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Economy of Micronesia

Under the terms of the Compact of Free Association, the United States provided the FSM with about $2 billion in grants and services between 1986 and 2001. The Compact's financial terms were renegotiated for the 20-year period 2004 through 2023, with the aim of encouraging sustainable development. The United States will provide almost $100 million in direct assistance every year until 2023, which includes the systematic reallocation of a portion of the direct aid to a jointly managed Trust Fund. Additional federal grants to the FSM total approximately $35 million annually. Assistance under the Amended Compact is distributed by grants in response to a transparent FSM budget process, focusing on the following six sectors: education, health, infrastructure, public sector capacity building, private sector development, and the environment. The U.S. Department of the Interior is responsible for monitoring and implementing the Amended Compact. The FSM government sector plays a central role in the economy as recipient and domestic administrator of Compact funds. The national and state-level governments employ over half of the country's workers, with government services accounting for more than 40% of GDP. Real wages nationwide have been flat for the past decade, as has the number of jobs in the economy (about 15,500.) Private sector jobs pay about half as much as public sector jobs. The fishing industry is highly important. Foreign commercial fishing fleets pay over $16.985 million annually for the right to operate in FSM territorial waters. These licensing fees account for 28% of the national government revenues. Exports of marine products, mainly to Japan, account for nearly 85% of export revenues. Visitor attractions include scuba diving, surfing, World War II battle sites, eco-tourism, and the ancient ruined city of Nan Madol on Pohnpei. The islands have more than 22,000 tourists and visitors each year. However, the tourist industry has been hampered by a lack of infrastructure, limited commercial air connections, and a severely restrictive foreign investment climate. The Asian Development Bank has identified tourism as one of FSM's highest potential growth industries. Agriculture is mainly subsistence farming. The principal crops are breadfruit, coconuts, bananas, betel nuts, cassava, taro, and kava. Less than 10% of the formal labor force and less than 7% of export revenue come from the agricultural sector. The large inflow of official assistance to the FSM allows it to run a substantial trade deficit--imports outstrip exports by a seven-to-one ratio--and to have a much lighter tax burden than other states in the region (11% of GDP in FSM compared to 18%-25% elsewhere). The government borrowed against future Compact disbursements in the early 1990s, yielding a significant external debt, close to $60 million. In 2005, the FSM Government and Congress took positive steps toward establishing a nationwide tax system to improve collections and more fairly distribute the tax burden. Economy (FY 2008 figures) GDP: $253.5 million. GDP per capita (nominal): $2,347. National income (GDP + foreign assistance): $272.4 million. National income per capita: $2,522. GDP composition by sector: services 56%, agriculture 30%, industry 14%. Industry: Types--fishing, agriculture, tourism, construction, craft items. Trade: Exports ($14 million)--fish, kava, betel nut. Export market--Japan (21%), United States (25%), others (53%). Imports ($133 million)--food, manufactured goods, fuel. Import sources--United States (50%), Japan (11%), others (39%). External debt: $69.5 million. Currency: U.S. dollar.

Geography of Micronesia

The Federated States of Micronesia (FSM) consists of 607 islands extending 1,800 miles across the archipelago of the Caroline Islands east of the Philippines. The four constituent island groups are Yap, Chuuk (called Truk until January 1990), Pohnpei (called Ponape until November 1984), and Kosrae. The federal capital is Palikir, on Pohnpei. Official Name: Federated States of Micronesia Area: 702 sq. km (about 270 sq. mi.) in four major island groups (Pohnpei, Chuuk, Yap and Kosrae) totaling 607 islands. Cities: Capital--Palikir. Other cities--Kolonia, Moen, Lelu. Terrain: Varies from mountainous to low coral atolls. Climate: Tropical.

Government of Micronesia

The FSM is governed under a 1979 constitution, which guarantees fundamental human rights and establishes a separation of governmental powers. The unicameral Congress has 14 members elected by popular vote. Four senators at large--one from each state--serve 4-year terms; the remaining 10 senators represent single-member districts based on population and serve 2-year terms. The President and Vice President are elected by Congress from among the 4 senators at large who serve in 4-year seats. Once elected, the President and Vice President serve for four years. Their congressional seats are then filled by special elections. An appointed cabinet supports the President and Vice President. There are no formal political parties. The FSM is a confederation with a weak central government. Each of FSM's four states has its own constitution and its own elected legislature and governor. The state governments maintain considerable power, particularly regarding the implementation of budgetary policies. The FSM's highest court is the Supreme Court, which is divided into trial and appellate divisions. The President appoints judges with the advice and consent of the Congress. Principal Government Officials Head of State and Government--President Emanuel Mori Vice President--Alik Alik Secretary of Foreign Affairs--Lorin Robert Speaker of the Congress--Isaac V. Figir Ambassador to the United States--Yosiwo George Permanent Representative to the UN--Masao Nakayama FSM maintains an embassy at 1725 N Street NW, Washington, DC 20036 (tel: 202-223-4383). It also maintains consulates in Honolulu and Guam. Type: Constitutional confederation in free association with the U.S. The first Compact of Free Association entered into force in 1986, and an Amended Compact entered into force June 30, 2004. Independence (from U.S.-administered UN trusteeship): November 3, 1986. Constitution: May 10, 1979. Branches: Executive--President (chief of state and head of government), cabinet. Legislative--unicameral Congress with 14 seats. Judicial--Supreme Court. Major political parties: No formal parties.

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History of Micronesia

The ancestors of the Micronesians settled the Caroline Islands over 4,000 years ago. A decentralized chieftain-based system eventually evolved into a more centralized economic and religious empire centered on Yap. European explorers--first the Portuguese in search of the Spice Islands and then the Spanish--reached the Carolines in the 16th century, with the Spanish establishing sovereignty. The current FSM passed to German control in 1899, and then to the Japanese in 1914 Following World War II, these islands became part of the United Nations Trust Territory of the Pacific Islands, administered by the United States. On May 10, 1979, four of the Trust Territory districts ratified a new constitution to become the Federated States of Micronesia. The neighboring trust districts of Palau, the Marshall Islands, and the Northern Mariana Islands chose not to participate. The FSM signed a Compact of Free Association with the U.S. in 1986. An Amended Compact entered into force in June 2004.

People of Micronesia

The indigenous population consists of various ethno-linguistic groups. English has become the common language. The birth rate remains high at more than 3%, but the population of the four states remains almost constant due to emigration. Nationality: Noun and adjective--Micronesian. Population: 108,026. Growth rate: 0.26%. Ethnic groups: Nine ethnic Micronesian and Polynesian groups. Religion: Roman Catholic 50%, Protestant 47%, others 3%. Language: English and nine ethnic languages. Education: Literacy--89%. Health: Life expectancy--male 68.8 yrs.; female 72.6 yrs. Infant mortality rate--27.03/1,000. Work force: More than 50% of workers are government employees.
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