Chapter IV.  Regional Situations and Relations with Japan


Section 1. Asia-Pacific


1. The Region in General


1-1. Overview

Steady economic growth continues in the Asia-Pacific region, centering on the member countries of the Association of Southeast Asian Nations (ASEAN) and the Newly Industrializing Economies (NIEs). It has become the most dynamically developing region in the world. This has strengthened the political and social resilience at home and enhanced mutual interdependence among the countries and thereby contributing to the stability of the region as a whole. While important progress is being made on the Korean Peninsula issue and the Cambodian problem, a series of desirable developments have been realized, such as the successful "Nordpolitik" of the Republic of Korea, the normalization of diplomatic relations between China and Indonesia, the establishment of diplomatic relations between China and Singapore, the introduction of democracy and a market economy in Mongolia, as well as the democratization efforts in Nepal and Bangladesh. Furthermore, domestic situation in China is gradually calming down and China-Vietnam relations have also been improved. Japan and North Korea started the negotiation for the normalization of diplomatic relations in January 1991, having met four times by August 1991. Japan-Soviet relations saw a certain amount of progress made with the visit of President Mikhail Gorbachev to Japan in April 1991.

On the other hand, many of the countries in the region still remain in a developing stage. And many of the Asian countries, in particular South Asian countries, were dealt just as heavy an economic blow as the Middle Eastern countries by the Gulf Crisis. In addition, major political confrontations and disputes in this region - which involve diverse and complicated religious, ethnic and historical factors that cannot be defined simply in terms of East-West confrontations - still remain unsettled. The new-thinking diplomacy of the Soviet Union bas not demonstrated its effectiveness in this region as prominently as in Europe. However, it is considered that the major political change in the Soviet Union that began in August 1991 will inevitably have an impact on Asia as well.

What is important to peace and stability of the region is economic development, settlement of regional conflicts and antagonisms, and cooperation to develop interdependent relations with due consideration on regional diversity. Japan has traditionally emphasized economic cooperation with this region from the perspective that economic development is most important for regional stability. For instance, top priority has been placed on the Asian region in Japan's Official Development Assistance programs. Such Japanese efforts have contributed greatly to the peace and prosperity of the region, and Japan will continue the endeavor. In addition to these efforts, what must be strengthened are the political and diplomatic endeavors on direct and indirect contributions toward solutions of regional conflicts and confrontations, such as the Cambodian problem or the Korean Peninsula problem. It is also essential to play a positive role in multilateral cooperation and consultations in the region as symbolized in the Asia-Pacific Economic Cooperation (APEC) and to support each country's efforts to democratize, open up the economy and transform it into a market economy. Amid the evolving world order, the international contribution expected of Japan is not confined merely to the economic area but also increasingly includes the political dimension as well. Japan, with the correct recognition of history, will have to make positive contributions appropriate for a peace-loving nation.


1-2. Cooperation in the Region

Strengthening economic interdependence is being pursued in the Asia-Pacific region, standing on the political, economic, social and cultural differences among countries and regions. Moves toward regional cooperation are strengthening.

ASEAN, which in 1992 will celebrate the 25th anniversary of its founding, is gaining influence in the Asia-Pacific region against the background of economic development and the political stability of the member countries. ASEAN has become an important stabilizer in the region. It is particularly active in the political sphere, such as making positive efforts toward the solution of the Cambodian problem. Economically, also, ASEAN continues to reinforce regional cooperation, based on the reality that substantial differences exist in the developing stages of the members' economies. Recognizing the maturity of ASEAN, Japan endeavors to reinforce relations with the organization and hopes to develop a relationship under which the two parties can jointly plan and work toward achieving and maintaining the peace and prosperity of the Asia-Pacific region.

APEC, launched in 1989, is generally on the right path, having steadily progressed with the objective of promoting further economic development of the Asia-Pacific region. During the past year, several senior-official meetings and working group meetings were held on the following areas where actual work is under way: review of trade and investment data, trade promotion, expansion of investment and technology transfer, human resource development, energy, marine resource conservation and telecommunications. Three new areas of transportation, tourism and fisheries have been added. Moreover, the simultaneous participation of China, Taiwan and Hong Kong that had been a pending issue since the launch of APEC was basically agreed upon in a senior-official meeting in August 1991. Based on the basic philosophy of cooperation that is open to the world, it is important to further promote the activities of APEC so that the potential of this region will be fully realized. Japan intends to contribute positively to such endeavors.

Efforts of strengthening regional economic cooperation are now made in this region centering on ASEAN, including Prime Minister Mahathir Mohamed of Malaysia's proposal in December 1990 of the formation of an economic cooperation group in the East Asia region, including Japan (the EAEG  concept).

Interest in political and security problems in the Asia-Pacific region is mounting against the background of the progress in the reduction of tensions, especially in Europe. Amid such an evolution, the need for political dialogue is increasingly being recognized by the countries of the Asia-Pacific region. Already, moves toward various dialogues in both the official and private levels have become notable.

In September 1990, the Asia-Pacific Foreign Ministerial Meeting was held in New York which had been proposed by Foreign Minister Nakayama and co-sponsored by Foreign Minister Ali Alatas of Indonesia. The Foreign Ministers from 15 countries in the Asia-Pacific region (Japan, Indonesia, Malaysia, the Philippines, Singapore, Thailand, the Republic of Korea, China, Mongolia, Vietnam, Laos, the United States, Canada, Australia and the Soviet Union) attended the meeting and actively exchanged views concerning the Gulf Crisis, the Cambodian problem, the Korean Peninsula situation and international economic problems, among other topics. It was an epochal meeting in which the Foreign Ministers of important countries situated in the Asia-Pacific region met in the same room to discuss the current problems by overcoming the differences in systems.

As Japan's political role expands in the Asia-Pacific region, apprehension and concern are emerging in some circles of this region that Japan's expanded role might also permeate into the military field. Under this circumstance, it is important for both Japan and the region that the real objective of Japan's foreign policy is candidly explained. With such awareness, Foreign Minister Nakayama proposed at the ASEAN Post-Ministerial Conference of July 1991 the launching of a political dialogue to enhance the sense of reassurance among the friendly countries, utilizing the Conference. The proposal won the support of the participating countries, and a specific modus operandi is being studied in ASEAN.

In South Asia, there are also emerging signs that the South Asian Association for Regional Cooperation (SAARC) established in 1985 is successfully promoting cooperation based on the fundamental changes taking place in the international order in recent years.

Such fora for regional cooperation and dialogues are expected to contribute to the enhanced peace and prosperity of the Asia-Pacific region synergetically with bilateral efforts and dialogues that have been traditionally dominant in this region. Japan maintains the policy to continue its positive efforts as a member of the region.


2. The Korean Peninsula


2-1. Overview

Political and military confrontations continue over the demilitarized zone on the Korean Peninsula. On the other hand, since the latter half of 1990, the global current of the East-West reconciliation is steadily permeating this region as symbolized by the establishment of diplomatic relations between the Republic of Korea (ROK) and the Soviet Union, the mutual establishment of trade offices between the ROK and China, the realization of the South-North Prime Ministerial meeting for the first time since the division of the Koran Peninsula and the moves toward the simultaneous admission of the two Koreas to the United Nations. Structural changes are emerging in the East-West confrontation that lies in the background of the division of the Korean Peninsula.

Amid such an evolution, the visit to North Korea of representatives of both the Japan Liberal Democratic Party and the Japan Socialist Party in September 1990 solved the long-standing issue of releasing the Japanese crew members of the seized ship, No. 18 Fujisan Maru. Negotiations to normalize diplomatic relations between Japan and North Korea have begun. While maintaining and strengthening its friendly and cooperative relations with the ROK as its basic stance, Japan is faithfully negotiating with North Korea on the normalization of relations.


2-2. The Republic of Korea


(1) Domestic Affairs

At the end of December 1990, President Roh Tae Woo made a major Cabinet reshuffle, including the appointment of the Prime Minister and the Chief Presidential Secretary, to prepare for the second half of his Presidential term. But the domestic situation has not been calm. Early in the year, the scandal of three Assemblymen from the governing and opposition parties having traveled abroad with financial assistance from private groups and another scandal involving the sale of residential land in the suburb of Seoul have been revealed. In the latter scandal, five Assemblymen from the governing and opposition parties as well as the President's secretary were arrested on suspicion of bribery. Another incident occurred at the end of April when a student demonstrator was struck by police and died. Following this incident, large anti-government demonstrations continued for nearly one month. A number of protesters committed suicide by setting themselves on fire. The situation was brought under control with the resignation of the Prime Minister and four Cabinet members at the end of May.

Local assembly elections, the first in 30 years and a fulfillment of one of the democratization pledges made by President Roh, were held in March 1991 for local cities, counties and townships and in June for large cities and prefectures. In the June election, which allowed the official candidacy of political parties, the ruling Democratic Liberal Party achieved an overwhelming victory by winning 65 percent of seats. This reflected the public wish for political stability in the aftermath of the political instability caused by the anti-government demonstrations of May.

In the economic sphere, the ROK, as one of the Newly Industrializing Economies (NIEs), has continued its vigorous growth since the mid-1980s. But exports have stagnated since 1989 against the background of rising wages. On the other hand, the real economic growth rate recorded 9 percent and GNP per capita reached $5,569 in 1990, since the expansion in domestic demand of private consumption and construction supported the economic growth. Debates are taking place both at home and abroad about the possibility of the ROK joining the Organization for Economic Cooperation and Development (OECD) by the mid-1990s. At the same time, amid the country's sluggish export performance, imports of machinery have increased due to brisk domestic demand. This turned the trade balance into a deficit of $1.85 billion in 1990 - the first deficit in five years.


(2) Foreign Affairs

The "Nordpolitik" of President Roh, which aims to improve relations with the socialist countries, has achieved solid results along with the reform movements made in the Soviet Union and Eastern Europe. Following the summit meeting between President Roh and President Mikhail Gorbachev in San Francisco in June 1990, diplomatic relations with the Soviet Union were established when the Foreign Ministers of the two countries met in New York in September. Thereafter, President Roh made an official visit to the Soviet Union in December and President Gorbachev visited Cheju Island in April 1991 on his way back from his trip to Japan. Thus, in less than a year, three ROK-Soviet summits took place.

With respect to the relations with China, an agreement was reached between the Korea Trade Promotion Corporation and the China International Corporation in October 1990 to mutually establish trade offices that are equipped with limited consulate functions, such as the authority to issue visas. In 1991, offices were opened in Seoul and Beijing, demonstrating the improved relations between the two countries.

