of Central Kalimantan by 1.77% and West Kalimantan by 0.01%. (cnnindonesia.com)


Below are the risks that are assessed to arise in the implementation of the relocation of the new capital city, according to the Economic Observer from the Institute for Development of Economics and Finance (INDEF), Bima Yudhistira, who said, among others: (liputan6.com)


  1. The new capital city is already known to many people, which will make land speculators sell land at high prices. It is feared that in the future the cost of land acquisition will be quite high and the government's debt burden will swell.
  2. Breaking down congestion, this is not one of the best solutions because the number of official vehicles is not significantly reduced compared to private vehicles from the private sector and households.
  3. Being able to increase inflation, which is in fact urbanization as a result of moving the capital city of this country, will lead to soaring prices for basic necessities in the new capital city.
  4. The government is considered to have to build the economy of the people who are the New Capital City before being moved, lest there be inequality between the immigrant population who are economically more capable than the local population.


The above also has a relationship with foreign investors who want to invest in Indonesia. One aspect of the interest of foreign investors to invest is Indonesia's abundant natural resources and demographics that support a workforce of productive age. This aspect has positive points for Indonesia. However, this must be supported by economic openness in Indonesia. The interest of foreign investors to invest in Indonesia has decreased due to reasons such as unclear regulations, high costs, and the existence of ambiguity in the government system.


Foreign Direct Investment (FDI) that entered Indonesia in 2017 was recorded at 21.5 billion US dollars, or equivalent to 1.1 percent of the total in the world. This value is below Singapore at 63.6 billion US dollars, India at 40 billion US dollars and China at 168.2 billion US dollars. (republika.co.id)

With the new capital city, it is feared that foreign investors will be reluctant to invest in Indonesia. Because there is still uncertainty in the government system for the new capital city.

Comments & Thoughts

The government has established the IKN Bill as the legal basis for the implementation of the relocation of the new capital city. In determining a bill, there are certain parties who feel that their rights have not been fulfilled, in this case the East Kalimantan Community Coalition feels that the IKN bill is procedurally flawed. In accordance with Law 12/2011 concerning the Formation of Legislations, the public has the right to participate in the formation of laws.


The reason for moving the new capital city is definitely centered on economic growth so that it is more equitable. To make this plan a success, the government must be serious in formulating a national economic equity plan, for example using Indonesian workers instead of foreigners.

In addition, in terms of foreign investment by investors, it is also necessary to have economic openness, a clearer system of government and regulations. Moreover, if the new capital city has moved, it will result in foreign investors to invest in Indonesia.


Highlight

  • The new capital city has been ratified, with the name "Nusantara".
  • In addition to the State Palace, there are 4 ministries that will move to the new capital as a first step.
  • The IKN Bill which was agreed to serve as the legal basis for the implementation of the relocation of the capital city, was deemed procedurally flawed by the East Kalimantan Community Coalition.
  • The procedural defects referred to include the government not involving the community in forming the IKN Bill, in accordance with Law 12/2011.
  • It can be seen in the attached table that economic distribution in Indonesia is still not evenly distributed.
  • Economic inequality still occurs, for example, economic growth in Java is still relatively high compared to outside Java.
  • Several Indonesian economists, one of them Rizal Taufikurahman (representative of INDEF) said that national economic growth will only grow 0.001% after the new capital city.
  • There are also several risks that are assessed to arise in the implementation of the relocation of the new capital city.

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