Top-down Koperasi Merah Putih is undermining village autonomy
… And the very idea of cooperatives. But could it work?
The writer is a Public Policy and Management student at Universitas Gadjah Mada. This op-ed reflects the author’s own analysis and views and does not necessarily represent those of The Reformist.
Imagine a small village receiving Rp3 billion funds from the central government to build a koperasi (cooperative). Will villagers benefit, or will they be mere spectators? The Prabowo administration’s Koperasi Merah Putih (“Merah Putih” Village Cooperatives, hereafter KMP) launched through Presidential Instruction No. 9/2025, with emphasis on “local participation” and “gotong royong” (mutual cooperation).
The program’s objectives are ambitious: breaking village poverty cycles, improving welfare, and strengthening villages amid rapid urbanization. The government targets 80,000 cooperatives, each funded with Rp3–5 billion and are expected to operate in sectors such as groceries, pharmaceuticals, savings and loans, clinics, and logistics.
Yet, the policy relies on a top-down, centralized approach, positioning the central government as the primary decision-maker. This echoes the “old public administration” paradigm, emphasizing hierarchy, rigid rules, and quantitative targets over accountability and local responsiveness. KMP forces must follow central regulations, contrary to Law No. 6/2014 on village governance, which grants village autonomy in development.
The lack of meaningful stakeholder participation has already produced inconsistencies: multiple government directives cite differing cooperative targets, reflecting coordination gaps inherent in top-down policymaking.
Proponents’ original vision of cooperatives and contemporary challenges
Cooperatives have deep roots in Indonesia. From Raden Aria Wirjaatmadja’s 1895 vision to Mohammad Hatta’s “from, by, and for the members” model, cooperatives were meant to empower communities through, as suggested by the name, mutual cooperation.
As of December 2023, Indonesia had 130,119 active cooperatives with total assets of Rp275 billion, a 37.9 percent drop from 2014 due to restructuring. Despite this decline, cooperatives remain crucial in villages, providing socio-economic support, financial inclusion, and community empowerment. Studies show cooperatives can increase farmers’ incomes by Rp1.5 million per year, offer low-interest credit, and function as marketing, learning, and collaborative hubs.
However, studies also show challenges persist: Limited resources, weak managerial capacity, and low member participation leave cooperatives vulnerable to decline. With plans to create 80,000 Merah Putih cooperatives, these risks are amplified, demanding careful policy design.
Top-down and centralised: Against the cooperatives principles
The KMP project raises a fundamental question: are they genuinely community-driven, or just top-down interventions? Centralized policymaking risks eroding village autonomy, contradicting Article 87 of Law No. 6/2014, which allows villages to establish BUMDes or cooperatives for local welfare.
CELIOS warns of over-reliance on the central government, while village funds (already limited) are diverted to central priorities. KMP alone could absorb 47.3 percent of village budgets, with annual repayments totaling RP33.6 trillion, potentially displacing critical infrastructure needs like roads, bridges, and irrigation.
With capital injections from the state budget, KMP risks distorting village economies, as the official guide from the Cooperatives Ministry allows KMP to operate in sectors already served by local businesses. CELIOS surveys indicate 23 percent of village administrators fear income disruption for local entrepreneurs. Left unchecked, villages could shift toward oligopolies, with government cooperatives dominating and reducing economic diversity.
Competition between village-owned companies (or BUMDes) and KMP complicates matters further. Merging these entities risks weakening each, with conflicts over authority and unhealthy competition. Local political dynamics (eg. alliances, mobilization, identity politics, and elite co-optation) could intensify fragmentation, reducing policy effectiveness.
Importantly, one should not ignore politics when discussing KMP. The cooperatives risk becoming a vessel for political consolidation: With 5 managers and 3 supervisors per cooperative, 80,000 cooperatives would involve over 640,000 individuals (excluding members) – such networks could be co-opted for elite consolidation, transforming cooperatives into political instruments. CELIOS even estimates they could influence up to 46 House (DPR) seats under a two-party scenario, or 34 seats with eight competing parties.
New Public Governance: An alternative path?
Currently, the KMP reflects “old public administration” – rigid, hierarchical, and ill-suited for trillon-rupiah programs with layered social complexity. On the other hand, New Public Governance (or NPG) may provide a framework for KMP; emphasizing inter-organizational partnerships, networked management, and cross-sector collaboration throughout policy design, implementation, and evaluation.
NPG principles require meaningful involvement of local governments, village officials, cooperatives, and communities, with the central government as facilitator rather than authoritarian actor. Trust and shared values are critical. Cooperatives must reflect “gotong royong” (mutual cooperation), solidarity, and community participation – not stand as centrally imposed entities. Moreover, regulatory frameworks should allow flexibility, enabling cooperatives to adapt to local contexts.
KMP should operate as part of collaborative policy networks pursuing win-win outcomes, not top-down enforcement. Lessons can be drawn from social assistance networks under the Ministry of Social Affairs, which link actors for adaptive, locally attuned policy implementation.
International experiences reinforce the case for NPG. In Belgium, cooperatives address market failures through open, democratic member participation. In Japan, the ZEN-NOH cooperative, founded in 1972, employs 28,351 workers across 927 business units and 841 member cooperatives worldwide . Its success stems from a harmonious government-facilitator and local-executor relationship—an approach KMP could emulate.
Policy recommendations
Blended finance models
Reduce dependency on central funds by combining public, private, and philanthropic funding. This model has lower risk, higher success potential, enhanced member ownership, participatory governance, and cross-sector collaboration.
The mechanism could look something like:
Asset-backed financing: Using shared assets for low-interest loans.
Bank partnerships: Accessing low-interest loans, including government-supported microloan “KUR”.
Digital financing: Leveraging e-wallets and e-commerce partnerships.
Philanthropic funds: Grants from NGOs or donors without repayment obligations.
State support for fair markets
The government should guarantee a fair market by protecting cooperatives from modern retail dominance. It could be through affirmative regulations ensuring local access and mandatory partnerships. The state could also offer fiscal incentives, like tax exemptions, logistics subsidies, and technological support. Structural price interventions could also be considered to prevent high costs and low margins in oligopolistic markets. Importantly, policies must consider regional diversity.
Human Capital Development
Address weak human resources via partnerships with vocational training centers (Balai Pelatihan Kerja). Training should focus on digitalization, product design, food entrepreneurship, financial management, and other soft skills. Delivery can include blended learning, intensive short courses, and project-based mentoring, ensuring practical impact and institutional strengthening.
Conclusion: A double-edged sword
The KMP initiative is a double-edged sword. It could empower village economies but, under a top-down “Old Public Administration” approach, risks eroding autonomy, duplicating efforts, and introducing political biases.
However, adopting a New Public Governance paradigm (emphasizing collaboration, community participation, and flexible governance) can root the policy in local needs, turning cooperatives into tangible instruments for village welfare. Diversified funding, fair market regulation, and human capital development are key levers to ensure these cooperatives truly serve the communities they intend to empower.
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