East Timor is located in Southeast Asia, on the southernmost edge of the Indonesian archipelago. The Portuguese began to trade with the island in the early 16th century and colonized it in mid-century. Imperial Japan occupied East Timor from 1942 to 1945, but Portugal resumed colonial authority after the Japanese defeat in World War II. East Timor declared itself independent from Portugal in November 1975, but was invaded and occupied by Indonesian forces nine days later, and in July 1976 it was incorporated into a province of Indonesia.
In August 1999, in an United Nations-supervised popular referendum, an overwhelming majority of the people of East Timor voted for independence from Indonesia. However, the announcement of the voting results was followed by a surge of violence and destruction on the part of anti-independence militias. In the end, thousands of East Timorese were killed or injured, and more than 500,000 were displaced. Despite the presence of peacekeepers, ongoing violence against journalists, peacekeepers and civilians continued throughout 2000. A transitional government was formed in 2001, and in August 2001, thousands of voters in East Timor turned out to vote for the 88 members of the constituent assembly and established the country's first parliament.
In April 2002, independence leader Jose Alexandre "Xanana" Gusmao won the presidency by a landslide victory, becoming East Timor's first president. But security has been precarious. An outbreak of gang violence in 2006 prompted the United Nations Security Council to set up a new peacekeeping force that helped restore stability. In February 2008, a rebel group staged an unsuccessful attack against the president -- now, President Jose Ramos-Horta -- and the prime minister; the ringleader was killed in the attack. The majority of the rebels surrendered to the government in April 2008.
Since achieving independence, East Timor has focused on nation-building. The government has taken measures to reconstruct the economy from the severe destruction that took place in 1999. The early adoption of prudent fiscal and monetary policies contributed to low inflation and accelerating economic growth. The country’s large petroleum wealth offers the potential for a prosperous future. However, East Timor remains one of the least developed countries in the world, with about 50 percent of the population still living in poverty. Large swaths of the population suffers from a so-called annual “hungry season” when food shortages are rampant, with the result being malnutrition. Other challenges include a lack of basic services and infrastructure, unemployment, particularly among the youth, as well as cronyism and corruption benefiting a small elite.