(CNN) -- Like the smoking volcanoes found throughout the vast archipelago, Indonesia appears ready to explode in the run-up to its first democratic elections in more than 40 years.

The death toll from nationwide ethnic, religious and political violence is already in the hundreds this year, and tensions are expected to rise as election campaigns heat up.

"1999 is a year of living dangerously -- very dangerously indeed," said Donald Emmerson, a professor of political science at the University of Wisconsin in Madison and an expert on Indonesia.

ELECTION FACTS 127 million voters 48 parties in the fray 462 seats up for grabs Military banned from campaigning Last free elections: 1955

"The next few months are in some respects an eternity," he added. "A lot of things could go very badly wrong."

The world's fourth most populous nation and its largest Muslim one, Indonesia must pass through a series of critical tests this year as it attempts to recover from economic freefall, regain political stability and evolve into a democratic state.

• On June 7, local and national elections allowed voters to choose 462 parliamentarians from 48 political parties.
• On August 8, an historic ballot is set for the future of East Timor, allowing residents of the former Portuguese colony to decide whether they want autonomy or independence from Indonesia.
• On November 10, the 700 members of the People's Consultative Assembly -- consisting mostly of members elected June 7 -- will choose the country's new president and vice president.

'The bedrock of Southeast Asia'

Prior to the Asian economic meltdown, Indonesia was one of the world's top emerging economies

"The question is, will all three events actually occur? And will the results be accepted? People are being pretty tentative," Emmerson said.

"There's a lot of room for mistakes," agreed James Clad, Asia-Pacific director of Cambridge Energy Research Associates and a professor of Southeast Asian studies at Georgetown University. "Voting is a pretty rough idea in Indonesia and any number of events could further spook foreign investment."

Clad said that what happens in Indonesia during the next few months will have global implications.

"Southeast Asia was the fastest-growing area of the non-Western world from 1986 to 1996," he said. "In case nobody noticed, that rapid growth was directly related to the stability of Indonesia. It is the bedrock of Southeast Asia. Without Indonesia being able to focus on things like regional free trade agreements and a common position on China, we will have a weak Southeast Asia and a China that is pushing the envelope."

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The more than 13,000 islands that make up Indonesia, stretching further than the distance between New York and California and straddling the Indian and Pacific Oceans, are a key transit area for nearly half of the world's shipping. It is also a strategic route to the Persian Gulf for U.S. warships.

Opening Pandora's box

The start of the Asian financial crisis in 1996 touched off the current chaos in the archipelago.

Seemingly overnight, the country went from being one of the International Monetary Fund's top-rated emerging economies to one of its biggest disaster stories. The plunge of the Indonesian rupiah by more than 70 percent of its value against the dollar fueled a backlash against the ruling establishment.

Faced with growing civil unrest and a loss of confidence in his own party, Suharto resigned in May 1998

The turmoil led to the ouster of the country's 76-year-old authoritarian ruler, President Suharto, who for 32 years kept a steely grip on the opposition with one hand while doling out plundered national resources and favors to his family and associates with the other.

The departure of Suharto opened the lid to a Pandora's box of resentments and conflicts that had been simmering for decades. The surprise is not so much that Indonesia is now in turmoil, but that it was relatively stable for so long.

The nation's official language is Bahasa Indonesia, but more than 250 languages are spoken, reflecting the complex mosaic of ethnic groups that make up the population of 213 million people.

Buddhist and Hindu kingdoms sprang up among the indigenous cultures of the region in ancient times. Arab traders later introduced Islam to the islands while Portuguese and Dutch colonialists won some Christian converts.

More than 300 ethnic groups and 250 languages make up Indonesia's diverse culture

Long houses and skyscrapers

Today Indonesia is nearly 90 percent Muslim, but the people practice distinctly Indonesian forms of Islam, often blended with local animistic beliefs and reinterpreted in a myriad of ways.

Indonesian society includes the sophisticated sultans' courts of central Java and hunter-gatherer tribes in the jungles of Irian Jaya and Sumatra. Some people live communally in bamboo long houses on Kalimantan, while others reside in skyscrapers in the capital of Jakarta.

