A small country in Oceania was once recorded as one of the most prosperous in the world before eventually falling into bankruptcy. The main cause was excessive spending habits, including the purchase of ultra-luxury cars such as Lamborghini and Ferrari by its residents.

The country is Nauru, a tiny island that once experienced an extraordinary economic boom due to its abundant natural resources. However, this rapid prosperity was not managed sustainably, ultimately leading to a severe economic crisis.

In addition to resource exploitation by foreign parties, corruption also played a role in accelerating the country’s economic collapse. As national revenues declined while spending remained high, an imbalance emerged that became increasingly difficult to control.

Here are several facts about Nauru’s bankruptcy, as compiled by CNBC Indonesia from various sources.

It all began with phosphate.

For many years, the island’s economy relied heavily on phosphate, a valuable material used in fertilizers, which was discovered in large quantities by a British company in the early 1900s. Mining operations began in 1907, with the governments of the United Kingdom, Australia, and New Zealand exploiting the resource for much of the 20th century.

After gaining independence in 1968, Nauru took control of the phosphate mines, which triggered an economic boom. A 1982 report by The New York Times stated that the island nation had “per capita income exceeding that of any oil-rich Arab country” and described it as the smallest and richest independent democracy in the world.

This newfound wealth was evident when a police chief purchased a Lamborghini. Other luxury vehicles, including Ferrari, were also imported, despite the fact that Nauru only had a single paved road with a speed limit of just 25 mph.

Although only a few Nauruans were individually wealthy in terms of bank balances, The New York Times noted that the nation’s wealth had transformed it into “almost the ultimate welfare state.” The government provided essential services free of charge, including education, medical and dental care, bus transportation, and even a government newspaper.

If certain medical treatments were unavailable at the island’s two hospitals, residents were flown approximately 2,500 miles to Australia at government expense. Higher education costs at Australian universities were also fully covered.

Excessive consumption.

However, it appears that some parties benefited more directly from the island’s phosphate wealth, as evidenced by the remnants of luxury purchases that can still be seen today.

YouTuber Ruhi Çenet visited the country and shared his experience in a 2024 video, where he described the “consumption frenzy” during the peak of the island’s prosperity.

He found numerous abandoned luxury vehicles along the roads, including Cadillac, Jeep, and Land Rover, which now stand as rusting reminders of the island’s former glory. Ruhi also spoke with locals who confirmed a story about a police officer who bought a Lamborghini, only to later realize that he could not fit inside it.

Meanwhile, phosphate mining continued and began to decline in the 1990s after being exploited for decades by foreign powers.

A money-laundering state.

Once the island’s abundant resources were depleted, its wealth also disappeared. High government spending and a lavish lifestyle were not sustainable in the face of economic collapse.

In an effort to find alternative revenue sources, Nauru at one point became a tax haven, offering banking licenses and passports for sale.

Approximately £55 billion, or Rp1.127 trillion, of Russian mafia funds reportedly flowed through Nauru’s banks within a single year. This led the United States Department of the Treasury to designate the island as a money-laundering jurisdiction in 2002.

Australia later provided financial assistance to Nauru in exchange for hosting an asylum seeker detention center for migrants heading to Australia.