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TEMPO.CO, Jakarta - State banks are to fund the construction of red-and-white cooperative warehouses. This is a dangerous decision because it is at odds with the principle of caution.PRESIDENT Prabowo Subianto continues to come out with risky policies that endanger the Indonesian economy. Without any clear calculations, the government’s order to the State-Owned Banks Association (Himbara) to fund the construction of warehouses and outlets for the red-and-white cooperatives poses significant risks in the future.Prabowo, through Presidential Instruction No. 17/2005 on the Acceleration of the Construction of Outlets, Warehouses and Facilities for Village/Urban Village Red-and-White Cooperatives, has tasked Agrinas Pangan Nusantara with building outlets, warehouses, and other facilities for these cooperatives. State-owned banks have once again had the misfortune to be ordered to pay out huge amounts to fund an ambitious program of unproven business feasibility.With a maximum of Rp3 billion allocated for physical construction of each outlet, and a target of 20,000 cooperative outlets in operation in the first stage, this means the total funds required are at least Rp60 trillion. The Finance Minister has also been asked to prepare a scheme for allocating additional funds in the State Budget to realize Prabowo’s ambition of opening 80,000 cooperatives throughout the nation.The market has already responded negatively to the intervention by the head of state in the policies of Himbara banks. The share prices of five state banks dropped, and their market capitalization has fallen by 26.3 percent in the last year to only Rp1,188.06 trillion. Market confidence has been eroded because the management of the banks, which should be independent in terms of policymaking, has now become a cash cow for development, as happened under the previous administration.Aside from the confidence of the capital markets, consumer trust, which is the main foundation of the banking industry, is also at risk if this practice of forcing banks to fund populist programs continues. Especially since at a time when the economy has yet to fully recover, the potential for even small problems arising must be mitigated. After all, history has shown that major crises begin from lack of caution on the part of the banks. Therefore, consumer trust in the banking sector must be maintained.And forcing through the establishment of these red-and-white cooperatives through any means necessary has led to concerns that growth will not be long-lasting. The command policies in this program have put an end to the main elements of cooperatives, namely that they are a way of bringing about economic equality, that they grow from the grassroots and they are managed in a way that is efficient and accountable.The implementation of the red-and-white village cooperatives has damaged the investment climate. Healthy business competition is not being established because of the heavy hand of the government behind these cooperatives. The government is even involved in fiscal matters through the state-owned banks providing liquidity for these cooperatives. This is very different from other businesses in villages that have grown organically.The only way to prevent massive problems caused by the continued forcing through of this ambitious government program is the appearance of clear thinking in policy making by the management of these state-owned banks. They should realize the potential for significant dangers to the banks and the economy if they are forced to fund projects that are financially unfeasible, and then resign. This paradigm is crucial if they wish to avoid future legal entanglement for having facilitated projects that cause losses to the state.Read the Complete Story in Tempo English Magazine
