LOCAL GOVERNANCE AND SHARIAH COOPERATIVES IN INDONESIA

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1 LOCAL GOVERNANCE AND SHARIAH COOPERATIVES IN INDONESIA Abdul Ghafar Ismail 1 Islamic Research and Training Institute Islamic Development Bank 8111 King Khalid St., Al NuzlahYamania Dist. Unit No. 1 Jeddah , Kingdom of Saudi Arabia AgIsmail@isdb.org Muhammad Hasbi Zaenal 2 Research Center for Islamic Economics and Finance Institut Islam Hadhari Universiti Kebangsaan Malaysia Bangi, Selangor D.E., Malaysia fathanalahwazy@gmail.com Paper to be presented at the Konvensyen Kebangsaan Koperasi Patuh Syariah, Universiti Kebangsaan Malaysia, 24 September 2016, Bangi, Malaysia Abstract This paper examines governance issues more closely and in relation to rural institutions and sustainable livelihood improvement, drawing on evidence from shariah cooperatives in Indonesia. More specifically, this paper provides a diagnostic of governance systems in Indonesia, which basically follow the Dutch law origin. Indonesia and the role that shariah cooperatives might play in strengthening such systems. This paper offers a description of both formal and informal rural governance systems in Indonesia, the role of shariah cooperatives and other membership-based rural producer organizations in these systems, and possible avenues through which rural organizations can play a larger role in improving rural governance. By using a combination of survey data and case studies, it sheds light specifically on the influence of local governance systems on people cooperatives in Indonesia. The relationships and interactions between local governance systems and cooperatives are an important issue in Indonesia because both play an essential part in promoting and implementing the Government of Indonesia s farreaching rural development and poverty reduction strategies. These strategies include the government s agricultural development-led program, its unitary policy, its administrative and fiscal decentralization efforts, and a whole range of social welfare and capacity building programs designed to support these strategies. Findings suggest that local governance systems and cooperatives are closely linked by interactions at multiple levels and with varying effects on 1 Head of research division, Islamic Research and Training Institute and Professor of Islamic Banking and Financial Economics. He is also AmBank Group Resident Fellow for Perdana Leadership Foundation and Fellow, Yayasan Pembangunan Ekonomi Islam Malaysia 2 PhD Candidate in Islamic Economic, Institut Islam Hadhari, Universiti Kebangsaan Malaysia 65

2 rural people. These interactions have the potential to strengthen the role of cooperatives in local development, but also run some serious risks. Underlying these risks is the long-standing issue of trust between government and community. While it is difficult to provide explicit policy recommendations based on the analysis provided in this paper, at least one key issue can be raised for consideration by policymakers at all levels in Indonesia. If efforts to strengthen local governance systems and to build effective cooperatives can focus on this issue of trust between government and community, there is much cause for hope. However, getting this balance right is difficult and, in the long run, will be a significant challenge for policymakers to address. Keywords: governance; cooperative organization; JEL Classification: G21; G23; G38; P13; Z12 66

3 1. Introduction There is plenty empirical evidence to suggest that improving the productivity of micro and small enterprises (MSME) and integrating them into commercial markets is a promising strategy for the broad-based alleviation of rural poverty. At the same time, it is also part of the strategy in strengthening the MSME as an engine of growth and in generating employment. Yet while this strategy has been very successful in some countries such as Indonesia (see, Permata Wulandari & Salina Kassim, 2016), Korea (Kim, 2004), it has faced major challenges in large parts of Africa (see, Fjose et. al, 2010) and in the less-favored areas of Asia (see, Fjose et. al, 2010) and Latin America (see, Ferraro) who are host to high levels of rural poverty and food insecurity. Among the contributing factors are: deep and persistent market failures, as well as government failures in providing the services that poor people in rural areas need to access technologies, participate in markets, and improve their livelihoods and well-being. Additional factors, as mentioned in Birner and Gunaweera (2002), relate to community failures, where local institutions fail to emerge and establish commonly accepted rules to govern issues such as the sustainable use of common-pool resources or to facilitate collective action in natural resource management. These factors refer to the underlying issue of rural governance, a topic that has emerged on the international development agenda in recent years. As a result of this growing interest in rural governance, governance reforms in many developing countries have been undertaken with the aim of improving rural service provision and empowering the rural poor to demand better rural services. Reforms have included administrative decentralization, participatory planning exercises, local elections, public administration reforms, and investments in building local-level governance capacities (International IDEA, 2000). However, the evidence regarding the scope and impact of these governance reforms is mixed, and there are major knowledge gaps regarding the question of what makes rural governance systems work effectively for small-scale, resource-poor people, women-headed households, landless agricultural labourers, and other vulnerable social groups. In view of an inherent tendency to promote one-size-fits- all models, empirical research is needed to identify how reforms to rural governance and rural service provision work where and why. 67

