Spread between Asia and Australia, Indonesia is comprised of around 17,500 islands, of which over 6000 are inhabited. The archipelago is on a crossroad between the Pacific and the Indian oceans, and bridges the Asian and Australian continents. This strategic position has influenced the cultural, social, political and economic life of the country. After years of political upheaval and a major domestic financial crisis, Indonesia is now positioned to be one of the more politically stable countries in the region. In addition, it is widely anticipated to see significant economic growth in coming years.

EARLY HISTORY: In the sixth and seventh centuries, Srivijaya in eastern Sumatra and Mataram in central Java became the dominant kingdoms on the archipelago. Majapahit, the Hindu-Buddhist empire that lasted from the late 11th to the 16th century, was one of the region’s most influential and powerful.

Muslim emissaries travelling to and from China were the first to introduce Islam to Indonesia, but its influence in society began only in the 11th century. By the end of the 16th century Islam had replaced Hinduism in Java and Sumatra.

COLONISATION & INDEPENDENCE: The Dutch began colonising Indonesia in the early 17th century, seeking to monopolise its valuable natural sources. In 1602, the Dutch East India Company was established to manage the monopoly on trade and colonial activity, and by the mid-18th century the Dutch were firmly established in Java. They consolidated control of the country over the next two centuries.

The Japanese occupation during the Second World War ended Dutch rule. After Japan’s surrender, Soekarno – the leader of Indonesia’s resistance to Japan – proclaimed independence in 1945 and five years later established a single unitary republic. In 1967 Soekarno was replaced by Suharto, who remained in power until 1998. In 2009, Susilo Bambang Yudhoyono, the sixth president of Indonesia, was re-elected to office (see Politics chapter).

CREATIVE ECONOMY: With almost 50% of the Indonesian population aged under 29 years, the government is encouraging the growth of the creative economy to increase its contribution to the country’s GDP. The government aims to build the image and identity of the nation while turning innovation and creativity into one of Indonesia’s new competitive advantages. Creative industries such as fashion, handicrafts, advertising and design currently account for around 7.5% of non-oil and gas exports and employ nearly 8m people.

POPULATION: Indonesia currently is the world’s 17th-largest economy, third-most-populous democracy, largest archipelagic state and home to the largest population of Muslims.

With a total of 245m people, the country now also has the world’s fourth-largest population. Jakarta is the most populous city in Indonesia, with 9.1m inhabitants, followed by Surabaya with 2.1m. The island of Java, which is roughly the size of the state of New York, is the most populous island on earth – home to 129m people. Java is also one of the most densely populated areas in the world, with some 945 persons per sq km. Despite the family planning programme in place since the 1960s, Java’s population is expected to grow to some 254m by 2020.

There are some 300 distinct ethnic identities spread throughout the country, with over 700 different languages and dialects. According to the 2000 census, the ethnic composition of the population is 40% Javanese, 15% Sundanese, 3.3% Madurese, 2.7% Minangkabau, 2.4% Betawi, 2.4% Bugis, 2% Banten, 1.7% Banjar, with 29.9% unspecified.

LANGUAGE: The country is home to numerous related but distinct cultural and linguistic groups, the languages of many of which are derived from a common mother tongue – Malay. Since independence, Bahasa Indonesia (the national language, a form of Malay) has spread throughout the archipelago and become the most common language for writtencommunication, education, government, business and media. However, local languages and dialects are still important in a number of areas in the country.

PHILOSOPHICAL BASIS: The philosophical basis of the Indonesian state is known as pancasila. Pancasila consists of two Sanskrit words, panca meaning “five” and sila meaning “principle”. It comprises five interrelated principles. They are nationalism, humanitarianism, representative democracy, social welfare and monotheism. These principles continue to have a major underlying role in Indonesia’s political culture today, even though the interpretation of the principles has varied over the decades.

RELIGION: The first principle of the pancasila philosophy is the belief in one God. A number of different religions are currently being practised in Indonesia, however, and their collective influence has had a significant impact on the cultural, economic and political life of the region during its long history. The Indonesian constitution guarantees religious freedom, but only six religions are recognised by the state, namely Islam (86.1%), Protestantism (5.7%), Catholicism (3%), Hinduism (1.8%), Buddhism (about 1%) and Confucianism (less than 1%).

Before the arrival of the Abrahamic faiths of Christianity and Islam, the popular belief systems on the archipelago were influenced by Hinduism and Buddhism. On the resort island of Bali, over 90% of the population still practise Hinduism.

FLAG: The flag of Indonesia is two equal horizontal bands of red and white. The colours derive from the banner of the Majapahit empire. Red is a symbol of courage while white represents purity.

CLIMATE: Indonesia’s climate, which is almost entirely tropical, incorporates average temperatures of between 28°C and 34°C in coastal areas, and 23°C in the highlands. The country is almost fully surrounded by warm waters and temperatures vary little from season to season. The length of daylight hours also remains fairly constant, with a difference of only 48 minutes between the longest and shortest day, allowing for crops to be grown year-round.

The most important variable in the archipelago’s climate is rainfall, and extreme variations are due to monsoons. The dry season lasts from June to September and the rainy season from December to March. Rainfall and humidity, ranging from 70% to 90%, vary depending on the season and region.

GEOLOGY: Indonesia’s seismic and volcanic activity is among the world’s highest. Lying near the edges of the Pacific, Eurasian and Australian tectonic plates, Indonesia is prone to frequent earthquakes and volcanic eruptions. The archipelago has more than 150 active volcanoes, including Tambora and Krakatoa, both of which erupted in the 19th century, with devastating consequences. However, the volcanic ash that has resulted from such eruptions has contributed significantly to the high agricultural fertility that has allowed islands like Java and Bali to support high population densities. Recent seismic-related disasters include the 2004 tsunami, which killed around 167,736 people, and the Yogyakarta earthquake, which resulted in the deaths of nearly 5800.

NATURAL RESOURCES: The country is blessed with an abundance of natural resources including petroleum, gas, tin, nickel, timber, copper, coal, gold, silver and fertile soil. Oil production in 2010 reached 965,000 barrels per day (bpd). Oil reserves stand at 3.8bn barrels and imports about 420,000 bpd. Additionally, Indonesia is ranked as the world’s top producer of gold, fourth-largest producer of nickel, third-largest of copper and the second-largest of tin.

Indonesia is the world’s number one coal exporter. The country also has more than 61bn tonnes of coal reserves, which are mainly in Kalimantan and Sumatera. Coal production has significantly increased in recent years, rising from 152.7m tonnes in 2005 to 305.9m tonnes in 2010. In 2009, exports of coal amounted to 176.4m tonnes.

Indonesia produced more than 18m tonnes of palm oil in 2009. In 2010 the total area of land allocated for palm oil cultivation was estimated at 7.8m ha by the Agricultural Department. This land is divided among private and government smallholders mostly in Kalimantan and Sumatra. With regards to illegal logging of the rainforest, by joining the Roundtable for Sustainable Palm Oil, a large number of Indonesian companies have demonstrated they are taking the issue seriously.

POWER: In 2004, in an effort to increase electricity capacity, the government initiated plans to build coal-fired thermal power plants by 2010. However, the completion date was pushed back to 2014 as a number of projects are still in development.

The power transmission and distribution sector in Indonesia is largely dominated by the Perusahaan Listrik Negara, a state-owned energy company that controls around 85% of generated power. However, a new law on energy was enacted in 2009, replacing the 1985 legislation and creating a wealth of opportunities for foreign investors to meet demand.