NAURU: PHOSPHATE ROLLER COASTER; ELECTIONS WITH

C O N F I D E N T I A L SECTION 01 OF 04 SUVA 000408

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/13/2017
TAGS: PREL PINR PGOV PREF EAIR ECON NR VE CU
SUBJECT: NAURU: PHOSPHATE ROLLER COASTER; ELECTIONS WITH
TOUGH-LOVE THEME

REF: A. SUVA 398

B. SUVA 402

Classified By: Amb. Dinger. Sec. 1.4 (B,D)

Summary
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1. (C) Tiny Nauru in the central Pacific suffered perhaps the
world's most dramatic lifestyle decline in recent years after
exhausting visible phosphate deposits. Currently, Nauruans
barely scrape by. Thus, a PACOM humanitarian-assistance
mission July 21-27 was very well received. There is a degree
of hope for Nauru's future because of a recently discovered
sub-surface layer of phosphates, though the nation's current
debt burden is shocking. If Nauru politicians manage
increased revenues responsibly this time, the future can be
relatively bright. If not, Nauru's only future will depend
on donors. The Scotty Government seems to have done a
reasonable job of managing adversity and instituting reforms.
Elections on August 25 will determine whether voters are
thankful or resentful for tough love. President Scotty
continues to seek a Peace Corps program, and he wants
Nauruans to obtain Guam construction jobs. Venezuela and
Cuba are collaborating on a second effort to provide medical
doctors for Nauru. Australia is the big donor, in part
because of Nauru's willingness to house South Asians who
await hearings on asylum applications to Australia. End
summary.

PACOM HA mission a big success
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2. (U) The Ambassador visited Nauru July 24-27 to observe a
PACOM humanitarian-assistance mission, attend a donor
conference, and engage in discussions with Nauru contacts.
The military HA mission was a great success, with outstanding
interactions at hospitals, in schools, and even with a group
of workers learning how to remove asbestos from buildings.
President Scotty was impressed. He noted that even a
political opponent, former PM Rene Harris, had phoned to
compliment the U.S. team. Two U.S. Army doctors had
consulted with Harris very helpfully about his kidney
dialysis.

PCVs, GSP, Guam jobs, and concerns about Fiji
--------------

3. (U) Per ref A, President Scotty reiterated his interest in
Nauru receiving Peace Corps Volunteers. He expressed
appreciation for EAP A/S Hill's recent letter on that topic.
We noted communications between USTR and the Nauru Mission in
New York about how Nauru can gain eligibility for GSP
benefits. Scotty raised, as have leaders in Tuvalu and
Kiribati, a strong interest in sending workers to Guam for
the coming construction projects. We assured that Washington
will keep the region informed of developments. Scotty and
Minister Adeang noted that Fiji is regionally important for
education and health care. Adeang expressed concern that the
military is destabilizing Fiji politics, and he noted that
interim PM Bainimarama "makes strange decisions." Adeang
said, after the Pacific Islands Foreign Ministers meeting on
Fiji in Vanuatu, Bainimarama thanked Nauru's High
Commissioner in Suva (Adeang's father) for Pacific Ministers'
understanding. He had expected worse.

Elections moved up to August, and why
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4. (C) Nauru was due to hold general elections in October,
but the Scotty team decided in mid-July to move the date up
to August 25. Reasons include that: (1) recommendations from
a constitutional review require 2/3 parliamentary approval,
12 of 18 votes; but the Scotty Government currently can be
assured of only 11 votes; (2) plans are in place for a major
AUSAID infusion of funds to re-energize Nauru's phosphate
industry, but Australia reportedly wants assurance that a
responsible government will be in place before committing;
and (3) evidence was accumulating of PRC efforts to help
Scotty opponents win the election, with the aim to shift
Nauru's allegiance from Taiwan to China. Moving the election
date forward would reduce the opportunity for such PRC
conniving (see ref B).

