Would-be investors eyeing Vietnam in the wake of improved U.S.-Hanoi relations should take a long hard look at the past five years. A trade agreement is clearly in the offing but what's missing is any sign that Hanoi is prepared or capable of weakening its control for the sake of economic reform. Trinh Do, a Bay Area based business executive, recently returned from three years in Vietnam working for a major American corporation. First of two perspectives.

WALNUT CREEK, CA -- News that Vietnam and the United States have agreed in principle on a trade accord is stirring renewed enthusiasm among American investors. But the lessons of the last five years should give them pause.

The day after the embargo against Vietnam was lifted in February 1994, Pepsi and Coca Cola rushed to open the Cola war in Vietnam. Many economists and journalists predicted Vietnam would become the next Asian tiger. Foreign investment poured in.

Three years later, the optimism had evaporated. By 1998, Vietnam was engulfed in a deep economic crisis. Foreign investment pledges -- which had peaked in 1996 at $8.6 billion -- will probably not exceed $500 million in 1999.

No American corporation has turned a profit in Vietnam since the lifting of the embargo. By the end of 1998, roughly half of American firms in Vietnam had shut their doors. The multinational companies that stayed put are in a holding strategy, hoping for a miracle.

The biggest miracle of all may be that, despite the Asian economic meltdown, pervasive corruption, excessive red tape, and an unpredictable legal system, so many observers remain so bullish. They argue that Vietnam has made remarkable progress since 1986, and that its 78 million people still have promising long-term potential.

What the optimists overestimate is the willingness and ability of Vietnam's communist rulers to implement much needed reforms. After taking a long hard look at authoritarian regimes in Taiwan, South Korea and Thailand, the old men of Hanoi have concluded that the richer and better educated their people become, the harder they will be to control. However much they may covet the fruits of economic success, they're unwilling to accept any loss of control.

In economic affairs, Vietnam has undertaken virtually no substantial reforms in recent years. In fact, from 1994 to 1997, most investors could only invest in Vietnam through joint ventures with state-run companies. Moreover, foreign investment companies were required to hire employees screened by government Labor Bureaus, enabling the government to approve only those candidates it considered most loyal.

Obsessed with control, Hanoi's rulers also refuse to replace aging party cadres with younger, more competent but possibly less loyal technocrats. This means that even if the will existed at the top for reform, there would be neither the talent nor the structure to implement it.

Those in charge of running the economy today are veteran revolutionaries, schooled in guerrilla warfare and political indoctrination rather than public administration or economic management. Much like the parochial mandarins of the 19th Century, they tend to make decisions for reasons of face or to enhance personal prestige rather than for the public good.

A doctor friend recently visited Vietnam and on his return expressed amazement over meeting the director of an impoverished hospital who bragged about a plan to start an invitro-fertilization program. I encountered much the same attitude during the three years I spent working in Vietnam.

Security organs are all pervasive, ready to detect the slightest subversive act. And since most business activities have to gain approval from all three levels of government, bribery is rampant. Given the miserably low official wages of Vietnam's civil servants, bribery is seen as a privilege of office. Until wages are raised, any attempts at reforming the bureaucracy are doomed to fail.

Thus, Vietnam's Communist rulers are caught in a vicious circle -- they cannot get more economic growth and foreign investment until they implement radical reforms. But they can't implement reforms unless they generate higher revenues to pay their bureaucrats a subsistence wage. That, in turn, won't happen without new economic growth. The result is they muddle through with indecision, while the economy slides into deeper crisis.

As Vietnam approaches the new millennium, three things are clear. First, Vietnam isn't likely to commit to significant reforms in the foreseeable future. Second, the current state of paralysis won't last forever. The banks are bankrupt, while the state owned enterprises continue to bleed the country's dwindling resources. Third, the state security apparatus' efficiency will continue to keep a lid on dissent. Most Vietnamese, cowed by decades of oppression, are content to hope for better days rather than risk prison by opposing the government.

The trade agreement with the U.S. is the best news Vietnam has had in three years. But It will be a very long time before the many foreign companies currently investing in Vietnam can turn a profit. New investors should think long and hard before plunking down significant cash.