The Federated States of Micronesia (FSM), situated in the Pacific Ocean, encompasses all the Caroline Islands except Palau. It is composed of four island cluster states: Pohnpei, Kosrae, Chuuk, and Yap. The FSM was formerly under US rule as part of the UN Trust Territory of the Pacific Islands. An agreement which granted internal sovereignty in free association with the USA became operational in 1986, and the Trust was formally dissolved in 1990. The islands continue to receive considerable aid from the USA.

The Micronesians are physically, linguistically, and culturally diverse. Melanesians live on Yap, and Polynesians occupy southwestern atolls in Pohnpei state. Most islanders live without electricity or running water, and many are effectively recipients of US welfare. Society is traditionally matrilineal.

Strengths

Access to US economy, especially for garment manufacture, through preferential trading rights. Construction industry is the largest private-sector activity. Tourism, fishing, and copra production. US strategic interest in Micronesia, and US budget subsidies.

Weaknesses

Dependence on USA for imports, especially for fuel. Heavy indebtedness. Acute shortage of water limits development potential. High levels of underemployment.

Under the federal structure, the president and vice president are elected from among the four "at-large" senators (one from each state) by the federal legislature. However, the power of the traditional chiefs in politics remains very strong. Increasing Micronesia's economic independence is the key political issue and has dominated negotiations since 2000 on the outline of the next Compact of Free Association with the USA.

Micronesia's most important relationship is with the USA, which administered the islands from 1947 as part of the UN Trust Territory of the Pacific Islands. Under the Compact of Free Association, the USA has exclusive control over the FSM's foreign and defense policies. Alternative funds were sought after 2001 to compensate for the reduction in annual aid likely under a revised Compact. Japan is also important, with the Tokyo government providing aid, and the FSM has recently cultivated strong links with China.

Defense is entirely in the hands of the USA. Airstrips in the FSM were used by the USA in the Vietnam War.

The FSM is entirely dependent on external sources for its energy supply. Almost all electricity is produced by small diesel generators. The main resources are copra and valuable fish stocks, especially tuna.

The FSM does not face pollution on the scale of that in the neighboring Marshall Islands. However, an oil leak in 2001 from a World War II wreck endangered wildlife in Yap. Chuuk suffers serious droughts. The growth of marine-based tourism is monitored by the South Pacific Environment Program, which aims to promote sustainable development.

The inauguration in 2000 of flights by a Boeing 737 opened the way for greater air traffic between the islands. Shipping is mainly used for bulk cargoes and copra. Some island roads are surfaced with coral.

Basic health care is accessible to all. Diabetes and drug abuse are growing problems. An increase in imported food has led to dietary problems.

Education is compulsory between the ages of six and 14 years. Most university students are supported by US grants and a large number attend US colleges.

Crime is rare and the outlying islands are crime-free. Some alcohol-related assault occurs on Chuuk.

The gap between rich and poor is increasing as Micronesia's businessmen and local officials exploit US aid donations.

Outlying islands remain untouched and unspoiled. Chuuk's underwater war wreckage and Kosrae's beaches attract visitors. Lack of infrastructure tends to hinder the growth of tourism.

The Caroline Islands were first colonized by the Spanish. Sold to Germany in 1899, the islands were occupied by Japan from 1914 and served as an important base in World War II. US control began in 1945.

• 1947 UN Trust Territory of the Pacific Islands established.
• 1979 Becomes independent.
• 1986 Compact of Free Association with USA operational.
• 1990 Official termination of trusteeship agreement.
• 1991 Joins UN.
• 1999 Leo Falcam elected president.
• 2001 Submerged remains of the USS Mississinewa causes oil leak in Yap.