Against the background of such moves between the ROK and the Soviet Union, the Prime Ministers of the ROK and North Korea met in September 1990 in Seoul for the first time since the division of the peninsula into North and South. The Prime Ministers met again in Pyongyang and Seoul in October and December to discuss the implementation of diverse exchanges and cooperation as well as the question of eliminating the existing military and political confrontations. While no concrete results were obtained in these meetings due to differences in the fundamental position of the North and South, the very fact that the meetings were held was significant. In February 1991, North Korea unilaterally canceled the fourth meeting in Pyongyang to protest joint U.S.-ROK military maneuvers. Subsequently, the fourth meeting was rescheduled to be held at the end of August by a North Korean proposal made in July. However, on August 20, immediately after the political change in the Soviet Union, North Korea proposed to change the venue of the meeting to Panmunjom on the grounds of a cholera epidemic in the ROK. As a result of discussions between the two governments, it was decided to postpone the fourth meeting to October 1991. In the field of sports, some exchanges took place. The North-South soccer games were held in October 1990 in Pyongyang and Seoul. The two Koreas sent a unified team both to the 41st World Table Tennis Championship held in Chiba, Japan in April 1991, and to the 6th World Youth Soccer Game held in Portugal in June.

As for relations with the United States, President Roh visited the United States in July 1991 to exchange views with President George Bush on the new situation surrounding the Korean Peninsula.

Regarding the U.N. membership issue, the ROK was active in diplomacy and announced in April 1991 that if North Korea would not consent to the simultaneous admission of both Koreas to the United Nations, the ROK would independently submit its membership application to the 1991 General Assembly. On the other hand, North Korea vehemently opposed separate seats for the two Koreas in the United Nations on the ground that it would mean international recognition of the "two Koreas" and would lead to the permanent division of the Korean Peninsula. North Korea insisted that, if membership was to be sought, the two Koreas should join the United Nations in a single seat. However, many countries, including Japan and the United States, expressed their stance that while the simultaneous admission of North and South was desirable, if North Korea continued to refuse the idea, they would support the independent admission of the ROK. As a result, North Korea changed its policy to override this difficulty and announced its plan in July 1991 as an interim measure to join the United Nations separately from the ROK. Factors in the background for the change in the North Korean attitude should be its reading that China would not use its veto power, if the ROK applied for admission independently, as well as the effective persuasion by the countries concerned, including Japan.

Responding to U.N. membership applications by the two countries, the U.N. Security Council adopted in August a resolution recommending the admission of North and South Koreas in the United Nations. Consequently, the U.N. membership of the two Koreas was realized with the adoption of the membership approval resolution in the 46th General Assembly held in September.

Japan had taken the position that the simultaneous membership of North and South Koreas in the United Nations, as an interim measure until the unification of the Korean Peninsula, should have been desirable, also from the standpoint of enhancing the universality of the United Nations. In the negotiations for normalization of relations with North Korea, Japan has tried to persuade its counterpart of the desirability of simultaneous membership of both Koreas. Japan welcomes the realization of the simultaneous admission of both Koreas to the United Nations. This will change the framework of the past relations between the two Koreas, leading to the expectation of further reduction of tensions on the Korean Peninsula.


(3) Relations with Japan

In May 1990, President Roh visited Japan and the Japan-ROK Summit was held. The meeting put an end to the unfortunate phase of history between Japan and the ROK and attained significant results in constructing a new Japan-Korea era where both countries should cooperate toward the 21st century from a global perspective. The Japan-ROK Ministerial Meeting was held in November 1990 in Seoul. Prime Minister Toshiki Kaifu visited the ROK in January 1991, and the Japan-Korea Regular Foreign Ministerial Consultation was held in Tokyo in April 1991.

During Prime Minister Kaifu's visit to the ROK, the longstanding issue of the third generation Koreans in Japan was settled satisfactorily, and plans were made for dramatic reforms in several areas, such as abolishing the fingerprint requirement for Korean residents in Japan within two years. Moreover, an agreement was reached on the three principles of the new Japan-Korea era that show the direction of a future-oriented and cooperative bilateral relationship. The principles are: (1) promoting exchanges, cooperation and mutual understanding toward the strengthening of the partnership between Japan and Korea, (2) making contributions toward peace, reconciliation, prosperity and liberation in the Asia-Pacific region and (3) pursuing cooperation to settle various global problems.

Standing on these principles, both Japan and the ROK are endeavoring to construct a new future-oriented relationship as they move toward the 21st century. Specifically, the Japan-Korea 21st Century Exchange Program on Sincerity and Trust is being promoted as an educational project to deepen the understanding by the Japanese public of the ROK by various measures, such as further enhancing youth exchanges that have already been made. Furthermore, it was agreed to establish the Japan-ROK Local Municipality Exchange Promotion Council to promote exchanges among local entities. And in June, the first meeting between the Asian Bureau Directors-General of the two countries was held to consider future-oriented Japan-Korea relations. Japan and the ROK are collaborating closely on regional and global issues that are discussed in the G-7 Economic Summit and in the APEC.

At the same time, efforts are being made to solve several pending bilateral issues. The ROK's trade deficit with Japan reached $5.75 billion in 1990 due to structural factors, as well as the eroding export competitiveness of Korean industry. The ROK is seeking the transfer of sophisticated industrial technology from Japan to strengthen its export competitiveness. These problems were discussed in the Japan-Korea Trade and Industrial Technology Cooperation Committee held in June 1991. In this Committee, Japan told the ROK that the transfer of technology is basically an issue to be dealt with by the private sector, but that the government will cooperate to the extent possible.

As for fishery problems, the illegal operation of Korean ships in waters close to Japan still continues, and the present voluntary restriction measure will expire at the end of 1991. In order to consult on future Japan-Korea fishery relations, working-level consultations were held three times between April and July 1991. Although candid discussions were held on the preservation of resources and on establishing an orderly fishing practice between the two countries, the gap between the two on the present status of illegal fishing remains large, and consultations are expected to proceed but with great difficulties.

As for the territorial dispute over Takeshima Island between Japan and the ROK, it is clear on both historical and legal grounds that the island is Japanese territory. Standing firm on this point, Japan protests the ROK whenever necessary. Most recently, Japan put this issue on the agenda of the Foreign Ministerial Meeting during the Japan-Korea Regular Ministerial Conference of November 1990 and in the Japan-Korea Regular Foreign Ministerial Consultations held in April 1991.


2-3. North Korea


(1) Domestic Affairs

In North Korea, the firm maintenance of the Kim Il Sung and Kim Jung Il regime was confirmed in the first session of the 9th Supreme People's Assembly of May 1990. Various moves have been seen since then aimed at further ensuring the succession of Secretary Kim Jung Il, Kim Il Sung's son. Secretary Kim Jung Il's papers and his discussions with party leaders have been published, and moves indicating the leading role of Secretary Kim Jung Il over the military have been seen. In domestic politics, thus, the strengthening of the leadership of Secretary Kim Jung Il has been stressed. Moreover, the regime warned that the capitalist nations were taking a "peaceful transition strategy" aiming at the collapsing socialist countries from within, and has tightened the grip over the public through the publication of the statement under Secretary Kim Jung Il's name, entitled, "Our socialism centered on the masses shall not perish." The regime has tightened the grip also through the enhanced ideological education.

The 1991 New Year's message of President Kim Il Sung emphasized the question of unification. He stressed the urgency to achieve unification with the qualification that it must be attained on the principle that neither of the Koreas absorbs the other. This could be considered as a sign of caution arising from the German unification, which had been attained by West Germany absorbing East Germany.

There was no indication of an economic recovery. No particular economic achievement was announced in the New Year's message. The fiscal 1991 budget, approved by the Supreme People's Assembly of April 1991, grew by 4.5 percent over the previous year, which was substantially lower than the increase made in the fiscal 1990 budget over 1989. North Korea cannot be regarded as having overcome its economic difficulties.


(2) Foreign Affairs

North Korea maintains an alliance with the Soviet Union and China and has also kept close relations with the Central and Eastern European countries. Amid the evolving situation of the reforms made by the Soviet Union and the Central and Eastern European countries as well as the successful "Nordpolitik" of the ROK, North Korea is being forced to adopt a more realistic foreign policy.

In North Korea's relations with the Soviet Union, a few incidents took place that indicated North Korea's displeasure. These include North Korea criticizing the establishment of ROK-Soviet diplomatic relations as a "breach of faith, transacting diplomatic relations with the dollar," and not inviting a Soviet delegation to the 45th anniversary of the Korean Labor Party, to which a Chinese delegation was invited. However, both countries appear to be trying to maintain their bilateral relationship.

In comparison with the Soviet Union, North Korea maintains relatively close relations with China, frequently confirming with China the intention to maintain the socialist system. On the other hand, at the time of Premier Li Peng's visit to North Korea in May 1991, it is believed that China did not indicate that it would support the North Korean position concerning the issue of the ROK membership in the United Nations. Changes are also beginning to be seen in this bilateral relationship.

President Kim Il Sung confirmed in his 1991 New Year's message that Asia is in a new development stage, stressing the importance of developing cooperative relations with other Asian countries. Thereafter, diplomatic activity with Asian countries, including Japan, has been strengthened. As for U.N. diplomacy, North Korea announced in May 1991 its intention to join the United Nations, contesting the strong possibility of the singular membership of the ROK. North Korea completed the required procedures to join the United Nations in July, and was consequently admitted to the United Nations in September. North Korea, although a party to the Treaty on the Non-proliferation of Nuclear Weapons since 1985, has not fulfilled an obligation under the Treaty of entering into a safeguards agreement with the IAEA, which has been arousing international suspicion about North Korea developing nuclear weapons.


(3) Relations with Japan

The normalization of diplomatic relations with North Korea is one of the two postwar problems for Japan that still remain unsettled, North Korea being the only neighboring country with which Japan has no diplomatic relations. Japan-North Korean relations have begun to move toward improvement and normalization since 1990. In September 1990, as a result of the visit made by a delegation consisting of members of the Japan Liberal Democratic Party and the Japan Socialist Party, the long-standing problem between the two countries involving the two detained crew members of the No. 18 Fujisan Maru was solved (Note), and North Korea proposed that negotiations be started on the normalization of diplomatic relations. Japan responded to this proposal. Since November 1990, preliminary meetings to normalize diplomatic relations between the two countries have been held three times in Beijing. The two countries agreed in these preliminary meetings on a four-point agenda: (1) the basic problem, (2) economic problems, (3) international problems and (4) other problems in which the two countries have a mutual interest. The negotiations began at the end of January 1991.

