Scoop Feature: Information filtering out of the Pacific Islands leaders’ summit today suggests Australia will bail out Nauru from its dire economic crisis. Australia’s Prime Minister John Howard told reporters today that he would agree to provide Nauru more aid but that the flow of money will have strings attached.

Howard insists that Nauru’s government – one of the world’s most unstable with six Presidents since January 2003 – improve the state of its governance. It is acknowledged that Nauru - a coral island of only 21 square kilometres with a population of around 12,000 - is beyond resolving mounting debt and the virtual collapse of its airline, which Scoop believes was not able to transport its President Ludwig Scotty to the Pacific Islands Forum in Apia, Samoa due to structural damage.

Australia’s Prime Minister John Howard at the Pacific Islands Forum, Apia, Samoa.

Scoop also understands Nauru’s airline, Air Nauru, faces further court action involving alleged financial mismanagement with proceedings expected to be before Australian courts in Victoria next month. US Export-Import Bank insists Air Nauru is liable for payment defaults and seeks to retrieve debt. Air Nauru is the sole air service to and from Nauru. Its single Boeing 737-400 aircraft has serviced Tarawa, Nadi, Brisbane and Melbourne. The airline also operated a charter service between Sydney and Norfolk Island.

Australia and Nauru are tied. Pacific leaders attending a summit meeting in Apia, Samoa are understood to have pressured Australia to take the lead on this crisis. Before the summit Howard told reporters that Australia was already doing much to assist the crippled island nation.

But much of that help involves controversy.

In August 1993 Australia and Nauru agreed to an out of court settlement that ended litigation lodged in the International Court of Justice by Nauru over Australia’s role in depleting its phosphate reserves. The settlement anchored Australia to an up-front payout of A$57 million and to a further A$50 million over a period of twenty years (approximately A$2.5 million per year).

Australia has dispatched a financial adviser and a police commissioner to Nauru and in March Nauru and Australia signed a third Memorandum of Understanding (MOU) agreeing to Australia’s unwanted refugee ‘Pacific Solution’. Nauru gets a reported A$22 million over two years for detaining the refugees in camps on the island. However, in recent weeks, after three years of detention on Nauru, Australia transferred a number of its refugees to Melbourne. This Howard government election-year-move ironically entrenches Nauru further into a state of uncertainty.

Howard forthrightly points to a flow of aid money that has propped up Nauru for the past few years.

In 2002-03 Australia provided Nauru with A$3.5 million in bilateral and regional assistance and provided approximately A$3.9 million in 2003-04. Australia has already agreed to an additional $13.5 million in 2004-05 to help Nauru stabilise the country's economy and strengthen law and order.

Today, Howard said more aid will flow but that Nauru must improve governance over its financial affairs.

Political instability has plagued Nauru for years, especially since January 2003 after Bernard Dowiyogo was elected President on January 18 2003 after Rene Harris was deposed as President in a vote of no-confidence by Nauru’s House of Representatives.

Weeks later, March 9 2003, Dowiyogo was dead. He collapsed into a coma within hours of signing a $250 million aid deal with the United States. The US promised to inject the money if Nauru agreed to cease laundering money for Russian mafia and other clandestine groups. (The USA later reneged on the deal).

Derog Gioura was speedily elected President to replace Dowiyogo.

In May 2003, Nauru moved again to elect a new President. Initially there were three candidates, each commanded six votes that resulted in a deadlock that ran for three weeks before Ludwig Scotty was elected in a second round of votes by a margin of ten to seven.

President Scotty formed a government on June 4 2003 with the support of three members of the Naoero Amo party. However, the reformist path that President Scotty’s government was adopting did not suit other members of Parliament and in a vote of no confidence on August 8 2003, Rene Harris was returned as President by a margin of nine votes to eight.

However, Rene Harris’ reign was short lived and Ludwig Scotty is back at the helm representing Nauru at the Pacific Islands Forum in Apia, Samoa this week.

Phosphate mining was Nauru’s main source of revenue since World War II, until 1970 when the island was virtually exhausted of its phosphate reserves by the British Phosphate Company (owned jointly by the governments of United Kingdom, Australia and New Zealand). Control then passed to the Nauru Phosphate Corporation and phosphate production continued to decline. Demand fell drastically in 1984. Recent estimates suggest Nauru’s phosphate will be completely exhausted by the end of 2005.

Nauru traded fishing licenses with China, Japan, Korea, Taiwan and the United States. Nauru attempted to set up a commercial milk fish farm to supply bait to Japanese long-line fishers but the enterprise collapsed with the withdrawal of its commercial partner.

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