4 This paper examines governance issues more closely and in relation to rural institutions and sustainable livelihood improvement, drawing on evidence from shariah cooperatives in Indonesia. More specifically, this paper provides a diagnostic of governance systems in Indonesia, which basically follow the Dutch law origin (Rowen, 2003). Indonesia and the role that shariah cooperatives might play in strengthening such systems. This paper offers a description of both formal and informal rural governance systems in Indonesia, the role of shariah cooperatives and other membership-based rural producer organizations in these systems, and possible avenues through which rural organizations can play a larger role in improving rural governance. In doing so, the paper highlights governance as it relates to interactions between the state, the market, and civil society, or the public, private, and civil society sectors (see, e.g., Rhodes 1997), and follows the definition of governance as is currently favoured by the World Bank (2007). The traditions and institutions by which authority in a country is exercised. This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them. Data and information used in this paper are drawn from a combination of sources. This paper draws from the literature on rural governance in Indonesia; data from the 2005 Indonesia Rural Smallholder Survey (ERSS); data from the 2006 Indonesia Smallholder Cooperatives Survey (ESCS); and information collected from the Cooperative-level Case Studies that were explicitly conducted as a part of this study. This paper proceeds as follows. The remainder of this section examines the rural governance in Indonesia and the relevance of this paper to governance reform efforts in the country. Section 2 provides insights into the relationship between rural governance and rural institutions, with specific emphasis on sharia cooperatives, a type of membership-based rural producer organization. Section 3 examines the livelihood outcomes associated with the relationship between rural governance and rural institutions, followed by conclusions and policy recommendations in Section 4. 68

5 2. Reform Initiatives on Governance in Indonesia Since the resignation of former President Soeharto until now, the 1945 constitution has been amended 4 times, in October 1999, August 2000, November 2001, and August Among other things, these amendments deal with far reaching issues such as limitation of power and term of office of the President; decentralization of central government s authority to provincial and regional governments; and creation of additional state bodies such as House of Regional Representative (Dewan Perwakilan Daerah), Constitutional Court (Mahkamah Konstitusi), and Judicial Commission (Komisi Yudisial). Anti-Subversion Law of 1969 was repealed in Law No. 39/1999 was enacted, giving the pre-existing National Commission of Human Rights an independent status, equal to other state bodies. Most importantly, pursuant to Law No. 4/2004 on Judicial Powers that repealed Law No. 14/1974 as amended by Law No 35/1999, the Supreme Court assumes all organizational, administrative, and financial responsibility for the lower courts from the Department of Justice and Human Rights, Department of Religious Affairs, and Department of Defense. One roof system of administration of justice under the Supreme Court was finally created. Accordingly, amendments to pre-existing legislations are consistently made to fit in the new political framework and administration of justice (Laiman, et. all, 2009). Indonesia adopts democracy, which means that sovereignty is vested in the people and implemented pursuant to a rule of law. The basic rule of law is represented in the Indonesian constitution, i.e., the Principle Laws of 1945 ( 1945 Constitution ). It divides the power horizontally by making a separation of powers into equal functions of state institutions, which control each other based on checks, and balances system. These functions, although not strictly so, are generally ascribed to executive, legislative, and judicative power which suggested the adoption by Indonesia of trias politica. The executive power is held by the President and Vice President which are elected directly by the people in a general election every five years. The President is both the head of state and the head of government. The President may appoint ministers heading departments or ministries as his aides in the government. As stated in the constitution, there are six branches of state. The people elect the member to the People s Consultative Assembly (MPR). The president, 69

6 who has the full executive power, is elected by the people and responsible to the MPR. Legislative power is shared with the House of People's Representatives (DPR). The Supreme Advisory Council advise the president, whereas the State Audit Board exercises financial oversight. At the apex of the judicial system is the Supreme Court. Legislative Bodies (a) People's Consultative Assembly (MPR) People s Consultative Assembly (Majelis Permusyawaratan Rakyat MPR ) which consists of the members of the House of Representative (Dewan Perwakilan Rakyat DPR ) and the Senate (Dewan Perwakilan Daerah DPD ). Among the functions of these authorities is the amending of the 1945 Constitution, appointing President and/or Vice President in the case of vacancy in the position, inaugurating the President and/or Vice President, and to impeach the President and/or Vice President in accordance with the 1945 Constitution. With the existence of MPR as a separate entity, jurist ascribed Indonesia s legislative power to tricameralism (as opposed to bicameralism (Laiman, et. all, 2009). People's Consultative Assembly (MPR) is the highest constitutional body, which meets every five years in the year following the elections to the parliament - the House of People's Representatives (DPR). The MPR has 692 seats, 132 of DPD members and 560 which are assigned to the members of the DPR. Sebelum reformasi, MPR terdiri Of the other 500 seats, 100 are reserved for representatives of anggota DPR, professional groups, including ABRI, appointed by the president and, as of 1992, 147 seats were held by delegates elected by provincial-level legislative assemblies. The balance of seats--253 in were assigned after the 1987 DPR elections on a proportional basis to representatives of the political parties, depending on their respective membership in the DPR. Golkar took the largest number of these seats based on its 1987 winning of 299 of the 400 elected DPR seats. This election resulted in a total of 540 Golkar seats in the MPR, an absolute majority even without counting the ABRI faction and the provincial-level representatives. The Muslim-based PPP and PKS only had sixty- 70