There are two aspects involved in normalizing diplomatic relations between Japan and North Korea. One is the bilateral aspect of settling the postwar issues. The other is the international aspect that the normalization between the two countries should contribute to the peace and stability of the Korean Peninsula. Bearing these two aspects in mind, Japan is negotiating faithfully with North Korea on the normalization of relations.

In the negotiations concluded so far, the two countries have taken opposing stances, particularly on the economic problems and international problems. North Korea considers that Japan and North Korea were at war and demands war reparations. It also argues that Japan has continued to damage North Korea in the postwar period and demands compensation for the 45 years of postwar as well. On the other hand, Japan maintains that the problem under the 36 years of the Japanese rule should be settled as an issue of property rights and claims. Japan argues that the irregular postwar Japan-North Korea relations were attributable to the cold-war structure against the background of the East-West confrontation, and to the situation on the Korean Peninsula and to North Korean policies, none of which Japan is responsible for. Moreover, on the international problem, Japan presses North Korea for the prompt conclusion and implementation of the safeguards agreement with IAEA, which is an obligation under the Treaty on the Non-proliferation of Nuclear Weapons. The Japanese side argues that the refusal of North Korea to conclude the safeguards agreement with IAEA creates the suspicion that it is developing nuclear weapons. To this argument, North Korea stresses that the issue of the safeguards agreement is a problem between North Korea and the United States and that the United States should give North Korea a legally binding guarantee not to use nuclear weapons against North Korea. It also argues that U.S. nuclear weapons deployed in the ROK should be simultaneously subject to inspection. North Korea repeated these political arguments, which are not directly related to the conclusion of the safeguards agreement with the IAEA, and was refusing to sign the agreement. Although North Korea made clear in June 1991 its intention to take a certain procedure toward the conclusion of the agreement, it continues to raise these political conditions. Since it is unclear whether North Korea has an intention to unconditionally conclude and implement the agreement, it will be necessary to continue carefully watching the moves taken by North Korea and to demand the conclusion and implementation of the safeguards agreement.

Japanese police believes that Lee Un-he, whom Kim Yong-he, the criminal of the Korean Air Line bombing incident, claimed to have taught her Japanese, is very possibly a missing Japanese woman. Based on this judgment, Japan asked about the whereabouts of this Japanese woman in the third meeting of the normalization negotiations. North Korea vehemently protested the request and the meeting ended with no agreement on a date for the fourth meeting. Thereafter, a decision was made between the two countries that negotiations should continue and the fourth meeting was held at the end of August.


3. China and Mongolia


3-1. China


(1) Domestic Affairs

Given the recent domestic situation in the Soviet Union and the Central and Eastern European countries, the Chinese leadership is resolutely tackling its economic reforms with a growing sense of crisis that without improving its economic reality, the socialistic regime of China cannot survive. Since the June 4th incident in 1989 (the Tiananmen Square incident), the Government of China has been intent on tightening its political grip on the public through strengthening the party leadership or reinforcing ideological education among them. This is based on the fundamental awareness of the Chinese leadership that domestic political stability and unity are indispensable if they are to achieve their economic reforms.

Strongly aware that the support of the public is indispensable to maintain the socialist regime, the Chinese leadership has actively taken such measures as strengthening the relationship between the party and the public, preventing bribery and corruption that are of great interest to the public, improving public security and upgrading public welfare. On the other hand, it continues to be very cautious of anti-governmental moves still existing among the people. On such occasions as the 11th Asian Games held from September to October 1990 in Beijing or the second anniversary of the June 4th incident in 1991, very strict security measures were imposed.

In the economic sphere, steps were taken to powerfully propel the economic reforms, including the reconfirmation in the 7th plenary session of the 13th Central Committee of the Chinese Communist Party held in December 1990 and the fourth session of the 7th National People's Congress from March to April 1991 that the reform and liberalization policies implemented since 1978 will be maintained. Other steps include the decision to appoint Zou Jiahua, State Councillor and State Planning Minister, and Shanghai Mayor Zhu Rongi as Vice Premiers.

Specifically, an economic adjustment policy was implemented to overcome the serious inflation which has been seen since 1987. Following the further tightening policy exerted since the latter half of 1989, certain results were seen in controlling inflation and rectifying the gap between aggregate demand and supply. For instance, the retail price inflation rate, which had been 17.8 percent in 1989, dropped to 2.1 percent in 1990. On the other hand, as can be seen from the industrial production growth rate which dropped from 8.5 percent in 1989 to 0 percent in the first quarter of 1990, economic activity stagnated due to the drastically stringent policy. The stringent policy was somewhat relaxed in early 1990 to overcome this sluggish situation. GNP grew by 5.2 percent, industrial production by 7.8 percent and agricultural production by 7.6 percent, which enabled the government to attain the target of its economic growth plan. Against such a background, the 7th plenary session at the end of 1990 determined the basic guidelines for a long-term economic program targeted at doubling GNP by the year 2000. Based on this decision, the National People's Congress of April 1991 adopted the 8th National Economic and Social Development Five-year Plan and the 10-year Plan Outline in which priority was given to upgrading economic efficiency and improving the industrial structure. However, it is feared that the massive floods covering the Huazhong and Huanan regions that occurred in late May 1991 may have an adverse impact on China's economic growth.

As for trade, China continued to restrict imports and promote exports. While the trade balance was a deficit of $6.6 billion in 1989, it became an $8.7 billion surplus in 1990. Foreign currency earnings through tourism in 1990 also were restored to the 1988 level due to the Asian Games and other events. Direct investment and direct loans made by Western countries also have been increasing, and investment projects are proceeding centering around the coastal areas in line with the progress made by the openness policy.


(2) Foreign Affairs

China continued its efforts to restore relations with the Western industrialized nations that have retrogressed since the June 4th incident. From the perspective that a stable international environment is indispensable to promote domestic economic construction, China endeavored to improve its relations with the Soviet Union and neighboring Asian countries. The Chinese view of the world is that a new international order is yet to be formed and the trend toward multi-polarization remains. Based on such a perception, it is seeking a uniquely Chinese position in the international community.

In October 1990, the European Community removed economic sanctions imposed against China, except for exports of weapons. With the subsequent visits to China one after another by the Foreign Ministers of Spain, the United Kingdom, France and Italy, the relations between China and the Western European countries improved greatly. Responding to such moves, visits by the heads of states, including Prime Minister John Major of the United Kingdom and Prime Minister Giulio Andreotti of Italy, took place in September 1991. Relations with the United States made modest improvement including the meeting of Foreign Minister Qian Qichen with President George Bush in November 1990. But China-U.S. relations again stagnated in 1991 due to strong concern in the U.S. Congress over human rights questions, China-U.S. economic relations and the problem of arms transfers. These concerns surfaced during the debate over whether to renew China's Most-favored Nation (MFN) status. However, since President Bush decided to unconditionally renew China's MFN status, and since China expressed its willingness to cooperate with the U.S. proposal concerning arms control in the Middle East, ways and means to improve relations between the two countries are being sought.

It is assumed that the political change in the Soviet Union in August 1991 and the ensuing domestic turbulence should have considerably shocked the Chinese leadership. China has consistently maintained a posture of non-interference with Soviet and Eastern European domestic affairs. Nonetheless, China has expressed from the beginning of 1991 its view that the political stability and economic recovery of the Soviet Union benefits China-Soviet relations as well as the Asia-Pacific region, and it is considered that this stance has not changed. In May 1991, General Secretary Jiang Zemin became the first high-ranking Chinese leader to visit the Soviet Union since 1957, 34 years ago, when State President and Party Chairman Mao Zedong visited the Kremlin. Signing an agreement concerning the eastern China-Soviet border, the leaders of the two countries issued a joint statement to further promote good neighborly and friendly relations.

China's relations with neighboring Asian countries have generally continued to improve. In view of promoting economic exchanges with the Republic of Korea, China agreed to the mutual establishment of trade offices in December 1990, and expressed its support for the simultaneous U.N. membership of the Republic of Korea and North Korea in June 1991. As for China's relations with Mongolia, following the visit by Gombojavyn Ochirbat, Chairman of the People's Revolutionary Party (ruling party) in January 1991, Defense Minister Jargaliin Jadambaa in April became the highest military leader of Mongolia to visit China in 30 years. Chinese President Yang Shangkun visited Mongolia in August 1991. As for the relationship with Vietnam, Vice Premier Zap visited China in September 1990. In August 1991 a China-Vietnamese Foreign Vice Ministerial Meeting was held in Beijing, indicating a major move to improve bilateral relations. Relations with the ASEAN countries have also shown active developments. In December 1990, Premier Li Peng visited Malaysia and the Philippines. In June 1991, President Yang Shangkun visited Indonesia and Thailand. In June 1991, Foreign Minister Qian Qichen attended the ASEAN Foreign Ministerial Conference for the first time as a special guest.

As for relations with the countries in the Middle East, China's posture has attached importance to international cooperation. It generally endorsed the resolutions of the U.N. Security Council at the time of the Gulf Crisis and reacted positively to arms control efforts in the Middle East after the Gulf Crisis. In July 1991, Premier Li Peng visited Middle Eastern countries, starting with Egypt.


(3) Relations with Japan

Japan-China relations are one of the major pillars of Japan's foreign policy. The maintenance and further development of favorable and stable relations with China are not only important for the two countries but also for the peace and stability of the Asia-Pacific region. Japan, a free and democratic nation, takes the position that the June 4th incident of 1989, in which the military resorted to use of force, is not acceptable from a humanitarian view point. On the other hand, as it expressed at the subsequent G-7 Summits, its basic perception is that isolating China is not desirable. Japan's basic policy is to cooperate to the extent possible with Chinese efforts to modernize its economy based on its reform and openness policies.

Although Japan-China relations were temporarily set back by the June 4th incident, efforts made by the two countries have produced steady improvements. In January 1990, the then State Councillor and State Planning Minister Zou Jiahua became the first high-ranking Chinese official to visit Japan after the June 4th incident. He was followed in July by State Councillor and State Education Minister Li Tieying and by Vice Premier Wu Xuegian in November. Meanwhile, Japanese Minister of Education Kosuke Hori visited China in September 1990 to attend the opening ceremony of the Asian Games. In early 1991, Finance Minister Ryutaro Hashimoto and Minister of International Trade and Industry Eiichi Nakao visited China, followed by the visit of Foreign Minister Taro Nakayama in April. In July, Foreign Minister Qian Qichen visited Japan and in August Prime Minister Toshiki Kaifu visited China and Mongolia. These visits have the significance of completing the goodwill of the series of Ministerial visits to reconstruct the solid bilateral relationship and of elevating it further to suit the occasion of the 20th anniversary in 1992 of the normalization of relations between Japan and China.

