Oil slump to help Indonesian President Widodo in subsidy cut

The global oil market slump has handed Indonesian President Joko Widodo his biggest break since taking over the world's fourth-most populous nation.

Widodo now has more room to manoeuvre as he prepares to cut fuel subsidies, one of his key pledges to improve the finances. He will probably be able to raise prices enough to please investors in the coming weeks, while limiting the pain for a population used to cheap petrol and diesel.

Indonesia would raise fuel prices by less than 3,000 rupiah (HK$1.90) a litre before the end of next month, a move that would save the government more than US$8 billion in the next budget, Finance Minister Bambang Brodjonegoro said. The estimates, the first indication from Widodo's government on how much it might increase the subsidised prices, spurred a rally in two-year sovereign bonds yesterday.

"With oil lower, the game has changed," said Leong Wai Ho, an economist at Barclays. "The market no longer expects a 3,000 rupiah increase" and any adjustment larger than 1,500 rupiah would be welcomed.

The savings estimated by the minister implied the government was contemplating at least a 2,000 rupiah move, Leong said.

The yield on the 7.375 per cent bonds due September 2016 dropped seven basis points to 7.42 per cent in Jakarta yesterday, according to data from the Inter Dealer Market Association. That was the biggest drop since October 14. The 10-year yield fell three basis points to 7.91 per cent.