Due to FSM's special relationship with the United States and the country's dependence on international aid, domestic and foreign issues are closely intertwined. If the nation was to continue to enjoy its present standard of living following the 2001 end to the CFA, internal sources of revenue must be greatly increased. Falcam has understood that this involves reducing the size of government and encouraging private enterprise wherever possible. This domestic policy, however, has inevitably meant seeking foreign financial assistance.
There are an estimated 6,500 government workers at the national and state levels in FSM. In order to reduce the cost of governing the country, and increase revenues, Falcam planned to privatize postal services and increase taxes. The rate to receive a valid passport was raised by 230%, from US $15 to US $50. These measures, however, went only part of the way towards shoring up the FSM economy in the event that foreign aid from the United States is cut. In a visit to China during March 2000, President Falcam obtained US $150,000 in economic aid and a 600-ton ship in return for FSM's commitment to the One China Policy in the Taiwan conflict.
Falcam also recognizes the potential of the fishing industry to put the nation on a firmer economic footing. The FSM collects close to US $30 million each year in license fees from foreign fishing fleets, especially from Japan, South Korea, Taiwan, and the United States. The FSM obtained a US $934,000 technical assistance grant from the Asian Development Bank (ADB) to modernize its fisheries sector management. The grant will be used to coordinate the efforts of government, private sector, and other agencies concerned with fishing. Falcam's long-range goal is to create a business with good equipment, personnel, and accounting principles, which can be turned over to the private sector—free of government involvement. Falcam wants to encourage similar privatization in developing tourism and agriculture. One sector of the tourism industry that is particularly lucrative is diving.
Global warming and rising sea levels are issues of primary concern for the FSM. It has been estimated that sea levels could rise 18 inches (46 centimeters) by 2100.
Fourteen amendments to the Constitution were to be voted on in a referendum held in March 2003. They included provisions for dual citizenship; an increase in the number of members of Congress and limits to their terms of office; the direct election of the president and vice-president; and new numbers of votes needed to pass bills in Congress and to override a presidential veto.