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Overview of Indonesia and its Economy1. OVERVIEW OF INDONESIA AND ITS ECONOMY1.1 Regional context and backgroundIndonesia is the world’s largest archipelagic country with approximately 17,508 islands scattered aroundthe equator. Its strategic location between Asia and Australia has historically influenced its culture, society,politics and economy.Indonesia is the world’s fourth most populous country after China, India and the USA and has the largestMuslim population in the world. Over 300 ethnic groups are represented with the largest being theJavanese and Sundanese.Figure 1.1.1 IndonesiaSource: maps by Rei-artur (http://commons.wikimedia.org/wiki/User:Rei-artur)The five main islands of Indonesia are Java, Sumatra, Kalimantan (the Indonesian part of Borneo), NewGuinea (shared with Papua New Guinea) and Sulawesi. The capital, Jakarta, is on the island of Java and isthe nation’s largest city, followed by Surabaya, Bandung, Medan and Semarang.At the time of the 2000 National Census, the population of Indonesia was 206 million people. This had risento approximately 222 million people by 2006. 130 million people live on the island of Java, the world’s mostpopulous island.1.2 Historical backgroundFrom the early centuries, the Indonesian archipelago has been a major destination for trading, beginningwith trade in spices when Chinese merchants first landed in Sumatra. Indonesia’s history has since beenshaped by foreigners attracted to the archipelago by its rich and abundant natural resources. Theseincluded Indians, Muslim traders from the Arabic and Persian lands, and Europeans, particularly theDutch.After three centuries of Dutch rule and over three years of Japanese occupation, Indonesia declared itsindependence on August 17th, 1945. Independence was formally recognised by the Hague Conventionsome four years later on December 27th, 1949.1.3 Political backgroundUnder the regime of President Suharto, Indonesia was under a political system which emphasisedconsensus, unity and controlled authority. For 30 years, the Golkar Party, led by Suharto, had the majorityin both the legislative and executive bodies. This came to an end in 1998 when Suharto stepped down asPresident.Since 1998 Indonesia has hosted two general elections. In 1999, the country appointed AbdurrahmanWahid from Partai Kebangkitan Bangsa (PKB) as its fourth President. He was removed as President by theparliament and was replaced by Megawati Sukarnoputri, the Vice President, who was also the leader ofPartai Demokrat Indonesia Perjuangan (PDIP).Three years later, in April 2004, Indonesia hosted its first direct presidential election. Although Golkar wonmore seats than any other party, and PDIP came in second, the candidate from Partai Demokrat (PD),F-9