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January 01st 2013 print

Tony Thomas

The Naughty Nation of Nauru

In the film The Mouse that Roared (1959), the fictitious Duchy of Grand Fenwick, in the Alps, declares war on the United States. The Duchy wants to lose and then enjoy American postwar largesse. I don’t want to spoil the plot, but the Duchy stuffs up by winning.

Turn now to the nation of Nauru (population 9400), at 21 square kilometres the area of Perth’s Rottnest Island. Nauru has in real life defeated Australia (population 23 million). President Sprent Dabwido continues to dictate the surrender terms to Prime Minister Julia Gillard. When I last checked, Nauru was demanding a visa fee of $1000 per asylum seeker per month. That will cost us $90 million or so to 2017, a windfall of about $9500 per Nauruan.

Australia has propped up Nauru for a decade, thanks to asylum-seeker politics. One would expect Ms Gillard to offset the new visa fees against our $32 million annual aid. But because her surrender to Nauru was unconditional, the visa fees will be extras.

One word sums up Nauruan affairs: bizarre. It is the world’s equal-second-smallest state by population (Vatican City, population 800, is smallest, and Nauru’s fellow UN member Tuvalu is comparable). Nauru has the same clout in the UN General Assembly as China or India, hence has a valuable vote on offer.

In 1998, during the plundering of Russia’s assets, the St Petersburg mafia washed US$70 billion (plus kickbacks) through banks in Nauru. There were 450 banks, including the Panacea Bank, domiciled in the same two-room shack, staffed by a woman with a broom. From 2000 to 2003 the USA classified Nauru as a rogue state for money laundering and indiscriminate sale of passports—Nauru had sold about a thousand for a reported $1500 each, including at least a couple to Al Qaeda operatives.

Nauru today receives aid at one of the highest rates per capita ($3500 plus) in the world. GDP per capita, surprisingly, is more than $7000 per capita (equal to the Ukraine), although this seems to include the aid. Nauruans pay neither business nor personal tax, which is nice for any politicians who put aside some lazy millions somewhere during the good old days. The Australian economist Helen Hughes estimated in 2004 that Nauru from 1968 to 2002 could and should have invested $1.8 billion (in 2000 dollars) from phosphate surpluses. Instead, most Nauruans now live in near-destitution: a quarter of the children are stunted from malnutrition and half those under five are anaemic. Half the men, and more than half the women, smoke. Life expectancy is only fifty-six for men and sixty-five for women. Alcohol-fuelled violence against women is rife.

Getting priorities right, Australian bureaucrats in 2008-09 busied themselves with what they called a “successful” pilot rollout of then Prime Minister Kevin Rudd’s one laptop per child program. Schooling in Nauru was then not even compulsory. It became so in 2010, when daily school time was also raised by two hours to whatever is normal in the Pacific. Heaven knows how few hours were worked by teachers previously, in structures officially described as health hazards and with children, if they turned up, too hungry to study.

Another Australian priority for Nauru is global warming, on which two local public servants work full-time “implementing measures to address climate change” (local salary item: $15,360) with a third change-fighter planned. The evidence for the climate threat: “The people of Nauru have noticed changes in their climate. Elders sense that these changes are not normal.”

By 2004, the island was not merely broke but enormously in debt. Today, according to the New Zealand government, Nauru’s public debt is around A$869 million, though lots of debt remains undocumented or disputed.

The Australian government emits streams of debt figures for Nauru that seldom make sense. In the 2008-09 Nauruan budget, external debt was put at more than $500 million. Last October (2012) AusAid said that Nauru’s external debt had reduced from $370 million to $70 million between 2007 and 2010, but added that internal debt had risen from $265 million to $480 million, thanks to belated recognition of debts to depositors owed by the Bank of Nauru, which failed in 1998 soon after the local elite had whipped their money out. Today Nauru has no bank and no insurance company: people use cash or bank online with Australia. (Nauru’s official currency is the Australian dollar.)

Squandering of aid seems to continue. In 2011 the nation of 9400 had more than 1200 public servants, which is an improvement on the days when it had (whether notionally or in reality) more than 3000. Other estimates of public service numbers put the peak lower, at 1600. The serious government work is done by what are politely called “in-line” officials, that is, aid-paid Australian expatriates. These include Nauru’s secretary for finance (who gets more than $190,000 tax-free in supplementary aid pay) and two deputy secretaries in the Finance Ministry. They have certainly improved the national book-keeping.

