The Indonesian government is now well under way with its plan to set up thousands of village co-operatives, in a bid to stimulate rural economies by shortening supply chains, improving market access and creating jobs.
Ministers were looking to have 15,000 of the Red and White Village Co-ops (RWCVs) operational by the end of August, and plan to grow that to 80,000 by November.
The project is being rolled out in four stages, arranged by geographical area: Yogyakarta and Central Java, with a target of 2,680 co-ops; Riau Islands, North Sumatra, Aceh, West Java, Lampung, and South Sumatra, with a target of 5,800 co-ops; Jakarta, Banten, and South Sulawesi, with a target of 2,244 co-ops, and East Java and Bali, with a target of 5,412 co-ops.
Tatan Yuliono, from the Coordinating Ministry for Food, said ministers hope the scheme will create more than 1.4 million new jobs – including 240,000 manager positions, 400,000 staff roles, and 240,000 supervisor posts, along with job opportunities for 560,000 workers at business units.
It is also hoped that the plan will simplify supply chains and cut the number of middle men – seen as a driver of inflation.
With villages blighted by poverty and lack of opportunity, the goal is to use the co-op model to boost economic participation. But the ambitious project will require good governance on the ground backed by integrated digital technology, with data collected from 20,000 self-sufficient villages by the Ministry of Villages, Development of Disadvantaged Regions, and Transmigration.
Each village will use the digital system developed by the state telecoms operator Telkom, which will monitor the co-op’s activities in real time, including the movement of goods and financial reports.
The co-ops need only input the data – concerning daily transactions of up to Rp9m, primarily from the sales of rice, liquefied petroleum gas and fertilisers – claim ministers, with everything digitally controlled.
The system will “automatically and transparently” monitor all co-operative fund disbursements, goods purchases, sales, and inventory, said the deputy minister for state-owned enterprises, Kartika Wirjoatmodjo.
The government also hopes this digital infrastructure will improve the equitable and affordable distribution of staple goods, and help local village producers reach the export market.
But to succeed, the plan needs harmonised regulations across ministries, allowing leaders at village, district and mayoral level to approve the financing of the co-ops.
Collaboration with various parties, especially state-owned banks, is necessary if members of the village co-ops are to achieve the required financial and technological literacy, warned co-operatives minister Budi Arie Setiadi.
“We are closely monitoring this programme,” said a statement from the minister. “We are maintaining the credibility of this programme, including minimising the possibility of misuse by certain parties.”
Indonesia-born co-op expert Robby Tulus – a former director of the International Cooperative Alliance who has held numerous key roles in the co-op and credit union movements, in Indonesia and around the world – says the project has long been at the forefront of his mind.
“I want the 80,000 co-ops to be successful,” he tells Co-op News, “because the project was initiated by the newly elected Indonesian president Prabowo Subianto Djojohadikusumo, whose grandfather Margono Djojohadikusumo was a board member of the Credit Union Counselling Office which I led in the early 1970s, and now has close to 5 million members nationwide.
“The president harboured a long-standing resentment of the increasingly structural and economic impasse in many rural villages in Indonesia. His idea to help the rural folks and accelerate growth in the countryside by means of the co-ops has to be applauded.”
But, warns Tulus, “the top-down approach of having 80,000 RWCVs established in such a short period of time must be weighed against many other factors. Would the designation of local authorities to expedite the process and to become supervisors of these co-ops be viable?
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“Is the business model of having these RWCVs becoming distributing agents of the nine essential commodities such as fertilisers and cooking oil, considered relevant?
“And how to elect intelligent and ethical board members and recruit managers of the RWCVs if members are not sufficiently educated and trained beforehand?”
To add to the uncertainty, the project comes against the backdrop of a national state debt that is increasingly burdening the economy, says Tulus. “Are local governments ready to manage this while a 25% drop in cash transfers to provincial and local governments is being authorised and enacted?” he asks. “Most important, however, is to prevent this top-down approach from having the same failures like many similar approaches in the past.”
Tulus gives the example of the Village Unit Co-operatives, initiated by president Suharto in the 1970s and 80s, which “were based on the same top-down approach and encountered systemic failures”.
Tulus points to an article by Indonesian MP Abdul Munir, urging that the institutional structure of RWCVs be built with “technocratic precision”.
“If it fails,” adds Tulus, “then it will add to the long list of good projects buried on paper, buried by forgetfulness, or by accountability reports that are too thick but never read.
“I am very much in line with Munir’s thoughts that ‘co-operatives were not born by the state; they were born from the trust of the people. Therefore, the state and technocrats have only one task: not to destroy that trust. Let the people have their own institutions, their own systems, and their own future’.”
On a more positive note, Tulus says officials are working with established, successful, credit unions and rural co-ops for technical assistance and guidance on the RWVCs. This could address the issue of how to train enough people to operate 80,000 co-ops and ensure good governance – which Tulus calls “a million dollar question”.
“I have yet to find a model that works in ensuring good governance by quick fixes based on a top-down approach,” he says. “But who knows if local governments in Indonesia are fully aware of past failures?”
For the scheme to succeed, Tulus says it is important to avoid heavy-handed bureaucracy – and to prevent corruption, “so local people stand ready to support their efforts.”
