Rowan Callick – Following a raucous and colourful campaign season – with most candidates singing on stage – 240 million Indonesians will today start electing their next government by choosing a new national parliament and local legislatures.

The first round of the presidential election follows on July 8, with a run-off, if required, on September8. As far as Australia's future security is concerned, there are few more important events on the calendar.

Just how much our big neighbour matters to us was brought home on October 12, 2002, when 88 Australians were killed by terrorist bombs in Bali: the most casualties caused by a single event since World War II, only superseded by the bushfires in Victoria on February 7.

Since the Bali bombings, the Indonesian Government's determination and intense co-operation between the police and other officials of the two countries have succeeded in defusing the extremists' threat to set the archipelago aflame with Islamist fervour.

Indonesia has defied its critics and set a rare example for the rest of the Islamic world by rapidly developing into an effective democracy within a decade of the dictator Suharto's downfall in 1998, at which point the country threatened to crash and burn.

This election is the last in which players from the Suharto era will play a prominent role. It will determine whether the country looks ahead, towards a new, internationalist generation of leaders and policies, or back to the deal-making between powerful men in rooms reeking of cigarette smoke.

The outcome that would be best for Indonesia – and Australia – is a second five-year presidential term for Susilo Bambang Yudhoyono and a doubling of the vote for his Democratic Party.

It hasn't always been obvious to Australians how much we have at stake in our neighbour's development. Australia had become accustomed to weighing its international relations by standards other than proximity.

Paul Keating developed a close and respectful relationship with Suharto and signed a defence treaty with him, but the latter's attitude to Australia appeared ambiguous and it was only after the end of the Suharto era that broader relations between the two countries moved to a warmer level.

In 1995, the pragmatist John Howard, then leader of the Opposition, helped articulate, in an Asialink lecture, how to bridge the gap between the two priorities of Australian foreign policy. "We do not believe that Australia faces some kind of exclusive choice between our past and our future, between our history and our geography," he said.

"Australia must meet the regional challenges of the future, in Asia and elsewhere, with the flexibility to adapt to changing circumstances but with pride in our history, our values and our institutions. The dynamically successful economies of East Asia have done precisely that."

Through the downfall of Suharto, the bloody emergence of East Timor as a nation, and the Bali and other bombings, Howard steadily upgraded the relationship until the Australian embassy in Jakarta became our largest overseas mission.

Howard and Yudhoyono developed an effective partnership that began in the fraught period when the relationship might have unravelled in the wake of Bali. On the first anniversary of the tragedy, Yudhoyono – who was then minister for political and security affairs, with responsibility for tracking down the killers and preventing an explosion of extremism – flew to Bali and delivered a speech that moved many to tears.

He said of the 202 victims: "They were our sons, our daughters, our fathers and mothers, our brothers and sisters, our cousins, our best friends and our soul mates. And they were all innocents."

Kevin Rudd, who is well-informed on Indonesia, having visited it on many occasions before becoming Prime Minister, has consolidated the relationship. He met Yudhoyono seven times last year. "This is a very broad and vital relationship for us," he says.

Following Suharto's downfall, Yudhoyono quit the military in 1999, retiring as a general, and joined the cabinet of president Abdurrahman Wahid (Gus Dur) as mines and energy minister. He remained in the cabinet when Megawati Sukarnoputri took over as president two years later.

His Democratic Party – the first new party to emerge effectively on the national stage since Suharto – won 7.5 per cent of the vote in the 2004 election.

Its first big test comes today. If the party can score 20 per cent in the parliamentary poll, Yudhoyono can seek re-election without the need for a compromising coalition partner.

Any presidential representative of a party that obtains less than 20 per cent of the vote must cobble together a coalition of groups whose tallies add up to more than the cut-off. And a party needs to score more than 2.5 per cent of the nationwide vote – for which 171 million people have registered – to gain parliamentary representation.

In today's election, candidates from 38 parties are contesting 560 seats in the national parliament, 1998 seats in provincial legislatures and 15,750 seats in city legislatures.

Eight years ago, Indonesia devolved substantial authority beyond the 34 provinces, down to 410 rural districts and 98 cities. But the resulting structures have not yet received full parliamentary authorisation, and so some legal powers remain in limbo. It has been almost impossible to develop resources projects as a result.

The most successful religious group in contemporary political life has been the Prosperous Justice Party (PKS), which advocates a central role for Islam in public life. It won 7.3 per cent of the vote in 2004.