Nauruans have led a sedentary lifestyle for two generations, while snacking on trashy imported food. The result is that 82 per cent of them are overweight, possibly the world record. Nearly a quarter of adults have diabetes (among Nauruan women over fifty-five: 53 per cent). While it is possible to grow fruit and vegetables on the coastal strip, Nauruans are disinclined to do so.

How Nauru became one of the world’s least-functional societies is a moral fable. The Nauruans were originally part of the canoe-based dispersion of Polynesians through the Pacific, but their single island is particularly remote. The dozen clans of Nauruans managed by fishing, farming and coconut gathering in the forested uplands. Their main problem became lethal inter-clan warfare. Nauru was never a tropical paradise, no matter what hundreds of journalists have written.

In 1886 Germans took over the island, supposedly appalled by the warfare there but also attracted by copra prospects. Ten years later, a Henry Denson took what he thought was a rock of petrified wood back to his job in Sydney with a phosphate business. For the next three years the lump served as a laboratory doorstop. In 1900 a chemist named Albert Ellis arrived and decided to test it. The rock graded at a record-high phosphate content.

Nauru’s interior uplands were found to be marine phosphate, with bird droppings as the icing on the cake. Australia administered Nauru from 1920 as part of a “sacred trust” handed down by the League of Nations. The “sacred trust” in practice involved creating a British Phosphate Commission (BPC) to sell phosphate to Australia, Britain and New Zealand at a third of the world price, with royalties to Nauruans at a halfpenny a ton.

The mining work was actually done by imported labour, particularly Chinese. Fearing a communist takeover, the Nauru on-site administrator from 1949 to 1951 received 600 units of what he quaintly called “lachrymose generators” (tear gas grenades). Canberra also despatched twenty .303 rifles and bayonets to Nauru, labelled as “merchandise”. Eventually someone found an interpreter and the Chinese turned out to be supporters of Chiang Kai-Shek on Formosa. When the administrator in 1954 tested the grenades, they were found to include six of the lethal fragmentation variety.

Around that time Australia realised the phosphate would eventually run out and the Nauruans should be settled elsewhere, in the same way that the 700 Banabans of Ocean Island (Nauru’s distant phosphate-endowed neighbour) had been resettled, painfully, on the then-British-owned Fijian island of Rabi in 1946.

First, the Nauruans refused to be disappeared into the Australian community as integrated citizens. Next up for their new home was Fraser Island, but Queensland timber harvesters scotched the plan. (How interesting if the plan had succeeded!) Third choice was Curtis Island near Gladstone, but negotiations stumbled because the Nauruans wanted the island as their new sovereign state, a version of Cuba hanging off the USA. They also wanted continued sovereignty over Nauru’s phosphate—the last thing the Phosphate Commission had in mind.

Nauruan delegations were invited to Queensland for a look-see but ran into overt racism, including insults to their wives. The exact words went mercifully unrecorded but an allied example was a Curtis Islander who talked of “punching on the nose the first n****r who comes ashore”.

Ensconced on Nauru, the Nauruans agitated instead for a better share of the phosphate earnings. The tri-nation trustees argued that their sacred trust involved giving the Nauruans what they “needed” rather than what Nauruans might expect commercially. In 1962 the Nauruans astutely recruited the Australian Council of Trade Unions and Helen Hughes to push their case, and got the phosphate price trebled to world level. Because the Phosphate Commission refused to open its books, the Nauruans’ goal switched to statehood. This was despite Nauru’s minuscule population, which even today is less than a tenth of my local municipality.

In 1968 the flags of Britain, Australia and New Zealand came down and the Nauruan flag went up. It’s a nice one symbolising the equator, the Pacific and a twelve-pointed star for the twelve clans, savouring a phosphate fortune. This revenue by 2002 totalled $3.6 billion (in 2000 dollars). The peak year was 1975 when phosphate earned $363 million, giving Nauruans a per capita GDP of $50,000, second only to Saudi Arabia.

Hughes in 2004 wrote that if the cost of production was 30 per cent and another 20 per cent was spent on private and public consumption, this left $1.8 billion (in 2000 dollars) for investment. Invested conservatively at 7 per cent a year, the capital would have grown to more than $8 billion or (assuming five persons per family) nearly $4 million per family. Instead, Nauru’s communal net assets appeared to be, at best, worth $30 million, she wrote, adding: “Some Nauruans, however, have accumulated considerable private fortunes.”

