Mr Downer wasn't talking about Indonesia invading Australia as a state trying to knock down another, but rather as the Indo govt protecting their own citizens and interests by taking out terrorist groups training in Australia (obviously hypothetical, seeing as the Aust govt would probably cooperate anyway).
However, addymac is right in that Indonesia doesn't really have the capacity to launch a coordinated, precise strike on foreign soil when they are struggling with internal issues and separatists and terrorists on their own soil.
It was a bad way of trying to justify/worm out of the problems of pre-emptive strikes, but not totally ludicrous in theoretical terms.