BACK IN BUSINESS

By FRANK GIBNEY JR. HANOI PHOTOGRAPHS FOR TIME BY GREG DAVIS

AT THE END OF A MUDDY TRACK 25 MILES OUTSIDE Hanoi lies the Ba Chua Khoa Pagoda. There, one recent afternoon, stood a taxi driver imploring the goddess of the treasury to ward off bribe-hungry police; a woman who had ridden 120 miles on her motorcycle to get the goddess's blessing for a new karaoke bar; and Hoang Ngoc Dung, a budding real estate magnate. "I came here at the beginning of the year so I'd make a lot of money," said Dung, a former schoolteacher. Afterward "I invested $40,000 in a piece of land outside Hanoi and sold it 10 days later for $57,000. Not bad for a long-term investment, eh?" In thanksgiving, he heaved a pile of fake $100 bills and plastic coins into the offering fire, quickly stepping aside for the next supplicant.

When the war ended 20 years ago, neither business nor religion was high on Vietnam's list of priorities. Today both are thriving. "The spiritual change here is nothing short of amazing," says Bao Ninh, a prominent writer and war veteran from the North. "Fifteen years ago, we were very dogmatic. Now it is almost impossible as a writer to describe what is happening." From the border with China in the north to the rice mills of the Mekong Delta in the south, the California-size country is humming with activity. Hong Kong investors have been allowed to open a casino near Haiphong, and Westerners are bidding to develop tourist sites along the scenic coast between Danang and Nha Trang. Hanoi, long a city of bicycles and moldy old colonial edifices, is now rich in motorcycles and office buildings. In Ho Chi Minh City, as Saigon is now called, the April 30 parade marking the end of the war will be set against a landscape bristling with billboards and construction cranes.

Vietnam's parade route to prosperity, though, has taken a few detours. In April 1975, party leader Le Duan promised a television and a refrigerator in every home within 10 years. Instead, there followed what Vietnamese call "the 10 bad years," during which orthodox communist policies and a costly occupation of Cambodia made Vietnam one of the world's poorest countries. In 1986 Nguyen Van Linh, a southerner, took over with a call for gradual reform. In 1989, as communism seemed to be collapsing elsewhere in the world, Vietnam flung open its doors to foreign investment. The economy has been growing at an annual rate of 7% to 8% over the past three years. In February 1994, when the U.S. dropped its 19-year trade embargo, aid and investment began to flood in.

But even now, progress is uneven. Though Hanoi and Ho Chi Minh City are booming, rural Vietnam--where most of the country's 73 million people live--is largely destitute. Half of Vietnamese children suffer from chronic malnutrition. The country's remarkably high literacy levels-among communism's proudest accomplishments-have begun to decline, as teenagers race off to find jobs instead of staying in school. On a recent visit, Singapore's Senior Minister Lee Kuan Yew, a Hanoi favorite, complained that investment projects are "being held to ransom" by officials looking for payoffs. Harvard economist Dwight Perkins describes Vietnam as being in the "Twilight Zone," somewhere between a Stalinist command economy and a Western-style market economy, with only a hazy notion of how to complete the journey.

Fortunately for Vietnam, its entrepreneurs don't seem to be worrying about a map. Hoang Viet Dung runs Starlight Electronics, a prominent manufacturing and trading firm. In 1987, through old classmates at Hanoi's Polytechnic Institute, Dung took out a loan from friends and a Japanese bank whose name he can't recall offhand. "I predicted the situation would change in Vietnam, so I set up my own company," he says. First he rehabilitated used Japanese color televisions for sale in Vietnam. Then he began bartering Asian-made goods to Russia in return for spare parts he sold to the army. Now Starlight exports $6 million a year worth of consumer electronic goods. Dung's marketing tactics are imaginative: the televisions his blue-uniformed workers make in Hanoi are sold in Denmark with a MADE IN KOREA label. "Who would buy them if the box said MADE IN VIETNAM?" asks Dung. "We'll change it when we establish a name for ourselves." With some companies, at least, he already has a name: General Electric this year signed Starlight to distribute its appliances in Vietnam.

Many Vietnamese entrepreneurs wish there were more American companies to sign deals with. The U.S. is only Vietnam's 14th biggest investor, behind the likes of Taiwan, South Korea and Singapore. In January U.S. officials signed an agreement exchanging "liaison" offices with Hanoi, but full diplomatic ties are being held hostage by the tiny, vociferous POW/MIA lobby. Nonetheless, Mobil and Unocal are prospecting for oil, Chrysler and Ford want to build cars locally, and Citibank and Bank of America have just opened branches.

