No. 1 — January 10, 1997


Weekly Review

--aa-by Christopher B. Johnstone

When leftist guerrillas seized the residence of Tokyo's ambassador to Peru, leaders of the group pointed to Japanese influence over the nation's economy as one reason behind the attack. The December 17 incident resulted in the capture of hundreds of guests — including dozens of Japanese government and business representatives — attending a celebration of Emperor Akihito's 63rd birthday. The rebel group subsequently released many of the hostages; the number of captives in the second week of January stood at 74, among them 24 Japanese citizens. The guerrilla group has issued a list of demands that it says must be met before the remaining hostages are freed. Among them are the release of some 400 comrades currently held in Peruvian prisons and revision of the government's free-market reforms. Members of the Tupac Amaru Revolutionary Movement also singled out for criticism Japan's foreign assistance program in Peru, arguing that this aid benefits only a narrow segment of society. The nature of the attack fueled speculation that the guerrillas' efforts were targeted specifically at Japan as well as the government of President Alberto Fujimori, himself the son of Japanese immigrants to Peru.

Japan's influence over the Peruvian economy has been overstated dramatically. Mr. Fujimori certainly has embraced closer ties with his ancestors' homeland, visiting Japan six times since he first was elected to the presidency in 1990. Tokyo has been receptive to closer ties as well, in part out of a sentimental attachment to the estimated 80,000 people of Japanese ancestry living in Peru. In a break with much of the industrialized West, for example, Japan refrained from criticizing Mr. Fujimori's decision to suspend constitutional rule in 1992 as part of an effort to crack down on Maoist insurgents. More recently, Prime Minister Ryutaro Hashimoto visited Peru last August on a landmark 11-day tour of Latin America (see JEI Report No. 33B, August 30, 1996). He brought with him a pledge to provide some ¥70 billion ($700 million at ¥100=$1.00) in foreign aid loans for four infrastructure projects — as well as rhetorical support for Lima's effort to join the Asia Pacific Economic Cooperation forum.

Nevertheless, in many ways economic ties between Japan and Peru are shallow at best — although growing. In 1995, for example, Peru received just $66 million in development funds from Japan. That figure, representing less than 1 percent of Tokyo's total bilateral aid disbursements for the year, placed Peru 29th on the list of the largest recipients of Japanese direct foreign assistance. The United States was a substantially larger donor to Peru in 1995.

Japan's investment presence is hardly more significant. According to the Ministry of Finance, cumulative Japanese direct investment in Peru through FY 1994 totaled just $700 million, or slightly over 1 percent of Japan's total investment in Central and South America. MOF reported that new Japanese investment in Peru expanded by a factor of four in FY 1994; even so, the figure for that year was just $3.2 million — barely a drop in the bucket for an economy that pumped out more than $41 billion in foreign direct investment in the year through March 1995, with $5.2 billion-plus going into Latin America as a whole.

Total trade between Japan and Peru remains modest as well. The $841.2 million in two-way trade in 1995 was less than Japan's trade with every other major Latin American economy. According to the United Nations, trade with Japan accounted for less than 10 percent of Peru's total exports and imports in 1994 — far below the level of that country's exchange with the United States, for example.

The reality of Peru's relatively limited economic ties with Japan has prompted some observers to speculate that the guerrillas' decision to target a Japanese facility was sparked mainly by other, perhaps simpler, considerations. Some analysts point to the relatively lax security at the ambassador's residence. Many Japanese government facilities are famous for their loose approach to security; visitors can roam freely through the halls of most ministry buildings in Tokyo, for example. Although the embassy in Peru is thought to be one of Japan's most heavily guarded, the guerrillas may have chosen their target based simply on a calculus of the prospects for success — and timed the attack to coincide with a celebration sure to bring together a large number of prominent government and business leaders from home and overseas.

Other observers suggest that Japan's history of granting quick concessions in order to secure the release of hostages also may have added to the attractiveness of a Japanese target. In 1977, for example, Tokyo paid more that $6 million in ransom and freed a handful of jailed leftists in order to secure the release of passengers aboard a jetliner hijacked by the Japanese Red Army. Tupac Amaru leaders may have thought that they could extract similar concessions from Tokyo. In fact, rumors surfaced during the first days of the crisis that Tokyo was preparing to pay ransom in exchange for the release of the Japanese captives — a charge that government officials vigorously denied.

The current crisis is not the first time that Japanese interests have been targeted in Peru — a fact that no doubt adds to the perception that the hostage-taking represents in part an explicit attack on Japan. In July 1991, for example, leftist guerrillas shot and killed three Japanese aid workers during a raid in central Peru. Marxist guerrillas also attacked the Japanese embassy in December 1990 and again in April 1991 during a series of raids on foreign embassies. Those incidents prompted Tokyo to beef up security at the Lima facility and to warn visitors to exercise care while traveling in Peru.

Regardless of the attackers' true motives, the hostage situation is likely to contribute to an ongoing debate in Tokyo about Japan's foreign assistance program. Government officials insist that current aid policy toward Peru is unlikely to change. Nevertheless, combined with the small expected increase in the foreign aid budget for FY 1997 (see article in this issue) and continued international criticism of the Japanese program's focus on loans for large-scale economic infrastructure projects — as opposed to health, sanitation and other issues related to basic human needs — the crisis in Peru may add further momentum to a rethinking of Japan's primary contribution to world affairs. Despite the pride Tokyo displays in its stature as the world's largest aid donor, Japanese foreign assistance clearly is not universally welcomed in the developing world.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute.

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