7 one DPR seats and ninety-three MPR seats, whereas the PDI, with its forty DPR seats, was at the bottom of the MPR list (Widayati, tth). But after the reform of the Assembly only consist of members of the DPR and DPD members are elected through general elections. The principal legislative task of the MPR is to approve the Broad Outlines of State Policy, such as National Committee for Islamic Financial (Komite Nasional Keuangan Syariah - KNKS ) newly published early in 2016, a document that theoretically establishes policy guidelines for the next ten years, which will be led by the President of the Republic of Indonesia directly. This committee will involve several agencies, such as the OJK, BI, LPS, Bappenas, MUI, and a number of ministries, such as Ministry of Finance, Ministry of Religious Affairs, Ministry of State Enterprises, the Ministry of Cooperatives and SMEs. Its existence is based on Indonesian Islamic Financial Architecture Masterplan initiated by Bappenas. Masterplan is a comprehensive map the Islamic financial sector in Indonesia, which consists of four main sectors, namely banking, non-banking institutions (Takaful insurance, finance companies, pawn shops, cooperatives / BMT, and pension funds), capital markets, and the religious sector. The draft is prepared by a government task force and is expected to be approved by consensus. After year 2011, several related policy on Islamic finance, such as laws zakat, waqf laws, and various other regulations related to financial policy Islam; However, the MPR forced a recorded vote on two amendments to the Broad Outlines of State Policy, which, although the government won overwhelmingly, was taken by some observers as an indication that automatic adherence to the requirement for consensus was no longer a given in Indonesian politics. The second amendment had to do with a commitment to waqf and zakat. It shows that the MPR was no longer satisfied with a rubber-stamp role, MPR would have greater input into the initial stages of drafting the Broad Outlines of State Policy. (b) House of People's Representatives (DPR) Legislative authority is constitutionally vested in the House of People's Representatives (often shortened to House of Representatives or DPR). This 560 member body meets annually, opening on August 16, the eve of National Day when the president delivers his National Day speech. These seats are electorally contested by the 10 political parties which PDI-P (109), Golkar (91), 71

8 Gerindra (73), Demokrat (61), PAN (48), PKB (47), PKS (40), PPP (39), NasDem (36) and Hanura (16) in provincial constituencies, which in the 2014 general election were based on a population ratio of approximately 1 representative per 400,000 people. Each administrative territorial district (kabupaten) is guaranteed at least one representative no matter what its population. The DPR is led by a speaker elected from the membership. For the current sitting, this position is filled 5 leaders chaired by Golkar faction. Work is organized through eleven permanent committees, each with a specific functional area of governmental affairs. The legislative process begins with the submission by the government of a bill to the DPR. Although members can initiate a bill, it must be accompanied by an explanatory memorandum signed by at least thirty legislators. Before a bill is approved, it must have four readings unless accepted by the DPR Steering Committee. The first reading is its introduction in an open plenary session. This reading is followed by a general debate in open plenary session with the government's right of reply. The bill is then discussed in committee with the government or initiating members. The final discussion of the draft legislation takes place in open plenary session, after which the DPR makes its decision. The deliberations of the DPR are designed to produce consensus. It is the political preference of the leadership to avoid overt expressions of less than complete support. This position is justified by the claim of a cultural predisposition to avoid, if possible, votes in which majority-minority opposing positions are recorded. If votes are necessary, however, a quorum requires a two-thirds majority. On issues of nomination and appointment voting is by secret ballot but on all other matters by show of hands. With the built-in PDI-Golkar faction absolute majority, the DPR has routinely approved government legislation. However, with the appearance of many younger DPR members, there is a new willingness to use the forum for fuller and more forthright discussions of public issues and policies. This openness paralleled a similar trend toward greater openness in non-legislative elite circles that seemingly had received government encouragement. Part of the discussion inside and outside of the DPR had to do with increasing the role and institutional capability of the parliament in order to enhance political participation. 72

