Clinton Cools to Ties With Hanoi

RECONCILIATION between Hanoi and Washington has been put off by President Clinton despite earlier signals from top aides that he might soon ease an economic embargo of Vietnam.

As a result, Hanoi officials expect that the United States will once again prevent the International Monetary Fund from giving crucial assistance to Vietnam at the IMF's semmiannual meeting April 28 and 29. Such aid, from both the IMF and the World Bank, is considered critical for Vietnam to reach economic growth rates that can keep pace with rapid population and unemployment increases.

"We need to double our [gross national product] by the year 2000," says Ha Huy Thong, a foreign ministry official. "We need capital, I mean big capital."

Clinton aides saw the IMF meeting as an opportunity to speed up normalization of ties with Vietnam by ending a US veto of IMF loans. But the opportunity appeared to have been lost when a suspect Russian document appeared April 11 that alleged Vietnam had more US prisoners-of-war than it claimed publicly in 1973.

While US officials generally discount the document as inaccurate, its effect on American public opinion is seen by Hanoi as accounting for Clinton's unexpectedly cool statements toward Vietnam in an April 23 press conference.

He criticized Hanoi for not yet providing a "complete, open, and unrestricted" commitment to resolving some 2,200 cases of US servicemen still listed as missing. The president may also have wanted to avoid appearing too easy on Vietnam because of his record of opposing the war and avoiding military service.

Under pressure to lift the embargo from prominent American businessmen close to the administration, Clinton confessed that he was much more heavily influenced by the "families of the people whose lives were lost there or whose lives remain in question than by the commercial interests and the other things which seem so compelling in this moment." Legislation imposing the embargo runs out in September, and Clinton will face the issue of whether to renew it or let it lapse.

If Vietnam does not gain IMF backing soon, it may not receive favorable attention this fall at meetings of its donor countries and the so-called Paris Club, which could reschedule Hanoi's $4.5 billion debt. Vietnam's role in Cambodia

Beyond the issue of those missing in action, the US is also maintaining the trade and aid embargo against Vietnam until after elections in Cambodia next month. Vietnam invaded its neighbor in 1979 to oust the Khmer Rouge and claims it withdrew its troops in 1989. But doubts persist on whether Hanoi might meddle in the May 24 vote.

Ironically, Clinton's statement came just hours before a celebration in Hanoi by the first US company to be licensed in Vietnam. Late last year, the Bush administration eased the US embargo by allowing US companies to set up offices and negotiate contracts in Vietnam, but not make money. Over 20 companies, from General Electric to General Motors, have applied.

The opening celebration of entrepreneur James Rockwell's small consulting business, known as Vatico, included fireworks and the unusual sight of American and Vietnamese flags flying together. (The US flag was stitched together in Hanoi). "Vietnam wants American companies to be the dominant players here," Mr. Rockwell says. "But in the meantime it has put together a free market without the help of the world's biggest economy and most generous country."

Fear of offending the US has prevented many non-American companies from setting up businesses in Vietnam. "The very large companies only come here to negotiate," says a Ministry of Heavy Industry official,"... they don't sign anything."

Vietnam's Communist Party began to embrace open markets in 1986 after it lost credibility among Vietnamese. Since then, it has floated the currency rate, opened up to foreign investment, allowed private enterprise, and followed most IMF requirements even without receiving IMF support.

France, Germany, and Japan are pressuring the US to unlock IMF support, and even offer to provide loans to help Vietnam pay off a $140 million debt to the fund.

Without IMF endorsement, Vietnam's banking system will continue to lack credibility to both foreign and domestic investors. "The Vietnamese people still do not have strong confidence in the banks, so they are just reinvesting their money in real estate," says Pham Chi Lan, head of the Vietnam Chamber of Commerce and Industry. "And we still lack a legal system to handle business disputes."

Even with the embargo, "Vietnam has survived well," says a top economic adviser to the Communist Party, Le Dang Doanh. Last year, the GNP grew 8.3 percent, inflation was dampened to 17.5 percent, and the currency actually rose 12 percent in value against the US dollar.

"The impact of lifting the embargo would be to increase direct investment and bring in foreign aid on infrastructure," Dr. Doanh says. Vietnam has reaped much of its foreign investment from its Asian neighbors, such as Taiwan and Singapore, and considers itself as the next little Asian "economic dragon." Population outstrips economy

With population growth at a high 2.1 percent, and with demobilization of some 600,000 soldiers, Vietnam needs at least 10 percent growth to increase average income, he adds. For the rest of the decade, the government plans to achieve an annual 7 percent growth, requiring about $3 billion a year in investments.

Vietnam still has remnants of Soviet-style central planning and party control over the economy, says the IMF representative in Hanoi, Erich Spitaller. It still must decide what to do with some 12,000 state enterprises of which only one-third can claim a profit.

A pilot project to open a stock exchange later this year in Ho Chi Minh City "may be a bit premature," says Mr. Doanh, because Vietnamese put more faith in family businesses than public enterprises.

Many foreign investors complain of having to do business with high party officials, who keep a tight hand on state enterprises. Even the IMF has had to negotiate directly with the party's central committee to find housing in Hanoi. "There is reason for hope, a hope for more change," Doanh says, "but it will be a difficult and painful process - with much sacrifice."