Indonesia’s $33B Capital Relocation Plan Is Imploding | WSJ Breaking Ground

- [Narrator] Jakarta, one of the world's most popular cities, is facing an existential crisis. - About 1/3 of the city will be underwater by 2050. - [Narrator] It's the fastest sinking city in the world with 40% of its area already below sea level.

So the Indonesian government has devised a solution. Move the capital from Jakarta on the island of Java over 800 miles away to Nusantara on the island of Borneo. As seen in this promotional footage, the $33 billion Nusantara aims to modernize Indonesia, reduce regional inequalities, and promote environmental sustainability.

Its initial goal was to be completed by 2045. But with investors pulling out, project heads resigning, and little complete, the promised capital risks squandering Indonesia's funds and damaging the country's reputation. - If billions of dollars have gone into building a city in the middle of nowhere that doesn't ever really get started, that would be just a waste of a lot of money that could've been better spent in innumerable ways.

- [Narrator] Nusantara is strategically located in East Kalimantan on Borneo, chosen for its lower risk of natural disasters, like floods and earthquakes, and its central location. - If you look at Indonesia on a map, Nusantara is placed sort of right at the heart of the country. - [Narrator] The move is meant to redistribute wealth and resources from Java.

- [Andreyka] Indonesia's development model has been described as being Java-centric with infrastructure, with ports, with airports, whereas other islands, other regions of the country, tend to get left behind. - [Narrator] Java currently accounts for around 60% of the national economy, and Jakarta has been the country's capital since Dutch colonial times in the 1600s. - The Indonesian government still intends for the economic and business hub of the country to be Jakarta.

But at the same time, the relocation of the capital city to Nusantara does provide some opportunities. - [Narrator] Promoted as a high-tech city powered entirely by renewable energy, Nusantara plans also include housing for some 2 million people, or 1/5 of Jakarta's population. - The city is essentially intended to be a smart city as well.

That's sort of the central guiding ethos. - [Narrator] Its central location is also key to another opportunity, shipping. - [Andreyka] Establishing new port infrastructure around the capital city site could lead to better connectivity between islands across the country.

And building that could in turn help Indonesia play a greater role in terms of the international global shipping trade. - [Narrator] But public opinion over Nusantara has been split. - Some people would say that this is an enlightened step by Joko Widodo, who has taken much greater effort to understand the concerns of non-Javanese people than presidents before him.

For opponents, this seems like a vanity project that was poorly thought out, designed to get him in the history books without offering clear benefits for Indonesia. - President Jokowi has staked his legacy on this project, so there's a political impetus within the Indonesian government right now to make this attempt land. - [Narrator] The first phase of construction, which focuses on the governmental zone of the city, is set to complete in August 2024 before President Widodo leaves office in October.

This phase includes building essential infrastructure, like main roads, public transportation, electricity, and water supply. But severe weather and logistical difficulties have hampered construction, sparking concerns about meeting deadlines. - When you look at what the government has announced, they say they're somewhere approximately 80% of the way through phase one, but there still needs to be a lot of progress in terms of infrastructure.

- [Narrator] And phase one, costing around $3. 4 billion, is only about 1/10th of the overall budget. The entire city is budgeted at $33 billion, but the Indonesian government has only pledged 20% of that and is struggling to acquire the rest through domestic and foreign investments.

- It's sort of a chicken-and-an-egg problem. Nobody wants to go in and build things unless they know that this is actually going to be a city. - [Narrator] SoftBank of Japan withdrew from investment negotiations in 2022.

Indonesian news agencies have reported that the government has received letters of intent from over 400 investors so far. But despite Indonesia's efforts, like offering land rights and tax incentives, no significant investments have materialized. - [Jon] Yeah, I think a lot of businesses were initially interested but just didn't know how they could extract safe returns for their shareholders, and so ended up backing out or not fully committing.

- [Narrator] Critics have also pointed out that the initial promises of Nusantara are already at risk. Advocacy groups say that the 990-square-mile area of the city will displace 20,000 indigenous people. And experts say that construction of the new capital city in this location will accelerate deforestation.

- Recent reporting indicates that the government has fallen behind on some of its reforestation targets. - [Narrator] Experts say that the city's goal to run entirely on renewable energy is undercut by the fact that Indonesia doesn't have enough renewable energy to run the city, let alone build it. The Indonesian government hasn't released plans on how to remedy all of these issues and did not respond to requests for comment.

What's more, critics ultimately point out that Nusantara still won't address concerns in Jakarta. - Once the capital city is moved, their problems still exist. The challenges they face still exist.

- Jakarta is New York, it's LA, it's Washington, DC, all rolled into one. It is the commercial hub of Indonesia. It is the political hub of Indonesia.

It is the entertainment hub of Indonesia. So because of that, it faces so much strain. - [Narrator] Moving the capital to Nusantara will distance members of parliament from those challenges.

- In some ways, it almost appears as though there's a political incentive to move the capital city away, to remove it from the population. - Then it becomes much harder for ordinary Indonesians to make their anger or frustrations known to legislators. In the worst-case scenario, it would lead to a situation where the vast majority of Indonesians would feel disconnected from their government.

- [Narrator] The future of the Nusantara project remains highly uncertain. The project's head and deputy head have unexpectedly resigned. - It's obviously a bad sign.

- [Narrator] And the arrival of a new president could further complicate matters. - Would a President Prabowo prefer to prioritize his sort of initiatives? Or would he continue on projects from his predecessor, President Jokowi?

- [Narrator] But even if the newly elected Prabowo does decide to see Widodo's vision through- - They will have to divert funding from elsewhere. Indonesia's not a wealthy country and it has a very finite budget. So assuming Prabowo Subianto decides to carry on the tradition of spending rather conservatively, he will have to make tough decisions.

- [Narrator] And if he doesn't- - There's always the risk that Indonesia could overspend and ends up blowing a hole in the budget. - The long-term viability of the Nusantara capital city project is as of yet undetermined, but will partially depend on whether Indonesia can get the financing it needs, whether there's the political will behind it, and whether the people still continue to believe that this is the right decision to make.