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P 131724Z AUG 07
FM AMEMBASSY SUVA
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INFO RUEHBJ/AMEMBASSY BEIJING 0291
RUEHBY/AMEMBASSY CANBERRA 1766
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RUEHUB/USINT HAVANA 0013
RUEHIN/AIT TAIPEI 0010
RHHMUNA/HQ USPACOM HONOLULU HI
RHHJJAA/JICPAC HONOLULU HI

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 
------- 
¶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 
------------------------------ 
¶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 
------------------------------------- 
¶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 
 
SUVA 00000408  002 OF 004 
 
 
---------------------------------- 
¶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? 
--------------------------------------------- -------- 
¶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 
----------------------- 
¶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 
-------------------- 
¶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 
---------------------------- 
¶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 
 
SUVA 00000408  004 OF 004 
 
 
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 
------- 
¶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