The current breakdown in diplomatic relations between Australia and Indonesia is close to — or is — the worst the relationship has been. There has been nothing of such damage to the relationship since Australias intervention in East Timor in 1999, when Australia sent in troops with the permission of the Indonesian government to address a problem resulting from the Indonesian government being at odds with its own military.
Military co-operation, support for Australias asylum seeker program and intelligence sharing has now been suspended by Indonesia, and there is not even a fig-leaf of support in Indonesia for Australia. The current spying issue is more damaging than the East Timor intervention, with President Susilo Bambang Yudhoyono feeling personally betrayed by a country he considered a friend.
The suspension of key bilateral activities has ended Indonesias reluctant support for Australias asylum seeker policy. It can be safely assumed that Indonesia will not be accepting back any boats for the foreseeable future.
But Indonesias response is unlikely to end there. Without an adequate response by Prime Minister Tony Abbott, there is likely to be the suspension of further activity between the two countries. Areas that are likely to be affected include trade arrangements and Indonesias support for Australia in regional forums such as the Association of Southeast Asian Nations, including the strategic ASEAN Regional Forum (ARF).
An element of the current controversy reflects political point-scoring in Indonesia as actors jockey for position ahead of next years elections. However, there is also a very real sense of anger and dismay over the spying allegations. Many senior Indonesian figures have never entirely trusted Australia, and this issue has only confirmed their mistrust.
From Australias perspective, there has long been a quiet but very real concern that Indonesias next president, to be elected in September 2014, will be not nearly as well-disposed towards Australia. It was widely hoped that the strong relationship with Indonesia that existed until recently could be maintained in order to ensure that Australia goes into those uncharted bilateral waters in the best possible shape.
That option has now all but disappeared. Even if this affair can be settled down, there will remain a lingering sense of mistrust from Indonesia.
Australias best option at the moment is twofold. Abbott needs to fulsomely apologise to Yudhoyono privately. Yudhoyono might or might not choose to make public some or all of that apology, but that would ultimately be his call to make.
Abbott also needs say publicly that Australia apologises for the hurt and mistrust that has been caused by the allegations of spying, without formally confirming that such spying has or has not taken place. He also needs to say that Australias regional intelligence activities will be reviewed with the intent of ensuring that no further offence will be caused to Indonesia. Again, this will not require going into details.
This is what should have happened when the spying scandal first broke two weeks ago. Had this been said then, the current issue would have been nipped in the bud and the fallout would not now exist.
The question for the Australian government now is not whether it acts, but how quickly and precisely how to phrase the public component of the apology to Indonesia. Not to do so risks not just immediate difficulties, but could derail the relationship with Indonesia into the longer-term future.