Indonesia unveiled plans on Monday to inject nearly $4 billion into state-linked companies in the infrastructure sector and the biggest bank by assets, in a bid to deploy for growth the money it will save by slashing fuel subsidies.

Indonesia will inject 48 trillion rupiah ($3.82 billion) this year into state-owned enterprises mainly in the infrastructure sector as the government's move to slash fuel subsidies will give it more fiscal flexibility, the president said on Monday.

The funds will be allocated to state companies such as port operator PT Pelabuhan Indonesia, construction firm PT Wijaya Karya Tbk, railway operator PT Kereta Api Indonesia and airport operator PT Angkasa Pura, Widodo told reporters.

"After we redirect the fuel subsidies, there's a lot of room in our budget," Widodo said.

Later on Monday, State Enterprises Minister Rini Soemarno said Indonesia will increase the capital of state-owned PT Bank Mandiri Tbk by 9 trillion rupiah partly to fund the country's infrastructure expansion.

Bank Mandiri will raise 5.6 trillion rupiah through a rights issue and the government will inject 3.4 trillion rupiah into the bank, she said. This will be subject to the parliament's approval, she added.

Higher infrastructure funding

"Bearing in mind that there will be an expansion in infrastructure funding, there will be an increase in capital from state-owned banks," Soemarno said.

She added that Bank Mandiri is being prioritised as its dividend payout is "quite large" and it will be difficult for all state-owned banks to tap the capital market at the same time.

The government owned 60.6 percent of Bank Mandiri as of September 2014, according to Thomson Reuters data. Bank Mandiri was not immediately available for comment.

"If these rights issue and capital injection do roll out, loan growth should be accelerated. Jokowi will need this loan growth to support his GDP growth target of 7 percent," said Teguh Putra Hartanto, an analyst with Bahana Securities.

On Jan. 1, the government stopped subsidising gasoline prices altogether and moved to setting prices according to global oil markets.

Widodo's subsidy reform, made possible by the plunge in global oil prices, has been widely praised by economists as opening the way for major changes in the government's spending priorities.