Nusantara (IKN) — Indonesia's New Capital and Its Collapsing Construction Budget

Facing chronic congestion, pollution and land subsidence in Jakarta, Indonesia announced in August 2019 that it would relocate its national capital to a purpose-built city, Nusantara, in East Kalimantan on Borneo, roughly 1,236km from Jakarta. Construction began in July 2022, with a total project value estimated at about $45 billion. Nusantara is billed as Indonesia's first city to declare a locally determined carbon-neutral target, for 2045, and to track progress through a voluntary local review against the UN Sustainable Development Goals; thirteen UN agencies formally declared support for the initiative in October 2023. Investment incentives under Government Regulation No. 12/2023 include a 0% corporate income tax rate for ten years and full exemptions on import duty and VAT for qualifying investors.

Construction proceeded through five groundbreaking ceremonies between September 2023 and March 2024. By 2025-26 the core government district, including the presidential Garuda Palace, was substantially complete, while the legislative and judicial district remains under construction, now targeted for completion by late 2027 or early 2028. Around 4,000 civil servants are scheduled to relocate to Nusantara in 2026, alongside roughly 50 staff of the Vice President already working on site.

State budget allocations for IKN show a boom-and-bust trajectory: Rp5.5 trillion in 2022, rising to Rp27 trillion in 2023 and a peak of Rp43.3 trillion in 2024, then falling to Rp13 trillion allocated for 2025 (with roughly Rp4.7 trillion actually disbursed) and just Rp6.26 trillion budgeted for 2026 — a drop of more than 85% in dollar terms from the 2024 peak of roughly $2 billion to about $300 million. President Prabowo Subianto's 2026 budget speech did not mention IKN funding at all, a signal that the project has become a lower political priority than under his predecessor, Joko Widodo, who originated it.

The funding collapse has fuelled a "ghost city" risk narrative among commentators, since the original financing plan assumed private investment would eventually cover roughly 80% of total project cost — a share that has not materialised at the pace originally envisaged. The project has also drawn documented criticism over land-rights friction with local Indigenous Balik and Paser communities whose land was incorporated into the new capital's boundaries.

Read the full analysis: https://www.trade.gov/market-intelligence/indonesia-new-capital-city-nusantara