good points by SSC and RN7
I did not know that Indonesia made claim to Australia or Indonesia's bad feelings regarding past colonialism. but hey, I'm just an average American.
I seem to recall Ballistix' site mentioning that significant parts of the Pakistani Navy sailed to Indonesia after India defeated Pakistan. If I ever find the url and if webarchive can find it, I'll post what he had.
As far as Chinese involvement on the side of Indonesia. I don't have that in my T2k world. They'd be a little busy getting whomped by the Soviets. Like RN7 said, there's been some major discrimination by Indonesia against their minority Chinese population. There was a major anti Chinese riot in 1997 I believe.
paraphrasing but canon T2k V2.0 and 2.2 does mention Australia and Indonesia engaging in aeronaval battles over Papua New Guinea. I can't recall the outcome, I think it says that both sides exhaust themselves, but someone with access to the books can fill it in. Or you could go the Merc 2000 route and have Australia defeating and occupying all of Indonesia.