22 April 2004 19:23
PAC: Nauru goes from riches to brink of bankruptcy
AUCKLAND, April 22 AAP - Once, Nauru seemed to have it all. The tiny South Pacific island was the second richest
country in the world per capita, thanks to its lucrative phosphate reserves. Today, the phosphate is almost gone,
leaving most of the island a barren, mined-out moonscape. The world's smallest republic is on the brink of
bankruptcy and, once again, is in political turmoil. President Rene Harris is trying to strike a financial rescue deal
while fighting for his political survival. The Australian properties owned by the island's trust - the Nauru
Phosphate Royalties Trust - are in the hands of receivers, after American financial giant General Electric Capital
Corporation moved to recover debts of more than $A230 million. Mr Harris met with Australian Foreign Minister Alexander
Downer in Melbourne this week, apparently hoping for a short-term rescue package. But Mr Downer, while vowing that
Australia would not turn its back on Nauru, said no further aid was on the cards. Australia will provide officials to
help Nauru sort out its finances, and will send a police commissioner to the 21 square-kilometre island. Those steps had
already been agreed to in a deal earlier this year, under which Australia pledged $A22.5 million in aid over two years
in return for Nauru continuing to process asylum seekers on the island. Sydney-based Nauru expert Helen Hughes, for one,
thinks Australia has done enough. "The bottom line is Australia does not owe the Nauruans anything," said Ms
Hughes, a senior fellow at the Centre for Independent Studies. Ms Hughes, who helped Nauru negotiate a world price for
its phosphate in the 1960s, estimates the country has exported $A3.5 billion worth of phosphate since gaining
independence in 1968. She has also estimated that if Nauru as a country and Nauruans individually had wisely invested
the funds left over after subtracting mining costs, each person on the island would be worth $A15 million. "They
had this huge income," she said. "Being very conservative, they've blown between $A1.5 and 2 billion
since 1968. "And they haven't done it on their own. Every shonky financier in the world descended on Nauru,
gave them bad advice." What good advice the Nauruans did receive was disregarded, she said. About 90 per cent of
Nauru's surface has been destroyed by the phosphate mining. Substantial amounts of the phosphate funds were
invested in long-term trust funds, which have been depleted by bad investment decisions and by successive governments
borrowing heavily to fund fiscal deficits. During the 1990s, Nauru encouraged offshore banks and corporations, leading
to accusations that Russian organised crime syndicates had laundered billions of dollars. Nauru has since closed down
the banks and also stopped selling passports to non-citizens. But while its efforts led to its removal from the
OECD's tax-haven black list last December, Nauru remains on the Financial Action Task Force on Money
Laundering's list of seven non-cooperative countries. Mr Harris hopes that talks with financiers will lead to a way
out of Nauru's current financial crisis, saying the government is confident of securing a refinance proposal to
clear the existing GE Capital debt in full. Mr Harris is also facing a political crisis at home, with Nauru's
parliament deadlocked following the resignation of its speaker. One observer who has a long association with Nauru
feared the situation for the island's 12,000 residents could become desperate. "The situation has got very,
very tight in Nauru," the man, who did not want to be named, said. "They've been living in, to some
extent, a fool's paradise." The islanders mainly rely on imported foodstuffs, and there is a high level of
diabetes in Nauru. Ms Hughes has previously argued Nauru does not need aid. "If it accepts sound financial advice,
it can pay its debts and marshal its investments so that Nauruans can live in comfort and health," she wrote last
year. Many Nauruans already live in Melbourne and there has been talk of offering the island's population
Australian citizenship. Nauru was under Australian administration as a UN trust territory leading up to independence in
1968. Australia then became one of the island's key markets for its phosphate. In 1989 Nauru lodged a claim against
Australia for compensation for damage caused before independence, a suit settled out of court for more than $A100
million. While arguing Australia did not owe Nauru anything, Ms Hughes said it did have an international relations
responsibility to help sort out the situation. "I think Australia's responsibility is to sort it out because
we don't want a rogue state taken over by the mafia in the Pacific. "The way to do it is sort out their
problems and give the individual Nauruan families the money because while it's in a central fund they'll go on
fighting over it." And she had an admittedly extreme solution for Nauru's woes. "If they're really
short of money they should sell the island ... sell it to a company that will develop it for tourism, for its fishing
resources and for its mineral resources, pay them $100-200 million for it and give them an annual income. "Those
who want to can stay there and the rest can emigrate. They can emigrate to other Pacific Islands, to Australia, to New
Zealand, to America, wherever. "But there is really no case for Australia holding that baby because from '68
to the present they have been quite independent and they have consciously done what they have. "These rich families
are fighting each other for the spoils and that's why you have a hung parliament with nine people on each
side." AAP mn/sco/de
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