Last week, Australia’s Abbott government was forced into an embarrassing climb-down when a boatload of asylum seekers called for help just 57 nautical miles from the Sunda Strait. An Australian naval craft, HMAS Ballarat went to assist. But when the Ballarat sought permission to drop off the asylum seekers at the nearest Indonesian port, the Indonesians turned them down.

The standoff continued in the Java Sea for a couple of days until Australia backed down and ferried the asylum seekers to Christmas Island in Australian territory.

What was ugliest about the stand-off was not the events on the sea, but the exchanges between both governments that took place during and after the incident. It dovetailed with irritation over Premier Tony Abbott’s pre-government campaign pledge to “turn back the boats” of asylum seekers to Indonesia and took place against the backdrop of revelations of Australia spying on Indonesia from its embassy in Jakarta and a number of cyber attacks on Australian business and government websites by Anonymous Indonesia.

In short, what came out of these exchanges was that Indonesia strongly believes that Australia should not act unilaterally and that the two should seek a comprehensive bilateral solution to the problem.. In contrast, Abbott in a radio broadcast said he was not happy about the Australian vessel being refused permission to drop off the asylum seekers, who were picked up within the Indonesian search and rescue zone.

The Australia-Indonesia relationship has always been testy, going back to 1968 when Indonesia, insulted by what it called slander by the Australian media, changed immigration rules without notice when a group of Australian tourists were mid-flight on a Garuda flight to Bali, forcing their return. It was only when former Australian Prime Minister Paul Keating placed great importance upon the Australian-Indonesian relationship in the 1990s that the relationship improved

However this failed to evolve under the Howard Government, which re-emphasized the Australian-US relationship. Since then annual ministerial meetings between the two countries have focused on the smaller issues like people smuggling, asylum seekers, live cattle exports, and Australian prisoners in Bali, rather than important regional and geopolitical issues.

As a result, the Australian-Indonesia relationship has not grown into a mature one, being very little above transactional, with few deep personal engagements between the leaders of both countries. This lack of personal rapport was partly to blame for the situation that nearly led to major clashes between TNI and Australian troops in East Timor back in 1999.

Relations have cooled significantly with the Sept. 13 arrival of the Abbott government in Canberra. Accusations over the Ballarat incident have gone back and forth, but the message Jakarta seems to be giving is that Australia can't take Indonesia for granted.

This blunt response is not the usual style of Indonesian President Susilo Bambang Yudhoyono. The decision to refuse permission for the Australian vessel to drop off the asylum seekers would not have been taken lightly, as SBY would be well aware that Abbott would lose face domestically with his “turn back the boats” policy in tatters. However, Abbott's policy put the Indonesian president in a predicament with the opposition forces, with an election due next year.

Although Indonesia has drastically changed over the last 15 years, some of the older generation still regard Australia with suspicion over Australia's role in East Timor (now Timor Leste) and blame Australia for its loss. Within this group the perception still exists that Australia believes itself to be superior to Indonesia, something that can be easily exploited by opposition forces within Indonesia. Should SBY choose to do nothing, the opposition could fan nationalist sentiments which could be destabilizing and exploited politically.

SBY cannot afford to let the people see him weak. If some government anger is not shown to Australia, there will be opportunities for others to vent anger for political ends. Those who have watched SBY's usual style know that showing anger is very counterintuitive for him.

One must remember that the young, educated Indonesian middle class have warm feelings towards Australia, and can distinguish the difference between Australians and their government, which is perceived to have shown great insensitivity towards Indonesia with the spying and boat people incidents of late.

The actions taken by Indonesia are only of a low level, with the nation's top leadership largely. There have been no demonstrations outside the Australian Embassy, unlike the Malaysian Embassy when Indonesian maids were mistreated in Malaysia. So the positive side is that this 'spat' between Australia and Indonesia is not a major one. Only the Indonesian leadership felt it was necessary to draw a line with Australia.

There is deep frustration in Jakarta that the Australian government still doesn't have a fundamental understanding of Indonesia. Damage to the relationship is currently minimal, as both countries know that there is a need to improve bilateral relations. However there is now a special onus upon the Abbott Government to show in some way that the relationship has a high priority and is truly valued.

Indonesia is on its way to becoming a major power in the region. Indonesia’s GDP (PPP) is already larger than Australia at US$1.212 trillion, the 16th largest economy in the world. This growth is occurring through the whole Indonesian archipelago, rapidly transforming the country into a much more advanced economy. With a consistent annual growth rate of around 6 percent despite current economic troubles, Indonesia’s influence within the region will grow dramatically.

Former Prime Minister Paul Keating in his delivery of the Keith Murdoch Oration Lecture in November 2012 stated “Policy towards our nearest, largest neighbor Indonesia has languished, lacking framework judgments of magnitude and coherence. It’s as if Indonesia remains as it was before the Asian financial crisis, before its remarkable transition to democracy, and before the refiring of its wealth machinery”.

At face value, it appears that Australian policy makers still have a lot of thinking to do about the Indonesian relationship. Although the “Australia in the Asian Century” white paper calls on Australians to learn more Indonesian language at school and more cultural exchanges between the peoples of the two countries, the Department of Foreign Affairs and trade (DFAT) regularly issues travel warnings to Indonesia, effectively telling Australians not to visit.

In addition the halting of live exports of cattle to Indonesia and stationing of 2,500 US marines in Darwin without first advising the Indonesian government does little to develop trust and openness between the two countries. Aid is also not the answer. Australia’s relationship with Indonesia must go far beyond aid to build up any much deeper understanding.

Indonesia has a much more sophisticated view of the world than Australian policy makers have given credit for. This view sees the issues of energy, food, and water security becoming paramount concerns when the world’s population approaches 9 billion people. SBY speaks of the need for a new global architecture, seeing China and the US as rivals who need each other. Indonesia s one must play a role in the regional power structure along with both China and the US in promoting and maintaining peace and cooperation. In terms of the China-US rivalry, Indonesia is pursuing a policy of dual co-existence where the legitimacy of both powers in the region is recognized and respected. Consequently Indonesia doesn’t see itself as having any foreign policy obstacles in dealing with both powers.

Indonesia is interested in developing the rules for the road in managing conflicts and disputes in the South China Sea. In picking up this role as an indirect conduit between Beijing and Washington, Indonesia sees this as the most productive role it can take in maintaining a peaceful region.

Australia must recognize Indonesia’s emergence as a new regional power and treat it as such, understanding that Indonesia has its own view of the world. The strong Australia-US relationship as we have seen with the spying revelations, sometimes gets in the way of other bilateral relationships just as important to Australia.

Australia must see that it needs Indonesia more than Indonesia needs Australia. This needs to be understood in Canberra. This 'stand-off' was not just about negotiating a fair and equitable agreement about the handling of asylum seekers, but a message that a new understanding is required for the relationship between Australia and Indonesia to progress.

Finally, the latest episode in conducting both foreign policy and playing to the domestic electorate at the same time, has proved to be a very dangerous game. The pandering to domestic electors is now holding back both parties from forming a genuine partnership and moving forward. Abbott must also ensure that his neighbor has room to move. It is to be hoped that the Abbott government has learnt this lesson early in its first term as government and will be aware of this trap in future.