Indonesia is also one of the world's most biologically diverse regions. Its abundant natural resources, include vast forests, oil, natural gas, coal and gold.

The Dutch were the first to unite most of the archipelago in a colonial empire that siphoned off valuable teakwood from the rain forests and nutmeg and cloves from the Moluccas, also known as the Spice Islands.

Indonesia declared its independence from the Dutch in 1945 under the leftist leadership of Sukarno. But the country remained one of the world's poorest through the mid-1960s, when it had a per capita income of just $50.

A rice importer in the 1970s, Indonesia reached self-sufficiency by 1985 through a variety of government-supported initiatives

An attempted coup in 1965 set off a spasm of violence that left at least 500,000 dead, with some estimates going as high as one million.

'New Order' pushes economic growth

It was in this atmosphere that Suharto took power in 1965 from Sukarno, Indonesia's founding president. He clamped down on all opposition and concentrated power and authority in a small military and bureaucratic elite through a de facto political party known as Golkar.

Suharto's "New Order," as his regime was known, focused on development above all else. By the late 1970s, Indonesia had been transformed from a country of virtually no industry to a major producer of steel, aluminum and cement. It also became the world's largest exporter of liquefied natural gas, and by 1991 its oil exports accounted for about 6 percent of the total production of the Organization of the Petroleum Exporting Countries.

Per capita income shot up to $1,000 annually, and where once Indonesia was the largest importer of rice, today it feeds its huge population from its own abundant rice crops.

But Indonesia's "Father of Development," as Suharto called himself, was notoriously corrupt.

Lucrative government contracts were doled out to members of his family and a favored group of ethnic Chinese businessmen. Most of the resources of the country were exploited for the elite on Java, the main island where the bulk of the population is concentrated, while the remote areas languished.

Habibie's strength: weakness

Tension over the disparities came to a head during Asia's economic crisis. The rupiah's plunge forced the government to shut down insolvent banks and begin an austerity drive. Anti-government rage boiled over into bloody riots on the streets of Jakarta, forcing Suharto from power.

In May of 1998, Suharto was forced to step down and his vice president, B.J. Habibie, took his place.

Skeptics see Habibie as a mere extension of the New Order regime, since he was a longtime protege of Suharto's. And Habibie's nomination by the Golkar party for the 1999 presidential election did little to quell those fears.

But Habibie lacks the iron grip of his predecessor. Major concessions have been the hallmark of his administration as he struggles with the country's overwhelming economic problems amid rising pressures for political reform.

Some analysts say Habibie's weakness may be his saving grace, forcing open a window for change.

Habibie takes presidential oath in May 1998

"We have to acknowledge that he has made substantial concessions," Emmerson said. "He's entertained independence for East Timor. He's abolished the three-party system, the troika that sustained order all these years, and allowed anybody to organize a party. That alone is a radical, radical political change."

Fluid and confusing

Out of the 48 parties challenging Golkar, at least three are considered major forces with strong presidential candidates: Megawati Sukarnoputri's Indonesia Struggle for Democracy Party (PDIP), Amien Rais' National Mandate Party and Abdurrahman Wahid's New Awakening Party.

"The situation is likely to be very fluid and confusing," Clad said. "There will be a lot of brash, noisy first-timers getting elected and a lot of anger on the part of whoever loses. It will be a real muddle."

Clad foresees the formation of an ad-hoc coalition government, pushing for results on an issue-by-issue basis.

Major issues awaiting the new government include the tension between those who want more government adherence to Islam and secularists, and the drive for an open economy versus economic nationalism.

'Cautiously pessimistic...relatively optimistic'

Perhaps most pressing is the question of how to satisfy growing demands for regional autonomy while retaining a strong central government.

"I'm cautiously pessimistic," Emmerson said of Indonesia's first steps toward democracy. "But in the long run, I'm relatively optimistic.

"Indonesia has incredible resources -- not just oil and gas, but an incredibly resilient, creative people. Possibly, they can work this out and Indonesia could be on the way to having a relatively stable, democratic government."

NEXT STORY: Could Indonesia go the way of the Balkans?