9 The Executive (a) The President Indonesia's government is a strong presidential system. The president is elected for a five-year term by a majority vote of the people, and he may be reflected when his term expires. The only constitutional qualification for office is that the president be a native-born Indonesian citizen. In carrying out his duties, the president is the Mandatory of the MPR, responsible to the MPR for the execution of state policy. In addition to his executive authority, the president is vested with legislative power, acting in concurrence with the DPR. The president also serves as the supreme commander of ABRI. He is aided in his executive role by a presidentially appointed cabinet. The term limitation question was embedded in the larger question of presidential succession in the event that Suharto chose to step down or declined to accept reflection. The term limitation question also had the effect of refocusing attention on the vice presidential office. Constitutionally, the president is to be assisted in his duties by a vice president, who succeeds in the event of the president's death, removal, or inability to exercise official duties. Constitutionally prescribed, it has been accepted that the president would present his own nominee for vice president to be elected by the people. (b) The Cabinet The president is assisted by state ministers appointed by him. 34 departments are headed by ministers in year These departments are grouped under three coordinating ministers: politics and security; economics, finance, industry, and development supervision; and public welfare. There are eight ministers of state and six junior ministers. In addition to the cabinet members, three high-ranking state officials are accorded ministerial rank: the commander in chief of ABRI; the attorney general; and the governor of Bank Indonesia, the central bank. Appendix list of department Specialized agencies and boards at the central government level are numerous and diverse. They include the National Development Board (Bappenas), Central Bureau of Statistics 73

10 (BPS), the National Family Planning Coordinating Agency (BKKBN), the Investment Coordinating Board (BKPM), and the Agency for Regional Development (BAPEDA), The Commission for the Supervision of Business Competition (KPPU), and Indonesia's Corruption Eradication Commission (KPK), included BAZNAS and BWI. At lower levels there are regional planning agencies, investment boards, and development banks under the aegis of the central government. (c) The Supreme Advisory Council and the State Audit Board Two other constitutionally mandated quasi-independent bodies exist to support the executive and the government. The Supreme Advisory Council is mandated by Article 16 of the constitution. A forty-five-member group nominated by the DPR and appointed by the president, the council responds to any presidential question regarding affairs of state. It is organized into four permanent committees: political; economic, financial, and industrial; people's welfare; and defense and security. The State Audit Board is specified in Article 23 of the constitution to conduct official examinations of the government's finances. It reports to the DPR, which approves the government's budget requests. The Judiciary The Indonesian legal system is extraordinarily complex, the independent state having inherited three sources of law: customary or adat law, traditionally the basis for resolving interpersonal disputes in the traditional village environment; Islamic law (shariah, or, in Indonesian, syariah), often applied to disputes between Muslims; and Dutch colonial law. Adat courts were abolished in 1951, although customary means of dispute resolution were still used in villages in The return to the 1945 constitution in 1959 meant that Dutch laws remained in force except as subsequently altered or found to be inconsistent with the constitution. An improved criminal code enacted in 1981 expanded the legal rights of criminal defendants. The government in 1992 was still reviewing its legacy of Dutch civil and commercial laws in an effort to codify them in 74

11 Indonesian terms. The types of national law recognized in MPR(S) Decree XX, (July 5, 1966), include, in addition to the constitution, MPR decrees, statutes passed by the DPR and ratified by the president, government regulations promulgated by the president to implement a statute, presidential decisions to implement the constitution or government regulations, and other implementing regulations such as ministerial regulations and instructions. Obviously, the executive enjoys enormous discretion in determining what is law. With respect to the administration of justice, Article 24 of the constitution states that judicial power shall be vested in a Supreme Court and subordinate courts established by law, and that the organization and competence of courts shall be established by law. In Sukarno's Guided Democracy, the justice system became a tool of the revolution, and any pretence of an independent judiciary was abandoned. One of the goals of the New Order was to restore the rule of law. A major step in that direction was the enactment of the Basic Law on the Judiciary Number 14 of 1970, which defined an independent status for the Supreme Court and emphasized non-interference in judicial matters by persons outside the judiciary. Theoretically, the Supreme Court stands co-equal with the executive and legislative branches. The president, vice president, and justices of the Supreme Court are nominated by the DPR and appointed by the president. The Supreme Court has exclusive jurisdiction in disputes between courts of the different court systems and between courts located in different regions. It can annul decisions of high courts on points of law, not fact. On request, it can give advisory opinions to the government and guidance to lower courts. It is not part of a system of checks and balances, however, since it does not have the power of judicial review of the constitutionality of laws passed by the DPR. Its jurisdiction is limited to whether or not implementing administrative regulations conforms to the laws as passed. Moreover, the Supreme Court has no control over the integrity of the lower courts, which are under the supervision of the Department of Justice. Below the Supreme Court four different court systems can be distinguished. First, there are courts of general civil and criminal jurisdiction. District courts are the courts of first instance. The high courts are appellate courts. The administration of these courts is under the minister of justice, who controls judicial appointments, promotion, transfer, and pay. Despite protestations of independence, the lower courts had, as of the early 1990s, shown themselves reluctant to challenge the government, particularly in cases with political overtones. In the view of some 75