Things had started well, with investment advice from parties such as Australian consultants Philip Shrapnel & Co. However, the island became a magnet for carpetbaggers, offering get-richer-quick schemes that contrasted with the pathetic returns recommended by former colonialists.

The most famous scheme involved only petty cash, about $4 million. The Nauruans financed a musical in London’s West End, Leonardo [da Vinci], a Portrait of Love. The whole Nauruan cabinet flew up to enjoy it but it bombed in a month.

Hughes says that Nauru was advised to invest $60 million in dubious bank instruments through the law firm of Allen, Allen and Helmsley. One of Allen’s partners skipped with $6 million. The total losses were never established.

A police chief bought himself a yellow Lamborghini, although Nauru has only a few kilometres of road. When it arrived, he was too fat to get into it. The road became littered with wrecks of four-wheel-drives and Honda Goldwing bikes piled up by drunks and unskilled riders. Nauruans took to game fishing, and forgot the art of building canoes. Golf? The Bahamas beckoned.

Phosphate revenue became insufficient in the late 1990s to bankroll the Nauruan lifestyle. The politicians maintained their high life by borrowing against the trust assets. General Electric Capital Division consolidated the debt by lending $236 million against the property portfolio, and foreclosed on it in 2004. When the receivers inspected Nauru House’s penthouse in Melbourne, used as a home-away-from-home and occasional football field by Nauruan big-wigs, they found twelve crates of unopened Grange Hermitage dating from the 1970s.

Most bizarre of all was the 2003 invitation or ultimatum from the CIA to President Dowiyogo: if he wanted aid funds, could he please cease rogue state activities and help open a Nauruan embassy in Beijing? The CIA needed an embassy as a way-station for defecting North Korean generals and scientists. A Nauruan-flagged embassy car would assist the logistics. The operation’s code-name was Weasel. Dowiyogo tried to comply but Beijing smelt a rat and the embassy plan fell through. The CIA failed to deliver the promised money to Nauru, and when Nauru dunned the US government, the US government disowned its CIA negotiators. The Australian courts backed the US government.

Dowiyogo’s other foreign exchange plan, also abortive, was to saw the mined-out coral pinnacles into polished slabs and export them as coffee tables.

In waste, the daddy of them all was Air Nauru, which lost $40 million to $80 million annually until it collapsed in 2005. Nauru was also keen to buy its own ocean-freighter fleet but luckily this did not eventuate.

Air Nauru serviced twenty-nine destinations but often flew without passengers. At its peak, Nauru’s five Boeings could seat 10 per cent of the nation’s population. In Australia, that feat would require 11,500 equivalent jetliners. Sometimes fare-paid Air Nauru passengers were bumped when politicians commandeered the jets for shopping in Hong Kong. This made Nauru a chancy destination for tourists.

The airline had colourful misadventures. One of its B-737s arrived in Nauru one day in 1980 with the pilot’s face black, blue and bleeding. It had been waiting for take-off from Tarawa and a local resident invaded the plane and bashed the pilot. Why? Because during takeoffs, the 737s kept blowing the roof off the man’s grass hut.

Soon after, an Air Nauru B-727 was outbound for Kagoshima, Japan, with—as usual—no passengers, three Australian cockpit crew, a Japanese senior hostess and three indigenous hostesses, nursing hangovers. A brawl erupted when the Japanese told the team to make coffee for the cockpit. The pilot, unable to separate the combatants, dumped fuel and returned to Nauru, where two Nauruan hosties got first-aid. (The Japanese hostie practised taekwondo.)

Air Nauru by 2005 had only one plane and that was repossessed in December. This delighted Australian protocol people. Previously, Nauruan presidents (there were about twenty of them between 1968 and last year) had demanded red carpet treatment for visiting heads of state when they dropped into Melbourne by Air Nauru for indulgences.

Nauru was able to resume transport when it acquired a B-737 via Taiwanese funding as a payoff for diplomatic re-recognition. This must have galled Beijing, which had coaxed Nauru away from Taiwan only four years earlier. US diplomatic traffic leaked by Wikileaks said Taiwan had been giving Nauruan politicians $5000 a month, and other parliamentarians $2500 a month, to keep the recognition going.

