U.S.-Federated States of Micronesia Relations
Following World War II, the islands of what is now the Federated States of Micronesia (FSM) became part of the United Nations Trust Territory of the Pacific Islands, administered by the U.S. through the Department of Interior Office of Insular Areas (DOI/OIA). The FSM became independent in 1986, when it entered into a Compact of Free Association with the U.S. that included 15 years of substantial development aid. An Amended Compact was negotiated in 2003 for an additional 20 years of financial assistance under bilateral management. The basic relationship of free association continues indefinitely.
U.S. Assistance to the Federated States of Micronesia
Pursuant to the Compact of Free Association between the U.S. and FSM, the U.S. Government provides grant and program assistance. The U.S. provides over $130 million in direct assistance every year, along with a variety of federal grants and services, until 2023. The assistance includes the progressive dedication of a portion of the aid to a jointly managed Trust Fund. The Compact’s overall goal is to assist the FSM on its path to economic self-sufficiency post 2023. A Joint Economic Management Committee, consisting of representatives of both nations, is responsible for ensuring that assistance funds are focused effectively and properly accounted for, with the aim of fostering good governance and economic self-reliance. Grant assistance under the Amended Compact focuses on 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.
Bilateral Economic Relations
The FSM's national government plays a central role in the economy as the recipient and distributor of Compact funds to the states. Subsistence farming occupies half of the adult population. Of the adults working in the cash economy, more than half are employed in the public sector, earning 58% of total national wages. Unemployment is 16%. The U.S is FSM’s largest trade partner. Total exports were only 18.5% of imports in 2013, with the trade deficit roughly equal to all of the aid provided by the U.S., China, Japan and Australia.