A visitor driving south on Highway 1 from Danang would find it hard to believe that barely a quarter-century ago the southern half of the country was crawling with Americans. Marble Mountain, from which the Viet Cong lobbed rockets at U.S. soldiers, is today a cluster of quiet souvenir shops and Buddhist pagodas. China Beach, the stunning stretch of sand where U.S. Marines landed in 1965, will be an R. and R. site yet again: BBI Investment Group of Chevy Chase, Maryland, plans to build a $243 million resort and golf complex there. At Chu Lai, once a sprawling U.S. military base, sea grass grows over the runways.

One of the most remarkable manifestations of Vietnam's renaissance is the Central Highlands, a third of which were turned from lush jungle into brown scrub by U.S. defoliants, napalm and 500-lb. bombs. In Pleiku, a gritty town with garbage-strewn streets, dozens of night schools teach English to would-be entrepreneurs. The flood of mineral prospectors, unemployed laborers and businessmen from Taiwan, Hong Kong and other Asian neighbors has also helped revive the town's oldest profession: the knock on the hotel-room door at 10 p.m. could be a special kind of room service. Vu Xuan Can, 56, moved to the area from the North in 1986 with nothing more than his bicycle. He landed a job and a tent at a new coffee plantation. Now he has two houses, a Sony TV and a Honda motorcycle.

Change is afoot beyond the material world too. The Catholic seminary in nearby Kontum is getting more new converts than at any time since the early 1970s. "The doors are opening," says one of the local bishops. "More people are going to church, and more can join." Just down the road in Buon Ma Thuot, hundreds of young people line up--girls on one side, boys on the other--in their Sunday best for the 4 p.m. "youth Mass."

Intellectual freedom is stirring as well. Vietnam now has three private universities, and Hanoi's new Internet access provider, NETNAM, has as much business as it can handle. Late last year, when Hanoi officials tried to ignore the killing of an innocent person by a policeman, hundreds demonstrated in front of the Hanoi People's Court. Amid name calling and rock throwing, they demanded--and the court eventually decreed--the policeman's execution. "Opinion may not be expressed openly," says a Hanoi writer. "But it's out there, and if the government doesn't pay attention, they know they'll have a problem."

Limits remain, though. The press is still tightly censored, and outspokenness is punished. Duong Thu Huong, whose 1988 novel Paradise of the Blind portrayed the communist system as exploitative and corrupt, spent six months in jail in 1991 and remains under surveillance. Two of the country's most prominent Buddhist prelates are in prison or under house arrest for political activities. Though many of the country's leaders are themselves Buddhists, they are determined to keep religion from undermining their authority.

That impulse to control is thwarting Vietnam's move to a market economy. The thriving Dak Lak provincial rubber company in Buon Ma Thuot is seeking $5 million from foreign investors to establish a small factory to make tires. "We are stuck," says Tran Le, deputy director of the company. "We have to get [provincial government] approval to spend $30. We have ambitious targets, but until we are independent, the foreign companies don't want to sign a deal." Rice farmers in the Mekong Delta, traditionally Vietnam's breadbasket, face a similar problem. In 1990 the government allowed them to sell on the open market, a move that helped make Vietnam the world's third largest rice exporter, behind the U.S. and Thailand. But rice is now deemed a strategic commodity and thus can be exported only through approved state companies, which profit by paying farmers less than the world prices.

The engine of change still has too many misfiring cylinders. Though provincial governments have been given more freedom, they haven't passed it on to entrepreneurs. Foreign investors are welcome, but corruption devours profits. Even longtime investors complain that the rules seem to keep shifting. Ho Chi Minh City's Export Processing Zone Authority lured foreign companies on the basis of proffered tax-free status--and then announced an 8% business tax. Economists warn that without a new round of reforms soon, Vietnam's progress will end. But the impressive gains so far may have made many officials overconfident. Boasts Vo Dai Luoc, director of the World Economy Institute, a think tank in Hanoi: "Always the outsiders predict we will fail. And always they are wrong."

