The COVID-19 pandemic quite rightly absorbed all the government’s attention and resources last year in efforts to contain the health crisis and rescue the economy, pushing the administration to delay construction of many infrastructure projects, including that of the new capital. As the national vaccination program rolls out, hope of controlling the pandemic emerges along with the government’s aim to kick start the new capital city development in 2021.

The House of Representatives has shown its support as it includes the government-initiated capital city bill in the 2021 National Legislation Program (Prolegnas) along with 32 other bills.

The National Development Planning Agency (Bappenas) has also stressed its readiness to commence the construction as soon as President Joko “Jokowi” Widodo instructs it to do so because the former has completed the masterplan as well as the detailed plan.

The plan to move the capital city is expected to reduce congestion, pollution and health risks and help alleviate water cycle management in Jakarta while at the same time develop a sustainable and green new city, create an inclusive society and improve efficiency and effectiveness of the government. This is a chance for the government to develop a truly smart and green city from the ground up.

Moreover, the increased global focus on sustainability and green economic recovery makes it even more important for Indonesia to have its own model to follow. The World Bank in its Global Economic Prospects report published earlier this month urges countries to stimulate green recovery from the pandemic-induced economic downturn as the escalating climate emergency looms.

Investing in green infrastructure projects, phasing out fossil fuel subsidies, and offering incentives for environmentally sustainable technologies can buttress long-term growth, lower carbon output, create jobs and help adapt to the effects of climate change, World Bank Group President David Malpass wrote in the report.

Jokowi has said that the capital city development will be a technology-driven green city, supported by an integrated transportation system. The government also aims for 80 percent of people’s movement in the new capital to be by public transportation, walking or even cycling. It also plans to allow only electric vehicles (EVs) on streets in the new capital city.

In addition, the accelerated digital transformation in Indonesia during the pandemic provides a glimpse of hope that government activities will not be disrupted by, but can even be improved by the movement to the new capital. The work-from-home policy implemented by the government’s institutions as well as private sector during the outbreak has shown that nearly every business and organ of the government can operate virtually.

This also means that there should be less need than expected for carbon-emitting flights to and from Kalimantan for meetings. But it is important that government practices and policies support the achievement of this digital transformation.

The construction of the capital city can be a tool for the government to stimulate the economy through its spending and private investment while pushing forward its efforts to improve the nation’s health and education system in regions outside of Jakarta and the island of Java.

Government spending played an important role in anchoring the economy last year when the country officially entered its first recession in more than two decades. Government spending grew 9.76 percent year-on-year (yoy) in the third quarter, becoming the only gross domestic product (GDP) component that managed to record positive growth, as the economy shrank 3.49 percent, Statistics Indonesia (BPS) data shows.

The government has pledged to continue its pandemic stimulus package disbursement this year while working to attract investment into the country to help jack up economic recovery. Finance Minister Sri Mulyani Indrawati said in early January that the state budget would not be enough to compensate for falls in consumption, investment and export activity. On that basis, Indonesia needed reform to attract investment while the mass vaccination would help build confidence in the economy, hence the need for the recently passed Job Creation Law to be effectively implemented.

Investment accounted for more than 30 percent of the GDP, the second largest contributor after household consumption, and this creates a multiplier effect to the economy in the forms of jobs creation, among other things. Infrastructure projects, including the new capital city’s construction, can be an important tool to drive recovery and attract essential foreign investment, but actual levels of foreign investment in Indonesia’s infrastructure have regularly failed to equal the targets set by the government.

The government estimated in 2019 that the new capital city’s development would cost around Rp466 trillion (US$33.23 billion). Of this amount, only 19.2 percent would be sourced from the state budget while the remainder would come from the public-private partnership (PPP) schemes (54.4 percent) and the private sector investment (26.4 percent).

The calculation might change following the pandemic but we are of the view that private investment and PPP will have a more important role now as the state budget is constrained.

Even if the government’s finances are more stretched, the potential feasibility of such projects remains sound, and may even be improved, as long as they are properly prepared. For example, the covid-19 pandemic has only reinforced the need for more investment (not just current spending) in health and education services, in addition to the macro-economic benefit this can generate. Moreover, there is no shortage of foreign investment cash available for well-structured projects.

Indonesia is establishing a sovereign wealth fund, named the Indonesia Investment Authority, which is targeted to attract investment amounting to $100 billion in the next two years and support the country’s development. Jokowi said the fund eyed $20 billion in investment commitments in the next few months as the government would inject Rp15 trillion in addition to Rp50 trillion worth of state-owned enterprises (SOEs) shares to be injected into the fund.

United States’ IDFC, Japan’s JBIC, CDPQ from Canada and APG from Netherlands are major international investors recently announced with commitments of several billion US dollars. The government is planning to use the fund to finance big infrastructure, tourism and technology projects as well as the new capital city development.

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The writer is PwC Indonesia capital projects and infrastructure advisor. These views are personal.