Indonesia’s new capital city to contribute little to national economic growth

VNA
Indonesia’s new capital city will contribute only an additional 0.02 percentage point to the country’s economic growth, and the impact will also be short lived, according to Institute for Development of Economics and Finance (Indef) research.

Small settlements dot Penajam District, North Penajam Paser, East Kalimantan, where the new capital will be constructed. (Photo: thejakartapost.com)

Small settlements dot Penajam District, North Penajam Paser, East Kalimantan, where the new capital will be constructed. (Photo: thejakartapost.com)

The research estimates that in the short run, the new capital city will contribute 0.17 percentage point to the total investment, 0.02 percentage point to the total exports and imports and 0.05 percentage points to the total employment rates.
This is because the new capital city is about housing the government and not businesses, said Indef economist Rizal Taufikurahman at law firm Dentons HPRP's discussion forum on the future of doing business in Indonesia on January 22.
Moreover, the new capital city was estimated to increase the total short-term output growth of the construction industry by 0.15 percentage point, mineral and steel industries growth by 0.1 percentage point and leather and sea transportation industries by about 0.07 percentage point, among other things.
The new capital city, to be developed in a 256,000-hectare area in the North Penajam Paser and Kutai Kartanegara regencies in East Kalimantan, will therefore bring about little economic impact, Rizal reiterated.
The capital would likely cause East Kalimantan's inflation rate to increase slightly by nearly 0.1 percentage point in the short term and 0.04 percentage point in the long term.
The Indonesian government estimated that the development of the new capital city would cost 466 trillion Rp (US$34 billion ), of which 54.4 percent would come from public-private partnership schemes, 26.4 percent from the private sector and 19.2 percent from the state budget.

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