RADAR TULUNGAGUNG – The Indonesian government’s decision to channel 58.03 percent of village funds into the Merah Putih Village Cooperatives program has sparked intense debate among economists, village officials, and local communities.

Through Finance Minister Regulation (PMK) No. 7/2026, the government plans to strengthen rural economies by expanding village cooperatives across Indonesia. Officials believe the program can increase local economic circulation, strengthen community businesses, and encourage sustainable development in rural areas.

The policy places Merah Putih Village Cooperatives at the center of Indonesia’s 2026 village development strategy. The government will direct Rp34.57 trillion from the national village fund budget into cooperative projects, while villages will use the remaining Rp26 trillion for regular programs.

Authorities plan to use the funding for cooperative stores, warehouses, and supporting business facilities in villages nationwide.

Government Changes Village Fund Priorities

The policy marks a major shift in how villages use public funds.

For years, villages mainly spent village funds on infrastructure projects, labor-intensive programs, disaster response, and public services. Many villages used the budget to build roads, irrigation systems, and other essential facilities.

CSIS researcher Edbert Gani said the government has changed the direction of village fund spending significantly.

According to him, the previous system allowed villages to decide spending priorities based on local conditions and urgent community needs. The new policy, however, pushes villages to focus heavily on cooperative development through a centralized approach.

Gani acknowledged that the government has valid reasons to evaluate village fund management. Over the past decade, corruption cases involving village heads have damaged public trust in the program.

President Prabowo Subianto also criticized village fund management in recent years. He argued that massive spending had not improved public welfare significantly despite the large amount of money distributed to villages.

The government now hopes Merah Putih Village Cooperatives can deliver economic assistance more effectively while boosting productivity in rural areas.

Economists Warn of Fiscal Pressure

Despite the ambitious vision, economists fear the policy may narrow fiscal flexibility at the village level.

Edbert Gani warned that villages could lose the ability to prioritize urgent local needs because most of their budgets would already be earmarked for cooperative projects.

He estimated many villages may only retain around Rp200 million to Rp300 million for other development needs after the new allocation takes effect.

“That amount is extremely limited for overall village development,” he explained during the Kompas Bisnis interview.

The concern becomes more serious because each village has different economic conditions, business potential, and social challenges. Critics argue that a uniform national policy may not fit every region equally.

Risk of Conflict With Existing Local Businesses

Another major concern involves competition between the newly funded cooperatives and existing village businesses.

Many villages already operate micro, small, and medium enterprises (MSMEs) as well as Village-Owned Enterprises, commonly known as BUMDes. Economists fear state-backed cooperatives with strong financial support could create unfair competition.

If not managed carefully, the new cooperatives may disrupt local economic ecosystems that have been built gradually over the years.

Edbert Gani also questioned the lack of transparency regarding the organizational structure, recruitment process, and accountability mechanisms of the cooperatives.

He emphasized that cooperatives ideally grow through community participation and collective decision-making rather than top-down government directives.

“Globally, cooperatives are usually based on a bottom-up approach,” he said.

Concerns Over Governance and Corruption Risks

The large-scale implementation of the Merah Putih Village Cooperatives program has also raised concerns about governance and financial accountability.

Observers worry that weak institutional capacity in many regions could increase the risk of inefficiency, misuse of funds, and failed projects.

Gani suggested the government should begin with pilot projects in selected villages that already have successful cooperative models instead of launching the program simultaneously nationwide.

He argued that gradual implementation would allow the government to evaluate risks, improve management systems, and adapt the policy to different regional economic conditions.

The economist also warned that failed cooperative projects could eventually affect the banking sector if debt-related financing mechanisms are involved.

For now, the debate surrounding the Merah Putih Village Cooperatives policy continues as the government pushes forward with its ambitious rural economic transformation agenda.

Supporters see it as a breakthrough to strengthen village economies, while critics remain concerned about the long-term impact on public services, local businesses, and fiscal stability in rural Indonesia.