12 observers, these courts routinely allowed egregious breaches of fundamental civil rights. There were also regular allegations of corruption in the lower court system in both civil and criminal cases. Second, there are religious courts, under the Department of Religious Affairs, which exist to resolve specific kinds of disputes between Muslims in matters of marriage, divorce, inheritance, and gifts. These courts base their decision on Islamic law. To be legally enforceable, however, the religious court's decisions must be approved by a corresponding secular district court. The Directorate of Religious Justice within the Department of Religious Affairs has ultimate appellate jurisdiction. One of the persistent tensions between Islam and the state arises from Muslim efforts to expand the jurisdiction and autonomy of the sharia courts. Third, in 1992 there was a Taxation Review Board that adjudicated taxation disputes. Other administrative courts had been eliminated as part of government's effort to simplify and standardize the court system. Fourth, there are the military courts, which have jurisdiction over members of ABRI or persons declared to be of a similar status. After the 1965 coup attempt, special military courts were given authority to try military personnel and civilians alleged to be involved in the abortive coup. Hundreds of sentences ranging from twenty years' imprisonment to death were meted out by the special military courts, with executions continuing more than two decades after the event. Local Government Government administration is processed through descending levels of administrative subunits. Indonesia is made up of thirty-seven provincial-level units. Currently, there actually are thirty four provinces (propinsi), two special regions (daerah istimewa) - Aceh and Yogyakarta - and a special capital city region (daerah khusus ibukota) - Jakarta. The provinces in turn are subdivided into districts (kabupaten), and below that into sub-districts (kecamatan). There are 93 municipalities or city governments (kotamadya) that are at the same administrative level as a kabupaten. At the lowest tier of the administrative hierarchy was the village (desa). According to 2012 statistics, Indonesia has 415 districts, cities, and villages. 76

13 Since independence the nation has been centrally governed from Jakarta in a system in which the lines of authority, budget, and personnel appointment run top-down and bottomup. Regional and local governments enjoy little autonomy. Their role is largely administrative: implementing policies, rules, and regulations. Regional officialdom is an extension of the Jakarta bureaucracy. The political goal is to maintain the command framework of the unitary state, even at the cost of developmental efficiency. Governments below the national level, therefore, serve essentially as subordinate administrative units through which the functional activities of Jakartabased departments and agencies reach out into the country. In the early 1990s, there was neither real power sharing nor bottom-up political communication through representative feedback. Real feedback occurred through bureaucratic channels or informal lines of communication. Elected people's regional representative councils (DPRD) at the provincial and district levels had been restored in 1966, after operating as appointive bodies during the period of Guided Democracy. However, the DPRDs' participation in the early 1990s governing was extremely circumscribed because the councils lacked control over the use of resources and official appointments. Even though 1974 legislation gave provincial DPRDs some voice in selecting their governors - DPRDs could recommend appointments from a list of potential candidates submitted by the minister of home affairs - provincial governors were still appointed by the president. District heads were designated by the Department of Home Affairs. The structure of provincial-level and local government in Indonesia is best understood in terms of the overriding goals of national political integration and political stability. At the governmental level, integration means control by the central government, a policy that was in part conditioned by historical experience. Political stability was equated with centralization and instability with decentralization. Lateral coordination of civilian administration, police, justice, and military affairs was provided at each provincial, district, and sub-district level by a Regional Security Council (Muspida). The local Muspida was chaired by the regional army commander and did not include the speaker of the local DPRD. Added to the political requirement for centralization in the early 1990s was the economic reality of the unequal endowment of natural resources in the archipelago and the mismatch of 77