Economic relations between Japan and China are likewise improving, accompanying the better relations between China and the Western nations and the subsiding Chinese situation since the latter half of 1990. Since the Houston Summit of July 1990, the Government of Japan has gradually been implementing the third ODA loan package, extending up to \810 billion in six years. At the time of the Prime Minister's visit to China in August 1991, the intention to provide an ODA loan package of \129.6 billion for 1991 was announced. As for Japan-China trade, as a result of the import control measures implemented by China to improve its trade balance, Japan's export to China had fallen since the latter half of 1989 and Japan saw its trade deficit with China increase to about $5.9 billion in 1990. China relaxed its import restrictions toward the end of 1990 and Japan's export to China began to recover in 1991. The Japan-China Long-term Trade Agreement was renewed on the private-sector basis in December 1990 to stabilize Japan-China trade. And in March 1991, the Sixth Japan-China Joint Trade Committee based on the official Japan-China Trade Agreement was held. In addition, in the field of investment, the first Japan-China Joint Investment Committee, based on the Japan-China Investment Protection Agreement, was held in July 1990. The Japan-China Technology Exchange Conference, which aims to promote technology transfers between the two countries, was held in October 1990 and July 1991.


3-2. Hong Kong and Thiwan

Japan recognizes the importance of Hong Kong maintaining its prosperity and stability, even after 1997, by enjoying its present economic freedom based on the U.K.-China Joint Declaration and the Basic Law of Hong Kong. It is not only important for the Asia-Pacific region but also for the international community as a whole. In this context, Japan welcomes the agreement reached between the United Kingdom and China in July 1991 on the long-standing issue of constructing a new Hong Kong international airport.

As for relations with Taiwan, Japan firmly maintains the position taken in the Japan-China Joint Communique of 1972, which will not change in the future. The sustained economic growth of Taiwan has become an important element for the prosperity of the Asia-Pacific region as a whole, and the Government of Japan promotes its relations with Taiwan, within the basic framework of the Japan-China relationship.


3-3. Mongolia

Influenced by the democratization process and the reforms made in the Soviet Union and Eastern Europe, democratization and domestic reforms have been proceeding rapidly in Mongolia since 1989. All of the old leaders of the ruling People's Revolutionary Party resigned in March 1990. The reformists took control of the government and pluralism was adopted in the parliament. These changes have been accompanied by the establishment of a principle of completely separating the party and the government. In May, the Presidium of the People's Great Khural decided on a transformation to a presidential system and the establishment of a permanent legislature. In July, the first free elections in Mongolia's history were held. As a result, a new coalition government with an opposition party was formed. The ruling and opposition parties are united in their effort to strengthen relations with Western countries through an open-door policy and to overcome the economic crisis brought about by the transformation to a market economy.

Mongolia is undertaking courageous and rapid reforms through a very moderate method of promoting dialogue among various factions within the nation. Such efforts have been highly praised in the G-7 Summit meeting and the participating countries have agreed on the need to support Mongolia.

As for relations with Japan, Prime Minister D. Sodonom visited Japan in February 1990, which was the first visit of a Mongolian Prime Minister to a Western nation. And in November, President Ochirbat visited Japan. In August 1991, Prime Minister Toshiki Kaifu became the first Japanese Prime Minister and the first leader of a nation aligned with the West to visit Mongolia. His expression of Japan's support for the democratization and economic reform efforts of Mongolia has further deepened the bilateral relationship. Moreover, the Mongolian Assistance Group Meeting was held in Tokyo in September under the joint chairmanship of the Government of Japan and the World Bank. The meeting was a great success as the 14 donor governments and five international institutions expressed their intention to render assistance to meet Mongolia's financial requirements for fiscal 1991.


4. Southeast Asia


4-1. Overview

The member countries of the Association of Southeast Asian Nations (ASEAN) have attained steadfast economic development and are becoming an important stabilizing factor in Southeast Asia and in the Asia-Pacific region. They are also forging closer relations with Japan in political, economic and cultural fields. Prime Minister Toshiki Kaifu visited Malaysia, Brunei, Thailand, Singapore and the Philippines from late April to early May 1991 and made a policy speech in Singapore articulating the direction of Japanese foreign policy. Foreign Minister Taro Nakayama visited Indonesia in June, attended the ASEAN Post-Ministerial Conference held in Malaysia in July and visited the Philippines during the same trip. These are some of the efforts made to reinforce the existing good relations. And from the end of September to early October, Their Majesties the Emperor and Empress are scheduled to visit Thailand, Malaysia and Indonesia.

Affected by the end of the Cold War and the Gulf Crisis, the ASEAN countries have recently strengthened their interest in political and security issues. In the ASEAN Post-Ministerial Conference of July 1991, many hours were devoted to active exchange of views on these issues. The Philippines and Thailand jointly hosted a security seminar in Manila in June 1991, drawing participants mainly from academies, in which Japan participated. Both countries planned to hold a similar seminar in Bangkok in November.

The ASEAN countries are searching for ways to improve their relations with the Soviet Union and China, given the disappearance of the Cold War structure, and are endeavoring to broaden their diplomacy. The two countries participated as special guests in the opening ceremony of the ASEAN Ministerial Meeting in July 1991.

In the Indochina region, the Cambodian problem, the greatest pending issue, is moving toward a solution. In Vietnam and Laos, various economic reform measures are being taken to make a transformation to a market economy. Japan is determined to continue exerting utmost efforts to bring peace to Cambodia and has announced its willingness to host an international conference in Japan on reconstructing Cambodia at an appropriate time after peace is attained. The objective of the meeting is the reconstruction of Cambodia as well as Indochina.


4-2. Indonesia

The domestic affairs in Indonesia have been basically calm. In 1990 an association of Indonesian Islamic intellectuals was formed, rallying Islamic intellectuals. In 1991, interest in politics mounted with the upcoming general election in 1992 and the presidential and vice-presidential elections in 1993. Steps toward democratization have also become active, as seen in the formation of the Democratic Forum.

Turning to the economic situation, Indonesia's efforts to restructure its economy so that it is less reliant on the oil industry are proving successful. Steady economic growth was maintained, with the economy growing by 5.7 percent in 1988 and 7.4 percent in 1989. The growth in exports of non-petroleum and non-gas products, which had increased rapidly in the past two to three years, decelerated. At the same time, exports of petroleum and gas increased substantially. Coupled with a major increase in inward foreign direct investment as well as domestic investment, the real GDP growth rate reached 7.4 percent in 1990. On the other hand, through the activated economy, inflationary pressure subsided (the inflation rate in 1990 was 9.53 percent). And since imports, mainly capital goods and intermediate goods, grew rapidly due to the increased investment, a tight monetary policy was introduced. Indonesia's total trade value in 1990 increased 23.3 percent from the previous year to $47.5 billion. Affected by the Gulf Crisis, remittance from abroad was suspended and the number of tourists diminished. At the Intergovernmental Group on Indonesia (IGGI) meeting held in June 1991, the participating donor governments and international organizations announced that they would provide assistance totaling $4.75 billion, a 5 percent increase over the previous year.

Indonesian foreign policy in the past year evolved mainly around finding a solution to the Cambodian problem and resuming diplomatic relations with China. Foreign Minister Ali Alatas actively pursued a solution to the Cambodian problem as co-chairman of the Paris Conference. A meeting of four Cambodian factions was held in Jakarta in June 1991 to work toward a resolution of the Cambodian problem. As for relations with China, the visit of Prime Minister Li Peng to Indonesia in August 1990 marked a resumption of diplomatic relations that had been frozen since 1967. In November 1990, President Soeharto visited China for the first time. Moreover, he stopped in Vietnam enroute home to make the first official visit there.

President Soeharto also went on a pilgrimage to Mecca, Saudi Arabia, in June 1991, and visited Germany later in July.

From the economic viewpoint, Indonesia has a very strong interdependent relationship with Japan, represented by its exports of petroleum and natural gas, as well as Japan's investment in Indonesia. Indonesia is a very important country for Japan, in the sense that it is situated in a region which has important sea routes and that it is a major political power in Southeast Asia. As the development needs of the country are great, Japan has cooperated to the maximum extent with Indonesia, focusing on economic cooperation, with the goal of ensuring the country's stability and development. Reflecting this situation, important officials from both governments continue to visit each other. In November 1990, President Soeharto, who attended the Enthronement Ceremony of the Emperor, met with Prime Minister Kaifu. Foreign Minister Nakayama visited Indonesia in June 1991 to exchange views with Foreign Minister Alatas on the Cambodian problem and other issues. These bilateral political dialogues will become increasingly important if the relations that developed centering on economic activities are to be further expanded into a more balanced relationship. From this perspective, the first senior official's consultative meeting on foreign policy was held in Jakarta in March 1991.


4-3. Singapore

As for domestic affairs in Singapore, Prime Minister Lee Kuan Yew resigned from office in November 1990. First Deputy Prime Minister Goh Chok Tong, who was also Defense Minister, succeeded him. As new Prime Minister Goh has confirmed that he will continue to follow the policies of former Prime Minister Lee, no fundamental changes are expected in both the domestic and foreign policies of Singapore. However, the new Prime Minister has stated that he will follow his own political style of governing through dialogue, and a somewhat different approach is likely to emerge from that of former Prime Minister Lee, who governed the country through his strong personality and leadership.

Economically, Singapore was hardly affected by the Gulf Crisis and attained an economic growth rate of 8.3 percent. Growth is seen in all sectors of the economy. With favorable domestic and foreign demand, the economy has powerful growth fundamentals.

In its foreign relations, Singapore had taken the stance that, out of consideration for neighboring countries, the establishment of diplomatic relations with China would take place only after diplomatic relations were normalized between Indonesia and China. Responding to the diplomatic normalization between these two countries in August 1990, Singapore established diplomatic relations with China in October 1990. Singapore had also said it was prepared to accept U.S. military facilities in the country if that would contribute to the continued presence of U.S. forces in Southeast Asia. In November 1990, Singapore and the United States agreed on the expanded use of the military facilities in Singapore by U.S. forces.

