Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

FEDERATED STATES OF MICRONESIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of January 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: June 24, 1993.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictionsNo.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of the Federated States of Micronesia is the U.S. dollar.
Exchange rate structureUnitary.
Classification
Exchange arrangement with no separate legal tenderThe authorities do not buy or sell foreign exchange. Foreign exchange transactions are handled by the two commercial banks that are authorized foreign exchange dealers and are regulated by a statutory banking board. The banks may buy and sell foreign exchange at the rates quoted in international markets.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketForward transactions may be conducted through commercial banks without restriction.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payments arrangements
Regional arrangementsMicronesia participates in PACER and PICTA.
Administration of controlNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadThe dollar is used as domestic currency, and no distinction is made between accounts in dollars held domestically and those held abroad.
Accounts in domestic currency convertible into foreign currencyThe dollar is used as domestic currency, and balances may be converted into foreign currency without restriction.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresImporters must obtain a business license.
Negative listImports of certain products are prohibited for environmental, health, safety, or social reasons.
Import taxes and/or tariffsThe following tariffs and specific duties apply: (1) cigarettes, $0.025 (the specific duty is scheduled to increase by $0.025 a cigarette January 1 of the years 2007, 2009, 2011, 2013, and 2015); (2) beverages with fruit juice content of 25% or more by volume, 3%; (3) beer and malt beverages, $0.25 per 12 fluid ounces; distilled alcoholic beverages, $12 a gallon; (4) wine, 30%; (5) imported fresh and frozen fish and seafood, 25%; (6) laundry bar soap, 25%; (7) tobacco products other than cigarettes, 50%; (8) perfume, cosmetics, and toiletries, 25%; (9) foodstuffs for human consumption, 3%; (10) gasoline and diesel fuel, $0.05 a gallon; and (11) all other imported products, except those subject to specific duties, 4%. The ad valorem duties are based on the c.i.f. value of the goods.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirements
Letters of creditn.a.
Guaranteesn.a.
Domiciliationn.a.
Preshipment inspectionThe Department of Health, Education, and Social Affairs conducts preshipment inspections of foodstuffs.
Export licensesExports are not subject to licensing requirements, taxes, or quantitative restrictions. The purchase and export of copra are conducted solely by the Coconut Development Authority.
Export taxesNo.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsNo.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating natureControls apply to all these transactions.
Bonds or other debt securities
Sale or issue abroad by residentsYes.
On money market instruments
Purchase locally by nonresidentsn.r.
Purchase abroad by residentsn.r.
Sale or issue abroad by residentsn.r.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsn.r.
Controls on direct investment
Inward direct investmentForeign investors must obtain an application from the federal government and submit it for review and action to the Foreign Investment Board of the state in which the business will be located. They must also obtain a license from the federal government to engage in business or to acquire an interest in a business in the Federated States of Micronesia. If a foreign investor wishes to conduct business in more than one state, an application for each state must be obtained from the federal government and submitted to the Foreign Investment Board of each of the states in which the business will be located and operated. Priorities for foreign investment are reviewed from time to time by the federal and state authorities.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsForeign investment in the real estate and construction sectors is prohibited in accordance with the laws prohibiting land ownership by foreigners. Foreign investors normally obtain long-term leases (usually up to 55 years with an option to renew for another 44 years) for land needed for their businesses.
Sale locally by nonresidentsYes.
Controls on personal capital transactionsn.r.
References to legal instruments and hyperlinksn.a.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Lending to nonresidents (financial or commercial credits)The statutory lending limit to any person is set at 20% of capital.
Lending locally in foreign exchangen.a.
Purchase of locally issued securities denominated in foreign exchangen.a.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsn.a.
Liquid asset requirementsn.a.
Credit controlsn.a.
Differential treatment of deposit accounts held by nonresidentsn.a.
Investment regulations
Abroad by banksDomestic banks are prohibited from investing in the stocks of any corporation, domestic or foreign.
In banks by nonresidentsForeign investment in domestic banks may not exceed one-third of available shares.
Open foreign exchange position limitsn.a.
Provisions specific to institutional investorsn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
No significant changes occurred in the exchange and trade system.
Changes during 2007
Imports and import paymentsJanuary 1. The specific duty on cigarettes increased to $0.050 from $0.025.

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