Japan Freezes $2.6 Billion in Aid for Iraq : Reaction: Tokyo also bans oil imports from Baghdad as well as financial transactions and trade.

By SAM JAMESON

Aug. 6, 1990 12 AM PT

TIMES STAFF WRITER

TOKYO — Japan froze $2.6 billion in promised economic aid to Iraq on Sunday and banned oil imports, financial transactions and Japanese trade with both Iraq and Kuwait.

The measures, which President Bush and 100 U.S. senators and Congress members Saturday had urged Japan to take in the wake of Iraq’s invasion of Kuwait, promise to cost this country not only 11% of its oil supply but also endanger the collection of more than 700 billion yen ($4.67 billion) worth of debts owed Japan by Iraq.

Japanese exports, which last year amounted to $1.2 billion to the two nations, also will be halted.

In morning trading today, the Tokyo Stock Exchange reacted strongly to the measures. The Nikkei average lost 3.7% of its value, plummeting 1,106.69 points to 28,409.07. The yen also fell 0.88 points to 150.23 yen to the dollar.

Only two days ago, when Japan enforced an unofficial freeze on Kuwait’s assets here to prevent them from falling into Iraqi hands, Prime Minister Toshiki Kaifu decided to wait until the U.N. Security Council approved sanctions against Iraq before Japan followed suit.

But Sunday night, Kaifu unexpectedly postponed his departure for a Hiroshima atomic bombing commemoration ceremony today and called in four of his Cabinet ministers to approve the sudden about-face.

Makato Watanabe, director of the Middle East and African Affairs Bureau of the Foreign Ministry, said the full Cabinet will approve the measures Tuesday. They will then be implemented after required procedures are taken, he said. The ban on oil imports, he added, will be enforced “within this week.”

Watanabe said sanctions approved by both the United States and the European nations served as “one factor” in the sudden speed-up of approval of the sanctions.

When Bush called him Saturday, Kaifu assured the President that Japan viewed the Iraqi invasion of Kuwait “from the same standpoint as the United States and other Western nations.” But he told Bush that Japan would approve its sanctions only after action by the U.N. Security Council.

The Security Council has not yet adopted sanctions.

In delivering the American senators’ letter to the Japanese Embassy on Saturday, Sen. Alphonse M. D’Amato (R-N.Y.) said he urged Japan “to stop this business of waiting to see what the world community does.” He also told reporters in Washington that “if they (the Japanese) deal in their own self-interest and aren’t willing to share in the burden (of boycotting Iraqi oil), I think that portends a very poor future for U.S.-Japanese relations.”

Despite the foot-dragging, the action represented a dramatic contrast with Japan’s response in two previous crises involving imports of oil upon which Japan relies for virtually all of its petroleum needs.

When all Arab nations imposed a boycott on shipments of oil to Japan in 1973, Japan angered the United States by adopting an unflinchingly pro-Arab policy that included an official threat to break diplomatic relations with Israel. And in 1979, when Iran seized U.S. diplomats as hostages, Japan remained neutral for five months and went on a buying spree of oil that helped drive up prices on the international market.

Only in April, 1980, did Japan finally side with the United States in the hostage dispute. Iran responded by cutting off its exports, which amounted to about the same 11% of Japan’s supply that will be endangered by Sunday’s decision.

The pro-Arab shift of 1973 marked the beginning of Japan’s governmental aid and commercial loans to Iraq that now have left Tokyo holding about $4.7 billion worth of claims on Baghdad. Watanabe said he could not disclose how much Iraq owed to the Japanese government and how much to private firms.

Kaifu called Bush on Sunday night to inform him that Japan had decided to act “with or without the passage of a (sanctions) resolution by the U.N. Security Council because of the urgency of the matter,” said Yukio Okamoto, a section chief in the Foreign Ministry’s North American Bureau. The prime minister also promised to support Bush “completely” in the President’s efforts to solve the crisis.

Bush, according to Okamoto, thanked Kaifu “for this prompt and thorough action . . . that will send a good signal to the rest of the world.”

Kaifu flew to Hiroshima early this morning to participate in the ceremony marking the 45th anniversary of the dropping of the first atomic bomb in the closing days of World War II.

A suspension of “investments, loans and other capital transactions” in the measures adopted Sunday night included a freeze on assets held in Japan by both Iraq and Kuwait. Japan also promised in a declaration issued in the name of Chief Cabinet Secretary Misoji Sakamoto to “faithfully implement” any additional sanctions that the Security Council might adopt.

In the statement, Japan declared that it “strongly condemns the invasion of Kuwait by Iraqi forces.” It urged Iraq to withdraw its troops immediately.

Watanabe said a stockpile of 142 days’ worth of petroleum will cushion the Japanese economy from any immediate impact. But if Japan is forced to forgo supplies of oil from both Iraq and Kuwait for a long period, “there may be repercussions,” he said.

“We can’t quantify the impact because we don’t know how long we will need to continue these measures,” Watanabe added.

After the Hiroshima ceremony, Kaifu, in a news conference, promised that the government will do its best to minimize the effect of the measures on daily life. But he also asked the people to cooperate by saving energy.