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Capital Movement: How it affects Indonesia

Capital Movement: How it affects Indonesia

Written by: Jane Clarissa

Contrary to popular belief, the movement of capital city is not as peculiar as it sounds and have happened several times in the past all around the world - mainly driven by economic, social, and/or political reasons. Indonesia, as recent events has suggested, is rumoured to be moving its current capital city. For several decades, Indonesia’s capital city has always been in Jakarta, located in a strategized province of Java. There have been discussions of moving the capital city since the reign of the first president, Soekarno. After an amount of debates regarding the shifting of the capital city, Indonesia’s current president, Joko Widodo, has finally announced the official movement of capital city from Jakarta to East Kalimantan.2Jakarta, being the largest city in Indonesia, was opted initially to be the capital city due to its richness in terms of business opportunities, financial sectors, and technological advancement. However, due to the notorious congestion and severe environmental threat, it is decided that the centre of administration should be relocated. Despite possible opportunities arising from capital relocation, there are still many factors to be considered.

Why is Indonesia changing capital cities?

One serious problem that Jakarta is facing as of now is rapid urbanisation. Home to approximately 10 million people, the brisk urban growth has contributed to the sinking of the capital city - at approximately 15 centimetres annually. By 2050, it is foreseen that parts of Jakarta would be submerged underwater due to the combination of sinking land and rising sea level 3. The reason why urbanisation happens is due to a massive amount of people migrating from multiple rural areas all around Indonesia in search of employment opportunities, industrialization, and improved life standards in a prominent capital city. Though urbanisation has a lot of positive implications such as economic progression and social changes, it also has faced numbers of downward effects like overcrowding, traffic congestion, and pollution, which, if not handled properly, would cause detrimental effect to the living standards of the populous country.

Effects towards the economic and political side

Moving capital city may be the long-term solution to relieve burdens bring forth by growing economic activities and ineffective regulatory framework to support them. Nevertheless, economic and politic concerns should be taken account. As a centre of business, politics, and cultural diversity, Jakarta is home to many state-owned enterprises (BUMN: Badan Usaha Milik Negara), private companies, and foreign companies. With capital displacement in place, this raises the question of how the economy will be affected. Rizal Taufikurahman, an economist, stated that the movement will have very little impact towards Indonesia’s economy. According to a 2019 research conducted at the Institute for Development of Economics and Finance (INDEF), with data provided by the Central Body of Statistics Indonesia (BPS: Badan Pusat Statistika), the movement to East Kalimantan would only contribute 0.24% to the region’s economic growth. Despite the growth of the GRDP (Growth Regional Domestic Product) being generally positive, he stated that it would only contribute little towards nationwide economy, hence making it insignificant. INDEF also stated that the relocation of the capital city will not have a significant impact on macroeconomic indicators that supports growth, such as household consumption, investments, government spending, and net exports. Instead, the movement will mainly result in the decrease of national household consumption by 0.04%. Likewise, the capital movement to East Kalimantan has little to no significance towards national investments and net exports, increasing investments in East Kalimantan by only 0.20% and decreasing national exports by 0.01%, whereas imports will also decline by 0.01%.7 Furthermore, moving the capital city to East Kalimantan would mean that political institutions, such as the State Palace (Istana Negara), the central government, parliaments, and political parties’ headquarters will be relocated to East Kalimantan in order to ease political administrations. This may result in the distance between the citizens of Java and its governance. The further the location of the government, the less authority they have towards Java, providing less supervision towards regional government. This can lead to unsupervised political actions, such as collusion, corruption, and nepotism. On the other hand, moving political arena will spread the diversity of political activities and social organization to help raise awareness in various regions in Indonesia and reduce inequality in economic growth that has proven to be heavily weighted in Java.6

Is the Capital Displacement Necessary?