Scotty reform team expects victory

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5. (C) President Scotty and his team expressed confidence
they will win the election. The Australian Consul General
and the Taiwan Charge, the only foreign diplomats resident on
Nauru, predicted a Scotty win also. However, the political
game in tiny Nauru is very local. The Scotty group won the
2004 elections on a reform agenda, stressing that, for Nauru
to survive economically, it was necessary to scale down
government and clean up past corrupt and wasteful practices.
Scotty imposed a drastic public-sector pay cut to A$140
biweekly across the board. The predecessor Harris Government
had maintained high wages, but had failed to pay those wages
for months on end. The Scotty Government worked diligently
to correct past passport-sale, offshore-banking, and offshore
corporate-registry schemes. Relatively automatic medical
referrals and student scholarships to Australia ended. More
effort has gone into providing basic medical care on Nauru,
with any absolutely necessary referrals going to Fiji.
Scholarship students also now go primarily to Fiji.

Will suffering voters blame Scotty, or the old crowd?
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6. (C) All that made sense from a "good governance"
perspective; but the reforms really hurt individual
pocketbooks, and life-style changes have been acute.
Political opponents, particularly former PMs Harris and Kinza
Clodumar, have issued scathing news sheets, arguing such
severe measures were not necessary and alleging the Scotty
group, itself, has been corrupt, receiving Taiwan bribes.
Whether the Scotty group has convinced Nauru voters that its
medicine was necessary will be a key issue in the election
campaign. There are reports that PRC agents have brought in
A$40,000 to influence voters. Other reports suggest
Clodumar, who lives most of the time in Melbourne and is
rumored to be one of the wealthiest people in the State of
Victoria, recently returned with A$200,000 of personal funds
for opposition campaign activities, including his own race.
Just before Parliament adjourned in July, the Scotty
Government announced modest public-sector wage increases, and
it hosted a donor conference on July 26 at which it described
progress made on the reform agenda and received compliments
from donors, especially from Australia (see para 11).

An astounding debt load
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7. (C) Nauru's decline from first-world to third-world status
was partly due to exhaustion of phosphate reserves and partly
due to remarkable profligacy by politicians and government
managers. Assets worth A$2 billion in the mid-1990s have
plummeted. All that remains is a trust fund with A$70
million reserved for landowners, dwarfed by Nauru debts
estimated to be A$1 billion. About 2/3 of the debt is owed
to Nauruans, 1/3 to a Japanese bond trust. The Scotty
Government hopes to renegotiate those debts down to cents on
the dollar, since A$1 billion is roughly 2400% of GDP and
cannot possibly be serviced. Where did A$3 billion go? The
Scotty Government is exploring criminal and/or civil court
cases against allegedly corrupt former officials, in
particular the Clodumar and Dowiyogo families, though we hear
Australian lawyers are doubtful that sufficiently clear
evidence can be produced. To an extent, Nauru simply spent
extravagantly, never worrying about tomorrow.

A new phosphate hope
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8. (C) The discovery within the past two years of another
layer of phosphate deposits beneath the mined-out limestone
crags that cover 90% of the island offers hope of a second
chance. Commerce Minister Pitcher said an Australian company
is investing millions, and Nauruans, who used to shun manual
labor, now are lining up for jobs at the mine site. An
AUSAID study estimates 20-30 years of phosphate reserves
worth at least A$600 million hide beneath the surface, around
500,000 tons per year that can add A$15 million to annual
GDP, doubling the current figure. Pitcher predicted a
long-term net of at least A$150 million for Nauru, which if
wisely invested could allow a trust fund worth $1 billion in
thirty years. Note: The plan is for Nauru's portion of the
take to be divided among payments to landowners, payments to
a land-rehabilitation trust fund, tax contributions to
Government, and contributions to a new, inviolable, long-term

SUVA 00000408 003 OF 004


trust fund. It was not at all clear what portions of the
total would flow into each. We pointed out during the donor
conference the importance of ensuring that the long-term
trust fund is well-endowed for the day when phosphates are
again exhausted. The Scotty Ministers promised to provide a
clearer picture in writing, but have not done so as yet.