14 population density to resources. 3 The least populated parts of the country were the richest in primary resources. A basic task of the national government was to ensure that the wealth produced by resource exploitation be fairly shared by all Indonesians. This goal meant that, in addition to Jakarta's political control of the national administrative system, the central government also exercised control over local revenues and finances. Thus, the absence of an independent funding base limited autonomy for provincial and local governments. In looking to future policy, there would be stepped-up efforts to provide autonomy and decentralization. Such steps, however, would require strengthening the capacity of sub-national units financially and administratively, as well as strengthening local participation in the setting of national goals and policies. 3. Governance, cooperatives and rural Indonesia In this section, we describe the key elements of rural governance systems in Indonesia namely, the formal and informal structures and systems of governance, and their influence on rural livelihoods at the local level. This is followed by a description of how rural governance systems and reforms both influence and are influenced by collective action among smallholders namely, membership-based rural producer organizations or sharia cooperatives. Note that while these descriptions draw from both the primary and secondary information sources described earlier, the extensive variation in Indonesia between regions, ethnicities, and communities means that it is impossible to make conclusive, generalizable or nationally- representative observations here. However, an effort is made to raise certain key issues for further consideration by policymakers and researchers engaged in efforts to strengthen rural governance and rural livelihoods in Indonesia. Formal and informal governance institutions Local governance in Indonesia is the domain of the desa such as pesantren association (PAs) and National Program for Community Development (PNPM Mandiri). Desa play various governance 3 Refer to Ismail and Hamzah (2006) 78

15 roles ranging from the representative (e.g., conveying the interests of desa citizens to higher levels of government), to the judicial (e.g., adjudicating over local disputes and conflicts), to the executive (e.g., maintaining a security to defend and protect the desa). Desa(s) are comprised of various governance bodies including elected councils and executive bodies, social courts, and other local entities with the authority to respond to citizen s needs and implement government policies transmitted down from the regional and federal levels. A variety of informal governance systems co-exist with these formal systems throughout Indonesia. For example, traditional systems operate at the community level to adjudicate over conflicts (e.g., kiyai or councils of elders); to pool resources for production (e.g., work- or laborsharing groups (e.g., rcti), land-sharing groups (e.g., muzaraah); to provide financial services (e.g., rentener (loan sharks); to provide social welfare services (e.g., funeral groups or nama in indonesian); or to carry out traditional and religious functions, (e.g., masjid associations (nama in indonesian). A study done carried out in the village numbering Bobos 3700 jiwa suggests that approximately 60% percent of all rural households are members of at least one type of traditional institution, most often a funeral group (see Table 1). Table 1. Households reporting membership in traditional institutions Institution Households reporting membership in at least one traditional institution Percent 60 Community associations (funeral groups) 25 Pesantrean Associations Mesjid Groups Types of credit and savings association: 30 Rentener (informal credit associations) 20% Syariah Cooperative 60% Other 10% Source: Survey, Bobos village, Cirebon, West Java Other, more modern community-based governance systems have also emerged to give voice to local development priorities and manage local development activities, for example, self-help associations, solidarity groups, village organizations, and women s organizations. Often, these 79

16 civil society organizations operate with financial or technical support from local and nongovernmental organizations As reported in The World Association of Non-Governmental Organizations (WANGO), 4 some 127 NGOs operated in Indonesia, operate at all levels in Indonesia with particular emphasis on marginalized populations. In many rural areas, NGO activities in agriculture are often planned and implemented in consultation or collaboration with the regional agriculture and rural development bureaus or their district-level offices. Leading NGOs in the areas of agriculture and rural development include Lembaga Pemantau Pembangunan Daerah and Rumah Zakat Indonesia Foundation. The interaction between formal and informal governance institutions. The interplay between the formal and informal governance realms is complex in Indonesia. There is, for example, evidence of local conflict resolution processes being managed by both formal and informal governance institutions. In such instances, an adjudication process might be undertaken by desa social courts or kecamatan level bodies and forwarded for review or consultation by a body of community elders before final decisions are made. Likewise, community-level work teams or work brigades (badan amal) organized at the sub-desa level are involved in organizing community-level collective action, assuring repayment of fertilizer loans, and promoting collaboration with extension agents on behalf of the formal government system. Similarly, author xxx observe development agents (Das) at the desa level playing roles that involve them in various - and sometimes conflicting - governance domains. DAs may simultaneously play the role of extension agent, political campaigner, credit recovery officer, and community planner, and are often driven by a system that is described as largely top-down, supply-driven, and driven by state priorities, not necessarily to the benefit of smallholders and smallholder innovation. The interplay between the government, NGOs and civil society organizations has become more common in recent years with the advent of kecamatan-level coordination committees in many regions. These committees are chaired by the kecamatan administrative head and include representatives from both government line departments and civil society organizations or NGOs operating in the kecamatan. Their mandate is, quite obviously, to coordinate their interventions in ways that respond to the development priorities of the kecamatan. However, their success varies

