Indonesia -

gung Rai is standing out ut in the paddy fields of Peliatan. It's nearing 30 degrees in the Balinese highlands but he's wearing a woolly hat and jacket. He's not here to tend the crops. He's waiting for me to catch up because he has something joyful to impart.

I'm in hot pursuit, dripping sweat onto the already squelchy grass banks that swirl through this plain of still water and reflected sky. "Look, look," he says in hushed tones. His finger drifts across the rice terraces. The birds, the mountains, the mist, the sky. "See those two farmers? Aren't they just like wooden sculptures?" He points out a group of women carrying towers of fruit on their heads. "Just beautiful." The oranges and pinks in the sky melt as the sun rises. Golden rays climb the trunk of the palm tree behind us and spread, irresistibly, like blotting ink over the leaves. "Look," he gasps again. "It's just like a Walter Spies watercolour."

Agung Rai is an art collector and what he sees is a giant canvas to match any of the treasures hanging in the ARMA, his privately-funded gallery here in the historic district of Ubud. The 49-year-old wants me to understand that the paintings, the sculpture, the music and the dance that have made this place so famous only exist because of the timeless poetry of daily life here. "I was born in this village. It's hardly changed at all since I was a child," he says with a satisfied sigh.

Ubud is the original bohemian blueprint for what the perfect society might look like, shorn of the non-essentials and blessed with a tropical climate. It came to the attention of the western world in 1927 thanks to German painter and musician, Walter Spies who arrived for a short holiday and ended up staying until the second world war, nurturing what would become one of the world's most productive art colonies. High-profile guests, including Noel Coward and Charlie Chaplin, came here during the Depression years. The harmonious, hospitable land they discovered – with its exotic tongue, beguiling rituals and indigenous artistic traditions – became the stuff of hippy legend.

Primitive paradises rarely remain pure for long where tourism is concerned and, clearly, not everywhere is as timeless as the fields of Peliatan. But Ubud has gained a reputation as a place which takes a vigilant approach to modernisation. Electricity arrived only in 1977 and the telephone network crackled to life in the year the Berlin Wall fell. Ubud has even gone through the backpacker boom of the 1970s, the advent of mass tourism in the 1990s and the emergence of several luxury five-star resorts this century without sprouting one international brand-name store.

Ubud has largely been able to resist cultural erosion thanks to the strength of its social structure, based upon a rigid caste hierarchy and strict religious observance. Bali is a Hindu island in an overwhelmingly Muslim nation. Attendance at the astonishingly regular temple ceremonies is compulsory for all ages. But there is no question of devotees being labeled zealots. Balinese society has always blended confidence with curiosity, strength with suppleness. Spies, and the numerous artists who followed him here, discovered this. They were taken to the bosom of Ubud's monarchical communities and exposed to local themes and mythology, which they then appropriated in their work. In turn, they introduced Ubud to watercolour, tempura and contemporary European ideas. This cross-pollination of styles has left an indelible artistic legacy.

Ubud is said to inspire the latent artist in every man. It's one reason so many still flock here. On our drive back to town, Agung Rai points to a cluster of houses nestled among the rice terraces and reels off a list of foreigners who own homes there. "Japanese, American, Scandinavian." Not all, he concedes, are professional painters but they're all here to tap into the essential spirit of the land. "In Bali, life is art. It's the way farmers work in the fields. It's in the way children play. You can just feel it."

But art in Ubud is not just a mood. It's also a business. The dusty tracks of 20 years ago are now sealed roads, lined with densely stacked studio shops, awash with colour and every style of painting imaginable. Walk in and you are likely to have a glossy brochure pressed into your hand, advertising works that sell for hundreds of US dollars. Modern paintings adorn the walls of bars and hotel rooms, even temples. Ubud's most celebrated early works were understated pencil and ink tapestries, produced without hubris and left unsigned, intended only as offerings to the gods. Nowadays art is commerce and there's invariably a name in the corner of the vibrant canvas.

Some say that artistic talent is in the genes here. Certainly, everyone I meet seems to be connected to the arts in some way. Morning yoga is almost a prerequisite for visitors and my instructor, Marcus, tells me how he spent four years as a painter before finding a more physical – if no less spiritual – way of earning a crust. During an afternoon stroll, I come across a waitress, touting business for her bar. When I peer inside and look at the huge yellow and blue mural on the wall, she proudly boasts that she was once an artist too. Even Agung Rai used to sell his own paintings on the beaches of Kuta.

Just outside the Pura Desa temple, on Jl Raya Ubud, I meet another 'former' painter, 24-year-old Made Suweca. He now drives a moto-taxi and offers lifts to tourists as they pass him on the street, alternating between Japanese greetings and a perfectly honed "G'day mate."

"My uncle is an artist. He taught me and helped me get my work into a shop when I was younger," he explains, lolling on the kerb. "But it's hard to make money by painting. There are lots of good artists here." A pause. "And, anyway, they just sit down all day painting. I want to do something less boring. I want to make money and travel."

From the dark glasses, the languid chat and the way he eyes the girls, Made looks the quintessential young punk. He asks if I want to go drinking with him that night at one of Ubud's few late-night watering hotels – the Putra Bar. I suggest we go tomorrow instead. "No, tomorrow night I must go to the temple. I have a ceremony to attend." Just as I begin to wonder whether all this talk of Ubud's timeless culture is hot air, Made reminds me that looks can be deceiving.

One of the reasons temples exert such a strong influence must be because there are so many of them. Each of Ubud's component villages is subdivided into banjars, or hamlets. Each of these is required to have three major temples. In addition, every family is required to have its own temple – whether it be a simple room or a separate walled enclosure. It's therefore impossible to walk for more than a few minutes without stumbling across a flower garden surrounding the carved orange walls and thatched roofs of a typical temple compound. Ubud may seem like a slightly awkward mesh of adjoining conurbations but, thanks to this beautiful architecture, it is surely Indonesia's most aesthetically pleasing urban sprawl.

As well as hosting ceremonies, the temples of Ubud are one of its principal sources of creativity. Music and dance are integral to Balinese spirituality. The psychedelic chimes of the gongsa – a five-note steel xylophone – lure spectators to daytime practice sessions. The music passes peacefully through the mind, leaving only a comforting calm in its wake. In a town which derives its name from the Balinese word for medicine (ubad), the effect is appropriately healing. By night, these same sounds accompany the numerous musical and dance groups that perform to mixed audiences of tourists and locals. On any day of any week, there will always be at least one scheduled performance.

Saturday night sees the oldest group – the Gunung Sari – perform classical legong keraton dances in Peliatan. Performers wearing jangling beads and heavy makeup ripple their shoulders against the beautiful backdrop of the Puri Agung royal palace. The sharp, spasmodic movements of the dancers are, perhaps, not as elegant as the setting but the incongruity makes it an engaging spectacle. The group performed at the Paris Expo of 1931 and, just like the fields of this village, little seems to have changed in the intervening years.

The next morning, back at the ARMA gallery, Agung Rai is sipping coffee on a wooden veranda. Below him on the lawn, a group of foreigners are sketching a Balinese girl who poses on one knee, pink flower in her hair. A children's orchestra is practicing the gongsa in the lobby and, slowly, slowly, the music blends into my consciousness, setting the perfect tone and consistency for Agung Rai's final words.

"The Balinese people," he says, "are not poor people. We are very lucky to be living this life. And so we are rich. In Bali, the way of life is art. We don't talk about it. We live it."