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KIERAN GILBERT: Foreign Minister Smith, thank you for joining us this morning.

STEPHEN SMITH: Pleasure.

KIERAN GILBERT: The Indonesian President is set to arrive here in Canberra. He's going to be the first Indonesian leader to address a joint sitting of the Australian Parliament. What are you hoping this visit is going to achieve?

STEPHEN SMITH: Well, addressing a joint sitting of the Australian Parliament is reserved for very few leaders. The fact that we've invited the President of Indonesia to do this for the first time reflects the importance of the relationship between Australia and Indonesia. In very many respects, it's probably the case that the relationship is underappreciated and underestimated. It is one of our most significant relationships.

The Australian Government inherited a good relationship from our predecessors and we've worked hard to take it to an even higher level. But the President addressing the Parliament will underline the long-term importance of our relationship with Indonesia, including a strategic relationship which goes to the way we work together within the region but also internationally. We're both, for example, members of the G20.

So we're working much more closely with Indonesia, and in the longer term that will become even more important.

KIERAN GILBERT: And there'll be Cabinet talks today, joint Cabinet meetings throughout the day and tomorrow?

STEPHEN SMITH: I'll be meeting, for example, my own counterpart, Foreign Minister Natalegawa. The President is bringing with him a number of Cabinet members, so there'll be discussions amongst the line portfolio Ministers and Cabinet members. And then tomorrow, we'll meet in the Cabinet room and have a discussion — the Indonesian delegation led by the President and members of the Australian Cabinet, of course, led by the Prime Minister.

But this again underlines the significance of the relationship, the fact that a strong delegation is coming from Indonesia and we'll be having these line portfolio conversations, which just reflects how embedded our relationship is with Indonesia these days.

KIERAN GILBERT: You say it's embedded, but it's always tricky, isn't it? It's a tricky relationship. We saw that most notably I suppose in the last few years with the granting of asylum to the West Papuan asylum seekers in 2006, and Indonesia recalled its ambassador at that point.

It's always a precarious relationship, isn't it? You say it's embedded, but it's always problematic.

STEPHEN SMITH: Well, because we're such close neighbours, there will always be issues.

I think the depth and the strength of the relationship these days is that we can have issues which may well be difficult, whether it's issues of capital punishment, people movement, the Balibo Five, for example, but they don't disturb the strength of the relationship.

There was a time when these issues would, in a sense, rock the relationship. I can remember in the first formal meeting that I had with my Indonesian counterpart, the point being made that Indonesia and Iceland have a perfect relationship — they're so far away they don't have much to do with each other. But when you're neighbours, when you are close together, there'll always be issues.

The strength is how you deal with those issues, and in the last couple of years, Australia and Indonesia have signed up and brought into force the so-called Lombok Treaty, and that really establishes the framework for the modern relationship between Australia and Indonesia.

KIERAN GILBERT: Well, on one of those difficult issues, the Indonesians have repeatedly said they don't want an Indonesian solution to the people smuggling problem. We saw that most graphically with the Oceanic Viking. But still, 200 or more Sri Lankans on board that boat off the port of Merak.

Does Australia need to be more aware of the difficulties Indonesia faces with its own internally displaced people and so on? It's not as big a political priority there, should we be more aware of that?

STEPHEN SMITH: Australia's not asserting a so-called Indonesian solution either. Our policy approach is a regional solution.

Australia knows and Indonesia knows that the only way we can deal with the very difficult issue of people movement — asylum seekers and boat people — is by acting together regionally, looking at the so-called source countries where there's conflict, whether that's Sri Lanka or Afghanistan or previously Iraq, also transit countries which include Malaysia and Indonesia, and destination countries like Australia.

And that's why, together with Indonesia, we co-chair the so-called Bali Process where over 40 countries and international institutions in our region get together to try and work cooperatively as a region to deal with the huge numbers of displaced people that we have.

So we believe, as Indonesia does, the solution is a regional one. That's why we work very closely with Indonesia.

KIERAN GILBERT: But people smuggling is not a crime, it's still not a crime in Indonesia.

