For reasons of geography and demography, Indonesia is no less important to Australia in Asia than China, India and Japan.

With almost 2 million square kilometers of area, Indonesia is the largest and most populous country in Australia’s neighborhood, occupying a strategic position astride its northern approaches through which much of Australia’s trade passes. It is also the world’s 15th biggest economy in purchasing power parity (PPP) dollars with a GDP of $1.2 trillion. Indonesia’s GDP has overtaken Australia’s and its population (237 million) is now more than 10 times bigger.

Little wonder then that, in March, Australia’s first ever national security strategy paper noted that a “positive relationship with Indonesia contributes profoundly to Australia’s overall security”; therefore, maintaining “the positive trajectory of that relationship is a priority.”

Links between Australia and Indonesia have been growing in volume and range, encompassing technical, economic, cultural, defense and educational exchanges. At A$505 million, Australia’s official development assistance to Indonesia is its largest bilateral aid program.

Both Indonesia and Australia are middle powers, although their activism as such has been routed through the Association of Southeast Asian Nations (ASEAN) or the Nonaligned Movement (NAM) vs. Western diplomatic coalitions. Indonesia is central to Australia’s regional diplomacy through ASEAN, the Asia-Pacific Economic Cooperation forum and the East Asia Summit, and could be helpful to Canberra’s global multilateralism also through the Group of 20, NAM and U.N. forums.

Even short of lofty multilateral initiatives at either regional or global levels, Indonesia has been central to recent Australian concerns with a range of nontraditional security threats — from Islamic terrorism to boat-borne asylum seekers. The consolidation of secular democratic governance in Indonesia is equally vital to Australian interests and values.

Over the past decade the bilateral relationship has matured and become closer, but it still has not been able to escape periodic episodes of friction. After a decade of economic and social volatility and post-Suharto political consolidation, the Indonesia relationship requires careful management and a new construct to underpin the breadth of consultation and cooperation. The Gillard government has not been as sensitive to Indonesian concerns as it should be, especially given the rare combination of an Australia-phile Indonesian president and foreign minister.

Irritants in the bilateral relationship stem from popular Australian misperceptions about the changes in Indonesia and political condescension on the part of some leaders. They include problems in managing the flow of asylum seekers who use Indonesia as a transit or staging point for dangerous sea crossings; popular perceptions of rampant corruption and residual authoritarian rule in Indonesia; and Indonesians’ beliefs that Canberra too often fails to take into consideration their perspectives on crucial issues.

Indonesia and Malaysia are not signatories to the 1954 U.N. Refugee Convention. As a signatory, Australia is legally obligated to protect people seeking refuge in Australia from persecution in their home country. Indonesia’s per capita income, even in PPP dollars, is only one-eighth that of Australia, which is a favored destination for many people fleeing from strife. In this century large numbers of people have been trying to escape the horrors of protracted bloody conflict in Afghanistan, Iraq and Sri Lanka in particular. For them the final destination may be Australia, but the sea route often traverses Southeast Asia, mostly the vast Indonesian archipelago. The distressingly frequent tragedies of lives lost at sea diminish all parties concerned.

On terrorism, the single worst incident involving Australians was the cowardly attack on a nightclub in Bali on Oct. 12, 2002, by Jemaah Islamiyah in which 202 people were killed, including 88 Australians. Significant numbers of Australians still view Indonesia as a hotbed of Islamic extremism and a corrupt military dictatorship.

Australians remain concerned with pervasive corruption levels in Indonesia in the bureaucracy, political leadership, police and military, which complicate efforts to resolve people smuggling and drug trafficking activities. Indonesians are not impressed when Australians violate their drug laws and then appeal, if caught, to Australian public opinion on the grounds that Indonesian practices are corrupt.

The Gillard government has been incomprehensibly maladroit in ignoring Indonesian and regional sensitivities on these and other issues where it has pandered to domestic constituencies. On boat people, the government announced a Timor solution during the 2010 election campaign without first consulting the Timorese or informing the Indonesians. In 2012, Australia banned the export of cattle in a knee-jerk reaction to a TV expose on cruelty to the animals in Indonesian abattoirs. When it became clear this was causing great economic damage to Queensland cattle farmers, Canberra quickly backtracked, but Jakarta refused to return the volume of trade to pre-ban levels.

The Howard government signed the Lombok Treaty with Indonesia on Nov. 13, 2006, for bilateral cooperation in counterterrorism and transnational crime. The treaty’s ambit covered defense and law enforcement, intelligence sharing and emergency relief assistance, and air and maritime security. In November 2011 the two countries established an annual Leaders’ Meeting. The inaugural annual defense ministers’ meeting was held in September 2012 when the two ministers signed a new Defense Cooperation Agreement to supplement and reinforce the 2006 Lombok Treaty over the coming decade in joint education, training and regional exercises to bolster maritime security and disaster relief.

Former Australian army chief Peter Leahy argues that Australians have been xenophobic in imagining threats from the sea-air gap north. In fact this “land-sea-air-land bridge” needs reinforcing because “a secure northern border would be firmly in Australia’s national interests.” Indonesia has made the transition from dictatorship to democracy, is engaged in the momentous effort to balance Islam with modernization, and has strong growth prospects.

Ramesh Thakur, professor at the Crawford School of Public Policy, Australian National University, is coeditor of “The Oxford Handbook of Modern Diplomacy.”

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