Australia says no to quick fix for Nauru

By MARY-LOUISE O'CALLAGHAN

Australia has declined to bail out the island nation of Nauru, which is facing almost certain bankruptcy this month.

As receivers moved in on Nauru's key international property assets, President Rene Harris is understood to have approached Canberra for a short-term rescue package.

But Australian Foreign Minister Alexander Downer has ruled out any cash rescue, saying a longer-term solution to Nauru's declining phosphate revenues was needed.

"At the end of the day [we] have an obligation to keep Nauru going and to ensure that the people of Nauru have some livelihood," Downer said.

But despite vowing that Canberra "won't turn its back on Nauru", Downer would only reconfirm existing plans to send Australian officials to run Nauru's finance department and police force.

As part of this agreement Nauru will get another A$22.5 million ($26 million) in development aid over the next two years in return for extending the life of a controversial Australian-funded refugee detention centre on the island until June 2005.

The tiny island republic is facing both a constitutional and financial crisis, following a deadlock in its Parliament when the Speaker resigned in protest at the Government's failure to pass a budget.

A spokesman for the Harris Government said they were still trying to find a refinancer for a A$236 million loan with America's General Electric Capital.

The loan used the last of Nauru's once $1 billion-plus property portfolio as security.

Australian receivers PPB Group took over the Mercure, a 517-room hotel in Sydney's Railway Square 10 days ago.

GE Capital's action was designed to force Nauru to refinance its mortgage by selling the building, said to be worth up to A$80 million.

This week receivers also took over another landmark asset, Nauru House, in Melbourne.