New treaty ties Nauru to Australia via banks, security and telecommunications

Australian Prime Minister Anthony Albanese has announced an historic treaty with Nauru President David Adeang, securing the financial future of the Pacific nation – or at least for the next five years.

Similar to the November 2023 Australia-Tuvalu Falepili Union, which at the time was hailed by Albanese as “the most significant agreement between Australia and a Pacific island nation ever", this Nauru-Australia Treaty has come at the request of the Nauru government, committing Australia to investing in its economic and security sectors, including in the banking sector.

Australia has pledged A$100 million in budget support over five years. On a per person basis that’s equivalent to half the average Nauruan’s annual salary. The budget support aims to “provide the Nauru government with fiscal certainty to invest in its future,” including long-term investments in health, education and social services. An extra $40 million will be invested into Nauru’s policing and security needs, such as police and national security, capital infrastructure, training, equipment, recruitment and retention.

In return, much like the Falepili Union, the Nauruan government will need Australia’s approval to engage other states in critical infrastructure such as security, telecommunications, and banking. Unlike the Tuvalu deal, Nauru citizens will not have access to Australian migration pathways in response to climate change pressures. There’s also no security guarantee that Australia would respond to Nauru in the event of a disaster or attack, but there is a guarantee from Nauru that no third party will use its critical infrastructure for security purposes.

The Nauru treaty is historic. But also sensitive. There were no questions from journalists at the Albanese-Adeang announcement, which might have probed about Nauru’s role in Australia’s border protection policy, past social media bans and media censorship. It comes amid rising geopolitical tensions in the Pacific Islands region, with Pacific Island countries also keen to emphasise their independence of action, as Australia and China tussle to be the preferred partner in critical infrastructure sectors, among others.

But the most significant aspect of this new treaty relates to the banking sector.

Nauru has one bank, and it’s currently an Australian one. Bendigo Bank services Nauru’s currency (the Australian dollar) and provides international connectivity, allowing money to flow across its borders, including receiving aid from Australia. However Bendigo plans to depart Nauru, leaving a gap for others to fill. And earlier this year, the state-owned Bank of China signed a Memorandum of Understanding with Nauru “to explore solutions and options to its banking issues”, no doubt bringing concern to Canberra that the Chinese Communist Party would gain yet another advantage in the region.

Bendigo Bank agreed to delay its exit to June 2025, giving time for Australia to find another local lender to take its place, and the Commonwealth Bank of Australia (CBA) has agreed to plug the banking gap – a private sector actor helping to prosecute Australia’s foreign interests in Nauru. With no financial contribution from the Australian government to entice CBA to be Nauru’s bank, it’s a big result for Australia and Nauru, as the risk of Nauru being “debanked” is mitigated for the foreseeable future, bringing certainty to its overseas trade, remittances, and aid flows.

Co-opting CBA also fits with a pattern of increasing business sector support for Australian strategic objectives in the Pacific. Other examples are Telstra in PNG telecommunications, the National Rugby League in PNG sport, and Google and Meta in Pacific undersea cables.

But for Nauru, as those five years rolls by and the $100 million budget support dries up, what comes next? More will have to be put on the table then to fend off better offers. As Australia’s Foreign Minister Penny Wong has often said, “in the Pacific, we are in a permanent state of contest” and the challenge of a rising and influential China will not be overcome by this announcement, nor over the next five years of fiscal investment. It means Australia will have to continue upping the stakes of engagement in Nauru and more broadly across the Pacific region, adapting itself to an increasingly challenging region.

In the meantime, Australia’s private sector solution to the debanking problem in Nauru will also be soon paired alongside about the Australian and New Zealand Bank (ANZ) staying in the region. Such a move will give greater certainty to a region that has challenges aplenty.