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May 26,
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Nauru turns to dust
By Kalinga Seneviratne

SYDNEY - The phosphate-rich South Pacific island ofNauru used to be the world's richest country in terms of percapita income. Today, it is lurching toward bankruptcy.

In a nationwide broadcast last month, President BernardDowiyogo warned the country of 10,000 people that the islandrepublic faces massive debts and said its citizens will have torein in their excessive lifestyles. In short, he said that Nauruans, used to the windfall from the island'sphosphate resources, were living beyond their means.

A few days later, Nauru's parliamentarians decided to ''shootthe messenger'' by passing a no-confidencemotion that voted President Dowiyogo out of office. Dowiyogo was replaced by Rene Harris, a former chairman ofNauru Phosphate Corporation and manager of the defunct NauruPacific Lines (NPL), one of the firms Dowiyogo had described asone of the excesses of the 1970s and 80s.

The change in Nauru's presidency on April 27 was the seventh inthe last three years. These changes come at a time when Nauru has been trying tograpple with a variety of problems, most of them not exactly of the island's ownmaking.

Nauru is best known for its phosphate, a chemical compound usedas fertilizer, but this is expected to run out within the nexteight to 12 years. The phosphate is regarded as being of the highest grade in theworld and for almost half of this century Australia, New Zealandand Britain exploited these resources to the fullest.

But intensive phosphate mining has made 80 percent of Nauru's21 square km land mass unusable. A study by the Nauru andAustralian governments in 1994 put the cost of rehabilitation atU.S.$210 million, and it will take more than 20 years tocomplete.

This ecological damage prodded Nauru to file a $72 milliondamage claim at the World Court in The Hague. In 1993,Australia reached an out-of-court settlement with Nauru, agreeingto pay compensation that included a $37 million lump-sumpayment, plus $1.6 million a year over the next 20 years.

But after decades of environmental damage from the exploitationof phosphate, Nauru does not seem to have much to show for it.

At independence in 1968, the Nauru Phosphate Royalties Trust(NPRT) was created to invest royalties received for the island's exports and ensure that the benefits from its natural resources extended well beyond the last phosphate shipment.

By 1991, the NPRT had accrued assets in excess of $800 million, including real estate investments in Australia, the U.S. and Britain; a national shipping line; an airline and other ''high yielding'' investments. But today the value of these investments is believed to havedwindled to under $130 million.

''It's doubtful that anyone really knows how much is left,'' anAustralian diplomat told the Bulletin magazine recently.''Nauruans have suffered from a lack of financial expertise and aninstitutional inability to handle very large amounts of money."

The Nauruans' experience in the last few years is a lesson formany small countries which have to depend on foreign - andsometimes questionable - financial advisers who seem to create problems rather than solutions.

A few years ago, the Nauru government accepted the advice ofone of its London-based financial advisers and poured millions ofdollars into a West End musical that was a huge flop.

Another of its London advisers, Adrian Powles of the Sydney-based law firm, Allen Allen and Hemsley, is now awaiting trial on charges of allegedly stealing $60 million from the Nauru Phosphate Royalties Trust.

In December 1997, the NPRT had to fork over $26 million to an Australian property developer, after two failed court actions over the purchase of a controversial old hospital site in the Central Melbourne Business District.

The property developer, David Marriner, sold the site to theNauru government six months after buying the land from theVictorian State Government for just $8.2 million.

To refinance its troubled overseas investments, Nauru obtainedtwo loans earlier this year totaling $100 million from theTaiwanese government and the U.S. General Electric Corporation.

These loans are to be used to pay external creditors who havefinanced NPRT purchases of shopping complexes, office blocks andhotels in Australia and the U.S. They will help pay Naurucitizens' education and medical bills in Australia as well.

The loans will also be used to pay debts owed by Air Nauru,whose Boeing 737-400 plane was impounded at the Manila airport inFebruary under a Philippine court order, following claims of morethan $680,000 filed by a creditor.

To diversify its income and provide a more stable revenue basefor its economy, Nauru has been developing an offshore bankingindustry. But now, that too is under threat, as Nauru has beenaccused of facilitating money laundering by the Russian mafia.

In February, the Paris-based Financial Action Task Forcenamed Nauru as one of four Pacific nations which were the focus ofa Russian crime syndicate moving money around the world.

The Organization of Economic Cooperation and Development (OECD)is said to have warned Nauru about its offshore banking laws andthreatened to cut it out of the world monetary system.

An offshore (non-resident) banking license can be obtained inNauru for only $19,800 with an initial capital of $100,000 which can be subscribed over two years. There is no needto have local directors or any local presence, apart from aregistered office and a secretary.

The government says it has ordered a complete review of the offshore banking sector. ''My government does not condone registeredoffshore Nauruan companies or banking licenses being exploited byunscrupulous people for fraudulent or money laundering purposes,''Dowigoyo stated.

The Nauru government recently obtained a soft loan of $5 million from the Asian Development Bank to help reform its economy.

But the loan comes with a price: the government has slashed itsbudget by 60 percent and cut its public services. Nauruans willhave to pay some taxes and duties in the future, and their medicaland education expenses in Australia will no longer be fully paidby the state.

In a recent interview with BBC Radio, Nauru's Melbourne-basedpublic affairs consultant, Helen Bogdan, said the recent change inleadership reflects the people's lost confidence with thegovernment as their fortunes dwindled.Still, the mood in Nauru is one of ''cautious optimism,'' shesays.

(Inter Press Service)

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