THE PACIFIC : Vietnam Risky for Investors, Report Says : Economics: Specialists caution that political and legal reforms are needed to protect property rights.

The likelihood that the U.S. government will soon lift its trade embargo against Vietnam has many eager American investors lining up for the door to open.

But a group of Vietnam specialists, who issued a report last week analyzing the state of Vietnam’s economy, its political structure and recent attempts at economic reform, said Vietnam is a long way from being a stable place to invest.

Although Vietnam’s communist government has introduced reforms intended to loosen restrictions on the centrally planned economy, the report prepared for the Rockville, Md.-based Pacific Basin Research Institute, said Vietnam does not have a political and legal system that guarantees protections for foreign investors.

The institute, described as a nonprofit research organization founded in 1990 by a group of Vietnamese and American academics concerned about Vietnam’s problems, also said in its report that Vietnam’s economy is in poor shape. Despite predictions that Vietnam will be the next Asian growth “tiger,” the report said, the economy has been in constant turmoil since the end of the war in 1975 and the country remains one of the world’s poorest, with annual per-capita income of less than $200.

Even with economic reforms implemented by the government, “the private sector cannot develop without the state’s full recognition and protection of private property rights,” the institute’s report states.

Foreign-owned private companies that currently operate in Vietnam under temporary visas can be shut down at any time depending on the mood of the authorities there, Bui Diem, executive director of the institute, said at a Los Angeles conference.

“Right now, Vietnam has great potential, but much remains to be done before it can make a successful transition to a free economy and a stable civil society,” said Diem, who was a member of the defunct government of South Vietnam, including serving a stint as ambassador to the United States.

“There is no independent legal system there that can guarantee rights,” said Mai Cong, president of the Vietnamese Community of Orange County. Because of the sluggish economy in the United States, many Vietnamese Americans are pursuing investments in Vietnam, she said, but many have been cheated by authorities and had their goods confiscated.

“Vietnam is still a communist country,” said fellow institute member Ton That Thien, an economics professor at the University of Quebec and former South Vietnam official. “We believe the transition to a market economy can happen, but it (will) take the willingness of the ruling party to begin long-term planning.”

In December, 1986, prompted by a failing economy, Vietnam’s Congress initiated an economic renovation program, which included measures designed to remove price controls on most basic commodities, expand management autonomy at state-owned companies, loosen restrictions on agriculture and promote foreign investment.

But minimal gains from the program and a recent power struggle between reformists and the ruling conservative communists have stagnated Vietnam’s economy and led to political corruption, according to the Pacific Basin report.

If President Clinton lifts the U.S. embargo next year, Diem said, foreign investors should prepare to work in a volatile atmosphere.

Clinton decided against lifting the ban when it expired in September, citing unresolved issues over the still unaccounted for U.S. servicemen killed or taken prisoner during the war. But he eased the ban by allowing U.S. businesses to participate in projects funded by international lending institutions such as the World Bank. Earlier, the Bush Administration had allowed U.S. firms to open representative offices in Vietnam and bid on future projects.

In order to make Vietnam a more fertile ground for business, the government there must continue to implement market-style reforms and develop a democracy to entice investors, Diem said.

The report identified Vietnam’s problems and outlines short, intermediate and long-term “broad-based and realistic programs of economic and political reform.”

The report said the government should increase imports, revamp the “poorly managed and non-productive” state sector and take steps to bring down its burgeoning budget deficit and the high rate of inflation.

Politically, the report calls for establishing a democratic framework to protect the rights of Vietnam’s 71 million citizens and foreign investors.

Some members of the institute said that to help Vietnam turn toward a market economy, the country needs more outside aid from the United States and elsewhere to replace the aid lost when the Soviet Bloc broke up. According to the report, Vietnam has attracted only a modest $920 million in foreign investment since 1990.

Institute member Sol W. Sanders, a consultant to American businesses and foundations, said in addition to outside aid, Vietnam needs expert advice on how to carry out economic reform.

“The change in economy has to be handled by experts,” he said. Sanders said the institute’s report, and a book-length study on which the report was based, will be submitted to Vietnamese officials.