There is no major pending issues between Japan and Singapore, and the Government of Japan is trying to promote the favorable relationship by making broad exchanges in both the government and private sectors of the two countries. In November 1990, then Prime Minister Lee and Foreign Minister Wong Kang Seng visited Japan. In May 1991, Prime Minister Kaifu visited Singapore. Top-level dialogue between the two countries has been maintained by such visits. In the private sector, with increased direct investment, the number of Japanese visiting Singapore reached 990,000 in 1990, expanding exchanges in the economic field and human interaction.


4-4. Thailand

The Chatichai Choonhavan Cabinet established in August 1988 managed relatively stable domestic politics, supported by the cooperative relationship with the military and the favorable economic trend. But since 1990, confrontations among Cabinet members over various vested interests and corruption surfaced, breaking down the cooperative relationship with the military. These internal confrontations becoming serious, Prime Minister Chatichai reshuffled his Cabinet three times in the latter half of 1990 alone in an attempt to overcome these difficulties. Yet the situation did not improve, and on February 23, 1991, the military resorted to a coup d'etat on the ground that it could no longer let the government, which had lost the public trust, govern the country.

The coup d'etat in the country settled down quickly following the bloodless coup. King Bhumibol Adulyadej approved the political change and the new government. And the Thai public, which had become tired of the situation in the last days of the Chatichai government, accepted the coup calmly. Thereafter, through the promulgation of an interim Constitution, a civilian, Anand Panyarachun, formed on March 6 a Cabinet membered primarily of civilians. The national legislative assembly that was establisbed based on the interim Constitution will draft a permanent Constitution. A general election based on this permanent Constitution is to be held within 1991 or by April 1992 at the latest. The policy of the Anand Cabinet is to achieve a transition to a civilian government by holding a general election and to efficiently manage the domestic economy. So far, this policy enjoys the support of the public.

The new Anand Cabinet, placing top priority on restoring the international image of Thailand after the coup d'etat, has endeavored to maintain and further promote relations with other countries, including Japan and the United States. In addition, building and maintaining good relations with its neighboring countries and the promotion of economic cooperation are given high priority. Recently, relations with Laos have been improved. As for the Cambodian problem, Thailand continues to play an important role of facilitating communications among the leaders of the various Cambodian factions.

As for the Thai economy in 1990, although it was feared that rising crude oil prices due to the Gulf Crisis would have a negative effect, the impact was kept to a minimum due to appropriate measures taken by both the government and private sectors. The economy has recorded three consecutive years of double-digit growth since 1988, supported by increased exports and active investment activities both from foreign and domestic sources. On the other hand, due to rising imports of consumer goods, raw materials and capital goods, Thailand's trade deficit is expanding and inflationary pressure is likewise strengthening.

In relations with Japan, Crown Prince Maha Vajiralongkorn and then Prime Minister Chatichai visited Japan in November 1990 to attend the Enthronement Ceremony of the Emperor. From Japan, Foreign Minister Nakayama visited Thailand in August 1990 and Prime Minister Kaifu made a visit in April 1991 to continue active exchanges between the two countries. The visit of Prime Minister Kaifu was the first by the leader of an industrialized country after the coup d'etat. In a meeting with Prime Minister Kaifu, Prime Minister Anand expressed his determination to successfully make the transition to a civilian government at an early stage and stressed that there had been no basic change in Thai policies. Based on such intentions, the two leaders agreed that it would be important for the two countries to further strengthen their cooperative relationship.

Concerning trade with Japan, as a result of active foreign direct investment in recent years, imports from Japan centering on capital goods are increasing. Thailand's trade deficit with Japan reached about $5 billion in 1990. In the area of investment, direct investment from Japan in 1990 dropped by about 24 percent from the previous year, and it appears that the rapid increase in investment as the result of the effect of the strong yen since September 1985 passed its peak.


4-5. The Philippines

The domestic situation of the Philippines has become unstable since the failure of the major attempt of coup d'etat in December 1989 by dissatisfied elements in the military. Moreover, with the deterioration of the economic situation due to various external factors such as the great earthquake in Luzon in July 1990 and the Gulf Crisis, the latter half of 1990 was a difficult time for the Corazon Aquino Government. Under such conditions, the seventh revolt since the establishment of the Aquino Government took place in Mindanao in October 1990. The Aquino Government coped with the revolt with a resolute stance to overcome the crisis. Since 1991, the political situation has calmed down considerably and political attention is now shifting to the next Presidential election to be held in May 1992.

Economically, during the past two to three years, the Philippines attained a relatively high growth rate of around 5 to 6 percent. But since 1990, affected by the abovementioned natural disasters, the growth rate has decelerated. And with the occurrence of the Gulf Crisis in August 1990, the Philippines, which relies for a major part of its energy supply on crude oil imports from the Middle East, was dealt a blow by the rising crude oil prices. Its trade balance deteriorated, foreign currency reserves shrunk and inflation was rampant. Furthermore, many of about 600,000 Filipinos estimated to be working in the Middle East returned home or evacuated to other regions, cutting the foreign currency remittance and increasing domestic unemployment. As a result of this series of economic difficulties, the economic growth rate dropped to 3.7 percent in 1990 from 5.7 percent in 1989. However, no social and economic chaos emerged as initially feared, due to the various measures taken by the Aquino Government to overcome the difficulties and the strengthened sense among the public to manage the crisis through unity. In February 1991, the second Consultative Group meeting of donor countries under the Multilateral Assistance Initiative (MAI) for the Philippines was held in Hong Kong. The participating donor countries and international organizations made a pledge totaling approximately $3.3 billion in assistance to the Philippines. In June 1991, the Paris Club agreed to reschedule its credits to the Philippines. These steps are helping the Philippine economy to overcome the worst situation. However, the country still suffers from various economic difficulties such as massive external debts, foreign currency shortage, high unemployment, inflation and the gap between the rich and poor. The reconstruction of the economy continues to be the biggest problem facing the Aquino Government. In June 1991 the Mount Pinatubo volcano erupted causing extremely heavy damage and imposing yet a new burden on the Philippine economy, which was on its way to recovery.

In foreign relations, the Philippines has negotiated with the United States since September 1990 concerning the continued use of the Philippine military bases by the U.S. forces after September 1991. In July 1991, a basic agreement was reached whereby Clark Air Force Base and other military facilities will be returned to the Philippines and Subic Naval Base will continue to be used by U.S. forces for at least another 10 years. In August, the U.S.-Philippines Friendship Cooperation and Security Treaty, which includes this agreement, was signed. The Treaty was submitted to the Philippine Senate in late August, but after deliberations, the Senate refused on September 16 to ratify it. President Aquino then announced on October 2 that the Philippine Government would seek to hold negotiations with the United States Government to conclude an administrative agreement providing for the withdrawal of U.S. forces within three years. President Aquino, with the stance that she would continue to concentrate on domestic affairs, did not visit foreign countries with the exception of a trip to Japan to attend the Enthronement Ceremony of Emperor Akihito in November 1990.

Japan makes it a basic policy to support the Philippines as much as possible, given its efforts to reconstruct the economy under the difficult situation. This stance was repeated by Prime Minister Kaifu during his visit to the Philippines in May 1991 and by Foreign Minister Nakayama when he visited the country in July of that year. Moreover, at the second MAI meeting of February 1991, Japan, which has been the largest donor to the Philippines, made a pledge to provide Official Development Assistance totaling about \205.3 billion for fiscal 1990. On the private level, trade and investment between the two countries are growing steadily. In particular, direct investment from Japan increased substantially in 1990, making the country the largest foreign investor in the Philippines, as it was in 1989.


4-6. Brunei

The domestic situation of Brunei continues to be stable, and there is no change in the foundation of its economy which relies exclusively on the production of petroleum and natural gas. There is no specific movement to transform this economic structure.

Brunei's foreign policy is centered on ASEAN. Brunei consistently supported the U.N. resolutions on the Gulf Crisis.

Brunei exports about 30 percent of its petroleum and all of its natural gas to Japan, and the two countries are in an interdependent relationship. Brunei hopes to transform its economic structure and has great expectations of Japan in terms of technology transfers. Japan's policy is to meet this expectation to the extent possible. Regarding government-level exchanges, Sultan Hassanal Bolkiah, who is also serving as Prime Minister, and Finance Minister Jefri Bolkiah visited Japan to attend the Emperor's Enthronement Ceremony in November 1990. Prime Minister Kaifu made the first visit to Brunei in April 1991 as a Japanese Prime Minister since Brunei gained its independence. In his meeting with Kaifu, Sultan Hassanal Bolkiah expressed strong support for the Japanese decision to dispatch minesweepers to the Persian Gulf.


4-7. Malaysia

The Lower House was dissolved and a general election was held in October 1990 in Malaysia. In this general election, opposition parties formed a powerful alliance hitherto unknown. And after the deadline for registering candidates, part of the ruling party alliance changed to the opposition alliance, which led to speculation that the ruling party might not win the two-thirds majority needed to amend the Constitution. However, the ruling alliance won 127 out of 180 seats, although in the state elections held concurrently with the general election in the Peninsular states, the opposition won all of the seats in Kelantan State. Prime Minister Mahathir, with the impetus of the general election victory, won an uncontested victory in the election for the presidency of United Malays National Organization in November 1990, which is the dominant party within the alliance. He thus stabilized his position further.

The economy is steadily expanding with the 1990 GNP growth rate reaching 10 percent. Foreign direct investment into Malaysia also grew briskly, increasing by 83 percent in 1990 compared with the previous year. In June 1991 the New Economic Policy (1971-1990) ended and the New Development Policy, which would become the guideline for the country's long-term economic management from 1991 to 2000, was submitted to the Lower House and enacted. The major objectives of this policy are the eradication of poverty and social reorganization, just as in the New Economic Policy. In order to attain these objectives, emphasis will be placed on human resource development and the promotion of science and technology premised on sustained high economic growth.

In foreign affairs, Malaysia served as a non-permanent member of the U.N. Security Council until the end of 1990. In July 1991, both the ASEAN Foreign Ministerial Meeting and the ASEAN Post-Ministerial Conference were held in Kuala Lumpur.

To further promote its steadily progressing economic development, Malaysia has great expectations of Japan regarding economic cooperation, investment and human resource development, with the "Look East Policy" (Note) as its pillar. Japan tries to respond to these expectations as much as possible. As for government-level exchanges, Prime Minister Kaifu visited Malaysia in April 1991 to exchange views with Prime Minister Mahathir on cooperation toward the "Look East Policy" and other subjects. Foreign Minister Abdullah visited Japan in May. In the economic field, Japan continued to be Malaysia's largest trading partner in 1990, when the volume of trade between the two countries grew by 18 percent over the previous year. Japan is the second largest investor in Malaysia, with direct investment growing by 67 percent in 1990.


