Modern-day Nauru
As its phosphate stores began to run out (by 2006, its reserves were exhausted), the island was reduced to an environmental wasteland. Nauru appealed to the International Court of Justice to compensate for the damage from almost a century of phosphate strip-mining by foreign companies. In 1993, Australia offered Nauru an out-of-court settlement of 2.5 million Australian dollars annually for 20 years. New Zealand and the UK additionally agreed to pay a one-time settlement of $12 million each. Declining phosphate prices, the high cost of maintaining an international airline, and the government's financial mismanagement combined to make the economy collapse in the late 1990s. By the new millennium, Nauru was virtually bankrupt.
In December 1999, four major United States banks banned dollar transactions with four Pacific island states, including Nauru. The United States Department of State issued a report identifying Nauru as a major money laundering center, used by narcotics traffickers and Russian organized crime figures.
President Bernard Dowiyogo took office in April 2000 for his fourth and, after a minimal hiatus, fifth stints as Nauru's top executive. Dowiyogo first served as president from 1976 to 1978. He returned to that office in 1989, and was re-elected in 1992. A vote in parliament, however, forced him to yield power to Kinza Clodumar in 1995. Dowiyogo regained the presidency when the Clodumar government fell in mid-1998.
In 2001, Nauru was brought to world attention by the Tampa affair, a Norwegian cargo ship at the centre of a diplomatic dispute between Australia, Norway and Indonesia. The ship carried asylum seekers, hailing primarily from Afghanistan, who were rescued while attempting to reach Australia. After much debate many of the immigrants were transported to Nauru, an arrangement known in Australia as the "Pacific Solution". Shortly thereafter, the Nauruan government closed its borders to most international visitors, preventing outside observers from monitoring the refugees' condition.
In December 2003, several dozen of these refugees, in protest of the conditions of their detention on Nauru, began a hunger strike. The hunger strike was concluded in early January 2004 when an Australian medical team agreed to visit the island. Since then, according to recent reports, all but two of the refugees have been allowed into Australia.
During 2002 Nauru severed diplomatic recognition with Taiwan (Republic of China) and signed an agreement to establish diplomatic relations with the People's Republic of China. This move followed China's promise to provide more than U.S. $130 million in aid. In 2004, Nauru broke off relations with the PRC and re-established them with the ROC.
Nauru was also approached by the U.S. with a deal to modernize Nauru's infrastructure in exchange for suppression of the island's lax banking laws that allow activities that are illegal in other countries to flourish. Under this deal, allegedly, Nauru would also establish an embassy in China and perform certain "safehouse" and courier services for the U.S. government, in a scheme codenamed "Operation Weasel". Nauru agreed to the deal and instituted banking reform, but the U.S. later denied knowledge of the deal. The matter is being pursued in an Australian court, and initial judgments have been in favor of Nauru.
The government is desperately in need of money to pay off salary arrears of civil servants and to continue funding the welfare state built up in the heyday of phosphate mining (Nauruans pay no taxes). Nauru has yet to develop a plan to remove the innumerable coral pinnacles created by mining and make those lands suitable for human habitation.
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