Venezuelan and Cuban assistance
--------------

9. (C) The Venezuela Charge from Canberra attended the donor
conference. He was quiet, except to confirm that his
government plans to build and maintain facilities to support
the return of Cuban doctors to Nauru. When Cuban MDs first
arrived a few years ago, they reportedly had English-language
problems and Nauru couldn't fund "ancillary expenses" as
promised. The program quickly died; but it is due to resume,
with the Venezuelan assistance. We heard from Nauru MFA that
Venezuela invited all Pacific Chiefs of Mission headquartered
in the U.S. to Caracas in July for a meeting to discuss how
Venezuela can best utilize US$2 million to assist the region.
A Pacific Forum interest in regional "bulk fuel" purchases
was a possibility. Nauru had also heard that Fiji might be
interested in hosting an oil refinery for the region.
Minister Adeang noted that Nauru, with its glaring needs,
will accept assistance from anyone, though he added that
President Chavez's UNGA speech last year "didn't help him
much."

Australian aid and the asylum-seeker connection
-------------- --

10. (SBU) Australia is the big fish in Nauru, in part because
of colonial-era phosphate connections and in part because of
recent arrangements for Nauru to house South Asians (lately
Sri Lankans and Burmese) seeking asylum in Australia pending
the hearing of their cases. The number of such asylum
seekers in Nauru is back up to around 100 after briefly
zeroing out. The camp, overseen by the International Office
of Migration (IOM),is reasonably comfortable, surely more
hospitable than most such camps in the world, with good food
and an open gate during the day. Nauruans reportedly are
friendly to the asylum seekers. The only recent troubles
have been fights between groups of Sri Lankans. Australian
FM Downer visited Nauru in early July and signed a two-year
aid extension worth A$15 million annually. Much of that aid
is "in kind" support: Aussie staff assisting in various
ministries. Provision of the aid depends on meeting
benchmarks for reform, but we heard the terms are "easily
met." Downer reportedly likes the Scotty Government and wants
it to stay in office.

Aussie compliments on governance reform
--------------

11. (U) At the donor conference, Australia's High
Commissioner (resident in Suva) complimented Nauru's
significant progress on financial management, governance, and
accountability, which can be a "best-practice model" for the
region. The Chairman of the Nauru Parliament's Public
Accounts Committee described particular "good governance"
reforms, some in place, some being prepared for
implementation, all aimed to prevent a recurrence of past
malfeasance, which the Chairman describe as the "one billion
dollar shaft." The Scotty Government removed all MPs from
boards of government corporations. That reportedly came as a
shock to some who had become used to double-dipping.
Constitutional amendments awaiting ratification would
establish a leadership code accompanied by a commission to
monitor results and a new ombudsman position. A new Director
of Audits would be created to report directly to Parliament.
Nauru Ministers noted the lack of qualified auditors in small
island states and suggested that donors should consider
helping the region establish a pool of such auditors to be
shared.

"Our Airline" and its issues
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12. (U) At the donor conference, Transport Minister Keke
acknowledged that "Our Airline," with a Boeing 737 being
purchased for Nauru on the installment plan by Taiwan, has
been struggling. Hoped for buy-in by other Pacific nations
like the Solomon Islands and Kiribati has not happened, and
Fiji has refused to authorize landing rights for "Our

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Airline" service between Nauru and Nadi via Tarawa. "Our
Airline" currently flies only once a week on its Pacific
route: Brisbane, Honiara, Nauru, Tarawa, and return. But
charter business in Australia is picking up and may save the
day. Minister Keke reported that a safety audit of the Nauru
airport is to take place this year. One issue may be the one
fire truck that has serious problems.

Comment
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13. (C) The recently discovered layer of phosphate deposits
offers Nauru some hope that it can achieve a relatively
sustainable future, a second chance. But successive Nauru
governments will need to act responsibly with phosphate
revenues, a feat that Nauru politicians have had great
difficulty accomplishing in the past. The current Scotty
Government seems to have done a reasonable job of addressing
fiscal and governance problems. The August 25 election will
reveal whether the voters, who have experienced a dramatic
lifestyle decline in recent years, will credit the Scotty
group for reforms or will exact punishment for being the
bearers of bad news, even when past leaders caused the
problems.
DINGER