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Bisnis Indonesia - Garansi fiscal negara di Nusantara
17 May 2024
By Tegar Arief
The new government is signalling an increase in the state budget (APBN) for the construction of Nusantara Capital City (IKN). This commitment was announced by President-elect Prabowo Subianto at Qatar Economic Forum 2024 yesterday (16/5).
Prabowo stated that the state's fiscal capacity is sufficient to contribute $1 billion annually for 30 years. This amount is equivalent to Rp16 trillion, assuming an exchange rate of $1 = Rp16,000.
This amount is significant, considering the initial plan for the APBN to cover only 20% of the total Rp466 trillion required for Nusantara. The remaining funds will come from private investments through the public-private partnership (PPP) scheme.
“Thus, the required budget is approximately $30 billion over the span of 30 years, equating to $1 billion annually. Indonesia’s APBN can cover this, so we are confident,” Prabowo said.
This commitment is a strategic move by the government to ensure the continuity of the new capital city's construction and to provide full fiscal support to enhance the trust of investors, particularly foreign investors.
So far, investment in IKN has been modest, totalling Rp49.6 trillion as of late March 2024. From 2022 to 2024, the APBN's contribution has reached Rp72.1 trillion.
Until now, the government has continued to limit the role of the APBN in the development of the new government centre. This approach also applies to the preparation of the 2025 APBN, which will be utilised by the new administration.
Businesses in Indonesia are welcoming the government’s plan to provide full support with the APBN, which has been awaited by investors.
Indonesia Chamber of Commerce and Investment (Kadin) Vice Chairperson Sarman Simanjorang said that the APBN's contribution to IKN must be made official to encourage a positive investment trend.
Moreover, the commitment of Rp16 trillion per year is far smaller than the realisation and the contribution of the APBN last year and this year.
Sarman mentioned that the government’s role was quite limited in the initial phase, encompassing basic infrastructure procurement, such as the construction of roads and housing for civil servants.
Meanwhile, the commercial sector, including hotels, shopping centres, and hospitals, is ideally worked on by the private sector. “So, it can be seen that IKN is a collaboration of the government and the business world,” he stated to Bisnis.
However, Sarman reckoned that the government needed to work hard to attract the private sector. One key aspect to focus on is simplifying the permit process and clarifying land status.
Additionally, the government must also provide certainty regarding the spatial planning (RUTR) to ensure that planned investments can be executed well without risks. “If this is addressed, the participation of the private sector in IKN will increase,” he stated.
Put pedal to the metal
In light of the positive reception and the assurance from the new government, the Nusantara Capital City Authority (OIKN) and the Investment Ministry/Investment Coordinating Board (BKPM) are actively courting investors.
Investment Ministry/BKPM Investment Cooperation Deputy said that there were several sectors with potential for development by private investors.
These include the development of infrastructure and supporting facilities, commercial and residential areas, as well as various supporting industries, including the agro-industry. “There are many investment opportunities in IKN,” Riyatno said.
OIKN Funding and Investment Deputy Agung Wicaksono said that the investment target in the area for this year was set to reach Rp100 trillion.
He is optimistic about investments flowing following the completion of the 2024 presidential election. Moreover, the continuity of IKN development will be among the priority programmes of the elected President and Vice President.
“Now, we have certainty regarding the establishment of a government [that will support IKN development]. Therefore, we are optimistic about investments continuing to flow into Nusantara,” he stated.
Meanwhile, economists see the plan to disburse Rp16 trillion annually as a strategy for the government to attract more investors.
If the plan will be executed for 30 years, there are fiscal risks that must be anticipated, including budget deficits and the limited contribution of the APBN to the real sector due to expenditure cuts in other areas.
Centre of Economic and Law Studies Director Bhima Yudhistira said that the promise of APBN support was an affirmation from the government that IKN is a long-term project.
On the other hand, the government must prioritise routine expenditures, such as capital, goods, and social expenditures, which significantly impact the real sector. “So, it is to convince the private sector. This means the private sector is not yet attracted to the project, making the APBN a [financial] buffer,” he stated.
Institute for Development of Economics and Finance (Indef) Executive Director Esther Sri Astuti added that the steps planned by the new government was quite realistic.
Investors will not be attracted if the role of the state is limited. Moreover, the condition of the new government centre requires complex developments.
“Investors are hesitant to fully commit because the costs are too high. Consequently, the fiscal space is shrinking, especially if revenue growth remains stagnant,” he stated.
