Nauru - Domestic policy

Every incoming president in the 1990s stressed the necessity for fiscal responsibility and careful management of available resources as phosphate revenues come to an end. Harris is no exception. Although he has yet to put forth any specific proposals, critics of the country's economic policies have commented on Nauru's lack of any tariffs, income, or sales taxes. Imposition of such taxes would be a major move toward the kind of financial management Nauru needs. The United States and its Western allies, known as the G-7 nations, began pressuring Nauru in 2000 to make its banking system less accessible to Russian criminals looking for places to launder money. In 1989, the Western developed nations established the Paris-based organization, the Financial Action Task Force (FATF), to deal with issues of money-laundering and questionable offshore banking practices. Nauru, with a population of 12,000, has 450 banks. The central bank in Russia estimates that US $70 billion in funds generated by organized crime in Russia have flowed through Nauru's banks.

To build a tourism industry—or even to restore the environment for the benefit of Nauru's citizens—significant resources will be required. In 1989, then-president Bernard Dowiyogo challenged Australia in the International Court of Justice in The Hague over responsibility for rehabilitating mined-out phosphate lands in Nauru. A settlement was reached in August 1993; Nauru received a one-time payment of A $57 million, followed by annual payments of A $2.5 million (adjusted for inflation) for 20 years. In exchange, Nauru agreed to drop all claims against the United Kingdom and New Zealand, the other administering powers before independence.

The island relies on monthly deliveries of food and supplies, since it cannot produce what it needs to support its population. Several times in late 2001, with the country's fresh food reserves exhausted and fresh water and electricity in threateningly low supply, vessels carrying supplies refused to deliver them because of the government's unpaid debts.

In late 2001, a A $20 million payment received from the Australian government in exchange for Nauru accepting 700 Iraqi and Afghan refugees destined for Australia helped to bail Nauru out of its financial problems. Australia also paid to keep the power supply going through the spring and wrote off about A $1 million to settle Nauru's past-due Australian hospital bills. Even with the substantial funds, however, from Australia, Nauru was ill-equipped to deal with the Afghan and Iranian refugees who had been attempting to reach Australia.

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