People-smugglers caught in Indonesia will face five years’ jail under tough anti-trafficking measures unveiled yesterday during a historic speech to federal parliament by visiting President Susilo Bambang Yudhoyono. In the first speech by an Indonesian leader to Australia’s parliament, Dr Yudhoyono announced that a new law would make people-smuggling a crime in Indonesia – a move designed to discourage the Indonesian fishermen who have carried thousands of asylum-seekers into Australian waters.

The President’s announcement followed a day of high drama in which Indonesian counter-terrorism police confirmed the death of the country’s most wanted terrorist, Bali bombing mastermind Dulmatin, on Tuesday during a raid targeting a militant hideout in Jakarta.

Dr Yudhoyono was reading an earlier speech to a state luncheon in the Great Hall at Parliament House in Canberra when a military aide passed him a note. “I have great news to announce to you,” the President told guests. “After a successful police raid against a terrorist hideout in Jakarta, we can confirm that one of those killed was Mr Dulmatin, one of the top Southeast Asian terrorists that we’ve been looking for,” he said through an interpreter.

At 2.30pm, the President was escorted into a House of Representatives chamber packed with MPs from both houses, where he was introduced by the Speaker, Harry Jenkins.

Praising the Australia-Indonesia relationship as “solid and strong”, Dr Yudhoyono warned of new “non-traditional” threats posed by terrorism, people-smuggling, drugs and natural disasters, for which Canberra and Jakarta should be prepared. He said both governments acknowledged that the vexed issue of people-smuggling was a regional problem, requiring a regional solution. “And to strengthen our legal instruments, the Indonesian government will soon introduce to parliament a law that will criminalise those involved in people-smuggling – those found guilty will be sent to prison for five years,” Dr Yudhoyono pledged to loud applause.

His promise came as Australia’s Border Protection Command confirmed the interception of the 21st asylum-seeker boat this year.

The Australian understands Indonesian authorities are preparing to deal with another situation – the 248 Australia-bound Sri Lankan Tamils refusing to get off their boat in the Indonesian port of Merak after a four-month standoff. This newspaper has been told Indonesia is preparing to remove the Sri Lankans by force if necessary, and send them to Tanjung Pinang immigration detention centre for processing by the UN High Commissioner for Refugees. “These people will be transferred to another location in West Java soon,” a senior Indonesian official said. Dr Yudhoyono described a “love-hate relationship” between two countries, which he said had evolved into a model partnership – not without its challenges, but one that was drawing world envy.

He said government-to-government ties between Jakarta and Canberra had never been better. But Dr Yudhoyono warned against complacency. He said he was personally concerned about ill-informed perceptions of Indonesian society by Australians, and vice-versa. “There are Australians who still see Indonesia as an authoritarian country or a military dictatorship or as a hotbed of Islamic extremism, or even as an expansionist power,” the President said.

On the other hand, there were Indonesians afflicted by what he called “Australia-phobia – those who believe that the notion of White Australia still persists, that Australia harbours ill-intention towards Indonesia,” he said. “We must expunge these preposterous mental caricatures if we are to achieve a more resilient partnership.”

Earlier, Mr Rudd heaped lavish praise on Indonesia’s achievements following the end of the Suharto regime in 1998. “The people of Indonesia enjoy a free media, an open society and religious tolerance,” Mr Rudd said. “They live in a multi-party democracy in which transitions to power take place according to law. “In Indonesia, democracy now has strong foundations.”

During talks earlier yesterday morning, Mr Rudd and Dr Yudhoyono agreed to further strengthen relations with an annual leaders’ retreat and a meeting of foreign and defence ministers.

Tony Abbott said he supported Mr Rudd’s remarks but used his speech in parliament to criticise Labor’s policy on border protection.

In a three-hour meeting yesterday morning, Dr Yudhoyono and the Prime Minister discussed the three Australian drug smugglers facing the death penalty in Indonesia. “He indicated to the President that should any member of the group seek clemency, he would support the request directly with the President,” a spokeswoman for the Prime Minister said last night.

Work will soon start on a prisoner exchange agreement between Indonesia and Australia.

Both leaders also discussed the 1975 killings of the Balibo Five journalists and expressed sympathy for those bereaved by the tragedy.

The Indonesian leader flew out of Canberra last night to Sydney for talks with business leaders aimed at boosting trade links.