(Indonesia, 22nd) The village cooperative program, aimed at enabling rural villagers in Indonesia to afford essential goods, has begun operations. The Prabowo government plans to open more than 80,000 village cooperatives within three months to boost the local economy and provide greater food security.
On Monday (July 21), Indonesian President Prabowo launched the "Red and White Village Cooperative" in Klaten, Central Java. Citing rice as an example, he said that some rice merchants’ dishonest behaviors have caused the country a loss of 100 trillion rupiah (approximately RM25.779 billion). “Establishing cooperatives is part of the government’s effort to shorten distribution chains for key goods and medicines.”
One of the key functions of the cooperative is to prevent middlemen from inflating prices to make higher profits, thus allowing the public to afford food. The cooperative will also work with state-owned enterprises to purchase unhulled rice from farmers.
Setting up village cooperatives is another major social policy promoted by Prabowo, following the free child nutritional meal program. The name "Red and White" echoes the colors of the Indonesian flag and the current "Red and White" cabinet.
According to the plan, the cooperatives will serve as rural economic centers. In addition to buying household LPG, fertilizers, and groceries from the cooperative, villagers can also access savings, loans, logistics, medical, and other services.
The cooperatives will be run by local village leaders and are expected to create 2 million jobs. Currently, 108 cooperatives are ready to begin operations.
According to regulations, each cooperative can borrow up to 3 billion rupiah from state-owned banks, with an annual interest rate of 3%, to be repaid over six years. This means the total cooperative lending amount could exceed 240 trillion rupiah, which not only poses higher lending risks to state-owned banks but may also increase the local government’s fiscal burden.
The Indonesian think tank Center of Economic and Law Studies (CELIOS) estimates the Red and White Village Cooperatives face a debt default risk as high as 85.96 trillion rupiah. CELIOS Executive Director Nailul Huda told Indonesian media that the opportunity cost of state-owned banks financing the cooperatives is 76 trillion rupiah—"If these funds were allocated to higher-yield areas, it could reduce the opportunity cost."
Indonesia has previously implemented cooperatives. According to Bloomberg, cooperatives were established even during the Dutch colonial period and were considerably expanded during Suharto’s administration.
During the Suharto era, the government supported cooperatives through subsidies and other measures. Cooperatives played an important role in distributing fertilizers and rice as well as providing credit to farmers, helping Indonesia achieve rice self-sufficiency in the 1980s. However, cooperatives were also criticized for being overly reliant on state support, leading to inefficiency and politicization.
Wasisto Raharjo Jati, a political researcher at the Indonesian National Research and Innovation Agency, told Lianhe Zaobao that unlike in Suharto's era, the Red and White Village Cooperatives receive top-down government funding, rather than relying on members’ savings and borrowing.
He said, "One advantage of the Red and White Village Cooperative is that it can provide financial support to farmers. But its drawback is that the management capability of village officials may vary greatly."
Wasisto also mentioned that cooperatives can reduce farmers' debt default risks by offering lower interest rates.
On Monday (July 21), Indonesian President Prabowo launched the "Red and White Village Cooperative" in Klaten, Central Java. Citing rice as an example, he said that some rice merchants’ dishonest behaviors have caused the country a loss of 100 trillion rupiah (approximately RM25.779 billion). “Establishing cooperatives is part of the government’s effort to shorten distribution chains for key goods and medicines.”
One of the key functions of the cooperative is to prevent middlemen from inflating prices to make higher profits, thus allowing the public to afford food. The cooperative will also work with state-owned enterprises to purchase unhulled rice from farmers.
Setting up village cooperatives is another major social policy promoted by Prabowo, following the free child nutritional meal program. The name "Red and White" echoes the colors of the Indonesian flag and the current "Red and White" cabinet.
According to the plan, the cooperatives will serve as rural economic centers. In addition to buying household LPG, fertilizers, and groceries from the cooperative, villagers can also access savings, loans, logistics, medical, and other services.
The cooperatives will be run by local village leaders and are expected to create 2 million jobs. Currently, 108 cooperatives are ready to begin operations.
According to regulations, each cooperative can borrow up to 3 billion rupiah from state-owned banks, with an annual interest rate of 3%, to be repaid over six years. This means the total cooperative lending amount could exceed 240 trillion rupiah, which not only poses higher lending risks to state-owned banks but may also increase the local government’s fiscal burden.
The Indonesian think tank Center of Economic and Law Studies (CELIOS) estimates the Red and White Village Cooperatives face a debt default risk as high as 85.96 trillion rupiah. CELIOS Executive Director Nailul Huda told Indonesian media that the opportunity cost of state-owned banks financing the cooperatives is 76 trillion rupiah—"If these funds were allocated to higher-yield areas, it could reduce the opportunity cost."
Indonesia has previously implemented cooperatives. According to Bloomberg, cooperatives were established even during the Dutch colonial period and were considerably expanded during Suharto’s administration.
During the Suharto era, the government supported cooperatives through subsidies and other measures. Cooperatives played an important role in distributing fertilizers and rice as well as providing credit to farmers, helping Indonesia achieve rice self-sufficiency in the 1980s. However, cooperatives were also criticized for being overly reliant on state support, leading to inefficiency and politicization.
Wasisto Raharjo Jati, a political researcher at the Indonesian National Research and Innovation Agency, told Lianhe Zaobao that unlike in Suharto's era, the Red and White Village Cooperatives receive top-down government funding, rather than relying on members’ savings and borrowing.
He said, "One advantage of the Red and White Village Cooperative is that it can provide financial support to farmers. But its drawback is that the management capability of village officials may vary greatly."
Wasisto also mentioned that cooperatives can reduce farmers' debt default risks by offering lower interest rates.