17 by region; found little coordinated NGO activity in several regions, with only a few organizations maintaining bilateral relations with the regional government and/or engaging with kecamatan governments. There is also evidence of a strong divide between the formal and informal governance realms in Indonesia. For example, concerns are commonplace over the lack of coordination between community-based development organizations, their NGO sponsors, and government offices; the crowding-out effects of NGO operations; the hostility of government officials to NGOs; and the lack of coordination between and among NGOs themselves. Moreover, there is evidence to suggest that efforts to use traditional institutions as a conduit for more developmentoriented activities (for example, HIV/AIDS awareness and treatment) are being met with community-level resistance due to concerns over politicization. These issues of trust between the state and its citizens (i.e., Prophet Muhammad s social contract or ukhuwah) are deeply rooted in Indonesia s history. Cooperatives and rural governance systems Cooperatives in Indonesia are another example of this interaction between formal and informal governance. In effect, cooperatives lie at the intersection of state, market, and civil society. Although they are typically established and organized for the precise purpose of increasing rural production and commercialization, - activities that rely largely on the private entrepreneurship of individuals - they also seek to promote and manage community-based collective action. And although they are often managed as private enterprises - denoted by procedures such as the owning of shares and distribution of profits to individual members - they are also designed and managed based on clearly democratic principles of governance that are appropriate to collective action-based organizations. In short, cooperatives in Indonesia share many characteristics with non-governmental, membership-based civil society organizations even though they also seek to generate distinctly financial benefits for their members. Importantly, cooperatives are also generally not perceived as government agencies, at least not in the most obvious or direct sense. While the Indonesian Government actively promotes and 81

18 supports cooperatives, and while cooperatives were a means of extending state authority and control via Koperasi Unit Desa (KUD) or Village Cooperative Unit, they are now functioning in Indonesia as generally independent and voluntary entities. Indeed, there is a general recognition in Indonesia that second generation (i.e. post-kud) cooperatives are intentionally designed as private sector agents with the right to participate in market-based exchanges, buy and sell assets, and distribute dividends to their member-shareholders. And while these observations may vary between localities and cooperatives - with some cooperatives being more closely linked to the state apparatus than others - they represent the general intention of the federal and regional cooperative promotion strategy in Indonesia. Of course, cooperatives in Indonesia are also closely related to the country s formal governance structures. This relationship is manifested in various ways. Firstly, cooperatives play a central role in providing rural people with access to inputs (seed, fertilizer and credit) typically provided by the government. Cooperatives provide these inputs where private traders do not operate, or at more favourable prices or better terms than those provided by private traders. This role necessarily links cooperatives to extension services provided by DAs at the desa level; to credit disbursement and recovery by regional savings and credit institutions; and in some instances, to mobilization of community work teams for public works initiatives - all of which are associated state agencies or agencies with close relations to the state. Secondly, cooperatives are often characterized by interlocking leadership between formal and informal governance systems at the local level. The number of individuals with the capacity or interest in leading such cooperatives and government institutions is often limited at the local level. Thus, only a small number of individuals with the right qualifications (e.g., age, status, wealth, literacy, risk tolerance, interest, social capital, party membership, etc.) are viable candidates for leadership roles, both formal and informal. This often means that the same individuals are engaged in multiple leadership positions that span across both formal and informal realms. 82

19 4. Case Study Cirebon district Consider, for example, the Al-Ishlah cooperative in Cirebon kecamatan of Dukupuntang, West Jawa, established in 1990 and currently host 110 members (700 men and 400 women). The cooperative operates in a relatively resource-poor corner of Indonesia characterized by low and volatile rainfall patterns, high population pressures on the land, and soil fertility issues brought on by a lack of organic or chemical fertilizers, livestock overgrazing and other factors. The leadership is a common illustration of interlocking leadership. The cooperative s chairperson and most of its management committee members are veterans of the struggle against the KUD, and all are active participants in the region s party politics. None have been voted out of office or otherwise replaced since the cooperative s inception, although its bylaws allow for general elections every two years. This leadership structure was not uncommon in the sites covered by other cooperativelevel case studies. KORPRI (Koperasi Pegawai Republik Indonesia) in the same kabupaten was similarly led by staff of the two generations between the KUD and the new generations and have yet to experience a change in leadership since inception, while other cooperatives studied were similarly tied to the kecamatan-level office of the Bureau of Agriculture and Rural Development over their members. While this should not imply any causal linkage between local governance systems and cooperative performance, it does illustrate how state, party and cooperative governance form a close nexus in Indonesia. Figure 1 provides a broader illustration of this interlocking leadership. Of approximately 6 cooperatives surveyed by us in 2016 (in Cirebon), just under half of all cooperative chairmen (both initial and current) leading the cooperatives were also members of a political party that is a member of the PDIP, Indonesia s ruling front, while approximately one third of all chairmen were also some type of religious or traditional leader. 83

20 Response="Yes" Figure 1. Cooperative membership and local elites Is/was the Cooperative Chairman a member of the following groups? Political party member Religious/traditional leader Percent Initial Chairman Current Chairman [Note: The number of cooperative members responding to these questions varies, e.g., n=193 for the question relating to political party membership of the initial chairman, and n=177 for the question on traditional/religious leaders of the current chairman] Interestingly, these observations also extend from cooperative leadership to membership. Approximately 26 percent of the surveyed cooperatives counted kecamatan officials as members, while 76 percent counted traditional or religious leaders as members (Figure 2). 84

