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Analysis: Prabowo cancels farmers’ and fishermen’s debts
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Presidential candidate Prabowo Subianto greets supporters on Jan. 9, 2024 at a campaign event in Pekanbaru, Riau. (Antara/Galih Pradipta)
P
resident Prabowo Subianto has issued a new Government Regulation (PP) to forgive loans from state-owned banks for individuals and micro, small and medium enterprises (MSMEs) in sectors like farming, fisheries and plantations, as in select industries including clothing, food and the creative economy. The new regulation is expected to boost business growth for debtors in these sectors and industries, and also presents a potential political advantage for the current administration, at minimal cost.
PP No. 47/2024 on MSME Debt Forgiveness took effect on Nov. 5. According to the President, specific guidelines will be provided in the implementing regulations of relevant ministries and institutions. Prior to its issuance, State-Owned Enterprises (SOEs) Minister Erick Thohir said the new policy aimed to stimulate economic activity that had been hindered by unresolved debts.
According to MSMEs Minister Maman Abdurrahman, debt forgiveness is granted to farming, fisheries and plantation MSMEs with bank loans that were written off within the last decade. He noted that the debt relief cap was set at Rp 500 million (US$32,120) for MSMEs and Rp 300 million for individuals, and would be granted only to borrowers unable to repay their debts as a result of unforeseen events, such as natural disasters and the COVID-19 pandemic. Maman estimated that 1 million MSMEs with a combined debt write-off of Rp 10 trillion would qualify for the new policy, which would have no impact on the state budget.
The debt forgiveness policy emerged in the public spotlight on Oct. 23, 2024, when Hashim Djojohadikusumo, Prabowo's younger brother, highlighted the issue affecting millions of borrowers with debt write-offs. These borrowers were subsequently unable to access new loans because of their credit status on the Financial Information Services System (SLIK) of the Financial Services Authority (OJK) and as a result, many were turning to online lenders or loan sharks. The new regulation enables state-owned banks to legally forgive bad debts, a move that was previously prohibited to prevent write-offs from being recorded as state losses, which could be subject to corruption accusations.
Despite the anticipated benefits, some concerns linger. Small and medium businesses might benefit more from the policy than micro enterprises and individual borrowers, which often have less access to banking information and loans in the first place. According to a survey by the Indonesian Seed Bank and Agricultural Technology Association (AB2TI), only 1 percent of microloan (KUR) debtors are farmers, while the remaining 99 percent are agriculture MSMEs. Another worry is that state-owned banks might impose additional criteria that could exclude individual and micro business borrowers.
Economically, the debt forgiveness policy is expected to foster growth and potentially increase tax revenues by enabling MSMEs and individuals in the applicable sectors, especially agriculture, fisheries and plantations, to expand their businesses. Politically, it marks an easy win for the Prabowo administration, since it requires no direct spending from the state budget and allows for greater flexibility among state-owned banks. However, the government must be vigilant to prevent a moral hazard and ensure that banks execute the policy fairly. Extending similar debt relief to non-MSMEs in the agriculture and fisheries sectors could benefit the wider economy.