4-8. Vietnam

The 7th Congress of the Communist Party of Vietnam was held at the end of June 1991, in which a major reshuffle of personnel was decided, including the resignation of General Secretary Nguyen Van Linh. At the same time, under new General Secretary Dow Muoi, the continuation and reinforcement of the reform policy centering on liberalization and the external opening of the economy were confirmed. It was also confirmed in this Party Congress that the domination of the Communist Party as the country's sole political party would be maintained and that political pluralism would not be introduced, as against the changes in the Soviet Union and Central and Eastern Europe. However, movement toward democratization, such as strengthening the power of the legislature, are gradually mounting.

Economically, some bright developments were seen in 1990. These include a 17 percent increase in crude oil production over the previous year to 2.7 million tons and an 11 percent increase in rice exports to 1.5 million tons. On the other hand, there were many negative factors, such as increasing unemployment, cuts in the supply of oil products, fertilizers and other materials from the Soviet Union, and stagnating public enterprises. Vietnam, whose per capita GNP is estimated to be $200, has not yet been able to grow out of poverty.

In foreign affairs, after the announcement at the end of September 1989 that it would withdraw its forces from Cambodia, Vietnam has taken the stance that only domestic problems remain in Cambodia and that they must be solved by the Cambodians themselves. But the international community considers that there is a substantial role to be fulfilled by Vietnam in solving the Cambodian problem. Efforts to improve Vietnam's relations with China were made through the China-Vietnam summit held in Cheng du in September 1990 and on the occasion of the Asian Games in Beijing, at which Deputy Prime Minister Vo Nguyen Giap attended. Trading exchange by civilians in the border areas became active. Amid this changing situation, Defense Minister Le Due Anh, who is a Politburo member, visited China in July 1991, followed by the visit of Vice Foreign Minister Nguyen Di Nien in August. It was basically agreed in these meetings that China and Vietnam would endeavor to solve the Cambodian problem. Other specific progress was seen toward the normalization of relations between the two countries, such as exchanging views on the normalization of economic, trade, transportation and postal relations.

Improving relations with the United States is also Vietnam's major issue. Certain steps were taken toward this goal, such as the ministerial talks that Foreign Minister Nguyen Co Thach had with Secretary of State James Baker when they attended the U.N. General Assembly in September 1990 followed by the visit of Mr. Thach to Washington. Although the United States put forward to Vietnam a "road map" indicating conditions to be met in stages for the normalization of relations with Vietnam, no progress is seen as expected by Vietnam.

Even within the constraints imposed by the Cambodia problem, it is very important for Japan's Southeast Asian policy as a whole to consider the medium- and long-term relations with Vietnam, which takes an important position both geographically and historically in Indochina and has great potential for economic development against the background of its abundant natural resources and high quality labor. From such a perspective, although Japan-Vietnam relationship as a whole has stagnated since the Vietnamese invasion of Cambodia at the end of 1978, efforts have been continued to enhance political dialogue, cultural and academic exchanges and other exchange of persons.

The visit of Foreign Minister Thach to Japan in October 1990 and Foreign Minister Nakayama's visit to Vietnam in June 1991 were made possible as a result of steady efforts. In particular, the visit of Foreign Minister Nakayama to Vietnam was the first by a Japanese Foreign Minister to the country after the unification of North and South Vietnams and signified the arrival of a new era in Japan-Vietnam relations. Foreign Minister Nakayama took this opportunity to reveal the Japanese perspective on future Japan-Vietnam relations, expressed Japan's official position to support the open-door policy of Vietnam and conveyed its intention to expand intellectual support to positively assist in Vietnam's efforts. It was also agreed with the Vietnamese leadership that both countries would endeavor toward the solution of the Cambodian problem. Trade relations between Japan and Vietnam have been dramatically expanding with increased exports of crude oil to Japan. Year by year, Japanese enterprises' interest in Vietnam is increasing.


4-9. Cambodia

Since the Paris Conference of 1989, various efforts have been made by the countries concerned toward an early solution of the Cambodian problem, which has been the greatest destabilizing factor in Southeast Asia. Japan, from the stance of positively contributing as an Asian country to an early solution of the Cambodian problem, has made efforts to facilitate dialogue among Cambodian parties directly involved in the conflict. These efforts are based on the idea that it is indispensable for the Cambodians themselves to make realistic decisions for the ultimate solution of the Cambodian problem. The Tokyo Meeting on Cambodia held in June 1990 was a specific example of such Japanese efforts. The basic objective of Japan's foreign policy in Southeast Asia is to contribute to the peace and stability of the region as a whole by building trusting relations with Indochinese countries through a solution of the Cambodian problem and by cooperating in the development of the Indochina region, modeling after the establishment of friendly relations with the ASEAN countries.

In the Tokyo Meeting on Cambodia, Prince Sihanouk and Prime Minister Hun Sen (Phnom Penh Government) signed a joint communique advocating the establishment of the Cambodian Supreme National Council (SNC) with a balanced composition consisting of the equal number of representatives of the two governments. But due to the opposition of the Khmer Rouge, the SNC was not created. However, in the meeting of the four Cambodian factions in Jakarta in September 1990, the Khmer Rouge showed more flexibility and it was agreed by all the Cambodian parties to establish the SNC of which the composition was virtually along the lines of the joint communique made in the Tokyo Meeting. It is said that the progress in the China-Vietnam dialogue was in the background of such an advancement as was seen in Jakarta. But little progress was made afterwards by the SNC itself due to disagreements among all factions on the selection of the Chairman.

Meanwhile, the five permanent members (P-5) of the U.N. Security Council have held unofficial meetings on the Cambodian problem since January 1990. At the end of August, the P-5 agreed on an outline stipulating the framework of a Cambodian peace settlement, which was accepted by each of the Cambodian factions in the Jakarta meeting. Amid the situation in which the SNC could not take substantive action, the P-5 and the Co-chairmen of the Paris Conference formulated draft agreements on a comprehensive political settlement agreement in November. The Co-chairmen invited the SNC members to Paris in December to show them these draft agreements.

In this Paris meeting the National Government side indicated its full acceptance of the draft agreements. But the Phnom Penh government argued that it was difficult to accept some provisions of the draft agreements on the ground that the dissolution of the present government with the massive intervention of the United Nations might invite political chaos and that once disarmed it could not prevent the reoccurrence of atrocities by the Khmer Rouge. It was decided, thus, that details would continue to be worked out in the Paris Conference Coordination Committee and in the SNC. Thereafter, without any prospect of either the Coordination Committee or the SNC being held, the movement toward peace in 1991 was considered to be once again stalled.

Japan judged that the interest of the international community in the Cambodian problem would fade and momentum toward the peace settlement would be lost if such a situation continued, and endeavored to break the deadlock with the following actions. Japan made a series of contacts with both the Phnom Penh and National Governments by indicating Japan's unofficial idea to reinforce the draft agreements with a view to supporting the co-chairman of the Paris Conference from the sidelines, which were highly evaluated by the Cambodians themselves.

On the other hand, in April 1991, the co-chairmen of the Paris Conference and the U.N. Secretary-General jointly appealed to all Cambodian factions for a voluntary cease-fire until a meeting could be held between the co-chairmen and the SNC members. Responding to this appeal, a voluntary restriction on the use of force beginning May 1 was realized for the first time.

Nevertheless, in the meeting held in Jakarta from June 2 to 4, the proposal of the co-chairing countries to begin the work of revising the peace proposal based on the argument of the Phnom Penh Government was defeated due to the vehement reaction by the Khmer Rouge. And while Prince Sihanouk and Mr. Hun Sen (Phnom Penh Government) agreed outside the formal plenary on the election of the SNC Chairman and the extension of the interim cease-fire, due again to the opposition by the Khmer Rouge, the Jakarta Meeting did not lead to any substantial progress toward a peaceful settlement of the problem. The international community strengthened its criticism of the uncompromising attitude of the Khmer Rouge.

Amid such a situation, Prince Sihanouk strengthened his confidence in the cooperative relations with Mr. Hun Sen and demonstrated outstanding leadership in the second SNC Meeting of June 24-26 held in Pattaya, Thailand, as well as in the unofficial SNC Meeting held in Beijing on July 15-16. An agreement was reached on (1) Prince Sihanouk assuming the SNC Chair, (2) the establishment of the SNC headquarters in Phnom Penh, (3) the extension of the interim cease-fire and the suspension of assistance from foreign sources and (4) a request for the U.N. to monitor the cease-fire and for the U.N. Secretary-General to dispatch a survey mission to determine the scale of the monitoring team. The United Nations decided at the end of August to send the survey mission.


Japanese Cooperation to the Cambodian Issue

(First Half of 1991)


February Mission led by Minister Imagawa to Phnom Penh (explained Japan's unofficial view on peace to the Phnom Penh Government).
Mission led by Minister Ikeda to Beijing (explained Japan's unofficial view on peace to the three parties of the National Government).
March Mission led by Minister Ikeda to Beijing (consulted with the three parties of the National Government).
Visit to Japan by Prime Minister Son Sann of the National Government on Japanese invitation; Meetings with Prime Minister Kaifu and Foreign Minister Nakayama.
April Meeting between Foreign Minister Nakayama and Prince Sihanouk in Beijing.
Unofficial visit by "Prime Minister" Hun Sen and meeting with Foreign Minister Nakayama in Bangkok.
May Meeting between Prime Minister Kaifu and leaders of the National Government
June Meeting between Foreign Minister Nakayama and "Prime Minister" Hun Sen in Hochimin City.


 After 12 years of civil war, the mood is prevailing among the Cambodian leaders that the Cambodians themselves must solve the problem. And the SNC, which could not engage in any substantive activity after it was created in September 1990, began to perform its real function. However, detailed discussions were made neither in Pattaya nor in Beijing on disarmament, which is the core of the draft agreements which the Phnom Penh Government finds problematic. The specific modus operandi of the proposed U.N. intervention was not discussed either. In this respect, the direction of the third SNC meeting scheduled for August 26 in Pattaya was closely watched. In this meeting Prince Sihanouk and the SNC chaired by him agreed that each faction would disarm 70 percent of its soldiers and the remaining 30 percent would be kept in cantonment areas with their arms to be kept under the control of the United Nations Transitional Authority in Cambodia (UNTAC), and as for the authority of the SNC and UNTAC, if no consensus is reached among the SNC members, Chairman Sihanouk is to make the final decision.