It has young, well-educated leaders, and attracted followers at first through its strong stance against corruption. But it has gone on to form voting alliances with Golkar, the party most associated with the Suharto era. And in reaching out for voters beyond the religiously aligned minority, it risks losing that pious core.

Two former military figures closely linked to the Suharto years, with question marks still hanging over them in the context of human rights, are leading new parties into the election: Wiranto and Prabowo Subianto, who grappled with each other for control of the military during the turmoil they fostered in the late 1990s.

In the end, Suharto's successor B.J. Habibie chose Wiranto. But Habibie failed to fulfil his expected role by stepping aside for the next strongman. From that point on, the military retreated from political power and this election is the first in which the army, known as the TNI, won't obtain reserved seats in the legislature.

Wiranto, who was the Golkar presidential candidate five years ago, now leads Hanura, or People's Conscience Party. Prabowo, a former head of the infamous Kopassus special forces unit and a former son-in-law of Suharto, leads Gerindra or Great Indonesia Movement, a party bankrolled by his billionaire brother.

Neither of the parties is expected to obtain more than 4 per cent of the vote.

Golkar is led by Yudhoyono's Vice-President Jusuf Kalla, a businessman prominent in eastern Indonesia but who lacks national appeal. Former president Megawati, the daughter of the nation's founder Sukarno, remains the leader of the Indonesian Democratic Party of Struggle (PDIP).

The National Awakening Party (PKB) founded by Wahid, is now led by Muhaimin Iskandar, while the United Development Party (PPP) is effectively run by the country's largest Muslim group, the moderate Nahdatul Ulama. Both did relatively well in 2004 but are expected to poll less strongly today.

Tim Lindsey, director of the Asian Law Centre at the University of Melbourne and chairman of the Australia-Indonesia Institute, says the skilful advertising and campaigning of a well-heeled player such as Prabowo does not necessarily convert into votes any longer, such is the increasing sophistication and scepticism of the electorate.

Voters, he says, aren't interested any more in "old stories from yesterday's men" such as Wiranto, who was permanently tainted by the events in East Timor.

No one, Lindsey says, wants to see the military back in power; that includes the TNI, which "is no longer everyone's enemy, no longer has to run the country, but can keep making money".

And it is the smallest army, in terms of population, in the Asia-Pacific region: 300,000 strong, with only a limited capacity to act. "It would have to remove the legislature before taking control," Lindsey says, "because that has succeeded it as the most powerful institution in the country."

Military analysts say the army could only hold three large cities at any one time, and then with great difficulty in the face of popular opposition. "They have a general in charge of the country anyway, in SBY. He's definitely not the TNI's plaything, but he does understand their issues," Lindsey says.

Throughout his decade in politics, Yudhoyono has been accused of being indecisive, although controlling only a few seats in parliament has not helped. But he has presided over a return to sustained economic growth and has introduced some tough and overdue reforms, including removing the subsidy on fuel that has for long distorted the Indonesian economy, compensating poor families with cash handouts.

Indonesia, Lindsey says, is in the throes of abandoning half a century of communal alliances and political connections based on religion and race. "Instead, they are asking: 'Are the leaders clean?' and 'What are their platforms?' Party machines can no longer deliver fixed blocks of votes."

Yudhoyono understands how global issues and leaders can be brought into the domestic political arena to great personal benefit. US President Barack Obama, who lived in Indonesia as a child, is viewed as a hero and Yudhoyono's interaction with him at the G20 summit in London was a big electoral plus. At the same time, he has to guard against the perception that he is in Canberra's pocket.

"The government-to-government relationship between our countries is the best ever, no question," Lindsey says. "And among institutions, businesses and individuals involved in the relationship, it's great, it's a boom time, though the Australian travel advisory does put something of a dampener on exchange opportunities."

The importance of the relationship is palpable, says veteran Indonesia expert Jamie Mackie. In a recent paper for the Lowy Institute, he says Australia needs to be able to count on Indonesia's co-operation with us, not opposition, in matters of regional and international politics, and also on issues arising from our contiguity in the Timor-Arafura Sea area, such as fisheries, quarantine, border protection and the maritime boundary. "An impoverished, stagnant or unstable Indonesia could result in severe problems for us," Mackie says.

[Rowan Callick is The Australian's Asia-Pacific editor.]