That's obviously — there's no legal deterrent there. Are you hoping that might be something, an outcome from this trip that the President might commit to expediting the criminalisation of that?

STEPHEN SMITH: I wouldn't be saying there's no deterrent there. The Merak boat that you referred to, for example, was intercepted by Indonesian authorities in Indonesian waters.

KIERAN GILBERT: But it's not a crime. There's not the same deterrent as there is here.

STEPHEN SMITH: We have made that point and had discussion with Indonesia in the past.

Of course, how Indonesia conducts itself in terms of its domestic law is, of course, a matter for Indonesia.

But we are very pleased with the cooperation we get with the Indonesian authorities on these very difficult issues. And of course, it is not just the movement of people in terms of boat people, we're also very pleased with the cooperation we get on the wider front, particularly on counter-terrorism. On that front, Indonesia is perhaps the most successful country in the last half-dozen years in terms of disruption and arrests of terrorists.

KIERAN GILBERT: Will the Prime Minister raise the issue of possible clemency for the Bali Nine — Scott Rush is going to be lodging his final appeal in the Indonesian Supreme Court this month. Will the PM raise it with the President?

STEPHEN SMITH: Our position has always been clear on that, and Indonesia knows our position. Indeed, the point was made in the first meeting between Prime Minister Rudd and President Yudhoyono in Bali back in December 2007, and that is that once the appeal processes for Scott Rush and the other two Australians have exhausted, once they've completed their domestic legal remedies, if it is the case that a death sentence still applies to them, then the Australian Government will pursue a plea of clemency on their behalf.

KIERAN GILBERT: But wouldn't it be appropriate to raise it now with the President here?

The Prime Minister could at least raise it in some level of talks.

STEPHEN SMITH: The point I'm making is that the Prime Minister and I have raised this matter in the past.

KIERAN GILBERT: But the prospect of clemency, have you raised that specifically?

STEPHEN SMITH: Absolutely. But the point is we have a very clear position which Indonesia understands, and that is there's an Indonesian legal process to go through. Once those appeal processes have completed, if it is the case that Scott Rush, for example, is still the subject of a death penalty, then we will pursue a plea of clemency on his behalf.

KIERAN GILBERT: So you expect the Prime Minister will raise it again during these talks?

STEPHEN SMITH: I would expect that in the course of discussions, whether it's the President and the Prime Minister or Foreign Minister Natalegawa and myself, that the issue will come up.

The point I'm making is it won't be the first time it's come up, and the Australian position is quite clear and well understood by Indonesia.

KIERAN GILBERT: One final question. It's not specific to your portfolio, but there are reports in The Sydney Morning Herald of extravagant spending within the Defence Department — the use of private jets, oil paintings in the department, and so on.

Does that budget need to be better scrutinised?

STEPHEN SMITH: We already have a program where the Defence Department, both civilian and uniform, is going through an enormous cost-saving exercise — $20 billion over the next 10 years. That particular article focuses on the non-military aspects of it.

But you're dealing here with a very large workforce: 55,000 uniformed soldiers, reservists, civilian officials as well. It's a very large workforce.

We've been very conscious of the Defence budget, and Joel Fitzgibbon firstly and John Faulkner now have been working very hard to make some structural changes.

But we've committed ourselves to $20 billion saving over the next 10 years, and that's a substantial contribution for Defence and the Defence establishment to be making.

KIERAN GILBERT: Do these reports concern you, though, these sorts of extravagant, seemingly extravagant outlays?

STEPHEN SMITH: You can always make anything in Government expenditure seem extravagant if you want to by focusing on one particular matter. If you look at the story this morning, it ignores the fact that we've got about $50 billion worth of Defence contracts and focuses on about $5 billion worth of non-Defence equipment expenditure.

Of course we always want to make sure that there's no lavish expenditure, that there's no waste and that's why we've got a very important cost savings and efficiency program going through our Defence establishment and our Defence Forces to make those $20 billion savings over the next 10 years.

KIERAN GILBERT: Minister, I know you've got a busy day ahead. Thanks for making some time.

STEPHEN SMITH: Thank you, thanks very much.