Having been colonized by the English and Germans in the 1800s, then having its people enslaved by the Japanese in the second world war, before having 65% of their guano taken away by the English, Australians, and New Zealand was not a good start for a nation.

Unfortunately when they achieved independence in the late 1960s they didn't do much better on their own. Arguably they did worse. Huge phosphates profits were managed by the Nauruan government instead of being given to the individuals or families.

In a bizarre tragedy of the commons, the government gave huge subsidies to their populations, invested in hair-brained schemes and also helped themselves to the money.

What would have been enough to support the entire population and their descendants in perpetuity if it had been conservatively invested, was gone at about the same time as the phosphate ran out.

In fact the total cost of rehabilitating all of Nauru has been estimated at $AU500,000,000. The Nauruans had enough money to completely rehabilitate their land and live in perpetuity.

In 2001, the Nauruans agreed to rent out some of their island to Australia to house some asylum seekers which Australian didn't want in their own country.

Since then things have gone from bad to worse. As at 2002 they didn't even have power to run their de-salination plant, and hence were even short of fresh water. Australian Foreign Minister Alexander Downer (ABC-2002-05-16) described Nauru as 'effectively bankrupt'. They own a great deal of property in other countries, but it is all 'mortgaged to the hilt', so effectively all the money is gone.

Australia will continue to offer aid to Nauru in order to retain power in the Pacific. Australia has little choice. The alternative is to have the Chinese offer aid in return for setting up a military base there.