Nauru learning to live without wealth

By ANGELA GREGORY

It was a tiny country in the middle of the Pacific that got fat on fertiliser.

But after a century of mining, Nauru's phosphate-rich cover is all but gone and its future looks as bleak as the coral remains that scar the 21 sq km island, just south of the Equator.

It should have been different. Thirty years ago Nauru, the world's smallest republic, had the world's highest per capita income after Saudi Arabia.

But greed, corruption, poor government and mismanagement have left an ailing country on the edge of collapse.

In January, the country defaulted on a $268 million loan from US General Electric Capital. Receivers have taken control of Nauru's assets in Australia and up to 3000 foreign workers have not been paid for more than a year.

Debt-ridden, Nauru has been propping up its economy with desperate measures that include housing asylum seekers in a detention centre and selling passports and banking licences.

In Samoa a fortnight ago, the Pacific Forum heard the death rattles and agreed to try to help Nauru overcome its difficulties. The assistance is to be worked out between the forum's secretary general, Greg Urwin, and Nauru's Government.

Urwin said Nauru lacked the health, education and bureaucratic structures needed in a developing nation, its public servants had not been paid for more than five months, and food was running short.

Cook Islands Prime Minister Robert Wontoon warned terrorists would look to use Nauru as staging post for attacks should it fail as a state.

Nauru's finance minister David Adeang says cash flows are drying up, the country depends on imported food and it lacks the capacity grow its own food and return to a subsistence livelihood.

That helplessness does not wash with Australian researcher and Nauru expert Professor Helen Hughes, who today delivered a tough love message to the country which she says can still claw itself back from the verge of insolvency.

In her report, From Riches to Rags: What Are Nauru's Options and How Can Australia Help?, she says Nauru can either continue on its course to ruin or reform its society and economy.

"If Nauru reforms, it can become modestly prosperous, recover its health and self-respect, and explore long-term options."

Hughes lists immediate reforms which she believes could end the need for foreign aid to Nauru - which she describes as a "small community" rather than a country.

They are:

* Reshaping public finances by ascertaining assets, paying off all legal debts and dividing remaining money among Nauruan families to re-establish private property rights. Future revenue would be paid to private individuals, and public spending would be financed by income tax.

* Reducing the size of Nauru's parliament and making it into a local government council more in line with the size of the community it serves.

* Reducing the paid public service to a small skilled core, with volunteers taking over many present paid functions.

* Putting air transport and other services, including banking up for tender from commercial operators.

Hughes says poor diet and lack of exercise have contributed to extremely poor health among Nauru's population of about 11,000.

Nauru has among the world's highest levels of diabetes (40 per cent of the population), renal failure and heart disease, and alcoholism is a factor leading to the high number of motor vehicle accidents on its 18km of roads.

Hughes says that if Nauru does not radically reform, its population will continue to increase, its people will become sicker and poorer, and aid will be wasted.

Only "pity and blackmail" would likely squeeze out enough aid to enable Nauruans to eke out an existence.

Hughes says Nauru's plight was primarily caused by a disregard for basic economics and unsuitable political institutions and policies, but it has also been the victim of predators that preyed on the Pacific.

Nauru, like other Pacific Islands but particularly susceptible because of its wealth, had been targeted by "entrepreneurs" promising huge returns on ultimately doomed investments.

Hughes says most Nauruans did not benefit from the island's riches as paternal policies had replaced private property rights with communal funds that were mismanaged, wasted and became sources of corruption.

"Nauru's basic problem lay and still lies in the neglect of individual property rights."

Hughes also condemns the excessive political representation and lack of public accountability.

She sees the island's human resource base eroding as young people emigrate, but she believes it still has long term hope.

She says Nauru's principal asset is its 320 sq km ocean zone. Its main value is in fishing rights, but it also has strategic and security value.

And despite the years of strip-mining, Hughes still sees potential in tourism, attracting visitors to reef diving and even the bizarre moonscape legacy of Nauru's heyday.

Troubled times

* Between 1968 and 2002, Nauru earned $3.6 billion (in 2000 values) from exporting 43 million tonnes of phosphate.

* Fiscal difficulties began to emerge in the 1990s when wages for public servants fell into arrears.

* It started selling passports, and in 1998 alone is said to have laundered $70 billion for Russian gangsters.

* By 2001, Nauru had severe cash flow problems, and in 2002 the US forbade its banks to have any contact with Nauru.

* At the end of 2003, Nauru could not pay its public service wages for Christmas and was rescued by an Australian contribution of $1.2 million.

* In March this year, satellite communications were shut down for non-payment of subscription fees.

* In July, neighbouring Tuvalu sought international help to evacuate Tuvaluans from Nauru, claiming they were owed about $3 million and were being kept as virtual slaves with workers from Kiribati.

* Nauru House in Melbourne is in the hands of receivers who have given Nauru until this month to vacate the luxurious top floor used by its visiting politicians.