Economist Warns Over 58 Per Cent of Village Funds Being Used to Build Merah Putih Village Cooperatives

Jakarta, VIVA – The government has been warned of the need to prepare fiscal mitigation measures for the implementation of the Merah Putih Village Cooperative (KDMP) programme, particularly as more than 50 per cent of village funds are currently allocated to it.

Economist Yusuf Rendy Manilet of the Center of Reform on Economics (CORE) argued that the decision to allocate more than half of village budgets to a single physical programme risks creating a one-size-fits-all approach, whilst villages have highly diverse economic characteristics.

The government has allocated 58.03 per cent of the 2026 Village Fund budget to KDMP development, amounting to Rp34.57 trillion out of a total allocation of Rp60.57 trillion. The remaining Rp25 trillion has been allocated to the regular Village Fund.

The policy is governed by Finance Minister Regulation (PMK) No. 7 of 2026, signed by Finance Minister Purbaya Yudhi Sadewa and effective from its promulgation on 12 February 2026. According to Yusuf, the direct implication of this policy is a village liquidity shock.

With approximately 42 per cent of the budget remaining, villages will struggle to fund basic services such as direct cash transfers (BLT), stunting prevention, and food security. The risk is that cooperative asset development will be prioritised over social spending.

Yusuf therefore underscored the urgency of fiscal risk mitigation by the central government. “This includes performance evaluation schemes and correction mechanisms should KDMP prove unproductive, so that villages do not bear a long-term fiscal burden from policy designs that do not match local capacity,” said Yusuf in Jakarta on Wednesday, 18 February 2026.

Beyond fiscal risks, Yusuf also reminded the central government to ensure that KDMP is integrated with local supply chains and functions as an off-taker for village products. This would ensure that funds invested in KDMP genuinely circulate within the local economy.

For village governments, Yusuf recommended strict recalibration of remaining budgets by prioritising human resources and social safety nets. This measure aims to maintain community purchasing power so that village economic infrastructure, including KDMP, can function optimally.