21 Response = Yes" Figure 2. Cooperative membership and local elites Does your cooperative's membership include these types of individuals? Kecamatan official Traditional/religious leader Percent [Note: The number of cooperative members responding to these questions varies, e.g., n=199 for the question relating to kecamatan officials and n=200 for the question on traditional/religious leaders.] Cooperatives and local governance systems also interact in other ways. For example, cooperatives often engage in the collective management of common pool resources, typically under the direction of government programs and projects. Where the use of common land and water resources requires collective action, government schemes to exploit these resources often rely on cooperatives for their implementation. Thus, cooperatives represent one means of 85

22 managing common pool resources that are exploited for specifically developmental purposes, e.g., a river diversion scheme to irrigate existing land or to bring new land under cultivation. Of the cooperatives surveyed by us in 2016, 15 percent stated that they were engaged in the provision of public infrastructures, most of which require some sort of collective action to build or manage. Cooperatives also serve an important governance role in that they are often an articulation of community voice. Cooperatives function in part as civil society organizations, representing both individual and collective interests. To the extent that cooperatives are able to carry the voice of their members to the formal governance realm, they play a potentially important role in articulating local development priorities and holding government accountable. Finally, cooperatives are also implementing agencies for the public sector. The scarcity of financial, technical, and physical capital for development at the local level often necessitates government to carry out projects in partnerships with organizations such as cooperatives. In this context, cooperatives often serve as a development partner or implementing agency for government, e.g., in the distribution of seed, fertilizer, and credit, or the provision of awareness training (e.g). Of the cooperatives surveyed by us in 2016, most were engaged in activities central to the government s development strategy, including from input provision (84 percent), credit provision (54 percent), agricultural extension services (23 percent), the provision of price information (71 percent), processing of agricultural products (19 percent), consumption services (62 percent), literacy trainings (12 percent), and provision of public infrastructures (15 percent). In a sense, cooperatives are thus implementing agents for priorities identified and supported by government. Thus, organizations such as the cooperative described earlier are involved in a range of development-related activities and services. The cooperative also plays a role in supplying seed and fertilizer to members for the production of agriculture items, but has since expanded its portfolio to include the collective procurement and sale of household consumption goods, surplus output marketing, honey marketing, and a water pump rental service. Further insights offered from observations gathered in desa Juntinyuat, Indramayu, Indonesia, in West Jawa region - observations based on key informant interviews with kecamatan administrative and agricultural officials; key informant interviews with local officials, political 86

23 leaders, and development agents in Indramayu; and focus group discussion with male and female were also done in Indramayu. Indramayu lies in a mid-altitude agroecological zone within the West Java administrative zone. West Java is considered one of Indonesia s principal breadbaskets, although the area faces serious issues relating to natural resource degradation. It is considered a food secure kecamatan, and thus does not receive assistance from the federal government s large-scale Productive Safety Nets Program, which pays people in food or cash in exchange for work on infrastructure and conservation projects. People in Indramayu cultivate paddy as a subsistence crop and manga, chille, dll as cash crops. Some people in the Indramayu engage in water harvesting practices to double crop their cash crops, particularly xxx, and yyy, the income from which is typically reinvested in the purchase of production inputs. People also rear a variety of livestock - sheep, goats, bebek, dll - and typically rely on common land for their keeping. As might be expected, there are some ongoing conflicts in the kecamatan over cropping versus livestock grazing on these common areas. Figure 3 provides an institutional landscaping of the key actors engaged in governancerelated issues in Kecamatan Indramayu. They include formal governance bodies (e.g., councils, cabinets and courts at the kecamatan and desa levels), state-supported civil society organizations (e.g., mass organizations of youth, women and people) and traditional bodies (e.g., the traditional elder s assembly). As suggested by ties linking each actor and each set of actors, these entities interact closely with the government s administrative apparatus (denoted as the public sector in Figure 3) and the cooperatives (denoted as the cooperative sector in Figure 3). These interactions are discussed in more detail as follows. To start with, we examine the link between governance systems and cooperatives in terms of their role in local area agricultural development activities. The Department of Agriculture and Rural Development represents the largest organizational setup within this domain, providing services through its kecamatan office, the specialized desks within the kecamatan office, and the training center (TC) and development agents at the desa level (Figure 4). Many people interact with this setup through a range of interventions, for example (a) extension modalities such a model people, family package people, or young people, (b) the local cooperative, and/or (c) statesupported civil society organizations such as the desa people and women s organizations. 87