Nauru scrambles as Australia closes island's detention center

It is the world's smallest republic – so small, it does not boast a capital or a currency. Covering eight square miles, it can be driven around in 20 minutes.

But Nauru – a coral speck halfway between Hawaii and Australia – is wrestling with huge problems.

Exploitation of its sole natural resource, phosphate, has left the island's interior a ravaged moonscape of coral spikes. It has colossal debts and little prospect of repaying them. Its people are among the most overweight in the world. And now, to cap it all, its economic lifeline – an Australian-run refugee detention center – is about to close, focusing new attention on how to boost the once-prosperous island's fortunes.

The camp dates to 2001, when then-Australian Prime Minister John Howard cast around for a place to consign asylum seekers whose boats were being intercepted trying to reach Australia from Indonesia.

Nauru, desperate for cash, agreed to host a detention camp. It was an economic boon, bringing jobs and dollars from Australian police, officials, and contractors.

The facility pumped so much money into Nauru's economy that it soon came to account for a fifth of the nation's revenue.

But Mr. Howard's conservative government was turned out in November, and his successor, Labor Prime Minister Kevin Rudd, is about to fulfill a preelection pledge. The detention center will be mothballed by the end of this month.

"In dollar terms we're looking at a very substantial proportion of our economy," says Nauru's newly elected president, Marcus Stephen, a former champion weight lifter who competed internationally. "It will affect local businesses, our airline, our hotel … everything."

The 100 Nauruans who work in the center as cooks, guards, and administrators will lose salaries that the government says support more than 1,000 extended family members – a tenth of Nauru's population.

"Life on Nauru is already hard, and now it will be harder," says Schiaffino Dupuriya, a married mother of four who worked in the center's kitchen. "I'd like to leave the island, but we have no money, and where would we go?"

Named Pleasant Island by the captain of a British whaling ship in 1798, Nauru has an air of forlorn neglect. Its palm trees and sunshine fail to disguise dilapidated homes, abandoned shops, piles of burning rubbish, and hundreds of wrecked cars.

Political tensions erupted into violence earlier this month, when the island's police station was burned down by a mob that the government claimed was orchestrated by a renegade member of parliament and former president.

Nauruans once enjoyed the highest per capita income in the Asia Pacific region, thanks to an island consisting of almost pure phosphate, a mixture of ancient coral and millions of years of seabird droppings.

After independence from the joint rule of Britain, Australia, and New Zealand in 1968, Nauru earned billions of dollars from exporting phosphate, used in fertilizer. For nearly two decades, Nauruans went on a spending spree, chartering planes to shop in Hawaii, Guam, and Singapore.

Presidents would commandeer Air Nauru's five commercial jets and order them to fly to Melbourne or Sydney, leaving paying passengers stranded.

Sitting beneath the shade of a tree overlooking the sea, Manoa Tongamalo, who is about to lose his job as a detention center guard, says: "People would go into a shop, buy a few sweets with a $50 (Australian) note, and not take the change. They'd use money as toilet paper. They never thought of the future or of investing the money."

On the opposite side of the island, Doneke Kepae was whiling away the afternoon with friends. "We bought what we wanted, we gambled, we flew to Australia, Guam, Fiji," he says. "Once there was no money left, we just waited for the next royalty check."

Con men and carpetbaggers persuaded the government to invest in a succession of bizarre projects, including a short-lived London musical about Leonardo da Vinci.

Bankrupt by 2000 and forced to sell its extensive portfolio of overseas property, Nauru is now determined to regroup.

An old guard of politicians was voted out in 2004 and replaced by young Australian-educated technocrats. Phosphate mining, neglected for years, has resumed, with the government claiming there are enough reserves to last another 30 years.

"It's a second chance for us," says foreign minister Kieren Keke. "But we can't base our whole future on phosphate. We need to diversify and to build a trust fund as a nest egg for when the phosphate has gone."

The coral pinnacles that scar the interior will eventually be flattened and landscaped for housing, a reservoir, and cemeteries.

There are plans to set up a tuna cannery and to establish the island as a pit stop for Chinese and Japanese tuna trawlers.

"If we make the right investments, and with ongoing reforms, I think Nauru can be sustainable," says President Stephen in his office overlooking the island's airstrip, its link with the outside world. "A lot of bad decisions were made in the past. We don't ever want to go through that again."