It's Not Easy To Withdraw Saudi Arabian Cooperation For IKN Development, Observers Explain Several Reasons

Zero point of IKN development. (Photo: Doc. State Secretariat)

JAKARTA - The government is trying to attract foreign cooperation for investment in the development of the National Capital City (IKN) of the Archipelago. Especially after the Japanese company SoftBank withdrew its interest from the project located in North Penajam Paser, East Kalimantan.

Recently, the Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan is busy lobbying the Crown Prince of Saudi Arabia, Prince Mohammed bin Salman Al Saud (MBS) so that he can participate in financing the IKN development.

Responding to the government's move, Economist and Director of the Center of Economic and Law Studies (Celios) Bhima Yudhistira assessed that it was not an easy thing to attract investment cooperation with Saudi Arabia.

According to him, there are several factors that cause this cooperation cannot run well.

"First, Saudi Arabia is pushing back investment in the oil and gas sector because the momentum for crude oil prices is high," Bhima told VOI, Monday, March 21.

The oil and gas company, Saudi Aramco, has increased investment by more than 50 percent throughout 2022.

The second factor, he continued, is that even if Saudi Arabia is interested in investing in other countries, it is necessary to ensure that it is aligned with Saudi Arabia's vision in 2030 which includes green energy, technology, and agriculture.

"While IKN does not match the Saudi vision, especially in the process of land acquisition, IKN is prone to conflict with environmental sustainability," he said.

Third, the portion of investment from Saudi Arabia so far is very small and tends to fall in the last 10 years. According to him, Saudi Arabia is more interested in Malaysia because its financial instruments are relatively more complete than Indonesia, especially sharia instruments.

Fourth, after Softbank's resignation, many investors were hesitant to invest in IKN because the technical proposals and guarantees for IKN residents were not clear in the long term. The conflict situation in Ukraine also makes the risks of investing in infrastructure projects tend to increase.

"Investors will certainly be more careful in making decisions in the midst of current conditions," he said.

Therefore, Bhima proposed the government to postpone the implementation of the IKN development because it would burden the state budget if it did not get the right investors.

"My proposal is to postpone the construction of IKN because it will be very burdensome for the state budget," he concluded.