JAKARTA (Sept 25): Indonesia's Finance Ministry has deposited US$2 billion (RM8.15 billion) for loan repayments due on Friday into a holding account at a state bank, and said they can be released once it is verified the loans were used as intended for a village cooperative scheme, according to a government document seen by Reuters and two sources.

The bank loans are part of a complicated financing scheme for the "Red and White" village cooperative programme, an initiative of President Prabowo Subianto to build tens of thousands of cooperatives to stimulate rural economies.

Under the scheme, the government is to make repayments on loans taken from state banks by a state-owned firm building the cooperatives.

The focus on the repayments comes after analysts and rating agencies have expressed concern about pressure on the budget from some costly government programmes, with the complicated structure also creating a potential "bad loan" risk for the state banks.

A Finance Ministry decree seen by Reuters showed that 37.7 trillion rupiah was transferred to an escrow account at Bank Mandiri but "could not yet be recognised as repayments" for the loans until requirements regarding the scheme are met.

That matched details provided by two sources who had knowledge of the transaction, but were not authorised to speak publicly.

Spokespersons for the Finance Ministry and Bank Mandiri did not immediately respond to a request for comments.

On Thursday, Finance Minister Suahasil Nazara said the repayments would be made once the government verified that the funds were used as intended.

"This has been budgeted, the fund is ready, we will definitely pay," Suahasil said.

"There must be verification for what have been built and how many," he said.

Under the scheme, state company PT Agrinas Pangan Nusantara is building 80,000 stores in villages across the vast archipelago, funded by 240 trillion rupiah of low-interest loans with six-year tenures from four state banks.

Bank Rakyat Indonesia, Bank Negara Indonesia, Bank Mandiri and Bank Syariah Indonesia are the lenders. The loans will be repaid by the government, rather than Agrinas Pangan, and eventually ownership of the cooperatives will be transferred to local communities.

Prabowo has said he wants the cooperatives to sell government-subsidised products, such as fertilisers and cooking gas, buy local produce, and offer cheap loans to villagers.

Bank Mandiri and BNI have each disbursed 55 trillion rupiah to Agrinas Pangan, making up 3% and 6% of their respective gross loans, CreditSights, a research firm under Fitch Group, said in a note on Tuesday. It did not detail lending by the other banks.

CreditSights said while the risk of non-payment is low, administrative delays are possible and that could cause the loans to be considered underperforming and "could trigger...temporary provisions and some earnings drag".

CreditSights said the long-term sustainability of each individual cooperative remained to be seen, noting a number of concerns about the scheme including a top-down roll-out with a one-size-fits-all operating model, limited feasibility testing, and reports of poor site selections for some cooperative buildings.

The government has a target of constructing 35,000 cooperatives this year, with the rest to be built in 2027. As of Friday, 26,074 cooperative stores have been built, according to a government monitoring dashboard.

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