Indonesia eyes new capital as Jakarta bursts at seams

JONGGOL, Indonesia (Reuters) - A mere pinprick on the map of Java, Jonggol's cluster of tiny red-roofed houses set among banana groves and shimmering waterlogged rice fields may in years to come be destined for greater things.

Indonesia's capital, Jakarta, population 9.59 million, is overcrowded, set in an earthquake zone, prone to flooding, and crippled by inadequate infrastructure.

Now Jonggol is one of several sites being considered as a new administrative seat in a bid to relieve Jakarta's congestion, but at a potential cost of billions of dollars.

This sudden thrust into the limelight appeals to some local residents in Jonggol, where few buildings exceed one storey and the nearest thing to a skyscraper is four floors high.

"Now you can call this a village. I hope they will transform it into a city," said local resident Annur. "I don't mind if this becomes the capital, it would be more lively and beautiful."

For years, Indonesia's growth has lagged that of China and India, held in check by poor infrastructure, endemic corruption, and ample red tape.

President Susilo Bambang Yudhoyono has floated the idea of moving part of the capital in recent months, and earlier this month proposed increasing infrastructure spending, with plans to build 14 new airports as well as roads and railways, to lure foreign investment and boost growth.

"The government takes this idea seriously," Velix Wanggai, an advisor to Yudhoyono, told Reuters. "The president considers it normal to look at moving the capital because of Jakarta's urban problems, the risk of disaster, and heavy environmental toll."

As Southeast Asia's largest economy and a G20 member, Indonesia is keen to raise its international profile.

It has ambitions to join the emerging market elite of BRIC nations Brazil, Russia, India and China, is eying an investment-grade credit rating, and even wants to lop a few zeros off its currency so that everyday transactions no longer seem so third world, involving millions or billions of rupiah.

A new capital could -- as was the case with Brasilia, studded with Oscar Niemeyers' architecture -- be an emblem of national coming-of-age with careful urban planning and new infrastructure.

URBAN CHAOS

To get a sense of Jakarta's infrastructural shortcomings, start at Soekarno-Hatta airport, Indonesia's busiest. At peak times the queues at the visa and immigration counters snake back several hundred metres, and it can take up to three hours for passengers to be reunited with their luggage.

The drive into Jakarta's centre provides sweeping views of shopping malls set among slums and densely packed housing. Traffic crawls along at 15-20 km (10-12 miles) per hour, flooding is common during the heavy rains, power supplies are erratic, while Dutch-era canals serve as stinking open sewers for slumdwellers.

Only the affluent, ensconced in compounds with guaranteed power and water supplies, live comfortably.

"Anything that would lessen the congestion in Jakarta would be a blessing, so separating the business capital from the centre of government could be a positive," said Tim Condon, regional economist for ING.

"But it's also a huge investment. These moves are typically driven by political rather than economic considerations, the desire to develop an alternative part of the country. Is it really going to pay off in terms of increased efficiency by decongesting Jakarta?"

The choice of location can also lead to questions over government policy, and spur regional jealousies in a country composed of many different ethnic groups and religions.

Of Indonesia's 17,000-odd islands it is Java, the cultural heart and home to 58 percent of Indonesians, which still calls the shots, making it the more likely site.

"Java runs the country," said Condon, so a capital outside Java "would be pretty radical."

Jonggol was first mooted by the autocratic former president, Suharto, who wanted one of his sons to develop the satellite town as a new capital. Today, the main property developers in the area include the Ciputra and Bakrie groups.

Bakrie group and its property unit Bakrieland Development are owned by the family of Aburizal Bakrie, whose Golkar Party is part of the ruling coalition and who nurses presidential ambitions. Indonesia's two main state construction firms PT Wijaya Karya and PT Adhi Karya would likely gain from the development of a new city.

Malang in East Java, and Palangkaraya and Jayapura, which are outside Java, are also being considered, said Wanggai.

Palangkaraya, on the island of Borneo, was former President Sukarno's choice for the capital because of its position in a quake-free region at the very centre of the archipelago. A less likely site is Jayapura, at the easternmost extreme of Indonesia in resource-rich Papua, where the military has struggled to contain a decades-long secessionist movement.

Despite its mineral, timber and energy reserves, Papua remains one of the poorest parts of the country. Building a new capital there would bring jobs and infrastructure, as well as an influx of Javanese and other ethnic groups, potentially diluting the Papuan majority and sowing further discontent.

WHITE ELEPHANTS

The cost of such grandiose mega-projects can easily run into billions of taxpayer dollars, providing opportunities for patronage and land speculation.

"I think there are no successful examples. I don't think it's wise to take that direction," Kuntoro Mangkusubroto, head of Yudhoyono's presidential delivery unit, told Reuters.

Astana, Kazakhstan's showcase new capital boasting Norman Foster's architecture, cost over $12 billion.

Malaysia's Putrajaya, the administrative capital built 25 km south of Kuala Lumpur, was promoted and pushed through by former Prime Minister Mahathir Mohamad at an official cost of 11.83 billion ringgit ($3.77 billion).

But while government and ruling party supporters see Putrajaya and its stylish Islamic architecture as a symbol of Malaysia's development, critics say it is a white elephant that may have cost far more than stated.

South Korea's new seat of administration, Sejong, is expected to cost about $19 billion, the bulk of which will be borne by a state-run development company. A dozen government ministries and agencies, including the powerful Ministry of Strategy and Finance, will move to the new city, 150 km (95 miles) south of Seoul, to reduce congestion in the capital.

"I don't see any strong benefits" for Indonesia, said Song Seng Wun, regional economist at CIMB Research.

"Maybe a few civil servants get a nice new aircon office and nice scenery but for the man in the street who is trying to find work in a textile company it's about whether the government's policies can lift the wages of the ordinary people."

($1=3.140 Malaysian Ringgit)

(Additional reporting by Telly Nathalia, Janeman Latul, Lenita Sulthani, Sunanda Creagh and Neil Chatterjee in Jakarta, Razak Ahmad in Kuala Lumpur, and Choonsik Yoo in Seoul; Editing by David Fox)

(sara.webb@thomsonreuters.com; Reuters messaging: sara.webb.reuters.com@reuters.net; +6221 384 6364 ext 901)

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