Tiny Islands Prelude To Russia-Japan Deal

Gov. Igor Farkhutdinov unfurls the blue-and-white flag of his Far Eastern outpost, Sakhalin, and points to the Kurile archipelago which figures on it.

"They're ours," he declares assertively of the islands. "Look, they're on our flag."

In the final hours of World War II, Russia seized the chain of impoverished, windswept islands north of Japan. The original 17,000 inhabitants either fled or were expelled.

Russia's refusal to give back the islands, which Japan calls its Northern Territories, has blocked a peace treaty between the two former enemies for half a century. Nonetheless, economic relations between the two countries have been improving in recent years.

Now that Russia is in the midst of a financial crisis, analysts expect it will try to appear more conciliatory. Russia desperately needs Japanese aid and will seek to avoid a collision over the Kuriles during the Nov. 11-13 visit of Japanese Prime Minister Keizo Obuchi - the first Moscow summit in 25 years.

"Russia's approach might be more moderate,"says Piotr Razvin, a Pacific region expert from the Current International Affairs Institute attached to Russia's Foreign Ministry. "They will have to find some smooth formulations such as 'certain progress has been reached.' Both understand that the territorial dispute should not be an obstacle to economic cooperation."

Russian President Boris Yeltsin last year vowed to do his best to ensure a peace treaty would be signed by 2000, although Moscow officials admit there may be no results until then. Three weeks ago, Foreign Minister Igor Ivanov said Russia would not sign a treaty that infringes on its national interests - that is, ceding the Kuriles entirely.

Japanese officials said they hoped Mr. Yeltsin would respond this week to Japanese proposals made last April, the details of which remain secret.

"There is a sort of unmistakable trend or current of events that are moving forward in the direction of a general improvement of our bilateral relations," Sadaki Numata, Foreign Affairs Ministry press secretary, told reporters in Tokyo Friday.

Japanese and Russian newspapers have speculated that a plan is under discussion for gradual joint economic control of the Kuriles.

The two sides are expected to sign an accord this week to stimulate and protect investment. As a sweetener, Japan has promised further installments of a promised $1.2 billion loan - at a time when Western creditors have largely given up on Russia due to debt default.

Tokyo has ingratiated itself to Russia further by pledging two power generators and10 tons of emergency food aid to the islands, which lack sufficient electricity and supplies as the harsh winter closes in.

While aid is welcome, a system of joint rule is passionately opposed by Sakhalin bosses such as Governor Farkhutdinov, who fear losing their political clout and the fabulously rich fishing waters around the Kuriles, which have not been developed fully due to lack of funds. Russia's Communist opposition also rejects ceding territory to Japan, on nationalist grounds.

But something may have to give considering the financial crisis, said the influential Russian newspaper Izvestia last week. "Currently it is absolutely impossible to recognize any Japanese rights for the Kuriles," read an article. "At the same time, it is also absolutely impossible to reject Tokyo's proposals because this would ... seriously weaken relations with Japan.... Thus, during the visit Russia will have to demonstrate some steps forward while avoiding providing the [Russian] opposition with the possibility of speaking about treachery."

Both sides have been drifting closer together, with a perceived threat of Chinese dominance in the region.

Despite the xenophobia of many locals, Japanese influence has flourished on Sakhlin and the Kuriles since the Soviet Union's 1991 collapse. Sushi abounds, as do Toyota and Nissan vehicles. On Sakhalin, Japanese companies belong to an international consortium developing offshore oil. Its Japanese business center has six times the applicants for 300 places in a language training course.

Valery Zaitsev, an expert on Japan with Moscow's state-linked World Economy and International Relations Institute, believes Russia will do its best to avoid alienating Japan without fully giving up the islands.

"I'm sure that this understanding will enable them to reach new compromises, although perhaps without an agreement before the year 2000."

* Staff writer Cameron W. Barr in Tokyo contributed to this report.