Introduction

Indonesia's rise is integral to the region's development. It is emerging as a global power: prosperous, democratic and recognised for its leadership in the region and beyond.

Indonesia's geography–17,000 islands covering 1,919,440 square kilometres and three time zones–presents great challenges for its people. As the world's fourth most populous country with 242 million people, and the largest Muslim majority nation, it has a high degree of ethnic and religious diversity.

Australia was an early supporter of Indonesian independence from the Dutch and took the case to the United Nations Security Council in 1949. Since then, despite periods of fragility and tension Australia and Indonesia have built an active and close cooperation that has matured to a point where both sides manage potential irritants constructively. Formally characterised as a comprehensive strategic partnership, the relationship extends beyond government to business, community, social and education links.

A stable, democratic and increasingly prosperous Indonesia is squarely in Australia's interests. In strategic terms, a stronger Indonesia is a partner with which we can tackle regional challenges – both traditional and non-traditional security threats – and is a model of and advocate for, democratic transition. It is a valued partner in negotiating the global economic agenda in the G20 and a like-minded friend for Australia in the United Nations.

Indonesian GDP, in purchasing power parity terms, has been larger than Australia's since 2005. Its vast natural resources and proximity to the world's largest users of mineral products—China, India, Japan and South Korea—make it potentially one of the world's top exporters of thermal coal and other minerals. Its mining and resources sector is drawing an increasing number of foreign investors, including many Australian companies.

The value of Indonesia's stock exchange value has doubled since 2008, to become the third-highest in Southeast Asia. Indonesia's trade and investment sectors have developed strongly in the aftermath of the Asian financial crisis, and it has achieved strong annual average growth of over 5 per cent during the past ten years. Its strong, consumption-driven economy gave it the ballast to weather the 2008 global financial crisis better than most. Indonesia's prosperous middle class is already larger than Australia's total population and growing.

Government, Business and People-to-People links

Indonesia and Australia enjoy close, friendly and productive relations on political, security, commercial, environmental and cultural issues. The Australian Embassy in Jakarta is our largest overseas mission, and Australian Government departments and state governments have a presence in the city. In the past five years there have been more than 110 ministerial visits in both directions, a tempo that reflects how closely our countries work together. An agreed platform of annual meetings for leaders, foreign defence and trade ministers provides strategic direction to the implementation of the historic Lombok Treaty (Framework Agreement on Security Cooperation).

A strong and comprehensive legal framework underpins our growing economic and commercial ties. The recent entry into force of the Agreement establishing the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) provides greater certainty to both Indonesian and Australian businesses and dramatically reduces tariffs on two-way trade. Negotiations have begun for an Indonesia-Australia Comprehensive Partnership Agreement, to further liberalise bilateral trade, encourage greater foreign direct investment in Indonesia and capacity building in agriculture, mining, services and energy and the green economy.

The two countries have developed solid bilateral commercial links through the Australia-Indonesia Business Council (AIBC) and its counterpart in Indonesia, the Indonesia-Australia Business Council. Both organisations work to promote trade and investment between Australia and Indonesia. The chambers of commerce and bilateral business associations have established the Business Partnership Group (BPG) which will develop a position paper with concrete recommendations on how to maximise gains from an Indonesia-Australia Comprehensive Partnership Agreement.

As Indonesia's economy develops and diversifies, foreign investment in the banking, finance and insurance sectors is increasing. Australia's leading banks are prominent in Indonesia's financial services sector. Operating through its local subsidiary, PT ANZ Panin Bank, ANZ is one of Indonesia's ten largest private commercial banks. The Commonwealth Bank has operated in Indonesia since 1997 and specialises in retail and small business banking and insurance.

Australian companies are also active in agribusiness, and are increasing their profile in the services, infrastructure, clean energy and environmental sectors. At $2.3 billion, Indonesia is Australia's third largest agriculture export market behind China and Japan.

Australia works closely with Indonesia in multilateral forums, with a particular focus on democratic and governance issues through the Bali Democracy Forum, agricultural issues through the Cairns Group, trade through the Asia-Pacific Economic Cooperation (APEC) forum, regional cooperation through the ASEAN and East Asia Summit (EAS) mechanisms and people smuggling through the Bali Process.

Australia and Indonesia have formed a strong partnership on issues of mutual concern such as counterterrorism, law enforcement, border protection and maritime and aviation security. Bilateral cooperation has been a significant factor in many of Indonesia's counterterrorism successes.

Australian and Indonesian defence forces share a long and close history. Defence cooperation and interoperability gathered pace in the past decade as both nations recognise the mutual benefits of practical cooperation. Ministers signed a Defence Cooperation Arrangement in September 2012. The development of Indonesia's military expertise has also lent weight to its growing global engagement, with Indonesian peacekeepers sought after for United Nations and other multilateral peace and security operations.

