The Carolinian archipelago was sighted by European navigators in the 16th century. In 1686 the Spanish captain Francisco Lezcano named Yap Island "La Carolina" after King Charles II of Spain; the name was later generalized to the islands as a whole. Until the end of the 19th century, the islands were under Spanish colonial administration. In 1899 following the Spanish-American War, Spain sold the islands to Germany. Japanese administration commenced at the end of World War I, and in 1947, following World War II, the four states of the FSM came under US administration as part of the UN Trust Territory of the Pacific Islands. Beginning in the 1960s, the people of Micronesia began making clear their desire for political independence. The United States, ever interested in maintaining good relations with the strategically significant Pacific islands, gave in to such demands and helped Micronesia to form a consultative body called the Congress of Micronesia in 1967. The congress declared the area sovereign in 1970. The history of the FSM as a political entity began on 12 July 1978, when a constitution drafted by a popularly elected constitutional convention was adopted; it went into effect on 10 May 1979. The government of the FSM and the government of the United States executed a Compact of Free Association in October 1982; in November 1986, that compact went into effect. Under the Compact of Free Association, the United States is responsible for defence and security issues. The UN Security Council voted in December 1990 to terminate the FSM's status as a UN Trust Territory. A new capital was built about 10 km southwest of Kolonia in the Palikir Valley; it has served the FSM since 1990.
The FSM became an independent state and joined the UN in September 1991. John R. Haglelgam of Yap was elected FSM's president in 1987. In May 1991 Bailey Olter of Pohnpei defeated Haglelgam and was elected president. On 11 May 1995 Bailey Olter was reelected to a second term as president and Jacob Nena was reelected to a second term as vice-president. On 18 July 1996 Olter suffered a stroke and underwent treatment in Texas. Nena served as acting president while Olter was incapacitated. When Olter was unable to resume his duties, Nena became the FSM's fourth president on 8 May 1997. In a new election Leo A. Falcam, of Pohnpei, was elected vice president. In the May 1999 elections Falcam was elected president and Redley Killion, of Chuuk, was elected vice president.
The Compact of Free Association between the FSM and the United States expired in 2001. Negotiations to replace the compact started in 1999 and were extended for a further two years. Under a new agreement, to be signed in 2003, ongoing grant assistance would be provided for a period of 20 years. Prior to beginning negotiations and before any other assistance was considered, the United States requested a full accounting of the approximately $3 billion in US funding provided to FSM since 1986. During further discussions of the Compact in 2000 the United States suggested that restrictions on Micronesian immigration may be tied to future funding.
Also in the late-1990s and into the new millennium, global warming and the possibility of rising sea levels have raised concern over the long-term prospects for the islands in the middle of the Pacific Ocean. The Intergovernmental Panel on Climate Change has suggested that the sea could rise 18 inches by 2100, but that figure could be much lower or higher. For countries that rise a short distance above sea level, their existence may be threatened.