Jakarta, IO – The development of IKN Nusantara is a crucial foundation of Indonesia’s progress toward becoming a fully-developed country. Various data reveal that Indonesia has been stuck in an intermediate state, or what is referred to as the “Middle Income Trap”, where the average only earns an insufficient level of income, for over 30 years.
According to a more extensive analysis of the World Bank report “Aspiring Indonesia: Expanding the Middle Class,” dated January 30, 2020, only about 20 percent of Indonesians have successfully entered the middle class, while 44.5 percent (115 million people) fall into an “aspiring” middle class, with monthly expenditures ranging from IDR 532,000 to IDR 1,200,000, while the remaining 35 percent are deemed “poor”.
According to the World Bank, a country is classified as “middle-income” if its per capita income ranges from $1,136 to $13,845 per year. With Indonesia’s average per capita income of IDR 75 million per year, equivalent to $4,627 (at the current exchange rate of IDR 16,200/$1 USD), Indonesians must reach an income of $13,845 or IDR 224,289,000 per year to succeed in becoming a fully-developed country. This means that each person must produce goods and services worth around IDR 18 million per month.
In fact, Indonesia needs a change in mindset and work culture: IKN Nusantara can serve as both a symbol and a foundation for this significant development. The existing Indonesian economy, primarily driven by Java as the center of the economy, is outdated and not competitive.
The greatest impediment to Indonesia’s economic growth is a culture of feudalism and deeply-ingrained patron-client relationships in social, economic, and political sectors. Corrupt rulers have conspired with incompetent businesses since the era of the incompetent VOC, a bureaucracy that colluded with Amangkurat I to thwart Trunojoyo’s struggle for economic sovereignty of the people. A system where political and economic elites serve as patrons with less-productive masses as clients has persisted, even with rulers changing up to the reform era, resulting in legal uncertainty and poor transparency that hinders socio-economic development and impairs competitiveness. An example of such a negative impact is when Samsung cancelled its plan to set up a production base in Java, shifting instead to Vietnam, considering how Samsung’s Vietnam factories alone have generated almost $70 billion in exports, nearly 20 percent of Vietnam’s 2023 export figure and equivalent to one-third of Indonesia’s total exports from various commodities.
A land mafia has been the main impediment to economic development. A handful of elites direct any land purchases to their families or associates, with lands acquired primarily profiting from strategic projects. As a result, construction of factories, housing, or any other infrastructure in Indonesia costs a fortune, as a significant portion of the funds will be used for land purchases, with prices inflated far above their economic value, even before a location is determined. In 2013, the author was involved in a development plan in Vietnam where land acquisition only sold for about VND 3,000 per meter, while the rice fields in Bekasi and Karawang were already IDR 10 million per meter. Of course, Vietnam’s development and economic growth naturally was superior to that of Java.
We must ensure that IKN development will not allow elite power-business coalitions to control and dominate strategic land, as that would hinder development and deter economic growth. The Government must prioritize the 118,513 civil servants (ASNs) and other key stakeholders who will be the main actors in building this new city. Before building IKN, plantation land in Sepaku was estimated at around IDR 15–30 million per hectare, or IDR 1,500–3,000 per meter (similar to the cost of land acquisition for rice fields in rural Vietnam). Therefore, ASNs should be granted rights to suitable housing land at IDR 1,500–3,000 per meter, with a minimum of 500 meters for them to live on and pass onward to their descendants. About 9,000 hectares of land are needed, for a total of 118,513 ASNs. With a garden-house design and the requirement to maintain green space of about two-thirds of the land, or around 150 square meters, each ASN could build a two- or three-story building, including renting out rooms in their old age. These 118,513 ASNs must not be physically and mentally exhausted in building IKN Nusantara, only to be forced to leave IKN in their old age for the lack of any land there, with no savings due to apartment rent and higher costs to live in IKN while they were young.
The matter or land priority is essential, because these 118,513 civil servants (ASNs) will be the true co-founders of the IKN Nusantara start-up; hence, they should have a share of it. The land shares are equal to land ownership and voting rights under municipal policies, allowing the 118,513 ASNs and their families and descendants to live peacefully, while dedicating themselves to building IKN Nusantara into a resilient city like Singapore. The ASNs will feel reluctant to dedicate themselves to developing IKN Nusantara without being granted land ownership, as most will plan to spend their retirement in Java, similar to mining and plantation employees who build retirement homes in Java and send their children to school there. This phenomenon slows population distribution and economic development outside Java, which falls short of its potential.
The promoted smart-vertical living concept is considered to be very expensive for the economic capacity of ASNs and the Government. Without seeking profit, all 47 residential towers built by the Ministry of Public Works and Housing will cost IDR 9.3 trillion, looking to construct 2,820 housing units, equivalent to IDR 3.3 billion per 98 square meter unit, or IDR 1.1 billion per room. Around 250 towers will be built by investors in the next phase, with costs that will certainly be higher than those built by the Government. Rumor has it that investors are asking for availability payments with an annual IRR of up to 13 percent. Then who will bear the construction costs and the return for these investors? Naturally, it will be from ASN salaries, or indirectly from the Government. Forcing ASNs to live in homes designed and built by elite rulers and entrepreneurs reflects Indonesia’s feudal culture and capitalist economy, enduring from the colonial era of the VOC.
