Purbaya Redirects Village Funds to Red-White Cooperatives, Sparking Debate

JAKARTA, Investortrust.id — Finance Minister Purbaya Yudhi Sadewa issued Regulation No. 7 of 2026 on Wednesday, Feb 12, 2026 in Jakarta redirecting 58.03 percent of the 2026 Village Fund budget to finance the Red-White Village Cooperatives program, a move the government says will tighten oversight and boost rural economies but critics warn could curb village autonomy.

The 2,003-page regulation was promulgated on Feb 12, 2026 and set total village fund allocation at Rp 60.57 trillion, equal to about $3.9 billion.

Under Article 15 paragraph 3, 58.03 percent of each village ceiling allocation, or Rp 34.57 trillion in aggregate, was earmarked to support the implementation of Red White Village Cooperative, known as KDMP.

"The adjustment of allocations as a result of government policy to support the implementation of KDMP is calculated at 58.03 percent of the village fund ceiling for each village, or Rp 34,570,000,000,000," the regulation stated.

Article 20 paragraph 3 specified that village funds could be used to pay installments for building physical outlets, warehouses and other KDMP facilities.

"The use of village funds to support the implementation of KDMP as referred to in paragraph 1 letter e takes the form of installment payments for the construction of physical outlets, warehousing and KDMP facilities," the article stated.

After the KDMP allocation, about Rp 26 trillion remained to be distributed across 75,266 villages in 434 regencies and cities.

The regulation also capped village government operational spending at a maximum of 3 percent of the regular village fund ceiling.

Distribution of the regular 2026 village funds was planned in two stages, with 40 percent transferred no later than June 2026 and the remaining 60 percent transferred as early as April 2026.

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Prabowo Pushes Cooperative Model

President Prabowo Subianto framed the cooperative push as a corrective measure during a speech at the Indonesia Economic Outlook in Jakarta on Friday, Feb 13, 2026.

"For the past 10 years, we must admit that much of those funds did not reach the people. This is proven by the many village heads who have had to face the law because they could not properly account for the use of those funds," Prabowo said on Feb 13, 2026.

He pledged that under his leadership, village budgets would be fully directed to serve citizens, including through the cooperative program.

"I have received reports that within one or two months several hundred cooperatives will already be operating. The number of cooperatives that are nearly established is 30,000," he said on Feb 13, 2026.

Each cooperative would be equipped with warehouses, cold storage, retail outlets and pharmacies for generic medicines, along with village clinics and super micro financing outlets.

"Each cooperative will have a warehouse, cold storage and retail outlets. There will be affordable village pharmacies. Generic medicines will be available. There will be village clinics. There will be outlets for super micro financing," he said on Feb 13, 2026.

Prabowo argued that easy and low interest micro financing would eliminate predatory lenders.

"We will provide very easy and very light interest rates for them. All subsidized goods will have access, the people will have direct access so there is no misuse and no leakage," he said on Feb 13, 2026.

He stressed that no new budget was required because the funding had already been allocated over the past decade.

"And where does the budget come from? The budget already exists, because for 10 years we have provided village funds to our villages," he said on Feb 13, 2026.

Economists Warn of Central Control

Criticism emerged from the Center of Economic and Law Studies, known as CELIOS, which argued the redirection could undermine local development priorities.

"Not every village necessarily has the same needs. Villages that do not need cooperatives because the ecosystem already exists lose the opportunity to develop according to their own needs," said Nailul Huda, an economist at CELIOS, in Jakarta on Tuesday, Feb 17, 2026.

He said shifting such a large share of funds to KDMP reflected strong central government control over village development.

"It is a setback faced by villages because not all villagers agree with KDMP, yet they are forced to accept it," he said on Feb 17, 2026.

He added that funds originally intended to help the rural poor could end up being paid to state owned enterprises and cooperative managers.

"The village development narrative conveyed by Prabowo is merely rhetoric. Village development is moving backward under Prabowo era," he said on Feb 17, 2026.

The debate underscored a broader tension between central oversight and local autonomy as Indonesia sought to tighten governance while accelerating rural economic transformation.