There are mixed feelings on whether the capital relocation is the best decision to make. The benefits of relocating the capital city varies, mainly to prevent further environmental damage to Jakarta and to reduce regional inequality of different regions in Jakarta. With Kalimantan being nearly four times bigger than Java yet only contributing to 16.8% of total gross domestic product (in comparison to Java making up 58.48% of GDP in 2018)3, this puts to question as to how unutilised the resources in Kalimantan may be. To see the bigger picture, moving the capital city is essentially set to equally distribute infrastructure development to other parts of Indonesia that has yet to flourish. Indonesia President, Joko Widodo, has promoted extensive infrastructure development-the signature precedence of his reign as president, investing billions of dollars in infrastructural project nationwide. For example, the Jakarta Mass Rapid Train (MRT), which began its construction in October 2013, was one of the projects he invested in with the purpose of promoting public transportation to the public eye and reducing the usage of private transportation. That way, it will help reduce air pollution and traffic congestion by a significant level. Phase 1 of this project started its official operation on 24 March 2019, with roughly 82,615 daily commuters taking the MRT to get from one place to another. As the track that Phase 1 covered is limited, Phase 2 of the Jakarta MRT commenced on 30 January 2019, estimated to finish its construction by 2024. Since Kutai Kertanegara, one of the districts located in East Kalimantan, is elected to be the capital city, it would experience similar refurbishments such as technological advancement and infrastructure development in the future. The improvement of one district would spread to another, further making Indonesia a more industrialized and modernized country. For instance, a new expressway, called the Samarinda-Balikpapan Toll Road, is the first toll road built in East Kalimantan. It was inaugurated on 17 December 2019 by Joko Widodo, which is expected to be fully completed by April 2020. The toll road was built in hopes of improving connectivity between Balikpapan and Samarinda, two of the largest cities in East Kalimantan, strengthen the development of production areas for palm oil, coal, gas, and agricultural commodities and connecting them directly to distribution areas, and proposing East Kalimantan as the new capital city.8 Likewise, it is noted that there would be drawbacks as a result from the moving of capital state, mainly due to the extravagant costs involve, hitting an approximate amount of $33 Billion for the project to happen.4 19% of the funds would be used from the Indonesian State Budget (APBN: Anggaran Pendapatan dan Belanja Negara) while the remaining funds employed from government cooperation with business entities (KPBU: Kerjasama Pemerintah dengan Badan Usaha) and private investments. Another concern about this move is that environmentalists are worried that the move would only cause additional environmental damage if not done carefully. Within East Kalimantan, there are 1.8 million hectares of forest, making up 65% of the land area. Conserving forest area is of utmost importance in Indonesia, because over half of Indonesia’s emissions come from land use, according to Climate Watch Indonesia. Indonesia’s forests are home to thousands of plant and animal species, and approximately 60 million Indonesians depend directly on the forests for their livelihoods. In 2018 alone, Penajam Paser and Kutai Kartanegara, the regencies proposed to be the new capital city regions, lost 35,000 hectares of tree cover.9Hence, it is important to note that the capital city movement should be done by not disturbing the current existing rainforests and focusing on certain areas that are intended for building new urban areas as Kalimantan has plenty of rainforests that needs to be conserved.5


Despite the movement of capital city, Jakarta would remain as the centre of business and economic activities, whereas new reign will be conducted in East Kalimantan in order to diversify and create new sources of growth, be it economic, politically, or socially related. However, even with the capital city being moved, national government still has to finish solving the challenges faced by Jakarta as of now. There may be initial struggles to adjust the movements from a capital city to another, considering the fact that a lot of factors need to be taken into account, but in the long-run, it may further improve Indonesia into a more well developed country that has a wide range of natural resources that can be turned into business opportunities that will spread to not only one, but many other cities.


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CNN Indonesia, Ekonom Sebut Pemindahan Ibu Kota Tak Kuat Dongkrak Ekonomi. [Online] (2019, August 26). Retrieved January 11, 2020, from

The Jakarta Post, Jokowi welcomes Kalimantan's first toll road, seeks link to new capital. [Online] (2019, December 18). Retrieved January 11, 2020, from

TheCityFix, 5 Maps Show How Moving Indonesia's Capital Could Impact the Environment. [Online] (2019, November 20). Retrieved January 11, 2020, from

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