Both countries understand that a constructive role as regional leaders is essential to ensure future regional security and prosperity. Australia and Indonesia will continue to pursue joint objectives through the ASEAN Regional Forum, the AANZFTA and the EAS. Indonesia is the largest member country of ASEAN and it hosts the ASEAN Secretariat in Jakarta. Indonesia is centrally involved in ASEAN's efforts to promote economic development, social integration and stability in the region. Australia and Indonesia currently co-chair the ASEAN Regional Forum intercessional meetings on disaster relief –- and a joint Australia-Indonesia plan for enhanced regional cooperation on rapid disaster response was endorsed by leaders at the sixth East Asia Summit in 2011. Indonesia's advocacy and activism on the international stage will increase in line with its growing economic weight and global stature.

Australia's aid program to Indonesia is our largest, and was worth $574m in 2012-13. It is one of the largest bilateral aid programs in the world. Australia's support to Indonesia dates back to the 1950s, and is currently focused on helping Indonesia implement its own reform programs to reduce poverty. The partnership is changing millions of lives by improving health and education, helping to protect the poor and vulnerable from shocks and boosting economic growth through infrastructure development and improved economic management.

Indonesia has become a regional leader in promoting sustainability and addressing climate change by actively conserving its rich biodiversity and combating deforestation. The Indonesia-Australia Forest Carbon Partnership supports activities to preserve the rainforests of Kalimantan and Sumatra and improve the livelihoods of forest-dependent communities.

There is a growing community of Australians of Indonesian descent – almost 50,000 in the 2011 census. People-to-people links are also strongly founded on tourism and education. Indonesia is one of Australia's largest outbound tourist markets (more than 877,000 Australians visited Indonesia in 2011). Around 18,000 Indonesian students studied in Australian education institutions in 2011. Proximity to Indonesia and the high quality of Australian tertiary institutions make Australia a particularly attractive education destination for a large number of prospective students. Comparatively fewer Australian students take up educational exchanges in Indonesia and the study of Indonesian in Australia has declined significantly, with a 40 per cent drop in the number of students studying Indonesian language or culture in the past ten years.

Established by the Federal Government in 1989, the Australia-Indonesia Institute (AII) takes a multi-dimensional approach to building better people-to-people links between the two countries. The Institute facilitates projects and exchanges across a wide range of fields such as sport, media, the arts and science. The Institute's annual Muslim Exchange Program brings young Indonesian and Australian leaders together to strengthen understanding of the role of Islam and interfaith issues in both countries.

The Building Relations through Intercultural Dialogue and Growing Engagement (BRIDGE) program is an innovative AII program that funds visits by Indonesian teachers to Australian schools and supports online curriculum collaboration between Australian and Indonesian schools. Around 90,000 students in Australia and Indonesia have already benefited from this program. Activities, like the 30-year-old Australia-Indonesia Youth Exchange, deepen cross-cultural understanding by offering sustained opportunities for young Australians to live in Indonesia and acquire a unique perspective on life in one of Australia's closest neighbours. The joint announcement by Prime Minister Gillard and President Yudhoyono in July 2012 of an expansion to the annual working holiday visa quota from 100 to 1000 over the next three years should encourage young people from both countries to experience each other's cultures.

Towards 2025

Indonesia is well placed to become a global economic powerhouse, provided it maintains a commitment to an open economy, structural reform and better governance. Indonesia's population is estimated to peak at 272 million by 2050. As a substantial economic power, it will play an increasingly influential role in regional and global affairs. Indonesia has already shown itself adept at regional leadership through its recent chairing of ASEAN and the EAS in 2011, and as the only Southeast Asian nation in the G20.

The Indonesian Government wants to move away from its reliance on oil, diversify its energy mix to include renewable energy, and increase its use of liquefied natural gas. The country's energy needs are expected to triple by 2030, creating opportunities for Australian companies. The potential for Australian banks is huge, with a large unbanked and uninsured population and a growing middle class. Australian companies including the big four banks are active in the Indonesian market.

Australian expertise in innovation, technology and higher education will have much to offer Indonesia's expanding and diversifying economy. Indonesia is seen as a priority market for Australian universities and a growth market for Australian vocational education and training providers: 15 Australian universities, two TAFEs and three private education institutions have representative offices in Indonesia. With increasing employment skills gaps across a wide range of industries, there are a myriad of vocational training opportunities with Indonesian Government institutions as well as the private sector. A number of Australian universities have expressed interest in setting up campuses in Indonesia.

At a government-to-government level, Australia and Indonesia will enjoy even deeper relations across a variety of fields by 2025. We will continue to work closely on defence, political, strategic and security issues, including joint efforts to ensure an open, secure and resilient cyber. Indonesia and Australia will continue to work closely together on regional priorities, including disaster reduction and humanitarian responses.

People-to-people links should mature further over the two decades. The two-way flow of students and tourists should increase, helping to boost mutual understanding. In Australia, we will see a shift in perception about Indonesia as infrastructure improvements tempt Australians to explore the country beyond the well-travelled shores of Bali. The growth of Indonesia's middle class and its increasing wealth and modernity will help underscore our similarities and improve Australians' understanding of Indonesia as the democratic, diverse and prosperous nation that it is.