By 2004 Nauru couldn’t pay its satellite phone bills, and lost contact with the world for a couple of months. Residents who, one local alleged, had used dollar notes for toilet paper, were now in shock.

The island however had turned the corner in September 2001, with Australia’s Prime Minister John Howard and his “Pacific Solution” for boat people. The Nauru solution, which began with a $20 million down payment, was so effective that the flow of incoming boat people dried up. Among the windfalls to Nauru were about $100 million in foreign aid and ad hoc largesse. Australia, for example, gave Nauru an emergency grant of $1.2 million in 2003 to pay the public servants’ Christmas wages.

Howard’s compassionate successor Kevin Rudd scrapped the Nauru solution from 2007. But because this destroyed 100 jobs for local cooks, guards and clerks, the Labor government ramped up aid to compensate.

In August 2012, the boat-beleaguered Gillard government decided that Nauru was not a suppurating hell-hole after all, and sought Nauru’s agreement to re-open the camps. As we have seen, Nauru could name its own price.

For respectability’s sake, Australia is supposed to be leading Nauru into viability, via a Nauru–Australia Partnership for Development towards Millennium Development Goals. On the ground, progress is minimal.

Nauruans have a high fertility rate of about 3.4 births per woman. I have been unable to detect any funding for official family planning initiatives—only a third of women use any contraceptives, since “they wanted as many children as possible”, and 85 per cent of female teenagers have not heard anything via the media about contraception. If health aid reduces the high death rate, the island’s population will become even less sustainable on the coastal strip.

AusAid rates “gender equality” there a fail on health, education, services and private-sector business, and only a bare pass in the public service. Child mortality, though improved, is still seven times worse than in Australia.

At the outset of independence, Nauru litigated for compensation for the degradation of its mined land. In 1993 Australia settled for the formidable sum of $57 million upfront and $50 million in instalments. In fact, rehabilitation of the porous coral uplands is virtually impossible, so heaven knows where that money went. AusAid and the politicians did design a five-year rehab program in 2007 to be run by the Nauru Rehabilitation Program. AusAid now says, without a blush, “The corporation’s focus has been on mining operations”, and concedes that mining revenue is more valuable to the islanders than land rehabilitation.

The country today is ridiculously over-governed. It has eighteen members of Parliament (no women), six cabinet ministers, and thirteen ministries. There is one parliamentarian per 500 citizens. Power in Nauru runs via personal alliances, hence the high presidential turnover.

Nauru has joined a host of international bureaucracies such as WHO and UNESCO. Those generate avalanches of unread papers but Nauru’s elite enjoy the junketing to world capitals. The forty-four-member Alliance of Small Island States (AOSIS) is currently chaired by Nauru’s Ambassador Marlene Moses.

Nauru joined the fifty-four-nation Common­wealth in 1999 but found that this group, which includes similar basket-cases, is big on talk and small on handouts. When Nauru complained about its debt burden last October (2012), the secretary general Kamalesh Sharma offered some debt-management software.

In Nauru anti-corruption drives are often announced and never successful, partly because among any five Nauruans, two are relatives. No one has ever been convicted over the scattering of $1.8 billion to the four winds.

In 2010 a rare prosecution took place over an official’s alleged misappropriation of more than $200,000, a large sum in the context of Nauru’s low public service wages. Another recent case involved two local business men alleged to have exported $102,000 cash from the island without declaration. In 2010 the local police and the Australian Federal Police opened a case involving alleged foreign bribery of local politicians, which was dropped late in 2011.

Whither Nauru? At least it now has a thriving prison industry. Helen Hughes in her paper suggested that Nauruans end their mendicant stance and seek viability through basic agriculture, tourism, and sale of fishing, internet-domain and satellite rights. Secondary-mining of phosphate has become a further source of revenue.

Hughes concluded—and it still seems valid:

If Nauru does not adopt the economic, political and social reforms that will give it a decent and healthy standard of living, aid cannot help it. Donors that succumb to pleas for aid will be taking money out of their taxpayers’ pockets and throwing it away.

She suggested Nauruans could apply for dual citizenship with Australia or New Zealand, in effect selling their island in exchange for an Australasian living standard. My own solution: offer them sovereignty over Rottnest.

Tony Thomas was once Economics Writer for The Age.