In 1602 the Dutch established the Dutch East India Company (VOC) and became the dominant European power. Following bankruptcy, the VOC was formally dissolved in 1800, and the government of the Netherlands established the Dutch East Indies as a nationalized colony.
For most of the colonial period, Dutch control over these territories was tenuous; only in the early 20th century did Dutch dominance extend to what was to become Indonesia's current boundaries. The Japanese invasion and subsequent occupation during WWII ended Dutch rule, and encouraged the previously suppressed Indonesian independence movement. Two days after the surrender of Japan in August 1945, Sukarno, an influential nationalist leader, declared independence and was appointed president. The Netherlands tried to reestablish their rule, and a bitter armed and diplomatic struggle ended in December 1949, when in the face of international pressure, the Dutch formally recognized Indonesian independence.
Sukarno moved from democracy towards authoritarianism, and maintained his power base by balancing the opposing forces of the Military, Islam, and the Communist Party of Indonesia. An attempted coup on 30 September 1965 was countered by the army, who led a violent anti-communist purge, during which the PKI was blamed for the coup and effectively destroyed. Between 500,000 and one million people were killed. The head of the military, General Suharto, out-manoeuvred the politically weakened Sukarno, and was formally appointed president in March 1968. His New Order administration was supported by the US government, and encouraged foreign investment in Indonesia, which was a major factor in the subsequent three decades of substantial economic growth.
In 1997 and 1998, however, Indonesia was the country hardest hit by the East Asian Financial Crisis.This increased popular discontent with the New Order and led to popular protests. Suharto resigned on 21 May 1998. In 1999, East Timor voted to secede from Indonesia, after a twenty-five-year occupation, which was marked by international condemnation of repression and human rights abuses. The Reformasi era following Suharto's resignation, has led to a strengthening of democratic processes, including a regional autonomy program, and the first direct presidential election in 2004. Political and economic instability, social unrest, corruption, and terrorism have slowed progress. Although relations among different religious and ethnic groups are largely harmonious, acute sectarian discontent and violence remain problems in some areas. A political settlement to an armed separatist conflict in Aceh was achieved in 2005.