Introduction: A Policy That Shapes the Banking System
Recent moves by Indonesian authorities to direct state banks to fund the construction of red-and-white cooperative warehouses raise serious concerns about governance, risk management, and the long-term health of public finance. While the goal of national development projects can be compelling, instructing state-owned banks to fund a specific project—without broad financing plans, cost-benefit analyses, or independent oversight—conflicts with prudent fiscal practice and the principle of caution that should guide public money.
Why This Is a Risky Policy Move
State-owned banks are powerful instruments of public policy, balancing economic development with financial stability. Forcing them to back a single project ties their balance sheets to political objectives, potentially exposing them to concentrated risk. Key concerns include:
- Credit Concentration: Allocating large sums to a single sector or initiative increases the likelihood of non-performing loans if the project underperforms or faces cost overruns.
- Fiscal Backstop Pressure: If the project falters, the state may be compelled to cover losses, shifting risk from project developers to taxpayers and the central bank system.
- Governance and Oversight: Directing state banks to fund a specific venture can undermine independent risk assessment and undermine the banks’ credibility with lenders and investors.
- Market Distortion: Preferential lending crowds out private capital, reducing competition and potentially inflating costs for the public sector over time.
The principle of caution, which urges careful evaluation of potential downsides before deploying public funds, is worth upholding. When a policy increases leverage, boosts exposure to political cycles, and lacks transparent impact assessments, it can jeopardize financial stability and erode public trust.
What We Know About the Red-and-White Warehouses Plan
The initiative reportedly aims to bolster a nationwide cooperative network, using state banks as the primary financing channel. While cooperative warehouses can enhance supply chain resilience, the absence of a clear, independently reviewed business case raises questions about:
- Cost and Timeline: Are the expected costs and construction schedules realistic, with contingency planning for delays?
- Revenue and Return: What is the projected return on investment, and how will repayments be structured if revenue falls short?
- Social and Economic Impact: Will the warehouses create sustainable jobs, improve storage capacity, and benefit small businesses or merely concentrate benefits among a few?
Policy decisions that rely on optimism about a sector’s performance, without rigorous scenario analysis, risk misallocating capital and inflating future obligations for taxpayers.
Alternative Approaches to Development Financing
There are prudent alternatives that preserve the role of state banks while maintaining risk discipline:
- Joint Financing: Combine public funds with private investment and international financial institutions to diversify risk and enhance project viability.
- Independent Feasibility Studies: Require comprehensive, transparent feasibility studies, including sensitivity analyses and independent audits.
- Transparent Oversight: Establish clear governance structures, performance metrics, and public reporting to monitor progress and outcomes.
By adopting balanced funding strategies, policymakers can pursue development goals without compromising the health of state banks or taxpayers.
Conclusion: Guarding Public Banking From Political Overreach
The intention behind financing critical infrastructure through state banks is understandable, but the method must respect the safeguards that keep public finance resilient. Directing banks to fund a single project, especially one tied to ideological symbolism like red-and-white warehouses, risks creating a framework where lending decisions are driven by politics rather than prudence. If policymakers want durable development outcomes, they should embrace transparent feasibility, diversified funding, and strong governance—ensuring that the banking system serves the broader economy and public interest rather than short-term agendas.
