Australia’s relationship with Indonesia is continuing at its all-time high following the conclusion of the East Asia Summit in Bali. Prime Minister Julia Gillard has come away from the summit confirming a major reduction in tariffs in trade with Indonesia, providing further “ballast” to the once-troubled relationship.

Even Australia’s agreement to host US Marines in the Northern Territory has caused fewer problems than sometimes insecure strategic commentators in Jakarta might have indicated in the days immediately after the plan was announced. Having said that, it is unlikely that Australia will take up President Susilo Bambang Yudhoyono’s suggestion that Australia also play host to China’s military, by way of balancing assertions of regional power.

The ratification of the ASEAN-Australia-New Zealand Free Trade Agreement last week showed that Australia had “no better friend or partner” than Indonesia in the Asian region, according to Trade Minister Craig Emerson. The deal and Emerson’s comment reflect a long-term policy initiative begun by then foreign affairs minister Gareth Evans in the mid-1990s, to add trade “ballast” to the bilateral relationship to help ensure it is not unbalanced by other bilateral issues.

This policy appears to be working, with the otherwise tricky issue of increasing a US military presence in Australia not raising nearly the level of concern that it might once have. Similarly, following the trade agreement, discussion has resumed on a prisoner swap deal between the two countries while the issue of bilateral co-operation on people smuggling continues positively as one of a handful of critical issues between the two countries.

Even the recent live cattle export drama was off the agenda, being subsumed by the larger trade agreement. Meanwhile, Indonesia is working towards satisfying Australian concerns so the trade can resume, probably early in the new year. Flare-ups such as the live cattle issue are proving to be peripheral to the larger bilateral relationship.

Beyond trade, the settling of Australia-Indonesia bilateral relations reflects a maturing of the relationship based on an increasing agreement around underlying principles of governance. Indonesia as a democratising state is vastly easier for Australia to work with than an Indonesia ruled by an authoritarian president with the support of the military. So, too, the particular democratic and reformist temper of President Yudhoyono is much closer to Australia’s world view than any of his predecessors, further allowing bilateral relations to more easily overcome molehills that might have once been portrayed as mountains.

While Australia agreed to give Indonesia four Hercules transport aircraft, what was not discussed, at least in public, was the increasing closeness of bilateral defence ties. This, along with the US providing Indonesia with F16 fighter aircraft, further helps explain why Indonesia is not as concerned as it might be about an increased US military presence in Australia.

While the past 12 months of the bilateral relationship has been characterised by some media as difficult, this has more highlighted the type of relatively minor problems that occur in most bilateral relationships rather than the substance of the relationship that allows such minor issues to pass without  derailing the relationship. The underlying bilateral relationship is, along with Indonesia’s political health, the best it has ever been.

The real test for Indonesia — and for bilateral relations — will come with President Yudhoyono steps down at the conclusion of his second term in office in 2014. Australia will be keen to load up further “ballast” ahead of the possibility of his successor not being as closely aligned with those currently shared reformist and democratic values.