Nauru

Nauru had little contact with Europeans until whaling ships and other traders began to visit in the 1830s. The introduction of firearms and alcohol destroyed the peaceful coexistence of the 12 tribes living on the island. A 10-year internal war began in 1878 and resulted in a reduction of the population from 1,400 (1843) to around 900 (1888).

The island was allocated to Germany under the 1886 Anglo-German Convention. Phosphate was discovered a decade later and the Pacific Phosphate Company started to exploit the reserves in 1906, by agreement with Germany. Following the outbreak of World War I, the island was captured by Australian forces in 1914. After the war the League of Nations gave Britain, Australia, and New Zealand a trustee mandate over the territory. The three governments established the British Phosphate Commissioners, who took over the rights to phosphate mining.

During World War II Japan occupied Nauru in August 1942 and deported 1,200 Nauruans to work as laborers in the Caroline Islands, where 463 died. The survivors returned to Nauru in January 1946.

After the war the island became a UN Trust Territory under Australia, in line with the previous League of Nations mandate, and it remained one until independence in 1968. A plan by the partner governments to resettle the Nauruans (because of disappearing phosphate and damage to the island caused by extensive mining) on Curtis Island, off the north coast of Queensland, Australia, was abandoned in 1964 when the islanders decided to stay put. In 1967, the Nauruans purchased the assets of the British Phosphate Commissioners and in June 1970 control passed to the Nauru Phosphate Corporation. Nauru became an independent Republic in 1968.

In 1989 Nauru filed suit against Australia in the International Court of Justice in The Hague for damages caused by mining while the island was under Australian jurisdiction. Australia settled the case out of court in 1993, agreeing to pay A$109 million (U.S.$72.6 million) and to assist Nauru with environmental rehabilitation.

The economy depends almost entirely on the country's declining phosphate deposits. These were depleted in 2000 on a largescale commercial basis; however, smallscale mining is still occurring. The government-owned Nauru Phosphate Corporation (NPC) controls the mining industry. Many of the miners are contract workers from Kiribati and Tuvalu. The government places a large percentage of the NPC's earnings in long-term investments meant to support the citizenry after the phosphate reserves have been exhausted; many of these investments have not panned out, while those that have succeeded have often been used as collateral for loans, eroding their value. In the years after independence, Nauru possessed the highest GDP per capita in the world due to its rich phosphate deposits. Nauru now lacks money to perform many of the basic functions of government. A history of bad investments includes a failed play in London and the purchase of the once-luxurious Grand Pacific Hotel in Fiji. Financial mismanagement, corruption, and a shortage of basic goods, electricity, and water have resulted in some domestic unrest, such as demonstrations outside of Parliament. Air Nauru, the country's link to the outside world, has been periodically grounded in recent years due to problems paying for proper maintenance of its sole aircraft.

Lacking other resources, the government has turned to passport sales and laxly administered offshore banking to raise badly needed revenue. Both schemes have drawn strong international criticism as potentially aiding and abetting criminal and terrorist groups. The Nauru Agency Corporation administers Nauru's offshore banking sector. Nauru has been cited by the Financial Action Task Force as a non-cooperative jurisdiction in the fight against money laundering.