Indonesia's Prabowo rolls out first of 80,000 cooperatives to boost growth

Business Times

4 days ago

[JAKARTA] President Prabowo Subianto on Monday (Jul 21) launched the first of thousands of planned new community cooperatives, betting on a top-down approach and billions of dollars in loans from Indonesia's state banks to spur development and food self-sufficiency in the South-east Asian nation.
Prabowo, speaking at a launch event in the central Java town of Klaten, described the initiative as part of his administration's efforts to shorten distribution chains and improve access to essential goods across the sprawling archipelago nation. Especially for 'those with weaker economic conditions,' he added. 'They must have access at affordable prices.'
Zulkifli Hasan, Coordinating Minister for Food Affairs, said that more than a hundred of the new cooperatives are now operational, with plans to replicate the results in more than 80,000 communities across the country in the next three months.
The ambitious initiative represents a significant state-driven effort to stimulate economic growth by channelling as much as US$15 billion in state-bank loans directly into local communities. The plan, which seeks to establish cooperatives in each village and urban ward across a nation of more than 280 million people, aims to bypass traditional bureaucratic and supply chain hurdles, expanding the president's grassroots influence.
The rollout extends a string of populist measures introduced by Prabowo in his first year in office, following a countrywide free meals programme, enhanced health checks, and an economic stimulus package. The push is part of his broader strategy to boost food security and reduce rural poverty, as well as to eliminate predatory lending, long-standing challenges in the region's largest economy. He also hopes they'll play a role in his signature goal of boosting economic growth rates to 8 per cent, a mark last seen three decades ago.
'We shouldn't rely on food imports,' Hasan said in describing the administration's hopes for the initiative. 'We must be sovereign.'
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Named 'Red-White cooperatives' after Indonesia's national flag colours, the community-run facilities are envisioned as centres for local economic activities ranging from grocery distribution, fertiliser supply, subsidised cooking gas distribution, financial services, logistics and health care. Officials expect the initiative to create 2 million jobs while improving supply chain efficiency by eliminating middlemen and reducing the influence of loan sharks. Village heads are expected to lead the cooperatives.
The Red-White cooperatives can each propose borrowing of as much as 3 billion rupiah from state banks, potentially placing collective lending at more than 240 trillion rupiah (S$18.8 billion). Critics have cautioned that the model could strain rural budgets and expose some of the nation's largest banks to heightened credit risks. In November, Prabowo directed state banks to forgive as much as US$550 million in bad loans held by micro and small businesses, particularly in agriculture and fisheries sectors, stoking concerns of the banks' exposure.
The cooperative concept has deep roots in Indonesia, with mixed historical results. Cooperatives existed during the Dutch colonial era, and upon independence the concept was enshrined in Indonesia's constitution as foundational for economic democracy – aimed at promoting social equity and preventing economic domination by foreign powers or domestic elites. Founding president Sukarno championed cooperatives as tools of food self-sufficiency, though many remained informal and loosely organised.
Under Suharto, the country's long-ruling strongman, cooperatives expanded dramatically beginning in the late 1970s. His centrally managed Village Unit Cooperatives, backed by state mandates and subsidies, played a central role in distributing fertiliser and rice and providing credit to farmers, often enjoying local monopolies. While credited with helping Indonesia achieve rice self-sufficiency in the 1980s, their top-down structure, close ties to the ruling Golkar party and heavy dependence on state support made them susceptible to inefficiency and politicisation.
Many faltered following the 1997–98 Asian financial crisis, when subsidies were slashed and political support evaporated. Thousands were dissolved in the years that followed, leaving behind a legacy of public distrust and institutional fragility that continues to cloud perceptions of state-led cooperatives today.
Still, they remain common, with active cooperatives numbering more than 130,000 nationwide last year. Membership comprises more than 10 per cent of the population.
'A cooperative is the tool of the weak,' Prabowo said at the launch event. 'A single stick is fragile and breaks easily. But when dozens or even hundreds of sticks are bound together, they become a powerful tool.' BLOOMBERG