Nauru in grip of financial crisis

According to an opposition newsletter, the government faces foreclosure on 5 May if it does not pay a debt of 230m Australian dollars (US$169m; £94m).

Receivers seized the Mercure hotel in Sydney last week, which Nauru owns and has been trying to sell.

President Rene Harris has reportedly travelled to Australia to salvage the last of the country's funds there.

But attempts to put Nauruan finances back on track have been hampered by gridlock in parliament, the latest in a string of crises to hit the island in recent years.

All at sea

The latest crisis relates to a debt Nauru owes to GE Capital, the investment arm of US corporation General Electric.

GE Capital arranged financing for Nauru's Australasian property portfolio, and had been asking the islanders to sell some or all of their property.

Nauru Phosphate Royalties Trust, the island's overseas investment vehicle, had been dragging its feet over selling the Mercure, prompting GE Capital to call in the receivers.

The Trust's once-extensive portfolio has dwindled in recent years: it now owns only a suburban Sydney shopping centre, as well as its headquarters and a derelict tavern in Melbourne.

According to the "People's Voice", a newsletter which claims to speak for opposition politicians, Nauru has been given until 5 May to redeem its debts to GE Capital.

Paradise lost

The crisis is the latest in a string of catastrophes.

Nauru's rich reserves of phosphates - an ingredient for high-grade fertiliser - created enormous wealth during the 1970s and 1980s.

The island's 10,000 inhabitants enjoyed one of the world's highest standards of living, as well as exemption from tax and immigrant labour to perform all menial jobs.

But once the phosphates started to run out, Nauru's finances collapsed - and it has emerged that much of the money salted away in investments has been either lost or stolen.

Infrastructure has collapsed, and payment problems have frequently led to the island being cut off from supplies, including fresh food.

And unpaid bills mean that Nauruans, among the unhealthiest people in the world after decades of prosperous idleness, are no longer able to fly to Australia for subsidised medical care.

Policy problems

The island has made strenuous attempts to diversify its economy.

A major shift into offshore financial services during the 1990s seemed promising, but has resulted in Nauru becoming a major haven for organised-crime financing - and being blacklisted for money laundering by both the US Government and international bodies.

Policy-making has been hampered by chronic instability.

Governments have come and gone, and the parliamentary speaker resigned earlier this month, pitching the legislature into paralysis.

Last year, the country's telecoms system collapsed, leading to a period of chaos marked by looting and rioting, and the complete breakdown of government services.

Seeking asylum

Over the past two years, however, Nauru has developed closer ties to Australia.

Canberra has courted controversy at home by stationing a detention centre for asylum-seekers on the island - part of its policy of keeping refugees at arm's length.

For Nauru, the deal has been a lucrative business: the Australian foreign ministry last month pledged A$22.5m in aid, and said it would be sending financial and security experts to assess the situation.

There have been reports that the island's inhabitants could be given Australian citizenship as a reward for their help with asylum.

Alternatively, there have occasionally been proposals to move Nauru's population to another unoccupied Pacific island.

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