For the bulk of Vietnam's population, though, reform is falling short. Urban residents may be better off than ever, but 51% of the country lives below the World Bank's 2,100-calories-a-day subsistence level. In metropolitan Hanoi, many seem to be able to afford $2,700 for a Honda Dream motorcycle. For peasants, dreaming is as close as they will ever get to that goal. Economic reform is removing them-as well as their urban countrymen-from the socialist dole for health care and education. The rural families can't afford to pay for health care, however, and many now keep their children at home to work the land. Peasants are beginning to pour into Hanoi, Danang and Ho Chi Minh City in search of work. Most don't find it. "Before, we launched a war against foreign aggressors," General Vo Nguyen Giap told Time. "Now we must launch a war against poverty."

The new war will also demand sacrifice and long-term commitment. Economists estimate that the country must grow at an annual rate of 8% for another decade to catch up with the rest of Southeast Asia. At the same time, inefficient industries must be closed and unneeded workers laid off. The country's infrastructure is virtually nonexistent. To reach Ho Chi Minh City from Can Tho, the heart of the Mekong Delta's rice and seafood region, requires two ferry crossings and more than five hours of driving on what is considered a good two-lane road. The distance is only 80 miles.

Despite the needs, those at the top do not seem clear on the proper course. In recent months critics have charged that conservative party leaders are blocking the reform process, as they begin to recognize that change may cost them--and family members--their sinecures. "A lot of people have dedicated their lives to getting us here," says Vo Tong Xuan, vice rector of Can Tho University. "We have to give them our respect, but not at the expense of the whole country." For Communist Party chief Do Muoi, 78, and Prime Minister Vo Van Kiet, 74, the question is how much communism they can get away with jettisoning. A recent internal party poll showed that 47% of the government's top bureaucrats would just as soon have some other system. But so far, no one knows what that might be. "The politburo keeps talking about evils like peaceful evolution [the gradual erosion of communist control]," says a party economist. "There is only one evil: low growth."

For his part, Kiet keeps enormous--some analysts say excessive--control over Vietnam's day-to-day affairs. Rather than focus on national policy, he often finds himself bogged down in local political issues. When a scandal erupted earlier this year over the illegal construction of homes on the crucial dike system protecting Hanoi from the Red River, Kiet had to step in and resolve it. "That's still better than the old days," says a Hanoi bureaucrat. "Then, if you were dying and needed a blood transfusion, you'd have to get Prime Minister Pham Van Dong to sign off." Vietnam's leaders surely know that central control will not work in a market economy--and that Vietnam's future depends on loosening up. Still, old habits die hard.

Nowhere is that problem more evident than in the country's attitude toward Ho Chi Minh City. Many southern revolutionaries who helped win the war felt cheated in the years following 1975, when Hanoi's hard-line communists almost fatally "reorganized" much of old Saigon's industrial and commercial base. Now the city is in the heat of a spectacular comeback. A third of both Vietnam's gdp and its central-government revenues come from Ho Chi Minh City's textile factories, shrimp-processing plants and other businesses. The city is a commercial and banking center, as well as the capital of Vietnam's burgeoning oil and gas industry, which generates most of the nation's export income. Dong Khoi (Uprising) Street, formerly Tu Do (Freedom) Street, formerly the Rue Catinat-perhaps Vietnam's most famous avenue-is newly lined with first-class restaurants and gracefully remodeled office buildings. Cholon, the Chinese commercial district, is thriving. Indeed, Vietnam's 1 million ethnic Chinese, long a persecuted minority, are responsible for much of the South's growth.

Ho Chi Minh City enjoys considerable administrative autonomy, but important decisions about its economy are still made in the North. The central government takes 80% of the city's annual tax revenues. Officials from Hanoi are assigned the top jobs at local state-owned factories and trading firms. Even the bulk of the city's electricity comes from the Hoa Binh Dam, 930 miles to the north. "The government can satisfy some demands, not all," says Peoples Council president Pham Tran Truc. "For example, we are not satisfied with the electricity supply . " At which point the lights in his office flicker out. A coincidence, to be sure. But Truc offers a wry smile when asked whether, just maybe, Hanoi had been reminding him who's boss. What the incident also illuminates is how those central bosses can still dim the nation's renewed industriousness.

--With reporting by William Dowell/Ho Chi Minh City and Tim Larimer/Hanoi

With reporting by WILLIAM DOWELL/HO CHI MINH CITY AND TIM LARIMER/HANOI