FKP hosted by  ANU Indonesia Project  on Wednesday, 3 June 2026 featured Aichiro Suryo Prabowo (Monash University Indonesia), Thomas B. Pepinsky (Cornell University), and Alexander Rothenberg (Syracuse University), moderated by Arianto Patunru (ANU Indonesia Project)

Indonesia’s plan to transfer its national capital from Jakarta to Nusantara is one of the most significant public investment endeavours in the nation’s modern history, with anticipated costs surpassing USD 80 billion and execution scheduled until 2045. The initiative is designed as a strategic intervention to mitigate development pressures in Jakarta and foster a more spatially equitable pattern of economic growth. Nonetheless, its long-term viability is still contested, especially concerning its fiscal sustainability and political acceptability. In this seminar we discuss two recent research on IKN.

Aichiro Suryo Prabowo (Monash University Indonesia) presented findings from his research  with Thomas B. Pepinsky that evaluates the fiscal viability of Nusantara through a public budgeting and political economy framework. The study finds that the state budget (APBN) remains the only financing mechanism capable of supporting the project at the scale required for its implementation. Alternative sources of funding, including state-owned enterprises, private investors, and public–private partnerships, have collectively delivered less than 20 percent of their targeted commitments. Consequently, the fiscal burden of the project has become increasingly concentrated within the public budget.Which leads to the question of public support for financing Nusantara from public coffers.

Thomas B. Pepinsky (Cornell University) presented the second part of the research on the political feasibility of financing Nusantara. Using evidence from a nationally representative survey conducted in 2024, he revealed that when respondents evaluate the proposal in isolation from its financing requirements, there is broad support for capital relocation across demographic and socioeconomic groups. However, support declines substantially once respondents are confronted with the fiscal trade-offs associated with implementation. In particular, respondents consistently prioritise public expenditure on education and healthcare over reallocating budgetary resources toward Nusantara. The evidence therefore points to a significant political economy constraint: public support for the symbolic and developmental objectives of relocation does not necessarily translate into support for the fiscal adjustments required to finance the project. This disconnect highlights the challenges policymakers face in reconciling public preferences with the long-term financing demands of large-scale infrastructure and state-building initiatives.The research is published open access in the Bulletin of Indonesian Economic Studies (BIES)

The second research was presented by Alexander Rothenberg (Syracuse University) who examined the economic consequences of Indonesia’s capital relocation to Nusantara. Employing a dynamic spatial equilibrium model, the study simulated the relocation of approximately 60,000 civil servants from Jakarta to Nusantara alongside improvements in local infrastructure and public amenities. Under the baseline scenario, the relocation is projected to generate substantial economic gains in East Kalimantan, increasing regional GDP by approximately 109% and population by 64%. However, most migrants are drawn from neighbouring regions within Kalimantan rather than from Jakarta, thereby limiting the project’s capacity to reduce congestion and economic concentration in Jakarta.

Despite these considerable regional benefits, the model predicts declines in aggregate national outcomes, albeit the size is modest. National welfare is estimated to decrease by approximately 0.6%, while aggregate GDP falls by around 1.03%. These outcomes are primarily driven by the additional fiscal expenditures required to attract and retain civil servants in the new capital. The analysis further incorporates climate-related risks, including rising temperatures, sea-level rise, and land subsidence. These factors marginally strengthen the economic rationale for relocation, although they do not alter the overall welfare results. Overall, the research findings suggest that the economic rationale for Nusantara is stronger when assessed from a regional development perspective than through the lens of aggregate national welfare maximisation.

 During the discussion session, participants questioned whether Nusantara’s substantial fiscal costs could be justified given its relatively limited aggregate welfare gains. The responses highlighted a common theme across the presentations. Aichiro Suryo Prabowo and Thomas B. Pepinsky emphasised that the principal challenge lies not in public acceptance of relocation itself, but in securing a financing mechanism that is both politically feasible and fiscally sustainable. Alex Rothenberg similarly argued that Nusantara’s public policy decisions are not evaluated solely on the basis of economic efficiency or welfare maximisation. Rather, policymakers may place greater weight on broader strategic objectives, including reducing the concentration of development in Java, strengthening state presence beyond the island, and fostering new centres of growth in eastern Indonesia. 

Download slides here.