Ibrahim Kholilul Rohman is head of IFG Progress, where Erin Glory Pavayosa Ginting serves as a research associate. The views expressed are personal.
Indonesia has long positioned cooperatives as the cornerstone and constitutional center of its economic development. Rooted in and explicitly referenced by Article 33 of the 1945 Constitution, cooperatives are envisioned not merely as business entities but as institutional embodiments of collective ownership and democratic control.
The 2025–2029 National Medium-Term Development Plan reinforces this ambition, identifying cooperatives as primary vehicles for inclusive growth, micro, small and medium enterprise (MSME) empowerment, and community-based economic sovereignty. The role of cooperatives as engines of development is arguably more critical now than ever, particularly through the establishment of the Red and White Cooperatives, one of President Prabowo Subianto’s signature programs.
To support this initiative, just recently Finance Minister Purbaya Yudhi Sadewa issued Regulation No. 7/2026, mandating that 58.03 percent of the 2026 Village Fund allocation, amounting to Rp 34.57 trillion (US$2 billion), be directed toward cooperative development. This leaves approximately Rp 25 trillion for regular village priorities, representing a massive fiscal bet on the cooperative model's efficacy. The crucial question remains: What does empirical data from Statistics Indonesia (BPS) tell us about the actual performance of these institutions?
A comprehensive assessment by IFG Progress, covering 514 regencies and municipalities and drawing from SUSENAS, SAKERNAS, and PODES data, offers vital nuance. The study analyzes three key regional economic indicators driven by cooperative establishments: regional gross domestic product growth, unemployment rates and average household consumption.
The 2024 BPS Potensi Desa (PODES) survey recorded 51,505 cooperative units across districts, representing nearly half of the 130,119 cooperatives reported nationally in 2023. While each district hosts an average of 91 units, distribution remains highly uneven, ranging from high concentrations in Wonogiri, Central Java to a total absence in parts of Papua. More revealing is the sector’s composition: 33,482 units, roughly 65 percent, are Savings and Loans Cooperatives (koperasi simpan pinjam). Village Unit Cooperatives (KUD) number 5,297, while only 2,510 units focus on small industry and handicrafts. This structural dominance of financial intermediation over production significantly shapes the sector’s macroeconomic footprint. The IFG Progress study found no statistically significant association between cooperative density and regional economic growth. Propensity Score Matching further confirms the absence of causal evidence; higher cooperative density simply does not translate into higher short-term regional GDP growth. Findings regarding household consumption are equally revealing, showing a negative association between cooperative presence and average expenditure. While this may appear counterintuitive, geographic context suggests that cooperatives often operate in economically fragile rural districts where incomes are structurally low. In these environments, cooperative credit likely functions as a safety net for "consumption smoothing" during hardship, rather than a catalyst for productive investment. However, the data offers a silver lining regarding labor. Disaggregation reveals that Savings and Loans Cooperatives show a statistically significant association with lower unemployment, whereas Village Unit Cooperatives do not. This suggests that cooperative-based financing supports micro-entrepreneurship and informal sector absorption, contributing modestly to employment stability even if it does not boost aggregate output. These findings invite a structural reinterpretation of the sector. First, Indonesia’s cooperative expansion has historically emphasized quantity over productivity; scale alone has not produced measurable macroeconomic gains. Second, the dominance of financial cooperatives means that microcredit facilitates survival strategies rather than value-added production. Third, the effectiveness of many cooperatives is bounded by broader structural constraints, such as limited market access and weak infrastructure in the rural regions they serve. The policy implications are significant as the government seeks to establish 80,000 new cooperatives. The evidence suggests that expanding numbers without strengthening functionality risks reproducing existing limitations. If cooperatives are to become genuine engines of growth, policy must prioritize quality over administrative targets. The immediate opportunity lies in strengthening well-governed Savings and Loans Cooperatives through digital monitoring and financial transparency, linking credit to productive sectors. Furthermore, a one-size-fits-all model must be abandoned in favor of regional typologies: agricultural regions require cooperatives integrated into agribusiness value chains, handling storage, logistics and market access, while peri-urban regions should focus on MSME upgrading platforms. Dormant Village Unit Cooperative assets should be repurposed as logistics hubs or food distribution nodes aligned with national food security priorities. Finally, we must address the human capital gap. Data from the 2024 National Socioeconomic Survey (SUSENAS) highlights a concerning pattern: 54.43 percent of rural residents have completed only up to junior secondary school, and only 6.03 percent have attained tertiary education, less than half the urban rate. This disparity underscores a stark reality: rural human capital is currently ill-prepared to lead cooperatives in higher-productivity, knowledge-based sectors. The verdict, therefore, is neither celebratory nor dismissive. Cooperatives in Indonesia are not yet statistically proven engines of regional GDP growth, but they remain vital contributors to employment absorption. Their long-term impact will depend on moving beyond the "promise" of the 1945 Constitution and toward a "performance" defined by governance reform, digital modernization and deep ecosystem alignment with national priorities.
