The Minister of Finance in Nauru is blaming past administrations for a lawsuit that could cost the country tens of millions of dollars.
David Adeang's statement comes after reports Westpac had frozen government accounts as a US-based fund takes the Nauru Government to court in Australia to try and recover millions of dollars it says Nauru owes.
The fund is putting its debt at 26 million US dollars.
Mr Adeang says the current legal case is a complex matter dating back over 20 years.
He says the government has embarked upon major reforms with the aim of securing the island's financial future and the economy is more vibrant now than when they took office.
Mr Adeang says the government is taking every necessary step to defend the lawsuit but concedes a negotiated settlement may result.