Nauru: Once Rich in Phosphates, Now Broke

The island nation of Nauru, which once had the highest per capita income in the "developing" world, is now broke. The New Zealand News reports:

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....

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.

Nationmaster.com profiles Nauru's economy.

Revenues of this tiny island have come from exports of phosphates, but reserves are expected to be exhausted within a few years. Phosphate production has declined since 1989, as demand has fallen in traditional markets and as the marginal cost of extracting the remaining phosphate increases, making it less internationally competitive. While phosphates have given Nauruans one of the highest per capita incomes in the Third World, few other resources exist with most necessities being imported, including fresh water from Australia. The rehabilitation of mined land and the replacement of income from phosphates are serious long-term problems. In anticipation of the exhaustion of Nauru's phosphate deposits, substantial amounts of phosphate income have been invested in trust funds to help cushion the transition and provide for Nauru's economic future. The government has been borrowing heavily from the trusts to finance fiscal deficits. To cut costs the government has called for a freeze on wages, a reduction of over-staffed public service departments, privatization of numerous government agencies, and closure of some overseas consulates. In recent years Nauru has encouraged the registration of offshore banks and corporations. Tens of billions of dollars have been channeled through their accounts. Few comprehensive statistics on the Nauru economy exist, with estimates of Nauru's GDP varying widely.

But Air Nauru says it will keep flying.

UPDATE: Head Heeb has more.