Politics behind restructuring of KUT

Politics behind restructuring of KUT

Chief economic minister Rizal Ramli's plan to carry out a haircut on the interests and principal of farming credit, known as Kredit Usaha Tani (KUT), is an unrealistic, political maneuver that will not educate farmers, according to researchers Endang Suhendar and Nurul Widyaningrum of the Akatiga center for research on social issues in Bandung, West Java. Excerpts of the interview follow:

Question: How do you view the plan to restructure the farming loans?

Endang: What's obvious is that the plan will not do much in term of educating (the farmers). I think what (the government) needs to study is how it can better distribute loans to farmers. (This plan) only shows a repeat of old mistakes by other, new players.

Are you questioning the distribution of the credit?

Endang: The scheme since the beginning has been operating on mistaken assumptions -- which are also applied on other credit schemes such as Bimas, KUK and others. There is always a strong political overtone in all those credit schemes. It was like that during (former cooperatives minister) Adi Sasono's tenure.

Because of mistaken assumptions and approaches, credit has been distributed as charity. (Those who distributed) the credit probably could predict which of the loans would turn sour. But because of the strong political overtone, they proceeded with the credit schemes anyway.

Is treating loans as charity the only flaw?

Endang: No. Actually, even the mode of credit distribution (should also be questioned) as they seem to have been imposed on farmers. For instance, in southern Bandung, farmers were forced to plant potatoes if they wanted to receive loans because the funding allocated for the region was only for potato plantation.

In Majalaya, farmers wishing to obtain a loan had to plant chilies because the authorities only allocated funding for chili farming. This was carried out despite unsuitable climate and poor market prices for chilies.

During Adi Sasono's term, non-governmental organizations were appointed as "executing agents" for farming loans while the banks' task was only channeling the loans. What do you think about this?

Endang: This is an example of a rushed policy. The government forced itself to involve non-governmental organizations and cooperatives in the implementation of the farming credit schemes, while there were only a limited number of NGOs and some were of poor quality. Consequently we then had a mushrooming of NGOs. Many of the NGOs were not even qualified to be included in the program.

Now that the amount of bad debt has risen, the NGOs are then blamed.

What would be a better mechanism for farming credit?

Nurul: It's no wonder we now have bad farming debt. That's the consequence of the (earlier) approach. What we need to do now is rethink (the policies) in order to avoid repeating mistakes.

Agriculture is a neglected sector. Many institutions and agencies have been established and involved in other sectors, but not agriculture. Banking, for instance, has not been included much in the agriculture sector.

We need to strengthen the role of the local agencies. Policies at the national level may still fail to touch many of the problems in the sector. By involving local institutions, we will be providing incentives so that many more people would be attracted to agriculture. This is important as local institutions usually have a better understanding of the characteristics (of local agriculture sector).

How should we deal with bad farming debts?

Endang: We still have to trace the distribution and find out what went wrong where, from the implementing agencies down to the farmers. We are sure that farmers actually do have the means and the good will to repay their debt.

That's why they must still be asked to be accountable for those debts. (Rayhan Fasya)