Revisiting the complex history of Indonesian cooperatives

Asia News Network

25-07-2025

July 25, 2025
JAKARTA – The launch of President Prabowo Subianto 's Red and White Cooperatives program, which the government claims is the poor's 'tool of struggle', has brought renewed attention to cooperatives, an economic institution that has outlived various regime changes thanks to its firm roots in the Indonesian social value of gotong royong (mutual support).
During the launch ceremony in Klaten, Central Java on Monday, the President described the initiative as a way for 'economically weaker groups' to build collective strength and a 'strategic movement' aimed at challenging the longstanding economic dominance of big players.
With only 108 village cooperatives opened during the initial phase, the government aimed to have more than 80,000 firms established in three months, according to Coordinating Food Minister Zulkifli Hasan, who leads the task force behind the initiative.
While the program's proponents have praised it as a means to reinvigorate local economies down to the village level, critics argue that it contradicts the fundamental spirit of cooperatives, which has been repeatedly tested in the country's history.
The history of the cooperative movement can be traced to 1895, when Raden Aria Wirjaatmadja, an aristocrat from Purwokerto in Central Java, launched a savings and loan scheme to help civil servants avoid predatory lenders.
While not yet called a 'cooperative', the initiative, which later became the embryo of state-owned lender Bank Rakyat Indonesia (BRI), laid the groundwork for community-based lending.
After Indonesia's independence in 1945, cooperatives gained political momentum at the national level. On July 12, 1947, the first National Cooperative Congress was held in Tasikmalaya, West Java. The date has since been recognized as National Cooperatives Day.
Six years later, then-vice president Mohammad Hatta was named 'father of Indonesian cooperatives' during the second congress for his consistent support of the movement.
'Cooperatives were widely adopted by various communities because as a whole, Indonesian society already had a tradition of working collectively, thanks to the value of gotong royong,' said cooperatives researcher Iip Yahya.
Troubling times
Economist and former president Sukarno's finance minister Soemitro Djojohadikusumo, who is also father of President Prabowo, also talked the importance of cooperatives to help village farmers to escape poverty.
But cooperatives were caught in the country's political divide in the mid-1960s, when their grassroots ideals were associated with left-wing movements and politicians.
Many healthy cooperatives at the time were politicized, according to Iip: 'Cooperative leaders often could not resist offers to back certain parties, which resulted in consequences that proved harmful and even fatal for the cooperatives they ran.'
When then-president Soeharto rose to power, his administration curtailed any lingering left-leaning influence in the country, including by disbanding cooperatives. Various studies revealed that the number of cooperatives dropped from over 73,000 in 1966 to less than 12,000 by 1967.
Soeharto then launched his own village unit cooperative program (KUD), which turned cooperatives into extensions of the central government throughout the 1970s and 1980.
Cooperatives expert Suroto said that the KUD program served mainly to maintain the government's presence down to the village level.
'Cooperatives should be formed from the ground up,' he said. 'When their formation is forced top-down, like what happened with the KUD, they don't last.'
Repeating mistakes?
The reform era became another turning point for cooperatives, thanks to various economic stimulus programs introduced by the government in the early 2000s. The incentives doubled their number from 52,000 in early 1998 to over 103,000 in 2001.
But Suroto called the economic stimulus 'overly sympathetic' and 'damaging' in the long term, as many cooperatives that emerged during this period became overly dependent on state support. In 2024, the then-Cooperatives and Small and Medium Enterprises Ministry disbanded nearly 80,000 inactive cooperatives.
He also warned that President Prabowo's Red and White Cooperatives program risks repeating mistakes made by previous administrations with its top-down formation and state-backed financing that could foster long-term dependency.
'Cooperatives should be fundamentally autonomous and independent organizations,' Suroto said. 'All of these aspects contradict the way [the Red and White Cooperatives] were set up.'
Rather than rushing to establish more than 80,000 cooperatives, Suroto urged the government to instead focus on strengthening existing ones and prioritizing to improve their capacity.
Meanwhile, cooperatives researcher Iip said Prabowo's program may represent the strongest government support for such institutions in the country's history.
'But only time will tell if this support truly upholds cooperative principles or serves short-term political interests.'
Sharing Suroto's concerns of resurfacing past mistakes, Iip remains cautiously optimistic on the trajectory of the program, as long as 'the government stays open to input from the cooperatives community'.