Dev Nadkarni: Nauru claws its way back from poverty

from The New Zealand Herald

Tomorrow, 4000 voters will elect a government for the world's smallest island republic, Nauru. No country has seen a more rapid reversal of its fortunes than the tiny Pacific Island state in Micronesia.

Until the early 1990s it rubbed shoulders with the United States, Japan and Germany, matching their per capita incomes. Its population of about 10,000 was among the wealthiest in the world. But in less than a decade it found itself on the verge of ruin and today is almost completely dependent on foreign aid to pay its bills.

Nauru's legendary wealth came from its rich phosphate deposits - formed by bird droppings over centuries - that have been mined since the early 1900s. The mining companies - mainly from New Zealand, Australia and Britain - paid Nauru royalties for the phosphate they shipped out.

Well aware that it was a non-renewable and finite resource, the state set up the Nauru Phosphate Royalties Trust in 1968 to manage the ballooning fund and make good investments on behalf of its people.

But mismanagement, political interference and vested interests saw the investments turn bad when the country most needed them. The phosphate earnings began dwindling in the 1990s and by the turn of the century mining had all but ground to a halt.

The island has no other natural resource and much of its land is useless because of indiscriminate mining. Seeking compensation for ecological degradation, Nauru took the New Zealand, British and Australian Governments to the International Court of Justice at The Hague in the early 1990s. The claim was settled out of court with the three nations contributing to the payout.

Shortly after, Nauru tried to emulate the success of offshore financial centres in the Western Hemisphere. But these plans came unstuck as such centres came under increased scrutiny over allegations of international money-laundering.

Nauru happened to be one of the four Pacific Island states banned by United States banks in 1999.

Nauru is completely dependent on imports. Until recently it even imported drinking water. It now has reverse-osmosis and desalination plants but their operations are curtailed by the severe shortage of electricity, which in turn is because of low fuel reserves on the island, where all the generators are diesel-powered.

Power is rationed and its distribution is rotated around the island in blocks of six hours. This, however, is a vast improvement over previous years when the whole island went without power and water for days at a stretch.

Last December, Japan granted Nauru the equivalent of $1.2 million to help it pay its fuel bills, which made up half its total budget. With aid from the European Union, it is setting up alternative energy generating systems.

On the international front, Nauru has vacillated between supporting Taiwan and China, now having cast its lot with Taiwan, which is a major aid donor and helped it buy a passenger jet last year.

Nauru's recent political history has been turbulent, with governments lasting only a few months - sometimes only weeks - because of intense political manoeuvrings. The incumbent Government, headed by President Ludwig Scotty, has proved an exception, having lasted its full term of three years.

Mr Scotty and his supporters were voted to power in October 2004 on a popular anti-corruption and anti-mismanagement plank. Previous regimes had brought the island state to the verge of bankruptcy, with an Australian think tank even suggesting early that year that Nauru should relinquish its independence and join Australia, which runs a refugee-processing centre on Nauru where asylum-seekers and refugees who land on Australian shores are sent pending processing by immigration.

Soon after it was elected, the Scotty Government embarked on an elaborate reforms programme based on a 20-year sustainable development strategy.

Despite widespread consultations with people on the island the programme is far from complete.

Its successful completion in the next few months is Mr Scotty's main plank for seeking re-election.

An elected parliamentary standing committee on constitutional review is guiding the reforms process and a review of the 39-year-old constitution. The people of Nauru demanded the review having realised there were not the necessary safeguards to prevent mismanagement and non-accountability by elected representatives.

Finance and Trade Minister David Adeang says the Government needs the support of two-thirds of the people to push the reforms to completion. Many of the candidates contesting this election are from the standing committee. And several politicians who have been accused of mismanaging the trust fund and giving themselves high salaries and perks are seeking re-election as well.

Despite the mining industry's halt in the early 2000s, phosphate still calls the shots in Nauru.

The reforms promise better management of what remains of the trust fund - which is thought to have shrunk to about $69 million - and a greater rate of return for the people.

Last year, an Australian company found that there were considerable secondary phosphate deposits on the island - enough to be mined for two or three decades. It invested about $6.9 million to set up a mining operation but ran into some trouble with allegations of its equipment having been sabotaged by what the Government identifies as its political opposition. The operation, however, did export some shiploads, one of them to India.

There is some speculation on the island on why the elections were brought forward by a couple of months. The payment of Ronwan, which is the interest on the trust fund's investments that is paid to the people, is due soon.

Observers say the Government has played on the people's insecurity as regards this payout.

The general perception is that the continuation of the Scotty Government will ensure payment on time.

Polls in Nauru are a family affair because many people on the island are part of extended families and have relative overseas.

"They're making family visits while campaigning and some are gifting money, as is quite normal," one resident says.

"I know one family received $2000 - after a candidate failed to answer a question." Eighty candidates will vie for the 18-member House this Saturday, when a Pacific Islands Forum Secretariat team will monitor the polling.

It is not known if it will take cognisance of the rather unusual pre-poll campaigning tactics.

* Dev Nadkarni, based in Auckland, is editor of news website islandsbusiness. com