STRATFOR.COM's Weekly Global Intelligence Update - 21 April 2000 __________________________________________ By The Internet's Most Intelligent Source of International News & Analysis http://www.stratfor.com/ __________________________________________ Have you visited our web site recently? We've made some new changes that make using the site more efficient, allowing greater access to thousands of reports. Visit http://www.stratfor.com today. __________________________________________ OTHER FEATURES ON STRATFOR.COM Iran Anti-Drug Efforts Hamper Taliban's Offensive http://www.stratfor.com/MEAF/commentary/0004202249.htm Indonesian Jihad Threatens to Aggravate Instability http://www.stratfor.com/asia/commentary/0004212345.htm __________________________________________ STRATFOR.COM Weekly Global Intelligence Update 21 April 2000 Russia-Japan Island Dispute Looms on the Horizon SUMMARY: Russia and Japan appear poised to resolve a 50-year-old dispute over four islands in the tiny Kuril island chain north of Japan. Russia forced Japan to surrender the islands at the close of World War II, and Japan has sought to reclaim them ever since. Moscow's harrowing financial position and the firm leadership of President- elect Vladimir Putin may finally result in a deal, one with immediate economic and political benefits for both nations. ANALYSIS: On April 22, former Russian President Boris Yeltsin and former Japanese Prime Minister Ryutaro Hashimoto will meet near Moscow. Although the meeting's agenda has not been announced, the two leaders are sure to discuss the transfer of the four southern Kuril Islands to Tokyo. In 1997, Yeltsin and Hashimoto agreed to sign a peace agreement by 2000, resolving a dispute between Russian and Japan over the islands. Now the two men will meet again to clear the decks for a historic agreement between President-elect Vladimir Putin and Japanese Prime Minister Yoshiro Mori, who will meet at an April 29 summit in Russia. The Kuril Islands offer a number of assets. First, they have strategic value, as they cut a dotted line through Russia's access to the Pacific Ocean from the Okhotsko Sea. The waters off their coasts harvest $4 billion worth of fish each year, and the islands themselves hold deposits of pyrite, sulfur and various polymetalic ores. As well, each nation defends its sovereignty over the islands to nourish nationalist pride, an extremely important factor for two nations in economic crisis. But Putin is now ready to focus on rescuing Russia from treacherous financial straits. The president already secured overwhelming nationalist support by asserting Russia's strength and sovereignty in the Chechen War. Now Putin must find a way to avoid defaulting on the country's approximately $150 billion debt and to finance the country's 2000 budget amid falling oil prices. Settling the territorial dispute with Japan offers at least a partial solution to Russia's quandary. Tokyo has already shown that it's prepared to pay. As the result of 1997 talks, which yielded only the "agreement to agree," Hashimoto promised Yeltsin $1.5 billion in loans, of which approximately half has now been disbursed. The price tag for an actual peace agreement - in effect, the price for the islands themselves - will be much higher. And though Japan itself is saddled with a black-hole economy, the government has proved extremely resourceful at generating a cash flow. Fishing rights in the coastal waters will be a major sticking point of any deal. Currently, Russia only allows Japan a certain quota of fish - and at a price. Japan will push for rights to a section of the sea. Russia will fight to hold on as much as possible, but will likely be willing to concede at least a section of water to Japan. The potential fish harvest in the region may be huge; however, as a Moscow Times article noted, the Russian fishing industry is notoriously adept at hiding the majority of its profits. Very little ends up in Moscow's coffers. Talk of a deal will spark frenzied debate within Russia. But ultimately, Putin will prevail. In October 1999, he said that signing a peace treaty was both "essential and inevitable," reported Agence France-Presse. The promise of Japanese payment will sidetrack many naysayers. In the past, the Communists have vehemently opposed ceding the islands. However, Putin has recently elicited unprecedented cooperation with the Communists, and may be able to wrangle away some of their votes. In November, the Duma voted down a Communist initiative to draft a statement asserting that the parliament would reject any treaty "implying the loss or restriction of Russian sovereignty over the South Kuril Islands." The residents of the islands themselves have twice voted to secede from Russia and join the Japanese. The Russian government supplies very little money to the Sakhalin regional administration, which, in turn, all but ignores the Kuril islanders. Earthquakes in 1995 and 1996 destroyed the fisheries supporting the islanders. They hope that the Japanese, unlike the Russians, will pay to rebuild them. For the Japanese government, the issue is simple. Reclaiming the islands will stir nationalist sentiment, possibly alleviating the brooding Japanese depression produced by prolonged economic malaise. The ruling coalition, led by the Liberal Democratic Party (LDP), needs such a bromide in order to reclaim its shaky mandate. Lower house elections, which could be called as early as June, could otherwise result in significant losses for the LDP. Cartographers, warm the presses. 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