During the 1960s and 1970, the tiny Pacific island of Nauru was one of the richest countries in the world based on per capita income. It enjoyed that status, as the island was flush with phosphate which was in high demand at the time given its use in commercial fertilizers. Unfortunately, for the tiny island nation, its just that tiny, and expanded mining soon found the country without any remaining phosphate. The 21 square kilometer island now has large-scale environmental problems from its mining of phosphorus and a good deal of debt given its exhausted natural resources.
Phosphate boom and bust
Following its boom in phosphate, Nauru was saddled with debt and the country was forced to sell assets. Additionally, Nauru issued bonds on the Japanese Stock Market in the last 1980’s, bonds that the government defaulted on bringing us to the court case.
Those bonds are now held by Firebird Global Master Fund, part of New York-based Firebird Management. Firebrand sued Nauru, as first reported by Peter Wells of the FT, in 2011 and a Japanese court ordered the nation to about $16 million a number that Firebird says has now doubled and received a court order in Australia to have those accounts frozen.
Today, However a court upheld Nauru’s claims that the funds, which are held by Australian lender Westpac Banking Corp (ASX:WBC) (NYSE:WBK), and needed to pay health services and public servants, have sovereign immunity.
Pacific Island Of Nauru’s frozen funds
Those accounts are not just what little money Nauru has but are largely comprised by donations from the UN, WHO, New Zealand, and Australia. The judge gave Firebird a week to appeal and the funds will remain frozen. Firebird has said repeatedly that it will do just that. The ruling by Justice Peter Young does not negate Nauru’s debt to Firebird it just goes to the frozen funds.
“We understand similar actions against the Nauru government are under way in other countries,” said a person close to the Firebird fund. “This is the start of the world shining a light on the Nauru government, its relationship with Australia and its blatant disregard for the law.”
It’s not often one hears about Nauru in the news but it happened twice today. Nauru operates a detention center on behalf of the Australian government to process the applications of those seeking asylum in Australia and is a very important source of revenue. Friday, saw the announcement of an investigation of the detention center after claims of sexual abuse. During the case with Firebird the Nauru government argued that it needs its money to power the detention center in order to continue receiving revenues as it negotiates its debt with Firebird.