micronesia federated states of

The Federated States of Micronesia, in the western Pacific, consist of some 600 islands grouped into four states: Kosrae, Pohnpei, Chuuk (Truk) and Yap.

Occupying a very small total land mass, it is scattered over an ocean expanse five times the size of France.

Though formally independent, in 1986 Micronesia signed a "Compact of Free Association" with the US. Under this, Washington took on responsible for defence and gained the right to set up military bases and deny other nations access to Micronesia.

In return, Micronesia received financial assistance averaging $100m per year, and the right of Micronesians to live and work in the US. Micronesia also takes its cue from Washington on foreign policy.

A renegotiated 20-year compact, worth $3.5 billion to Micronesia and the Marshall Islands, was signed by US President George W Bush in December 2003. Some of the money is being diverted into trust funds, intended to provide a financial resource for Micronesia when the compact expires.

Despite its small population and the large amount of incoming aid from the US, Japan and elsewhere, Micronesia has relatively high unemployment, a matter compounded by increasing numbers of Filipino migrant workers.

Many Micronesians live without electricity or running water, which is in short supply and occasionally has to be rationed, and the gap between rich and poor is increasing as businessmen and officials benefit disproportionately from US aid donations.

Micronesia's biggest challenge is to find a way of lessening its dependence on foreign aid. Given the islands' splendid beaches and scuba diving opportunities, tourism offers one possibility, but this is constrained by the lack of adequate infrastructure and the islands' remoteness.