Moving approximately 118,513 ASNs to IKN will require IDR 150–390 trillion for smart-vertical living residences – not to mention support staff for the city, which will reach around 300,000 households, thus elevating construction costs to around IDR 1,000 trillion. Sejong City in South Korea exemplifies the Smart-Vertical-Living concept. Sejong City began building in 2011 and today has approximately 350,000 residents living in 200,000 residential units. By the end of 2023, Sejong’s construction expenses had reached $130 billion, or IDR 2,041 trillion, out of a total projected budget of $140 billion. A budget of IDR 400 trillion to build IKN Nusantara with a smart-vertical-living concept is thus insufficient, as the budget could swell to thousands of trillions. It is not surprising that the Chairman and Deputy Chairman of the IKN Nusantara Authority has already resigned, as they would be aware that IDR 16 trillion per year, starting in 2025, will only be sufficient for a few government offices and basic infrastructure. Constructing housing for 100,000 ASNs and their families will consequently depend on private funds, which will inevitably demand guaranteed profits, burdening ASNs’ personal finances and indirectly straining the state budget.
With their precise and comprehensive calculations, investors naturally aim for the highest possible IRR. A risk-taking investor like SoftBank, for example, has carefully calculated potential returns and subsequently decided to exit IKN. The conclusion is inescapable: the Government of Indonesia must soon revise the IKN Nusantara development concept. If the world’s most adventurous risk-takers have studied this and decided to back out, it will be ludicrous to expect other investors to go all in. Those investors willing to take the risk or accept an IRR below 13 percent can expect profits from other aspects, including forcing ASNs to buy or rent at high prices, cutting quality of construction and other issues that will make ASNs reluctant to occupy and develop IKN Nusantara.
June commences with a commemoration of the birth of Pancasila. The “Pancasila Economy” concept is vital to developing IKN Nusantara. This will ensure progress, build IKN as a strong national capital and lay the foundation for Indonesia to become a fully-developed country. All 118,513 IKN residents, representing the entire ASN, are the ones to wholeheartedly build IKN Nusantara and occupy the city. There should be no forced housing purchase or rental for ASNs being relocated there. IKN Nusantara must thrive on its residents’ sincere dedication.
Cooperative economics can serve as a solution to implement the Pancasila Economy, by relocating ASNs and building housing tailored to each resident’s desires and needs. A cooperative can be formed by 30–50 ASNs to secure each 500 square meter land plot. Lands for roads, social facilities, and public facilities within the complex would be named under the cooperative, similar to the classical RT (neighborhood association) structure. The Government only needs to expedite roads, an electricity grid and clean water mains. Such a scheme can reduce the cost of ASN housing construction to around IDR 200 million per person, or revising a total of IDR 150–360 trillion to about IDR 24 trillion. Part of the construction budget can fairly be charged to the ASNs. For example, an IDR 200 million mortgage scheme can provide an ASN for a type 70 house and 500 square meters of land. Starting with a 70 square meter house, each ASN can gradually renovate and build a home according to preferences, with their preferred craftsmen and materials from their respective regions, thereby stimulating the economy of small and medium-sized construction enterprises across Indonesia for decades to come.
The ASN housing cooperative concept can also revitalize the cooperative movement, despite the social and economic disparities between Management and members. Back in my village, cooperative members, including the sugarcane farmers, have much lower social status and political power, compared to the cooperative’s Management and Chairman, inevitably leading to major corruption crimes within the cooperative.
A cooperative composed of ASNs would have more educated members, thereby reducing the disparity between members and management. A total of 118,513 ASNs has the potential to form around 3,000 ASN cooperatives, with a core accommodating 30–50 members each. The cooperatives may begin in the housing development sector and then expand into culinary businesses and other services, to drive the economy of IKN Nusantara. Thousands of such cooperatives would become a major movement, to revitalize the cooperative movement in Indonesia. I believe that out of 3,000 cooperatives, one would emerge and become a large cooperative, something like Zuivelcoöperatie Friesland Campina U.A., a dairy-based food company active in 36 countries.
The concept of building housing by providing state land to ASN will potentially reform Indonesia’s property sector. The housing backlog on the Ministry of Housing’s website at the end of 2023 reached 9.9 million households. Developers struggle to address this backlog, partly due to the complexity of land procurement processes and certificate issuance. The slow increase of incomes, compared to house prices shooting skyward, also contributes to the issue, particularly as a result of excessive land speculation. In Java, land acquisition costs roughly IDR 100,000/square meter and is sold for IDR 1 million/square meter. In major cities, this can reach up to IDR 10 million/square meter. Due to high land costs, a 36-square meter house in Java priced at IDR 200 million can sell for up to IDR 500 million per unit. If we can switch the low-cost housing sector to providing free land through schemes like government land grants, then 36 square meter houses could be sold for less than IDR 100 million. The development of ASN housing in IKN could focus on developer resources, construction efforts, and building sales rather than land speculation.
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The ASN Nusantara Housing Cooperative concept will benefit investors as value creators, rather than just rent seekers aiming to monopolize and sell land at the highest possible price. Entrepreneurs planning to create superblocks with investments of up to IDR 1 trillion per hectare will undoubtedly support this cooperative model, because it will expedite the increase of customers to 118,513 households, or around 300,000 people. These 300,000 consumers will populate the superblocks, schools, and hospitals in IKN Nusantara, and they must have sufficient disposable income to spend, as their remaining salaries should not be solely used to pay expensive apartment rents. This large population should not be burdened by apartment rental costs, for the sake of social-economic vitality and development of IKN Nusantara.
These 300,000 civil servants, and their sincerity, lay the foundation for Indonesia’s transformation into a just and prosperous nation, in line with the spirit of Pancasila.