SoftBank 'Farewell' From IKN, Economist Names Several Causes: Noises On The Extension Of The President's Term To Inflation Risk

SoftBank Management. (Photo: Doc. Antara)

JAKARTA - Japanese venture capital firm SoftBank has officially withdrawn from the new State Capital (IKN) construction project in East Kalimantan. In fact, SoftBank initially planned to invest up to 100 billion US dollars in the project.

Then, what made Softbank back down?

Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira, assessed that various political dynamics in the country, such as the extension of President Joko Widodo (Jokowi)'s office to three terms, to economic conditions such as rising inflation influenced Softbank Group to withdraw from the IKN project.

"There are strong indications that the political risk of IKN development is quite high. Moreover, the recent noise regarding the extension of the presidential term has made investors choose to wait and see. Investment in IKN is not short-term, but requires long-term certainty", he said when contacted by VOI, Sunday, March 13.

Bhima also admitted that he was worried that political risks related to the election would hamper the IKN project, or even stop completely. According to him, the war in Ukraine has also added to a series of global uncertainties.

"Investors also read that the risk of high inflation in developed countries will make IKN construction costs rise significantly. The cost of steel, construction material goods will also increase due to disruption of global supply chains", he said.

Bhima said, this also happened during the construction of the nation's capital in Putrajaya-Malaysia during the 1998 monetary crisis, causing the construction costs to rise significantly.

"The increase in interest rates in various countries has also increased the cost of funds, especially for investors with high debt ratios", he explained.

Furthermore, Bhima assessed that the withdrawal of the Japanese company gave a signal to the investors behind it that Softbank would focus more on funding digital startups.

"The company's strategy will be to focus more on funding digital startups, not government projects", he said.

For your information, SoftBank confirmed that the company will not invest in the IKN project, East Kalimantan. The decision was delivered on Friday, March 11, 2022.

In January 2020, Coordinating Minister for Maritime Affairs and Investment Luhur Binsar Pandjaitan claimed that Softbank was interested in injecting fresh funds for IKN development of up to US$100 billion.

Luhut said that the investment offered by Japan was too large. This is because the government considers that an investment of 25 billion US dollars is sufficient. After all, the plan to move the nation's capital is already underway.