KUNASHIR, SOUTHERN KURILES — RESIDENTS of this remote island gathered on Sept. 3 under leaden skies to mark the anniversary of the Soviet ``liberation'' of the Southern Kuriles from Japan in the closing days of World War II. Medal-laden veterans and schoolchildren carrying flowers stood in front of a red stone monument as officials eulogized fallen Soviet soldiers.
For years, the Soviet authorities had sealed off these islands. Dispute over their sovereignty remains the single reason Japan and the Soviet Union have not signed a peace treaty in the 44 years since the end of the war and the major obstacle to the warming of what remain relatively chilly relations.
While observing their annual ritual, island officials are also eagerly seeking a return of the Japanese - and the vast trade and investment they could bring to this isolated area. The Soviets have recently opened the islands to foreign visitors, including to this tour by a group of Tokyo-based Western reporters.
``We want our islands to be developed,'' local official Leonid Stashkevich explains to the guests.
The rich lands of Japan are tantalizingly visible across the narrow channel which separates this island from the northern Japanese island of Hokkaido. Island residents avidly follow sumo wrestling and late-night ``sexy television'' on the six channels of Japanese television they receive.
The Japanese government, however, remains determined that its citizens not walk through the newly opened Soviet door. Japan claims the islands - Kunashir, Iturup, Shikotan, and the Habomai group - are historically its territory and were seized without justification in 1945.
The Japanese government insists that return of the islands is the price Moscow must pay for the Japanese investment it seeks to develop the vast resources of the Soviet Far East.
``What we are saying to Japanese business and even sometimes to Soviets,'' a Japanese government official says, ``is you can't have the economic side moving ahead and leaving the territorial question behind.''
Government pressure blocked a Hokkaido native's plan for a joint fishing venture and last week halted the visit of a Cabinet minister who planned to accompany Japanese visiting the graves of their relatives. According to the editor of a major Japanese daily, the government's heavy hand even blocked Japanese newsmen from joining the recent tour.
For Tokyo such contacts would be tantamount to recognizing Soviet sovereignty over the islands, which Japan refers to as its ``Northern Territories.''
The government only approves the visits of former Japanese residents to the graves of their relatives, which since last year, after a 19-year gap, the Soviets permit to take place without visas or passports.
Japanese government propaganda depicts the ``Northern Territories'' as an armed camp on its shores, emphasizing the presence of Soviet military forces on the islands. According to Japanese defense officials, about a division of Army troops are on the islands, along with 40 Soviet MIG-23 jets based on Iturup.
In allowing visitors onto these fog-shrouded isles, Moscow is clearly eager to dispel that image. The Soviets want visitors to see islands populated by hardy fishermen, now into a fourth generation of islanders, who are here in the Southern Kuriles to stay.
The Tokyo-based group arrived in a 48-seat propeller aircraft from nearby Sakhalin, the large island which is the capital of the entire region. After one failed attempt to penetrate the low clouds, the plane landed at an airport on a runway surfaced with corrugated metal sheets, surrounded by military radar sites.
A packed-earth road curves through forested hills down to a black sand shoreline and a gray sea. It leads into Yuzhno-Kurilsk (South Kuriles), a dreary town of 7,000, mostly fishermen and their families. The town acts as the main port and administrative center for Kunashir, Shikotan, and the uninhabited Habomai group.
The military is everpresent. Young troops wearing the badges of a tank unit sit in trucks by a wooden pier, waiting to be ferried to a freighter for transfer back to Sakhalin.
There are units on these islands, says local government chief executive Yevgeny Soldatenko, ``but no bases.'' More importantly, local officials say they have ambitious plans to develop these islands for the sake of the residents. They submitted a 10-year, 200 million ruble ($320 million) plan which has received approval in Moscow. Concrete buildings, including a new school, department store, and cultural center, are going up on a hillside above the port. The weather-beaten two-story wooden barracks, many of them protected from the harsh weather by tar paper, are to be replaced with more substantial housing, they hope.
With more local autonomy promised, says local Communist Party chief Vyascheslov Gudakov, the islands hope to keep more of the money from their fish exports.
``We won't give all the money to Moscow - we'll spend it here,'' Mr. Gudakov says.
It is the marine resources that are, by all appearances, South Kurile islands' main value to the Soviet Union. The waters around these islands, where cold and warm currents converge, are said to be among the three richest fishing grounds in the world. About 6,800 people live on Shikotan, most of them working in what officials say is the largest fish processing factory in the Soviet Far East. Another cannery is on Kunashir, where a fleet of fishing boats operates from the port.
The waters are filled with crab, salmon, seaweed, and other marine life, abundant enough to attract Japanese and Taiwanese fishing boats to violate routinely Soviet waters and negotiated fishing rights, Soviet officials charge. High-speed Japanese boats, operating out of nearby Japanese port of Nemuro, zip close offshore with nets to poach crab in their spawning grounds, complains fishing company official Sergei Avramenko.
The local government says it hopes these riches will be enough to entice more legal forms of foreign business involvement. Residents talk optimistically about creating a ``special economic zone'' on the island, offering tax and other enticements to foreign firms to develop tourism, the local industry, and trade with Japan and other countries.
The islanders are carrying out their own ``peace offensive'' with Moscow's blessing. A local historical group, the Frigate Society, has been formed with the dual aim of pressing Moscow's historic claim to the islands and trying to open links to Japan. Fedor Pyzhyanov, the energetic schoolteacher who heads the society, offers ``people- to-people'' diplomacy, including exchanges with the Japanese society for the return of the islands and even suggesting Japanese residents could return to live there.
On July 2 the Frigate Society staged a reenactment of the first Russian ``discovery'' of the islands, 250 years before. The first Western newsmen to go to the Southern Kuriles were invited to witness this assertion of the legitimacy of Soviet authority.
During peace-treaty negotiations in 1956, the Soviets offered to return Shikotan and the Habomais, a deal which many analysts say the Soviets may still accept, although Tokyo refuses anything but return of all the islands. Japanese government officials say they have seen no sign of shift in the Soviet official stance that the post-World War II borders are permanent. A Western intelligence official in Tokyo speculates that the upsurge of nationalist sentiments in the Baltic republics, which came under Soviet control during World War II, would make Moscow even more reluctant to consider redrawing boundaries.
The islanders react angrily to the idea that anyone - including Moscow - might trade their home for Japanese money. ``Now in the period of perestroika (restructuring), our government should take into account the opinion of ordinary people,'' society chairman Pyzhyanov says angrily, ``especially when the decision concerns the fate of these people.''
``Our desire is that this land should belong to the Russian people who live there,'' says Pavil Kuznechenko, editor of the local paper, On the Frontier.
If the Japanese insist on their political demands as a precondition for economic ties, Mr. Kuznechenko threatens, they will go to others. Only two weeks ago, he recounts, a nine-man South Korean delegation headed by a ruling party parliamentarian spent three days on the island looking at possibilities of developing fishing and seaweed extract resources.
The prospect ahead, a Japanese official in Tokyo says somewhat wearily, is only for a ``long discussion.''