As such, the peace process in Cambodia has seen major progress with the Cambodian factions, including the Khmer Rouge, showing flexibility under the leadership of Prince Sihanouk amid the improving relations between China and Vietnam. Final adjustments are now to be made toward the resumption of the Paris Conference.


4-10. Myanmar

An unclear situation continues in Myanmar concerning the procedure and the timing of the transfer of power, even though more than a year has passed since the general election of May 1990. The Government of Myanmar argues that a strong new Constitution is essential from the perspective of uniting the nation as a precondition of yielding power to the new government. And while it says that a national convention, which will consist of members of the legislature, leaders of all political parties and representatives of minority races, will be held to draft the Constitution, neither the timing nor the procedure for the national convention has been indicated. On the other hand, while the government takes the stance of promoting an open economic policy, there is no prospect of overcoming economic difficulties attributable to the rigid economic structure and economic mismanagement in monetary and fiscal policy.

Japan has been conveying to the Government of Myanmar at every opportunity the importance of indicating a specific schedule for transferring power based on the result of the general election. Meanwhile, the Government of Japan is gradually resuming the economic cooperation that had been disrupted following the political chaos in 1988 starting from feasible projects. As for the implementation of new projects, Japan takes the stance of continuing to wait and watch the situation except for emergency and humanitarian aid.


4-11. Laos

Amid continuing economic reforms based on an open-door policy, the Lao People's Democratic Republic celebrated its 15th anniversary in December 1990. In March 1991 the Fifth Congress of the Lao People's Revolutionary Party, held for the first time in five years, confirmed the maintenance of the leadership centering on Party Chairman Kaysone Phomvihane, and the promotion of political and economic reforms under the party leadership. With the progress made in legal work, a new Constitution was promulgated in August 1991. Based on the new Constitution, former Prime Minister Kaysone was elected as the new President and former Deputy Prime Minister and Defense Minister Khamtay Siphandon became the new Prime Minister.

In foreign relations, no change was seen in the basic policy of strengthening collaborating relations with the socialist countries, such as Vietnam, Cambodia (the Phnom Penh Government) and the Soviet Union. In contrast to the weakened relations with the Soviet Union and the Central and Eastern European countries, relations with China, Thailand and Western industrialized countries improved and expanded.

Laos is the only Indochinese country which is free from constraints arising from the Cambodian problem. As the country is anxious to study the Japanese experience with economic reforms, with emphasis placed on free-market principles and the open-door policy, Japan attaches importance within its future Indochinese policy as a whole to building favorable relations with Laos mainly through economic cooperation.

The visit of Prime Minister Kaysone to Japan in November 1989 and the visit of Foreign Minister Nakayama to Laos in August 1990 gave impetus to the formation of closer relations between the two countries. Thereafter, not only on the government level, exchanges of parliamentarians and members of the private sector have become active. Japan welcomes the open-door policy of Laos and, to support the Lao efforts, has sent experts on economic management and legal matters.


5. South Asia


5-1. Overview

In response to the changes in the international order, the South Asian countries are confronted with the imminent need to review their traditional policies in their relations with countries both outside and inside the region. Moreover, the Gulf Crisis not only had enormous adverse economic effects on the countries in South Asia but also stimulated emotions of the Moslems, having great impact on both the domestic and external relations of each country. Under the situation, the diversity of ethnicities, religions, languages and cultures, which is one of the features of South Asia, has further complicated the domestic political situation of each country. Since April 1990, there were changes of government in four countries: Nepal, Pakistan, India and Bangladesh. The assassination of former Prime Minister Rajiv Gandhi of India in May 1991 epitomizes the instability.

On the other hand, there have been favorable developments in South Asia, such as the progress of democratization in Nepal and Bangladesh, the launching and continuation of the Foreign Secretary-level Talks between India and Pakistan to build confidence between the two countries, and the signs of expanding regional cooperation through South Asian Association for Regional Cooperation (SAARC). It can be said that these developments, in general, reflect a strengthened orientation toward realistic policies.

All of the South Asian countries have favorable sentiments toward Japan. These countries sent highest-level representatives to the Enthronement Ceremony of the Emperor in November 1990. Moreover, against the background of outstanding economic progress of Japan in recent years, expectation is growing high for a larger role of Japan, not only economically, but also politically. At this juncture when South Asia is at a turning point, it is significant for Japan to make appropriate contribution to the region in response to such expectation without losing proper timing. From such a perspective, Japan has actively supported the favorable developments in South Asia. For example, Japan worked on both India and Pakistan to endeavor to solve the Kashmir problem peacefully through dialogue, provided materials and information related to the Japanese Constitution to be used as a reference in the drafting of a democratic Constitution in Nepal, dispatched multi-party election observation teams on the occasions of general elections in Bangladesh and Nepal, and provided materials concerning the cooperative relations between Japan and ASEAN as a reference for SAARC's study on its possible cooperation with countries outside the region. The February 1991 general election in Bangladesh was the first occasion in which Japan sent an observation team to foreign elections in which the United Nations was not involved. It was also the first time that Japanese Diet members observed a foreign general election.

In addition, while the relationship between Japan and South Asia had tended to be centered on economic cooperation, during the visit of Prime Minister Toshiki Kaifu to the region in April to May 1990, Japan expressed its intention to endeavor to broaden and deepen this relationship, comprising political, economic, and cultural fields. From such a perspective, "South Asia Forum" was set up in the Ministry of Foreign Affairs as of fiscal 1991, to obtain advice from intellectuals in various fields on how to give depth and breadth to Japan's relations with South Asian countries.


5-2. India

In August 1990, Prime Minister V.P. Singh announced the Reservation Policy to secure a certain percentage of civil service jobs for backward castes. Protests against the policy spread among students and intellectuals mainly in Northern India, and some committed suicide by setting themselves on fire. Amid the intensifying clashes in late October between the Hindu and Moslem populations over the issue of constructing a temple at Rama's birthplace (Note), the Bharatiya Janata Party withdrew its support for the Singh Government and the government collapsed in November. Thereafter, Chandra Shekhar, who left the ruling Janata Dal (People's Party) to form the Janata Dal (Socialist), became Prime Minister with the support of the Indian National Congress. However, because of the refusal of the Indian National Congress to cooperate in parliamentary deliberations, Prime Minister Shekhar, heading a minority government, announced his resignation in March 1991. The general elections were scheduled to be held on three different dates toward the end of May.

On May 21, immediately after the first ballots were cast, former Prime Minister Rajiv Gandhi was assassinated by a terrorist bomb, and the remaining votes were postponed till June. When the elections resumed, the Indian National Congress received the largest votes though it failed to obtain a majority. Mr. Narasimha Rao was elected as the new president of the Party and became Prime Minister.

The Indian Government had long been suffering from both fiscal and balance of payments deficits. The situation became extremely serious in the first half of 1991 due to the adverse impact of the Gulf Crisis amid the domestic political instability. With the stance of attaching importance to Asia, Japan, prior to any other donor countries, exchanged Notes with India in May and June 1991 concerning the provision of new ODA loans totaling $300 million.

The Rao Government places top priority on overcoming the economic crisis. The government took drastic measures to promote liberalization and to reconstruct the economy, such as devaluing the rupee and announcing a new industrial policy that significantly relaxes regulations under the complicated authorization and licensing system.

The tension between India and Pakistan intensified during the first half of 1990 over the Kashmir issue. Responding to suggestions, among others, by Prime Minister Kaifu to start a dialogue during his visit to South Asia, Foreign Secretary -level Talks started in July 1990 between the two countries, and were held four times by April 1991. This demonstrates some progress in building confidence between the two countries.


5-3. Pakistan

After the dismissal of Prime Minister Benazir Bhutto in August 1990, a general election was held in October under the caretaker government led by Mustafa Jatoi, the then leader of the Combined Opposition Party. The Islamic Democratic Alliance won a majority and Nawaz Sharif, the president of the Alliance, became Prime Minister in November 1990.

The new Government, unlike the Bhutto Government, has a stable base in the Parliament and began with the confidence of the military. Moreover, since Prime Minister Nawaz Sharif is an industrialist, the Government set forth radical economic reforms that include liberalization and deregulation. It seemed that the new Government had a smooth start.

However, the Sharif Government was confronted with three major problems. The first was the political and economic impact of the Gulf Crisis. As the Gulf Crisis became serious, anti-U.S. and pro-Iraq demonstrations and meetings took place all over the country led by Islamic fundamentalist political parties and religious leaders, posing a great difficulty for the Pakistani Government, which had dispatched 11,000 soldiers to Saudi Arabia. The fiscal deficit and the trade deficit became even more serious due to rising crude oil prices. The second problem was the suspension of the U.S. military and economic assistance to Pakistan due to suspicions of nuclear development in the country. The third problem was the deteriorating public peace and order. The Pakistani Government amended the Constitution so that drastic measures can be taken to improve public order in Sind and other provinces.

Policy agenda facing the Sharif Government are, among others, to stabilize its political base, including improving the domestic law and order situation, and in foreign policy, to improve relations with the United States and establish a favorable relationship with the new Indian Government.


5-4. Nepal

Responding to the heightening democratization movement from early 1990, King Birendra declared to introduce a pluralistic political system in April of that year. In November a new Constitution was promulgated stipulating the sovereignty of the people, plural political party system and the protection of basic human rights. In May 1991, general elections participated by plural political parties were held for the first time in 32 years. As a result, the Nepali Congress Party secured a majority and the new leader of the party, Koirala, was appointed Prime Minister.

To support the democratization efforts of Nepal, Japan provided materials and information concerning the Japanese Constitution, as well as motor vehicles which the Nepali Election Commission could use. Japan also sent an election observation team composed of multi-party Diet members.


5-5. Bangladesh

Since the anti-government unified student front was formed in October 1990, major opposition parties joined the front, thus, intensifying the anti-government movement that demanded the resignation of President Hossain Mohammad Ershad and the holding of free and fair elections. President Ershad resorted to the declaration of a state of emergency at the end of November. But because among other things, the army remained neutral, completely accepting the demands of the opposition parties, he decided to resign in December, and appointed Chief Justice of the Supreme Court Ahmed as new Vice-President to become acting President after his resignation. Thus the Ershad Government came to an end after the longest reign among the Bangladesh Governments of eight years and nine months.

