The Federated States of Micronesia (FSM) is a small developing country with a total national population of 108,490 scattered over some 607 widely dispersed islands in the Caroline archipelago which lies in a broad east-west swath across 965,250 square miles of the western Pacific Ocean north of the equator and about 2,500 miles south-west from Hawaii. The FSM is a constitutional federation incorporating four states (from east to west); Kosrae, Pohnpei, Chuuk (formerly Truk) and Yap.

As a political entity distinct from the United Nations Trust Territory of the Pacific Islands, the Federated States of Micronesia did not exist until 12 July 1978 when voters in the four districts that would become the states of the FSM ratified their constitution. Following national elections, the present structure of national and state governments was installed and the Constitution took effect on 10 May 1979. In 1982, the government of the FSM and the government of the United States executed a compact of free association which, following a local plebiscite in 1983, came into effect in 1986 when then U.S. President Reagan signed the Compact -- the trusteeship which had existed since 1947 was then declared terminated. "Official" termination of the trusteeship over the FSM by the United Nations Security Council did not take place until 22 December 1990. Less than one year later, on 17 September 1991, the FSM became a full member of the United Nations. Under the existing compact of free association, the U.S. retains certain defense obligations and access rights in exchange for financial grants to the FSM. The compact has an initial life-span of 15 years and is renewable.

The FSM has three levels of government: national, state and municipal. In addition, traditional governance continues to play a major role. Both state and national political leaders are elected by popular vote consisting of all citizens 18 year and older. Under its federal political system, the national government exercises certain powers expressly delegated to it by the constitution as well as powers which are of such an indisputably national character as to be beyond the power of a state to control. Notable among these is the exclusive power of the national government to conduct foreign relations, which includes relations with the United States.

The national government is headed by a President and a Vice President who are elected for four-year terms from among the National Congress. The president and the vice president cannot be from the same state. Upon election, the president and vice president automatically vacate their seats in the congress and replacements are chosen in a special state election. The president, in turn, appoints a cabinet. Other principal officers of the executive branch are appointed by the president with the advice and consent of the congress. Of the fourteen members of the unicameral congress, ten are elected proportionally to serve two-year terms, with five senators from Chuuk, three from Pohnpei, and one each from Yap and Kosrae. The other four senators represent the four states, one from each state, and serve four-year terms. The principal officers of the Congress are the Speaker, the Vice Speaker, and the Floor Leader.

The national judicial branch consists of a Supreme Court, headed by a Chief Justice and not more than five Associate Justices. Justices are appointed by the president with the advice and consent of the Congress and serve for life. The Court consists of a trial and an appellate division. The judiciary in the FSM functions as a fully independent branch of government.

The four states of the FSM have a great deal of control over their internal governance, including the power to make external contracts. State governments are also divided into executive, legislative and judicial branches. The state executive branch is headed by a governor and a lieutenant governor elected by popular vote for four-year terms. Each state also has executive agencies performing a variety of functions, including resource and development, health, education, public safety, public works, public affairs, finance, planning and budget, and personnel. The elected state legislatures, like the National Congress, are unicameral. All four states have their own state supreme courts.

Municipal government exists at the village level. Municipal leaders are most often village chiefs, though some are elected officials. Municipal governments have taxing authority and are able to regulate the operation of local businesses. It is important to note that the FSM's system of government recognizes a role for traditional leaders and customs. For example, Yap's state constitution provides for two councils of traditional leaders, one (the Council of Pilung) composed of traditional leaders from Yap proper, and the second (The Council of Tamol) is composed of chiefs from the outer islands. The councils play an important role in government, particularly in the selection of candidates for political office. Councils also have the right to review and veto any legislation affecting traditions and customs. The other FSM state constitutions also give similar recognition to traditional leaders.

There are, as of yet, no political parties in the FSM. Legislators tend to vote for the interests of their state which has at times created much acrimony in the Congress. In 1991, Bailey Olter was elected President and after long and rigorous congressional confirmation hearings, swore in the last six of his cabinet officials in mid-1992. Under President Olter's administration, the FSM has joined the International Monetary Fund and the World Bank as well as instituting a "one China" policy officially recognizing the People's Republic of China to the exclusion of Taiwan (but allows free commercial contacts between FSM and Taiwan).

The FSM's primary source of income is the United States, through budgetary grants and aid made available by the Compact of Free Association. From 1986 to 1991, the FSM received US$60 million annually. Under the compact formula, this was reduced to US$56 million annually for the second five year period, with the final five years of compact funding reduced to US$40 million. Other sources of income have been aid from Japan, Australia, New Zealand, and the People's Republic of China. There is some scope for earnings from the export of timber, fish (mostly tuna), and under sea minerals, but these remain relatively underdeveloped or not exploited at all. Presently, the FSM hopes to raise income from tourism developments and promotions (such as "eco-tourism") which are currently underway. The omnipresent issue in the FSM, however, continues to be whether or not to press the US for more aid and a closer relationship (such as commonwealth) when the present compact comes up for renewal -- favored by Chuuk state leaders -- or to take a more independent stance -- favored by Pohnpei leaders. The terms of the present compact and any talk of closer ties with the United States still generates friction over issues of financial dependency, bureaucratic restrictions, trade and fishing disagreements, as well as anxieties over US nuclear and chemical weapons. Separatist tendencies in Pohnpei state, and divergent overseas economic contacts by the state governments, raise the possibilities of incoherence in national foreign policy and, if disorder results, declining attractiveness to investors and tourists, and the specter of exploitation by swindlers, drug traffickers and/or organized crime.