Under the interim Ahmed Government, general elections were held in a free and fair manner on the whole, at the end of February 1991. The Bangladesh Nationalist Party (BNP), which had been in opposition, emerged as the largest party and Begum Khaleda Zia, President of the BNP, became Prime Minister in March. Japan, after the declaration of the state of emergency, announced its hope that the situation should be settled through political dialogue among parties concerned for the sake of an early return to democratic process, thereby contributing to the peaceful change of the government. Japan also sent an election observation team composed of multi-party Diet members. At the end of April, the Zia Government was hit by the worst cyclone disaster since the independence of the nation, even before it was able to overcome the adverse economic impacts of the Gulf Crisis. The Zia Government needs to deal with issues such as reconstructing the country's economic infrastructure, in addition to political tasks such as transferring itself to a parliamentary system.


5-6. Sri Lanka

A cease-fire was declared in January 1991 in Sri Lanka, where the conflict between the Government forces and the Tamil guerrillas, i.e. the Liberation Tigers of Tamil Eelam (LTTE) had long been continuing. But the cease-fire was not extended and a prospect for a peaceful solution of the situation is yet to be seen. As there is an increasing suspicion that the LTTE was involved in the assassination of former Indian Prime Minister Rajiv Gandhi, India, which had some sympathy to the LTTE, is now expected to step up legal enforcement on the LTTE at home. Once the fighting between the Sri Lanka Government forces and the LTTE calms down, there is a possibility of bringing about a cease-fire and political negotiations. Meanwhile, the economy of Sri Lanka has overcome the adverse effects of the Gulf Crisis relatively soon and has shown a steady recovery.


5-7. Bhutan

While the political situation is generally considered to be stable, anti-government movements were seen by some of the Nepali population in the southern part of the country against the policy which obliges citizens to wear traditional Bhutan clothes and promotes Dzongkha language education. In 1991, the situation has generally calmed down.


5-8. Maldives

Since the failed coup attempt in 1988, the social situation has been stable on the whole. In November 1990 the Maldives hosted the fifth SAARC Summit Conference, contributing to the promotion of cooperative relations in South Asia.


6. Oceania


6-1. Australia

The greatest domestic task for the Australian Labor Party Government led by Prime Minister Robert Hawke, who was reelected in March 1990 for the fourth term, is to transform Australia's economy that is traditionally dependent on exports of natural resources into one that is internationally competitive with manufacturing industries at the core. For this reason, the Hawke Government, which has been in power for 8 years since 1983, is actively promoting economic structural reforms, including reduction of tariffs, restructuring of industries and promotion of a more flexible labor market.

Since Australia overcame the recession in 1983, the Hawke Government has been actively promoting economic structural reforms while taking stringent fiscal policies. As a result, the domestic economy became stable. The fiscal deficit, which had accounted for 7.1 percent of Gross Domestic Product (GDP) in 1983, almost balanced in 1989, and the inflation rate, which had exceeded 10 percent, went down to 4.9 percent in the fourth quarter of 1990.

However, further tight policies that were taken since mid-1988 in response to overheating of the economy which had recovered in 1987, resulted in the economy slowing down since mid-1990. The Australian economy is facing difficulties illustrated by its high interest rates (the discount rate was 11 percent as of June 1991) and high unemployment rate (9.3 percent as of June 1991). This gradually lowered public support for the government. With this background, the leadership question between Prime Minister Robert Hawke and Finance Minister Paul Keating surfaced within the ruling Labor Party at the end of May 1991, but Mr. Hawke was reelected as party leader, and Mr. Keating resigned from the office of Finance Minister.

Australia, as a member of the Asia-Pacific region, has recently been strengthening its posture to contribute to the peace and stability in the region. As for the relationship with Japan, Australia with its rich mineral resources and large agricultural production, has traditionally been a stable supplier of resources. It has played a major role for the economic development of Japan (Note 1). Politically, the two countries share interests as developed and democratic nations. The bilateral relations have thus seen steady development on the basis of the complementary trade relations. Australia is the third largest exporter to Japan, accounting for 5.3 percent (1990) of the total imports of Japan. While Australia is thus an important trading partner in terms of trade volume, as we look at the index of the degree of complementarity, which is a tool for analyzing the contents of trade, Australia marks the highest figure among the major trading partners of Japan (Note 2).

For Australia, Japan is the largest trading partner, accounting for approximately 23 percent of its total trade. This is equivalent to the importance for Japan of the United States whose share accounts for about 27 percent of Japan's total trade.

Australia's expectation for Japan is also high in terms of Japanese capital and technology in the context of its economic reforms. In particular, strong expectations exist for Japanese investment in the field of research, such as in the relevant aspects of the Multi-function Polis (MFP) project (Note 1), and in the manufacturing industry (Note 2).

Australia is thus changing its orientation from that of a European nation to an Asia-Pacific country. In particular, the country attaches great importance to strengthening of its relationship with Japan as a cornerstone of its external policy. In actively coping with global questions, such as the environment, arms control and disarmament and regional questions such as the Cambodian problem and the Asia-Pacific Economic Cooperation (APEC), Australia highly values cooperation and coordination with Japan. Such Australian posture was also reflected in the encouraging remarks by Prime Minister Hawke expressed during his visit to Japan in September 1990 supporting the active role of Japan commensurate with its economic strength in the field of international politics as well.

Moreover, the 11th Japan-Australian Ministerial Committee, which was held in Canberra in May 1991, was the largest in its history, with six Cabinet members led by Foreign Minister Taro Nakayama and two parliamentary vice-ministers attending from the Japanese side and nine Cabinet members attending from the Australian side. This was symbolic of the steady progress in and widening of the friendly cooperative relationship between the two countries. The meeting was also rich in substance. It was confirmed that the two countries will continue to cooperate and coordinate not only on bilateral issues but also on Asia-Pacific matters as well as global questions such as the environment, disarmament and the Uruguay Round. Both sides renewed their commitment to further cooperate toward a "constructive partnership" between the two countries. Australia has become an indispensable partner for Japan.


6-2. New Zealand

In September 1990, Prime Minister Geoffrey Palmer resigned and Mr. Michael Moore was elected as leader of the Labor Party. In the October 27 election, however, the National Party led by Mr. James Bolger won by a large majority, and the National Party took power for the first time in six years.

The new administration, while maintaining the non-nuclear policy, has been endeavoring to improve relations with the United States, which deteriorated because of the policy. During the Gulf Crisis, New Zealand fully supported the Multinational Forces by dispatching two air force transport planes and a medical team. In May1991, Minister of External Relations and Trade, Don McKinnon, visited the United States and tried to further improve the country's relations with the United States. No significant development was observed, however, in the defense and security areas of the bilateral relations.

In the economic field, New Zealand, as a major member of the Cairns Group, which consists of countries exporting agricultural products, involves itself in the Uruguay Round of trade negotiations for its successful conclusion.

Japan and New Zealand are countries in friendly relations, located in the Asia-Pacific region, and share such values as democracy and free trade. In addition, the two countries have become stable trading partners on the basis of complementary economic and trade structures. For Japan, New Zealand is a stable supplier of agricultural products (Note). For New Zealand, Japan is the second largest destination of its exports (16.3 percent in value) and the third largest for its imports (15.0 percent in value). In recent years, New Zealand has been recording surpluses in its trade with Japan (some $500 million in 1990). As in the case of Australia, expectations for Japan are high in terms of trade and investment in the process of its efforts aimed at an internationally competitive economy.

In April 1991, Foreign Minister Nakayama visited New Zealand and exchanged views with Prime Minister Bolger, Minister of External Relations and Trade Minister McKinnon, and others on international political and economic issues as well as on bilateral relations with the new Government. In particular, support was expressed from the New Zealand Government for the Japanese contributions coping with the Gulf Crisis, including the dispatch of minesweepers. Due to its geopolitical position and historical back-ground, New Zealand enjoys strong ties with South Pacific island countries and plays a major role in the South Pacific. Japan regularly exchanges views with New Zealand on issues of th6 region.


6-3. South Pacific Island Nations

The Pacific region is a vast oceanic region adjacent to Japan. The peace and stability of this region as well as the maintenance and development of friendly relations with the countries in the region have an important bearing on the peace and security of Japan.

In recent years, cooperation among the island countries in the region is being strengthened for issues of common interest and concern. The South Pacific Forum (SPF) and the South Pacific Commission (SPC), which are major organizations for regional cooperation in the South Pacific, are endeavoring to overcome economic vulnerabilities of the island countries which are small in size with scattering territories. Japan is making efforts to strengthen its relations with these organizations. For example, Japan has been participating annually in the Post-Forum dialogues which are held right after the meeting of the SPF since 1989. Japan has dispatched experts and has been contributing $400,000 annually to the Forum Secretariat since 1988. As for the SPC, Japan has been attending its plenary and other sessions as an observer, and extended small-scale cooperation grants to SPC facilities. On albacore tuna, which is an important fishery resource of the island nations, Japan actively participated in the third Consultation on Arrangements for South Pacific Albacore Fisheries Management held in October 1990.

In Papua New Guinea, the Bougainville issue, which started with the demand for compensation at the end of 1988 by the land-owners of the Bougainville mine and escalated into a declaration of independence in May 1990, is yet to be solved. In Fiji, changes have been observed in the political system, maintained since its independence, including the promulgation of a new Constitution in July 1990 by the interim government established through the coup in 1987.



to table of contents



Note :The two crew members of No. 18 Fujisan Maru, who had been detained in North Korea, returned to Japan in October 1990 with the delegations of the Liberal Democratic Party and the Socialist Party who attended the 45th anniversary ceremony of the Korean Labor Party.


Note :The "Look East Policy" aims to foster human resources through studying the economic development processes and work ethics of Japan and South Korea. The policy was proposed by Prime Minister Mahathir in 1981.


Note :The controversy which arose between Hindus and Moslems over a movement to build a Hindu temple on the site where an Islamic mosque stands in Ayodhya, a holy place of Hinduism in Northern India.


Note1:The shares of imports in 1990 from Australia in Japan's total imports of coal, iron ore and natural gas are 48.6 percent, 39.0 percent and 7.7 percent respectively.


Note2:The index of the degree of complementarity indicates the complementarity between one country's export structure and another country's import structure. According to 1987 statistics, the indices of complementarity with Japan were 2.21 for Australia, 1.59 for ASEAN, 0.98 for the United States, and 0.77 for Western Europe.


Note1:This project envisions the construction of a future-oriented, multi-function city encompassing offices, residences, leisure and academic facilities in Adelaide, Western Australia.


Note2:While Japan is the largest foreign investor in Australia with $3.67 billion, investment related to real estate and services accounts for about 52 percent of the total on the registration basis in 1990.


Note :In 1990, New Zealand supplied 99 percent of Japan's total imports of Kiwi fruit and 52 percent of the total lamb and mutton.